THURSDAY 6/12/14; IMF Issues Housing Crash Warning; LULU; Retail Sales; Business Inventories; Iraq Deteriorates

The dollar/yen is flat at 102. Asian stocks are down across the board. The NIKK and SPASX200 are down -0.6% and -0.5%, respectively, with other markets down lesser amounts. Japan April Machinery Orders drop -9.1% month over month but this is actually better than expected. China markets surprisingly trade lower since more mini-stimulus measures are announced.

Aussie May employment data is weaker than expected. Iron ore prices continue to leak lower and Fortescue Metals drops -5%. The Kiwi dollar hits a 3-week high after the RBNZ raises its benchmark rate to 3.25% from 3.00%. The Bank of Korea leaves its benchmark base rate unchanged at 2.5%. India’s BSE bucks the overall negative trend in Asia finishing slightly higher.

Oil prices climb higher as Iraq violence increases. WTIC crude is above 105 and Brent is above 110 and climbing. Militant radicals take over several Iraqi cities such as Mosul and Tikrit creating chaos and destabilization over a large portion of Iraq. The US war in Iraq appears to be a huge waste of American lives and money and there is plenty of blame to go around. After the 9-11 tragedy, President Bush is at fault for going into Iraq when the focus should have been on finding Osama bin Laden in Afghanistan instead.

President Obama is at fault for ending the Iraq occupation so suddenly over the last few years that a vacuum was created immediately filled by radical’s now re-exerting control over the entire country. Companies that provide support services for wars, such as HAL, profit greatly from all the human misery, making the top one percent even wealthier, while many veterans must now live their remaining days with debilitating injuries.

The IMF warns that a major housing crash may occur. Global house prices are at elevated levels in many countries fueled by the central banker intervention maintaining low rates. House prices are rising exceptionally fast in emerging markets such as China, Brazil and the Philippines. US and UK house prices continue higher with the largest price gains occurring in Australia, Canada, Sweden, Belgium and Norway. House prices are running below average in Japan, Germany, and peripheral European countries such as Greece and Spain.

Manhattan New York rents are at a five-year high. The central banker easy money fuels the stock market gains so the wealthy take profits and continue to buy real estate, art and other collectables driving these asset bubbles higher. Wealthy foreign buyers, especially Chinese and Russians, are buying global real estate to diversify and keep their money distant from their own governments. Thus, these cash buyers, with money to burn, continue to drive real estate prices higher while the average family cannot afford to take on a regular basic mortgage.

The World Cup football (soccer) tournament begins today in Brazil. There are limited strikes at Rio airports but the Sao Paolo protestors call off the transit and subway strikes. $11 billion is spent on the World Cup stadiums as much of the country lives in squalor only a stone’s throw away from the sports venues. Only 12% of the supporting infrastructure (roads, bridges, mass transportation) is built that was promised. President Dilma Rousseff pledges that Brazil will provide the best World Cup ever.

The US Open golf tournament begins at Pinehurst, North Carolina. Pro golfer Phil Mickelson is cleared of insider trading charges in CLX but the investigation continues in DF. Investor Carl Icahn and gambler Billy Waters remain under investigation concerning insider trading in CLX and DF.

Lululemon reports plunging profits and a potential long-term peak in customer sales. LULU assumes the downward dawg pose collapsing -7% pre-market adding to the near -3% lost in yesterday’s trading session. TWTR is up +0.4% pre-market on news of an executive shake-up. US futures are positive. S&P +2. Dow +15. Nasdaq +3. The 10-year yield continues higher to 2.66%.







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LE is a bright retail spot gaining +10% on better than expected earnings. Equities remain weak as copper continues deteriorating down -0.6% to 3.02. The 10-year yield drops to 2.62% down four basis points in the last couple hours. At 10:45 AM, the dollar/yen drops to 101.88 so the stronger yen sends equities lower. The SPX is down 9 points, -0.5%. The RUT small caps are down -0.7% printing negatively for three days in row stalling the strong upside rally from mid-May. TRAN -2.2%.

Russian tanks are crossing over the East Ukraine border to aid the pro-Russian separatists. Putin sneakily applies more aggression into Ukraine while the world’s eyes are fixated on the deteriorating situation in Iraq. The radical extremists, now in control of eastern Syria and a major portion of Iraq, are only 70 miles from Baghdad. The extremists are called the Islamic State of Iraq in Syria (ISIS). The charismatic leader is Abu Bakr Al-Baghdadi. The warning signs were in place for the last four or five months but to see this quick a collapse of Iraq is breathtaking. The Iraqi police and military forces are not fighting ISIS and instead abandoning their positions stripping out of their uniforms and leaving tanks, weapons and ammunition behind. The extremists then add the fire power to their ranks.

France wants air support provided to the Iraqi forces and of course looks for the US to do the dirty work but the US takes the position that Iraq is on its own. President Obama mentions that all options are on the table but it sounds like another hollow red line threat. The Iraqi forces are 270K strong with 30K in Mosul but apparently the Mosul forces simply abandoned their posts and ran for their lives. The Iraqi forces are a paper tiger. Refugees are leaving the Iraqi cities taken over by ISIS creating a humanitarian problem. Adding further chaos, Iran has said they will begin fighting Iraq if any of the turmoil approaches their border any closer which would likely launch the Middle East into a full-fledged WW III.

The Kurds in northern Iraq have taken over Kirkuk and want to maintain order in these oil fields and for the key Kirkuk-Ceyhan oil pipeline. Crude oil remains elevated all day long with WTIC crude approaching 107 and Brent running above 113. Americans are going to be shocked in a couple weeks at the higher gasoline prices. Gold is up to 1273 receiving a bid due to the geopolitical turmoil.

Equities weaken in further in the afternoon as trader’s heads begin to spin trying to keep all the rival factions straight in the Middle East. The rise in oil has everyone’s attention. The 30-Year Bond Auction is the strongest auction this week at a yield of 3.44%. A bid goes into Treasuries as equities weaken. The 10-year yield drops to 2.58% down eight basis points since this morning. Copper is very weak. The dollar/yen drops to 101.69. Euro 1.3557. The SPX is down 15 points with the Dow down triple digits and Nasdaq losing 40 points.

Defense and aerospace stocks are bludgeoned including GD, BA, NOC and LMT. GMCR gains +4% on rumors of KO buying a stake. RIO drops -3.4%. Elon Musk is opening up all of the Tesla patents to help build the electric car industry and charging station infrastructure faster on a common platform. TSLA -0.5%. Pharma NKTR is halted from trading. LULU set a sour tone for the retail sector with RTH collapsing -2.1% and XRT -1.3%.

Ford says the MPG ratings provided on vehicles are too high and plans to make goodwill payments to the 200K folks affected. The payments may be from $100 to $1100 which adds up to a hefty charge. F drops -2.3% and is down -3.3% this week. GM dances with glee as the negative attention can focus away from General Motors and towards the long traders’ recent favorite son Ford.

The day ends with the SPX down 14 points, -0.7%, to 1930. The Dow loses 110 points, -0.7%, to 16734. The Nasdaq loses 34 points, -0.8%, to 4298. The RUT drops 7 points, -0.6%, to 1159. The volume, although light, is the strongest volume over the last month. TRAN drops -2%. AMZN loses -2.8% as the new music service receives lackluster attention since the current hip musical artists are not available.

After the bell, INTC raises guidance and expects higher top line revenue. Intel cites a higher demand for business PC’s which are likely a result of the Windows XP support ending so companies are updating to new computers. INTC will benefit from this upgrade cycle and the positive news is a healthy barometer for the economy overall. INTC catapults +5% higher in AH trading. The chip sector is hot and will now remain hot.

Telecom FINR collapses -22% on weak earnings. European telecoms Orange, Bouygues and Iliad all trade higher today. NKTR resumes trading in the AH’s and jumps +8.5%. The S&P announces changes for next Friday’s index adjustment; IGT will be removed from the S&P 500 and will likely sell off tomorrow and XEC will be added which will receive a bid tomorrow. EXPR jumps +20% as Sycamore Partners prepares a bid for the company.

US authorities plan to sell 30K bitcoins on 6/27/14 valued at about $20 million that were seized as part of the Silk Road web site investigation. Bidders must deposit a refundable $200K to bid on the virtual currency. A larger lot of 144K bitcoin with a value near $90 million is also in US hands seized from Ross Ulbricht, the kingpin of the Silk Road operation, but is not yet on schedule to be sold.

The flood of immigrants into the US southern border from Mexico and Central America has developed into a humanitarian crisis. The Whitehouse is downplaying the situation but the news reports are increasing showing unsupervised children at processing centers and systems unable to handle the flood of immigrants. The alleged military deserter, Bowe Berghdal, that President Obama recovered in exchange for releasing five high-level terrorists returns to the US. Secretary of State Kerry warns that any of the five terrorists may be killed by the US if they fight again.

Street protests and violence continue in Venezuela as inflation is at a 50% annual pace. Food and water shortages show no sign of let-up. President Nicolas Maduro, hand-picked by Chavez before his death, watches his popularity drop daily.