CPI went negative again and Jobless Claims rose. Everything is just Peachy isn't it?

Reported by Bloomberg.com this morning, "The cost of living in the U.S. dropped in May for a second month, signaling the world’s largest economy is recovering without causing prices to flare." Now isn't that a cute way to describe deflation, "it didn't cause prices to flare"! Give me a break! What spin.

They also reported on Jobless Claims the following, "The Labor Department also reported today that initial jobless claims rose 12,000 last week to 472,000. Economists surveyed by Bloomberg had forecast a decline to 450,000, according to the median estimate." Hmm, off again these economists by a bunch! Are these the people we are relying on to tell us we are recovering. Wake up, we're not recovering. Ask any tradesman in your community how business is going for them. We had to hire a Dry Wall repair person. He said not much work for any Tradesmen because New Home Construction is non existent. He knows Electricians who have taken to drive a truck to get any work. He quipped, "Maybe we are being affected by the Gulf Oil Spill and can put in a Claim before we are homeless from the lack of work.

Friends, things are not really good in Camelot. But it's easier to think it is than to face the fact it isn't. I don't blame people for wanting hope. Today is Options expiration for June. I think the volatility will not emerge today as many shorts have covered over the past week or so causing this temporary rally. If there is anything to report today, I will add an update to this post. Have a nice June weekend and Happy Father's day to all the Fathers out there.

Nouriel Roubini, renowned economist from NYU, predicts more bad news

I usually don't copy and paste a news article on my site but this one merits I change that position as it is about the economist, Nouriel Roubini, who predicted the mess we are in years ago The article comes from Bloomberg.com and here it is:

Roubini, Edwards Predict Slump in S&P 500 on China (Update1)

By Michael Patterson and Adam Haigh


Jan. 23 (Bloomberg) -- Stocks will retreat around the world because of shrinking demand from China as growth in the third- biggest economy slows, said Nouriel Roubini, the New York University professor who predicted last year’s financial crisis.

Global equities will fall 20 percent this year from current levels as China, which contributed 19.5 percent to total growth in 2007, contends with its slowest expansion in seven years, he said. Wall Street strategists predict the Standard & Poor’s 500 Index, down 8.4 percent so far, will rise 17 percent in 2009.

Roubini, an economics professor at NYU’s Stern School of Business, said China already is in a “recession” despite government data showing a 6.8 percent fourth-quarter growth rate, as power output declines and manufacturing shrinks. “Demand is falling in China, they’re over-invested in capacity and there’s a global supply glut,” Roubini, 50, said in a telephone interview. “It has very, very important implications.”

Roubini’s view is shared by Societe Generale SA global strategist Albert Edwards, who was correct in forecasting in March that a U.S. contraction would spur a bear market in equities. Edwards says the China slowdown will reduce earnings at industrial, energy and raw-materials companies, sparking a selloff in emerging and developed-market stocks that may send the S&P 500 down 40 percent to 500.

Emperor’s Clothes

“People should be thinking really hard about this rather than sticking their heads in the sand,” said Edwards, a London- based strategist and member of the top-ranked global investment strategy team in Thomson Extel’s surveys the past three years. “We’re just pointing out when the emperor doesn’t have any clothes on.”

The consensus among 11 strategists surveyed by Bloomberg is for the index to end the year at 1,056. The S&P 500 fell 1.5 percent yesterday to 827.50.

China’s economy grew 9 percent for all of 2008 after a 13 percent expansion in the previous year, the fastest in the world. China’s CSI 300 Index retreated 0.3 percent to 2,037.63 at 11:09 a.m. in Shanghai, after falling as much as 1 percent. Commodity producers led declines after Aluminum Corp. of China Ltd. and Yunnan Copper Industry Co. reported lower profit.

Chinese shares traded in the U.S. tumbled to their lowest level in two months yesterday. The Bank of New York Mellon China ADR Index, which tracks American depositary receipts, fell 4.8 percent to 236.43, the lowest since Nov. 20.

Rogers, Mobius Buying

Economists at JPMorgan Chase & Co., Citigroup Inc., the World Bank and the International Monetary Fund all predict China will grow at least 7 percent this year, while investors Jim Rogers and Mark Mobius are buying Chinese shares on expectations the government will bolster economic growth with interest-rate cuts and fiscal stimulus. The IMF said China’s contribution to global growth increased to 19.5 percent in 2007 from 17.2 percent in the previous year.

China, which has $1.9 trillion set aside in the world’s largest reserves, plans to spend at least 4 trillion yuan on bridges, housing and tax breaks to boost the economy. Chinese President Hu Jintao has pledged further measures to maintain stable growth in the face of “serious challenges and difficulties.”

Rogers, who predicted the start of the commodities rally in 1999, recommends investors buy China’s agriculture, water treatment, power generation and infrastructure stocks because the companies won’t be hurt by the nation’s slowing economy.

China Recession?

“China could be in recession, I have no idea and it’s not relevant to me because I’m using my judgment as to what will happen six months from now,” said Rogers, who authored books on investing including “A Bull in China: Investing Profitably in the World’s Greatest Market.” “There is a lot happening in China and there will be those that will hold up well.”

China’s economy will grow 6.3 percent this quarter from a year earlier, according to the median estimate of nine economists surveyed by Bloomberg News after yesterday’s GDP report.

China’s electricity output declined 7.8 percent in November from a year earlier and fell 3 percent in October, the first declines since February 2002, according to China Economic Information Net data compiled by Bloomberg. Manufacturing shrank for a third month as the deepening global recession cut demand for the nation’s toys, clothes and electronics.

‘Manipulating’ the Yuan

Edwards said rising unemployment among factory workers will fuel social unrest, threatening the Communist Party’s survival and increasing the risk authorities will devalue the yuan to boost exports.

The yuan appreciated about 19 percent against the dollar between 2005 and July 2008 as China redressed what U.S. officials saw as an unfair price advantage for exports. The yuan has since stabilized at about 6.85 per dollar. Timothy Geithner, President Barack Obama’s nominee for Treasury secretary, said yesterday the new U.S. administration believes China is “manipulating” its currency.

“If you amble your way through the analysis, you realize if push comes to shove they will devalue,” Edwards said. That may spur lawmakers in the U.S. and China to increase trade barriers, he said.

Stimulus package? "What's the hurry" Senators tell America

Well we got our answer today regarding the stimulus package a President Obama was expected to have ready to sign on Inauguration day, Jan. 20th. According to Sen. Harry Reid and his Republican counterpart, Sen. Mitch McConnell of KY, they will most likely need to call hearings on proposals as the Republicans and some Democrats are a acting a bit cautious about giving a blank check to President Obama. The Democrats just don't have the votes to get something passed and won't unless they can get it to look more bipartisan.

I think the markets will react more negatively to this news, especially as we get closer and closer to Inauguration day without an approved stimulus package. Most economists believe we need a package now and we can't wait a minute longer than necessary. This is going to negatively affect investor psychology.