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Volumeless Rally In Equities, Commodity Rebound Mired In Sea Of Deflationary Signals
1:50PM EST
S&P trading rangebound (1115-1125) on zero volume for a fourth session in a row now...midday sessions have come to a near standstill with very little buy or sell interest from the hours of 10:30-3:00....how this portends for tomorrows session, well there appears to be very little anxiety heading into tomorrows unemployment report (very weak sell side volume heading into numbers)....market expecting nonfarm payrolls of -87K with unemployment rate to uptick slightly to 9.6% from 9.5% in June...unless numbers come in significantly worse (more than 150K in job losses) expect "invisible hand" may take advantage of little sell side pressure to drive markets higher or at least keep market losses somewhat mitigated....remember the government right now has a very keen interest in seeing higher equity and commodity prices as market participants are currently highly focused on signals of deflation....declining asset prices (equities, commodities, and real estate) are very strong signals of deflationary pressures so really feels as if there is some ongoing intervention in the equity and commodity markets (real estate market has already deflated for the most part) to offset any deflationary pressures that might be present due to weak demand and ultimately quell any concerns over deflation so that prices dont begin to spiral downward out of control....a deflationary spiral stems squarely from a negative perception of prices as consumers begin to withdraw demand due to the perception of being able to buy assets at lower prices in the future....note however that while equity and commodity prices are being artificially skewed, the Treasury market (which is much more liquid and much more difficult to manipulate) continues to signal very weak growth, high unemployment, and very significant concerns over deflation....while equity markets have rallied 11.5% off their July 1st lows, the 10-Year Note continues to sit at a 1-year low today (in terms of yield) just over the 2.89% level....significant demand for low risk yield continues to be be present in financial markets, with very weak demand for high risk assets denoted by absolutely anemic volume in equities on this recent rally (a prime characteristic of deflation)....also note the dollar (which trades in the most liquid market on the planet and also nearly impossible to manipulate) continues to decline signaling a prolonged period of low interest rates (ie very little concern over inflation), very weak domestic growth, and more than likely a new round of quantitative easing measures...in other words, while the relatively low liquidity equity and commodity markets are attempting to signal a global recovery (and hence a more inflationary environment), the two most liquid and therefore most efficient financial markets (Treasury and FX) continue to invalidate the claims made by these markets ultimately portraying a much more accurate environment with significant deflationary headwinds...key question is how long does this manipulation in equities and commodities last before deflationary headwinds are simply too strong to ignore?
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I liked the comments in the article about the relative ease (or difficulty) of manipulating different markets in equity, Treasurys, and currency. I think this explains more than anything why the HFT players are operating mostly in equities.
I'm curious why they haven't established themselves as much in the commodities markets? That seems like another logical target for HFT scamming. Maybe it's just a matter of time.
Interesting SP500 chart ...
http://stockmarket618.wordpress.com
Putzy Patzy Pitz,
Seems you have a lot of interest in this thread.
1. The HFT bots are skewed bullishly (fact), why? My answer; cause they otherwise would be shut down after the 4th or so flash crash created by them. The administration favors short squeezes that take care of daring shorts, even as the HF-bots are breaking the law every second of trading.
2. If I was Chinese ruler, what would I do; I would start fading out the monstrous bond-portfolio to the bidding banksters (not causing havoc but there is depth in this market as FED is just prining new money). What would i do with the money (great returns on that bond position with 10Y at 2.90, just a guess China is long from 5% average or so); well lets buy commodities as that is something China can hoard and also have use for in the future (although no real demand as we speak). Their US bond portfolio I think they have written off already, but hey let's use what can be used until the shit implodes. Do I think China could also be part of the bidding in equity market; not likely but why not help keeping the charade going for a while longer as it helps them also not having the markets crash.
3. If you keep looking at P/E, you have to learn what the E stands for, and as US GDP is based 70% on the consumers and the consumers have stopped spending that E will soon diminsh and become a much smaller e. And if you think Apple @ 270 is a buy you will soon reach your targets of P/E 100s again.
Think this fall will be very interesting and sad in a way although it creates opportunities of course (the way people have used to live their lives and take for granted will be altered).
I hope that the answer to that last question about how long equity and commodity markets can rally is: NOT LONG!
Look at wheat. Up 30 cents yesterday. Limit up 60 cents today! Up 50 cents tonight! How much longer can commodity prices go parabolic without terrible consequences?
"terrible consequences" to whom? Canadian farmers who, for decades, have largely not earned any profit on their farming? Fertilizer producers?
A dollar decline does not signal deflation.
It will once it generates a higher swing low
the market will be forced higher by the program no matter what the phony unemployment number is
to treat any of this shit as based in truth is a mistake
we've been madoffed
look at volume today, folks, hanging-man candle, I don't believe we go as high as Tony thinks, but here's the chart.
http://tonyspublicchartsblog.blogspot.com/
running on fumes, beat by .02 galore.
If the stock market goes up on fundamentals no problem. Many lost bigtime when the tech bubble and real estate bubble burst. Many would argue it was just a capital transfer and it provided a tax revenue base . In reality it was the beginning of a casino economy. Besides, corporations are now flush with capital but elect not to invest===because of fundamentals, the consumer is dying , real estate dead and unemployment not improving. The only hope is for China to offer debt forgiveness, US austerity after a 20 year debt binge or growth based on real fundamentals not more financial engineering. Take your pick
I don't know why there is not a movement to STOP BUYING CRAP! Send a message to the Offshore Corporate Cartel, f-you, we're not buying your foreign-made crap, period. Barter, don't replace crap you don't need, buy quality & don't replace.
I bought 2 240 Volvos in 1989-1990 for cash and figured I'd get 15 yrs out of them, and my mechanic says another 100K miles no problem, I've been laughing ever since while my dumbass neighbors buy new cars every year, they're all full of crap and can't even carry on an intelligent conversation, while they pay sales tax and watch their insurance go up each year, I hope the idiots are happy.
My father just got laid off, he's 69, no savings to speak of, can't retire, has two almost new cars with payments over $1000/month, and he's $100K underwater on his house.
Yeah, people are stupid. Too bad one of those people is a family member.
Unfortunately, you can't pick your parents. My dad is 85 years old and still has 80% of his investments in equities. The other 20% is in crap building lots that he acquired by forclosing on delinquent mortgages he bought from some junk mortgage dealer, because, they were yielding 7% over prime. Now he thinks he's going to set up a mobil home park on one of them. God, I feel sorry for the people on the planning board in his town.
Sorry to hear that ... tough spot
Looks like the retailers are ignoring the bad employment news for now...
Greenspan recently said a mouthfull--he has a big one. "the best thing that can happen to this economy is for the stock market to go up." This is the same guy that continually drove the markets wild with low interest rates ,low margin requirements and advocated adjustable rate mortgages plus securitization. Like most in high financial circles ,fundamentals are not important--just quick fixes. Its bad enough that government deficits are unsustainable , but now they wish to leverage future earnings in the private sector to stimulate consumption of stockholders and benefit pension funds that are not meeting assumptions and the wealthy. Beware , it does not change the fundamentals or address our real problems.
Well said. I almost wanted to kill someone when that a-hole Wayne Angel said something like " they (Fed) have already succeeded...oil has gone from forty dollars to eighty dollars... so commodities have inflated enough TO OVERWHELM THE HOUSE PRICES FALLING, THEY ARE RISING AGAIN..."
Someone can find the quote- I told my wife, that moron wants and thinks it's the Fed's job to use speculation in home-building materials to stop falling prices! OMG that Angel is still allowed on tv, WHY?
But a higher stock market facilitates business formation. If the "market" trades at a P/E of 100, then there is plenty of room for people to start businesses with a P/E of 50, or 25, assuming they can put together a business plan, and ultimately, sell those businesses at a profit. We saw this in action during the tech bubble, where business formation was prolific and rampant (and unemployment nearly non-existent and government tax revenues better than ever). Why can't we see this in action going forward? Why does the Zerohedge crowd keep fighting and talking down a market that is attempting to rise sufficiently to facilitate an improved economy?
So, you're saying you'd like to see a repeat of the tech bubble? That mentality is what got us here in the first place. We need more manufacturing type businesses that actually create products, add value and pay decent wages, not crappy businesses like Pets.com with completely unsustainable business models.
And it seems completely backwards to say "goose the stock market higher and this will increase business formation" -- shouldn't it work the other way around? People will invest in companies that have solid business models and produce useful products and services, so that will increase the value of the stock market.
Ideally, a repeat of the tech bubble, but highly oriented towards useful outputs, instead of shams.
At least the tech bubble has useful outputs, after everything was said and done (ie: millions of Americans became educated in computers, online business models were tested and some failed, some succeeded, but lessons were learned!). The finance bubble of the past decade hasn't produced anything useful and has made many Americans completely and utterly lazy.
Businesses that do produce useful things can barely find a bid in the stock market these days (ie: many oil producers!). This is something that desperately needs to be corrected. My portfolio is chock full of energy producers, fertilizer producers, miners, and certain manufacturers that trade at 8-12X trailing earnings.
My big question is why do productive firms have to pay insane multiples to raise debt or equity in this market, while the government gets to pay 1% or 0%, and produces nothing? That's the real paradox that hopefully will be dealt with by the 'market' over the coming quarters/years. And it implies that the market is severely undervalued, or alternatively, government bonds are severely overvalued.
My word, I really don't know where to start with you, pitz.
Those "good old days" of the Internet Bubble involved the same classic misallocation of resources that other bubbles envelope. In this case, Greenspan's Y2K brain fart set rates too low, and eventually allowed capital to funnel into companies that were either generating negative cash flow-- or into emerging Ponzi schemes. Boy, I really do miss Enron and WorldCom. That's not what I want again.
This time around, though, the Fed has gone all out in misallocating resources on a terribly grand scale. Instead of allowing the cost of equity to go to zero, they've set the stage of overtly bailing out failed banking institiutions, and allowed bubbles to inflate in bonds, HFT-targeted stocks/ETFs and real estate. In 2 of those 3 segments, the Fed and our government regulators have allowed really shitty accounting methods to fly.
You make point on the dangerous valuation of the bond market-- no doubt about it, and Turbo Timmy wouldn't want it any other way. But make no mistake about this important point: Over-valuation in other asset classes isn't mutually exclusive-- ESPECIALLY when the government intervenes on a grand scale. The misallocation of resources especially perverse in certain pockets of the equity market (financials, high betas) and in real estate.
As for what to do with your portfolio-- keep it intact. But you should demand a cash dividend or share buybacks for those companies that produce something. If market forces win out, companies with healthy balance sheets and/or solid dividends, you may lose some capital value for a time, but have limited downside.
If the market forces don't win out... God help us all.
Maybe we can resurrect Kozmo.com and happy days will be here again....
http://www.sec.gov/Archives/edgar/data/1075749/0000912057-00-012562.txt
Keep on reading. It will all become clear....
Look at chart #3 here- now look at the RSI divergence(connect the recent tops=DOWNTREND)but look at $SPX, that's manipulation proof, although it's only 1 indicator, I could find more.>>
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3779195
Tony does decent charting also.
key question is how long does this manipulation in equities and commodities last before deflationary headwinds are simply too strong to ignore?
Could last a very long time if what you suggest is true. If the markets are moving on low volume and the retail investor is out, who's left but the banks, big players and the .gov. Who is left to pull from the market and drop it substantially?
George Soros. ;)
It's a question of timing...I don't see stocks making sense and plunging in August...Come back after labor day
That all markets are going up on no "fundamental news" is in fact telling you something, the unit of measurement i.e. the dollar is going down in value
Do your own shopping for once and tell us what is going down in price
Yeah no kidding, these deflationists should share with us where they do all their shopping, that the prices are always going down. Because I certainly haven't been able to find any such shops around here.
Mish's "OMFG, Wal-Mart put Ketchup on sale, we're in deflation" is kind of silly, when practically everything else is increasing in price rapidly.
'Deflation' has NOTHING to do with commodity PRICES! Oh snap! Sorry to burst all you great economists bubbles!
-Deflation- 'A loss in confidence of the underlying currency'
-Inflation- 'An increase in the money supply'
Maybe that will help some of you boneheads.
How long can the gubbimint keep commodities jacked up without wiping out the entire economy?
Not long now. Oil could be the silent killer, real soon.....watch for all efforts to be directed toward getting this "problem" under control in the not-so-distant future.
Where's the evidence that commodites are being 'jacked up'? Aren't commodity prices, to US consumers, being 'jacked down', because the US is able to borrow money from foreigners to subsidize domestic consumption of commodities, thus suppressing their USD$ quoted market prices?
What would oil cost if producers started demanding hard goods in exchange for it, instead of accepting paper promises of future repayment in USD$? I suspect, a lot more. Oil sure as h*ll wouldn't be cheaper if we had to settle in hard goods, instead of paper, that's for sure.
markets are not broken
they are simply 100% FAKE
watching our civilization get devoured by this banking monster from hell, day after day, is killing me
damn them
The markets do what they were designed to do - for the people who designed them.
Buy BAC!
Since when are commodity prices declining? Didn't wheat surge today? Oil at $82-$83/barrel? Gold at $1200? That's not deflationary. Why must, in most recessions past, the stock market trade on the basis of almost no, or even negative earnings, while, during this recession, if not a depression, people call it 'manipulated' if it dare trade at a modest 15-20X earnings during one of the worst economic downturns ever?
Trade at a 'modest' 20x earnings? What are you smoking commodities putz?
Simple questions, if there is in fact inflationary pressure out there as the commodity market seems to indicate, then why aren't bond yields rising? why isnt the dollar rising due to the perception of higher rates? why isnt the Fed preparing markets for the possibility of higher rates?
The whole equation doesn't add up...right now its the FX and Treasury market (signaling deflation) vs the equity and commodity markets (signaling inflation)....two of these markets are clearly mispriced and will undergo significant readjustments over the next several months.
Place your bets, I subscribe to the theory that more liquid markets are much more efficient and hence much more realistic about the future.
why aren't bond yields rising
Too many "grandmas" chasing the quintessential bubble of the past 30 years, bonds. Walking right into a death trap, thinking the 'government' is going to save them.
why isnt the dollar rising due to the perception of higher rates
Why would foreign investors buy US dollars when they are certain to be devalued through inflation? Who cares about interest rates?
why isnt the Fed preparing markets for the possibility of higher rates
See above. The US faces an instant funding crisis the moment that investors believe that rates are going to rise substantially. The Fed is loathe to trigger even the perception of that happening.
+1
A contracting economy just means less tax revenue to service the US debt. When it becomes clear that the US economy cant service the debt, it will be sold off. The debt and the dollar will be sold off and lose value.(INFLATION)
You're right, grandma and her cronies are manipulating the bond market from the short end to the long end, no one cares about interest rates, and the equity market trading on no volume is telling us the truth.
Come on man, lets get realistic.
Manipulating? Hardly. But try selling any sort of equity investment to anyone over 50 these days. Its pretty much a non-starter, as witnessed by the massive equity outflows, which are, rather irrationally, ending up in fixed income. Logic, asset allocation, and common sense have completely gone out the window as these "grandmas" are scared witless and think that government can protect them.
As you say, "come on man, lets get realistic". Bonds and the dollar are the real bubble here, and commodities/equities have been manipulated lower, not higher. HFT has been serving to suppress the stock market, not to juice it.
" HFT has been serving to suppress the stock market, not to juice it." That statement alone says a lot.. about how wrong you are. No need to read the rest of your argument. Silly statement by a silly person.
Pitz - you're a younger guy - most of these seniors have witnessed first hand that the stock market has given them zip in real cash returns and that's zip minus fees and commissions and crashes. You'd be putting my grandmother into wheat today after copper a 3-months ago and gold next month - it's always a chase. As my dad used to say "stocks is for sellin not for buyin" -
I know its been a terrible past few years, and an even more terrible past 13-15 years for most (let's face it -- most stock investors, on average, after fees, haven't made money since 1995 or 1996). But that's no reason to be perpetually cynical. The economy will never recover with the coupon clipping mentality that persists today.
LOL....yep you nailed it! May I highlight in bold....
So one must ask what has caused the coupon clipping mentality today?
The cost of real money is going up. Money created by debt is experiencing the inherent deflationary effect (good 70 year buildup on this one I might add with a super tap at the end).
The debt burden becomes more and more expensive as you pay back that cheaper debt with more expensive dollars - i.e. making house payments on a $740k purchase (plus interest & taxes) for a home with a current market value of $175k. Oh but wait....we haven't been making those $1800 a month payments for the past 18 months since the Neg ARM expired......and have instead been utilizing that money to maintain our standard of living and keep the credit card payments going out.
Did I mention they are finally kicking us out of the house? We're gonna have to start paying rent (of one form or another) or live on the street?
Did I mention the wife lost her job 102 months ago and has used up all her unemployment? Did I mention the gov wants to cut me back to minimum wage while he wages war with the unions? That I just got told I'm taking a couple weeks of unpaid vacation every year? That my retirement is a paper facade? That social security is toast? That my American dream is fading fast?
Now along comes a few fires in Russia blowing smoke across 1800+ miles (not to mention the hottest temps over 5+ weeks in the 130 yrs keeping records).....and those pesky Russkies gotta keep the power structure going (by feeding the people) and cut wheat exports. Now the price of wheat (and other foods - rice/corn) is rising and you are calling that inflationary and a sign of things to come - perhaps (guaranteed on food).
Oh did I leave out the fires burning in Canada, the drought in Australia, the floods in China, and the floods in Pakistan? Did I mention earthquakes? Sun cycle? (Did you like that CME we got over the past two days?) Or that we are just getting into the "season" for the above disasters?
Nor did I cover the (now corporate) farming demise caused by pesticide/fertilizer that forces the farmers to find new drugs or genetic modification to keep the plants alive in that barren wasteland farmers call dirt. Ya know...like a farmer I know loosing 1/3 of his wheat crop this year to a fungal infection because he got the "cheap" pretreatment for his seed. Did I mention this was a worldwide problem?
Did I tap into the associated medical demise? Mention aspartame and Rumsfeld? Cancer feeding fructose? That I have type II diabetes and the medical establishment will get 1/2 of my production for whatever is left of my life?
I suppose the problem of having the lowest interest rates and no buyers for the debt is inflationary? Or maybe that's just a facade and real (non-housing) interest rates are shooting up? Did I mention the bank won't float my brother's small business operating loan this year and he wants to share my house?
Or maybe you're banking on hyperinflation because the money is gonna be worthless - i.e. government goes up in smoke? The same government with military bases on 130+ countries across the world. The same government with EO's in place to create 10 governors to rule the 10 FEMA regions militarily. The same government that has 27 million people on food wages (stamps) for civil disorder reporting. The same government spending over $5 billion on new web surveilance capabilities. The same government with access to the printing press while the rest of us ride the deflationary spiral. And yes while the Fed is increasing at fairly dramatic pace....best look at the whole picture (include the private side).
Or maybe you are hoping that Ben never lied and is actually going to fly around giving away debt free money? .....let all those debtors off the hook after spending a century implementing the world's best asset transfer tool (money created by debt).
Maybe I'm a little baked in the head.....or you've been eating that Gulf fish that metabolizes oil they just told us about today.....
Other than that Mrs Lincoln, how was the play?
Pitz your a putz... Let's turn off the HFT and see what happens to a market being held down... LMAO at you...
Do you really think the coupon-clipping crowd is going to 'win' their battle against producers, savers, and the youth of America?
Turn HFT off, and there very well could be a massive surge to the upside, sort of the opposite of a 'flash crash'.