Sell the Rally

I'm Back!

2012-01-02T18:24:00.002-05:00

It's been about 1 year since my last update. In the past year the stock market has been to hell and back but overall hasn't done much. I personally have continued to accumulate gold, but sold off most of my silver in 2011. Being American, I have my assets in US Dollars, don't own any stocks, and keep my holdings liquid. I would buy a big pull back in stocks, and a modest pull back in gold. Other than that, who know? Europe has slid into recession, while the US muddles along, and China continues to make up economic data and build ghost cities. It's great to be back!

Happy 2011 !

2011-02-06T16:29:00.002-05:00

Well, since my last post in April 2010, the S&P 500 has moved from about 1000 to 1300, with only a late summer pull back to get in.

From Jeff Saut today

2010-04-19T10:24:00.000-04:00

An old stock market “saw” states, “Sell in May and go away,” emphasizing that the worst part of the year for stock performance is the months between May and November. To be sure, a $10,000 investment in the DJIA purchased in November and sold in April grows to ~$480,000, while the same strategy employed between May – October shows a loss of ~$328 (study: between 1950 –
2003) . . . thus, “sell in May and go away.” Obviously we have modified that old axiom this morning given our statement – “Don’t wait for May to go away!” Nevertheless, despite having been too soon’ly cautious since S&P 1150 – 1160, which is tantamount to being wrong, we are “stepping up” our cautionary counsel this week.

Our increased caution is driven by a number of metrics. To wit, preliminary data suggests last Friday was the first 90% Downside Day since February, our sentiment gauges are back to as bullish as they were in 1987 (read that bearishly), the CBOE equity put/call ratio is at 0.32, for its heaviest “call volume” relative to “put volume” since August of 2000, stocks are the most overbought since the rally
began in March 2009, some of the leading stocks are not responding to good news, Thursday was session 34 in the “buying stampede” that began on February 26th (rarely do such skeins last more than 30 sessions), we’ve gotten that peak-a-boo “look” into the long envisioned target zone of 1200 – 1250, volatility is back to the complacent 2008 levels, and the list goes on.

Yet not only the empirical data is suggesting caution, there are inferential gleanings as well. Recently, Robert Prector, of Elliott Wave fame, appeared on one of my favorite stock market shows with a number of my friends. Market participants will recall that Mr. Prector has been forecasting doom for the equity markets for a decade. It is also worth mentioning that he correctly “called” the
recent rally, which he now deems is over. Still, given Mr. Prector’s strategic negativism, he was barely allowed to express his views by my panelist friends. Now while I too don’t agree with Mr. Prector’s long-term bearishness, I have seen this act before. Ladies and gents, in the past when the cacophony of “bullish boos” became so deafening as to drown-out all of the negative nabobs it has
spelled too much bullishness in the short-term.

As for the news backdrop reinforcing our caution, while Greece is likely off the “bankruptcy table” in the near-term, it is not off the table in the intermediate-to-longer term. Emphatically, we think Greece will eventually default; and, it will not be the only country to do so. Indeed, we tend to view Greece as the Bear Stearns of Europe with nobody really knowing how many countries will fail
next. Then there is Iceland’s volcano, which currently has no end in sight, and will most certainly impact the world’s economic statistics. In fact, I heard one commentator suggest that if the eruption lasted long enough it could foster another “ice age.” Then there was last week’s Goldman gotcha’ that suspiciously materialized in front of the movement toward financial reform. Studying the storied history of Goldman shows that Goldman revelations tend to mark inflection points in the equity markets.

The One Year Anniversary of a Manipulated Stock Market Rally

2010-03-10T06:49:00.002-05:00

I believe the stock market bottomed a year ago yesterday, and has been steadily walked up by market participants at the behest of the US Government (think Goldman Sachs or JP Morgan or even some account at the FED or Treasury), it doesn't matter.

The fact that once the market fell, and stopped falling, outfits like Goldman were able to mint billions of dollars per quarter tells you not that they have the best computer programs in the world, or the smartest most logical or intuitive traders, but rather that they took out positions that they knew would be profitable. In short, they knew as did others that the market would be higher tomorrow than it was today.

How did they know? Because they were part of a program to walk the stock market back up! It's just common sense. With banks collapsing under the weight of bad debt, much of which is bad mortgage debt, and consumer's wealth taking the triple hit of unemployment, falling stock market valuations, and falling housing prices, the easiest and quickest asset to "fix" was stock market valuations.

One year later the game goes on, and I suspect it will go on for some time. At this point returns will be much more muted, but downside is limited because as much stock is sold by investors or speculators, people with infinitely deeper pockets will be there to buy it. That is why the stock market refuses to go down in spite of heavy volume sell offs and light volume rallies. The market has been and continues to be "walked up" and kept up.

It's nothing new in Wall Street history, it's just a bit much to get one's mind around in that all stock markets world wide have nearly identical charts for the past year, with nearly identical returns off the bottom. Commodities too. Welcome to the world of the controlled market where everyone who invests makes money. The world of guaranteed outcomes. A world without risk.

Dennis Gartman Remains Bullish of Gold

2010-03-08T06:23:00.001-05:00

What we have here is a move, at the periphery of the
global capital markets, from ephemeral “paper”
currencies of all kinds to harder, more permanent
assets such as gold. We are not gold bugs here, and
we’ve made that quite clear over the years, but we are
convinced that gold is becoming the world’s 2nd most
important “reservable” asset as the EUR loses its luster
but as the US dollar remains that currency of choice for
international trade and remains the 1st reservable asset
because of the US military dominance. The facts of
the matter seem clear to us: gold’s trend in all
currencies now is from the lower left to the upper right
on the charts, and where we had been willing to own
gold only in terms of European currencies and the Yen
heretofore, now we shall also be willing to own gold in
US dollar terms too.

The State of the World 3-6-10

2010-03-06T20:10:00.002-05:00

1. Stock Markets: I ran comparison charts of many ETFs representing many of the major markets, including developed and emerging markets. They all look about the same. This suggests real buying is meager, and trading robots control most stock markets.

2. Oil: Trending higher between 70 and 80 on economic recovery and Iran concerns.

3. Gold: Stubbornly high between about 1050 and 1150 US Dollars, hitting records versus the Euro.

4. Palladium: Continues to ramp, platinum not so much.

5. US Dollar: Gaining favor versus the Euro, not really moving up versus the Aussie, Loonie, or Swiss Franc. The British Pound is veritably collapsing, as it should. The Yen remains a mystery.

6. The World: Awash in debt and entitlements that can't be paid without either printing more money, or, defaulting on the debt or obligations, or devaluing the currency, or some combination. This deflationary destruction of debt makes cash king, for now, but every day that money printing goes on, the purchasing power of that cash is slowly eroded. Owning hard assets would appear to be a reasonable hedge, but a cash horde is well advised. In a world awash in cheap money stocks continue to drift up and should not be ignored. Bonds look like the least appealing asset class, as interest paid is paltry, and interest rates have nowhere to go but up.

What Happened to Reality?

2010-02-19T07:10:00.002-05:00

A guy Kamikaze's into an IRS building in Austin, Texas, the building is destroyed, and NBC's Today Show leads with the Olympics, and ABC's Good Morning America leads with Tiger Wood's news conference.

Vote, not violence.

Revolution--by John Lennon

You say you want a revolution
Well, you know
We all want to change the world
You tell me that it's evolution
Well, you know
We all want to change the world
But when you talk about destruction
Don't you know that you can count me out
Don't you know it's gonna be all right
all right, all right

You say you got a real solution
Well, you know
We'd all love to see the plan
You ask me for a contribution
Well, you know
We're doing what we can
But when you want money
for people with minds that hate
All I can tell is brother you have to wait
Don't you know it's gonna be all right
all right, all right
Ah

ah, ah, ah, ah, ah...

You say you'll change the constitution
Well, you know
We all want to change your head
You tell me it's the institution
Well, you know
You better free you mind instead
But if you go carrying pictures of chairman Mao
You ain't going to make it with anyone anyhow
Don't you know it's gonna be all right
all right, all right
all right, all right, all right
all right, all right, all right

Global Cooling Data

2010-02-18T19:18:00.001-05:00

Most snow since ‘78!
February 18th, 2010 at 3:21 am by Bill Steffen under Bill's Blog, Weather

The Rutgers Climate Lab has been keeping track of the extent of Northern Hemisphere snow cover for 43 years. They report that snow cover on 2/13 reached 20,141,729.53 square miles. That’s 2nd only to the 20,713,340.26 square miles reached in February 1978 (which was after the famous blizzard of ‘78) – that was the coldest February ever in West Michigan. Also, Anthony Watts reports that North American snow cover broke it’s all time record last week. Grand Rapids has had at least one inch of snow on the ground continuously since Dec. 4 with the exception of Jan. 24. Grand Rapids has picked up 58.8″ of snow this winter, about two inches above average to this point in the winter. The most snow on the ground in Michigan is 38″ at Negaunee. Painesdale near Houghton has received 196.5″ of snow so far this winter.

Crazy Day for News

2010-02-18T18:53:00.002-05:00

--Paranoid Pilot flies a tiny single engine Cessna into a Federal Building in Austin Texas targeting the IRS with whom he had a long running dispute. Given the amount of fire and damage to the large building from the tiny plane, it's obvious the plane was loaded with explosives or additional incendiary materials such as extra aviation fuel. It was a Kamikaze attack.

Implication: People are very angry and getting a little crazy. I've noticed an increase in road rage personally.

--The International Atomic Energy Agency (IAEA) is now, just now, concerned that Iran either never stopped, or has restarted work on an Atomic Bomb. Did anyone ever think that Iran wasn't working on developing its own Atomic Bomb from its own weapons grade Uranium?

Implication: Heightened risk of a preemptive strike against Iran by US or Israel or both. Risk of Iran's retaliation including world wide terrorism, attacks on Israel, and interruption of the world's oil supply. Gold and Oil would go through the roof, stocks would tank.

--The Fed Hikes the Overnight Bank Lending Rate, after hours today, from 0.5 to 0.75%, likely a prelude to a hike in the Discount Rate.

Implication: Although symbolic, Bernanke sends the message that rates could creep up from near zero percent. With unemployment high, the banking system still a mess, real estate still imploding, and our national debt exploding, the FED can't raise rates much. If commodities sell off, I'd buy them. If the dollar rises much, I'd sell it.

Pumped Up Tuesday

2010-02-16T22:53:00.004-05:00

Gimme some gold. Oh, and we broke a short-term corrective downtrend back to the upside. Gold had been slumping since making an all time high at $1225, and had made 4 lower highs and lower lows. Today gold broke that short term trend to the upside.

Today the stock market made a case that it's recent decline was a correction in an uptrend, as opposed to a change in the intermediate term uptrend.

Some Long-Term Thinking About Depressions

2010-02-16T06:36:00.001-05:00

3 Year Weekly Charts (click to enlarge)

2010-02-12T21:07:00.006-05:00

Gold in Euros (Kissing all-time high)

Gold in US Dollars

S&P 500

The Euro-Dollar Cross

Taking a Blog Break

2009-08-09T10:50:00.001-04:00

Off for a while.

Cash Cascades Into Stocks and Commodities

2009-05-07T05:37:00.018-04:00

Volatility Continues to Drop

Waiting For a Retest of the Bottom? Good Luck!

Silver Shows Signs of Life

Oil Service Stocks a Clear Beneficiary of Reflation

Still Overbought and Still Going Up

Coal Back From the Dead

Commodity Index Mostly Oil: Going Up!

Even Gold is Rising

China Rising Again

A Relatively Solid Currency: The Loonie

A Relatively Solid Currency: The Aussie

Brazil Rising Again With Commodities

Taiwan Spikes on Semiconductors and Possible Chinese Stock Purchases

Hong Kong Rises With China

A More Balanced Commodity ETF

Change I Can, or Can't Believe In: An Obama Moment

2009-04-25T19:26:00.004-04:00

Good Obama: Speaks well; gets along well with other world leaders; seems less unpopular to foreigners than Bush; gets things done with the Democratic Congress; kept Bernanke at the Federal reserve; has a positive vision for a "clean and green" economy; is adored by the huddled masses diminishing social unrest among the peasants; looks great in a suit; exudes youthful energy and vitality; nice family; pleasant temperament.

Bad Obama: Closing Gitmo with no exit strategy; wants to dredge up and prosecute former Bush administration officials for allegations of abuse of power or torture in the post 9-11 era; pushed through a "stimulus bill" of almost 1 TRILLION dollars that did much more to fund Democratic pet projects for political gain--as opposed to a "real" stimulus that would have jump started the economy; has proposed a new budget with a nearly 2 TRILLION dollar deficit; part of the "funding" for the deficit will be facilitated by the Federal Reserve buying the Treasury notes and Bonds that the Government will be selling, in a bizarre practice known as "quantitative easing; with enormous fiscal deficits and the literal creation of TRILLIONS of new US Dollars out of thin air, the value of the US Dollar relative to other currencies is going to collapse, and inflation will explode.

Iran has continued and has even stepped up their enrichment of Uranium, and the "smart diplomacy" that Obama and Clinton promised seems likely to lead to Iranian Nukes on top of long-range Iranian missiles; pledged to be out of Iraq by 2010, and Iraq is starting to fall apart again; said we were going to intensify our efforts in Afghanistan but the Taliban are rapidly gaining control of the country; said he would assist Pakistan in their fight against the Taliban but the Taliban are expanding their power and some fear the takeover of Pakistan and it's nuclear arsenal by the Taliban; North Korea fired a long range missile over Japan and has stated it will begin reprocessing uranium fuel rods into plutonium for nuclear weapons; no strategy to protect our Southern Border from Mexican Drug Lords and the kidnappings and killings that have spilled over into our Southern States.

Wants to nationalize health care, a big chuck of the economy, and the Congress is going to accomplish this by using an arcane rule that prevents a Senate filibusterer, thus requiring a simple majority; wants to create millions of "green energy" jobs that have no basis in reality, while ignoring actual green energy technology that already exists: nuclear power, natural gas, and clean coal; has nationalized GM and Chrysler, and many of the major financial institutions in the country; wants to regulate executive compensation not only for companies that receive government aid but for executives that don't.

Weekly Summary with 2 Year Perspective

2009-04-25T06:48:00.013-04:00

Weekly Charts with 40 DMA and 150 DMA. Risk Vs. Reward.

Volatility historically still high but coming down which is bullish.

The US Dollar has rallied off its lows and is consolidating at higher levels. The story for the past decade has been: lower dollar correlates with higher asset prices, and vice versa. If the US dollar does resumes its decline, asset prices would be expected to go up (inflate, lol).

The S&P 500 showing its plunge and recent 20% rally. Technically still in a downtrend. The Bull case is that the market averages are 50% off their peaks and are cheap, the Bear case is that the economy is horrible and will continue to be horrible for the foreseeable future.

The Nasdaq 100 has actually outperformed all the way through the bear market. Why? The Nasdaq 100 consists of the 100 largest stocks on the Nasdaq that are NOT financials! Also, no government interference in the tech companies, no TARP, no toxic assets, etc. Just the "normal" boom and bust cycle for tech, which people can handle, lol. Tech has become "defensive!"

The Russell 2000 was crushed on the downside and has outperformed during the recovery rally. This in keeping for its reputation of being a higher beta play vis a vis the large cap averages such as the DJIA.

Goldman Sachs Commodity Index ETF, GSG. Mostly oil. I like it because it appears the bad news is all priced in. That is, the downside appears limited. Nice risk/reward.

WTI Crude oil. $50 per barrel is overpriced relative to demand and current inventories, but factors in things like potential increase in demand with improving economic activity, OPEC supply limitations, potential for supply disruptions, and the movement into hard assets vs. paper assets.

Brazil ETF. A fabulous long term story, this ETF is heavily weighted in PBR (state oil company) and RIO (giant iron ore miner). But don't forget about the growing Brazilian banks.

Chinese ETF, FXI. How can you not have some portion of your portfolio in Chinese stocks? An alternative is investing in companies that sell a lot to China, such as BHP, RTP, FCX, etc. The raw material suppliers.

Gold has held up remarkably well during the commodity collapse in the past year. Obviously a flight to safety out of paper assets. The next leg up could be fueled by another round of financial panic, military conflict, or the coming surge in inflation.

Oil Services ETF. OIH took its lumps along with the market, but has since based and broken out, in advance of the price of oil. A very bullish sign as money looks for a safe home within the stock market, analogous to tech. Like tech, the fundamentals are currently shaky but the future is clearly bright and, of course, no toxic assets on the balance sheets and not under the thumb of the Government.

Metals and Miners ETF. I like this because it has a lot of coal, some gold, etc. Pete Najarian has become very bullish on coal. Coal is evil in the US, but metallurgical coal is vital for steel production, which should turn up someday, and coal for energy is still a key component of US electricity production, as well as China and India.

Note to Self

2009-04-21T06:56:00.001-04:00

DPK Direxion Developed Markets Bear 3X Share
DZK Direxion Developed Markets Bull 3X Share
EDZ Direxion Emerging Markets Bear 3X Shares
EDC Direxion Emerging Markets Bull 3X Shares
ERY Direxion Energy Bear 3X Shares
ERX Direxion Energy Bull 3X Shares
FAZ Direxion Financial Bear 3X Shares
FAS Direxion Financial Bull 3X Shares
BGZ Direxion Large Cap Bear 3X Shares
BGU Direxion Large Cap Bull 3X Shares
MWN Direxion Mid Cap Bear 3X Shares
TZA Direxion Small Cap Bear 3X Shares
TNA Direxion Small Cap Bull 3X Shares
TYP Direxion Technology Bear 3X Shares
TYH Direxion Technology Bull 3X Shares

Developed Markets Malaise versus Emerging Markets Machismo

2009-04-15T05:39:00.002-04:00

Still struggling to post charts, sorry.

The VIX appears to be breaking down below both key moving averages and horizontal support. This reflects the decreased volatility and “fear” premium in options. I also believe that traders have begun to hedge using the triple short ETFs as put options remain expensive, creating less demand for put options as hedges. Thus, the decrease in the VIX may be somewhat misleading as a “fear” sentiment indicator.

The McClellan Oscillator: over 50 is considered over bought, but, strong rallies can stay overbought, just as strong declines can stay over sold. Notice that the past 14 trading days have all occurred on the overbought side, but, with lower highs and higher lows, forming a triangle. This suggests the market is stalling at current levels, as would be expected given how overbought it is by other measures, such as the percentage of stocks over their 10, 20 and 50 DMA (not shown). The healthiest action from a bullish perspective would be sideways consolidation with a gentle pull back. Bears are expecting an eventual roll over with a retest of the March lows.

Bulls point to the strong rally off the March lows for the S&P 500, some 20+%, and, what looks like a reverse head-and-shoulder formation developing. Bears point to the longer term downtrend (not shown), coupled with lousy fundamentals, and the downward sloping of longer term trend lines. You’d like to see the longer term moving averages such as the 100, 150, or 200 DMA flatten out. Any pop over a downwardly sloping longer term moving average is highly suspect.

The financials led the market decline and have led the market rebound. Notice the near double in the XLF from the March market bottom to the recent recovery rally high. The final stage of this rally may have been marked by last Thursdays surprise “beat” by Wells Fargo and Monday’s surprise “beat” by Goldman Sacks. Some have speculated that Goldman or other unseen forces (like the mysterious “plunge protection team”) have been guiding the market up the past month for the expressed purpose of moving financial stocks high enough to allow them to raise capital via secondary stock offerings, like Goldman announced yesterday.

The triple-short financial sector ETF has taken a tumble from over 100 at the recent market bottom in March to around 10 yesterday and today. -90% in about 6 weeks is a poor return. I went long this ETF today as a hedge against my long positions.

What seems to me one of the better crude oil ETFs in terms of accurately tracking the price of spot crude. I’m now long DBO as oil has bottomed, at least for now. But the long term moving averages are still downward sloping, and demand is weak. But most agree longer term oil at these levels will seem like a bargain. A decent hedge against a fall in the US Dollar as well.

As grateful as I was to have a second chance to get into the Brazil ETF at lower levels following the bear market, you’d think I could have gotten in earlier than the low 40s. I hesitated because the multi-year charts show the EWZ starting off this decade in single digits! So there was some room to fall from the 30s. I bit the bullet when EWZ broke out of a multi-month sideways range at the 40 level. I employed a similar strategy with EEM and FXI (not shown).

You want to build electric cars? Well, I give you one of the few Lithium miners in the world. Pretty healthy looking chart and I am now long.

Much rarer than gold, platinum trades both as a precious and industrial metal, like silver. Platinum’s main use is in the catalytic converters of automobiles. Given the plunge in auto sales, industrial demand has fallen dramatically. However, there has been an uptick in investor demand (myself included). I think platinum has gotten ahead of itself here, and would wait for a pullback to buy in.

In summary, we’ve had a sharp and meaningful stock market rally off the March lows with numerous sector ETFs and individual stocks doubling off their lows. The market is overbought by short term measures, and due for a pull back. The economic fundamentals continue to be almost uniformly grim, unless you consider an increase in housing activity through the sale of foreclosed homes a true “glimmer of hope.” I know the pundits say that employment is a lagging indicator, but in the real world if people keep losing their jobs month after month more and more people will have less and less money to spend, and the demand side of the economy will continue to slump. And since consumer spending seems to be a huge chunk of US GDP as well as responsible for the consumption of goods manufactured all over the world, it’s hard to envision things looking better anywhere until the US consumer starts spending more, not less. Those people with jobs and an income are saving more and spending less too, such as myself, and cutting way back on discretionary purchases.

Overall, I remain long term bullish on emerging markets and commodity based economies, and neutral to bearish on the US, Europe, and Japan.

Disclosures: long DBO, EWA, EWZ, EEM, FXI, BHP, SQM, UYM, DJP, FAZ, SDS.

Don't Be Fooled Again

2009-04-09T09:36:00.002-04:00

Stock index futures are rocketing higher this morning off of Well Fargo's (WFC) "earnings beat." The significance of this is open to debate, but the shorts are scrambling for cover, no doubt.

I found several other pieces of data released this morning far more telling of current economic, and hence corporate, conditions.

1) Intitial claims for unemployment still extraordinarily high at 654,000.

2) A drop of 5.1% in imports, resulting in a large drop in the US trade deficit. Multi-year lows in imports from Japan and China.

3) Same stores sales at Walmart up an anemic 1.4% and below consensus.

These three pieces of data point to increasing unemployment and hence decreased purchasing power by US consumers. Unemployment continues to rise rapidly, and consumer demand continues to decline. These data are not supportive of higher stock prices either in the US or in countries that depend on US demand such as China, Japan, and the emerging markets.

I believe at this point stock and commodity prices are rising due to increased investor demand as money moves from cash and bonds into stocks and commodities. Also, there is a "hope" that a few months from now the economic picture will be better than it is now, and stocks "anticipate" this. I personally don't see any signs of this. The only reason I would be long stocks or commodities now would be as a trend follower or trader front-running some major asset allocation shifts.

Highlights from the FOMC Minutes Released Today: Global Melt Down & Explosive Fed Money Creation

2009-04-08T22:02:00.008-04:00

Minutes of the Federal Open Market Committee

March 17-18, 2009
A meeting of the Federal Open Market Committee was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D.C., on Tuesday, March 17, 2009, at 2:00 p.m. and continued on Wednesday, March 18, 2009, at 9:00 a.m.

PRESENT:
Mr. Bernanke, Chairman
Mr. Dudley, Vice Chairman
Ms. Duke
Mr. Evans
Mr. Kohn
Mr. Lacker
Mr. Lockhart
Mr. Tarullo
Mr. Warsh
Ms. Yellen

Mr. Bullard, Ms. Cumming, Mr. Hoenig, Ms. Pianalto, and Mr. Rosengren, Alternate Members of the Federal Open Market Committee

Messrs. Fisher, Plosser, and Stern, Presidents of the Federal Reserve Banks of Dallas, Philadelphia, and Minneapolis, respectively

Staff Review of the Economic and Financial Situation
The information reviewed at the March 17-18 meeting indicated that economic activity had fallen sharply in recent months. The contraction was reflected in widespread declines in payroll employment and industrial production. Consumer spending appeared to remain at a low level after changing little, on balance, in recent months. The housing market weakened further, and nonresidential construction fell. Business spending on equipment and software continued to fall across a broad range of categories. Despite the cutbacks in production, inventory overhangs appeared to worsen in a number of areas. Both headline and core consumer prices edged up in January and February.

Labor market conditions continued to deteriorate. Private payroll employment dropped considerably over the three months ending in February. Employment losses remained widespread across industries, with the notable exception of health care. Meanwhile, the average workweek of production and nonsupervisory workers on private payrolls continued to be low in February, and the number of aggregate hours worked for this group was markedly below the fourth-quarter average. The civilian unemployment rate climbed 1/2 percentage point in February, to 8.1 percent. The labor force participation rate declined in January and February, on balance, likely in response to weakened labor demand. The four-week moving average of initial claims for unemployment insurance continued to move up through early March, and the level of insured unemployed rose further.

Industrial production fell in January and February, with cutbacks again widespread, and capacity utilization in manufacturing declined to a very low level. Although production of light motor vehicles turned up in February, it remained well below the pace of the fourth quarter as manufacturers responded to the significant deterioration in demand over the past few months. The output of high-tech products declined as production of computers and semiconductors extended the sharp declines that began in the fourth quarter of 2008. The production of other consumer durables and business equipment weakened further, and broad indicators of near-term manufacturing activity suggested that factory output would continue to contract over the next few months.

The available data suggested that real consumer spending held steady, on balance, in the first two months of this year after having fallen sharply over the second half of last year. Real spending on goods excluding motor vehicles was estimated to have edged up, on balance, in January and February. In contrast, real outlays on motor vehicles contracted further in February after a decline in January. The financial strain on households intensified over the previous several months; by the end of the fourth quarter, household net worth for the first time since 1995 had fallen to less than five times disposable income, and substantial declines in equity and house prices continued early this year. Consumer sentiment declined further in February as households voiced greater concerns about income and job prospects. The Reuters/University of Michigan index in early March stood only slightly above its 29-year low reached in November, and the Conference Board index, which includes questions about employment conditions, fell in February to a new low.

Business spending on transportation equipment continued to fall from already low levels, and demand both for high-tech equipment and software and for equipment other than high-tech and transportation dropped sharply in the fourth quarter. In January, nominal shipments of nondefense capital goods excluding aircraft declined, and new orders fell significantly further. The fundamental determinants of equipment and software spending worsened appreciably: Business output dropped, and rising corporate bond yields boosted the user cost of capital in the fourth quarter. After holding up surprisingly well through most of last year, outlays on nonresidential structures began to show declines consistent with the weak fundamentals for this sector. In real terms, investment declined for most types of buildings over the previous few months. Census data on book-value inventory investment for January suggested that firms had further pared their stocks; however, sales continued to fall more quickly than inventories, apparently exacerbating the overhangs that developed in the second half of 2008.

Output in the advanced foreign economies contracted in the fourth quarter, with large reductions in real gross domestic product (GDP) in all the major economies and a double-digit rate of decline in Japan. Trade and investment in those countries were particularly weak. Indicators of economic activity, especially industrial production, suggested that the pace of contraction accelerated late in the fourth quarter and into the first quarter. Economic activity in emerging market economies also weakened significantly in the fourth quarter. Exports, industrial production, and confidence indicators dropped notably in both Latin America and emerging Asia. Incoming data for January and February suggested a further significant decline in the first quarter.

Staff Economic Outlook
In the forecast prepared for the meeting, the staff revised down its outlook for economic activity. The deterioration in labor market conditions was rapid in recent months, with steep job losses across nearly all sectors. Industrial production continued to contract rapidly as firms responded to the falloff in demand and the buildup of some inventory overhangs. The incoming data on business spending suggested that business investment in equipment and structures continued to decline. Single-family housing starts had fallen to a post-World War II low in January, and demand for new homes remained weak. Both exports and imports retreated significantly in the fourth quarter of last year and appeared headed for comparable declines this quarter. Consumer outlays showed some signs of stabilizing at a low level, with real outlays for goods outside of motor vehicles recording gains in January and February. Financial conditions overall were even less supportive of economic activity, with broad equity indexes down significantly amid continued concerns about the health of the financial sector, the dollar stronger, and long-term interest rates higher. The staff's projections for real GDP in the second half of 2009 and in 2010 were revised down, with real GDP expected to flatten out gradually over the second half of this year and then to expand slowly next year as the stresses in financial markets ease, the effects of fiscal stimulus take hold, inventory adjustments are worked through, and the correction in housing activity comes to an end. The weaker trajectory of real output resulted in the projected path of the unemployment rate rising more steeply into early next year before flattening out at a high level over the rest of the year. The staff forecast for overall and core personal consumption expenditures (PCE) inflation over the next two years was revised down slightly. Both core and overall PCE price inflation were expected to be damped by low rates of resource utilization, falling import prices, and easing cost pressures as a result of the sharp net declines in oil and other raw materials prices since last summer.

Meeting Participants' Views and Committee Policy Action
In the discussion of the economic situation and outlook, nearly all meeting participants said that conditions had deteriorated relative to their expectations at the time of the January meeting. The slowdown was widespread across sectors. Large declines in equity prices, a further drop in house prices, and mounting job losses threatened to further depress consumer spending, despite some firming in the recent retail sales data and forthcoming tax reductions. Business capital spending was weakening in an environment of uncertainty and low business confidence. Of particular note was the apparent sharp fall in foreign economic activity, which was having a negative effect on U.S. exports. Credit conditions remained very tight, and financial markets remained fragile and unsettled, with pressures on financial institutions generally intensifying this year. Overall, participants expressed concern about downside risks to an outlook for activity that was already weak. With regard to the outlook for inflation, all participants agreed that inflation pressures were likely to remain subdued, and several expressed the view that inflation was likely to persist below desirable levels.

District business contacts indicated that production and sales were declining steeply. Some industries that previously were less affected, such as agriculture and energy, had begun to suffer the effects of the slowdown. Businesses reported that bank financing was becoming more expensive and more difficult to obtain. Expenditures were being cut substantially for a wide range of capital equipment, and spending on nonresidential structures had recently turned down. Inventory liquidation was continuing, but inventory-sales ratios remained elevated as sales slowed. Against this backdrop, participants anticipated further employment cutbacks over coming months, though perhaps at a gradually diminishing rate.

Several participants said that the degree and pervasiveness of the decline in foreign economic activity was one of the most notable developments since the January meeting. In light of this development, it was widely agreed that exports were not likely to be a source of support for U.S. economic activity in the near term.

Overall, most participants viewed downside risks as predominating in the near term, mainly owing to potential adverse feedback effects as reduced employment and production weighed on consumer spending and investment, and as the weakening economy boosted the prospective losses of financial institutions, leading to a further tightening of credit conditions.

Some indicators, including share prices and CDS spreads of financial institutions, suggested a worsening of financial market strains since January. However, for the most part, participants viewed conditions in financial markets as little changed but remaining extraordinarily stressed. The large volume of issuance of investment-grade corporate bonds in recent weeks was a notable bright spot.

At the conclusion of the discussion, the Committee voted to authorize and direct the Federal Reserve Bank of New York, until it was instructed otherwise, to execute transactions in the System Account in accordance with the following domestic policy directive:

"The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. To further its long-run objectives, the Committee seeks conditions in reserve markets consistent with federal funds trading in a range from 0 to 1/4 percent. The Committee directs the Desk to purchase GSE debt, GSE-guaranteed MBS, and longer-term Treasury securities during the intermeeting period with the aim of providing support to private credit markets and economic activity. The timing and pace of these purchases should depend on conditions in the markets for such securities and on a broader assessment of private credit market conditions. The Committee anticipates that the combination of outright purchases and various liquidity facilities outstanding will cause the size of the Federal Reserve's balance sheet to expand significantly in coming months. The Desk is expected to purchase up to $200 billion in housing-related GSE debt by the end of this year. The Desk is expected to purchase at least $500 billion in GSE-guaranteed MBS by the end of the second quarter of this year and is expected to purchase up to $1.25 trillion of these securities by the end of this year. The Committee also directs the Desk to purchase longer-term Treasury securities during the intermeeting period. Over the next six months, the Desk is expected to purchase up to $300 billion of longer-term Treasury securities. The System Open Market Account Manager and the Secretary will keep the Committee informed of ongoing developments regarding the System's balance sheet that could affect the attainment over time of the Committee's objectives of maximum employment and price stability."

The Expected Pull Back Unfolds

2009-04-07T17:51:00.013-04:00

We had a marvelous trading rally the past month. But, are things improving? Are things getting worse more slowly (so-called second derivative improvement)? Are the credit markets improving suggestive of improved corporate financial health? My guess is no.

NYSE McClellan Oscillator down to neutral after 2 down days

VIX down even on another down day. Does lower volatility imply higher prices?

Oil consolidating around $50 per barrel, but, does demand support this price?

Baltic Dry Index falls for 19th consecutive day, not bullish for demand

S&P 500 flopping around 800 after a jaunt around 700

The Russell 2000 rolling over

The China Closed End Fund that tracks Chinese stocks traded in China

The China ETF that tracks Chinese stocks traded outside of China

Copper has been a star based on a combination of Chinese stockpiling and speculation

Platinum a uniquely strong industrial and precious metal, trading like copper

Brazil my favorite foreign market

The Emerging Markets look poised to pull back into their range

US Markets Hold Tight, Gold Losing It's Grip

2009-04-06T18:00:00.014-04:00

The US markets dipped down a couple percent by mid-day but there wasn't much heart or volume in it, and by the close markets were down 1% or less. It should take a few days to work off the current highly overbought condition. Gold is losing it's luster, just as oil did last summer.

What do I mean by that?

Gold demand derives more from jewelry than investment, and in this increasingly less wealthy world, can gold sustain a price of $900 per ounce? Or will jewelry purchases decline? I vote the latter. Besides, the IMF is threatening to sell some of its gold holdings.

Charts are 6 month daily candlesticks with 50 DMA (blue) and 100 DMA (red).

NYSE Oscillator much overbought

VIX up a smidge, consolidating into a narrow range. It breaks which way?

S&P 500 holds big recent gains

Platinum like other industrial metals has been strong

Gold looks toppy and is heading down rapidly

China ETF holds recent gains (I'm long and looking to get longer)

Brazil ETF pulls back a bit today (I'm long and looking to get longer)

Hong Kong ETF gives nothing back (I'm long and looking to get longer)

Emerging Market ETF (I'm looking to get long but have no current position)

Oil took a break today (Always looking to buy oil but no current position)

Back to Brazil, China, and Hong Kong

2009-04-04T08:32:00.011-04:00

S&P 500: Back to the 800 level of previous consolidation

Oscillator: Market as overbought as it has been in years

VIX: Volatility coming down, bullish, but is it sustainable?

FXI: Yes its China; No it doesn't track Shanghai. I'm long.

EWZ: Brazil ETF heavy in PBR and RIO. I'm long.

EWH: Hong Kong ETF, a powerful thrust off the bottom with the China/Asia theme. I'm long.

Looking for intermediate-term themes it's back to China, Asia, and Brazil. I'm neutral on US Markets noting that they're highly overbought (as are my current positions as well!). I'm looking to add to EWZ, FXI, and EWH on an anticipated pullback.

Another moment of Beatles Zen

2009-04-03T11:40:00.001-04:00

A moment of Beatles Zen

2009-04-03T01:08:00.003-04:00

Let it be

Ya, I'm long (I'm ignoring the news for now)

2009-04-02T06:35:00.003-04:00

Holding my nose, following the price action here and abroad. Markets want to go higher for a while. Currently long XLF and SSO. Will add additional exposure as appropriate to US Markets with QQQQ, or IWM.

Looking to add a lot of exposure overseas via EWT, EWH, EWJ, FXI or CAF, EWZ, and IFN: that is, Taiwan, Hong Kong, Japan, China, Brazil, and India. I also like EWA (Australia).

One unifying theme is China, then BRIC (except Russia).

US and European markets don't have a particularly good story to tell, but, with trillions of dollars on the sidelines and trillions of dollars being created for "stimulation" domestic equities are bound to rise as well.

The US still has "safe haven" status for financial assets. Cash is so being punished these days with ridiculously low interest rates.

FT: Recent Stock Market Rally Was Short Covering

2009-03-30T19:06:00.007-04:00

The "Short View" video on the Financial Times web site states that the past three week rally was merely short covering:

Obama Seizes GM and Markets Crater

2009-03-30T14:19:00.004-04:00

President Obama has rejected the reorganization plans submitted by General Motors and Chrysler Corporation. Obama fired GM's CEO, Rick Wagner. The company has 60 days to submit a more "acceptable" restructuring proposal in exchange for more of our taxpayer money (Government aid).

This coincided but did not necessary cause stock and commodity markets world wide to fall another 2-5% across the board. Hardest hit are the financials. Bank management across the country must be wondering if GM's fate is prologue to their own.

When will President Obama reject the bank's business models, cut off capital, oust current management, and effectively seize control? Will bond holders and lowly common equity holders be spared?

No mercy shown for GMs current bond and equity holders.

No wonder any bank that can wants to return TARP money. Kind of makes one wonder what the Bank CEOs and President Obama chatted about last week at the White House. Where they told to plan on taking early retirements?

But, to take the other side of the argument, GM and the banks had run themselves into bankruptcy, and President Obama is attempting to soften the blow under His Terms. He appears to want to remake GM in His Own Vision as a manufactuer of "green" cars that run off batteries that do not exist, that will be charged from an electrical grid that does not exist.

Like Boone Pickens has been saying, we could power a whole lot of cars in a cheap, environmentally friendly way with natural gas. If President Obama has the Vision to create and have manufactured fleets of natural gas vehicles along with the requisite infrastructure to refuel the vehicles, now that would be something worth doing, in my opinion.

President Obama, this one's for you !

2009-03-28T00:53:00.003-04:00

Carter Worth on CNBC's Fast Money and the Sharp Rally Off the Bottom

2009-03-27T21:01:00.005-04:00

One of Fast Money's favorite technicians was on the show tonight to comment on the recent 20% rally off the bottom the past few weeks. He said what I thought, to wit: the last leg down to SPX 670ish was symmetrically negated by the recent leg up to the SPX 800ish level, which is where we've been at since November 2008, more or less.

He believes there is mirroring of this market bottom to the 2002 market bottom, that is, flopping around SPX 800 for about 6 to 8 months. We've only been down here around 5 months. He's looking for a few more months at these levels before a move.

One thing though, he was somewhat NON-COMMITTAL about whether the SPX 800 level was going to serve as a launch pad back up, or, we're consolidating for another leg down. He implied that he thought we're headed back up, but seemed to leave the door open.

The recent move off the bottom merely brought us right back to SPX 800, where the market has been since the Fall. Carter Worth thinks there's no more to it than that.

Beware of "Edgeless Trading" in Dangerous Times

2009-03-25T21:28:00.004-04:00

Ok, so you missed most of the money on the short side the past couple of months, and, sitting on your hands, like me, you missed most of the explosive 20% upside move in the past 2 weeks. Now what? Well, my friends, the "easy" trades are over for a while.

The S&P 500 is right back around its "magnet zone" of 800, the financials have had a blistering rally and now flop around 10% per day, and oil has run up from the 30s to the 50s. The US Dollar has dropped, spiked, dropped, and spiked within the past year.

Now the Fed is creating money in Fed computers to buy bonds issued by the Treasury to fund our enormous budget deficit while simultaneously keeping the 10 year Treasury rates artificially low to keep mortgages artificially low to stabilize the housing market which is saddled with enormous supply and dropping prices as a result of the last time the Federal Reserve kept interest rates too low for too long and caused a real estate bubble. Got all that?

And by the way the President is on TV every other night talking about his plan to semi-nationalize health care, tax carbon emissions, increase taxes on the wealthy (anyone with a job), stimulate this or that, castigate corporate America and it's leadership, while the Congress is passing laws in direct violation of the US Constitution to tax AIG bonuses (like that matters), that were specially permitted in the stimulus bill that was passed in such reckless haste that no one read it!

And by the way, the Treasury Secretary wants the authority to "seize" (as in Government takeover Hugo Chavez style) any company it deems a risk to the "financial system." Oh, as an aside, Treasury Secretary Geithner is "open" to the idea of giving up the US Dollar in favor of a "world currency" to placate the Chinese and others who are freaking out about Obama's plan to double our national debt in his first year in office.

Secretary's Geithner's plan to remove toxic paper from bank balance sheets seems to involve the Government putting up or guaranteeing about 90+% of the cost of buying the toxic paper in collusion with private investors. One of the problems is that once a market "develops" for this toxic paper, it's likely to be valued at much less than current valuations, leading to more enormous write downs and need for capital. Then do the Feds "seize" the banks and nationalize them anyway? Who knows with this crew.

So, in summation, we have, broadly speaking, highly correlated stock markets all over the world that have spiked off their recent lows (check out Chile (ECH) and Taiwan (EWT) for some out performance), but are now overbought. The currency markets are a mess with all the financial and political turmoil, gold is at the upper end of a trading range, and the economic engine of the world, the US consumer and the US corporation, is in the cross hairs of the Obama Administration designated for termination via taxation and socialization, respectively.

Frankly, I have no idea what to do with my money, currently I'm all in cash. If gold breaks out, I'll follow it up. If the dollar breaks down, I'll short it. If the stock market wants to sprint up another 20%, I'll try to catch a piece of that with one eye on the exit. If most of the rest of the world weren't such a wreck, or potential wreck, I'd have some theme to chase.

I'm just afraid I'm going to wake up and find Poland has defaulted on it's debt, and the Swiss banks are near collapse, and then who knows?

Mega-Monday Rally on Geitner Plan

2009-03-24T06:01:00.009-04:00

A 7% rally across the board in the U.S., following on 3% rallies across Asia and Europe. Since the market gapped up and ran from there, you either had to have conviction that the intra-day rally was going straight up, or you had to sit on your hands. I did the latter. To me 7% rallies are the kind of astonishing spikes higher one sees in a bear market. However, market watchers have noted that we've had a bunch of so-called 90%-up days just in the past couple weeks, potentially signifying a CHANGE IN TREND (i.e., new bull market vs. bear-market rally). Stay tuned.

The market specifically was led by financials, tech, and energy/materials. Safe havens like US Treasuries and gold sold off a bit, as would be expected. Jeff Saut from Raymond James believes we're in the middle of a "buying stampede" that should last another 10 to 15 trading sessions, only pausing for one to three day stretches. He did pick the low a couple weeks ago pretty well, although he was early in calling a low in November as THE LOW, and seemed to get people in a little early prior to the more recent low earlier this month.

Oscillator again near-maximally over bought. If you want into this market you should have a day or two of pull backs/consolidation given this reading.

S&P 500 punches through resistance at 800 like a hot knife through butter. Leveraged ways to play include the SSO and BGU.

Actually better relative strength from tech. Leverage plays include QLD and TYH.

Financials led the charge. UYG seems to be have lost favor relative to FAS as a leveraged play.

Energy shares spike back into a trading range as oil surpasses $50. I read that this has less to do with oil demand and more to do with the potential for the new Israeli Government to attack Iran. Leveraged plays include DIG and ERX.

Gold took a breather as money chased stocks. The gold stocks (GDX) held up relatively well, given the overall market strength. Leveraged gold is DGP.

Emerging markets were on a tear as well, with China (FXI), Brazil (EWZ) and the emerging market ETF (EEM) all up big, without much change in the technicals. EDC, the triple-long emerging market ETF caught a nice bid yesterday!

I write this as the pre-market futures sell off somewhat, and commodities look lower as well. The dollar is higher, metals lower, and index futures lower. If Jeff Saut is right, we might want to buy this pullback for a rally that should last about 2 more weeks, corresponding nicely to the end of the quarter! Indeed, with all those trillions on the sidelines and many fund managers likely under-invested to the long side, there is ample fuel to an upside fire.

The USD looks over-sold at these levels, and strength in the dollar has typically been associated with weakness in equities and commodities. Also, note the nice run the Loonie (FXC) and Aussie (FXA) have made off their lows, as well as their stock markets (EWC and EWA, respectively). These are two "commodity currencies" and stock markets should outperform when commodities pick up and sustain a head of steam.

Good luck and good trading!

Stocks, ETFs, and ETNs of Interest in a Reflationary World

2009-03-19T20:08:00.021-04:00

The US Dollar weakened further, commodities sprinted higher, and the stock markets, on average, fell back somewhat. The market is very over bought, short term, yet, very over sold long term. After this brutal bear market, one suspects many are either net short or not long (in cash).

I think stocks as a group are likely to move higher, if for no other reason than a flight out of cash, or, in anticipation of economic stabilization. Hell the steel stocks were up today.

As an American, I am very concerned by the hysterics, amateurism, and chaos reigning down on America from Washington, D.C. The rookie President and the Fascist Democratic Congress have left me devoid of any confidence in the U.S. Government as an economic entity. I have confidence that Government spending is well beyond out of control, and the FED has decided to devalue the dollar to prevent a depression.

Below are 1 year charts of stocks, ETFs, or ETNs that should benefit from a reflationary, inflationary world courtesy of the US Government and like-minded conspirators around the world.

Agriculture ETF. Double-long play is DAG.

Oil ETF.

Double-long commodity index ETN.

The Euro, the world's new reserve currency?

Gold stock ETF.

Gold ETF. Double-long ETN is DGP.

A hot gold stock.

HES trades as a leveraged play off the price of crude.

The copper ETN.

A coal ETF. I think it's early for coal.

Oscillator shows the stock market still maximally over bought.

A great major oil company courtesy of Brazil. EWZ is the Brazil ETF.

A Platinum ETN.

A nice high-beta oil service play.

The most popular silver ETF. AGQ is the double long silver ETF.

The natural gas ETF. Really popped today.

The falling US Dollar.

The ultra-materials ETF.

Metals and Mining ETF.

The Fed Reflating Yet More Aggressively!!

2009-03-18T17:17:00.019-04:00

Holy Cow! I spoke just yesterday of the stock market seeming to have completed a highly oversold bounce, as the SPX approached 800. The Fed and other central banks seem intent on a competitive race to devalue their currency the fastest, lol. Currency markets recently were surprised when the Swiss, of all countries, announced they would intervene in the currency markets to depress the value of the Swiss Franc. Everyone wants a weak currency because everyone's exports have fallen off a cliff. A weak currency makes your goods cheaper to foreign buyers.

The Fed stepped into the domestic fray today and announced hundreds of billions of dollars in purchases of "long term" US Treasuries and hundreds of billions of dollars of Mortgage Backed securities. Massive implications. The price of those Treasury bonds goes up, yield goes down, and the market for mortgage back securities is stabilized, prices for those securities also goes up, yields come down. Net effect is that interest rates for bonds and for MORTGAGES come down, allowing for refinancing and outright home purchases, thereby stabilizing the HOUSING MARKET.

Since this will probably help some of the crap on the banks balance sheets, combined with the expectation that mark-to-market accounting rules will be relaxed, combined with the expectation (or fear) that government-owned stock in financial companies like Citicorp or AIG will be made "unavailable for borrowing or shorting" (mentioned by Todd Harrison on Minyanville), and the financials EXPLODED again.

So what's the trade as the US Federal Reserve literally creates another TRILLION DOLLARS out of thin air to buy US Treasurys and Mortgage Backed Securities? In essence, devaluing the US Dollar further by creating more and more of them. The standard trade is precious metals, gold in particular, and gold exploded today. Jim Rogers and Dennis Gartman like commodities in general, for the obvious reason that as money loses value stuff you buy with money will appreciate.

Oil and Agricultural products are the logical place to hedge against currency devaluation, as they were during the US Dollar devaluation/commodity inflation bubble that burst in the middle of 2008. However, the problem with oil in particular and the other commodities in general is that because we're in a world wide recession right now, demand for these commodities is relatively low, and supply relatively high.

Just today US inventory reports showed a big increase in crude supplies and gasoline as well. Jim Rogers like Agriculture now most of all, because of limited supply, and the lack of an alternative to eating, lol! People have been choosing not to drive recently.

Below are some charts highlighting the action described. I am long silver (SLV) and UDN (Proshares US Dollar Bearish). At the right time I will likely get into oil via DBO and/or an ETF like XLE or OIH. I may re-buy SSO (ultra-SP500), or FAS (triple long financials). I was recently in and out of them for some quick cash but could have held a little longer and made a lot more money. I like the Euro (FXE) as I have previously discussed, it double bottomed at 125, but I missed it, and it closed today near 135!

Still must remain disciplined, not chase, and note some of what we're seeing is a short squeeze, and we're overbought. But the trade in things that I like is now clearly to buy the dips and sell the rips, or, even hold on for a while.

This is just about as OVER BOUGHT as the stock market gets. And SPX 800 is formidable resistance. I don't think we'll get much of a pull back to buy lower from here, but, don't chase at this point!

The relatively tame play on a declining dollar. I am long UDN.

The double top in the US Dollar is in. The US Dollar is headed lower.

Long-term Treasurys caught a bid with the FED announcement.

The stock market popped again with the Fed Announcement and the explosion in the financials.

Silver caught an after hours bid as the dollar took a dive. I am long SLV.

Rogers commodity ETN. Looks to have bottomed after a 2/3rds decline peak to trough.

Intermediate-term Treasuries like 10 years exploded with the FED announcement. Time to refinance!

The EURO exploded today. Darned I missed it!

The double-long Euro ETN

Gold popped after the FED announcement which is essentially a devaluation of the US Dollar.

The double-long gold ETN provides twice the upside.

iPath Copper ETN

A stronger commodity stock (copper). I still worry that copper is too housing-related, but it's doubled off its low. Copper is only about 20% off it's low. That's the attraction of commodity stocks. Higher BETA to the underlying commodity.

A financial ETF that has gone up 50% in the past 2 weeks off the bottom, which will probably turn out to be THE BOTTOM!

The triple-long financial ETF that's more than tripled off the bottom!

What seems like the best performing oil ETF recently. Maybe they manage cantango better. I'm interested, although oil ETFs look attractive too. Just worried demand isn't there yet to justify higher prices.

An agricultural ETF. Looks to have bottomed and Jim Rogers is very bullish on this sector. I'm interested too.

The double-long Agriculture ETN.

SPX 800: Let's take a breather, then re-inflate stocks, commodities, and sink the US Dollar

2009-03-17T20:04:00.018-04:00

As the stock market rebounds from 12-year lows and a highly oversold condition, it's worthwhile to take a step back to look at the big picture. The following selection of charts attempts to do this.

Short term, the stock market is highly overbought, and likely to run out of steam given the strong technical resistance at SPX 800. Market volatility measured as VIX remains at levels (40ish)that in years past were fear "peaks." I believe the VIX is likely to break down and come in, suggestive of less volatility and more sideways or uptrending action.

The US Dollar index looks to be headed lower, and the Euro higher, which, in this decade, has been generally bullish for stocks, and commodities. Emerging markets like Brazil would directly benefit from a rebound in commodity prices. China is simply everyone's favorite long term growth story, as opposed to the mature, stagnant economies of the West and Japan.

I included one stock, CME, that really popped today, and seems to be a high-beta play on a rebound in commodity prices, trading, and the stock market in general.

1 Year chart of oscillator showing market near-maximally overbought

3 Month chart of SPY showing recent market bottom and bounce

1 Year chart of VIX showing option volatility stabilizing at historically high levels

1 Year chart of US Dollar Index showing potential double top

3 Month chart of copper showing short-term strength

1 Year chart of S&P 500 showing stabilization around 800 level

1 Year chart of financial ETF "XLF" showing potential stabilization

1 Year chart of gold ETF "GLD" showing a large trading range

1 Year chart of oil ETF "USO" showing clear bottoming action

1 Year chart of long-term treasury ETF "TLT" showing flight to and from safety

1 Year chart of Brazil ETF "EWZ" showing potential stabilization

1 Year chart of Chinese ETF (FXI) showing potential stabilization

1 Year chart of Euro Currency ETF "FXE" showing bottoming action

1 Year chart of CME showing a promising high-beta play on commodity and stock rebounds

Bottom Fishing for a Trade

2009-03-10T21:23:00.005-04:00

The financial stocks exploded for a bear-market-like rally of about 15% as a group,leading the major market averages up about 5%. There were a few purported triggers in the news cycle today which I need not recapitualate.

The markets took off like a rocket this morning, and within about an hour had reached close to their highs of the day. I missed the first move, but did jump in the SSO (double long S&P 500) and the FAS (the triple long financial ETF).

Clearly, I'm bottom fishing for a trade.

If we pull back in the next day or two I will average down one time on these positions and then set stops beneath the most recent lows to manage risk.

6 Month Chart of SSO one day up from Bear Market Low

6 Month Chart of FAS one day up from Bear Market Low

6 Month Chart of Gold showing a recent "flight" from "safety"

Long FAS and SSO.

Time to go shopping at Harrods

2009-03-09T22:08:00.004-04:00

A Pound for 2 Dollars? Nah, that was last year. Try $1.37. Cherio!

The curious case of crude oil ETFs

2009-03-09T19:28:00.009-04:00

6 month chart of West Texas Intermediate Crude

6 month chart of oil ETF "DBO"

6 month chart of oil ETF "USL"

6 month chart of oil ETF "USO"

"6 month chart of oil ETF "OIL"

Price performance of WTI crude past 3 months = about flat, DBO = -6%, USL = -11%, USO = -19%, OIL = -26%.

Figures from Yahoo Finance comparative charts, but WTI prices from StockCharts.com.

Notes from Asia from CNBC and Bloomberg

2009-03-09T18:58:00.002-04:00

Rio Tinto is almost done SELLING assets to pare down debt, still at 50 billion (Australian?).

Australian commentator sees no rebound in China, although China may be stock piling commodities at cheap prices, putting a bid into the commodity markets.

Crude oil rising in advance of OPEC meeting and rumors of greater than expected production cuts and greater than expected adherence to production quotas. On the other hand, fears that the IEA may cut forecast for crude by one million barrels per day this week.

Much Buffett-mania from his 3-hour stint on Squawk Box. "The US economy has fallen off a cliff" seems to be everyone's favorite phrase, as obvious as it is.

Lots of economic data out of China this week, hope springs eternal.

HSBC stock crumbling.

Little more room for China's Central Bank to cut rates.

Malaysia to unveil another stimulus package.

Coal stocks tanking in Australia. More non-sense about limiting CO2 emissions.

Business Russia from CNBC World

2009-03-09T00:11:00.002-04:00

This English language Russian Business show highlighted the opening of a large oil field in northeastern Russia, and it's pipelines. China has already contracted for most of the production. Also, Russia opened it's first LNG plant, and aims to be a big player in the decades to come in this space.

Since Russia is not a member of OPEC, and Russia is desperate for money as she is inordinately dependent on the sale of energy, the logical conclusion is that Russia will sell as much as oil and natural gas as they can produce. Full out.

Their economy is crumbling, their currency is crumbling, and their stock market has collapsed. I wonder if Russian oil production will off set, to a degree, production cuts by OPEC (if they themselves adhere to the target quotas).

I also wonder if China's purchase of oil directly from Russia will put a damper on any future oil run ups.

Notes from Asia from Bloomberg TV and CNBC Asia

2009-03-08T22:49:00.002-04:00

The Korean Won continues to be in trouble, pressuring the Kospi.

Still debate as the whether China's economy has bottomed, or ticking up?

Still debate on whether increased demand from China alone will support higher commodity prices.

Some consensus that physical gold and perhaps silver is a better crisis hedge than "paper gold" (the mining stocks).

Some interest in base metals like copper, lead, zinc.

Asian stock markets opened higher and then sank.

The US Dollar is firm, oil is up another dollar overnight.

Japan posted a small trade deficit, the first in a decade as exports plummeted 46%.

The Financial Times reports some very smart Hedge Funds are buying gold.
Here's the link: http://www.ft.com/cms/s/0/37fcba70-0c0a-11de-b87d-0000779fd2ac.html

The 3-month libor rate has started to tick up, suggesting yet more stress in the banking system.

Gold & Gold Corp.

2009-03-08T13:33:00.005-04:00

Three year weekly price of gold in U.S. Dollars

Three year weekly price of Gold Corp in U.S. Dollars. The stock has underperformed gold except for brief periods of time following sharp stock sell offs.

Gold Corp. CEO at Bank of Montreal Conference 2/24/2009 from iTunes podcast.

Fewer ounces of gold produced per year world wide!

Not economic to mine many sites less than $1000 per ounce, limiting new supply world wide.

Gold Corp does not hedge and sells metals at current market prices.

All mines in stable NAFTA countries.

Tries to minimize equity offerings and optimize equity value.

Cost of production varies by site, about $365 cost per ounce overall.

Anticipates 50% increase in production over next 5 years.

Huge reserves of gold and silver.

Very excited about huge new mine in Mexico.

7% increase in reserves past year.

Well financed and views company as a growth company.

Analysis: The bunker mentality is well reflected in current gold prices. The safe haven buying and fear of currency crises is largely reflected in the current gold price. I am neutral toward gold at this point, unless there is a clear technical breakout. Going forward, as deflation morphs into price stability and then inflation I can see gold much higher than current levels in the next 5 years.

Platinum

2009-03-08T12:45:00.005-04:00

Three Year Chart of the Price of Platinum in U.S. Dollars

One of my goals is to find better sources of information on which to trade or invest. Toward that end, I found a Bank of Montreal Conference on precious metals on iTunes. It's free in podcast form.

I listened to a half hour presentation by the CEO of Aquarius Platinum dated 2/24/09. I learned a few key things.

1) At $1000 per ounce platinum miners are struggling, cutting back production, and laying off staff. At least in South Africa, platinum must be very expensive to mine and produce.

2) The two primary "drivers" of the platinum market are it's use in emission control devices in vehicles, and jewelry. In particular, CHINESE WOMEN have a strong fondness for platinum. WOW.

3) The speaker implied a fairly limited demand for investment purposes, noting ETF purchases as having a potential future impact on platinum pricing, but not now.

My analysis: like silver, platinum is priced in large part as an industrial metal. Platinum in particular is down about 50% from it's peak pricing about a year ago due to the decreased rate of vehicle production.

The eventual rebound in the auto industry combined with increasing investor demand and what sounds like the inherent scarcity of the the metal make for a very attractive investment in the physical metal. The minors themselves are struggling due to the capital intensive nature of the business and the difficulty in obtaining financing in the current credit crisis.

Stock Charts of Current and Potential Positions

2009-03-04T22:40:00.017-05:00

Thought that oil is bottoming. I'm in.

Gold pulling back to support or something worse?

China recovering and low copper supplies? I'm in.

The Australian Dollar. Poised to recover with increased commodity demand from China?

The Australian stock market. Poised to recover as well based on China demand?

Brazil! Our hemisphere's commodity rich economy.

The Canadian Dollar, supported by increasing energy demand and a stable banking system? I'm in.

The Canadian markets have stabilized. Poised to recover with commodities?

A basket of agriculture commodities. Jim Rogers thinks people will continue to eat.

An agriculture stock showing excellent relative strengh.

Is the spike in the US Dollar over and ready to reverse given reckless fiscal policy?

China with all the money, all the leverage, and cheap labor. I'm in.

A high beta stock poised to benefit from a Chinese recovery?

The S&P 500 with it's dizzying declines and muted rallies. Hobbled by poor fiscal policy, a lack of confidence in the administration, a crippled banking system, and no definitive plan to repair the financial system and the economy.

Into China and Resource-Related Stocks Selectively

2009-03-04T21:31:00.003-05:00

My last article featured continued caution on equities of all stripes, given the free fall in equity markets world wide for the past year or so. We've all been looking for "the bottom" or at least a tradeable bottom. Patience and cash has been well rewarded, and the US Dollar and US Treasuries have enjoyed striking rallies within the past year as equities both domestic and abroad have fallen historic amounts.

We have noted a recent gradual reversal of this flight to safety, as US interest rates have begun slowly upticking, gold has fallen 10% recently, and certain stock markets appear to have stabilized at lower levels, such as the Chinese market. Other markets such as those in Japan, the US, and many other Western Countries have continued to decline and sink to lows not seen in over a decade.

Certain disconnects seem to be emerging which need a catalyst to spark upward price movements. One clear catalyst this week has been the Chinese Government committing to further fiscal stimulus to stem the slowing of their domestic economy, regardless of export slowdowns to the weakened Western economies.

Indeed, word of such a new stimulus in the works last night sparked a huge 10% rally in the Shanghai Stock market, in oil, in copper, and lesser rallies in stock markets world wide today. The big winners were those companies and commodities most likely to benefit from increased Chinese demand: iron ore miners like BHP, and RIO, copper miners like FCX, oil and ETFS such as USO, and stock markets such as those in Brazil (EWZ), China (FXI), other BRIC countries, and other resource rich countries like Canada (EWC) and Australia (EWA).

The US Markets reaction was more muted, weighed down by financial concerns and stocks that continue to deteriorate, and a lack of confidence in the current administration to stop making things worse with policies antithetical to the very investor class needed to resume spending and investment to stimulate US economic growth. Although I day traded SPY for a small gain given the highly oversold nature of the US equity markets, I felt no confidence in making it even an over night holding.

On the other hand, there is data to suggest copper inventories have been falling, as have oil inventories, which could be supportive of their prices, companies which produce them, and countries and currencies dependent on stable or rising commodity prices.

Therefore, today I went long FCX, FXI, FXC, and USO. There are clear sell-stop levels on the charts that would indicate such new trades were in error. Other stocks I'm interested in include BHP, PCU, XLE, EWA, EWC, IFN, and especially EWZ. All are either commodity stocks or countries rich in commodities. I'm also interested in the Australian dollar FXA at these levels, although I'm concerned about their banking problems not shared by Canada or China.

Other than being oversold its hard to make the case for US equities in general given the overall state of the US economy, the lack of confidence in the US administration, and the lack of a cohesive plan to stabilize the banking sector.

I happened to watch Jim Rogers on Asia's Squawk Box on CNBC tonight and he is very bullish on agriculture in the years to come. This keeps me looking at the various agriculture ETFs such as DBA, and companies such as MOS, etc.

Wait for Economic Stabilization

2009-03-02T10:51:00.001-05:00

(First published on Seeking Alpha 2/27/2009)

The combination of the one trillion dollar “stimulus bill” and the administration’s new 3.5 trillion dollar budget proposal makes it clear that the Federal Government is attempting to take over a much larger share of the gross domestic product, draining money from the private sector in the form of higher spending and higher taxes.

I believe the new budget will result in yet lower charitable contributions (tax deductions slashed), yet lower home prices (mortgage interest deduction slashed), yet higher unemployment (small business owners will face higher taxes), and higher interest rates (The government will have to sell trillions more in U.S. Bonds).

In short, we’re headed from the Nixon years to the Carter years. The parallels are palpable. The one that matters to investors is that the U.S. Government is controlled by tax and spend Democrats who are putting a big squeeze on the private sector. Combined with the bursting of a 20-year credit bubble, it seems like an unmitigated financial disaster.

In my opinion, the climate for positive returns on stocks has declined yet further; interest rates are headed much higher over the years, the U.S. Dollar will fall if and when a suitable alternative currency emerges (right now much of the world is in the same general shape we are, except Canada with its much sounder banking system and natural resource based economy).

Therefore, my current investment posture is as follows. I would sell any rally in U.S. equities. Any sign of a pick up in economic activity would send me into Brazil (EWZ), China (FXI), oil (USO), copper (FCX), and Canada (EWC and FXC). I am suspicious that Gold (GLD) has topped out as a safe haven, as has the Japanese Yen (FXY) and U.S Treasuries (TLT). Anytime seems like a good time to be short Treasuries via TBT.

A Perfect Financial Storm

2009-02-19T21:25:00.005-05:00

Can things get any worse in the financial markets? Short of a major terrorist attack or nuclear war I don't think so. Consider the following: Near zero percent interest rates in the G7, with no current signs of stimulating economic activity. Those wise enough to hold cash for most or all of the recent carnage in stocks and commodities have been rewarded with almost no interest income. Those less prescient may have lost about half their money in the past year depending on their market timing and their particular positions.

It's not clear to me if the credit markets are frozen, or there is an increasing aversion of debt. Probably both. The stock prices of the biggest and most prominent financial institutions in the country are approaching zero rapidly. The sum total of the two large banks I have my deposits in has fallen to 5. I can only infer these banks and many others will fail in the near future.

Economic recovery cannot occur without a smoothly functioning credit system. Perhaps equally as worrisome, there has been increasing concern that Western European Banks are jeopardized by the loans they made to the quickly fading economies of Eastern Europe. The Euro has fallen substantially of late, and one wonders whether the run up in gold the past few months hasn't been fueled more by the dumping of Euros rather than the dumping of dollars. Indeed, some have speculated that the Euro could be an endangered currency if it's member countries face dissimilar financial stresses and demand different policies from the ECB.

The US Dollar is a disaster waiting to happen, being saved for the moment by factors weighing on other currencies which are well known to all. I think it a fair guess that the first few G7 nations to pull out of the recession will see their currencies appreciate rapidly at the expense of the other currencies. Regardless of how things play out in the short or intermediate term, it's a fair guess that US interest rates will rise dramatically for years to come.

The financial shenanigans of the Federal Reserve, the US Treasury, The Congress, and the President have led to a country with a lousy balance sheet and indebted beyond belief. Even worse, the behavior of the stock market bespeaks an enormous lack of confidence in the current administration. Coincidence or not, as Obama's election victory become more assured, and then accomplished, and then his policies known and enacted, the stock market has reached multi-year lows, and looks poised to return to levels not seen since the early 1990s.

Many think the action in the stock and credit markets is the result of the unraveling of 20 years of recklessly loose monetary policy at the Federal Reserve under Allan Greenspan, and later by Ben Bernanke. This loose monetary policy whose goal was to buffer the economy from even minor recessions, resulted in the build up of multi-trillions of dollars in financial assets based on economic models that did not factor in a deflationary scenario, such as we are now experiencing.

Wall Street has been decimated. Wealthy individuals who invest and spend and drive business have suffered enormous losses. The wealthier half of the country has seen their retirement accounts crushed. Unemployment ranks are at an all time high, in absolute numbers, not by percentages. Tax revenues to the Federal and State Governments have declined, opening up enormous budget deficits requiring very divisive and difficult choices in states like California and my state of Michigan.

The Federal Government has the current luxury of funding its operating deficit with low interest bonds that are well absorbed by the capital markets looking for a safe haven. One suspects that the reckless spending and other fiscal policies of our country will, in the not too distant future, result in higher interest rates and higher tax rates, which will continue to suppress job creation, and home ownership, resulting in a stagflation-like scenario.

Indeed, one wonders if the deflationary cycle of debt destruction isn't closer to the end than the beginning. At some point a lot of money should flow out of money markets and bonds and back into stocks and commodities. Consumption should begin to tick back up. However, as of yet there has been nothing to inspire confidence that the overall business climate or economic climate is improving, and worse, there is a growing fear that the actions of the Obama administration are making things worse than they would have been.

And there is still a lot of bad paper and bad mortgages and bad credit card debt and people who can't pay their mortgages yet to unwind, current Government policies being merely a finger in a disintegrating dam.

Stocks are Doomed. Hold Cash or Precious Metals During this Depression

2009-02-11T19:01:00.012-05:00

President Obama, his administration, and the Democratically controlled Congress are working as quickly as possible to spend as much money as possible on their constituent base, to consolidate their stranglehold on power. There is still no bank rescue plan, nothing in the "stimulus" bill to create or even slow job losses, and seemingly no understanding about the enormous amount of bad debt that is rapidly losing value and destroying the financial system from the inside out.

Home foreclosures are accelerating. We await a tidal wave of personal and corporate bankruptcies and the implosion of the commercial real estate market that will trigger more massive losses in the banking system.

In short, I have no confidence in the US Government to "solve" the current depression. In fact, they will no doubt make it worse by socializing the economy and spending money obscenely. No wonder the only thing that's working is precious metals.

I cannot consider investing in any stock until this virulently anti-business administration is either voted out of office or starts to see things more rationally.

The Last Depression, Coming to a Town Near You

Keep Away from US Stocks as They Cascade Down

Gold Threatening to Break Out To New Highs Against the US Dollar

A Depressing Lack of Confidence

2009-01-24T09:00:00.017-05:00

Discussing the "Stimulus Bill" in the White House. Any legislation without tax cuts for individuals who actually PAY taxes (as opposed to handouts to those who don't), or tax cuts for businesses is doomed to costly failure.

The US Dollar has been catching a bid relative to other currencies. But I am not optimistic about the value of these multiplying pieces of paper.

The real preferred currency in this depressing time, the Japanese Yen.

The cost of shipping continues at depressed levels.

Copper pricing remains low, reflecting depressed demand.

The price of oil remains depressed, however, I believe oil at these levels is an attractive investment.

US Treasuries caught an incredible bid as frightened big money sought a safe haven. However, some smart money is short these low-yielding price-inflated bonds denominated in a fragile currency.

Gold continues to resist the collapse of other commodities as perhaps the safest of havens. Gold is untied to the value of this currency or that, this country or that, this event or that. It has had intrinsic value for thousands of years. Yet, the chart is erratic and volatile.

Gold stocks have rallied remarkably from their lows, reflecting both the high price of gold and the decreasing price of oil (lowers cost of production). Would you rather own shares in a gold mine or an insolvent bank? Sadly, multiple resistances lay just overhead on the chart.

Stock volatility remains remarkably high. Not comforting for investors, but fun for traders.

Stocks are currently residing on the oversold side of life.

The S&P 500. I've fallen and I can't get up. Interesting how the "averages" seem to level out as one stock after another, or one sector after another, continues to get obliterated.

My hero Todd Harrison says "As go the piggies (banks) go the poke (the entire stock market)." The piggies continue to implode.

No more stock charts today. Suffice it to say that I am at a loss to find a bank to put my money into that I have confidence is not now or will not soon be bankrupt. Depressing.

Stocks Churning, Commodities and Currencies Burning

2009-01-10T18:52:00.020-05:00

The Yen Seems To Be the Currency of Choice as a Safe Haven

The Collapse of the Banking System Catalyzed Unraveling of the Financial Markets

Crude oil peaked over $147 in the Summer and Collapsed to $40 by Winter

VIX Historically Elevated: Option Sellers Raking It In

The Dollar Rallies Sharply After Collapsing, Then Gives Some Back

Treasuries Have Exploded as a Safe Haven

The SP 500 Collapses Fall 2008

Silver Bubbles Up and Collapses

The Nasdaq and Techs Collapse As Well in 2008

Oil Service Stocks Blow Off to the Upside then Collapse in 2008

Natural Gas Bubbles up and Collapses

Small Stocks Peaked and Collapsed

The Euro Exploded and then Pulled Back Versus the Dollar

Gold Peaked and Then Consolidated But Did Not Collapse in 2008

Emerging Market Stocks Collapsed in 2008

Baltic Dry Shipping Index Collapsed Along with the World Economy in 2008

Copper Considered the Best Economic "Tell" Collapsed in 2008

The China Stock Bubble Burst in 2007 and 2008, the Earliest "tell" of Things to Come

The Brazil Stock Bubble Peaked and Collapsed in 2008

Stocks turning up, commodities firming, the dollar sagging

2009-01-04T23:46:00.010-05:00

Turning Japanese

2008-12-16T18:33:00.005-05:00

The US Dollar has collapsed quickly following an impressive rally.

The Japanese Yen has continued its rise vs the dollar

The Market Fiddles as Rome Burns

2008-12-12T20:23:00.013-05:00

VIX still at historic highs. Markets choatic.

Still short term over bought and longer term very over sold.

The US Dollar may have peaked for now.

A panicked flight to treasurys. Probably will reverse soon enough.

Oil ramps and collapses. Very 1929 like.

Dr. copper collapses with the world economies.

Gold has held up relatively well lately and out performed stocks this decade.

Stocks have collapsed along with the banking system and the world-wide economy.

Small stocks too.

Brazil of BRIC fame shed a cool 70% in the market melt downs.

Collapse of the China ETF preceded much of the market melt downs.

Consolidating at Lower Levels or a Coiled Spring for a Rally?

2008-12-06T22:36:00.010-05:00

My own opinion is that commodities such as oil, and copper, stocks that track those commodity prices, and select other stocks should be bought here. The market has impressively resisted further declines in the face of horrific economic news the past week or two.

Governments around the world have unleashed a tidal wave of money, much of which has not yet washed into the stock markets. However, the combination of this money along with money coming out of the bond markets should push stocks much higher in the next year.

Volatility appears to have peaked, but remains at historic highs.

Short term, stocks a tad over bought.

Financials have stopped going down for now. A trade to the long side?

Stocks have stopped going down for now. A trade to the long side?

Brazil continues to crash along with commodity prices.

The US Dollar is consolidating at higher levels.

Gold has been making lower highs and lower lows the past six months.

Oil prices have fallen over $100 per barrel from peak to trough in the past 5 months. Crazy.

Copper, the best economist, has collapsed in price in the past 6 months.

Freeport collapses with the price of copper.

Mini-Crash Following Thanksgiving Week Rally

2008-12-01T19:21:00.021-05:00

The Long Treasury Bond Goes Off the Charts in Price as the Economy Collapses and America Goes Japanese

The VIX Bounces Up and Stocks Take a Dive

The Violent 20% Rally Off the Bottom Left the Market Very Over Bought and Vulnerable

The USD Continues Strong As Carry Trades Unwind and Flight to Safety

The Yen Powers Higher as Carry Trades Unwind and Flight to Safety

Oil Slumps on Demand Concerns and Deflation

Oil Stocks Continue to Slump with Oil

Financial Stocks Continue to Crumble as the Financial System Teeters on the Abyss

The S&P 500 Marches Downward in a Well-Defined Trend

The Nasdaq 100 Marches Downward in a Well-Defined Trend

The Russell 2000 Marches Downward in a Well-Defined Trend

Gold is Torn Between Inflation and Deflation

Gold Stocks Catch a Bid Now and Then But Have Been Crushed

Silver has Proven No Refuge and Has Been Cut in Half Like Everything Else

Brazil Is Off 70% from It's Peak Earlier in the Year

Cooper Producer Crushed By the Economic Collapse

US Steel--From Pricing Power and Blow Out Earnings to a Disaster in 6 Months

Best 4-Day Rally Since 1932. Is That Comforting?

2008-11-26T18:40:00.017-05:00

The Double Top in the VIX Plays Out. A Lower Vix = Higher Stocks? So Far.

One Week Chart of VIX shows it's Retreat from Record Levels.

Stocks Over Bought Short Term.

The Dollar Runs Out of Steam, Supporting All Asset Classes.

Oil Continues Down But Stabilizes around $50 per Barrel.

Oil Stocks Seem to Have Bottomed and Are Bouncing.

Financials Bounce But Have Poor Relative Strength.

S&P500 Poking Up Against Short-Term Down Trends on Decreased Volume.

The 20% Rise in the S&P500 in the past 3 trading days (plus 1 hour last Friday).

Tech Stocks Face End Demand Problem But Are Financially Stable

Small Stocks Always Seem to Run in Slow Economies

Brazil is Everyone's Favorite Emerging Market Showing Life

Gold Chops Around $800

Gold Stocks Show Relative Strength Recently But Were Decimated

US Steel Makes a Run for $30, was $180 not long ago. Economic Sensitivity.

Freeport Mines Copper, the "Barometer" of the World Economy. Kind of Weak.

A 15% Bounce in One Trading Day. Bear Market Spike?

2008-11-24T22:34:00.013-05:00

A Double Top in the VIX? A Lower VIX = Higher Stocks?

No Longer Over Sold. Back to Neutral.

The US Dollar Showing Signs of Pulling Back.

Oil Bounces Today But The Trend is Down.

Banks Bounce Big But The Trend is Down.

The S&P 500 Bounces Big But The Trend is Down

The Russell 2000 Bounces Big But the Trend is Down.

Gold Bouncing Big and the Trend is Sideways. A Hyper-Inflation Play?

Gold Stocks Clearly with Big Relative Strength. Buy on Weakness?

Brazil On Sale But the Trend is Down.

How Much Worse Can It Get?

2008-11-22T22:19:00.016-05:00

Sitting Out the Frazzled Fray

2008-11-21T15:19:00.002-05:00

I haven't made a trade in weeks. The smartest money would have been heavily short and rich. But early on in my option's trading education I developed too much fondness for puts and lost money consistently. You can't blame yourself for missing a once in a lifetime trading event, such as this stock market crash. At least I stood out of the way and had all my assets in cash.

Just looking at charts and following trends seems to be a prudent course.

Sometimes Feelings are Wrong

2008-11-19T18:31:00.005-05:00

Testing 2002-2003 Bear Market Lows:

The Bank Index leading the way lower and well under 2002-2003 support. An ominous pattern.

That feeling I had this morning as the market tried to rally, and gold and oil and tech displayed some relative strength; that feeling that I wanted to hop in on the long side for a day trip up the bear market spike?

That feeling was wrong, as the market not only reversed but broke down beneath certain short-term technical levels. I thought about trading but didn't. Todd Harrison at Minyanville has saved me a lot of money this year with his correct analysis of deflationary and recessionary trends.

Time for a rally for no reason?

2008-11-19T10:20:00.003-05:00

I just get the feeling it's time for a rally for no reason. Like stocks are just plain sold out. I'm getting the feeling the oils and the golds should work here, for a trade. Tech too, if you can believe it.

The US Dollar Has Become King as Deflation Reigns

2008-11-18T18:45:00.014-05:00

Stock Volatility Thru the Roof

The USD Deflating Everything Like a Steam Roller Mowing Down Beach Balls

The Deflation of Oil

The Deflation of Gold

Gold Stocks Fall Off a Cliff

Financial Stocks Lead the Market and Fall Off a Cliff

The S&P 500 Falls Off a Cliff

The Nasdaq 100 Falls Off a Cliff

Small Stocks Fall Off a Cliff

For those looking for long side trades all I can come up with is that stocks are over sold and a lot of bad news is already priced in.

President Obama-Carter

2008-11-16T23:15:00.003-05:00

An interesting comparison from our friends at National Review.

DJIA just prior to Jimmy Carter's election in November, 1976, through his Presidency and subsequent loss to Ronald Reagen in November 1980. Notice how the DJIA falls off a cliff about 6 months after Carter takes office, and rockets higher about 6 months after Ronald Reagen takes office.

History doesn't necessarily repeat itself, but it often rhymes.

Does the Fate of the World Economy....

2008-11-16T18:48:00.003-05:00

Depend on me and my fellow US Citizens buying another new GM SUV, another flat screen TV, and some more cheap plastic crap made in China? Do we have to buy second homes to support the real estate market? Do we have to take out more home equity loans and credit card loans and 0% financing to pay for all this stuff?

I've got news for you. We're tapped out. And our banks, credit card companies, and other lenders like GMAC are tapped out too. Yes, I'm spending even less and saving even more, because of the economic crisis.

I'm worried that President Tax-Oma will be slashing my take home pay with increases in the Federal Income Tax, the current cap on Social Security Payroll Tax, the expiration of the Bush Tax Cuts, and lord knows what other taxes. Michigan is short on revenues as you can imagine, so our taxes are likely to go up here as well.

First Snow for My Kittens

2008-11-16T10:22:00.002-05:00

Cash4Gold.com: A Top in Gold? Or a Bottom?

2008-11-16T09:55:00.003-05:00

Does the frequent television advertising by this newly minted outfit signal a top in the gold market? Or, are people being urged to sell too early and too cheap?

California: Another Tax and Spend Failure

2008-11-16T09:26:00.004-05:00

Good restaurants and health clubs though.

Is It Time to Be Bullish? He Asks With Skepticism

2008-11-15T07:29:00.010-05:00

The Russell 2000, as represented here by the ETF "IWM," sold off 3 points, or over 6%, in the last hour of trading. Maybe things are so bad it's time for longer term investing? Think of it as stocks having a 40% off sale. In fact, 40% off merely represents the decline of the major stock market averages.

Individual stocks, particularly commodity stocks have been annihilated. Did you like US Steel at $180 in July? It's printing $29 four months later. Astounding! How about coal? Did you like Arch Coal in July at $75. It's printing $15! How about an oil service stock? Like Weatherford International at $45 in July? It's printing $15!

How about emerging markets? Do you like Brazil with it's energy self-sufficiency, vast oil and gas reserves, enormous agricultural production, and booming economy? In July the Brazil ETF, "EWZ" was $100. It's printing $34. How about Intel down from $24 in July to $14 now. The company has a virtual monopoly on the central processors that drive most of the computers in the world.

I'm considering putting some cash to work next week. I've been totally in cash since June. Prior to June, I was 60% in cash. As a bonus, my cash, in US Dollars, has appreciated about 20% against many other currencies as "the great unwinding of 2008" has played out.

Does a 10% Intra-Day Range in JNJ Suggest a Healthy Market?

2008-11-14T08:42:00.003-05:00

To me, it suggests more chaotic stock market action in the face of tectonic shifts in the global financial markets.

The Stock Market: Too Big To Fail?

2008-11-13T16:40:00.009-05:00

At 1 PM the VIX spikes to 70 and Buy Programs Hit the Markets

The US Dollar Sells Off Simultaneously

The Price of Oil Rises Simultaneously

Oil Stocks Rocket Up Simultaneously

The S&P 500 Rockets Up Simultaneously

The Nasdaq 100 Rockets Up Simultaneously

The Russell 2000 Rockets Up Simultaneously

Retesting the October Lows Already: I Don't Think They'll Hold for Long

2008-11-13T07:25:00.010-05:00

The Chaos Continues

Somewhat Oversold

The US Dollar Continues to Rise, Deflating Everything in it's Path

Oil Continues to Crash, Recession and Deflation

A New Closing Low for the Financials is OMINOUS for the Overall Market

Large Caps Already Retesting the October Lows

Tech Already Retesting the October Lows

Small Caps Already Restesting the October Lows

Chaos

2008-11-12T08:32:00.002-05:00

Conventional Wisdom

2008-11-12T08:20:00.002-05:00

Can you think of anyone who doesn't think we've bottomed? So, are those that are willing to be in for a trade already in? Do Bear Markets have a way of luring speculators in and punishing them?

Matt Lauer Attacks Sarah Palin Part 2

2008-11-12T07:10:00.003-05:00

Matt "the ass" Lauer continued his condescending "put her on the defensive" interrogation of Sarah Palin at 7:10 AM on the Today Show. As a Media-crat Matt's job is to nip Sarah's rising star in the bud.

10 Years After

2008-11-11T22:06:00.011-05:00

If the financials lead the market, what about this suggests the market is going to turn up, or is even trying to?

The Russell 2000 round trips over the decade.

The Nasdaq bubble burst and stayed burst.

A high-quality oil and gas exploration and production company. Huge 10 year returns.

A high-quality restaurant chain--a personal dining favorite of mine.

The i-pod and i-phone brought this comatose computer maker to life.

An addictive electronic device facing increasing competitive challenges.

Everyone's favorite emerging market highly dependent on commodity prices.

The touchstone of the oil services companies. Tends to trade with the price of oil.

Matt Lauer Attacks Sarah Palin

2008-11-11T07:12:00.003-05:00

What a media ass. I flipped on The Today Show at 7:00 AM and there was Matt Lauer peppering Sarah Palin with question after question about "the wardrobe" and anonymous complaints from McCain campaign staffers about her.

Matt, you're an ass. Obama won. Why don't you spend the airtime talking up Obama and bashing Bush. That's what your 15 viewers want to see.

The Japanese Stock Market: Relevant Comparison?

2008-11-09T09:07:00.004-05:00

Does the boom and 20-year bust of the Japanese Stock Market, as represented by the Nikkei 225 have anything relevant to teach us about the US markets? Time will tell. But the boom and bust in the the Japanese real estate market, and banking system implosion, bear some similarities to our current situation.

Conventional wisdom is that the American economy, as well as the political and financial systems are much more flexible and quickly reactive than were the Japanese. Let's hope so. The Nikkei 225 Index peaked around 1990 at about 39,000. You may recall that within the past few weeks the Nikkei 225 has been trading between 7000 and 9000.

Peak to trough, long term investors have lost most of their money in the past 20 years.

First Comparison to The Great Depression

2008-11-07T06:32:00.005-05:00

The first comparison I recall this year to the depression era stock market was in January 2008! Something about the worst January since 1930-something.

Since then, people who spend their time comparing market movements over various periods of time have made numerous comparisons between the stock market gyrations of the past few months and the depression era market.

Most people tend to dismiss such comparisons as statistical coincidences. However, the boom of the 1920s with the consequent creation of over-capacity of industry and hyper-leverage in the stock market is not so dissimilar to the boom of the 1990s and 2000s and hyper-leverage of investment banks and hedge funds.

The near collapse of the banking system in both eras may be the most definitive similarity.

It may be that when this depression has run it's course there will be fewer banks, fewer restaurant chains, fewer clothing stores, fewer electronics stores, fewer shopping centers, fewer car makers, fewer hedge funds, fewer mutual funds, and fewer of everything that has been over-expanding since the 1980s.

In the chart above, I would speculate that our stock market has been trading like it's about 1930. The first vicious move lower is behind us, as a huge wave of levered-up players have washed out of the markets. It's clear to all that stock valuations are too high relative to economic circumstances.

But there's still a long way to go as real estate comes down, bad loans are written off, banks fail or consolidate, and whole industries undergo contraction based on decreased business and consumer demand, resulting in higher unemployment.

Buy Dollars, Sell Stocks (what's been happening)

2008-11-06T20:17:00.016-05:00

Neither Overbought Nor Oversold

Scary High Volatility

The Dollar Keeps on Rising Deflating Everything Like a Steam Roller

Down Goes the S&P 500 Heading Towards 500?

The Russell 2000 With a Touch of Relative Strength Lately

Gold Down in Fits and Spurts

Gold Stocks Trying to Bottom

Oil Is Just Being Crushed by Deflation and Recession

Oil Service Stocks Try to Bottom

As Go the Financials Go the Market

Brazil, My Favorite BRIC, Sinking Like One

A Few Months Ago We Were Told of a "Coal and Steel Shortage"

A Few Months Ago Infrastructure Companies Had Back Logs for Years

Best Performing ETFs Past 2 Days

2008-11-06T20:08:00.002-05:00

Double short almost anything! Here's the link for 1-day performance I use to follow ETF performance on Yahoo Finance. Yahoo lists the double short Chinese Market ETF (FXP) as todays numbero uno at +17.23%.

Dick Morris on the Economy: A Dire Prediction

2008-11-06T19:44:00.001-05:00

An election that the Republicans needed to lose — good luck Obama

By Dick Morris
Posted: 11/05/08 06:49 PM [ET]

If ever there was an election that was not worth winning, it was the contest of 2008. While it was hard-fought on both sides, had McCain won, it might have spelled the end of the Republican Party. As it is, the party is well-situated to come back in 2010 and in 2012, if it learns the lessons of this year.

Simply put, all hell is about to break loose in the markets and the economy. The mortgage crisis will likely be followed by defaults in credit card debt, student loans and car loans. We will probably be set for two years of zero growth, according to economists with whom I talk. And the federal efforts to protect the nation from the worst of the recession will probably lead to huge budget deficits and resulting inflation. We are in for stagflation that could last for years.

Had McCain won, he would be the latter-day Hoover, blamed for the disaster that unfolded on his watch. Now it is Obama’s problem. With the Republicans suffering a wipeout in congressional elections (although not as bad as they feared), the ball is now squarely in the Democratic court. Good luck!

If Obama raises taxes, the situation could get even worse. With a liberal Congress on his hands, he will be constrained to move to the left, if he needs any pushing. When Clinton was elected in 1992, the Democrats in control of Congress gave him a clear message: Either you govern within the four walls of the Democratic caucus or you won’t get our support. Crossing the aisle to get Republican votes, even including the GOP in negotiations, was a no-no for which the president would pay dearly if he transgressed.

The result was predictable. Moderate initiatives like welfare reform were scrapped, the Congress passed tax hikes and legislation became festooned with liberal amendments. Faced with the need to round up every last vote in the Senate and House Democratic caucuses, Clinton had no choice but to load up conservative bills like an anti-crime measure with liberal pork (like a provision for midnight basketball courts in urban areas) to get unanimous caucus backing.

Obama will have to move left to appease his caucus. He will become their hostage, and they his jailers. This dynamic will produce extreme-left-wing governance, which the Republicans can blame for the continuation of the recession and for any worsening. The party will recover, fed by anger at Obama’s policies, and will emerge from this defeat stronger than ever.

This Can't Be Good for Stocks or Commodities

2008-11-06T07:02:00.004-05:00

From Bloomberg:

Deutsche Bank AG, UBS AG and Barclays Plc predict the yen will recover from its steepest weekly decline since 1999 as investors reduce carry trades that fund purchases of higher- yielding assets by borrowing in Japan. The currency will appreciate to 90 per dollar from 97.74 today in Tokyo even if the Bank of Japan intervenes to stem the biggest annual gain since 1998, they said.

``Once the market realizes that we're now in a global recession, there's further deleveraging to come,'' said Geoff Kendrick, a senior currency strategist in London at UBS, the second-biggest trader in the $3.2 trillion-a-day market. Traders ``are capitulating'' after five years of bets against the yen, he said in a Nov. 4 interview.

Some Positve Divergences in a Dangerous Market

2008-11-05T21:19:00.011-05:00

Overbought stock market following a strong move up from enormously oversold levels.

Volatility coming in but still very high.

Down trending S&P 500.

Up trending US Dollar.

Down trending price of oil.

Bottoming in oil stocks?

Down trending erratically, gold weakens.

Bottoming in gold stocks?

In brief, the overall market is down trending, over bought, and volatile. The US Dollar is up trending, oil is down trending, and gold is moving down in fits and starts. However, both oil and gold stocks appear to be bottoming.

Historically Very Overbought

2008-11-05T11:00:00.003-05:00

The McClellan Oscillator is more overbought that it has been in over two years. This immediately following it being more oversold than it's been in over two years.

Obama-Nation!

2008-11-05T09:04:00.002-05:00

Here's the link to President-elect Obama's victory Speech delivered in my home town of Chicago, Illinois.

A lot of people seem really happy about the election results. To quote Robin Roberts from the opening of ABC's Good Morning America: "It's a new day, new dreams, new hope, and a new President." Such as this passes for journalism.

I wish President Obama and his almost filibuster-proof Senate majority all the best.

Personally, although I was just a teenager during the Carter years, the parallels are uncanny. A relatively young, fresh face sweeping into office following years of unpopular Republican administrations. Economic stagnation and recession. An unpopular war just winding down. Commodities an important inflationary and recessionary factor.

What's missing is big labor's demand for higher wages, which in the past led to an inflationary cycle. However, big labor is pushing for legislation to make it much easier to unionize workers, or even intimidate workers into becoming unionized.

Should this happen, the profits margins of companies like Walmart and many others would come under pressure. Ironically, increased unionization would probably further drive companies to manufacture off shore, further depressing the economy. For example, many of Toyota's and Honda's plants are non-union. If they unionize and start agitating for more of this and that, the Japanese would just shut down the plants and move them to Mexico.

It should be interesting to see how it all plays out over Obama's Presidency.

CX , VMC, ABB

2008-11-04T06:56:00.002-05:00

Just checking around for companies that could benefit from President Infrastructure. Also read a nice article on Seeking Alpha on possible electrical grid upgrade plays.

Alternative Energy Stocks

2008-11-04T06:22:00.003-05:00

I couldn't help but notice the big rally in the solar names yesterday (like FSLR), as well as stocks like Energy Conversion Devices (ENER). Given that crude oil was down $4 a barrel to $64, it wasn't an energy sector rally.

No, one of the few specifics we have from soon-to-be President Obama is that he's all about alternative energy and the creation of millions of "green" jobs. Hence, the rally in stocks having anything to do with clean, alternative energy.

Obama is also all about "infrastructure," so keep your eyes peeled for companies involved in building stuff like roads, I suppose.

Gas $2.18 per Gallon: Think About Retail Stocks

2008-11-02T19:21:00.003-05:00

Taking a brief break from our depressionary recession, I couldn't help but notice that gasoline prices in Southwest Lower Michigan have fallen to about half what they were just a few months ago. A little arithmetic suggests that a savings of $2 per gallon of gas on a 20 gallon fill up is now $40 dollars cheaper per tank full. Depending on how much you drive that's a hundred or two hundred dollars per month in your pocket. Maybe Christmas retail won't suck so bad after all. Maybe a little WMT or TGT or KSS in your holiday stocking?

Party Likes It's 2002--Get Ready to Buy

2008-11-01T09:43:00.007-04:00

Following the market peak in October of 2007 (one year ago), stock averages began a steady year-long downtrend into the month of October 2008. In October 2008, the stock markets crashed, and major averages would have ended down over 30% for the month, had it not been for a furious 3.5 day rally commencing on Tuesday October 28th at 2 PM and ending on Friday October 31st. This 3-day rally advanced the major market averages about 15 - 20%. Still, most averages were down around 15% percent for the month.

As an example, the Russell 2000 Index was trading about 440 at noon on Tuesday, and closed at about 540 on Friday. The Dow Jones Industrial Average was trading around 8200 mid-day Tuesday, and closed over 9300 on Friday. Most of the 3-day advance occurred in just 2 hours, between 2 PM and 4 PM on Tuesday, October 28th. The INDEXES rallied about 10% in just 2 hours. Anyone thinking about a coordinated intervention in the markets orchestrated by Big Government and Big Money?

Much has happened in the past year. Trillions of dollars have been lost on bad real estate loans and investments tied to those loans, the US brokerage industry collapsed and disappeared, US banks would have failed were it not for trillions of dollars in Government intervention. Trillions of dollars have been lost in the value of US real estate, and Trillions of dollars have been lost in the US stock markets. And stock, real estate, and banking losses of similar magnitudes occurred overseas as well, in the U.K., continental Europe, Australia, etc.

Heck, the totalitarian stock markets in Russian and China lost most of their value in the past year, and everyone's favorite emerging market, Brazil, lost 70% of it's value peak to trough.

Oddly enough, just 6 months ago perceptions were astonishingly different. While it was known that the US economy was slowing down, and bad real-estate assets were weighing down the books of many financial companies, the conventional wisdom was that world wide growth would continue, spurred on by hyper-growth in the so-called emerging markets like the BRIC countries.

That perception fed the final phase of the commodity rally, which was a classic climax run to the top. The last great burst of enthusiasm for commodities began in the summer of 2007 and ended in the summer of 2008. Results of this final push up in commodity prices saw gold top $1000, oil top $140, copper top $4, along with soaring prices for all commodities during the year at some point.

Prices for all these commodities have come off anywhere from 25-75%, with gold holding up relatively well only about 30% from its peak, currently trading at about $720 per ounce. Oil, once over $140 per barrel, now trades around $68 per barrel. We have since come to find out that the price spikes of these commodities were largely driven by demand from speculators following and fueling an uptrend. No surprise there.

Stocks too are a commodity, and represent nothing more these days than electronic flashes on a computer screen. There are many sophisticated models about what stocks are worth based on current and future earning projections, profit margins, stability of business, etc. But truth be told the amount of stock issued in the past couple of decades has been astronomical, fueled in part by the granting of massive amounts of stock options to company insiders, initial public offerings of companies with no earnings, and, the IPOs of many foreign companies, such as those in China.

Another reason there is so much stock on the market these days is that when the appetite for stock was nearly insatiable in the 1990s and, for some market sectors, the 2000s, stocks were bid up, split, and bid up again, increasing the share count, or the float (number of shares traded on the open market, as opposed to shares held by company insiders such as founders).

I have question. What exactly is a share in a company in the Peoples Republic of China worth? If I buy shares in a Chinese Energy Company or a Chinese Bank what exactly are my shareholder rights? Isn't China a totalitarian communist police state? Sure, if China were a democratic country with individual property rights these companies might be worth something. And if China reforms to a freer society and government these companies might have some free market value.

But Jim Rogers, who wants to place a big chunk of his assets in China, and who would have moved to China had it not been, so he says, for the poor air quality, seems to have forgotten some of the harsh lessons of history. What history teaches us is that one day we may wake up and China has invaded Taiwan, trading on their stock exchanges is suspended, and foreigners will be expelled or imprisoned. Come to think of it, this is precisely what has already occurred in Russia just this year, following their invasion of Georgia. Ask British Petroleum what's it's like to do business in Russia (their assets were essentially seized, and their people were expelled from the country).

Stock ownership only makes sense in countries where the political and legal structure support the rights of private property, as represented by stocks, which themselves represent fractional shares of ownership in companies. I would argue that a share of stock in Russia and China is worthless, unless they pay a dividend. But even that could be changed by government edict at any time.

Anyway, the Governments of the world, led by the USA, are filling the Trillion dollar voids of bad debts and bad assets and bad balance sheets to prevent the bankruptcy of most of the banks, remaining brokers, and other companies holding the bag for the reckless loans of this decade. The Governments will of course succeed. A company can't go bankrupt if the Government essentially gives them money to offset their worthless loan portfolios or level 3 paper or whatever.

If you owe $100,000 to your credit card company, and are getting ready to file for bankruptcy, and Hank Paulson knocks on your door, and gives you a check for $100,000, you are once again solvent. Or maybe Hank calls you up and says that he's called your bank and talked to them, and you now only owe $10,000, he'll take care of the rest, either by having the loan forgiven or by assuming $90,000 of the loan himself. Again, you're instantly back on your feet.

In any event, the credit bubble burst, the economy is in the tank, stocks are in the tank, interest rates are almost zero, and Governments are pushing piles of money everywhere to keep the system SOLVENT (not liquid). This is similar in style but much more massive in scope to our most recent recession following the bursting of the stock market bubble of the 1990s. The bubble of the 2000s included real estate, the Wall Street brokers, homeowners, the real estate market, as well as the stock market.

The negative wealth effect is bigger by several fold, I would imagine. The effects would seem to be easily predictable. The US has led much of the world into a deflationary recession that will last into next year. But with all the money being dumped into the financial system coupled with near-zero percent interest rates, that money will seek a better return than Treasury bonds, and, as risk appetite slowly returns, various asset class will begin to re-inflate.

I believe that the price of Treasury bonds will go down, the prices of stocks will stabilize and go up, commodity prices will stabilize and go back up, housing prices will stabilize and go back up, and eventually interest rates will go back up. There's nothing mysterious about it. It's just the inevitable repeating of economic cycles, boom and bust, that sort of thing.

My guess is that the worst is over, unless President Obama becomes President Carter, and runs the economy into the ground with high taxes and disincentives for individuals to work and disincentives for businesses to operate or to grow. That's a very big unknown, and a very important unknown. The power to tax is the power to destroy!

But deflation will rapidly revert to inflation sooner rather than later. The least risky way to make money, I'm guessing, would be precisely how money was made following the last recession: commodities and stocks in commodity based companies, and owning currencies in countries with better monetary polices, more robust economies, and countries rich in commodities the world needs.

You don't have to be a hero and pick the bottom in these asset classes, just wait for the charts to turn up. Wait a little while until the moving averages have gone from down sloping to sideways or even turned up. Wait until important resistance levels have been broken. If the next up cycle lasts a few years, there should be plenty of money to be made once it's clear the system has held together and is rebounding.

Russell 2000 up 23% in 3 days!

2008-10-31T14:59:00.008-04:00

Mid-day Tuesday the Russell 2000 was trading at 440. As of 3 PM Friday the index is trading at 540. THAT'S why traders try to catch a bottom! Up over 20% on the INDEX in 3 days!

A "Little" Bounce is a Big Percentage Move!

2008-10-30T20:17:00.016-04:00

The 6-week downtrend line has been broken to the upside for the S&P 500, also taking out the 20-day moving average. The markets are so far oversold, there is still lots of room to run to hit the 40-day moving average, and still be well within the confines of an intermediate-term downtrend.

This pattern has been repeated in almost every sector, stock, and international market. Gold and oil still remain pressured by the strength in the US Dollar, yet gold and oil stocks have bounced with the rest of the markets. These little bounces off the bottom often represent 20-30% up moves, so one can appreciate the lust traders have to "pick" the bottom!

The US Dollar is taking a breather, but remains in a sharp, well-defined short-term uptrend, pressuring commodities.

The Yen, our barometer for the unwind of the carry trade, which pressures stocks, commodities, and higher-yielding currencies like the Austrailan Dollar, has pulled sharply back but remains in a steep short-term uptrend.

In short, stock markets world wide appear to have hit a trading bottom. Now, do we retest the bottom a couple of times, or muddle higher? Given the sloppy, volatile trading action of late, it seems premature to expect a sustained move up from these levels. I would expect some sideways action for a couple of weeks.

Positions: None.

The FXI vs the Shanghai Composite

2008-10-28T22:30:00.002-04:00

I'm confused. I thought the FXI was an ETF that generally tracks the stock market in China, the Shanghai Composite. Today, the FXI ETF rallied 20%. Tonight, the Shanghai Composite is trading DOWN about 1%. The ultra-short Chinese ETF, FXP, traded down 35% today. Yet tonight, I repeat, the Shanghai Composite is trading down about 1%. Can someone explain to me how this works?

Bank of Japan Triggers Bear Market Rally

2008-10-28T18:26:00.010-04:00

Word that the BOJ was going to lower interest rates from 0.5% to 0.25% was enough to trigger a sharp reversal in the Yen. This correction completed the climax high for this move higher in the Yen. See 1-year chart.

The sharp drop in the Yen triggered a counter-trend move into stocks and out of bonds. Call it the anti-unwind of the carry trade, that is, a carry trade day. Yen and Dollar down, Euro and Aussie up. Emerging markets waay up! Oddly, oil and gold quiet. A bearish tell?

As can be plainly seen by the charts, today's 10% rally is merely an up day in a down trend, and is a classic bear-market rally.

Like the Blog Title says: Sell the Rally, lol.

The Usual Things Don't Apply

2008-10-27T23:15:00.006-04:00

All the usual signs of a bottom are in and have been in: very sharp declines, highly over-sold markets, pessimism, historically high VIX, bears becoming bulls, etc. So what gives?

Just about everything that could have gone wrong has gone wrong: bad loans became bad debts became insolvent banks and brokers. The foundations of modern Wall Street have crumbled with the disappearance of every independent investment bank except Goldman Sacks, which had to make itself a depository institution.

Brand named mutual fund companies like Fidelity have dozens of funds down about 40-50% year to date. Hedge fund data is sketchy but they're reported to be hurting and in the midst of mass redemptions.

Even money market funds have been under assault due to illiquid debt markets. The only prior economic situation that resembled the current situation is the Great Depression: a world-wide collapse of credit, banking, stocks, and deflation.

Now currency crises and sovereign debt default concerns are rearing their heads in the emerging markets. All those emerging markets that looked so good as commodity prices rose look awful as commodity prices collapse. Likewise with their currencies and debt. Heck, Australia's Dollar has lost about 40% versus the US Dollar in the past few months. That's incredible!

Maybe it all started with unimaginably large bets made in borrowed Yen or borrowed US Dollars, massive pools of money, betting on a stable or falling Yen, a stable or falling US Dollar, and rising global equity and commodity prices. It worked like a charm for about 5 years.

But within a few months in the middle of 2008 over 5 years of carry trades have collapsed to the tune of trillions of dollars of losses. Combine that with trillions in losses on bad real estate loans by the banks, and the fear of trillions more in bad loans to emerging markets, and it's just an unprecedented series of events.

It's like some have said, it's not a liquidity crisis, it's not a crisis of confidence, it's a crisis of solvency. Basically, everyone went bankrupt or nearly so. Banks, investment banks, hedge funds, mutual funds, commodity funds, the debt market.

You can see this enormous unwind in the currency markets, as the borrowed Dollars and Yen are bought back and the financial assets sold off: stocks, commodities, higher yielding currencies.

The Governments of the World are doing what they have to do, basically, just giving money to the banks to keep them afloat and buying up bad debt to keep the credit markets functioning, such as they are. Will it work?

Of course it will. Bad debt will be vaporized and governments will fill the void with fresh piles of cash. It'll take a while, of course.

Meanwhile, we have a world wide recession on our hands. But just as a tsunami of bad debt and bad bets has smashed the financial world the past year or so, a tsunami of cheap money is forming offshore, and will be lifting asset prices sooner rather than later.

The only thing that gives me pause is the effects of the US elections. A majority (or super-majority) of Democrats in the House and Senate combined with uber-liberal President Obama could combine for enormous tax increases that would mute any potential economic recovery or stock market recovery.

Why do I keep on thinking that Eight Years of President Bush was analogous to President Nixon and Ford's eight years, and what follows is going to be four years of President Carter/Obama--double digit unemployment, high taxes, inflation, recession, and a weak national security stance. In short, malaise and misery.

Three Months of Market History

2008-10-27T06:24:00.010-04:00

The New York Times: How Depressing!

2008-10-25T07:50:00.004-04:00

That's a 5-year chart of the New York Times common stock (NYT). No wonder The Times has been savaging President Bush and deifying Senator Obama, if something doesn't change, their stock will soon be worthless!

Their corporate bonds were just downgraded to "junk" status this week (just like the content of the newspaper, lol). Here's a snippet of the AP story:

AP
S&P cuts New York Times credit rating to junk
Thursday October 23, 11:25 pm ET

Standard & Poor's lowers New York Times Co.'s credit rating to junk status

NEW YORK (AP) -- Standard & Poor's Ratings Services on Thursday lowered The New York Times Co.'s corporate credit rating to junk bond status, citing weak prospects for advertising revenues.

The agency said it cut the company's rating from "BBB-" -- its lowest investment grade -- to "BB-."

Here are some of the headlines snatched from the front page of Saturday's online New York Times:

"Dollar and Yen soar as other currencies fall and stocks slip"
"A mother scorned"
"A broken soul"
"So when will banks give loans?"
"As yard sales boom, sentiment is the first thing to go"
"Thomas taken from house after overdose of pills"
"2 Foreigners shot to death in Kabul"
"2 Relatives of Jennifer Hudson reported slain"

I need a Prozac just to finish scanning the headlines, much less read one of these funereal stories.

I can only conclude that the writers and editors of these stories are very depressed and pessimistic. Hopefully, they'll feel a little better when President Obama raises taxes on people making more money than they do, putting more people out of work. Then, they won't feel as left behind by the American Dream of working yourself up the economic ladder.

Daytrading the Volatility

2008-10-24T20:05:00.004-04:00

Big Money would appear to be making money being net flat, keeping volatility high, and selling puts and calls like crazy. Imagine how much money you could make by selling covered puts or calls into the teeth of this enormous volatility. In fact, that's exactly what they did this morning as soon as the market opened.

Also, didn't it seem that for all the "limit down" hoopla pre-opening, the stock market traded really "dry" all day. That is, I didn't sense there was a lot of stock for sale. Buyers were on strike, of course. The easiest trade of the day was to buy stock in the pre-market, or at the open, and let it go within the hour.

That is, buy the opening gap down. Sadly, I was busy at work for the open, but I did manage to make some coin trading the QQQQs from the long side a couple times later in the afternoon.

I'm totally avoiding buying options, as the premiums are through the roof high. When volatility is low, I like deep in the money options for the leverage and more limited capital risk.

Positions: None. Still waiting for the Reserve Money Market Funds (Government Fund in particular) to give me my money back.

Gisele's Euros Becoming Anorexic

2008-10-24T19:58:00.005-04:00

On November 5th, 2007, Brazilian Supermodel Gisele demanded to be paid in Euros, not US Dollars. At the time, a Euro cost $1.46. Less than a year later a Euro only costs $1.26. Gisele's native Brazilian stock market has lost 70% of it's peak value within the year.

Obama Taxation A Sucker Punch to the Economy?

2008-10-23T22:31:00.001-04:00

From the net:

Obama would raise the top marginal rates on earnings, dividends and capital gains passed in 2001 and 2003 and phase out itemized deductions for high income taxpayers. He would uncap Social Security taxes, which currently are levied on the first $102K of earnings. The result is a remarkable reduction in work incentives for our most economically productive citizens. The top 35% marginal income tax rate rises to 39.6%; adding the state income tax, the Medicare tax, the effect of the deduction phaseout and Obama’s new Social Security tax increases the total combined marginal tax rate on additional labor earnings (or small business income) from 44.6% to a whopping 62.3%.

Would I need to graph pre-tax vs. after-tax income to determine at what point during the year to stop working to maximize my after-tax income?

Was Barack Obama Born in the USA?

2008-10-23T20:40:00.002-04:00

Some say he was not. And no birth certificate has been produced to show that he was. Some say he was born in Kenya. Therefore, he would be absolutely prohibited by the Constitution of the United States from becoming the President.

Market implications? Up 10-20% in a hurry.