EURIBOR RATES ARE CLIMBING - CANARY OR WASTE OF TIME?

The equity markets may be off to the races again, but Libor and Euribor rates have been signaling increased distress over the last week.  I've been monitoring these since quarter end and we have seen a distinct move up.  Yes, the move up in rates is tied to concern in Europe over Ireland and the rest of the PIIGS, but you certainly haven't heard much about it in the media.  Here is a snapshot of the rates.  I can't get a full listing of the chart I watch, so please click here for a full run down.  - http://www.homefinance.nl/english/international-interest-rates/libor/libor-interest-rates-eur.asp

Euribor rates

If you pay attention to any of the news all you will hear about is ROBOGATE and the impact on the processing of foreclosures.  Yes, this is an issue and I will write a post about it, but it is just another item being discounted and ignored by the equity markets now.  Dollar devaluation ..... errrr....QE 2 is the savior and this is all the markets are banking on.
Ags are running, metals are running, equities are higher, and yes even bonds are somehow higher!??  These days I feel like it doesn't matter what, it is all going higher.  It's not a waste of time, but God help us if we don't get QE2.

Be Careful!

GOATMUG

WHY USE CASH WHEN YOU HAVE STAMPS? FOODSTAMPS DATA FOR JULY

UP & TO THE RIGHT

Once again we have growth in the number of families using foodstamps to purchase food.  July's data continues to reinforce that Joe 6 Pack is struggling.  When we look at the data on a monthly basis, we see that then number of individuals receiving assistance has grown to 41,836,330 which is a monthly increase of 1.36%.  Not only is this growth a concern, but the rate of change of that growth is also accelerating.   In addition, the year-over-year data shows a staggering 16.7% increase in the number of individuals on foodstamps just from July of 2009!

The down and out guy isn't doing better and the CFOs are getting sour.  Obviously these folks aren't getting the message that Wall Street is sending that the good times are here again!


Source date is from the SNAP program website - http://www.fns.usda.gov/pd/34SNAPmonthly.htm

GOATMUG

SEPTEMBER CFO SURVEY - DOUR MOOD RETURNS?

The quarterly Duke CFO survey was released and what can we say, CFOs just aren't as excited as they were.  Somehow the kool-aid has not made it to the interior offices of the corporate towers where the bean counters are usually nestled. 

Here are the highlights......  http://www.cfosurvey.org/10q4/PressRelease.pdf

OPTIMISM PLUNGES


Optimism about the overall economy fell at 53 percent of U.S. firms and increased at only 14 percent. The optimism rate of 49 is a level not seen since the first quarter of 2009, when CFOs rated the economy at 40.


“The CFO optimism index has proven to be an accurate predictor of future economic performance,” said Julia Homer, executive vice president for content at CFO Publishing LLC. “Therefore, this dramatic drop in optimism bodes poorly for the economic outlook. Half of CFOs say there is only a six-month window -- and another one-fourth believe it’s a 12-month window -- during which they can maintain current levels of business activity without improvement in the overall economy.”
 
CREDIT - WHERE'S THE PROBLEM?
 
“The math is simple. A) Banks are sitting on cash because of their poor health and general uncertainty. B) Small and medium-sized firms have employment-generating projects that they cannot get financed because banks will not extend credit. C) In usual circumstances, small and medium-sized businesses account for the majority of employment growth. A+B+C implies we are stuck at 9 or 10 percent unemployment,” Harvey said.


Harvey added that “recent regulatory reform has not helped. Only 5 percent of CFOs consider the Dodd-Frank legislation as a positive -- and that number excludes all firms in the finance industry. The main concerns about the recent reform are that it will lead to increased compliance costs and make borrowing more difficult. CFOs also expect higher banking fees. Some of these increased costs and fees will be passed on to customers, and others will hurt the bottom line.”
 
The CFO's are telling you that all is not fixed.  What made their outlook change from just a few months ago?
 

Reports like these continue to give me pause on joining in the full blown bullish party.  We've positioned ourselves well since Fed President Bullard's speech in the first week of August, but this type of data continues to reinforce exactly why the FED is continuing its drum beat and repetition of the mantra that they will continue to provide liquidity and will continue to step on the gas.  Clearly they are not going to stop the beating of the dollar either!  The Fed sees this type of stuff way before we do and this is a great data point to remind us that all is not really better.  All stock markets may be heading higher, although it isn't because there is growth or real value, it is because the dollar is being debased. 

One last comment on the dollar.  Remember how I allude to the dollars decline as a well choreographed dance to the bottom?  Well, that is exactly how I see it.  We've tumbled very far very fast and now it seems about like it is time to make a measured move higher just to give all the other central bankers some relief.  That of course means that we may see a pause in the gains in shiny things like gold and silver.  Personally I would not add to my metal and commodity positions here and I would not be short the dollar.  Just a warning.

GOATMUG



GEITHNER PROTESTS DEVALUATION WHILE DEVALUING

Everyday I am amazed at how prescient authors like George Orwell and Ray Bradbury were in picturing the odd reality we'd face here in 2010. 

Geithner warns in a Bloomberg report that currency devaluation is dangerous and damaging.  This is pretty funny given that the powers in charge have managed to crush the value of the dollar some 7% JUST IN SEPTEMBER! 

Obviously other countries are not going to sit idly by as we essentially put a tax on their currency and make their goods more expensive (meaning less purchases by us).  China, Brazil, Europe, and others cannot stand to have us continue our policies lest we damage their exporting economies.  Japan has tried like crazy to stop the trend as the Yen is at a 15 year high relative to the USD.  Imagine the heads that are rolling in the currency management department in China where they have lost almost 7% on their treasury holdings this month simply due to the currency moves!  A $100,000,000 loss in a month sort of hurts I would guess.

This is funny to watch as we are seeing a full measure of double speak, but this is the stuff that trade wars and essentially currency wars are made of.  Our actions to devalue have very real consequences for other countries and it is now a situation where it is every country for themselves.  Expect tariffs on manufacturing producers like Boeing and Caterpillar as this heats up.

GOATMUG

If You Can't Stand The Bullishness, Look at the Charts!

I can't stand it anymore! After this record advance in September everyone is bullish. Investor sentiment is bullish, CNBC is bullish, even I am bullish (actually have been since late July). Perhaps I simply am a rebel and must feel like I'm marching to a different drum beat, but upon waking this morning I embarked on a mission to prove or disprove the case for the rampant optimism I'm seeing everywhere. While I'd normally provide chart upon chart of manipulated macro economic data I simply started drawing lines on 3 year weekly charts. I'll keep the commentary to a minimum, but leave you with a string of charts that highlight significant markets I follow.  Please note, I will indicate several areas I'm watching for a breakout, but to be honest we've seen a pattern of breakouts through important levels where everyone is watching just to see significant reversals once everyone gets on board.  . I'm putting these levels in my system so I can be alerted and watching for continued momentum that is maintained.




SPX (The 1150 level still seems to be resistance) - no breakout yet.

XLE (Energy) - Watching $56.50 here.

XLI (Industrials)- XLI looks like it has poked its head above resistance.  There is that long term downward sloping trendline still overhead, but this tells me that XLI could run another dollar or so before testing this.

SMH (Semi-conductors) - $28.75 would be interesting as this has not broken out yet

XLF (Financials)  - I posted this chart last week and it has been very helpful in showing that there is no breakout in financials.  There was a punch through to $15 and a quick reversal back inside the trendline.  Of all the charts I'm posting, I think this is one of the most useful.

LQD - Investment Grade Corporate Bonds-(Breakout has obviously occurred.  In fact, we should expect a drop back into that long term channel, however corporate bonds have been the beneficiary of much of the government's attempts to force investors to increase their risk and drive them out of CDs and money markets.  Traditionally, we'd expect the equity markets to rally when LQD goes lower, however that typical correlation has been on hold since May 2008 when all asset values collapsed and enjoyed a subsequent rise from the ashes. 

LQD with SPX overlay -Has LQD rallied too far and does a correction in bonds suggest more upside for the $SPX?

SLV - (Silver) - Sure, this is clearly a breakout!  SLV is above its previous peak of $20.65.  I'm still not selling my holdings of physical silver here, but I'm certainly not adding any SLV at this level. 

JJC - (Copper) - Yes, breakout has happened.

EEM - (Emerging Markets) - Yes, this too is clearly a breakout.  Since late July I've advocated holdings in emerging markets based on the comparison of GDP growth rates in these countries to our weak US growth and also the specter of QE2 which is targeting the devaluation of the dollar.  It appears there is significant room to run here.

TLT (20 Year Treasury Bonds) -  Risk on or risk off, the Fed's intervention in the treasury markets will in my opinion  put a floor on TLT for some time.  While interest rates SHOULD be rising here it is clear that this operation is more of a budgetary mechanism to ensure we can actually pay our bills.  The Fed and Treasury Department cannot allow rates to creep higher or else we face significant issues.

TRADING SUMMARY -
Well, that's it, I hope this summary of charts gives you a view of areas that we should be watching for the upside or a reversal. Many key areas are close to upside breakouts and we're seeing continued momentum in precious metals and emerging markets. XLF (financials) continues to look weak and this is going to be a key indicator for me to watch (it always is). It is almost as though XLF is telegraphing to us that something is going on and the story just hasn't hit the headlines yet..

IS THE BULLISHNESS WARRANTED?
The obvious answer is - perhaps! In terms of economic reasons I doubt it, but that was not the focus of this post. For me, this exercise has confirmed that we really are in a significant area here that could propel us to much higher levels. I would not be amazed to see a move through these levels, but I'm also aware that we are simply at the top of the trading range we've endured for almost one year.



The bear in me looks at these overhead resistance levels as good areas to enter shorts and allow for some room for a bust-through and reversal. The tinfoil hat wearing trader in me thinks we could see more positive action ahead.



Be Careful -
GOATMUG