by Larry Levin
This morning's latest release of inflation data, financial sector worries, and housing data, led to another sell-off. The Dow closed down -130 points and the S&P500 closed down almost 12.00. The PPI report measures wholesale inflation and was shockingly high this morning. The housing starts data was no help either, as it once again fell like a rock. This morning the Commerce Department estimated that U.S. home builders sharply reduced the number of new homes starting construction in July and dropped the number of new single-family permits to the lowest level in 26 years. Housing starts fell 11% to a seasonally adjusted annual rate of 965,000 in July, which marked the lowest level of housing starts in 17-years. Of course, housing starts are falling rapidly as builders try to reduce the huge glut of unsold homes and the ever-increasing level of foreclosures just adds to the unsold new homes. But housing wasn't today's real story. Today's real story was that of inflation, which was by and large - ignored. Although the inflation report added a little to the selling pressure before the open, the market was already down on more troubles in the financial sector. This inflation number was so bad; one could easily have imagined a massive panic-like sell-off that simply never happened. In fact, today was one of the choppiest ho-hum low volume days in a long time. Even the Treasury market ignored the report, which should have ignited a 200-basis point swoon. However, most of the yield curve was higher. Amazing. Wholesale inflation soared in July, leaving prices rising at the fastest pace in nearly three decades! Wholesale prices shot up 1.2% last month, pushed higher by rising costs for energy and a variety of other products from motor vehicles to plastic goods. This spike was four times greater than many economists had predicted, which makes one wonder why we even care what economists predict. The weatherman gets it right far more often. Today's skyrocketing inflation data brings the past 12-months of wholesale inflation to a whopping admission of 9.8%. I say admission because as you have read over the past few days, even these current inflation numbers are far lower than where they otherwise would have been in the past - just from the changes in calculation methods. This marks the biggest annual increase since the 12 months ending in June 1981, a period when the Federal Reserve was driving interest rates to the highest levels since the Civil War in an effort to combat a decade-long bout of inflation. Prices for beef and veal rose 7.4% in July, the most since October 2003. Milk product prices rose by 5% (IN ONE MONTH!), the most in a year. Prices for soft drinks and bakery goods also rose in July, by 2.4% and 1.5%, respectively. Further back in the production pipeline, prices for intermediate goods rose by 2.7%. The core intermediate PPI, considered a key leading inflation indicator, rose 2% in July and is up 10.2% in the last year. But there are no interest rate hikes these days. Oh no, that would make Wall Street very angry. So we are told to be content with the meager 2% savings rate at the local bank, even though inflation is stealing from you every second of every day. Is your salary increasing at nearly 10% per year? No? Then you are falling behind in everyday expenses too. The Fed says WHO CARES BUDDY! Shut up and do your part. Wall Street needs a handout real bad, and that's all that matters. And GM will need a hand out soon, as well as homebuilders - let's not forget about them. They surely need a handout now - don't they? Even the silly core rate of the PPI was much hotter than expected. The core rate was up .7%, almost four times greater than the .2% that economists had guessed. Inflation is way too hot, said Joel Naroff, chief economist at Naroff Economic Advisors in Holland , Pa. It took a long time for the surge in commodity prices to seep into the general economy so don't expect one month of commodity price declines to suddenly turn off the inflation pump. "Inflation is way too hot" what's that guy talking about? Naaaah, inflation is imaginary - just ask the Fed.
Real Time Trading Signals*for
Trade Date: 8/18/08
E-Mini S&P Trades*
(before fees and commissions):
1) B/away sell @ 8:30am at 1271.50 = -1.00 (1 lot)
2) OTF sell @ 10:30am at 1267.50 = +3.50 (1 lot)
3) TP sell @ 11:25am at 1266.75 = -1.25 (1 lot)
4) OTF buy @ 12:55pm at 1267.25 = +.50 & b/e
5) Engf sell @ 2:00pm at 1265.50 = -1.75 (1 lot)
6) Algorithm trades (3)...combined total...-6.25
ZB (30 Year Bond) Trades*
(before fees and commissions):
1) Sell @ 7:30am at 117.310 = -2.0 (1 lot)
2) Sell @ 7:46am at 117.285 = b/e*3
3) Sell @ 10:09am at 117.260 = +4.0, +12.0 & +7.0
...combined total...+21.0 ($656.25)
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