Thursday, January 12, 2012

Stocks Continue Relentless March Higher Despite Poor Economic Data

Once again, US equities finished the day on an upbeat tone, though data hardly suggests that the economy is either robust or growing rapidly. In fact, two releases prior to the market open were depressing enough to send stocks to morning lows out of the open.

Retail Sales for December were nothing short of a disaster, rising a mere 0.1% on expectations of a 0.4% boost, putting an end to the fiction that was widely spouted around financial circles, that holiday sales were brisk and consumers had their wallets wide open during the festive season.

Ex-autos, retail sales were even worse, down 0.2% (maybe those annoying Lexus Christmas commercials were good for something after all) on epectations of a 0.3% gain.

Business inventories were tighter, growing at a modest 0.3% in December after being up 0.8% in November. The drawdown during Christmas season will have consequences, especially involving calculations of 4th quarter 2011 GDP, and, if it continues, 1st quarter 2012 figures as well.

Perhaps the scariest number of the morning came from the wholly-discredited BLS, with their weekly report on initial unemployment claims, which came in much higher than the expected 375,000, bumping up to 399,000, which no doubt will be revised upward above 400,000 next week. From the data, it certainly seems to make sense that the BLS numbers are not properly seasonally-adjusted, and that many of those holiday season jobs were just that, seasonal, as in not permanent.

The uptake on the data is that American retailers are in deep trouble, consumers aren't about to rush out and buy just because they have a few extra dollars in their wallets or purses, and good, well-paying jobs are still on the horizon of imagination.

All of those assumptions did not deter Wall Street from boosting stock prices for the fifth time in eight trading sessions this new year. The reason would most likely be in the belief that Europe's debt crisis is all but solved, following an ECB announcement of no movement in interest rates and better-than-expected results in Spanish and Italian bond auctions. As usual, traders will hang their collective hats on any data that supports the cause of endless money printing and higher and higher stock prices, in the belief that a strong stock market is a good reflection of the overall economic picture, which is pure folly.

Large bankruptcies are on the rise, indicating a resumption of the financial fallout from 2008. With Kodak already on the ropes and possibly days away from a formal bankruptcy announcement, Hostess, the maker of Twinkies, Ding-Dongs and other high fructose snacks, filed bankruptcy on Wednesday.

The next victim is likely to be Sears Holdings. Lender CIT, the firm now headed by the nefarious John Thain, has made it clear that vendors to Sears and K-Mart will no longer receive financing or payment guarantees. Thain, who was the last CEO of Merrill Lynch before it was forced upon Bank of America, was one of the leading banking figures responsible for much of the 2008 financial crash.

Apparently, Thain has found new life as a vulture, now circling the bond holdings and other assets of Sears.

On the real estate front, all the buzz is over the government plan - first suggested by the Federal Reserve, which is holding reams and reams of near-worthless RMBS - to turn Fannie Mae and Freddie Mac foreclosures into rental properties. The two failed GSEs became the lenders of last resort and have back-handedly bailed out the nation's biggest banks by buying back much of the worthless mortgages still sitting somewhere off the books of JP Morgan Chase, Bank of America, Citigroup and Wells-Fargo.

Many of the same firms who caused the financial and mortgage miasma in the first place are now lining up to buy the foreclosed properties at rock-bottom prices and turn America into a nation of renters. Deustche Bank, Fortress Capital, Barclays Capital, Neuberger Berman Group, Ranieri Partners and UBS are among firms interested in becoming property owners and managers. Good luck with that. Like all other attempts to inject new life into the failed housing market this program will be the subject of great scrutiny and consternation from American citizens, many of whom were forced out of their homes during the late 2000s.

Naturally, these vulture capitalists will get to cherry pick the foreclosures, largely at the expense of the US taxpayer. Outrage should begin forming from groups like the Occupy movement and others within weeks. The government will likely present the program as a jobs-building incentive when in reality it is nothing less than a well-conceived plan to fleece Americans as renters since virtually nobody can qualify for a mortgage these days.

Dow 12,471.02, +21.57 (0.17%)
NASDAQ 2,724.70, +13.94 (0.51%)
S&P 500 1,295.50, +3.02 (0.23%)
NYSE Composite 7,681.26, +19.28 (0.25%)
NASDAQ Volume 1,662,562,500
NYSE Volume 3,939,928,500
Combined NYSE & NASDAQ Advance - Decline: 3397-2175
Combined NYSE & NASDAQ New highs - New lows: 166-40
WTI crude oil: 99.10, -1.77
Gold: 1,647.70, +8.10
Silver: 30.12, +0.23

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