Foolish Friday - Futures Fuel More Folly

Foolish Friday – Futures Fuel More Folly
By Phil of Phil’s Stock World

Oh come on!

It’s 7 am and the futures are up half a point ahead of the Non-Farm Payroll data at 8:30.  Oil is at $107.25 and Dow component CVX made an all-time high, up about 50% since being added to the Dow in February of 2008 as is TRV so keep in mind that the Dow they point for technicals today is not even the same Dow (with non-performers C, MO and HON) that it was back in the last rally.   Like everything else in the markets – It’s been “fixed.”

It seem silly to even discuss the news because the news is not particularly good but – so what?  What does news have to do with this market?  I think the only news that matters is the news that is ostensibly bullish, which is our own long-term bullish premise on hyper-inflation.  That is the rising tide that will lift all ships as the cost of everything, including stocks – goes up and up and up. Whether or not there is any real relative gain is besides the point – you’d better be invested in SOMETHING or the thing you are thinking about buying today will cost you a hell of a lot more tomorrow.  

China is certainly getting that message loud and clear as “panic  buying” has hit supermarkets, shops and even online shopping websites in Shanghai.  That old bugaboo “inflationary expectations” has infected shoppers in Shanghai, who are rushing to buy up goods in anticipation that prices will be higher tomorrow than today.  

People are overreacting,” said Sun Lijian, an economist at Fudan University. “But you can’t blame them when so much news about price increases springs up everywhere, warning that you may wake up the next morning and see a higher price tag on the product you want to buy.” The Consumer Price Index, which measures broad price fluctuations, seems to be invading the public psyche. Even unsophisticated old peddlers on the street now know the phrase CPI.

In February, China’s CPI expanded 4.9 per cent from a year earlier, the same rate as in January. That’s above the government’s 2011 target of 4 per cent inflation. Worse, some economists are predicting that inflation may have accelerated to 5 per cent in March.   Meanwhile, Barclays declares the sky is falling in Hong Kong, noting that rising rates (due to that same inflation) are likely to pop the property bubble and dump prices 25-30%!

The “debt-fuelled property price rally since mid-2007 is entering its last leg,” Andrew Lawrence and Jonathan Hsu, analysts at Barclays, wrote in a report today. “While we do not expect a near-term correction, rising mortgage rates hold the potential for a price correction into 2012, driven by reduced affordability and purchasing power for new buyers.”

Of course the entire Hong Kong housing market is insane but so would the US housing market be if we were able to borrow at the same 1.25% rates as Hong Kong residents, right?  That makes the mortgage payment on a $360,000 house about $1,150 a month – why not pay $750,000 for a 1BR apartment at those prices? Increased mortgage rates will come as a “shock” to home buyers, Barclays said. “We suspect that with mortgage margins having been on a decline for 13 years, many home owners would not expect a sustained mortgage rise independently of a move in U.S. interest rates. This level of uncertainty would clearly negatively impact home buying confidence.”

Of course, while we wait for that –  just like a grocery store in Shanghai – homes are flying off the shelves in Hong Kong as buyers rush to lock up deals ahead of expected rate hikes.  This is distorting all the data that we are getting from the other side of the planet but don’t expect any MSM analysts to point that out – it is “too complicated” for their viewers/readers – who like their stories “simple.”  

8:30 Update:  Jobs ho!  Non-Farm Payroll was up 216,000 in March with Unemployment unchanged at 8.8%.  The broader U6 measure of Unemployment is still 15.6% but let’s accentuate the positive and that’s the fact that the Average Hourly Earnings are DOWN for production and non-supervisor positions by 0.02 to $19.30 an our, saving US employers an additional $6Bn a year from what those bastard workers were trying to squeeze them for in February.  

$6Bn is, of course, 150,000 $40,000 jobs so PRESTO – look at the magic trick – sure we will hire more workers for the same total amount of money.  This is what is known as the Vietnamization of America, as we drive our local wages ever downward to match the lowest Third-World producer.  At $19.30 per hour in the US vs 0.1930 in Vietnam, we have quite a long way to go but don’t worry – inflation is taking care of things for us because even flat wages are a tremendous salary cut in an inflationary environment

Another nice trick is that the average number of hours worked by manufacturing employees ticked down by 0.1 hours to 40.5 – this too is the same as laying off 40,000 factory  workers and saves US Manufacturers another $1.2Bn a year.  So this is an EXCELLENT jobs report for US Business – not so much so for working Americans but screw those guys – they can’t afford to buy gold or NFLX anyway…

Perhaps we will have some “panic buying” of equities today as we fly back to our 100% levels. Once again we’re set up for 1,333 or bust on the S&P and isn’t it just incredible that, only two weeks ago, we were worried about whether or not our Breakout 2 Levels were going to hold as they ALL failed EXCEPT the Dow.  

Now only the Dow and the S&P are holding us back from stock market glory so it’s going to be a very exciting next few days in the market as we see if the bulls have what it takes to get us over the hump this time or if we are heading to another major melt-down – and hopefully not a nuclear one this time…

As I said on Wednesday, the higher we go into the weekend, the more bearish I want to be at today’s end.  If we break over and hold our levels next week – there are plenty of things to buy – we had a bunch of short put plays in yesterday’s Member Chat already (just in case).  But, on the whole, we should take this bullish gift for what it is and not look the gift horse in the month as it’s a great chance to take some long money off the table and to lay down a few disaster hedges (just in case). 

Have a great weekend, 

– Phil

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