Morning Update/ Market Thread 3/28 - Draggin’ the Line Edition…

Good Morning,

Equity futures are slightly higher this morning, with the dollar slightly higher, bonds a little lower; oil, gold, and silver all significantly lower; and most food commodities are lower as well.

Oil and gold look like they may have put in a small double-top, while the food commodities are carving out what looks like a potentially large Head & Shoulder’s pattern. If so, we are working on the right shoulder now. This formation is clear even without my drawing, below are the daily charts for rice and wheat:



The stock market’s rise off the March 2009 lows is now two years old. In that two years, the “Fed” has produced more money and shoveled it at the markets than at any time in modern history. They literally own such a large percentage of it that the concept of a “free” market is long gone. Of course they don’t carry the stocks on their balance sheet… no, they let the very same primary dealers who literally own the “Fed” do that. Portfolios are marked to fantasy, shell corporations are made to spin off the bad debts, accounting frauds of all types are foisted to divert the eye, all designed to market a new reality to you.

The spin is that the financials are healthy and making profits (yeah right) sufficient enough to justify record bonuses for those making the paper engineering go. For now, it would appear that they are defying gravity. Bonds (debt instruments) are at the heart of their paper empire – these are the instruments from which “money” springs seemingly eternal. Are there not limits on how much of this paper can be created? Yes! Anyone with more than two neurons will shout – it requires income to service debt – unless you can simply print money!

And print we are! So now we are forced to ask are there no limits to the amount of “money” that can be printed? And to that, again, anyone with two or more neurons will shout, “YES! Of course!” That limit will be reached when the quantity of money is so great that people lose confidence in it and refuse to hold it for more than a very short time period. That time period is getting shorter and shorter, and thus the confidence is already eroding.

But at some point the people are going to grow weary of all the bullish talk and façade… if it’s so bullish, then why must we continue to prop up the markets? The answer, of course, is due to the impossible math created by the bond market – the very heart of our money system, the way it was created by the private banks who call themselves the “Fed.” At some point interest rates should begin to rise – that will cause the value of bonds to fall. One trick that will probably be attempted will be to change the laws and attempt to convince you that you should now “invest” your retirement money in bonds… just as they are about to burst with rising rates. I don’t put this past them at all, in fact this is exactly what they did when they convinced everyone to abandon their pension plans and to “invest” in their ERISA 401k’s. The net result has been a disaster for most Americans, and so too would be the net result of forcing retirement money into the bond market.

The charade of money printing is on full display this morning with the release of the Personal Income and Expenditures. Incomes are supposedly rising, but honestly I don’t see how that claim can be made with a straight face. And even with wage exaggeration and price under-reporting, the difference between any supposed wage increase and the cost of goods is glaring enough that even Econospin can’t ignore it:
Highlights
For the latest month, consumers went on a bit of a spending spree-although a big part of it was on autos and gasoline. Income also was up nicely though an important issue is that it lagged inflation. Personal income in February advanced 0.3 percent, following a 1.2 percent advance the prior month. February's number fell short of analysts' forecast for 0.4 percent. Wages & salaries gained a moderately healthy 0.3 percent, matching the rise in January.

Again, consumer spending in February was led by auto sales and higher gasoline prices. Personal consumption expenditures jumped 0.7 percent, following a 0.3 percent rise in January. The latest figure beat the median forecast for a 0.6 percent gain.

For PCEs in February, strength was led by durables, up 1.6 percent, after a 0.3 percent rise in January. For the latest month, nondurables (includes gasoline) jumped 1.4 percent, following a 1.0 percent rise in January. Services spending nudged up 0.2 percent after no change the month before. Despite some erosion from inflation, real purchases were up as chained dollar purchases advanced 0.3 percent in February after no change the prior month.

On the inflation front, the PCE price index increased a notably warm 0.4 percent, topping the 0.3 percent boost in January. The core rate gained 0.2 percent in February, matching the prior month's pace and equaling expectations. On a year-ago basis, headline PCE prices are up 1.6 percent in February-up notably from 1.2 percent the month before. Core inflation nudged up to a 0.9 percent year-on-year pace versus 0.8 percent in January.

Year on year, personal income for February was up 5.1 percent, compared to 4.9 percent in January. PCEs growth improved to 4.1 percent from 3.9 percent the month before.

The consumer sector is doing fine other than the worry about inflation eroding spending power. Income and spending numbers have been a little volatile lately but over the last two months both have been relatively strong. But for the consumer sector to keep contributing to lifting the recovery, inflation is going to have to soften and/or income will need to pick up the pace-which is not likely until employment strengthens. It's not rocket science, but economists will be tracking oil prices and employment to judge the pending health of the recovery.
Oh no, it’s definitely not rocket science – more like voodoo meant to distract you.

Pending Home Sales are released at 10 Eastern this morning. Consumer Confidence comes tomorrow, and the rest of the week is fairly busy culminating with the Employment Situation Report this Friday which is April fool’s day – a somehow fitting day for major economic releases.

Missed by many is that the Census Bureau reported home vacancy rates shot up from an already horrific 12.1% to more than 13% last year… and home prices are supposed to start going up again when? True, home prices will rise again… sometime – just not now.

Meanwhile we open up another war front. The middle-east at large is in complete disarray, the sands are shifting very quickly. We are involved with no idea of the outcome or consequences.

This having no idea of the outcome or consequences seems to be our motto, especially when it comes to pushing the boundaries of energy. The parallels between the nuclear situation in Japan and the BP Gulf oil spill are striking – yet no one in the mainstream is talking about them. From my perspective the handling of both incidents are rife with corporate self-interest that towers above humanity casting a shadow over the very progression of mankind. TEPCO should have been removed from the situation in Japan a long time ago – and to those who are downplaying the significance of this event, your hubris will be spanked in the end – we must pay attention to the political/ corporate/ human interest aspect of these crisis. Ignoring or downplaying the significance of these events will only lead to worse outcomes in the future.