Weakening Economic Indicators

pmi lossesTrading was all over the board today as investors were given mixed signals with the release of more economic data. To open the day, trading was mostly all selling as the Chicago PMI index came in well below analysts expectations. The market was hoping for a number of 52 to come in for September, however, actual results came in 46.1. Around midday, the Dow came back from being down over 100 points to positive territory as Final GDP numbers came in better than expected. However, in the end, we saw another day close in the red as the Dow finished 29 points lower.

We are now starting to see economic indicators begin to fall back on the "disappointing" side, which is becoming very discouraging for investors that believe we are out of this recession. What brought so much optimism back to Wall Street in recent months was that released data was beating market's low ball expectations. It is hard to make expectations lower from here on out, which means companies will need to start to perform to beat expectations. That doesn't seem to be happening much anytime soon. Also today, the ADP employment number came in far worse than analysts expected. The number came in at 254k loss in jobs compared to the 200k loss they were hoping for. That's a 25% difference. This set the tone for the unemployment number being released this Friday.

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As we grow closer to year end pressures, I expect selling pressure in Wall Street to increase. We've seen the shorts perform fairly well the past week, which is a good sign for those waiting for the short side. Deflationary pressures are continuing to mount up and government debt continues to rack up. Once again, all eyes will be on the banks for earnings to help push or pull the market. Goldman Sachs has been the front runner and will look to be the charging horse for banks on October 15th, when they release earnings. Although, numbers may still look good for the banks at the moment, there continues to be almost zero lending going on. This lack of lending has put a halt on many businesses and corporations around the country. Unfortunately, only time can help heal many of the wounds that exist in our current economic state. Happy Trading.

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Lesser Sentiment

nike earningsAfter what looked to be a strong rebound in the markets yesterday, red trading continued on for Tuesday, as consumer sentiment begins to weaken once more. Analysts were hoping for the consumer confidence numbers to continue to increase into September, however, they have begun to trace back as we saw from today's released study. It was the positive performance of this number which sparked so much buying in the first place, but as I have always warned, sustainability is the key.

With consumer confidence numbers weakening, investors are worried for the upcoming unemployment data that gets released later on this week. Sure, the rate of job losses has consistently been decreasing the past few months, but we are still experiencing very high amounts of monthly job losses that will eventually take its toll. Speaking of job losses, one important element to keep in mind is taxes. In recent months, we have seen record amounts of government spending. Coupled with that, we have also seen a record amount of job losses which in turn will directly effect tax dollars. The amount of tax revenue received for the government has to be at record low levels, which is not good when you consider just how much debt spending is being done. This will be a problem that will carry into our children's generation to deal with the national debt.

Nike reported better than expected earnings today after the close, so markets could easily find there way back into the green tomorrow. However, the big question everyone is waiting for is the job losses released this Friday. UUP has been looking like a great buy as the dollar is beginning to rebound. In my opinion, as deflationary pressures continue to mount, the dollar should perform quite well. DRV is the new Direxion 3x inverse Real estate ETF. It has definitely been on the radar for me, as I believe we are near this turn in the market. Real estate is on the top of the list for next sectors to suffer, as property owners have been bunkering up the past 9 months for the storm that lies ahead. Indeed the opportunity is coming soon. Happy Trading.

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Fed "Keeping Options Opened"

FOMC meetingWell, what started out looking to be another mild, green trading day (the recent trend), the market faced some serious selling pressure going into close, which brought the Dow down 82 points Wednesday. More importantly, in my opinion, was the rather significant increase in volume compared to recent days past, which has been a big concern for me as of late.

The Fed concluded their FOMC meeting today and announced that they will continue to keep interest rates at 0%. The no change was expected by analysts, as The Fed has reiterated they will do whatever it takes to try and spur spending in this market. Unfortunately, after the trillions and trillions that have been spent, we've only seen a few drops juice.

The Fed also disclosed there plan to slowly begin to ease in the purchasing of mortgage backed debt. This $1.45 trillion dollar campaign has been the biggest cause of keeping interest rates reasonably low for home buyers. With this planned "easing", The Fed hopes to be able to extend buying debt into March of next year. With that in mind, they still follow it all up by the phrase "we will continue to keep our options open." Of course they will. These options meaning they will continue to do whatever they want without having to inform the public. To completely leave the mortgage back debt market in March, after our prolonged dependence on such favorable rates, would be much like leaving a 3 year old in the middle of downtown New York. I do not expect The Fed to make many changes at all (considering they can always just expand their balance sheet like they've been doing), due to continuing problems which are and will be facing consumers. However, they like to throw it out there so people think that they are phasing themselves out.

This economy can only be held up by fabricated government support for so long. For the time being, a weak dollar has given foreign investors a sale on stocks in the US markets, which in turn, is a large reason why we've seen growth in both stocks and bonds recently. However, I expect to see a rebound in the dollar shortly as deflation becomes the problem on hand. Today's sell off could begin the crest of the turn around. If that is the case, I have capital ready to take some strong positions. I will discuss more thoughts on tonight's premium podcast (subscribe here). Happy Trading.

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Stocks and Bonds Rising...Really?

confused stock traderOne thing is for sure, history shows us that stocks and bonds tend to run as an "inverse relationship." However, as of lately, we have seen the phenomenon of both stocks and bonds running in the green. The idea is very perplexing when breaking down the fundamentals of each of the investment strategies. Bonds are looked upon as a more conservative play and get more attention during "distressed" times where speculation grows in the stock market. Stocks tend to flourish when economic outlook is strong and people are looking towards riskier investments for larger potential returns. These conditions tend to rarely coexist, so to see success with both instruments brings many questions.

My first belief is manipulation. Readers of this site know of my strong belief in market manipulation. I believe there has been billions, if not trillions, of government funds thrown into the market throughout the past several months. On top of that, we know that The Fed continues to be, by far, the #1 buyer of US Treasuries and has been very active in buying them lately, despite the record amount of debt the US Treasury has been issuing. On top of that, stocks continue to rise, despite record amounts of insider trading, which is usually coupled with a downward trend in the market. With this government intervention, we are seeing both markets get love.

With manipulation, another factor that is contributing to this phenomenon is the weakening dollar. Considering the dollar is very appealing to foreign investors, we are seeing a lot of shorting of the dollar, due to increased concern of its weakness. As The Fed is expected to keep interest rates at basically 0% during the upcoming meeting, some feel the strength of the dollar remains at risk. Usually, such a result would also bring down gold and other commodities, but that relationship has also been terminated.

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It is evident that the market is moving at very abnormal levels. I do not expect this to continue for long. By the way, the last time we saw such a phenomenon in the stock market was during the early 90's, which was during one of the worst real estate recessions since the Great Depression. We also so that time period followed by a spike in interest rates. Indeed I see those same problems heading right for us. Happy Trading.

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Is Red Here to Stay?

commercial real estate problemsAfter a pretty solid week of green trading, this week opened up on the red side, having the Dow close down 41 points today. We have seen blips in this rally before and, at times, looks pointing to a turn around, only to result in a continuing rally in the markets. Can today be the beginning of this long, overdue turn around? It might be, as there are plenty of burdens weighing heavily on the economy. However, I am still on guard against further ruthless buying.

Even though today marks a red closing, volume remains significantly low. In order to bring a full turn around to this market, it will be driven by forced selling and much larger volume. Most likely, it will take a spark, such as a large corporate bankruptcy, or some very discouraging economic data to initiate the crest, which can happen on any given day. One thing stands true, that is commercial real estate is a real problem heading directly for this battered economy and as times goes on, this problem is coming more and more into the light.

It is estimated that over $3 trillion is in need for the deficiency of refinancing of commercial properties that come due in the next 5 years. Landlords are pulling their hair out with nerves wondering where this extra capital is going to come from. In the last recession, it was the CMBS that helped push out capital. However, that market has gone away.

So where do landlords look to fill this gap in capital? Well, where everyone else has looked thus far, Uncle Sam. Like the children book title says, "If You Give a Mouse a Cookie, He'll Want a Glass of Milk." By opening the door with bailouts of the banking and auto industries, that gives other sectors the want of a bailout of their own. The government has made it clear of its intentions to be "getting out" of the bailout business, as this last round of TALF funds goes dry. However, commercial real estate owners are pleading with banks and the government, to make one more exception. In the end, something will need to be worked out, for truly, such a gap in capital to hit this market would send many banks spiraling down.

So, as of now, we can celebrate the Dow nearing 10,000, but I'm saving the champagne, because I feel we are far from over. Of course, certain sectors will perform differently throughout this recession, but large economic influencing sectors have yet to fully crater in this economy, commercial real estate being a big one. I expect to see a turn around in Wall Street very shortly and feel we are very long overdue. Happy Trading.

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Rallying Pushes On

home salesAnother 100 point rally ended with the Dow today as surely many are buying into Bernanke's belief of an recession that is now over. Indeed, no one can deny how impressive it has been to see the market rally for so long and I congratulate those who have made some significant money off riding it up. I, unfortunately, have not been able to pull the trigger and will not be able until I see a stabilization of certain very critical areas of the economy. Don't get me wrong, my ultimate hope is for as quick a recover as possible, but despite such recent strong performance from Wall Street, I still strongly believe we are not finished with scary times.

As I have said before, a critical influencer in the economy is the movement and prices of homes. This summer, for many markets, housing sales have gone up a bit as have new home sales. Some have taken this as the sign that the residential crash is over. For me, there are things to consider when evaluating the housing market. First, the season. Everyone knows that Spring and Summer are hot home buying months. It's convenience for families to move in between school years and the weather is hot and warm. So to see a month to month change in home purchases is not all that surprising. However, year over year, we remain significantly lower.

Another big influence, especially on new home sales is the $8,000 tax credit. It is estimated that over 1/3 of all the new home buyers are using the $8000 credit. In fact, since its creation in January, there has been a consistent gain in new home sales. Home builders now worry that due to the program's November expiration, new home sales will considerably drop. They may be right.

In addition to the tax credit, is the mass amount of Freddie and Fannie debt that the US Treasury is purchasing. Conforming home loans are some of the only loans available in the market for most banks. This is because the US Treasury has been purchasing all Freddie and Fannie conforming loans. As a result, we have seen record mortgage interest rates, which have reached below 4.5%. It is estimated that a total of $2.3 billion has been saved from mortgage rate savings. Per household, that comes out to about an average of $110 per month. The problem is the government cannot buy these loans forever and plans to stop at the beginning of next year.

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As I have said before, the big question is: can this economy stand on its own two feet? A recovering stock market is a great story and wonderful to see, but unfortunately, it has no fundamental tie to the actual progression of the economy. Sustainability is always the key. Happy Trading.

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Government Weaning

bernanke bailoutModerate gains in stocks have kicked off yet another week in Wall Street. We are not seeing a flood of buyers in the market, pushing up the indexes. Instead, what we are seeing, is a complete lack of sellers at this point, mostly due to fear of more gains in the near future. Forcing the actual initial turn is always the hardest, whether you are going up or down. You can remember back in March, when everyone was determined that the market was heading to 5000, there were many "fake" rebounds until finally the market was able to rally as a whole.

Today, markets are performing well, mostly due to Fed Chairman Bernanke saying that he believes the recession has ended, but to expect a very slow, sluggish recovery. This seems to be the major consensus, especially in the government, as he was preceded by the same belief from President Obama, Geithner, and other government officials. I guess it sounds better to the public that "the worst" is behind us, but it won't get much better anytime soon. I unfortunately, continue to believe that there are still too many obstacles that lie in front of us to firmly declare an end to this recession.

Going into next month, Wall Street enters a critical point in this recession. That is to see if our economy can walk on its two feet. President Obama and Secretary Geithner have both announced that the government is looking to get out of the business of "bailouts" shortly. Also, The Fed has announced that it will significantly reduce the amount of US Treasuries they will be purchasing, beginning in October, which up until this point has been the backbone to not tanking the Treasuries market.

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Up until this point, it has been from massive government spending, which has caused much of the "little" improvements we have been seeing in some economic indicators. Literally, trillions of dollar were injected in just a few months time, which is sure to cause "blips" in charts. If the Government stays true to its word and indeed begins to wean themselves from this economy, it will be very interesting to see where the money comes from. It will have to come from the consumer and small businesses, which at this point, have been beaten to a pole and has not been involved in this recovery. With no signs of a nearing bottom for residential or commercial real estate and a huge void still existing in job creation, I don't see how the consumer comes to bat at this point in the game. We will know a lot more about the consumer in the coming month. Happy Trading.

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New 2009 Stock Highs

After today's green trading, indexes have reached new highs for 2009. Both the S&P and Dow were able to reach new tops since last October. If you were to tell someone back in March of this year that we would be at these current levels by October they would have most likely laughed at you. Wall Street has been running on a mind of its own the past few months, but unfortunately, businesses and the economy can't quite keep up, even with it being a "forward looking" indicator.

Home foreclosures for August came in at record numbers at over 18%. Over 300,000 homes filed for foreclosure just in the month of August. Such news causes frustration for those hoping for a beginning of a recovery in the housing market. As bank owned houses continue to dominate home sales, owners will find it harder and harder to sell their house at levels allowing them to get equity out.

Today, we saw yet another step down from a corporate CEO. John Mack, CEO of Morgan Stanley, plans to step down and give the reigns to Co-President James Gorman. At this point, many of the banks are looking for new beginnings going ahead and looking for places to put the blame on mistakes of the past. Thus, the easiest thing to do is to start fresh from the top. Banks will have their hands full well into 2012, especially as commercial real estate really becomes a problem for them. Leasing activity has picked up a bit, but new office leases are being dominated by credit repair services businesses and debt collection. Bad credit is at record numbers and millions are looking to improve credit. As a result, these businesses are thriving.

As for moves, Oil and the US dollar have been catching my eye. In my opinion, oil is nearing the end of its run and has seen its highs for quite sometime now. I am looking to pull some puts on DIG at this point to take advantage. Also, as of late, the dollar has been hammered. I see a lot of opportunity to long the dollar as I do feel there is a severe risk of deflation at the gates. UUP is one I plan to pull the trigger on very shortly as I believe the dollar should soon begin to gain some ground. Happy Trading.

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More and More Crude

gas pricesDespite massive deflation in most every consumer demanded product (housing, cars, commodities, food), crude continues to find ways to climb higher. Crude futures top the $70 mark again, which as a result, does not weather well for the consumer. All beaten down consumers need now, is increasing oil prices to boost up the price of gas and rob them more of their discretionary income. We already know consumer credit is down with record rates, saving rates are record high, and income is getting less and less. With increasing oil prices, there will be no more money left to circulate in the actual money supply, thus boosting the overall economy. I can only see this recent blast in crude prices lasting for a very short period. We saw oil futures get massively manipulated in 2007 and 2008, so we should not forget its easy vulnerability.

Volume remains critically low in market trading today as investors are finding it difficult to find things to buy these days. I don't expect volume to remain low for very much longer as we are heading into the busy season for hedge funds and Investment Banks. Considering that 200,000 jobs are still getting slashed every month, I don't see consumer income improving anytime soon. Thus, continued struggles into 2010.

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Consumer Credit - The Double Edged Sword

consumer credit lossI hope everyone had a good holiday weekend, as Labor Day usually marks as the "official" end to summer. I know in my line of business it seems as if all are rallying to get sorted to prepare for the end of year actions. The stock market seems to not mind September thus far as it rallied into the close on Friday and has opened and closed up in the green today.

Much of the rallying Friday, came from the better than expected unemployment number, which I had warned about on Thursday. Also, Friday was the lightest day of trading (volume) of the year thus far, so to see it swing is not too surprising. In tonight's premium podcast (subscribe here), I will discuss more about the employment debacle and why Friday wasn't not as good as it seemed.

Today, consumer credit came in down at record low levels for July. Consumer debt fell $21.55 billion in July to $2.47 trillion. This is a record drop and serves as the sixth straight monthly drop. Credit cards alone fell 8.5%. This is a big reason why I have been very bearish on credit card companies the past few months, regardless of how they're stocks have been performing.

It is clear that credit is tightening and continues to tighten, which is very dangerous when you consider how deep we are in this recession. If such a recovery that many believe is indeed here, credit would most likely be flowing to consumers with much more ease. But as I have pointed out time and time again, this recover is leaving the consumer behind, which will eventually come back to bite us. Greed in Wall Street is once again trying to lead this ship back with its captain left behind. Mark my words, in my opinion, when we do find ourselves in a recovery, the consumer will be in the center of it.

It is clear at this point that the consumer is getting drained more and more of disposable income. Credit was our largest source of spending to spur growth. Sure, in the long run it is better that people are acquiring less debt, but unfortunately, these "wise budgeting" practices, will only decay this economy further at this point. The government can only spend their way out of this for so long.

One loan that continues to be available are student loans. Government backing have made college loans still available, however, even those have tightened a bit. Also, due to the large demand of people wanting to return to school, considering jobs are far and few between, enrollment admissions have been competitive. Thus, online education has also become much more popular. Happy Trading.

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The End of Another Government Program

cash for clunkersThe government launched the recent program called "Cash for Clunkers", which gave consumers the opportunity to turn in their old "clunker" for up to $4500 credit towards the purchase of a new car. The program was such a hit that the initial funds were all used up within weeks of its initial launch and required Congress to vote and allocate more funds to the program.

After about a month of the popular program the new funds were completely depleted. So far, just a few hundred thousand cars sold is all we've seen from the program and unfortunately, in the end, it probably put several already struggling consumers, further into debt.

The government will need to be very active to help LEAD the economy out of this recession, but it needs to do just that, lead it. I believe they should focus more on getting more money into the consumer's hands and focus on how to reduce small business expenses to help encourage increase in the circulation of money. However, as a result, you can believe that 2010 Chevrolet Camaro and Porsche have benefited from the government program. Overall, we may have seen another several hundred billion down the drain. Check out the GMC Terrain Review and the 2010 Mercedes Benz GLK Review, as the cars look to be getting better going into the future.

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Unemployment Anxiety

unemployment reportI apologize for the missed post yesterday. I am attending the ICSC West Coast real estate conference and have been preoccupied with hearing about the destruction of commercial real estate happening all around the country. The media can say whatever they want, but coming from the horse's mouth, there are some dark, dark days awaiting the commercial real estate market.

After two rather strong days of selling which we saw on Tuesday and Wednesday, the market was able to bounce back slightly today by having the Dow end up a bit over 60 points. However, the trading was mixed throughout the day and did spend some of the day in the red. The green day today does not dispute the probable trend of a turn around at this point, especially when you consider that higher volume levels have accompanied selling in recent trading days.

Everybody anxiously awaits the employment numbers being released tomorrow. Best case scenario, is that the number comes in around the 200,000 jobless mark, which in that case, the market would most likely cheer. However, when you think of how discouraging that number really is and that the unemployment market continues to lose jobs at such a violent level, it makes it hard to cheer about anything. Also, keep in my mind that we are going into a holiday weekend, which usually makes investors nervous to hold investments over the long weekend. On the flip side, volume will most likely remain low, due to traveling, which could prime the market for large market manipulation to push their weight around. I expect the unemployment number to be the main decision maker of where we head. I don't see a lot of optimism for September as year end pressures begin to pile up. Oh yea, and redemptions...Happy Trading,

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Discouraging Signals in Wall Street

stock sellingAfter what looked to be a rally to open the day on Tuesday, investors have responded with some vicious selling thus far, putting the Dow lower about 160 points currently. I believe this to be a collective response to what we've seen recently in China, as well as threatening deflationary signals with lowering commodities. Oil is struggling once again today, which I believe is the beginning of problems for energy for the next few months. Financials have also taken a beating today, which has caused FAZ to finally have strong day of rallying.

There was mixed news today, which clearly did not settle well with investors. Supply Management's monthly manufacturing index actually rose for August, however, new construction showed a drop in outlays. Future home sales also came in worse than expected, which is a disappointment for the many believing that we are out of the woods for residential. With the mixture of these, the overall belief in the market being very overbought at this point has caused selling throughout all sectors.

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Historically, September has been more of a foe than a friend to Wall Street. Since 1900, the Dow has fallen an average of 1.1% in the month of September. Considering we have been on quite a buying ride in a tumultuous market, and signals are pointing to deflationary down spiraling, September could be a month many would like to forget. Sustained selling for multiple days will be a serious indicator of a turn. Happy Trading.

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