The Fed's Beige Book comes out at 2pm today.
Our last Beige Books came out Jan 14th (down 250), March 4th (up 100 ahead of huge drop) and April 15th (up 100) so we are anxious to hear what the Fed has to say today in their anecdotal report of economic conditions through the end of May. On May 20th we had Fed minutes and the market didn't like that one bit. so let's hope they've cheered up since that last meeting.
Oil has cheered up, hitting $71.50 in pre-market trading. All of our indexes are flying as Asian trading rocketed higher on a RUMOR that China's Friday Industrial Production Report rose 8.9% in May and Tomorrow's Fixed Asset Investment Report will rise 37% for the month. This came from the Ming Pao Daily, who cited "unnamed market sources." This information is stunning, especially in light of the ACTUAL PPI falling 7.2% for May and the ACTUAL CPI, that showed a 1.4% decline but, since we have long ago entered the "no thinking zone" (in fact, on Mad Money yesterday, Cramer made fun of us for thinking!), so happy rumors trump ugly facts every time.
Perhaps it's true, perhaps China did increase Industrial Production 9% while driving input costs down 7% during a month when commodities rose over 20%. If so, all the more reason the Republicans should shut up and let us go Communist ASAP because those guys REALLY know how to get things done! We're already giving them Hummer and it's very likely, by 2011, we'll be importing 2M Electric Hummers a year from China. Boy that joke will be on us, right?
China is leading the global stimulus bandwagon, of course with a massive increase in debt financing this year. "There is no such thing as a free stimulus package. There is a huge amount of unreported government debt, and we're adding to it now clearly," said Stephen Green, an economist for Standard Chartered in Shanghai.
The stimulus package in China is working so well that there is now a 2-month wait to buy a car in China as direct subsidies and a cut in retail taxes has pushed millions of Chinese into auto dealerships. Gee, rather than give the auto companies $30Bn three months before they went bankrupt – do you think the US could have offered $5,0000 incentives on 6M cars to boost demand AND help the consumer? Like I said – when can we go communist?
Notice on the chart that the godless communists of Russia and China, seem to run their economies with far, far less debt than the G20 (and Russia and China are part of the G20 and keep the average down). They have armies, they have health care, they take care of the elderly…. Kind of makes you wonder about all the knee-jerk revulsion to their systems doesn't it? Anyway, not a day to get political with so many fun things to look at this morning. The Hang Seng led Asia higher with a 4% gain this morning – led, of course, by the commodity pushers. Mainland China, who are more of the importers, was up 1% on the Shanghai. The Nikkei topped out just under the 10,000 mark, a line they fell through so fast in September that you can't see a pause on the charts. This puts them just over 50% off the March '07 high of 19,786 and 43% off the bottom of 7,000 so it will be very impressive if they plow through from here.
Japan is certainly following Cramer's advice and ignoring the bad news as their Machine Order Report for April showed a 5.4% decline vs. a 0.8% increase expected as part of that 43% rally they've been having. The BOJ also released a report showing PPI down 5.4%, the worst sign of deflation in Japan since 1987 and they've been having 20 years of deflation so that's saying something! I suppose rising commodity prices will soon take care of that and prices will rise and everyone will be happy – right? I'm not sure, I'm new at all this mindless optimism…
Makers of general machinery, metal products and chemical goods slashed their orders, as did some non-manufacturers like transportation firms, Cabinet Office data showed. Core orders exclude often-volatile demand for ships and orders from electronic power companies. Their value totaled 688.8 billion yen ($7.07 billion) in April, the lowest since April 1987, a Cabinet Office official said. "Machinery orders' absolute level remains low, capex remains weak," Goldman Sachs said in a report. "We do not envisage a capex recovery anytime soon." Say, aren't those the same guys telling us global demand is picking up and we should buy oil?
Speaking of oil: Well I sure learned my lesson. If Goldman Sachs says oil is going to $85, it's going to $85 and it doesn't matter what data you have against it. Today we are at $71.50 at 7am and, aside from the rumors of China's stunning Production Report, we also have a report from the American Petroleum Institute (sponsored by oil companies) that says there will be a 6Mb draw in crude today. Official estimates were for a 1Mb build and that's what send oil flying from under $70 at the market's close yesterday all the way up to $71.65 earlier this morning. Of course, if you read the report you'll see that there were two factors in play. One is refinery utilization picked up by 200,000 barrels a day – drawing 1.4Mb of stock for the week. Two is the STUNNING drop in imports, to just 8.5Mbd.
New paragraph because this is VERY important. 8.5 Million barrels of oil a day is 1,465,000 barrels PER DAY LESS than LAST WEEK. That would be, with no weather issues and no wars and not even any Nigerian pirates, a short-shipping of 10.25 Million barrels of oil to the US. Even worse, last year at this time, they US was importing 11M barrels of oil per day so 8.5Mb is 17.5 MILLION less barrels being shipped to America than last year right at the beginning of our busiest demand season.
Of course it's not going to create a shortage, we are still at record capacity and we'd need 30 weeks of 6Mb draws just to get back to last year's average storage levels but HOLY COW – is no one going to do anything about this? Driving up the price of oil by $2 a barrel by refusing to deliver oil (and canceling millions of valid delivery contracts at the last minute each month), costs US consumers $38 Million a day – I smell class action lawsuit against the people who use our TARP money to store our oil in offshore tankers rather than deliver it to US consumers, even as they place orders for those products in record quantities on the NYMEX to drive up prices with NO INTENTION of taking delivery. The net effect is a massive theft of money from every single person in America. So I'm tired of telling you to write to your congressmen – JUST GET ME A LAWYER!!! At $1.2Bn a month of directly attributable damages for every $2 per barrel, it won't take much contributory claims to make this case worthwhile…
Commodity pushers are also sending Europe about 2.5% higher (8am) but we've been here before – ON FRIDAY! That's right, Friday's pre-markets were up at the same levels we're at now and we're still not over our "Triple Top Testy Tuesday" levels of June 2nd's pre-market. I asked yesterday if we would get fooled again and it looks like today is going to be "Breakout today, shame on Phil, 4th failure at these levels in 30 days and Cramer's a fool.." I already sent out a Morning Alert to Members listing our "Brain Shut-Off" targets. Aside from the not yet held 40% lines of 946 on the S&P and 6,232 on the NYSE, we really need to take out Friday's tops of: Dow 8.750, S&P 950, Nas 1,865 (beat in yesterday’s high of 1,870), NYSE 6,160, Russell 536, SOX 285 (June 1st, Friday was 275), Transports 1,880 (also June 1, Fri 1,850). Give us those levels and we'll jump on board Cramer's crazy train but I don't think it's too much to wait and see if they can make it to the next station without crashing before we jump on board.
Europe is already on that runaway train despite German exports slumping 28.7% in April, the worst drop since record-keeping began in 1950. That's worse than March, worse than February or any or the other terrible months that led to a massive market collapse. It's OK though as trade was well-balanced because imports were down 22.9% too, even with the 10% increase in crude prices (those really help push up your import figures and that's GOOD, right Cramer?). Germany exported about $1.4Tn last year so that's "only" $400Bn less this year – about the size of China's entire stimulus program – see how everything evens out?
Also breaking new records for sucking today is South Africa's Manufacturing Index, which fell 21.6% in April, worse even than the 18.3% expected. “We expected the number to be substantially lower than last year but this was a really shocking result,” said Johan Botha, an economist at Standard Bank Group Ltd. in Johannesburg. “Domestic demand is almost non-existent and there’s also no life on the export side.” Business confidence slumped to its lowest level in almost a decade in the second quarter, Rand Merchant Bank said yesterday, indicating the economy probably contracted for a third consecutive quarter in the three months through June. Automakers have fired workers and curbed output in response to slackening demand. Vehicle sales plunged 35 percent in May from a year ago, after falling by a record 43 percent in the previous month, an industry body said on June 2. Yep, must be time to buy commodities… See, I'm getting the hang of this!
The BOE does not see a recovery and is urging banks to increase lending. "For the moment it is unclear…whether the financial system can generate the expansion of credit that will most likely be necessary to support recovery," Deputy Governor Tucker said. Tucker urged banks to increase their lending, and said those that choose not to, in the hope that others will take up the slack, risk damaging their own medium-term prospects. "There cannot sensibly be free riders," Mr. Tucker said. "If all banks were to adopt such a strategy, recovery might end up being anemic at best, which would feed back into the banking system itself, increasing defaults and depleting banks' capital. Inevitably the medium-term outlook remains highly uncertain, and the path back to anything like normality can only be gradual, I'm afraid." He's afraid but FOREX traders sure arent' as the Pound is up 6% against the dollar this week.
8:30 Update: Our own Trade Deficit moved up to $29.16Bn in April but that's not a surprise with oil up 10%, just wait until next month when another 20% jump in oil is factored in with hardly any cars or planes going out! Trade added 2.18% to our Q1 GDP as the weak dollar boosted exports but April's number (the first month of Q2 for those of you keeping score) fell to $121.11Bn, the lowest level since July 2006, from $123.93Bn in March (revised down $1Bn). Our cost of imports went UP $13.63Bn and our trade deficit with China rose to $16.75Bn from $15.62Bn in March so things probably ARE pretty good at WMT!
For more commentary on the economy – CHECK OUT THIS GUY! Whoever he his, he can have a weekly spot on our site…
My prediction to members of today's action is that this would be yet another failed pre-market pump job. We added to our oil futures puts and will be happy to get out even at this point. The real inventory report is at 10:30 but if those import numbers are really as weak as the API measured and the Obama Administration doesn't do anything, it will be a shameful act of cowardice as we've already subjugated this nation to the US energy cartel when times were good – are we now going to let them grind us under their boots when we're down as well?
Also supporting oil was yesterday's EIA report which, if you listened to CNBC, was MARKET MOVING! TheEIA raised their forecast for world oil demand for 2009. Guess by how much? If you just heard it on CNBC, I’ll bet you thought it was more than enough to justify popping oil over $70 from $67 at the beginning of the day. Late traders sure thought so and ran oil all the way to $71.50 this morning. Get ready for the shocking forecast that moved oil up 2.8% yesterday:
"The EIA data showing it has raised its world and U.S. oil demand forecast for the first time since September is a sign that things are stabilizing on the demand side," said Phil Flynn, analyst, Alaron Trading in Chicago.
OK, here it comes – brace yourself:
The EIA raised its forecast for 2009 world demand by 10,000 barrels per day from its May estimate of 83.67 million bpd, marking the first time since September it has increased its 2009 demand estimate.
10,000 Barrels a day!!!! Oh my gosh – RUN!!!! Everybody start digging holes in the yard so we can store oil before it’s all gone!!! What a friggin’ joke this is:
World demand will likely decline 1.8 million bpd this year from the 2008 level. The EIA expected global demand in 2010 would rise to 84.41 million bpd, 20,000 more than it forecast last month.
Obviously, there is no end to this farce….
We stand rested and ready to switch off our brains. We are the proverbial cash on the side, waiting for a real signal that it's safe to get back in the water, even here, up about 40% from the bottom. It will be easy to buy above our breakout levels as we simply turn around and use them as signals to get out or cover – that's the kind of easy investing we like. Up this high though, and still under our levels – it's like being on a wire at the top of the big top without a net – at this point, we'd feel a little safer walking on the roof so let's get that break-out. Come on Cramer – I'm waiting…