Bubblicious: How High is UP?

So let me ask you something:

If you knew that one of the keys to future economic success for your country was oil, would you think the stock market should be going up, or down?

Hint:  Oil is going up.

Second Question:  If there was a regional war going on where cruise missiles were being tossed around and your country was on the wrong side of the conflict and had just pissed away a multi-billion dollar program of making up enemies in order to effect regime change, should the stock market of that country be going up, or down?

Hint:  See last story in this morning’s column.

Yet here we are, barely an hour and a half from the opening of the market and the futures are pointing to a tiny gain come the open of trading.

You need ViseGrips to pinch yourself and a hookah to self-medicates in markets like this one.  Although to me it has a kind of air of the Friday before Black Monday back in 1987…

The drivers are all there for vicious downside action:  futures have run up hugely since the last options expiration, and Wall Street doesn’t like paying gamblers.

Then there’s the fact of Brent Crude oil which is over $53 a barrel this morning.  And as if that is not inflationary enough, have you been watching the price of gold and silver in the past couple of weeks? 

Silver is over $16 and Gold is holding above $1,150.

Now let’s toss into the equation that the US dollar is falling relative to the Euro as well.

To me?  It’s a case for rapidly escalating prices – and that would/ought to be trashing the Bond market in here.  But, no, the 10-year Treasury Note is holding about 2.11 percent – which is way below where it should be, given all the gathering forces of future inflation to come.

All of this is incredibly mysterious to me:  the market should be in the crapper – we’re losing a war in Syria.  The price of oil is climbing, and while that will be good for US oil companies, it will mean hell on Houston’s freeways is likely to become a permanent feature of life.

New import and export price data:

Prices for U.S. imports edged down 0.1 percent in September, after a 1.6-percent decrease in August, the U.S. Bureau of Labor Statistics reported today. The continued downward trend in nonfuel import prices more than offset an advance in fuel prices. The price index for U.S. exports declined 0.7 percent in September, following a 1.4-percent drop the previous month.

About the only fresh meat to report is the import/export price data, just out.   US Export prices year on year are down dramatically.

Exports

All Exports: Prices for U.S. exports fell 0.7 percent in September, following a 1.4-percent drop the previous month. Falling agricultural and nonagricultural export prices each contributed to the September and August declines. The price index for overall exports fell 7.4 percent over the past year, the largest year- over-year decrease for the index since an 8.3-percent drop for the 12 months ended July 2009.  

Which means what?  Well, simply this:  The U.S. worker’s value is being averaged down to the global average…and that ought to piss off every worker in ‘Mercia.  But it won’t because it’s not on the mainstream media’s agenda to mention this.

Yet, it’s data like this that continues to support our contention that the “Mexification of America” is on plan and move ahead full speed.

Despite this, (like we won’t notice eventually?) futures are still up a bit.  In answer to our headline question this morning, we need to consider not the facts of the news on prices, though.  We need to peek at what the Federal Reserve is up to.

Making Up Money

The second item on the menu this morning is a discussion of the latest Federal Reserve H.6 Money Stocks report.  This shows how much more (or less) money is sloshing around inside the economic system:

The problem here is that while most people have been convinced the economy has undergone some sort of recovery, the data on money supply lets a rather nasty cat out of the bag.

When things like real estate are going up at a 3% rate, and the money supply has been jacked up 5 to 6%, then the inescapable conclusion is that there is still 2% deflation lurking about.

Of course, the Fed will not come right out and say this because other countries around the world are making up money, too.

So instead, what comes out in the Fed minutes are global competitive considerations as explained in the Fed Staff part:

Although U.S. economic data releases generally met market expectations, domestic financial conditions tightened modestly as concerns about prospects for global economic growth, centered on China, prompted an increase in financial market volatility and a deterioration in risk sentiment during the intermeeting period. Stock market indexes in most advanced and emerging market economies ended the period sharply lower. Tighter financial market conditions and greater volatility contributed to a reduction of the odds that market participants appeared to place on the first increase in the federal funds rate occurring at the September FOMC meeting and to a flatter expected path for the policy rate thereafter. Nevertheless, yields on short- and longer-term nominal Treasury securities were modestly higher than when the Committee met in July.

That said, the September staff economic outlook is on the verge of being contravened by data emerging in current data.  Back then, the expectation was for something different:

“The staff projected that consumer price inflation would move down over the near term by more than in the previous projection. Crude oil prices declined further over the intermeeting period and were expected to result in lower consumer energy prices, and the effects of recent dollar appreciation and lower commodity prices were anticipated to push down non-oil import prices. With energy prices and non-oil import prices expected to begin to increase steadily next year, the staff projected that inflation would rise gradually over the next several years but would still be slightly below the Committee’s longer-run objective of 2 percent at the end of 2018. Inflation was anticipated to move up to 2 percent thereafter, with inflation expectations in the longer run assumed to be consistent with the Committee’s objective and slack in labor and product markets projected to have waned.

This morning, it begins to look like that ship has sailed and we should see – based on gold and silver going up, not to mention oil popping over $50 bucks both for Brent AND West Texas Intermediate, that the bonds should be collapsing and we should see a market correction of a minimum of 10 percent.

Of course, as Peoplenomics readers know, I am in a short-side trade based on this expectation, so I’m not exactly a disinterested-bystander.

Still, if we get a bad weekend in the Middle East, and as it becomes clear that Iran and the Russians are on the verge of marching into Iran and taking that oil that we almost got our hands on, someone besides Ures truly should sober up and start calling our position what it really is.

Precarious.

The markets are seeming to go up because the purchasing power of the US dollar is coming down.  Hence, it takes more scrip to buy the same underlying value.  Initially, it’s counter-intuitive and then the hypnosis breaks and markets fall apart. 

When?  Fine question, I would have thought this week, but like I advise people looking to buy options, don’t play with money you can’t afford to lose.

Let’s Punish Texas.

Seems like the Administration has it out for Texas.  As part of a large release of Federal prisoners, care to guess which state will get a a disproportionally large share?

School Shooting Du Jour

This time Northern Arizona University up in Flagstaff.  One dead.  Four wounded.

U.S. Department of Slow Learners

Word is out from the NY Times:  The Obama administration is calling off its program to train Syrian rebels.

This has been a clusterf**k of massive magnitude.

Off in background, ISIS it attacking oil in northern Iraq.  And in a report that started making the rounds in non-corporate media Thursday, Iraq is leaning toward some kind of join-up with the Russians to hold on to their oil resource.

With all this going on (Russia kicking ISIS butts, on the verge of getting Iraq where we US taxpayers were hoodwinked for how much money), I’d sure like to compliment the former SecState (presidential wannabe) and the left wingers in the White House for snatching defeat from potential success in the region.

In the end, Syria is likely to stand and Iraq oil will be driven into Russian/Iranian arms because the US didn’t do what it should have in the region when we could have.

Now we’ll end up being what?  (Losers again…and it’s happening with enough frequency that it can’t be a coincidence, can it?)