Empire Manufacturing Disappoints Market, Too!

But stocks are positive again. I won't touch this market as long as Wall Street continues to ignore all the horrific economic data. 

from Zero Hedge:


So much for the Empire Manufacturing index being a harbinger of an economic pick up. With virtually everyone on Wall Street expecting a positive print, with the average at +5.00, the actual number of -3.76 comes as yet another confirmation of the (f)utility of Wall Street groupthink. While it was a modest bounce from the June -7.79, this first July manufacturing indication, which coming negative means the contraction is now well into its second month, and has ugly undertones for Q3 GDP, which we expect most banks will revise their expectations lower in the aftermath of yesterday's JPM downgrade of the US economy. And while there was some good margin news with Prices Paid dropping by 13, or more than Prices Received which declined by 6 points, a far more troubling indicator this month is the collapse in the Number of Employees Index to 1.11 from 10.20, or the lowest of 2011. This is not good for July NFP numbers after the already atrocious June employment data. Elsewhere on the inflationary front, CPI missed expectations of a -0.1% drop, instead printing at -0.2%, the lowest since June 2010. The reason was the 4.4% plunge in the Energy Index, the largest drop since December 2008. That said, the core CPI was unchanged at 0.3%, higher than expectations of 0.2%, due to increases in prices for shelter, apparel, new vehicle, used cars and trucks and medical care. In other words: all the things that people need right after food and gas. We would venture to guess that in addition to S&P < 1,000, core CPI coming in negative is the other QE3 gating factor.

Still More Bad News

Stocks just went negative!

Ugly Day for Trading!

from Zero Hedge:

Today's bad economic data trifecta is complete, with the UMichigan consumer confidence number plummeting to 63.8 from 71.5, and well below consensus of 72.2. The number is far below the lowest Wall Street prediction of 68 (upper end of range was 75) and the worst since March 2009. The good thing for the Fed's QE3 plans is that high future inflation expectations are getting unanchored, with 1 year expectations down from 3.8% to 3.4%, and 5 Year down to 2.8% from 3.0%. A little lower and it will be just right.

h/t John Lohman

Gold Is Money

And this, during the season of the year when gold is historically weak.

by Ambrose Evans-Pritchard of UK Telegraph:

As the twin pillars of international monetary system threaten to come tumbling down in unison, gold has reclaimed its ancient status as the anchor of stability. The spot price surged to an all-time high of $1,594 an ounce in London, lifting silver to $39 in its train. 

On one side of the Atlantic, the eurozone debt crisis has spread to the countries that may be too big to save - Spain and Italy - though RBS thinks a €3.5 trillion rescue fund would ensure survival of Europe's currency union.

On the other side, the recovery has sputtered out and the printing presses are being oiled again. Brinkmanship between the Congress and the White House over the US debt ceiling has compelled Moody's to warn of a "very small but rising risk" that the world's paramount power may default within two weeks. "The unthinkable is now thinkable," said Ross Norman, director of thebulliondesk.com.

Fed chair Ben Bernanke confessed to Congress that growth has failed to gain traction. "Deflationary risks might re-emerge, implying a need for additional policy support," he said.

The bar to QE3 - yet more bond purchases - is even lower than markets had thought. The new intake of hard-money men on the voting committee has not shifted Fed thinking, despite global anger at dollar debasement under QE2.

Fuelling the blaze, the emerging powers of Asia are almost all running uber-loose monetary policies. Most have negative real interest rates that push citizens out of bank accounts and into gold, or property. China is an arch-inflater. Prices are rising at 6.4pc, yet the one-year deposit rate is just 3.5pc. India's central bank is far behind the curve.

"It is very scary: the flight to gold is accelerating at a faster and faster speed," said Peter Hambro, chairman of Britain's biggest pure gold listing Petropavlovsk.
"One of the big US banks texted me today to say that if QE3 actually happens, we could see gold at $5,000 and silver at $1,000. I feel terribly sorry for anybody on fixed incomes tied to a fiat currency because they are not going to be able to buy things with that paper money."
China, Russia, Brazil, India, the Mid-East petro-powers have diversified their $7 trillion reserves into euros over the last decade to limit dollar exposure. As Europe's monetary union itself faces an existential crisis, there is no other safe-haven currency able to absorb the flows. The Swiss franc, Canada's loonie, the Aussie, and Korea's won are too small.
"There is no depth of market in these other currencies, so gold is the obvious play," said Neil Mellor from BNY Mellon. Western central banks (though not the US, Germany, or Italy) sold much of their gold at the depths of the bear market a decade ago. The Bank of England wins the booby prize for selling into the bottom at €254 an ounce on Gordon Brown's orders in 1999. But Russia, China, India, the Gulf states, the Philippines, and Kazakhstan have been buying.
China is coy, revealing purchases with a long delay. It has admitted to doubling its gold reserves to 1,054 tonnes or $54bn. This is just a tiny sliver of its $3.2 trillion reserves. China's Chamber of Commerce said this should be raised eightfold to 8,000 tonnes.
Xia Bin, an adviser to China's central bank, said in June that the country's reserve strategy needs an "urgent" overhaul. Instead of buying paper IOU's from a prostrate West, China should invest in strategic assets and accumulate gold by "buying the dips".
Step by step, the world is edging towards a revived Gold Standard as it becomes clearer that Japan and the West have reached debt saturation. World Bank chief Robert Zoellick said it was time to "consider employing gold as an international reference point." The Swiss parliament is to hold hearings on a parallel "Gold Franc". Utah has recognised gold as legal tender for tax payments.
A new Gold Standard would probably be based on a variant of the 'Bancor' proposed by Keynes in the late 1940s. This was a basket of 30 commodities intended to be less deflationary than pure gold, which had compounded in the Great Depression. The idea was revived by China's central bank chief Zhou Xiaochuan two years ago as a way of curbing the "credit-based" excess.
Mr Bernanke himself was grilled by Congress this week on the role of gold. Why do people by gold? "As protection against of what we call tail risks: really, really bad outcomes," he replied.
Indeed.

 

What IS This? A Yo-Yo?

The previous plunge, and now this, all within five minutes. Time to sit back and wait for stability to return.

Plunge!

Poor Economic Data Ignored (As Usual) By Wall Street

Market chopping higher today!

from CNBC:

"We are getting a very, very sharp rebound in core inflation and much more than the Fed had bargained for. We will be at price stability and possibly through it before the end of this year," said Eric Green, chief economist at TD Securities in New York.

A separate report showed a gauge of manufacturing in New York State fell again in July. The New York Federal Reserve said its "Empire State" general business conditions index was at minus 3.76 from minus 7.79 in June.

High inflation, driven by strong energy and food prices, undermined economic activity in first quarter, with growth slowing sharply to a 1.9 percent annual rate after a brisk 3.1 percent expansion in the final three months of 2010.

QE3 Guaranteed to Fail

by John Defeo
NEW YORK (TheStreet) -- Whether or not the Federal Reserve opts to make more large-scale asset purchases (colloquially referred to as "QE3") remains to be seen -- but I suspect that Ben Bernanke himself is beginning to realize that QE3 is guaranteed to fail.
Bernanke told Congress on Wednesday that the Fed is ready to provide additional monetary stimulus should the U.S. see adverse economic developments. On Thursday, Bernanke qualified his statement, saying that the Fed is "not prepared at this point to take further action."
Let's analyze the situation:

So What Exactly is Quantitative Easing, Anyway?

Quantitative easing is when the United States' central bank, the Federal Reserve, buys U.S. Treasury bonds.

• Treasury bonds are a future obligation of the United States, paid out with Federal Reserve notes (dollars).
• Federal Reserve notes are a current obligation of the United States, redeemable for goods and services.

If the Federal Reserve purchases bonds directly from the United States Treasury, they are exchanging dollars (current obligations) for future obligations. This is inflationary if the amount of obligations (money) is increasing faster that the amount of capital (goods, services, products and ideas).
However -- the Federal Reserve doesn't buy bonds from the Treasury, it buys them from "primary dealers." Primary dealers are a network of banks (including Goldman Sachs(GS), JPMorgan Chase(JPM) and Citigroup(C)) that are obligated to buy bonds from the U.S. and serve as a trading partner with the Federal Reserve.
The triangular relationship between the U.S. Treasury, Federal Reserve and major banks can be a head-scratcher -- but make no mistake, this relationship is making some people rich (we'll touch on this point later).

Criteria for the [Long Term] Success of Quantitative Easing

1. If banks are facing a liquidity crisis -- and because of this fact -- are unwilling to lend to qualified borrowers.
2. If qualified borrowers want to borrow money -- and most importantly, are willing to invest in entrepreneurial ideas that will provide a return on invested capital.

Quantitative easing could hypothetically improve the U.S. economy, for the long term, if both of the above criteria are met. Unfortunately, this is not the reality of our situation.
Thanks to taxpayer-funded bailouts and the first two rounds of quantitative easing, major U.S. banks are adequately reserved (in other words, they are liquid). The problem lies in point No. 2: Statements from major banks suggests a drought of qualified borrowers.
Creditworthy individuals (however small this segment of the population might be) are not borrowing. We can blame the uncertainty of tax policies, the staggering unemployment figures or the overall fragility of the economy. But at the end of the day, creditworthy individuals aren't borrowing.
The banks don't need further reserves -- the people need confidence. And confidence comes from the leadership, foresight and conviction from our elected officials, not the Federal Reserve.

Is Quantitative Easing Helping Anyone?

Yes, unfortunately.
Quantitative easing is providing major banks with arbitrage opportunities (risk-free trading profits). Goldman Sachs can buy a bond from the Treasury on Monday and sell it to the Federal Reserve on Tuesday (at a profit) -- the blog ZeroHedge has named this game "Flip That Bond."
Quantitative easing is also helping elected officials shirk their duties to the American public -- in a sense, enabling politicians to spend money the country does not have (or make good on promises that should be broken). Forbes' William Baldwin illustrates this concept beautifully.
"The government wants to spend $1,000 it doesn't have. So it sells a bond. The [ultimate] buyer is the Federal Reserve. The Fed pays for the bond with some folding money. The Treasury spends the $1,000 on farm subsidies or whatever.
The Fed makes a show of treating the $1,000 bond as an investment. It collects $40 in interest from the Treasury. But this is a charade. The Fed declares the $40 (after some overhead costs) as profit and sends the profit right back to Treasury. In reality, the interest payment never left the Treasury building.
When the dust settles, this is what has happened. The farmer has $1,000 of cash. The government did not get this cash by collecting taxes. It got the cash by creating it."

Has Quantitative Easing Ever Been Tried Before? If So, Has It Worked?

Yes -- and to the second question, I don't see any evidence it has worked.
In 1961, the Fed embarked on a similar strategy known as "Operation Twist." But Twist was dismissed as a failure by most, while others blamed the lack of efficacy on the small scale of the operation.
Quantitative easing was attempted again -- on a larger scale -- by Japan in 2001. More than a decade later, Japan has not escaped its problems, and Masaaki Shirakawa, governor of the Bank of Japan, stated that if "short-term stimulative policy measures" are the only cure, then "[policy makers] face a risk of writing the wrong policy prescription."
Unfortunately, some prominent U.S. economists (notably, Larry Summers and Paul Krugman) don't view this history as a cautionary tale, instead suggesting that stimulus only fails when enough of it wasn't done. To this point, I wholeheartedly agree with Mike "Mish" Shedlock's statement, "The disgusting state of affairs is that bureaucratic fools in the EU, US and everywhere else, all believe the cure is the same as the disease if only done in big enough size."

What's the Worst Case Scenario for the Economy

The worst-case scenario is that the nation's banks, under political pressure to lend (see Masaaki Shirakawa's statement above), begin making loans to corporations and individuals that are not creditworthy. Of course, this is exactly how the financial crisis came to fruition, and like before, will end in tears for the greater American public.

Is Ben Bernanke the Problem

I do not think Ben Bernanke is evil or stupid (nor do I think he is insane), rather, I prefer to think of him as a kindly-yet-timid doctor prescribing an obese patient antidepressants. The doctor knows that only the patient can solve the patient's problems, but the doctor lacks the courage to tell the patient, "Go on a diet, get some exercise and get the hell out of my office!"
--Written by John DeFeo in New York City

Retail "Snails" Sink Stocks

Jobless claims, over 400,000 for 14 consecutive weeks, didn't help either. We're now near the lows of the day, with the Dow down about 70 points. The brief rally, shown above, was a false rumor that a debt deal had been reached. Tirades and tantrums were the order of the day yesterday from the Teleprompter Tyrant! 

WASHINGTON (AP) — U.S. businesses added to their stockpiles for a 17th consecutive month in May. But sales fell for the first time in nearly a year, a sign that many companies could be forced to trim supply levels if the economy weakens.

Business supply levels grew 1 percent in May, the Commerce Department said Thursday. Sales fell for the first time in 11 months. It was the worst showing for sales since June of last year.

Phase 2 of Crisis: Era of Broken Promises

This graph had the comment shown following:

Phase 2 of the crisis:  "Broken Promises".  Where everyone is awakening to the fact that all of the promises made implictly (through fiat currency, a claim on future wealth), or explicitly (e.g. medicare, social security), are seen to be in conflict.  Not all promises will come true, so whose promise will be kept.
It will gradually dawn on everyone that none of the promises will be kept.
There will be great disillusionment at all levels of every society, globally.  If there's one thing you can do, beyond helping yourself and others, it's to help others deal with the grief of a dead illusion.  Beyond starving, that will be one of the hardest things for people to bear. -- comment by commenter Fiat2Zero on Zero Hedge

The Price of Rice

Rice was limit up today:

And from the daily chart, it isn't the first time in recent days:

Rice is becoming very expensive!

Dow Relinquishes All But 20 Points of 160-Point Gain

Wow! What a reversal today! If there was a full POMO, this would never have happened! This is far more typical of historical patterns. We are definitely climbing a new wall of worry. This is my favorite type of trading, because I can make money trading both directions.

Typical Bernanke Reversal

As is typical for any time that the Fed Chairman opens his mouth, the market has now completely reversed the impact of his words today. The large green candle at the top left of this chart is the market's reaction to his prepared statement. It is typical for the market to completely reverse the impact of Bernanke's remarks within hours of said statements. The stock market is still significantly higher for the day, despite this reversal. But we still have more than 40 minutes in the session, too, and the market is now accelerating to the downside as I type this!

Grains Respond to Bernanke's Calls for (Transitory) Inflation!

Sugar High! It May Be the Only One I Can Afford!

Bernanke Creams Dollar

Gold Reaches Another Record

And based upon what Bernanke is saying today, it's going to go much higher.

Wall Street Loves "Bubbles" Bernanke

But they hate (economic) freedom! This is the market reaction to Bernanke's promise of more money creation to come!

Chinese Bailout of Europe Incites Rally

It's a choppy, low-volume market today! The Dow futures were down 100 points until China announced its most recent bailout of Europe. What is their motive? Why would a sovereign wealth fund prop up a failing, insolvent country? Why would they seek to help a country that has overspent itself and is almost certain to default? This is one of those events that makes you go, "Hmmm!".

It's Getting Worse! Even Dollar Stores Feeling Pinched!

Wow! Check out that headline from CBS:

LOS ANGELES (CBS) —  More stores across the U.S. that offer deeply-discounted products are seeing their sales decline after years of growth amid America’s “Great Recession” — and one analyst said on Monday it’s another sign of even deeper downturn.
While the demand at stores like the 99-Cent Store or Dollar Tree is still relatively high, the biggest chains in the nation have fallen short of Wall Street’s expectations for several months, a trend that may prove even more ominous for the economy at large.
“I think what’s going on in those stores is that we are in a depression for 80 percent of Americans,” top retail analyst Howard Davidowitz told KNX 1070.
America’s three largest discount chains — Dollar General Corp., Family Dollar Stores Inc. and Dollar Tree Inc. —  all recently missed their quarterly earnings targets.
Davidowitz pointed to the weakness of the dollar and a gloomy consumer outlook as some of the factors behind the stores’ slump.
“In those stores, somebody comes in with $12 to do all their shopping,” said Davidowitz. “The person who used to come in with $12 now comes in with $8.”
“In other words, the economy is continuing to be worse, the Obama depression continues to explode,” he added.
Analysts say rising food and transportation prices are likely eating into the profit margins of discount stores, which risk driving away price-sensitive customers with any potential price hikes.
Core customers at most U.S. discount chains typically have a household income of $40,000 or less.

Dow Crushed 170 Points

Europe is crumbling.