The U.S. House opened debate on an emergency measure to add as much as $2 billion to the “cash for clunkers” program after a burst of demand exhausted most of the initial $1 billion.
The initiative to encourage new-car sales is still in operation, White House press secretary Robert Gibbs told reporters today. Members of Congress had said late yesterday that the clunkers offer was being suspended.
“If you were planning on going to buy a car this weekend, using this program, this program continues to run,” Gibbs said. “If you meet the requirements of the program, the certificates will be honored.”
Named the Car Allowance Rebate System, the program provides credits of as much as $4,500 for the purchase of a new car when turning in an older vehicle to be scrapped. Lawmakers had expected the program to generate about 250,000 vehicle sales and to have enough money to last until about Nov. 1.
The funding was offered as an amendment to legislation by Representative Barney Frank, the Massachusetts Democrat who heads the House Financial Services Committee, which would ban incentive pay for Wall Street executives.
Michael J. Jackson, chief executive of AutoNation Inc. said "It was an absolute success. There’s a very compelling case the government should put more money into it. It’s a great stimulus to the economy."
Actually a very compelling case can be made that the CEO of AutoNation is an economic illiterate. All the program does is shift demand forward. Those clunkers were going to die at some point. Now sales are up this year which will cut into next year’s demand, at the expense of everyone not getting free money.
Why anyone should be surprised at the "success" in generating demand for free money is beyond me. There is always demand for free money. Yet, interestingly, everyone seems surprised by the "unexpected success".
If the government wants more "success", it can give everyone $4,500 for a car. Short-term demand will soar. But long-term demand for cars would crash for the
Demand, not only for gasoline, but for other major products markets as well, is going the wrong way, i.e. from the top left to the bottom right on the charts. Thus, Big Oil is straining under the weight of poor margins.
It is now hard to reconcile these earnings reports, demand was lousy in the second quarter (and it not any better today). Yet, this market was being fed a fantastic lie back then… the less bad is good mantra.
Thus, whereas spot crude oil on the NYMEX finished the first quarter just below $50 a barrel (49.66) it finished the second quarter just below $70 (69.89). Crude oil rallied 40 percent as profits at the world’s largest oil companies were tumbling.
Why?
Because this market wanted to ignore the obvious and lull itself to sleep with silly pseudo-intellectual catchphrases… green shoots, crocuses, mustard seeds and this season’s rookie of the year… the second derivative.
Thus, while we were led to believe that demand for oil was rising in the second quarter, hence the justification for that 40 percent surge on the NYMEX, we now have the balance sheets from Exxon, Shell et al. that prove it was a lie.
Look at the screenshot of headlines we pasted on the top of today’s report. Profits for Big Oil are down as demand is at generational lows.
However, look at the very first headline, the NYMEX was higher yesterday because “… corporate earnings boost confidence…”
Huh?
According to this one article, demand for oil and therefore profits for oil companies are down, but the NYMEX rallied yesterday because Motorola (mobile phone maker) had a smaller than projected loss and Calphalon (cookware) and Paper Mate (writing instruments) had better than expected profits
.
You really cannot make this up……
Das ist so absurd das man sich unweigerlich fragt ob wir schon wieder den 1. April haben….
I have a very disturbing pattern here on a few charts today…..
The dollar is getting trashed.
10 year bond futures are skyrocketing (yield collapsing); the yield gapped under a "must hold" trendline this morning and has continued down since.
Gold (as expected with the dollar collapsing) is skyrocketing.
What is this all telling us?
It appears to be that traders in the FX market (who by the way tend to be smarter than the average equity or bond trader) have deduced that the entire "improvement" in 2Q GDP came from government spending.
Well that’s not hard to figure out – it did.
They also appear to be making a bet that the US Government will attempt to continue this, along with The Fed monetizing the debt through its buyback programs to destruction of both the government and currency.
This is not positive for our economy. At all.
But this is the meme today – traders are piling into bonds expecting more Fed buybacks, they are shorting dollars like crazy, and Gold is of course reacting to these two facts.
This is a "collapse of government due to spending into bankruptcy" play folks, or at minimum "currency crisis around the corner."
Right or wrong this is the trade being put on in size; the dollar selling in particular is especially pernicious and troublesome – that chart is essentially straight down since the GDP release this morning.
Efficient and free capital markets are essential to all that makes America great: investment in private enterprise, the availability of capital to expand and grow our economy through innovation, and the ability to save for retirement in hope our investments will support us in later years.
Regrettably, we now have an unfair playing field for investors. This leaves us with, in effect, two financial markets: one for powerful insiders, who use high-speed computers and privileged access to information to exploit loopholes for profit, and another for the average investor, who must play by the rules and whose orders are filled almost as an afterthought. This situation simply cannot continue. It is the financial equivalent of “separate and unequal.”
Every day we learn more about the features of this two-tier system. Dark pools, collocation of high-speed computers at the exchanges, flash orders. Abusive short selling, the loophole of choice in 2008, was only the first sign of how the powerful on Wall Street make profits unhindered by the rules the rest of us must follow.
Here are just four areas where the SEC needs to act urgently to protect investors and restore market integrity.
First, the SEC should restore the substance of the uptick rule. This rule, a mainstay of investor protection for 70 years until it was repealed in June 2007, required investors simply to pause and to wait for an uptick in price before continuing to short sell. Without such a rule in place, investors who own stocks are more vulnerable to organized “bear raids” – abusive short selling combined with coordinated “misinformation” campaigns – which many believe contributed to the demise of Lehman Brothers and Bear Stearns, key elements in the collapse of our financial markets last year.
Second, the SEC should implement tougher rules that will stop naked short selling through an enforceable system. Naked short selling is the practice of selling stocks without first locating or borrowing the actual shares needed for timely delivery at settlement, sometimes in a concerted action to manipulate a stock price downward. This week, the SEC made permanent a temporary rule they had enacted last fall, proposed some new transparency measures, and announced plans for a Roundtable discussion on September 30.
That is some progress, but not enough. Two months from…
As expected, dark pool operators have responded, getting concerned that after the recent escalation in the Flash trade scandal, they are the next natural target. And what surprise that their only retort, as per this WSJ article, is that they provide liquidity, and make stock trading cheaper. Right down to the generic script. At least they haven’t used the mutual assured destruction defense clause quite yet.
Geoffrey Rogow at the Wall Street Journal reports:
Several dark-pool executives told Dow Jones Newswires that Mr. Greifeld’s far-reaching proposal would have calamitous effects for retail and institutional traders.
“Undisplayed liquidity adds to execution quality,” said Bob Gasser, chief executive of Investment Technology Group Inc., which is credited with creating the first of the modern-day dark pools roughly 20 years ago. “You can come up with all kinds of anecdotes, but the simple fact is, on behalf of all investors, dark liquidity adds to execution.”
Other alternative-trading system executives called Mr. Greifeld’s stance on the issue opportunistic given lawmakers’ recent focus on related issues, and suggested that Nasdaq OMX is acting defensively after losing market share to non-displayed trading venues.
And here is where the prisoner’s dilemma gets interesting:
Several dark pool officials also noted that both Nasdaq OMX and NYSE Euronext, which has also been losing market share, maintain non-displayed liquidity pools.
But as the NYSE has publicly disclosed, the SLP – that most questionable of recent NYSE liquidity programs has no advance look characteristics. So Zero Hedge assumes that the dark pool operators, in a preamble to full out exchange war are referring to some else. Zero Hedge would be quite curious to understand what that is, especially since the NYSE has been a vocal opponent of non-displayed liquidity.
Furthermore, as Ray Pellecchia disclosed to Zero Hedge recently, “we’re not aware of a way to re-route flash data from another market to the NYSE. To the extent that anyone sees flash data it would be in the context of their being a member of another (non-NYSE) market, and any resulting trades would take place there.“
The pumpers in the media will burn in Hell for dragging you (the sheeple) back into this market.
Here’s the truth on GDP, in pictures:
I updated the previous Ticker [below] but this is important enough to put up as a separate post. I will maintain this quarterly as new releases come out; this is a new "staple" for The Market Ticker, where unlike the sell-side that is always trying to get you to buy I am concerned with the truth about our economy and deal in the facts, not hype.
This is off Table 3B in the BEA’s release and is actual year-over-year change in constant (chained) dollars. Feel free to check my work – in fact, you should check my work, just like you should check everyone else’s you hear, especially if you hear a politician or media pundit opine about how "things are getting better."
Baloney. Not only is the GDP still falling it is still falling at an increasing year-over-year rate.
The second derivative will not go positive until the slope of that line turns upward and we will not see an actual y/o/y increase until (of course) the line goes over zero. So long as the line slopes downward the decline in GDP – the economy as a whole – is accelerating.
One other thing: Notice how 2007-Q3 was when the turn in GDP happened? When did the market top? October 2007, SPX 1576, right?
Think about it folks. You’re being lied to. Again.
Real gross domestic product — the output of goods and services produced by labor and property located in the United States — decreased at an annual rate of 1.0 percent in the second quarter of 2009, (that is, from the first quarter to the second), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 6.4 percent.
1% isn’t so bad – but look at the revision – to negative 6.4%. So much for "final" on the previous release eh?
It seems these days any time a pundit is cornered by facts indicating the deplorable state of the economy, the traditional fall back is "…but the tons of money on the sidelines is just waiting for a 0.003% pullback to pour back in."
It makes sense to consider this argument.
I present Exhibit A: a chart of the Net Wealth of US Households. This is defined as the total amount outstanding in U.S. money market Funds and the total market cap of U.S. listed stock. All else being equal, one can see why the administration is so concerned with the market decline impact on the psychology of the U.S. consumer: confidence is the name of the game. Net Wealth declined from a peak of $22 trillion to just under $12 trillion in early March, and now, compliments of the bear market rally, has bounced higher to $15.4 trillion, a 30% decline from the peak.
Of course, and much more troubling, is that "all else" is nowhere close to being equal. When considering consumer wealth, one also has to look at the right side of the balance sheet, and as the Fed’s Flow of Funds Report indicates, consumer debt has not budged, and has stayed essentially flat as the equity market: the key component of consumer wealth has gotten decimated.
Alas it does not follow the chart in Exhibit A, not even closely. So the question is: what has been the bottom line impact on household "equity": i.e., taking the debt component of balance sheet and superimposing it vis-a-vis net wealth. The result is scary.
Exhibit C: Household Equity.
From the end of 2007 through Q1 of 2009, household equity has declined by 94%. Is it surprising that today’s GDP number would have been a complete debacle if the consumer had been left alone to prop the U.S. economy, on whom 70% of the economy is reliant? Obama pulled a Hail Mary with the stimulus: without it there would be no debate America is in a depression right now. The only remaining question is how long can Congress and Senate extend such Subsidy programs as Cash for Clunkers before the rest of the world throws up in America’s protectionist face.
Improvement in first time unemployment claims is slowing. Actual, not seasonally manipulated data, including an adjustment for the usual weekly upward revision, shows that the year to year rate of change is on the cusp of a possible upside breakout, which would be good news for stock market bears if it happens.
Initial Unemployment Claims Chart- Click to enlarge
Here’s why it’s mind blowing. I’ve plotted it below on an inverse scale with the S&P 500 overlaid.
Unemployemt Claims and Stock Prices - Click to enlarge
Major US Markets including (NYSEARCA:DIA), (NYSEARCA:SPY), (NASDAQ:QQQ), and (NYSEARCA:IWM) dropped over 3% each on Italian bond fears and an increased worry that Europe will not be able to bail out its 4th largest economy. Furthermore, the iShares MCSI Italy Fund (NYSEARCA:EWI) wiped out over 9% today, further illustrating the dire situation in Italy and the European Union: ...
The second economic disappointment of the day comes from the Dallas Fed, which dropped from -2.0 to -11.4 on expectations of -9.0- this was the 4th consecutive negative print month. The report was, in a word, horrible, with just 2 of the 15 constituent indices posting an increase, and the bulk solidly in the red, led by Unfilled and New Orders which dropped 16.8 and 11.2, respectively: not good for economic growth. On the employment side there was nothing good either, with both employment and hours worked declining by -...
Bloomberg reports that Diana Containerships (NASDAQ: DCIX) files to offer stock up to $172.5M. Diana Containerships says that Diana shipping will also buy $20M of stock.
Top 5 RisersStockRatingAnalysisVLOSTRONGBUYAn increasingly positive growth rate of past earnings, along with improving expectations for long term growth, make Valero a good prospect for high returns.KROSTRONGBUYKronos Worldwide has been gaining recognition from analysts as a good canditate for achieving higher than expected earnings along with higher overall projected valuation.SFIBUYiStar is one of the top candidates projected to achieve both higher than previously projected earnings in the short run and a higher earnings growth rate in the long run.AMATSTRONGBUYApplied Materials has been...
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February is now past, and the Biotech Porfolio is loaded with winners and a miss (PLX). MRK is down a bit, but I expect that trade to recover, and one could be more agressive and double down on it, or play another round at the Jan13 $30 options for roughly the same price. Below is the summary, and note the grey boxes are ones that did not fill. I am still a fan of BMRN, and like DEPO as well. Now let's look at a few others.
Table 1. PSW Biotech Plays Since January 2011
 
Our newest play is Momenta Pharmaceuticals (MNTA), who is pursuing a three-part business model which includes complex generic equivalents in partnership with the Sandoz division of Novartis, proprietary compounds, and follow-on- biologics (FOB). It seems that this company is tied up in competition/litigation wit...
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One other thing: Notice how 2007-Q3 was when the turn in GDP happened? When did the market top? October 2007, SPX 1576, right?
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(