|
Financial Sense Home l Market Monitor l Market WrapUp l Storm Watch l About Us l Contact Us |
||||
Markets Weaken Amidst Positive Economic News The markets received positive economic news with better than expected reports on third quarter GDP growth and from the Chicago Purchasing Managers, but the markets are fumbling around with little direction. In light of the good news, stock prices are mixed to lower along with the dollar and Treasury bonds. One would expect bond prices to move lower with the positive reports, but they haven’t done so with any conviction. Market participants seem to be more concerned about the flattening yield curve with the two-year note yielding 4.4%, the ten-year yield at 4.5% and all the way out to 30-year debt only yielding 4.7%. The bond market continues to depict a weakening economy while the economic reports and perpetual bulls on Wall Street brag about the resilience of the U.S. economy and American consumers. The advance GDP report had growth at 3.8% while economists were expecting the number to come in at 4.0%, but the Commerce Department reported a 4.3% growth rate for all goods and services produced in the third quarter. The GDP price index rose at a 3% annual rate, but the Fed’s favored measure of inflation is the core rate (excluding food and energy) of the personal consumption expenditures (PCE). The Fed’s favored measurement of inflation came in at 1.2% versus their estimate of 1.3% last month and 1.7% for the second quarter. The government’s data says inflationary pressures are receding, but most market observers know the inflation numbers are continuously massaged lower. The headline PCE deflator was reported at 3.6% inflation which is closer to reality, but still understated. In November the Chicago Purchasing Managers Index fell to 61.7 versus 62.9 in October, but expectations called for the number to drop to 60.0. The report was down, but “better than expected,” so the bulls continue to spin the health in our manufacturing sector…what is left of it! The Chicago PMI report showed a different slant on inflation than what the Fed had to say. The prices-paid index went through the roof with a reading of 94.1 versus 79.6 last month. This is a 26-year high for the Purchasing Managers price index! There is clearly more inflation in the pipeline. Also contained in the report was the employment index coming in at 50.3. A number below 50 means contraction in employment, so they are on the edge of a net reduction of workforce for manufacturing in the Chicago area. Needless to say, wage growth appears to be non-existent. The consumer faces a number of headwinds such as rising interest rates, high energy costs, and wages struggling to keep up with inflation, but not to worry! In the GDP report personal consumption was revised from 3.9% to 4.2% and final sales to domestic buyers was revised from 4.1% to 4.7%. One commentator on CNBC today stated that Americans “are borrowing to consume…not borrowing to produce.” One must wonder how much longer these trends can be sustained. Many analysts are now looking at the health of the residential housing sector to determine the future strength of the economy. This week we have seen a contraction in the rate of existing home sales along with continuing strong sales for new homes. Today the Mortgage Bankers Association reported its application index fell 1.8% with the purchase index higher by 0.8%, but refinancing took another nose-dive with a decline of 6.3%. The application index has been lower five out of the last six weeks and refinancing stands at its lowest level in nearly two years and is down by 22% from a year ago. On the rate side, the 30-year fixed rate fell six basis points to 6.20% and the average one-year ARM dropped two basis points to 5.39%. Housing affordability has fallen to a 14-year low with rising home prices and rising rates. The Fed’s goal to cool the housing market appears to be taking hold, but will they overshoot and kill the economy along with home prices? Checking Back on the Markets I call this a “hat-trick” day when we see the U.S. dollar, stocks and bonds all closing lower in the same day. The Dow Industrials ended up skidding out on the lows for the day with a loss of 82 points, closing at 10,805. The NASDAQ Composite closed flat and the S&P 500 fell eight points to 1,249. Technology shares held up the best in today’s trading with the Semi-conductor index higher by 1.2%. For now I’m guessing we get a consolidation for another week or so, then stand aside as the bulls “paint the tape” to close the year on a positive note. The dollar gained ground versus the yen and Swiss franc, but moved lower against the pound, Canadian dollar, and euro. A Bloomberg article today leads off with, “The dollar headed for its first three-month gain against the euro and yen in almost four years as the U.S. economy expands faster than Europe and Japan and the Federal Reserve keeps raising interest rates.” They should have ended the sentence with, “and the Federal Reserve raises interest rates WHILE GUNNING THE MONEY SUPPLY!!!” Massive amounts of liquidity have been created to keep paper prices of stocks and bonds high, while continuing to understate inflation. As far as I’m concerned, we have growth because of inflation…not real growth at all. That is why the Fed wants to do away with reporting M-3 early next year. Now let’s take a glance at the other side of rampant money creation by the Fed. While in one hand they are supporting “paper” prices in stocks and bonds, they are creating all kinds of nightmares in the commodity arenas. The following November 30 Bloomberg excerpt clearly shows what is happening with too much money chasing too few goods: Copper headed for its sixth monthly gain, trading at a record in London, amid forecasts demand will outpace production. Aluminum and zinc also traded at multi-year highs. The shortfall in copper production this year will be 343,000 metric tons, Standard Bank in London said in a report yesterday. Users of the metal such as wire and pipe makers are turning to stockpiles to fill the deficit. Inventory tracked by commodity exchanges in London, New York and Shanghi are 149,393 metric tons, according to data compiled by Bloomberg, ABOUT THREE DAYS’ GLOBAL USAGE. (My emphasis in caps.)
Earlier I blamed rampant money creation on the Fed, but it goes much deeper than that as governments around the world continue with competitive currency devaluations. Supplies of fiat funny money are growing all around the globe at a rate somewhere between 3% to 10% while miners would be very hard pressed to increase gold production by as little as one or two percent! That is the single biggest reason why gold and silver, along with most commodities will continue to move higher over the coming years. In the near-term I’m expecting a modest consolidation in the metals before they move higher. So far, the precious metals mining stocks have lagged the metals, but I believe they will move abruptly higher, assuming the metals break-out to new highs. The only real excitement in today’s market came from the energy pits as the Department of Energy reported a surprise draw in crude oil inventory. Expectations called for a build of 1.7 million barrels according to Platts, but the inventory actually declined by 4.2 million barrels. Crude, heating oil and gasoline all moved higher in today’s session, but the real winner was natural gas! The January contract moved from $11.73 to close $.85 higher at $12.58, a gain of 7.2%!! Since the hurricanes, roughly one-third of the production from the Gulf of Mexico is still shut-in. Now that we are entering the winter season, the weekly inventory draws should be significant due to the lost production. It should be an exciting commodity to watch and trade! Tomorrow we will get data on initial jobless claims, personal income and the ISM Manufacturing Index. Also, it is widely expected the ECB will raise rates in the euro-zone after adjusting expected growth and inflation higher. Also note that many traders are watching for the employment report due out on Friday with the numbers for November.
Have a Great Evening! Mike Hartman
|
||||
|
Home l Broadcast l Market Monitor l Storm Watch l Sitemap l About Us l Contact Us |
