Archive - Aug 2009 - Story

The most recent BLS State unemployment data is out. State by state unemployment increased by 1.0% on average (unweighted) from June to July.

In a dramatic reversal to the moderating trend from the past several months, Mass Layoff Events surged from 256,357 in June to a whopping 336,654 in July, a 31% increase, and surprisingly the second highest reading for the year since January's 388 thousand. Actual MLE increased by 21% from 2,519 to 3,054. The primary weakness was focused in the manufacturing sector, where claims jumped from 85 thousand to 154 thousand, an 81% increase.

In essence what is going on, is that the brief pick up in German and US GDPs on the trade balance side, are being facilitated exclusively by the credit bubble in China. By dint of China being able to recognize GDP at production instead of expenditures (like normal Western countries), China is now trying to back fill into the trade void left from the collapse of Western economies by promoting the same kind of irresponsible lending (and borrowing) that lead the US economy to its current sorry state. This will eventually end very, very badly.

Last week's $300 million decline in Foreign Holdings was promptly reversed and this week saw an increase of $7.2 billion. Yet, like last week, the comparison between domestic and foreign weekly securities purchases is trivial: $7 billion versus $86 billion: the US is promptly becoming its own largest debtor... by a factor more than 10x.

• 6 S.Korean banks to take $4B worth problem loans from financial institutions' books.
• Asian stock markets were lower Friday on report China might tighten bank lending.
• Australian spot iron ore cash price to China slumps 9.3% on steel decline.
• China said to plan tightening of bank capital requirements as stocks rally.
• China's economy may grow 8.5% this quarter: State Information Center.
• Mexico’s GDP contracted 10.3% last quarter - fastest pace in more than 25 years.

• Now comes that hard part (Value Expectations)
• In new phase of crisis, securities sink banks (WSJ)
• The new dollar carry trade doing miracles for futures, European manufacturing pulls a Philly Fed ...(Bloomberg)
• Just in time for China to pull the plug on all excess manufacturing demand (Bloomberg)
• As even Morgan Stanley sees little hope for fast Euroland recovery (Morgan Stanley)
• While China's 2% inflation estimate baffles economists as prices fall (Bloomberg), with all the free credit going into the stock market, not purchasing products already accounted for in GDP
• And as Stiglitz sees risk to dollar, need for reserve system (Bloomberg)

The Japan External Trade Organization has released its latest trade figures, which paint a grim picture for foreign trade by the world's second largest economy. Year to date imports have dropped by 31.9% to $252.9 billion, while exports have plunged 36.8% to $252.2 billion. Most stunning is the disclosure on trade flows with the United States: exports to the US have dropped by 43.5% to $40.5 billion, resulting in Japan's largest positive trade balance. Another development is that China has now replaced USA as Japan's primary trade destination. However that is not saying much: trade with China has declined for the 8th consecutive month. The last fact is among the primary reasons why the Chinese Central Bank has blown a credit bubble of epic proportions in order to mitigate the unprecedented collapse in Chinese trade with its traditional trade partners.

The Association of American Railroads released its latest traffic data, and both the weekly and cumulative traffic originations are down significantly, however this is likely another data point that would be cheered by the wildly optimistic Philadelphia Fed as yet another piece of information that can only go up from here. Total carloads originated was down -17.1% for the week ending August 15, while the cumulative decline was -18.9%. Also the number of ton-miles has declined by 18% from 1,094 billion to 898 billion. This is probably as good a proxy for the real collapse of the US manufacturing complex and implicitly why any inventory bounce, outside of direct government subsidies, will be very slow in coming (and likely delayed due to increasingly artifical capacity added by the central planners).

Discount retailer Dollar General, which KKR acquired in March 2007 for $7 billion is about to be sold to a new batch of investors who believe in top ticking the market.

No volume all day? No problem - luckily there is after hours to trade. The entire cumulative volume below average caught up to the normal in less than 30 minutes of AH trading. And guess what - all the volume to the downside. But no big surprise there.

A listing of the most active SPY options by open interest indicates 3 Calls... and 29 Puts.

With At The Money vol dropping markedly over the past 4 days, and the VIX plunging, the green light to buy stocks ahead of OpEx was given by those who traded 25% of the market volume in just 5 financial stocks purely as a result of yet another massive squeeze, dragging the balance of the market. Yet observing the wings indicates a significant steepening of the skew, especially in the last day. On the other hand, it could be simply churn moving away from stocks and into options. However, with today's bleak jobs data, offset by optimism out of Philadelphia, at this point there is no question that fundamentals have no bearing whatsoever in this market and momentum drives all. Every trade is merely a coin toss.

Once again, the lure of easy money lured the Riverboaters back into the casino for more action. Old timers like Art Cashin, who has been warning of a correction, are woefully inept at gauging the gambling fever which now grips so many fast buck hustlers these days.

Treasuries and equities now being bought together, the only driving factor is the continued crashing of the dollar. Apparently every asset class is now a safe haven from the continued pillaging of the US currency.

With option expiration tomorrow, the market could be set for some peculiar action over the next 48 hours. But first, your scheduled afternoon market ramp.