Posted 2007-05-11 11:40
by Karl Denninger
by Karl Denninger
The markets rose strongly this morning.
But, as is often the case on "relief rallies", follow-through is somewhat, uh, lacking.
Note that peak right at 11:00 (EDT); I'm on Central so the time is off an hour. Just as predicted.
But I'm not sold with the lack of follow-through beyond the 11:00 AM hour. The Nasdaq is even more peaked, having hit at right near 11:15 and fading back fairly strongly since.
By the way, that happens to be right up against the bottom of the channel. A close under 1500 on the S&P doesn't confirm the break but it sure isn't bullish. The Dow remains inside the wedge at this point and appears likely to end there this afternoon.
So right now, on a strictly technical basis, we have a mixed bag.
The rest of the day is going to be interesting. While the "headline" numbers sounded good for the morning reports there was in fact more bad news in the data - the first being a food inflation number that is now pushing 9% annually. That's serious, because we all eat and food is actually a bigger component by far than energy in most households. Dollar weakness is the culprit here, along with the ethanol craze, and there's no real indication that we will see either correct any time soon.
If you think that won't filter into the CPI within the next couple of months I've got a bridge to sell you. Yet that was basically the reason for the rally this morning - a belief that the Fed might actually cut interest rates. Bah. Not while real inflation in your household is running in excess of 5% and the upward pressure is still there in the PPI numbers, whether they're in the "core" or not. Never mind that the Fed has to be looking at those equity prices and saying "Cut? With the stock market at historic highs? Yeah, right!"
What is potentially far more troubling is the inventory number. It was down more than expectations. This would sound good, right - companies are selling their production, lightening inventories.
Uh, no. The reason is that inventory assumptions go into the GDP figure. Now we know that assumption was too high - in other words, here comes yet another downward revision to 1st quarter GDP. That number won't come until the end of May, but when it does, I now expect it to be no better than 0.7% - and perhaps worse. That's a fifty percent cut from the original reported gain, and you can bet the market won't like that one bit.
How many people are on the ball with this? I have no idea. But this is not a good trend by any stretch of the imagination, and if it keeps up the trouble will only get worse. A lot worse.
Remember folks, we only had one month of "bad news" in the first quarter. Now we've got same store sales in the dirt and the economic revisions are all coming in to push economic expansion down, not up.
It may take Mr. Market a while to digest this - or perhaps not - but when it does, unless there's a solid indication of a reversal underway, you can bet the equity markets won't like it one bit.
Oh, just a quick update - someone dumped 25 million shares of Citibank this morning around 11:10. That's a big block of shares - an institutional unload...... No idea who it was.....
But, as is often the case on "relief rallies", follow-through is somewhat, uh, lacking.
Note that peak right at 11:00 (EDT); I'm on Central so the time is off an hour. Just as predicted.
But I'm not sold with the lack of follow-through beyond the 11:00 AM hour. The Nasdaq is even more peaked, having hit at right near 11:15 and fading back fairly strongly since.
By the way, that happens to be right up against the bottom of the channel. A close under 1500 on the S&P doesn't confirm the break but it sure isn't bullish. The Dow remains inside the wedge at this point and appears likely to end there this afternoon.
So right now, on a strictly technical basis, we have a mixed bag.
The rest of the day is going to be interesting. While the "headline" numbers sounded good for the morning reports there was in fact more bad news in the data - the first being a food inflation number that is now pushing 9% annually. That's serious, because we all eat and food is actually a bigger component by far than energy in most households. Dollar weakness is the culprit here, along with the ethanol craze, and there's no real indication that we will see either correct any time soon.
If you think that won't filter into the CPI within the next couple of months I've got a bridge to sell you. Yet that was basically the reason for the rally this morning - a belief that the Fed might actually cut interest rates. Bah. Not while real inflation in your household is running in excess of 5% and the upward pressure is still there in the PPI numbers, whether they're in the "core" or not. Never mind that the Fed has to be looking at those equity prices and saying "Cut? With the stock market at historic highs? Yeah, right!"
What is potentially far more troubling is the inventory number. It was down more than expectations. This would sound good, right - companies are selling their production, lightening inventories.
Uh, no. The reason is that inventory assumptions go into the GDP figure. Now we know that assumption was too high - in other words, here comes yet another downward revision to 1st quarter GDP. That number won't come until the end of May, but when it does, I now expect it to be no better than 0.7% - and perhaps worse. That's a fifty percent cut from the original reported gain, and you can bet the market won't like that one bit.
How many people are on the ball with this? I have no idea. But this is not a good trend by any stretch of the imagination, and if it keeps up the trouble will only get worse. A lot worse.
Remember folks, we only had one month of "bad news" in the first quarter. Now we've got same store sales in the dirt and the economic revisions are all coming in to push economic expansion down, not up.
It may take Mr. Market a while to digest this - or perhaps not - but when it does, unless there's a solid indication of a reversal underway, you can bet the equity markets won't like it one bit.
Oh, just a quick update - someone dumped 25 million shares of Citibank this morning around 11:10. That's a big block of shares - an institutional unload...... No idea who it was.....
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