The Market Perspective

GM Chrysler The American PEMEX

Friday Morning June 12, 200

The Gold Bugs are certain the US Dollar will collapse Saturday morning during Neal Cavuto's business show if not this afternoon. Yet gold has not exceeded last year's high. In a sort of Dow non confirmation, silver has moved to a new high for the year but gold refuses to confirm.

Every where I look everything is on sale.  The Chevy ad takes up a lot of space but it makes a point, even the Corvette is dealing to get off the lot.  It seems a safe bet that GM and Chrysler will continue to be a jobs program not a car company at this pace. Good thing GM is backed by a government printing press to provide cash. GM Chrysler are now the American PEMEX.   Mexico has long used their nationalized oil company PEMEX  as a featherbed jobs program, foreign investment is prohibited in Mexican oil fields. While this is clearly a populist Yankee Go Home policy, the result is that Mexican oil production is no longer expanding and Mexico will soon cease exporting oil, another disaster for their economy. 

Yet car sales refuse to budge above 10 M a year.

 Apple just cut the iPhone price in half, yes it faces a host of competitors. Speaking of competitors, will Apple come off its premium pricing policy to challenge the Accer $350 10 inch 2 lb laptop at Costco?

Commodity prices have undergone a dead cat bounce, and yes a pretty darned good one but after the biggest price drop of oil in my lifetime. And a weaker dollar is behind a good bit of that. 

 Just yesterday a serious banker described   lay offs by his better clients  in San Antonio which has been spared the unemployment thus far. 

Kohl's advertises, Take 30% off EVERYTHING!

Mortgage rates are going up not down, as we have shown yields are up but should receded for about a month. After that rates should soar again.  This will simply put more homes on the market. This will make it harder for boomers to sell their homes and move anywhere else. Indeed the pool of potential buyers is smaller for a larger than ever pool of unsold homes. Housing is regional, the empty condos of CA AZ FL NV are tomorrow's apartments. But how will that be handled on the financier's balance sheets, face it, they are not getting paid. This morning the WSJ reports that the FED will not expand its bond buying no wonder. It did not drive rates down and there is more bond supply, two trillion this nest year than there is money on the FED balance sheet. 

Credit card debt is not expanding. 

We suspect the worry for Bernake is deflation still, not inflation.  

Now only $99*

Money Supply Soars

Wednesday Morning June 10, 2009 Pre market opening

This graph appears in today's Wall Street Journal. Laffer makes the point that this expansion of the money supply is unprecedented.  We have detailed the collapse of the bond market in many posts. Yields are going up. No wonder the FED no longer reports Money Supply figures. Milton Friedman by the way won his Nobel in economics for his work on money supply, in the late 1970s this was the most watched economic statistic. 

A Look Back at 1987

Tuesday June 9, 2009 [email protected] Pre Market Opening

The main chart red and black bars is the 30 Year bond market. We have overlaid the stock market, solid black line, against it. Big Picture, in 1987 the bond market started down in price and up in yield by July. Every day the bond market would close down at 2 PM CST, and then stocks would rally the last hour. This made no sense, rates were becoming more and more attractive versus the stock market. 

Our Market Perspective for today is that this trade off ended badly.  One day in October the entire world left stocks for bonds. The stock market collapsed 20% that day to catching up to value in the bond market. 

Okay let's fast forward about 21-22 Fibonacci years to 2009. Gee does this look familiar, compare to the above chart. The bond market has started down, though in April not July.  And the stock market has continued up.  Now admittedly rates were very very low in bonds but the bond market has crashed a full 15 points in two months!  We showed yesterday that 3 year rates were accelerating.  As this affects shorter term maturities, eventually stock buyers say, why buy a stock that pays no dividend if the short rates are more and more favorable. 

This blog is named Market Perspectives for a reason. We regret that we do not have the complete chart for 2009 so  we would know what will happen. But we do have a road map from 1987. We will continue to update the road map. 

Crude Oil Overextended; Nat Gas Awakens Seeking a Low

Saturday June 6, 1944 [email protected]

Oil could drop about $20 before generating a sell signal on the weekly parabolic chart. 

But we seem to be well into five waves up.  This does not mean the rally is over for the year but suggests one should not be initiating new positions now.

Natural gas however is a different matter. After an extended decline from the 40s the nat gas ETF UNG appears to be attempting a bottom.  UNG has a series of higher lows and is challenging the MA.  volume is expanding on the move up, usually a sign of accumulation. This bears watching. 

Quote of the Week

 

Friday June 5, 2009

 

If the Dow goes up another 1,000 points, I would head for a bomb shelter

Art Cashin, Floor Manager at NYSE for USB

 

If Art is worried, we should be concerned and looking very closely at what is going on. More this weekend after the weekly closes today.

I Can't Make this Stuff Up

Monday June 1, 2009 Post market close

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"Chinese assets are very safe," Geithner said in response to a question after a speech at Peking University, where he studied Chinese as a student in the 1980s.

His answer drew loud laughter from his student audience, reflecting skepticism in China about the wisdom of a developing country accumulating a vast stockpile of foreign reserves instead of spending the money to raise living standards at home.

And in a separate article....

The Federal Reserve is studying significant moves in the U.S. government bond market last week that could have big implications for the central bank's strategy to combat the country's recession.

But the Fed is not really sure what is driving the sharp rise in long-dated bond yields, and especially a widening gap between short and long term yields.

Reuters.com, June 1, 2009

Skepticism, how about outright derision? We had posts on this May 30 and May 21 showing that in fact, yields have been advancing since the day after the FED started buying. The FED statement in the hyperlinked article, that purchases might have o incrrease is hilarious. It is rather like that famous Taco Bell commercial, the chihauhua is covered by Godzilla's shadow, and concludes, I think I need a bigger box!  The FED does not have a big enough box of money to buy enough bonds to then sell enough bonds at the Treasury to raise $1+ trillion, and not face increasing rates!  The proposed $300 M in purchases just does not offset $1+ trillion.

Rearrange the Deck Chairs!

ONe of the oldest sayings regarding 'fixing downturns'  in finance goes like this

It  was as though re arranging the layout of the deck chairs on the Titanic would have avoided collision with the icebeg...

The Administration like all others before, is attmepting to re arrange the deck chairs, but the iceberg has been struck. Credit Card Defaults are high and rising. This means in turn that collaterailzed debt obligations using credit cards as their anchor are also defaulting. Even lowering home mortgage rates will not help people that have too much debt already, they still default. Experts still argue about home foreclosures.  Ten states comprise 75% of foreclosures and four are the worst, CA, AZ, NV, and of course FL. There condos stand vacant and that makes owner fees impossibly high on those that have bought, and most of the buyers were apparently speculators. The current XHB  homebuilder index is probably the best index of where housing really stands. But the point is that saddled with too much debt and then job losses, most creditors face a deck stacked against them.

I spent five years as a Chapter Seven US Dept Justice Bankruptcy Trustee. Most couples filinhg Chapter 7 had about $20,000 in unsecured, or credit card, debt. This was 1991-96. When one person lost his or her job, game over, all the payments could not be made. As unemployment rises we will see this across the country.  No doubt Michigan is a picture of things to come in the referenced four states.

But to continue, the couples would generally affirm their house and the car payments. But now, with little or no or negative  equity in the house, I would not expect that to be the case. Let the house go, and with zero down, we will make your payment, why not get a new car? California has offered incentives to buy only new homes in response to the home building lobby. Such stunts as zero down, we will make your payment, and credits for new homes, will only cause people to walk away from existing debt in bankruptcy. Why would a rational person make payments on the old house or car, as move in no first month rent apartments, new cars  abound.  No doubt todays' condos will be tomorrow's apartment.

Truly the deck chairs are being re arranged.