Tuesday Ramblings...

(Editorial update:  I wrote this last night.  This morning the Sept trade deficit was released and showed a slight decline from consensus expectation and a slight decline from September.  The source of the decline was mostly the value of imported non-petroleum goods.  The message?  The U.S. consumer is gasping for air)

It felt naked to not post something today, especially since I was a slackard about posting yesterday. I spent most of the trading day doing a lot of portfolio "repositioning" and flow trading/scalping. And Thursday I'm going to NYC for a long weekend so I won't be posting anything probably until Sunday night or Monday. So here's a flimsy brain-dump that I hope is somewhat value-added...

I've noticed that there is a lot of "noise" coming from Wall Street, the media and even David Rosenberg about "no double dip" and "a strengthening economy."  I'm not really sure what kind of hallucinogens these people are ingesting before they look at the evidence.

One strategist who supposedly had called the current recession/depression - which is supposedly no longer a recession - said that he expects an economic bounce based on data that shows bank lending to small businesses is no longer contracting. Of course, it's not expanding but why argue over minor complications like that? After all, his firm High Frequency Economics, has to keep their investors invested or they don't earn fees.  The fact of the matter is that the consumer is still largely dead (there is a very small bounce in the retail sales numbers ONLY if you look at the current data compared to the hideously low comparable numbers from a year ago).  Given the destitute consumer, can anyone think of a business to which they would lend money, except maybe precious metals dealers?

I'm not sure why Rosenberg has changed his mind. I just saw the headline and I wasn't interested in his view. I'm sure there was some pressure from his partners because his bearish tone was scaring off fee-paying clients.

The fact of the matter is that the jobs report last Friday was very ugly, once you looked at the actual BLS statistics and read the full press release rather than relying on the headline number plus some CNBC b.s. The worst element of the jobs report was that the labor force, defined as those working plus those actively looking for a job, contracted to a 25 year low. So of course the unemployment rate (those working divided by the defined work force) held below 10%. But what if you added back all of the people who have given up looking? What if you did some kind of "hedonic" adjustment to account for the part-timers who want to be full-timers? The real unemployment rate is easily in the high teens and creeping higher every month.

How about that factoid that came out yesterday which disclosed that California is borrowing $40 million per day in order to fund unemployment insurance? Talk about a massive transfer of wealth from everyone in the 49 other States to the the state of California. It's horrifying and the wealth transfer effect is one which sucks economic lifeblood from everyone.

Another statistic which hit the news blogs today showed that home prices, measured using a much more comprehensive data pool than Case-Schiller or the National Association of Realtors, started falling again in October. This isn't hard to believe as the "reverberations" from the home-buyer tax credit fade, foreclosure inventories rise (FNM/FRE both announced much higher REO inventories and forecast more weakness for the housing market) and interest rates on the longer end of the Treasury curve climb.

Maybe these economic bulls want to believe that the lower dollar will stimulate exports and curtail imports, thereby creating some kind of "positive" feedback cycle which will create domestic business expansion. Unfortunately that idea is not supported by the trade deficit trend, which has been climbing again despite a weak economy and tanking dollar. That fact of the matter is that it will take a much lower dollar in order to enable the "J-curve" effect to trigger.

Quite frankly I see continued economic and social decay, a lot more downside in housing values and inflation beginning to accelerate. The imported goods upon which our whole country rely will soon climb sharply in price. Ditto for the price of gasoline at the pump. In fact, I would argue that the steepening yield curve (the yield on the 30 yr. Treasury has blown out over 75 basis points in the last couple of months) reflects the market's expectation of accelerating inflation AND the risk of a lot more QE/dollar devaluation. This too is not good for housing.

Of course, we can always hope my view is wrong...