Friday, October 5, 2012

Today's Unemployment Farce

It wouldn't be election season, would it?

Today's unemployment report is so clearly a farce that it doesn't deserve any mention, but it is still today's market mover. So far, as the news and data is sliced and diced, stocks have given back about 75% of the initial gains. 

from Zero Hedge
We already noted the absolutely stunning surge in reported Household Survey jobs which "added" 873,000 jobs, or the most since 2003 and the second most in the past decade, which was just a little bit off the Household Survey used in the monthly NFP jobs changes, which came at 114,000, or about 8 times less. But what was the reason for this epic jump in Household survey jobs? Simple, and those who have read our series on America's transition to a part-time worker society know the answer. The reason is that the number of part-time people employed for economic reasons soared by 582,000 to 8,613,000, the most since October 2011, and the largest one month jump since February 2009, when "restoring" confidence in the economy was all the rage... and just before the Fed announced the full blown QE1 in March of 2009. Odd symmetry.

Here's a peculiar statistical aberration:
  • Household Survey people employed: +873,000 (source)
  • Part-time jobs for economic reasons: +582,000 (source)
-> 582,000 divided by 873,000 = 0.666666666666*
Aka: precisely two thirds. Whatever are the odds...

Thursday, October 4, 2012

Stock Market Volume Explodes

The Klinger Volume indicator is exploding the last couple of days. See the circled are in the lower panel of this chart. If the Fed is funneling money to the big banks, who are funneling those funds into their own stocks (financials) and commodities, then this is highly inflationary!

Is the Fed trying to manipulate stocks higher to get Obama reelected, or are private investors feeling more confident after Romney's performance in the debates last night. The fact that they are buying "materials, energies, and financials" is evidence of the first scenario!

Of course, with the jobs report tomorrow, anything could happen, but clearly, Wall St is anticipating good news tomorrow morning.

Commodity Prices Push Stocks Higher

Note what KIND of stocks are higher -- materials (ie., commodities), energies, and the financials -- those that push the Fed monetary largesse around! This spells higher inflation, not greater prosperity!

Did Stock Futures Rise Because Romney Won the Debate?

I couldn't help noting that stock futures rose suddenly and sharply last night immediately during and following the Presidential debate between Mitt Romney and Barack Obama. What struck me was the odd hour -- between 8 and 10 pm Mountain Time -- that it occurred.

Why is this such an odd hour? Because at 10 here in Utah, the East coast of the US is already asleep (midnight), and it is still just 5 am in London, when most Europeans are still in bed. Both of North America and Europe are still asleep. Asia is awake, but the market movers in Asia usually occur earlier in the evening, around 6 pm here.

Thus, market movers at 10 pm are very rare. Perhaps the market was reacting to the perception that Romney handily won the debate, even in the eyes of left-wing pundits! Perhaps the market is reacting to the shift in momentum that this is likely to create in the presidential race, and a likely surge for Romney in polls!

Wednesday, October 3, 2012

Tuesday, October 2, 2012

Inflation Surges Across Developed World

Deficit Rose In FY 2012

This quote, in Dr. John Hussman's weekly market commentary, seemed particularly apropos to this thread (emphasis mine):

"Here in the U.S., the federal government is running a deficit approaching 10% of GDP despite suppressed interest costs. If addressing that deficit was just a political issue of doing the “right thing,” what would that right thing be? With total federal revenues at $2.3 trillion last year, and spending at $3.7 trillion, the gap itself represents more than half of total revenues and more than a third of total spending. That gap will not be closed even if lawmakers were to agree to an immediate repeal of the Bush tax cuts in their entirety. Assuming that all of the desired revenue actually showed up, the bump to revenues would only be about $100 billion a year - reducing the deficit by less than one-tenth. In the event of a recession (which we believe is already in progress), the increase in government debt - merely as a passive cyclical response to economic weakness – would swamp that effect even if all the tax cuts were repealed. Likewise, even in the current budget, less than $1.3 trillion represents discretionary spending that is negotiated between the President and Congress. The other spending represents mandatory outlays for Social Security, Medicare, military retirement, and so forth. Well over half of discretionary spending represents military spending. To balance the budget with spending cuts, Congress would have to wipe out discretionary spending altogether, including military outlays. Observers who believe that the fiscal cliff is simply a matter of political disagreement have vastly underestimated the depth of the challenges here."

Let the magnitude of that sink in! Think, for example, of the implications of the fact that our deficit is now equal to more than HALF of all revenues. If the politicians were serious about closing our deficits, they would have to nearly DOUBLE the income tax not merely on the wealthy, but on EVERYONE -- overnight! Are you willing to double your tax payments in order to sustain this level of spending? The whole "tax the rich" mantra is nothing but a useless ruse to distract us from an approaching disaster! It wouldn't make enough dent in our deficit to significantly reduce our debt accumulation or to stave of an economic disaster! Unfortunately, even the election of someone with the experience and economic know-how of Mitt Romney may not be able to save us from a rapidly-approaching day of economic reckoning! Still, I'd rather see him in the White House than the charlatan and master of beguilement and legerdemain who is there now!

Another important point Hussman makes:
Imagine that, folks! In our current state of affairs, entitlements are considered by politicians to be mandatory outlays, while defense and our military are considered to be "discretionary spending". How truly twisted is that? How ironic that the only one that is authorized in our Constitution as required is the spending for national defense, but the only item the politicians consider to be "mandatory" is entitlements. If that isn't an indicator of how topsy turvy things are in Washington, I don't know what is!

The point, of course, of Dr. Hussman's discussion about the magnitude of our debt and our "deficit gap" is that we are on an unsustainable path even in the short-term! I want to puke every time I hear someone say, "we're leveraging the future of our children and grandchildren", because it creates the false impression that this "day of reckoning" is one that is still perhaps decades away. It's not! We are very likely facing a calamity that would rival those stories in the Old Testament within the next 4-year presidential cycle -- NOT during the lifetimes of the young and not-yet-born! If we think we can evade having to deal with this crisis by kicking the can for a decade or two with the attitude that "as long as I get mine, what do I care?", then we are soon going to experience a very rude awakening to that mindset of lethargy and complacency!

You can read all of Dr. Hussman's weekly commentary by clicking on this sentence. It's worth the time it takes to read it! I consider it a must read every Monday morning! He is one of the leading economic writers and theoreticians living today. He studied with some of the best! He now runs a series of mutual funds. He's no mere ivory tower academic! (Did you read that, "Dr." Bernanke?)

Dr. Hussman, by the way, has also commented in recent months about the magnitude of inflation headed our way if the Bernanke Fed doesn't unwind its debt monetization scheme. He uses mathematical formulas to compute the kind of inflation that will ensue if the Fed doesn't "undo" what it has done before the velocity of money spikes. He estimated BEFORE the recent "QE to infinity" announcement by the Fed (a couple of weeks ago) that an inflation rate of 30+% would result from the Fed's QE1, QE2, and Operation Twist. Imagine the consequences of inflation of that magnitude! And Bernanke has only doubled down since!

If Bernanke thought he could fight that kind of inflation by raising interest rates to a level necessary, he would bankrupt the US Treasury with the interest costs on all of our debt! When we hit this debt brick wall within the next couple of years, it will impact every living American in ways that are both unimaginable and incalculable. We had best prepare ourselves! This brick wall may very well usher in what, in our future, we might very well refer to as the GREATER Depression, putting it into perspective with what Mr. Bernanke considers to be his special realm of study, what we have all come to know as the earlier "Great" Depression of the 1930s and 1940s!

Monday, October 1, 2012

Sentiment Improves Despite Tanking Economic Numbers

And of course, stocks are higher!

Sunday, September 30, 2012

Cocoa Too!

NEW YORK/LONDON: US cocoa futures marked their biggest quarterly jump in three years on Friday, capping a volatile session that lifted the market a lofty $95 within the first minute of trade, while raw sugar was on track to finish the third quarter down 10 percent.

The price of cocoa has been up all summer, and this only makes matters worse!

Grains Post Broad Gains on Short Supply

CHICAGO: US corn futures surged by the daily trading limit on Friday, adding 5.6 percent after the government said end-of-season stocks fell by a greater-than-anticipated 12 percent from a year ago, dipping below 1 billion bushels for the first time in 8 years.
Wheat futures jumped more than 4 percent, the strongest gain in 2-1/2 months, as the US Department of Agriculture said Sept. 1 stocks declined year-on-year, counter to trade expectations for an increase.
Soybeans followed corn higher, although gains in nearby contracts were tempered by a smaller-than-expected drop in ending stocks.
"The (ending stocks) number was bullish for the corn market, it was at the low end of estimates," said Sterling Smith, futures specialist for Citigroup.
"A sub-one-billion (bushel) number is enough to get the market nervous. Combine that with the market getting oversold the past month and it's leading to pretty good gains," he said.
The US corn stockpile was 11 percent below analysts' expectations at 988 million bushels, USDA said on Friday in a surprising report that presaged razor-thin supplies for the third year in a row.
USDA also said its survey of farmers and warehouses showed the soybean stockpile at the Sept 1 start of this marketing year was 29 percent, or 38 million bushels, larger than what traders had expected.
Wheat stocks also were surprisingly low, coming in eight percent below trade estimates.
"(Corn) feed use in the fourth quarter was bigger than people had thought so we're going to hear talk that we're going to do a better job of rationing in the feed sector. That's not so easy to do," Said Don Roose, president of US Commodities.
December corn futures on the Chicago Board of Trade surged 40 cents, or 5.6 percent, to $7.56-1/4 a bushel by 10:29 a.m. CDT (1429 GMT) after dipping to a three-month low of $7.05 before the report. It was the steepest rally for a spot month contract since July 5.
Corn futures were on pace for the first weekly gains in four weeks.
CBOT December wheat climbed 40 cents to $8.95-1/2 a bushel, a 4.7 percent gain that was the largest for a front-month contract since July 16.
November soybeans were up 6-1/2 cents, or 0.4 percent, at $15.77-1/4 a bushel. Still, the front-month soybean contract was poised for their second consecutive weekly decline and the steepest two-week drop in nearly a year.
Copyright Reuters, 2012

Feeder Cattle Limit Down

Cattle ended limit down because much higher prices for corn will result in ranchers slaughtering their cattle instead of feeding them. This short-term phenomena will ultimately result in smaller herds and even higher prices by early next year.

from Business Recorder:
CHICAGO: CME feeder cattle plunged by their 3-cent daily trading limit on Friday after corn stocks forecasts from the US Department of Agriculture came in short of expectations, driving corn prices up their 40-cent per bushel limit while boosting feed input costs, analysts and traders said.

Good Summary of Friday's Markets

from Investor's Business Daily:

Gold and silver prices dipped Friday as the dollar strengthened against global currencies on safe-haven buying that followed disappointing U.S. consumer sentiment and purchasing managers data. An economist warns a recession could lead to a meltdown in precious metals despite all the bullishness from global stimulus programs.
Spot gold prices shed 0.23% to $1774 an ounce intraday. During the quarter, it reached its highest price of 2012 and came within six percentage points of its all-time nominal high from 12 months ago.
This month Prestige Economics of Austin, Texas, raised its 2012 price target on the yellow metal to $1,684 an ounce from $1,649 per ounce. It also raised its 2013 target to $1,900 from $1,750 an ounce.
"The introduction of the European Central Bank's Outright Monetary Transactions (OMT) and the implementation of the Federal Reserve's quantitative easing ad infinitum greatly improved the prospects that our forecast of dollar weakness will come to fruition at a swift pace," Jason Schenker, president of Prestige wrote in his latest monthly outlook released Friday. "The downside risks to gold prices have been greatly reduced now that the Fed is on an endless buying spree of mortgage-backed securities (MBS)."
Gold prices are rising on expectations that central banks pumping up global money supply will spark inflation. The U.S. and European stimulus programs led to a domino effect at central banks around the world.
Japan and China have started their quantitative easing. India and Brazil lowered interest rates to spur growth. Singapore says it's ready to take action if needed.
"We have a global currency war where everyone is trying to devalue their currencies. In that case the only real currency is gold or silver," said Matthew Tuttle of Tuttle Wealth Management in Stamford, Conn. with about $100 million in assets.
Central banks in Russia, China, India and other countries are buying gold to diversify their reserves. Political conflict, such as that between China and Japan and in the Middle East, has also traditionally been positive for gold.
Why Gold Could Lose Its Luster
The Fed's newly created trillions are parked in bond portfolios at banks instead of being lent out as intended, says John Browne, senior economic consultant to Euro Pacific Capital in Westport, Conn. The newly printed money isn't fueling inflation as gold buyers expect. And if the U.S. goes into a recession, gold investors may sell their gold to raise cash and meet margin calls ignited by falling stock prices.
"In recessions, cash becomes increasingly scarce and real assets, including commodities, fall in price," Browne wrote in a client note. "As a commodity, gold should fall in price as recession becomes manifest."
"The possibility is rising of a worldwide recession, which normally tends to push down asset prices, particularly for stocks dependent on corporate earnings," he added.
PowerShares DB US Dollar Index Bullish (UUP), measuring the dollar against a basket of foreign currencies, rose inched up 0.39% to 21.90 Friday. It shed 1.8% in September and fell 2.5% for third quarter.
SPDR Gold Shares (GLD) shed 0.69% to 171.64 Friday. It climbed 4.5% in September and 10.6% for the quarter.
Market Vectors Gold Miners ETF (GDX) fell 0.20% to 53.68. GDX surged 12% in September and 20% in Q3.
Silver Prices
Spot silver prices fell 0.38% to $34.63 an ounce.
Schenker projects silver prices will average $31 an ounce in 2012 and $34.50 in 2013.
IShares Silver Trust (SLV) gave back 0.28% to 33.30 on Friday. It added 8.2% for the month and a robust 25% for the quarter.
Global X Silver Miners ETF (SIL) let up 0.14% to 24.93. SIL returned 16.3% in September and a whopping 34% in the third quarter.
Mutual funds specializing in gold and precious metals absorbed more than 90% of the $1.6 billion that flowed into commodity sector funds last week on fears that global stimulus programs will erode the value of fiat currencies, according to EPFR Global.
Economic Releases
The Institute for Supply Management-Chicago said its business barometer fell to 49.7 from 53 in August. Economists expected a reading of 52.8. It dropped for the first time in three years, signaling contraction. Readings below 50 mean contraction, and readings above it mean expansion.
The Thomson Reuters/University of Michigan Consumer Sentiment Index rose to 78.3 this month from 74.3 in August. Economists projected a reading of 79.

Natural Gas Is Rising Sharply Too!

Price of Gasoline Surges

This is the price of gasoline for one week.

Dairy Prices Skyrocketing

The cost of feeding dairy cattle is skyrocketing, and so are dairy futures. This is the price of Class III milk futures since April. Ouch!

Grain Prices Leap On Sorry USDA Report; Food Prices to Follow!

CHICAGO (AP) — Grains futures rose Friday on the Chicago Board of Trade.
Wheat for December delivery jumped 47 cents to $9.0250 a bushel; December corn rose 40 cents to $7.5625 a bushel; December oats rose 2.25 cents to $3.7050 a bushel; while November soybeans rose 30.25 cents to $16.01 a bushel.