Dylan Ratigan had on Eliot Spitzer this morning to discuss the Fed’s new effort to grab more power. Here are some of the quotes -
Nothing new if you have been reading my blog, but still refreshing to see it on National TV.
http://www.zerohedge.com/article/ratigan-spitzer-and-toure-clarify-how-fed-operates
Ratigan
“I feel as if America has suffered the greatest theft and cover up, ever. And that the vehicle was where banks created a pile of garbage, that they paid themselves Billions of Dollars of personal compensation and then stuck the Trillions of Dollars of garbage with the American Taxpayer. That to me is stealing.”
The Federal Reserve, using Taxpayer Money, basically becomes a Goodwill Store for the banks. So, the banks take all of their garbage to the Federal Reserve and then like the Goodwill, the banks are then able to write in the value for what they believe the garbage to be worth.” The value is $13.9 TRILLION!!!!!
“We now want to know what’s in this garbage bag, because this garbage bag represents the future of our country.”
Spitzer :“I want to know if there is anything in (the garbage bag) that is worth the money (the banks) have been given. I want to know what you knew it was worth and when you knew what it was worth. If it was zero, why were you doing what you were doing?”
Ratigan :“Congress has asked the Chairman of the Federal Reserve to tell us what is in the bag. What did you give the $13.9 trillion for? “
Spitzer: “We need to ask the hard questions. The most poignant example for me is the AIG bailout, where they gave (over $100 billion) that went right through conduit payments to the Investment Banks that are now solvent. We needed to get the money to the banks. We didn’t get stocks in those banks. They didn’t ask what had been going on.
This begs and cries out for hard, tough examination. The Fed was quasi-autonomous from the public, but it was run by the banks. You look at the governing structure of the NY Fed, it was run by the very banks that got the (AIG) money.
This is a Ponzi Scheme, an Inside Job. It is outrageous. It is time for the Congress to say ‘enough of this’.”
I let a major Wall Street firm because I could add 2 + 2 and see what these banks were doing to the US Taxpayer (present and future). I could not stomach it anymore, so I picked up and left. The move cost me a ton of money and a lot of good will, but my conscience is clean.
There will be hell to pay at some point and the guys who profited from this theft will be strung up. They know this, so they are trying to inflate yet another bubble to allow them time to cover their tracks.
Enjoy the bubble, because it is the last one. This one takes down US Treasury Bonds.
Friday, July 24, 2009
Final Note on California
California managed to “balance” the Budget. We did so by cutting spending by $15 Billion and using accounting tricks and forced borrowing to come up with the other $11 Billion. Using credit to get yourself out of debt seems like folly to me…
My fear was that California would fail to make tough choices at the State level and force those tough choices down to Municipalities. This is the result of the current Budget proposal. California is taking several Billion Dollars from Municipalities and giving these cities 3-year IOUs. I feared that this would cause Municipalities to declare bankruptcy as they ran out of cash and that is what is setting up –
http://www.ocregister.com/articles/state-redevelopment-city-2505312-budget-local
“Placentia city officials are howling in effort to keep state hands out of their coffers. The plan to seize millions could bankrupt the city, they say.”
"We may have to declare bankruptcy – that's how serious this is," said City Administrator Troy Butzlaff. "This is something the system can't endure. We just avoided bankruptcy by doing all the right things; by cutting back, by getting concessions from staff, by cutting $4.5 million over last year's budget."
Each effort to kick the can down the road has more adverse consequences somewhere down the food chain. When the US prints money, the Dollar falls and the Consumer loses purchasing power. When the state fails to stop spending, the cities must foot the bill.
I wonder how Placentia Municipal Bonds are pricing today…
My fear was that California would fail to make tough choices at the State level and force those tough choices down to Municipalities. This is the result of the current Budget proposal. California is taking several Billion Dollars from Municipalities and giving these cities 3-year IOUs. I feared that this would cause Municipalities to declare bankruptcy as they ran out of cash and that is what is setting up –
http://www.ocregister.com/articles/state-redevelopment-city-2505312-budget-local
“Placentia city officials are howling in effort to keep state hands out of their coffers. The plan to seize millions could bankrupt the city, they say.”
"We may have to declare bankruptcy – that's how serious this is," said City Administrator Troy Butzlaff. "This is something the system can't endure. We just avoided bankruptcy by doing all the right things; by cutting back, by getting concessions from staff, by cutting $4.5 million over last year's budget."
Each effort to kick the can down the road has more adverse consequences somewhere down the food chain. When the US prints money, the Dollar falls and the Consumer loses purchasing power. When the state fails to stop spending, the cities must foot the bill.
I wonder how Placentia Municipal Bonds are pricing today…
Thursday, July 23, 2009
Powerful
On Sunday night I wrote the following -
“2009 is a Bull Market in the printing of money and the invention of still more bogus credit. I have been patiently waiting for the benefactors from this fundamental truth to base and break out of trading ranges. Option Expiration is now out of the way and a few days of pulling back could set up something to remember.”
- the benefactors being Commodities, Commodity-based Economies and Emerging Market economies.
Things sat around until this morning and then they went vertical. Very simply put, Big Money is getting back into stocks. That is as good as it gets.
The S&P 500 broke out of a 9-month base today
It did so as the percent of companies above their 200-day average has run to 80%. That tells you the big boys are buying lots of stocks. I have told you for months that that is the key.
I have been getting stopped into lots of holdings. In no particular order -
Transportation (IYT) broke out of a 2-month base today. Lots of people at talking about how “over bought” things are. I included the ADX (trend strength indicator) on the IYT chart to show you that ADX is still at 15 (blue circle). I define 15 on ADX as not trending.
I run scans to find stocks with an ADX between 1 and 15 to show me what is basing and may be moving next. IYT is at the start of a trend, not the end. The only question is which way does this trend go? I hope that it is up…
Here is the Point & Figure chart on IYT. The pattern for IYT is a “spread triple top”. That pattern is the most profitable pattern in the Point & Figure universe. Not the target price – calculated by using the Point & Figure vertical count method (I am not telling you it is going to $82). I just want to show you that the pattern has a very bullish history (past performance no guarantee of future returns, right Mr. SEC?)
Biotech (IBB)
Biotech gave Obama Care the finger today and broke out of a 10-month base. Big Money is voting that Obama Care is DOA.
I want to show you how powerful the buying has been. Here is a 3-day chart of Gilead (GILD). They are a biotech company that makes the key anti-viral drug for combating bird and swine flu (called Tamiflu). Gilead tanked yesterday at the open and was bought hard right out of the gate. It then got bought hard again today. Gilead is trying to break out of a 5-month base.
Another 3-day chart showing you how powerful the buying has been. This one is of Chipotle Mexican Grill (CMG). Look at how this sucker opened lower and was bought with abandon. That is powerful stuff!
Restaurants
Brinker International (EAT), DineEquity (DIN) and PF Chang’s are in 3-month bases. EAT owns Chili’s, Macaroni Grill and On The Border. DIN owns IHOP and Applebee’s.
Chipotle and Cheesecake Factory (CAKE) has broken out of their bases.
I like these basing patterns, because when they work you have the potential for big, fast moves. I wrote the following on Sunday night –
“XME is the ETF for Metals and Mining stocks. XME has a very high correlation with DBB. Far and away, my favorite stock in this group is Pohang Iron (PKX) (just my opinion and not a recommendation).” Here is what PKX has done.
Looks at how OMG has done. Does the base look familiar? OMG makes Chemicals and these trade as commodity plays.
I also mentioned Commodity-Based Economies on Sunday. Mexico (EWW) has done well since.
I owned PKX, OMG and EWW for aggressive accounts. My goal now is to identify what else is setting up for potential breakouts and wait. If prices pull back on what I already have, then I can buy whatever I want. However, if prices keep ramping, then I can get better risk reward buying new stuff breaking out of bases – like AAUK (Gold), EWZ (Brazil) or FXA (Australian Dollar). Again, I am not recommending anybody buy anything – I am simply walking through my thought process!
Some other potential basesWhile many other stocks and sectors were holding up well during the pullback of the last few months, some had more noticable price declines. Their charts look more like First Solar (FSLR). I got into First Solar a few days ago for aggressive accounts and it is up $5 in the aftermarket tonight!
DBA (Agricultural Commodities) has the same setup as First Solar, so I am watching carefully for a break back above the 200-day (Blue Line). I think the fundamentals for commodities are Bullish, as the Fed prints more money. Did you see that the Fed will sell almost $250 billion in new Treasuries next week? Our kids are screwed.
Here is another type of base. This is the base of a laggard. However, it has the potential to be very productive if it can breakout. I will be watching CLF closely and already have some positions in it, after it crossed the Blue Line).
The bottom line to me is this – you don’t get this type of power in a Bear Market. When the Percent Above the 200 Day reached 80% in 2003, the market rallied for 8 months before topping out. Even then, they only pulled back into rising moving averages before going higher.
Remember, the 2003 rally was fueled by artificially low Interest Rates that allowed people to refinance their homes and take cash out to fuel consumption. Team Obama is trying to do the same thing – refinancing over $450 billion so far. They are also having the Fed buy Bonds – at least $300 billion by October. That is a lot of fuel for the Stock Market!
I will continue to focus on that which directly benefits from the creation of new money. As long as the Fed keep printing money, those guys should see continued growth.
“2009 is a Bull Market in the printing of money and the invention of still more bogus credit. I have been patiently waiting for the benefactors from this fundamental truth to base and break out of trading ranges. Option Expiration is now out of the way and a few days of pulling back could set up something to remember.”
- the benefactors being Commodities, Commodity-based Economies and Emerging Market economies.
Things sat around until this morning and then they went vertical. Very simply put, Big Money is getting back into stocks. That is as good as it gets.
The S&P 500 broke out of a 9-month base today
It did so as the percent of companies above their 200-day average has run to 80%. That tells you the big boys are buying lots of stocks. I have told you for months that that is the key.
I have been getting stopped into lots of holdings. In no particular order -
Transportation (IYT) broke out of a 2-month base today. Lots of people at talking about how “over bought” things are. I included the ADX (trend strength indicator) on the IYT chart to show you that ADX is still at 15 (blue circle). I define 15 on ADX as not trending.
I run scans to find stocks with an ADX between 1 and 15 to show me what is basing and may be moving next. IYT is at the start of a trend, not the end. The only question is which way does this trend go? I hope that it is up…
Here is the Point & Figure chart on IYT. The pattern for IYT is a “spread triple top”. That pattern is the most profitable pattern in the Point & Figure universe. Not the target price – calculated by using the Point & Figure vertical count method (I am not telling you it is going to $82). I just want to show you that the pattern has a very bullish history (past performance no guarantee of future returns, right Mr. SEC?)
Biotech (IBB)
Biotech gave Obama Care the finger today and broke out of a 10-month base. Big Money is voting that Obama Care is DOA.
I want to show you how powerful the buying has been. Here is a 3-day chart of Gilead (GILD). They are a biotech company that makes the key anti-viral drug for combating bird and swine flu (called Tamiflu). Gilead tanked yesterday at the open and was bought hard right out of the gate. It then got bought hard again today. Gilead is trying to break out of a 5-month base.
Another 3-day chart showing you how powerful the buying has been. This one is of Chipotle Mexican Grill (CMG). Look at how this sucker opened lower and was bought with abandon. That is powerful stuff!
Restaurants
Brinker International (EAT), DineEquity (DIN) and PF Chang’s are in 3-month bases. EAT owns Chili’s, Macaroni Grill and On The Border. DIN owns IHOP and Applebee’s.
Chipotle and Cheesecake Factory (CAKE) has broken out of their bases.
I like these basing patterns, because when they work you have the potential for big, fast moves. I wrote the following on Sunday night –
“XME is the ETF for Metals and Mining stocks. XME has a very high correlation with DBB. Far and away, my favorite stock in this group is Pohang Iron (PKX) (just my opinion and not a recommendation).” Here is what PKX has done.
Looks at how OMG has done. Does the base look familiar? OMG makes Chemicals and these trade as commodity plays.
I also mentioned Commodity-Based Economies on Sunday. Mexico (EWW) has done well since.
I owned PKX, OMG and EWW for aggressive accounts. My goal now is to identify what else is setting up for potential breakouts and wait. If prices pull back on what I already have, then I can buy whatever I want. However, if prices keep ramping, then I can get better risk reward buying new stuff breaking out of bases – like AAUK (Gold), EWZ (Brazil) or FXA (Australian Dollar). Again, I am not recommending anybody buy anything – I am simply walking through my thought process!
Some other potential basesWhile many other stocks and sectors were holding up well during the pullback of the last few months, some had more noticable price declines. Their charts look more like First Solar (FSLR). I got into First Solar a few days ago for aggressive accounts and it is up $5 in the aftermarket tonight!
DBA (Agricultural Commodities) has the same setup as First Solar, so I am watching carefully for a break back above the 200-day (Blue Line). I think the fundamentals for commodities are Bullish, as the Fed prints more money. Did you see that the Fed will sell almost $250 billion in new Treasuries next week? Our kids are screwed.
Here is another type of base. This is the base of a laggard. However, it has the potential to be very productive if it can breakout. I will be watching CLF closely and already have some positions in it, after it crossed the Blue Line).
The bottom line to me is this – you don’t get this type of power in a Bear Market. When the Percent Above the 200 Day reached 80% in 2003, the market rallied for 8 months before topping out. Even then, they only pulled back into rising moving averages before going higher.
Remember, the 2003 rally was fueled by artificially low Interest Rates that allowed people to refinance their homes and take cash out to fuel consumption. Team Obama is trying to do the same thing – refinancing over $450 billion so far. They are also having the Fed buy Bonds – at least $300 billion by October. That is a lot of fuel for the Stock Market!
I will continue to focus on that which directly benefits from the creation of new money. As long as the Fed keep printing money, those guys should see continued growth.
Sunday, July 19, 2009
Commodities, Currencies and Emerging Markets
Here is my investment thesis. It has been pretty consistent for the better part of a year now. You can take it or leave it. My thesis is as follows –
The only growth industry in the Industrialized World is the creation of Credit
That’s it.
Pretty simple.
The better a country is at inventing new Credit (Debt), while not actually making anything of value (Assets), the more competitive that country becomes, as it implodes the value of its currency.
Paul McCulley of PIMCO has a good piece this month, in which he reviews the speeches and works of Krugman, Bernanke and Keynes – as they relate to Deflation and ZIRP (Zero Interest Rate Policy). I have reviewed this stuff before and the takeaway is that in order to get rid of Deflation, you have to appear to be insane when it comes to your desire to print infinite money and never remove it from the Economy – even after the economy starts to grow and Inflation returns to the system.
http://www.pimco.com/LeftNav/Featured+Market+Commentary/FF/2009/July+2009+Global+Central+Bank+Focus+McCulley.htm
“America is in a liquidity trap, driven by private sector deleveraging borne of asset price deflation, meaning that private sector demand for credit is axiomatically flat to negative, despite a Fed funds rate pinned against zero. The only source of credit demand growth in the United States is the Treasury itself.”
“So what should Washington do, if and when – and I stress “if and when”; I’m not making a forecast here! – private sector aggregate (nominal) demand growth looks like it’s going to languish in Japan style for the indefinite future? The answer: Take one cup of Krugman’s advice for Japan and two cups of Bernanke’s advice for Japan – responsibly act irresponsibly relative to orthodoxy.”
Years ago, McCulley noted that as a Bond Holder, you were now faced with the reality that you were either going to lose a lot of money via Debt Defaults or you were going to lose a lot of money vie the effects of Inflation on the Real Value of your Debt Holdings. Team Goldman has chosen Inflation financed by the taxpayer.
In May and June, the US Government has refinanced $450 billion in mortgages and moved the responsibility of that debt from the Banks to the US Taxpayers – via Freddie and Fannie. That is good for bank shareholders and bond holders and bad for the taxpayer. Expect this to continue.
Doug Noland sums it up like this –
“The problem only seems to get clearer. The maladjusted US Bubble economy is sustained by $2.0 to $2.5 Trillion of new Credit – Credit that must largely be issued or guaranteed in Washington. This reflation (a.k.a. Credit inflation/currency devaluation) drives massive flows to China, Asia and the emerging markets that have few takers other than the central banks. And as economies recover and inflationary distortions reemerge, these enormous dollar flows can be expected to foment increasing policymaker angst. Asian reflation is poised to take on a wild life of its own, forcing policymakers at some point to confront today’s reality that dollar flows are destabilizing and unmanageable. China, in particular, faces tough choices when it comes both to managing its Bubble and the massive accumulation of IOUs of deteriorating quality.”
The Bottom Line
I want to own things that make money as more money is printed. Think of it as a company, where the more stuff they make, the greater the value of the company – classic Revenue Growth and Earnings Growth lead to higher a Stock Price. What sees its value increase as more Leverage hits the system and more Money is created? Real Assets – stuff you grow in the dirt, stuff you dig out of dirt and stuff that moves the dirt around and stores it.
Commodity-Based Economies
Australia, Brazil, Canada, Latin America, Mexico, Russia, South Africa
Mexico (EWW)
EWW may have broken out of a 2-month trading range. That is the type of action I have been waiting for! You know by now that the most damage has been caused by failed breakouts, so I will be very careful if EWW trades back below $37 on heavy volume.
South Africa (EZA)
Is now back to the top of the recent trading range. A breakout on volume is what I am interested in. Remember, there are very few Quadruple Tops, so look for any weakness over the next few days to set up a huge breakout or an epic failure. I don’t think it will just sit here much longer.
Canada (EWC), Brazil (EWZ), Australia (EWA), Latin America (ILF) and Russia (RSX) have very similar chart patterns. That tells me that the stocks in these markets are trading more on the movements of the commodities they own or export and not on the underlying fundamentals of the countries they represent.
Currencies
The US Dollar ($USD)
The Dollar looks like it is rolling over yet again and the Point & Figure charts have it targeting a retest last-year’s low (not a prediction).
Swiss Franc (FXF)
The Swiss Franc used to be a store of value, but then their banks got into the leveraged debt business and they nearly blew up the country. Now FXF looks like it is the anti-Dollar. I gave the Dollar the benefit of the doubt during the pullback in stocks, but guess which one I want to own?
Same goes for the Euro (FXE)
Commodities-Based Currencies had substantially better returns than did the Euro or the Swiss Franc. They are more volatile and actually trade with more stock-like characteristics. The Australian Dollar (FXA) most interests me in this space.
Commodities
Agriculture
DBA is an ETF that owns agricultural commodities – Corn, Soybeans, Sugar #1 and Wheat. It has pulled back into support, down -17% since early June.
MOO is an ETF that owns the companies involved in Agribusiness. It has outperformed the underlying Agricultural Commodity over the past 8 weeks.
Based Metals
DBB is an ETF that owns metals – Aluminum, Copper – Grade A and Zinc.
XME is the ETF for Metals and Mining stocks. XME has a very high correlation with DBB. Far and away, my favorite stock in this group is Pohang Iron (PKX) (just my opinion and not a recommendation).
Crude Oil (USO)
USO doesn’t look so hot. It looks like a wedge into the 20, 50 and 200 day averages.
Oil Service stocks still look better than the large Energy companies, so I will focus on the Oil Service ETF (OIH). It pulled back hard most of June and then rallied sharply last week. I hope it sits around for a few days and then breaks out on heavy volume to stop me in.
Gold (GLD)
I refused to sell any gold as the markets topped and rolled over the last 8 weeks. I will continue to add to my Gold holdings. It needs to break above $1,000 an ounce to really get rolling. GLD is now in a 16-month base. I have several great looking Gold stocks that I really like and will be buying.
Silver (SLV)
Silver is a strange commodity – it is a precious metal but it also is used in a number of commercial applications, so it is very cyclical.
There is a lot of support at $12. SLV is high on my list. There aren’t very many Silver stocks to buy.
The other part of the Credit Expansion equation is which countries will see the most economic growth from all of the newly-created money being spent?
Emerging Markets and Asia
China (FXI) is still sitting in a 2-month trading range. China is the World’s growth engine right now and I want in if big money breaks it out of this trading range.
South Korea (EWY)
I like the countries that sell into China. South Korea has a great chart, barely budging as the markets sold off the last 8 weeks!
Emerging Market ETF (EEM)
The chart is similar to China and Korea, but EEM lets me own smaller countries that I may not have faith in as a pure play.
Once again, the markets were on the brink and the news environment was such that everybody knew things were about to crack unless Team Obama started printing more money. This week it was the string pulling to get CIT’s credit extended 30 more months. It also was California wussing out and not making the tough decisions – rather, they are returning to still more accounting tricks to try and “balance” the budget.
The rampable stocks had great weeks. The usually suspects – AAPL, MSFT, QCOM, GOOG, BIDU led.
How many iPods does Apple have to sell to justify $135 billion market cap? Just how attractive is Intel at 22 times earnings with slow growth?
At some point, the markets have to become something more than a few tech stocks and some banks with bogus asset prices. Moreover, the US has to figure out that exporting jobs to China may be good for the stock market, but the policy sucks for the average American – 11 point what percent unemployment in CA?
2009 is a Bull Market in the printing of money and the invention of still more bogus credit. I have been patiently waiting for the benefactors from this fundamental truth to base and break out of trading ranges. Option Expiration is now out of the way and a few days of pulling back could set up something to remember.
The only growth industry in the Industrialized World is the creation of Credit
That’s it.
Pretty simple.
The better a country is at inventing new Credit (Debt), while not actually making anything of value (Assets), the more competitive that country becomes, as it implodes the value of its currency.
Paul McCulley of PIMCO has a good piece this month, in which he reviews the speeches and works of Krugman, Bernanke and Keynes – as they relate to Deflation and ZIRP (Zero Interest Rate Policy). I have reviewed this stuff before and the takeaway is that in order to get rid of Deflation, you have to appear to be insane when it comes to your desire to print infinite money and never remove it from the Economy – even after the economy starts to grow and Inflation returns to the system.
http://www.pimco.com/LeftNav/Featured+Market+Commentary/FF/2009/July+2009+Global+Central+Bank+Focus+McCulley.htm
“America is in a liquidity trap, driven by private sector deleveraging borne of asset price deflation, meaning that private sector demand for credit is axiomatically flat to negative, despite a Fed funds rate pinned against zero. The only source of credit demand growth in the United States is the Treasury itself.”
“So what should Washington do, if and when – and I stress “if and when”; I’m not making a forecast here! – private sector aggregate (nominal) demand growth looks like it’s going to languish in Japan style for the indefinite future? The answer: Take one cup of Krugman’s advice for Japan and two cups of Bernanke’s advice for Japan – responsibly act irresponsibly relative to orthodoxy.”
Years ago, McCulley noted that as a Bond Holder, you were now faced with the reality that you were either going to lose a lot of money via Debt Defaults or you were going to lose a lot of money vie the effects of Inflation on the Real Value of your Debt Holdings. Team Goldman has chosen Inflation financed by the taxpayer.
In May and June, the US Government has refinanced $450 billion in mortgages and moved the responsibility of that debt from the Banks to the US Taxpayers – via Freddie and Fannie. That is good for bank shareholders and bond holders and bad for the taxpayer. Expect this to continue.
Doug Noland sums it up like this –
“The problem only seems to get clearer. The maladjusted US Bubble economy is sustained by $2.0 to $2.5 Trillion of new Credit – Credit that must largely be issued or guaranteed in Washington. This reflation (a.k.a. Credit inflation/currency devaluation) drives massive flows to China, Asia and the emerging markets that have few takers other than the central banks. And as economies recover and inflationary distortions reemerge, these enormous dollar flows can be expected to foment increasing policymaker angst. Asian reflation is poised to take on a wild life of its own, forcing policymakers at some point to confront today’s reality that dollar flows are destabilizing and unmanageable. China, in particular, faces tough choices when it comes both to managing its Bubble and the massive accumulation of IOUs of deteriorating quality.”
The Bottom Line
I want to own things that make money as more money is printed. Think of it as a company, where the more stuff they make, the greater the value of the company – classic Revenue Growth and Earnings Growth lead to higher a Stock Price. What sees its value increase as more Leverage hits the system and more Money is created? Real Assets – stuff you grow in the dirt, stuff you dig out of dirt and stuff that moves the dirt around and stores it.
Commodity-Based Economies
Australia, Brazil, Canada, Latin America, Mexico, Russia, South Africa
Mexico (EWW)
EWW may have broken out of a 2-month trading range. That is the type of action I have been waiting for! You know by now that the most damage has been caused by failed breakouts, so I will be very careful if EWW trades back below $37 on heavy volume.
South Africa (EZA)
Is now back to the top of the recent trading range. A breakout on volume is what I am interested in. Remember, there are very few Quadruple Tops, so look for any weakness over the next few days to set up a huge breakout or an epic failure. I don’t think it will just sit here much longer.
Canada (EWC), Brazil (EWZ), Australia (EWA), Latin America (ILF) and Russia (RSX) have very similar chart patterns. That tells me that the stocks in these markets are trading more on the movements of the commodities they own or export and not on the underlying fundamentals of the countries they represent.
Currencies
The US Dollar ($USD)
The Dollar looks like it is rolling over yet again and the Point & Figure charts have it targeting a retest last-year’s low (not a prediction).
Swiss Franc (FXF)
The Swiss Franc used to be a store of value, but then their banks got into the leveraged debt business and they nearly blew up the country. Now FXF looks like it is the anti-Dollar. I gave the Dollar the benefit of the doubt during the pullback in stocks, but guess which one I want to own?
Same goes for the Euro (FXE)
Commodities-Based Currencies had substantially better returns than did the Euro or the Swiss Franc. They are more volatile and actually trade with more stock-like characteristics. The Australian Dollar (FXA) most interests me in this space.
Commodities
Agriculture
DBA is an ETF that owns agricultural commodities – Corn, Soybeans, Sugar #1 and Wheat. It has pulled back into support, down -17% since early June.
MOO is an ETF that owns the companies involved in Agribusiness. It has outperformed the underlying Agricultural Commodity over the past 8 weeks.
Based Metals
DBB is an ETF that owns metals – Aluminum, Copper – Grade A and Zinc.
XME is the ETF for Metals and Mining stocks. XME has a very high correlation with DBB. Far and away, my favorite stock in this group is Pohang Iron (PKX) (just my opinion and not a recommendation).
Crude Oil (USO)
USO doesn’t look so hot. It looks like a wedge into the 20, 50 and 200 day averages.
Oil Service stocks still look better than the large Energy companies, so I will focus on the Oil Service ETF (OIH). It pulled back hard most of June and then rallied sharply last week. I hope it sits around for a few days and then breaks out on heavy volume to stop me in.
Gold (GLD)
I refused to sell any gold as the markets topped and rolled over the last 8 weeks. I will continue to add to my Gold holdings. It needs to break above $1,000 an ounce to really get rolling. GLD is now in a 16-month base. I have several great looking Gold stocks that I really like and will be buying.
Silver (SLV)
Silver is a strange commodity – it is a precious metal but it also is used in a number of commercial applications, so it is very cyclical.
There is a lot of support at $12. SLV is high on my list. There aren’t very many Silver stocks to buy.
The other part of the Credit Expansion equation is which countries will see the most economic growth from all of the newly-created money being spent?
Emerging Markets and Asia
China (FXI) is still sitting in a 2-month trading range. China is the World’s growth engine right now and I want in if big money breaks it out of this trading range.
South Korea (EWY)
I like the countries that sell into China. South Korea has a great chart, barely budging as the markets sold off the last 8 weeks!
Emerging Market ETF (EEM)
The chart is similar to China and Korea, but EEM lets me own smaller countries that I may not have faith in as a pure play.
Once again, the markets were on the brink and the news environment was such that everybody knew things were about to crack unless Team Obama started printing more money. This week it was the string pulling to get CIT’s credit extended 30 more months. It also was California wussing out and not making the tough decisions – rather, they are returning to still more accounting tricks to try and “balance” the budget.
The rampable stocks had great weeks. The usually suspects – AAPL, MSFT, QCOM, GOOG, BIDU led.
How many iPods does Apple have to sell to justify $135 billion market cap? Just how attractive is Intel at 22 times earnings with slow growth?
At some point, the markets have to become something more than a few tech stocks and some banks with bogus asset prices. Moreover, the US has to figure out that exporting jobs to China may be good for the stock market, but the policy sucks for the average American – 11 point what percent unemployment in CA?
2009 is a Bull Market in the printing of money and the invention of still more bogus credit. I have been patiently waiting for the benefactors from this fundamental truth to base and break out of trading ranges. Option Expiration is now out of the way and a few days of pulling back could set up something to remember.
Tuesday, July 14, 2009
Eliot Spitzer
I was originally going to cover all of the TV personalities telling Goldman to go to h*ll for using Tax Payer Money to re-lever and front run client trades and then pay out record bonuses, but Spitzer has been on a roll this week and his works are sufficient to cover Goldman and California!
Spitzer on Goldman
http://www.clipsyndicate.com/video/play/1019966
“The issue in my mind is not whether they will announce enormous earnings today – I think everybody knows that - the question is, what does it mean both politically and what does it mean outside the context of Wall Street?
Because I think we have a division here – Wall Street is beginning to come back, because the Government has pumped an unbelievable amount of money into Wall Street… there’s no question we, as taxpayers, have put billions, in fact trillions of dollars into The Street.
The question is does that generate jobs - which is the word we haven’t heard anything about – out in the real economy?”
You are on to something, Eliot.
“(Goldman’s) Proprietary Trading, in a volatile Market, where their Cost of Capital was driven to virtually nothing, because we, as taxpayers, gave them access to Capital. They made a bloody fortune. Now the question is, is that good for us as taxpayers? Is it good for the Economy? Does that generate jobs? Where is their Capital going?
If all they are doing is going back to proprietary trading, buying bonds and selling them in this volatility, taking advantage of spreads that were really quite remarkable… If that is their business model, but that’s all they are doing, then as policy makers, the folks in DC – Geithner and Summers and the President – need to say ‘wait a minute, this isn’t going to create jobs for the future in Biotech, in New Energy’ – (The banks) job should be, from a macroeconomic perspective, to raise Capital and put it into those sectors that will create jobs.
If they are not getting that done, then why are we supporting them the way we have been?”
Is Spitzer talking about Goldman and the Banks, or Team Obama? Wall Street used to be the place where companies would seek money to invest back into their business. Shareholders would buy a part of the company and hope to build long term value as the company grew. Now it is a bunch of Quant Models front-running client trades at the Great Wall Street Casino…
“This is the division… we have seen over the past decade a confusion between Financial Services and the Economy at large. The Bubble masked what in my view was the fundamental transformation - a dangerous transformation – where we were losing the entirety of our Manufacturing Sector, we created paper profits in financial services that collapsed when asset values – which were dependent upon intense leverage – collapsed.
And we are not going to recreate that and over the course of this decade we lost the capacity to produce and hence we are now importing virtually everything… As we became more dependent upon foreign manufacturing, the core of our economy dissipated. That is the real risk we face.”
Amen. Somebody finally mentioned the 800-pound gorilla. We have no Manufacturing Base – therefore, we have no Middle Class. Building a Middle Class is the “Change” people wanted him to initiate. He has failed. There will come a time over the next decade where America again commits to building a manufacturing Base – that will be the long-term buy and hold Investment Cycle that makes investors rich over the course of an entire Generation.
“This could be a political explosion. When members of Congress say ‘we have just given money to Goldman Sachs and their employees are making $700,000 (average comp per employee) and I’ve got Auto Workers, I’ve got people who serve coffee in the Diner out of work because there’s no money in the Economy - Unemployment hitting 10% soon, Job Losses last month 467,000’… numbers we haven’t seen since The Depression. “
“In this case the public is right in saying ‘wait a minute, we bailed out the people who created the problem (and now they are making their bonuses again), we haven’t address the underlying problem – whether it’s Healthcare, Energy Efficiency, Smart policy to Create a Manufacturing Base… And somehow the public is saying there’s something amiss right here. And they don’t see anything changing in Policy to give them comfort.”
I left the Big Bank because I could not live with myself, knowing that I worked for a company that used Taxpayer Money to mask its mistakes and then took that money and used it to enrich the fat cat executives by selling the Taxpayer a bunch of crap Debt, at artificially inflated prices. The backlash is coming and it will be severe.
The SEC
“The Regulatory Agencies already had the power to do everything they needed to do. They just affirmatively chose not to do it. The Fed has always been a systemic Regulator. The SEC has always had the capacity to look at the books of every bank out there. The New York Fed in particular, failed to do what it should have been doing – to look into the Capital and the Leverage Ratios of the various Banks…
You don’t need new regulations, you just need the will to do what they were supposed to do.”
“(The SEC) missed the largest transformation in the Market Place – which was that Middle American, we invited Middle Americans into the Marketplace and said ‘put your Capital into this Market’, but we then did not create the protections for the Small Investor to prevent them from being taken advantage of by the Major Firms. And that was the real crisis.”
The rich get richer and the little guy gets the bill. The Regulators chose to not regulate, because they knew they could get jobs at the banks after they let the banks lie, cheat and steal for a few years. The Regulators were promised future wealth to look the other way.
Spitzer on California and State Budget Deficits
http://www.slate.com/id/2222776/
“What a perfect metaphor for our economic circumstances! California is literally drowning in red ink and political gridlock, with deficit figures that are staggering and portend worse news for the future at the same time that a bailed-out Wall Street is profiting from a new, and essentially useless, trading vehicle.”
Instead of the Federal Government taking action to bail out California, the SEC declares California IOUS to be “securities” and Wall Street sets up a trading market for them…
“Where does this leave us? The Obama administration's first stimulus package offered a Band-Aid for state budgets. As the recession worsens and states face California-like catastrophes, more fundamental thinking is going to be needed.
Two critical areas must be addressed. First, public pension liabilities have to be restructured. Since many state constitutions prohibit retrospective realignments—that is, lowering pensions that have already been guaranteed—states will need to lower guarantees for new employees radically, shifting from defined benefit plans to defined contribution plans. Second, and more fundamentally, states will need to shift more funding of health care and education to the federal government. In health care, where Medicaid is the primary state expenditure item, there currently exists a federal-state burden sharing arrangement. As the health care reform process continues in D.C., Washington must recognize that requiring greater state expenditures is simply not realistic at this time.”
Are you starting to see how the effort to nationalize Healthcare is more a function of saving the Pensions of Public Employees and Union Workers, rather than fixing a “broken” system?
Spitzer on Goldman
http://www.clipsyndicate.com/video/play/1019966
“The issue in my mind is not whether they will announce enormous earnings today – I think everybody knows that - the question is, what does it mean both politically and what does it mean outside the context of Wall Street?
Because I think we have a division here – Wall Street is beginning to come back, because the Government has pumped an unbelievable amount of money into Wall Street… there’s no question we, as taxpayers, have put billions, in fact trillions of dollars into The Street.
The question is does that generate jobs - which is the word we haven’t heard anything about – out in the real economy?”
You are on to something, Eliot.
“(Goldman’s) Proprietary Trading, in a volatile Market, where their Cost of Capital was driven to virtually nothing, because we, as taxpayers, gave them access to Capital. They made a bloody fortune. Now the question is, is that good for us as taxpayers? Is it good for the Economy? Does that generate jobs? Where is their Capital going?
If all they are doing is going back to proprietary trading, buying bonds and selling them in this volatility, taking advantage of spreads that were really quite remarkable… If that is their business model, but that’s all they are doing, then as policy makers, the folks in DC – Geithner and Summers and the President – need to say ‘wait a minute, this isn’t going to create jobs for the future in Biotech, in New Energy’ – (The banks) job should be, from a macroeconomic perspective, to raise Capital and put it into those sectors that will create jobs.
If they are not getting that done, then why are we supporting them the way we have been?”
Is Spitzer talking about Goldman and the Banks, or Team Obama? Wall Street used to be the place where companies would seek money to invest back into their business. Shareholders would buy a part of the company and hope to build long term value as the company grew. Now it is a bunch of Quant Models front-running client trades at the Great Wall Street Casino…
“This is the division… we have seen over the past decade a confusion between Financial Services and the Economy at large. The Bubble masked what in my view was the fundamental transformation - a dangerous transformation – where we were losing the entirety of our Manufacturing Sector, we created paper profits in financial services that collapsed when asset values – which were dependent upon intense leverage – collapsed.
And we are not going to recreate that and over the course of this decade we lost the capacity to produce and hence we are now importing virtually everything… As we became more dependent upon foreign manufacturing, the core of our economy dissipated. That is the real risk we face.”
Amen. Somebody finally mentioned the 800-pound gorilla. We have no Manufacturing Base – therefore, we have no Middle Class. Building a Middle Class is the “Change” people wanted him to initiate. He has failed. There will come a time over the next decade where America again commits to building a manufacturing Base – that will be the long-term buy and hold Investment Cycle that makes investors rich over the course of an entire Generation.
“This could be a political explosion. When members of Congress say ‘we have just given money to Goldman Sachs and their employees are making $700,000 (average comp per employee) and I’ve got Auto Workers, I’ve got people who serve coffee in the Diner out of work because there’s no money in the Economy - Unemployment hitting 10% soon, Job Losses last month 467,000’… numbers we haven’t seen since The Depression. “
“In this case the public is right in saying ‘wait a minute, we bailed out the people who created the problem (and now they are making their bonuses again), we haven’t address the underlying problem – whether it’s Healthcare, Energy Efficiency, Smart policy to Create a Manufacturing Base… And somehow the public is saying there’s something amiss right here. And they don’t see anything changing in Policy to give them comfort.”
I left the Big Bank because I could not live with myself, knowing that I worked for a company that used Taxpayer Money to mask its mistakes and then took that money and used it to enrich the fat cat executives by selling the Taxpayer a bunch of crap Debt, at artificially inflated prices. The backlash is coming and it will be severe.
The SEC
“The Regulatory Agencies already had the power to do everything they needed to do. They just affirmatively chose not to do it. The Fed has always been a systemic Regulator. The SEC has always had the capacity to look at the books of every bank out there. The New York Fed in particular, failed to do what it should have been doing – to look into the Capital and the Leverage Ratios of the various Banks…
You don’t need new regulations, you just need the will to do what they were supposed to do.”
“(The SEC) missed the largest transformation in the Market Place – which was that Middle American, we invited Middle Americans into the Marketplace and said ‘put your Capital into this Market’, but we then did not create the protections for the Small Investor to prevent them from being taken advantage of by the Major Firms. And that was the real crisis.”
The rich get richer and the little guy gets the bill. The Regulators chose to not regulate, because they knew they could get jobs at the banks after they let the banks lie, cheat and steal for a few years. The Regulators were promised future wealth to look the other way.
Spitzer on California and State Budget Deficits
http://www.slate.com/id/2222776/
“What a perfect metaphor for our economic circumstances! California is literally drowning in red ink and political gridlock, with deficit figures that are staggering and portend worse news for the future at the same time that a bailed-out Wall Street is profiting from a new, and essentially useless, trading vehicle.”
Instead of the Federal Government taking action to bail out California, the SEC declares California IOUS to be “securities” and Wall Street sets up a trading market for them…
“Where does this leave us? The Obama administration's first stimulus package offered a Band-Aid for state budgets. As the recession worsens and states face California-like catastrophes, more fundamental thinking is going to be needed.
Two critical areas must be addressed. First, public pension liabilities have to be restructured. Since many state constitutions prohibit retrospective realignments—that is, lowering pensions that have already been guaranteed—states will need to lower guarantees for new employees radically, shifting from defined benefit plans to defined contribution plans. Second, and more fundamentally, states will need to shift more funding of health care and education to the federal government. In health care, where Medicaid is the primary state expenditure item, there currently exists a federal-state burden sharing arrangement. As the health care reform process continues in D.C., Washington must recognize that requiring greater state expenditures is simply not realistic at this time.”
Are you starting to see how the effort to nationalize Healthcare is more a function of saving the Pensions of Public Employees and Union Workers, rather than fixing a “broken” system?
Monday, July 13, 2009
Today's Interesting Move
One of the trading services I take posted the following chart on Thursday, with this commentary -
“The market hit the (Short Term – Oversold) condition zone yesterday … so the odds favor a bounce no later than next Wednesday. It is just a question of whether the SPX hits that 846 zone first before a bounce, but either way it will correct to at least the 846 level, and most likely lower than that."
This is from one smart dude. We are now in bounce mode and have gone from oversold to overbought in about 3 hours of trading.
I wanted to go into a few of the games played today to get the markets higher before what should be more selling. Here is a chart of the SPX Futures –
On Sunday night, the SPX was trading below critical support at 866. Then you had an analyst upgrade carpet bombing orgy – Meredith Whitney upgraded Goldman and B of A and everything else that wasn’t named CIT. Tech saw upgrades in Microsoft and Apple and Intel and Novellus…
I didn’t see much for Retail or Energy, but the fuse had been lit for the short squeeze. SPX Futures rallied 2% premarket and opened up a few points. Over the next hour, it got sold pretty hard. Then, at around 11am EDT, out of nowhere, SPX rallied 19 points (2%) in 55 minutes.
The rally was expected, so it didn’t phase me. SPX was Short-Term stretched (2.5 Standard Deviations from the 20-day) (Green Arrow), so a reversal was expected. The reversal was expected to take price back to the Blue Line (20-day EMA), which it basically did in 55 minutes…
Now SPX near overbought (Red Arrow)
Do you see how the Blue Line held as support for price during the entire rally? Do you see how it is now pointing downward? Do you see how price has now rallied into it and failed 3 times? Things have changed – rallies are being sold, rather than pullbacks being bought.
I will look for lower prices until the market proves it can go up again. I will look to buy into obvious support, with tight stops and will look for the major breakout off of this low on what should be humungous volume.
Look At How Easy the Market Are to Move Right Now
Here are the percentage weightings of the largest holdings in the NASDAQ 100 (QQQQ) and how they traded today –
I notice a couple of things –
Apple, Qualcomm, Microsoft and Google are now 20% of the NASDAQ, so just ramp them and forget about the rest of the stocks if you want to move the Index higher.
RIMM is toast. It barely made it back to even today. You can always identify weakness on a strong day and RIMM sucked today. I am also no weary of Oracle and Cisco.
Apple now represents 13.60% of the NASDAQ 100 ETF (QQQQ)? Are you kidding me? Talk about “over-owned” and “over-loved”! I know what I want to short come NASDAQ 100 rebalancing time near Year End…
“The market hit the (Short Term – Oversold) condition zone yesterday … so the odds favor a bounce no later than next Wednesday. It is just a question of whether the SPX hits that 846 zone first before a bounce, but either way it will correct to at least the 846 level, and most likely lower than that."
This is from one smart dude. We are now in bounce mode and have gone from oversold to overbought in about 3 hours of trading.
I wanted to go into a few of the games played today to get the markets higher before what should be more selling. Here is a chart of the SPX Futures –
On Sunday night, the SPX was trading below critical support at 866. Then you had an analyst upgrade carpet bombing orgy – Meredith Whitney upgraded Goldman and B of A and everything else that wasn’t named CIT. Tech saw upgrades in Microsoft and Apple and Intel and Novellus…
I didn’t see much for Retail or Energy, but the fuse had been lit for the short squeeze. SPX Futures rallied 2% premarket and opened up a few points. Over the next hour, it got sold pretty hard. Then, at around 11am EDT, out of nowhere, SPX rallied 19 points (2%) in 55 minutes.
The rally was expected, so it didn’t phase me. SPX was Short-Term stretched (2.5 Standard Deviations from the 20-day) (Green Arrow), so a reversal was expected. The reversal was expected to take price back to the Blue Line (20-day EMA), which it basically did in 55 minutes…
Now SPX near overbought (Red Arrow)
Do you see how the Blue Line held as support for price during the entire rally? Do you see how it is now pointing downward? Do you see how price has now rallied into it and failed 3 times? Things have changed – rallies are being sold, rather than pullbacks being bought.
I will look for lower prices until the market proves it can go up again. I will look to buy into obvious support, with tight stops and will look for the major breakout off of this low on what should be humungous volume.
Look At How Easy the Market Are to Move Right Now
Here are the percentage weightings of the largest holdings in the NASDAQ 100 (QQQQ) and how they traded today –
I notice a couple of things –
Apple, Qualcomm, Microsoft and Google are now 20% of the NASDAQ, so just ramp them and forget about the rest of the stocks if you want to move the Index higher.
RIMM is toast. It barely made it back to even today. You can always identify weakness on a strong day and RIMM sucked today. I am also no weary of Oracle and Cisco.
Apple now represents 13.60% of the NASDAQ 100 ETF (QQQQ)? Are you kidding me? Talk about “over-owned” and “over-loved”! I know what I want to short come NASDAQ 100 rebalancing time near Year End…
Relative Strength Update
My goal is to focus investment capital in the areas that are working best. Sometimes working best means losing the least, so from early 2008 until recently, I have been enamored with Cash and Short Term US Treasuries.
Now I believe that we are replaying the 2002-2003 bottoming process (no surprise, since the same guys who caused the Clinton Bubble and the Bush Bubble are still in charge and setting in motion the Obama Bubble). So I am looking closely at what is leading, because new leaders tend to lead for the entire course of the next Bull Market.
Trends of outperformance and underperformance tend to run in five to seven year cycles. Large and Growth led from 1994 – 2000, Small and Value led from 2000 – 2006 and now Growth and Large appear to be setting up to lead again.
Large and Small are in lockstep, but this is where Large Bottomed Last Time
Growth is leading Value
Domestic is marginally beating International, but may be putting in a big Double Bottom
You can see the Percentage Returns of the different asset classes. Which one would you rather have owned?
Large Cap (Red) vs Small Cap (Blue)
Growth (Red) vs Value (Blue)
Domestic (Red) vs International (Blue)
These charts show you not only the importance of knowing what to buy, but they show you that you need to know what to sell – and when to do it! That is why I spend so many hours each week looking at the charts. I am already considering what the next Top will look like…
Now I believe that we are replaying the 2002-2003 bottoming process (no surprise, since the same guys who caused the Clinton Bubble and the Bush Bubble are still in charge and setting in motion the Obama Bubble). So I am looking closely at what is leading, because new leaders tend to lead for the entire course of the next Bull Market.
Trends of outperformance and underperformance tend to run in five to seven year cycles. Large and Growth led from 1994 – 2000, Small and Value led from 2000 – 2006 and now Growth and Large appear to be setting up to lead again.
Large and Small are in lockstep, but this is where Large Bottomed Last Time
Growth is leading Value
Domestic is marginally beating International, but may be putting in a big Double Bottom
You can see the Percentage Returns of the different asset classes. Which one would you rather have owned?
Large Cap (Red) vs Small Cap (Blue)
Growth (Red) vs Value (Blue)
Domestic (Red) vs International (Blue)
These charts show you not only the importance of knowing what to buy, but they show you that you need to know what to sell – and when to do it! That is why I spend so many hours each week looking at the charts. I am already considering what the next Top will look like…
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