Commodities

Commodities all follow cycles of consolidation, boom, and bust. When looking at them as a whole it can be hard to tell when tops occur. But when you start to break down individual markets you will notice that many of our commodities like Sugar, Wheat, Cotton and the like have already topped out in Feb of this year while others like gold silver and oil are still printing higher highs. This divergence is telling you that the commodity markets are getting tired. More upside may be coming in some of the tardiest sectors but at one point in the future all will start to correct. This is the bust cycle and it is typically strong in commodities. I do not expect it to be any different this time.

Wizard of Oz

In the movie the Wizard of Oz, the travelers go through a precarious round of awkward tasks and scenarios in order to meet the Wizard.  It is shown at the end that the Wizard is just a man behind a machine.   

He was just a figure head. 

Today, the Master Wizard of Monetary Policy, Sir Ben Wizzie himself, spoke to Dorthy and Toto, the Tin Man and the Cowardly Lion.  He did what all Wizards do before they are exposed as frauds-- kept everyone believing in magic.

Bernanke said NOTHING in his meeting today.  He has said NOTHING in the last 10 meetings.

By saying nothing Bernanke may have made some new enemies opposed to friends. 

Wizard Fed-Speak nothing today

“Extended period is conditioned on resource slack, on subdued inflation and on stable inflation expectations,” Bernanke said. “Once those conditions are violated or we move away from those conditions, that’s the time we need to begin to tighten.”

BEN WIZZIE'S NEW ENEMIES???

As for enemies, Ben wizzie now has on his list:

• Every U.S. Consumer that has been told the economy is recovering
• Anyone in the world that has to eat
• Anyone in the world that has to use fuel
• Every central banker in the world that has to try and wrestle the exploding costs of infaltion

This was a green light to continue to cream the dollar, and in essence over-inflate commodity rich companies currencies. 

Fun:  USA 2011:  $5 gas, homes dropping 10% this year, flat job growth and $19 apple-sauce.  RECOVERY!!!   

This was also a big F-U to Austrailia, Canada and other currencies that have exploded with commodity prices.  Who is going to buy your 'stuff' when the US crap is cheaper?  China?  Ha ha. 

The only thing that was definite was that Ben Wizzie said that QE was done in June.

Expect the last MANIA portion of the equity bubble to take off here shortly, but be ready.  No Stimulus shimulus in June = stronger dollar = Equity markets and commodity prices watch out below. 

Bonds should continue to strengthen as well.  When bonds strengthen while equity markets explode higher, don't believe the panelist on Cavuto that tells you 'Stronger Bonds mean we are recovering faster."  It means, there is shit being shot out of a bazooka and it is heading towards the fan at the speed of light.

Ben Wizzie will play his last Ace as QEIII before 2011 is over.  Will it work again?  Maybe he should just send everyone 'live' stimulus checks like Bushie Duex, or pay off our mortgages.

Maybe, just maybe, Ben Wizzie is playing us all into his trap.  He inflates to crash the economy and they unloads TRILLIONS of QE crap to the masses at a premium.

...Maybe he is just a man behind a machine and has no clue what he is doing... 

Probably the second scenario...

Regardless, I'll wait until Christmas 2012 to buy gold-dipped UGGs for everyone-- should be cheap, just like Australian Real Estate at that time...

Quick Post to Share a Thought on Silver

It seems that everyone has an opinion these days about silver. I will share mine very quickly. We have now come with in a hair of $50.36, (the all time top for silver back in Jan of 1980) after the $49.82 print yesterday.
Currently we are trading at $45.19 which is a 9.29% correction. It would seem prudent to me for silver to find a bottom between here and $40 for a final assault to take out $50.36. How much higher I do not know. After this is accomplished I would expect to see a drastic collapse. It would be great if TIME Mag had a front page article about silver over the next month to show us the top. Only if we are so lucky.


There, now you have my thoughts on the matter.

June Bugs

The US Equity rally monkey has been busy this week! 

The idea of a debt downgrade has only strengthened the rally by further crushing the dollar.  Fundamentals are still Charlie Sheen on mushrooms skewed, but this rally is now a combination of marshmallow fluff from the Master Wizard's QEII and the 'unforseen' downgrade from S&P.  The S&P downgrade is just fuel to the fire... The problem now is that it will be much tougher to put this QE fire out. 

On another downgrade note, S&P downgraded FNMA/FHLMC bonds from stable to negative today as well-- just another little slap on the wrist, and again, about 3 years late. Captain Obvious strikes again.  Downgrading FNMA and FREDDIE MAC is the equivalent to picking Micheal Jordan as your 2-on-2 partner when you can pick from anyone in history.  Everyone knows it is coming.  We are moving ever closer to the next major leg down in the US real estate market...  

COMPLACENCY REACHED

Watching the VIX, we are now at absolute complacency in the markets.  This is indeed a sleeping dragon.  The idea that we are in a never ending, no risk associated rising market should be scary to everyone, though that doesn't mean you need to go and sell sell sell. 

Not yet.

It should be noted that the VIX is trading at levels before the big kahuna crash that lead to the great recession. 

It appears to be sunshine and cookies for all. 

DOLLAR KEEPS FALLING.  CAN'T SEE THE BOTTOM

Ugly should be the word to replace today's dollar.  Next time you go to the store try to pay in Uglies. 

How Much is that shirt?

--30 Uglies.

Will you take 22 Uglies and a book of matches signed by Tom Jones I found in my wife's suitcase.

-- 25 Uglies and keep the matches.

There is no bottom in sight for the dollar's collapse.  It appears to be in a free fall at this point.  The only way it rebounds is with some Wizard Juice-- that is right...  FED-speak magic.  The master wizard speaks to the masses in the 1st press conference on April 27th.  Expect nothing but the usual this time around. 

The waning confidence in the US Dollar continues to push the price of oil up.  Gasoline is nearing $4.00.  It is not different this time.  $4.00 gas will indeed cripple to consumer.

PARTY ENDS IN JUNE

We are at a major crossroads right now for the master of monetary policy.  Price increases will crush the consumer, but the weak dollar and rock-bottom low rates are needed to keep the economy skipping along like a school girl with raspberry jam on her face.

The one thing about a party is that it can't last forever.  There are too many forces against the FEDS to roll into a QEIII without a hiatus.  

When the fun ends it will end not only the rally, but also the dollar's crash, the VIX bottom and the free money for all.  It will not be pretty and it will happen fast.  

I say that the party ends in June.  I know this is vague, but I just can't see the market continuing without support from the FEDS.  The marshmallow fluff from Nov 2010 to now can't be duplicated or supported without the easing.  Long bonds are already strengthening in anticipation of a safe haven, as those that don't want to stay on the roller-coaster any longer are getting off before they run out of track.  

This has indeed been a great party and I would say Mr. Bernanke is a hell-a-va host.  I highly doubt we will have to wait very long for his next shin-dig.  I hear it will be a masquerade ball-- trying to hide the QE that tricky devil.  

Just look how great the S&P looks today!!!

Enjoy it now... It doesn't get much better than this. 

A Debt Monger's Worst Nightmare or a Slap on the Wrist

Today's news of S&P downgrading the US debt stung the markets... kinda 

Can you really doubt S&P's logic on this one?

Hey America-- Get your Sh*t together

In 2003-2008, the U.S.’s general (total) government deficit fluctuated between 2% and 5% of GDP. Already noticeably larger than that of most ‘AAA’ rated sovereigns, it ballooned to more than 11% in 2009 and has yet to recover.

By only downgrading the US debt from stable to negative, was this move a debt monger's worst nightmare or just a slap on the wrist?

“Our negative outlook on our rating on the U.S. sovereign signals that we believe there is at least a one-in-three likelihood that we could lower our long-term rating on the U.S. within two years,” Mr. Swann said. “The outlook reflects our view of the increased risk that the political negotiations over when and how to address both the medium- and long-term fiscal challenges will persist until at least after national elections in 2012.”

I say it is a slap on the wrist and also a creative response to Obama's recent debt plan to reduce debt by $4 trillion over 12 years.

Things I 'may' do over the next 12 years

• Buy a boat
• Have more kids
• Run a marathon
• Eat less red meat
• Meet an alien for coffee
• Win the $400 billion lottery
• Learn how to talk with my butt

I hope we are able to reduce the budget by $4 trillion in 12 years-- that would be great, however, who will be calling Obama up on year 11 with a report card?  If Obama wins again, all bets are off.  If he loses, all bets are off.  This is just political dodge ball at this point and should be taken like most Poly-tic talk and FED speak-- in one ear and out the other. 

As for actual cuts to the budget, they will need to be VERY creative.  Health Care and Social Security are creeping closer and closer to 50% of the budget.  These costs will only expand.  Where will the cuts come from?  Transportation and Education?  Been there, done that.  Click on the link below and scroll down for an interactive image for a breakdown of the 2012 budget

white house.gov 2012 budget

I think we will have to do one of 2 things to reach a budget that is achievable and sustainable.  (1) Raise taxes, or (2) Kill 40 million baby boomers.  We could also ask for massive pay cuts for higher levels of government.  Funny how I see a sea of dead boomers before I see that happening.   

S&P rating cuts are NOT about QEII

According to S&P, QEII has nothing to do with this decision, but FNMA and FHLMC are big contributors to the kinda downgrade.  dirty mortgage GSE's are killing everything.

One of the pressures on the credit is analysts' estimate that it could cost the U.S. government up to "3.5% of GDP to appropriately capitalize and relaunch Fannie Mae and Freddie Mac" in addition to the 1% of GDP already invested.

... and in other, yet related news, Home builders sentiment sucked bottom yet again.

The National Association of Home Builders/Wells Fargo sentiment index declined to 16 this month from 17 in March, data from the Washington-based group showed today. A measure of sales expectations for the next six months dropped to the lowest level since October, and a gauge of current purchases also fell. Readings below 50 mean more respondents said conditions were poor.

This is on a gauge of 50+ being good.  A 17 to a 16 is the equivalent of going from 'losing the family dog to bone cancer,' to 'finding spouse in bed with business partner.'  We are still a long way from the bottom in housing and the declines will start to wipe away equity at the rate of light speed at the pace we are going if we dump Fannie and Freddie (ie. mortgage financing as we know it).  No private investment will lend money for 5% for 30 years-- not without 50% down and about 20% upfront in fees.  Many buyers in this imaginary home-buyer pool of unicorns and talking marshmallow men.

Stocks fall and bonds... rise?

In a classic move, equity indexes shrugged off a sure sign of a drop in the market and ended up the day only down about 1%, while bonds... rallied?

You would think this would be bond negative, but if this slap on the wrist becomes a debt monger's worst nightmare, raising short term rates would mean lower equity prices and strength in long bonds.  It's a long shot, but it could happen. 

QEII is ending soon as well, which makes EVERYONE question what will happen next-- the S&P was up 26% since QEII and there are many forces that say these gains are all fluff and once the feds go away from the market, the gains will follow. 

Time to go long TLT?

TLT looks to have bottomed at around 88 in early Feb and has had strong support at 90 other than this one incident.  With QEII ending in about a month and a half, investors look to be dipping back into bonds, and today despite a debt kinda downgrade. 

Of course, wizards can always ruin what should be a 'sure thing.' 

Expect QEIII (it will have a fancy name, but if it sounds like a stimulated duck...) to follow as soon as the S&P retracts 10 percent, maybe less. 

All in all, a busy day, but nothing more than a slap on the wrist with a kinda downgrade. 

Coming next-- government to S&P:  Raise that debt ceiling!  And by the way, S&P, shove your 'rating' system. 

Getting uglier by the day!  

Prelude

prelude

n prelude [ˈpreljuːd]

1 an event etc that goes before, and acts as an introduction to, something

 

China Real Estate

BEIJING (MNI) - Prices of new homes in China's capital plunged 26.7% month-on-month in March, the Beijing News reported Tuesday, citing data from the city's Housing and Urban-Rural Development Commission.

Average prices of newly-built houses in March fell 10.9% over the same month last year to CNY19,679 per square meter, marking the first year-on-year decline since September 2009.

Home purchases fell 50.9% y/y and 41.5% m/m, the newspaper said, citing an unidentified official from the Housing Commission as saying the falls point to the government's crackdown on speculation in the real estate market.

Beijing property prices rose 0.4% m/m in February, 0.8% in January and 0.2% in December, according to National Bureau of Statistics data.

The central government has launched several rounds of measures since last year designed to cool the housing market, though local government reliance on land sales to plug fiscal holes mean enforcement hasn't been uniform.

The NBS is expected to release March house price data on April 18.

And this is the part of the story that begins to tell the actual story...

No one should be surprised by this other than the Chinese government that will NOT like this report being leaked early. 

I suppose it can be considered a prelude to a prelude in that sense.

This is going to be real ugly...

Unsustainable Oil Happening Before Your Eyes

Oil Prices Can Not Be Sustained... There is NO Way

Oil and energy costs are 2nd only to housing bubbles in recession creators.  The current energy environment is no different.  Oil prices at this level can not be sustained... not now, not ever... It doesn't matter what Cramer tells you about the never ending oil boom.

Prices at our current level will cripple the world economy.

It is only a matter of time...  It is NOT different this time.

We have NEVER been in an energy environment like the current one.  In addition to the commodity boom, commodity rich countries are seeing a wealth effect from extra monies due to inflated prices.  This has created dangerous real estate bubbles (and credit bubbles) in Australia, Canada, China, Singapore, South Africa, and Brazil (to name the usual suspects you will hear about on Cavuto in late 2011 and 2012).

Arguments against the impending commodity crash will say that 'world growth' drives prices higher.  That is foolish.  These countries have been growing for decades, not months-- their need for energy is indeed growing, but not anywhere close to the rate that energy costs are rising.  Sustained growth would mean sustained price increases, not massive jumps.

See the housing boom period in the US in the chart below-- this was a wealth effect caused by a credit bubble.  It created unsustainable prince increases in energy costs.  As the rest of the world (minus Europe-- that is another mess completely!) experiences housing bubble crashes Oil prices will follow downward.  

The US economy (like any other economy) can not have healthy organic (no QE Fed based stimulus or housing stimulus shimulus) growth with excessive energy costs.

It is the snake swallowing the house...

This will not end well...

    
History tells us that we are WAY out outside the normal range for energy costs.  Inflation adjusted income is falling but energy costs are soaring.  For real Inflation to stick it NEEDS income/ wage growth to follow or it is just increased cost to the consumer that takes away from Forever 21 sales.  Do you really see wage growth at 8.8% unemployment?

It is only a matter of time before the House of Cards collapses-- June?  July?  Tomorrow?  a few Mondays from now?.

If 2008 is any indicator, MANIA is almost achieved and ...

D O W N
W E 
G O


... It is NOT different this time... Except the higher up we go the harder we fall.

Obama's Foot in Mouth Disease. Common Side Effect of a Debt Addict

Another Day another few billion dollars: About 5 billion in Treasuries, maybe a few new planes to bomb some worthless African county that is Duh... Not winning and about 10,000 gallons of Jet Fuel to send ole' AF1 to the iron belt to talk about jobs to a bunch of 99ers (that's weeks unemployed).

All this on a random Monday in April.  

But can you hear the tick-tock-tick-tock-tick-tock in the back ground.  Listen closely-- no, it is not your Wife's biological clock telling you to sell your SLV to buy a minivan for another nino (or nina).  That is the sound of the US debt ceiling clock.  The tick-tock is getting louder and louder as the date gets closer to the debt ceiling.

Timothy 'Paper Tiger' Geithner has been screaming like a little girl for the last few weeks that the $14.3 trillion-- yes Mr. Obama-- that is Trillion with a 'T,' debt ceiling needs to be raised or the government will run out of money to fund many a program on May 16th. America running out of fake money.

Obama has a case of foot in mouth disease on this one.  As a senator in 2006 Obama voted against raising the debt ceiling.  In his defense he probably had no clue at that date that he would be President in a few years or that he would be in the presence of a Master Wizard at the head of the Fed.  How could anyone know that? Major bummer dude. In 2006 Obama was still sucking down Marlboro's and telling his buddies how the world would change if he had his 15 minutes... how right he was.

OBAMAS SPEACH IN 2006:  FOOT IN MOUTH

Enjoy this diddy in full: 

Whoops. Obama in 2006. Dude wishes he had a Delorain

***DRINKING GAME ALERT!***

I will add a Homer Simpson:  DOH!  Where necessary... 

You should drink every time you see a DOH!

 Mr. OBAMA. to Mr. President:  I rise today to talk about America’s debt problem. DOH! The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure.DOH! DOH! DOH! It is a sign that the U.S. Government can’t pay its own bills. DOH! It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies.DOH! Over the past 5 years, our federal debt has increased by $3.5 trillion to $8.6 trillion.DOH! That is  ‘‘trillion’’ with a ‘‘T.’' DOH! That is money that we have borrowed from the Social Security trust fund, borrowed from China and Japan, borrowed from American taxpayers. DOH! And over the next 5 years, between now and 2011, the President’s budget will increase the debt by almost another $3.5 trillion. Numbers that large are sometimes hard to understand. DOH! Some people may wonder why they matter. DOH!... 

Sorry to stop off the fun-- I don't want you to get too hammered! 

HAVING A DEBT CEILING IS THE SAME AS RIDING A PINK POLKA-DOT UNICORN ON THE MOON

Does it really matter if there is a 'debt ceiling?'  No.  Money is not real-- not to the US government!  The Federal Reserve Note that is a dollar is about as real as a Pink Polka-Dot Unicorn.  The idea of a debt ceiling is about as realistic as riding said Pink Polka-Dot Unicorn on the moon.  Does the governement really care if there is a debt ceiling?  No... No they do not. 

OBAMA IS JUST ANOTHER DEBT ADDICT

Every president has to eat their words at one point in their presidency (NO NEW TAXES anyone?).  But this is just bad timing-- right after the 'almost' government shut down.

I think it is fair to say that Obama is a debt addict.  There is no re-election with 'only' a $14.3 trillion dollar debt ceiling.  Not at 8.8% unemployment!  He knows that printing money is easier than creating jobs or paying it back.  Balance the budget-- that is funny!

• Obama was worried about a $12 Trillion dollar budget by 2011 in his speech-- he will not increase that 'debt ceiling' to over $15 Trillion.

The ceiling will be lifted and the spending will continue.

(And it won't stop at Obama).

Killing The Dollar Soflty with QE

Kudos to Congress-- If I acted that way at my job I would have been fired. 

Make sure you read between the lines over the next few weeks to notice the consumer trends that are changing fast in the economy.  I have been saying since January that rising costs will cripple this fragile recovery, but at this point I do not believe the Feds have an exit plan-- and I am not only talking about QEII.   

Consumers are spending less and less each month as they are forced to pay more for beer, smokes, gas and diapers.  The biggest problem-- The dollar getting punished like a sex offender in a Peruvian prison.

Consumers are 70% of the economy.

2010 was a great year to be a consumer.  Things were cheap.  That was before the Master Wizard Ben Wizzie decided to pimp the S&P and begin his assault on the dollar..  Killing the Dollar Softly with QE

"Strumming My Pain With His Fingers..."

ENERGY:

200 GALLONS OF GAS A MONTH

Before QEII:  $580 @ $2.90/ GALLON

Today:  $744 @ $3.72/ GALLON

Increase to consumer:  23% increase in 5 months

MORTGAGE RATES

30 year fixed payment on a $250,000 loan

Before QEII:  $1208 @ 4.1%

Today:  $1326 @ 4.9%

Increase to Consumer:  9% increase in 5 months

IS 2011 a 'BACK TO THE FUTURE' EPISODE TO 2008?

Will 2008 and 2011 be looked at in the same light-- rising costs, falling dollar and eventually a recession to follow?

Dollar Crashes through trend line... Wizards winning the battle?

The Green Back has crashed through an important trend line that has held since 2008.  Wizards seem to be winning the battle of killing the dollar softly with QE.  Unless a 9.0 quake hits So Cal in the next 45 days the green back looks to fall further and fast as other countries scramble to tighten monetary policy.

"Killing Me Softly With His Song" 

Is this really ...Duh... WINNING...?

All the Bad Things that happen from the weak dollar... 

The combination of the Fed’s recent round of credit creation and the very public, political wrangling over the budget and debt ceiling will continue to impact the value of the dollar. Here’s how it will impact you:

† Higher interest rates. The world will demand higher interest rates on U.S. debt to offset the risk of dollar devaluation. That means higher interest rates ahead could impact the cost of mortgages, the financing for businesses and the value of bonds in your portfolio (when interest rates rise, bond prices fall). Of course, it could also mean better returns for savers.

† Higher energy prices.You’ve already seen the impact at the gas pump, but that was from supply fears during the Libyan crisis. The next round of higher oil prices will come as a result of the falling dollar. And rising oil prices will impact not only your commute to work but the airline fares you pay. As well, it will impact the price of stuff you buy, since every product has a transportation cost component.

† A slowing economy. All of those added costs will be a drag on the economic recovery. People who have to pay more to drive to work won’t be able to shop for other goods and services. That leads to bleak prospects for job creation.

Of course these are not all bad things (minus the last point of course) if there is any ACTUAL economic growth.  Consumers in 2011 are in a far worse position that in 2007/2008.  Unemployment is much higher, savings have been destroyed over the past few years and home values are crashing at unchecked speeds.  There is no money to support the economy as disposable income becomes used up for $4+ gas and $7 tomatoes.  To top it off, Baby Boomers start to retire this year-- this social shift, along with the lack of job growth and wage growth will make this round of 'inflation' 100X worse than the 2008 round. 

In Back to the Future, Micheal J Fox was able to fix (or create) problems by going back in time. 

There is no time machine for the Feds... there is no way to undo the easing at this point without terrible consequences...

This all ends with either uncontrollable inflation that leads to a recession or interest rate hikes to avoid inflation that leads to a... recession?  That's right.  Both roads lead to the same outcome-- even if you take the Delorian. 

Killing the Dollar Softly...  With QE...



Support

The support we just broke on markets was important.

If we have a continued selling a change in trend could be happening right now. A gap up Monday would void this idea and you can consider the late day sell off as a bear trap. There are a number of indicators that say we are to oversold and the market has too much fear to continue a decline.

Main Street Pump Squeeze Continues

Continuing in the Main Street vs Wall Street theme, we take a PEAK at some news on the day...

Obama to Main Street:  Go buy a smaller car, stupid...

President Obama has started his 2012 campaign and will being popping up in the new for various occasions.  Today in Fairless Hills, PA he spoke to a wind turbine plant about renewable energy and the need to get away from oil dependency. 

This is not a story from 2008... this is TODAY, April 5, 2011.  What was the topic?  Gas prices.  Obama's recommendation:  Obama to America: Trade in the Gas Guzzler Son! 

"Gas prices? They're going to still fluctuate until we can start making these broader changes, and that's going to take a couple of years to have serious effect," Obama said.

Obama needled one questioner who asked about gas prices, now averaging close to $3.70 a gallon nationwide, and suggested that the gentleman consider getting rid of his gas-guzzling vehicle.

"If you're complaining about the price of gas and you're only getting 8 miles a gallon, you know," Obama said laughingly. "You might want to think about a trade-in."

This is coming from the guy that uses one of the worlds largest jumbo jets as a personal plane and arrives in style at events with an entourage of GMC Suburbans and Cadillac Escalades.  I wonder if Obama has to use his personal AMEX at the pump or if he has a corporate card?  I suppose, however, that he is the President of the USA.  Which seems to be useful in every aspect of life other than getting a budget pushed through.

Part of Obama's plan is to reduce oil imports by 1/3 by 2025. 

Great idea, but I have to say that this sounds allot like 2008 to me.  Obama pimped the idea of needing to break free from foreign oil a but-zillion times in 2008.  I guess the 'clean energy' campaign worked in 2008, so why not again today.  What have we done with clean energy in the last 4 year?  Not much.  We had an energy problem in 2008 that fixed itself with a recession... Is that the plan this time around as well?

Obama is not a Master Fed Wizard.  He knows no monetary Fedspeak pimp language to sooth the masses.  However, the President's attitude towards high prices do not mesh with Bernanke's 'I See No Inflation' talk.

Those two need to grab a Sam Adams and get their stories strait. 

Oil Boils Higher 

Crude screamed higher again today-- closing at $108.63. 

Gas is at an avg of $3.69 a gallon. 

I can't find a chart in the world that does not correlate QEII with rising energy costs.  Gas prices are screaming higher each day, week and month-- With the most recent 2 month period seeing an increase of $0.48 a gallon.  If this rate continues we will be north of $4.20 a gallon by the end of QEII.

Europe should raise rates this week, but I do not believe it will help gas prices.  We may see the Brent spread tighten to a more 'normal' range of $1.00-$4.00.  Today the spread is at just under $14. 

Killing The Dollar

Obama also commented today that there is little that can be done to stop the rising energy prices:

"I'm just going to be honest with you. There's not much we can do next week or two weeks from now," the president told workers at a wind turbine plant. It's a theme Obama's struck before as he tries to show voters he's attuned to a top economic concern with gas prices pushing toward $4 a gallon.

Obama can not control Ben Wizzie or the Fed-- that is really all he needed to say.  The only way to slow energy cost increases right now is for the Feds to end QEII AND (This is a 2-parter folks) take a more hawkish stance on accommodate monetary policy.  Simply ending QEII does little to help the dollar.  If the Feds are going to pimp the S&P higher and higher and claim the economy has returned to the days of sunshine and cookies they have to raise rates and act like these events are actually happening.  In my opinion unless both of these are done the dollar will continue to weaken.

Main Street Starting to Feel the Effects?

Main Street Ready to Say UNCLE to gas

Airlines, shipping companies and other U.S. businesses have been squeezed. The rising prices are further straining an economy struggling with high unemployment and a depressed housing market.

"The surge in oil prices since the end of last year is already doing significant damage to the economy," says Mark Zandi, chief economist at Moody's Analytics.

Unlike other kinds of consumer spending, gasoline purchases provide less benefit for the U.S. economy. About half the revenue flows to oil exporting countries like Saudi Arabia and Canada, though U.S. oil companies and gasoline retailers also benefit.

For consumers, more expensive energy siphons away money that would otherwise be used for household purchases, from cars and furniture to clothing and vacations.

A counter point to this argument is made at the end of the article:

In a speech last week, Sandra Pianalto, president of the Federal Reserve Bank of Cleveland, offered hope that higher oil prices won't persist long enough to do much damage.

"Large increases in food or energy prices tend to be temporary," Pianalto said. "History shows that they are often followed by sharp declines."

Sandra Pianalto is correct-- Those sharp declines are usually due to a recession.   

Is that really what is on the horizon?  Another recession?  That is the ultimate squeeze on Wall Street and Main Street.

I've said it before... 

It is NOT different this time.

House Builders of Pain

Continuing the theme of Main Street vs Wall Street, The Home Builders of Pain gave us some delicious material today to show just how down the average Joe is feeling in this jobless/sinking home value/ no wage growth/ rising cost recovery (hey... isn't that stagflation?).

KB HOMES HITS BOTTOM...AGAIN
New orders down 32%... ouch!

"Until the first-time home buyer comes back, nobody in the sector is going to recover forward. These negative results are not just for KB Home, but for the entire sector," said Demir Gjokaj, senior home builder and real estate analyst with ITG

Still, the minds at Standard and Poor's 'sees' a recovery in 'late 2011.'

"Despite a contract backlog of $354 million, we see a 32 percent sales decline in FY 2011 (for KB Home) with the housing market not improving until late 2011," Standard & Poor's Equity Research analyst Ken Leon wrote in a note to clients

Nothing like that regular cyclical October- December housing market recovery!  Happens EVERY year, right?  That is just silly... housing markets are cyclical in that sales are strongest in the SPRING.

So... we can conclude that:

Crappy Q1 sales = No one is pre-buying new homes = no spring buying season =
 There will be NO 2011 Housing Recovery. 

Oh well-- This is just another set-back to retirement for many.  There is always 2016 on the horizon:  The next 'semi-decent' year for housing.

The most important point in this article is : 
"Until the first-time home buyer comes back, nobody in the sector is going to recover forward."

Waiting for first-time buyers to return has set-backs that will stretch out for years:

1. $7500 credit payback in 15 installments starts in 2010.  2008/2009 1st timers have to pay back their $7500 back as it was a loan, not a credit.  
2. $8000 tax credits have to be paid back within the first 3 years if the house is sold or used as a rental.  These buyers are not only out of the market for step-up buying, but they are also not able to SELL to first-timers that may enter the market.  2009/2010 buyers are out of the game until 2013ish.
3. Mortgage Market is a M E S S ! FHA loans are getting more expensive, compensation laws are going to raise fees and the 'attempt' to get rid of Fannie and Freddie means... NO LOAN FOR YOU!  Housing won't recover until credit for housing recovers.  Plain and simple.  It worked for the auto industry and it will work for the housing market... except for it isn't going to happen-- at least not any time soon.  
4. Falling prices.  Confidence is king in the world of housing.  Until confidence comes back, sales will not return.  Right now housing is getting creamed daily in the press and there are no support programs to prop up the crash... watch out below.  

BEAZER BECOMES A LANDLORD
Beazer is going to buy 100 homes and rent the houses out while they 'wait for the housing recovery.'

The home builder said Monday it's launching a new division to buy, upgrade and rent previously owned homes to consumers who aren't ready to purchase a house or who can't qualify for a mortgage.

The Atlanta company plans to buy homes that were built in 2004 and after and expects to acquire mostly discounted foreclosures or short sales, when lenders let homeowners sell for less than they owe on their mortgage.

Touche Beazer-- if you can beat them (or build them for that matter), join them.  The rental market is strong and if you have the scratch to buy a rental jump in.  If you have the scratch to buy 100 homes for 50-60% of what you sold them for 6 years ago, you win... twice.

The only part of Beazer's plan that has holes in it is the 'waiting for the housing recovery.'

Good luck with that...

Main Street can not recover until the housing market recovers.

A housing recovery needs three things:  Jobs, Confidence and Credit. 

We have seen what happens when credit (2002-2006) is used to create the illusion of confidence and we saw what happened when the tax credit created the illusion of confidence-- it all falls apart until all three parts of the pyramid are holding each other up. Today there are still no jobs (McDonald's salaries will not bring home buyers), there is little confidence and credit is very hard to come by. 

Housing and stocks are not the same animal.  Stocks can jump around wildly whereas housing moves at the same speed as a sumo wrestler on mile 24 of a marathon... very, very slow.

The housing marathon continues.  Our House Builders of Pain will give us an idea of a good time to jump back into housing, but from these numbers today, that time is not now.  And it does not look to be anytime soon.

But it's not so bad!  Go and buy a foreclosure-- you will get it for a steal and then spend every last cent you have to your name fixing it up.

Then again, there is always free parking for your van down by the river. 

Politics vs Wall Street = Consumers + This Sucks

Obama announces his 2012 campaign for president.  Is this the changing of the guard from Wall Street to Main Street.  What will win more votes?  More jobs, higher equity prices or cheaper costs on gas and groceries?  The Feds money printing machine vs Obama's shaking hands and kissing babies grassroots campaign begins NOW! 

Yee Haw!  It's poly-tickin' season again!  Whoo hoo! 

For all of those that enjoy news that isn't news what-so-ever, President Obama announced his plans for reelection in 2012.  Obama 2012.

Other things that happened today that were of equal newsworthiness:  The sun rose in the east.  A bus in Queens ran 14 minutes late due to construction.  Someone's alarm clock was mistreated due to a case of the Mondays.  Judge Judy reruns were enjoyed by a gaggle of the unemployed.  Erin Burnett looked mousey and not sexy on CNBC (this is common on Mondays though she improves during the week, in my opinion).

There isn't a single news site that was surprised by Obama announcing his re-election.  That alone is not news.

One of the real news stories of the day came from Chicago Fed President, and active FOMC voting member, Charles Evans.  Evans, on a CNBC video in full disclosure, called an end to QE after the $600 Billion QE2 is finished.  This is a big about face from his previous stance on the QE programs.  Evans has come full circle in the last 90 days on his QE stance. 

EVANS CNBC VIDEO

Evans is stepping away from the printing press:

Evans said while he had thought the economy would need more support when the second round of “quantitative easing” was first launched, he now believes $600 billion is “quite likely the right number.” The program is slated to end this June.

Evans has become a wild card for the Fed today, despite him being a big player in the QEFOREVER talk less than a yea ago.  It should be noted that Evans is still on the side of being accommodate towards monetary policy, which in my mind means the door is open to more QE if the wheels fall off the bus in July.

Evans says no more + Bernanke says more + Prime Time press conferences

= American public * WTF + This sucks

Obama is not a Wizard

Bernanke is still running the show.  His week is very busy, as he speaks tonight in Atlanta and releases the FOMC March minutes on Wednesday at 2pm.  This is a critical week for Bernanke.  Not only is he in prime time and speaking twice, but his choice words this week will be critical in 'controlling inflation' to the American public.

Bernanke's biggest challenge this week is being able to convince the world with enough wizard speak that all is good in the U.S.A., that inflation is tame and that QE2 will end on time. but not be an issue for the economy.  If he fails to portray these messages, the gloves come off on Thursday as the ECB and the Bank of England are expected to raise rates to combat inflation. 

Europe raising + Feds printing money and no tightening = Dollar beyaaatch slap fest

As for Europe, their cost increases are out of control.  It is time for Europe to give it all they have got to slow down the price increases.  Brent closed at over $121/ barrel today-- getting VERY close to the 2008 peak of $144 for Brent.  Look at some of the European gas prices as of March 2011.  Story here:  Gas prices around the world.

Obama is not a wizard-- He has no Fedspeak powers of monetary pimping magic. This has become apparent over the last year.  Obama's best move so far in his presidency has been to step aside and let Ben Wizzie take the center stage and pimp the S&P higher and higher. 

While this has helped Wall Street, Main Street is still struggling in the grapples of persistent unemployment, no wage growth and sky-rocketing prices for food and energy.  The only difference between the US and Europe is that Europe has admitted it has a problem.   

Unfortunately for Obama, Main Street and Wall Street are much different customers in regards to a re-election campaign.  Will he be able to take back the reigns or is he in for a wild ride on the monetary express?  

(American Voters*High gas) + No wage growth - No Cash for Coach Handbags = This Sucks 

...It is time to focus on Main Street... Or is it?

Election day is still a long way off... or is it.  For the Dems, losing the election would be the equivalent to falling on a garden rake and ripping open your butt-hole, and finding out someone video taped it and sent it in to American's Funniest Videos.  The kicker-- you get 2nd place to a 3-legged talking dog.  In essence you get your ass torn open in front of the world and you are still a loser.

So what is the correct algebraic formula for politics and the market right now? 

I know Wall Street wants higher equity prices.

I know Main Street wants jobs...  Good jobs that is-- Fortune 500 companies, benefits, good hours and all the free French Fries one can handle (up to 2 orders per shift that is).  McDonalds to Hire 50K. 

McDonald's?!?  Well Mr. Executive, the average pay is $8.30 an hour... which is JUST SLIGHTLY under that unemployment check that you are getting for another 99 weeks. 

The only difference-- if you are on unemployment you don't have to work at McDonald's! 

So get your fat asses back to work America! 

Unemployment line + Job + Job = Job at McDonald's = This... Really... Sucks.

Is this as good as it gets?  Are these the jobs that are being 'created?' 

At least Wendy's has the Frostie...

Mr. Obama, YOU have a long road ahead of you. 

Another Peak Baby!

People say we must be crazy to bring more little ones into this zany world...

Congrats to RG and his wife on the birth of their new baby girl on April 2nd-- 10 fingers and 11 toes, just like daddy. 

That is 3 little girls for the authors of this site!

Get some sleep buddy!

RK

More posts to follow this week!