Weak Data

by Larry Levin

From Federal Reserve notes to corporate news to government economic data, it was all bad news today. Taking it in stride, however, the market closed higher as it moved throughout the day in another extremely choppy and slow trade.

Indicating further weakness could be in store for the housing market, the National Association of Realtors' index of sales contracts on previously-owned homes fell 4% in November from the prior month. Moreover, we learned that foreclosure sales in the 25 largest metropolitan areas almost tripled in the first 10 months of last year as rising unemployment and falling home values made it tougher for homeowners to sell or refinance their mortgages. In fact almost half the homeowners who bought in 2006 now owe more on their mortgages than their houses are worth, so without paying down their current principle at the closing, there probably won't be any refinancing.

I'm not sure what the so-called experts see in 2009 for the housing bottom they keep chirping about, because it doesn't seem to be getting better. Sure, interest rates are dropping thanks to the largest intrusion into the free market by the Fed of all time, but how many will be able to refi? I don't think we'll see a bottom until the employment picture has radically improved.

Keeping in line with their amazing ability to continue receiving a paycheck without ever being correct, economists blew the call on factory orders by a wide margin: they were off by 100%! Orders for U.S. factory-made goods fell 4.6% in November, twice as much as the expected 2.3% decline. Way to go fellas, you're prognostication skills are simply awesome! The only number they'd get right is their own phone numbers - or would they?

Shipments leaving factories in November fell a record 5.3%.

In a surprising bit of bullish news, the ISM services index rose last month. The ISM nonmanufacturing index rose to 40.6% in December from a record low of 37.3% in November. Although this is good news, we must keep in mind that a reading below 50.0% still shows that this sector is contracting overall.

The next news to hit the tape, which came in the afternoon, was the minutes of the recent FOMC meeting. In it we learn that the Fed sees increasing risks of depression and deflation as they struggle with employing newly concocted ways to directly interfere in the free market. Will they ever learn that all economic problems are a direct result of their meddling in the first place and that further interfering will solve nothing? Sadly, the answer is no.

The overwhelming message gleaned from the minutes of the meeting is one of fear; fear of a deep recession, and fear of a debilitating deflationary spiral that would capsize a debt-laden economy, wrote Joshua Shapiro, chief economist for MFR Inc.

Hmm, but adding massive amounts of new debt to the already debt-laden folks among us would NOT capsize the economy? Odd.

One section of the minutes read - some members saw significant risks that inflation could decline and persist for a time at uncomfortably low levels. Now that sounds like good news to me. Call me crazy, but if I'm going to buy a house I'd rather buy when prices have dropped. I'd rather enjoy buying cheaper cars, food, gasoline, home products, etc. And I'd much rather buy stocks that have fallen 50% or so - wouldn't you?

On the other hand, the government wants to steal from you through inflation. Inflation is often called a hidden tax and for good reason. For example, if you bought a home 3-yrs ago and its price had gone up 20% in value, you may feel richer but the government IS richer. Not only do you have to pay back the principle, interest, HELOC's, property tax, fix the roof, paint, fix the driveway, etc - which all costs money - the house just gets older and in need of more repair eventually.

But the government is collecting MORE funds in property taxes without ever passing a law that allows them to legally steal more of your money. All governments love inflation, and that's why it almost never goes away.

On the other hand when inflation does temporarily leave us, governments tremble. For they not only go without extra income through the theft of inflation, but they may even (gasp) receive LESS due to deflation. And when this happens, they can't keep their promise to Cousin Winifred for that sweet job at the DMV. For those already employed by the government, bad times are a coming. The "G" can't keep paying the ridiculously high salaries for the paper pushers it employs, nor can it pay the promised pensions that become a serious burden.

But don't expect your local, State or national government to make do with less. No sir - you should. They're coming after you soon with higher taxes and "fees" to plug the holes because all politicians are gutless men of no character whatever, and will always go the easy route. Hopefully I'm wrong and there are men of character in the government, but other than Ron Paul and a very few others - I haven't see many.

Previous Day's Trading Room Results:

Trade Date: 1/6/09

E-Mini S&P Trades*
(before fees and commissions):

1) B/away buy @ 8:30am at 935.50 = -1.75 (1 lot)

2) VA buy @ 9:15am at 929.50 = -2.00 (1 lot)

3) 80% sell @ 9:35am at 930.00 = -2.25 (1 lot)

4) TP sell @ 9:55am at 930.50 = +5.25 (1 lot)

5) Algorithm positions (15)...combined daily total...-4.25

ZB (30 Year Bond) Trades*
(before fees and commissions):


1) No trades today.



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