WSW – Monday, 7 March 2011

General Comment

The two biggest bits of “news flow” are the Civil War in Libya (and the Muslim World in general) with threats to oil supplies and actual disruptions driving fuel costs “way high”. (There is a “Day of Rage” in the works for Saudi this Friday) Along with The Bernank (or “Uncle Ben Bernanke”) saying that there is no inflation because if you ignore the skyrocketing prices of food and fuel, your paycheck is not rising fast enough to keep up with the other price rises so it all averages out to no inflation. Not exactly the kind of thing to make you feel good. There is also ongoing talk of “QE-3” or more money printing. The Dollar is not your friend right now…

Frankly, the start of this year has been more chaotic than I like and we’re already in March. “Sell in May and Go Away” is only 2 months away… so I’m starting to think more about shorting opportunities than ‘going long and sitting’. Europe is a mess, the USA isn’t much better, China depends on us to sell stuff, and everyone else depends on some collection of us… (Australia and Canada, for example, sell resources to support Chinese industry and EU / USA consumption).

Then there is the fact that after 1929 came 1932… So lots of folks are nervous about a ‘double dip’ just about now. We’ll have to see if “this time is different” or not…

Along the way between last posting and now much has happened. One thing was that I was sick for a couple of weeks. One of my “rules” is “Never trade when you are sick” so I just stepped out. Then there is that whole “catch up and get re-engaged” cycle and I’ve been lax about it. It’s so nice to just do nothing sometimes… but it doesn’t pay the bills and some are “near”, so I need to suck it up and ‘re-engage’ even if I’d rather just sleep in.

With that in mind: To work.

Pointer To Other Topics

If you are expecting global warming stuff, it’s under the “AGW” categories in the right hand margin. Things specific to the NCDC data and GIStemp are under categories with those in their names.

This posting is about the other thing I do, looking at investment markets. Prior postings in this series are available here: https://chiefio.wordpress.com/category/wall-street-week/

Posts with some relevance to trades, but not in the format of a full WSW analysis, are available under this category:
https://chiefio.wordpress.com/category/economics-trading-and-money/

The Nature of the Charts Here

The charts in this posting are live charts, so my comments will describe how it is now, but in a week it will be showing new data and a new week. Since I think it is more important to be in touch with what the market is doing NOW than to preserve the historical chart, this is, IMHO, a reasonable choice. Just don’t be surprised if the chart I describe is not the one you see a few weeks from now! If you would like to see the historical chart, you may enter custom date ranges on the charting tool at www.bigcharts.com

Wall Street Week – Monday, 7 March, 2011

The Dollar Lately

Time to measure our Rubber Ruler.

One Year Daily of UUP Dollar UP, with TBT and selected currencies

One Year Daily of UUP Dollar UP, with TBT and selected currencies

The dollar is dropping against everything else. Gold has picked up again, and the Swiss Franc and Japanese Yen are looking best over a one year period (though some others are rising faster than the yen recently). Heck, even the British Pound is rising in comparison.

We’ve got RSI not too close to 20, and both MACD and DMI are “red on top”. This is for the UUP “dollar UP” fund, so that says owning dollars is a losing idea right now.

TBT has ‘gone flat’ after a pretty good wobble around the Fed auction. Someone bought a load of 10 year notes and that’s soothed folks nerves, even as the dollar tanks. (My guess is that with the Saudis offering multi $Billion bribes to their people not to riot, and with dictators all over the Muslim world seeing the US freeze assets, they are hustling their $trillions off to other shores. That Uncle Ben is putting the dollar in the ‘print at will’ bucket is not going to encourage them either).

At this point it’s what is called “The Fear Trade”. Gold, Yen, Swiss Francs, Oil. Perhaps some other ‘commodity currencies’ like the Canadian and Australian dollar, but that is more tied to what China buys.

This chart has the “UDN” dollar DOWN bet fund as the main ticker. You can see it’s right in the middle of all the other currency bets. On this time scale, you can see the pronounced “wobble” in TBT but that even with that, it’s up nicely over the period. I’m going to ride it back to the SMA stack (for the part I still hold) then trade out for a pause while I think about it.

With RSI in a ‘rolling but not excessive’ band, MACD with “blue on top” and DMI with “blue on top” it’s a pretty clear “be short the dollar for a while” ongoing trend.

6 Month Currencies and TBT the US Treasury "Bond Short" fund

6 Month Currencies and TBT the US Treasury "Bond Short" fund

What happens if we zoom in on the last 2 weeks? Anything we can see happening “now”?

And here is the 10 day Euro chart, with BZF the Brazilian Real added.

So in the last 5 days, the “long Swiss Franc” and gold trades have gone flat. Hmmm… losing momentum?

Over 10 days, the TBT has “whipsawed” and ended up about nowhere. I think that dip in the middle was the “good” 10 year bond auction. This is problematic as things HAVE been on an established trend (see above) but this argues for a bit of a pause. Then again, a rising trend is supposed to be “stair steps up” with “up flat up flat” so there OUGHT to be flats. Just not down much. DMI stays “blue on top” and while MACD is bobbing up and down, it’s staying above the zero line. Together those say “trend continuing, but we’ve got tradable days”.

Currencies - 10 Day Hourly Interval chart vs US Dollar

Currencies - 10 Day Hourly Interval chart vs US Dollar

Base Metals

Last time I said:

I’d made a ‘be out of base metals’ call. Looks like only Tin has survived. Wonder what the deal is with tin… Something to investigate as a potential.

And I notice that now Tin has rolled over too. Just a bit later to the party. Gold and Platinum have resumed their rise, but the spectacular one here is Silver.

Two postings ago I’d said:

Silver has been a nice ride, but I’d step out until it’s resolved what’s going on.

Which was good then, as we got that “dip” but I never made a “reentry” call. I’m sorry for that.

There have been folks “hyping” the idea of a Silver Squeeze based on there being something like 130% of total silver sold or committed. Frankly, I’d stay out of it if you can’t take physical delivery of the silver. Why? The folks who have ‘bought more than there is’ are the very ETF vehicles that you can easily trade… They are supposed to take physical delivery of the metal to back their claims. The story goes that a syndicate is buying the (something like 50,000 units) shares needed to be able to demand that they deliver silver to you on redemption.

If that IS the play, then I don’t want to be the guy left holding SLV at the moment the vault runs too empty and they fold the shop and liquidate (leaving ME without delivery). So I’m fairly sure a lot of folks are jumping on the Silver Bubble via the SLV ETF and related and not realizing that that makes them part of the “marks” of the syndicates. Yeah, there is money available, but at what risk? Bubbles usually end fast and sharp, and Silver moves faster and sharper than most. So I’d be in gold at this point, rather than silver, unless I could take physical possession of the silver. If someone wanted to put the time into it to find out WHICH silver funds were in trouble, and which not, it could be a great trade, but I’m just not that energized right now.

Metals 6 month chart

Metals 6 month chart

Ag Commodities

Last time:

Ag Commodities have been where all the action is located. There looks to be a modestly strong “spike and drop” pattern that could be played, especially in things like Cotton and Sugar.
[…]
But first blush looks like wood, cocoa and cattle are still early cycle (i.e. we’re not building a lot of houses yet and the feed costs have folks selling cattle). Long term investors could look at PCL a timber REIT with a nice looking chart at the moment.

Well, cotton (BAL) is just on a rocket ride. Cotton is a water loving and heat loving crop, so I would expect it is having supply problems in a cold dry time. Demand is not all that high right now. My guess is the drought in China that’s hit their wheat is also hitting their cotton…

http://www.businessinsider.com/cotton-the-fabric-of-our-lives-and-the-trade-of-a-lifetime-2011-3

According to the latest data provided by the U.S. Department of Agriculture, U.S. export sales of upland cotton soared 56% to 403,341 bales in the week ended February 24 from a week earlier as shipments increased to China, Turkey and Bangladesh.

The political turmoil in Egypt, the world’s 15th largest exporter of cotton, certainly isn’t helping to reduce prices either.

Turkey, as we saw in the AGW research, has a real cooling trend when all the thermometers are used, not just the GHCN ones (and now you know why I care about such minutia… ) so we can project that they will have cotton under production in the cooler weather. We’ve got China with drought and I’d be hard pressed to plant cotton in China with folks wanting food instead…

Ag Commodities 6 month chart

Ag Commodities 6 month chart

Further down, that same source says:

On Friday, food and agribusiness financial service provider Rabobank said in a report that “export commitments out of the U.S. continue at record pace, and due to the razor-thin expected ending stocks, demand must be rationed as there is not enough cotton.”

Late last week, the Australian Cotton Shippers Association said that “buyers have already purchased more than 80% of the nation’s coming cotton harvest in advanced sales.” Phill Ryan, director of the industry group, added: “The amount of so-called forward sales compared with usual levels are 50% to 60% higher this season.”

“The U.S. is the biggest exporter in the world and they are sold out.” Ryan concluded. “It’s a worldwide scramble for limited supplies.”

So looks to me like this will likely continue until ‘the next harvest’. Furthermore, if the thesis about an ongoing cold drought in China is correct and that things will be this way for some time to come, added to the USA growing more field corn for fuel, it looks to me like “ag related” will be a great trade for quite a while. So during harvest, this BAL ticker will likely drop (“buy the rumor, sell the news”) and I’d have in on my shopping list for a repeat next year. For now, it’s a cyclical trade on those dip moments.

That BAL biases the chart (squashes down the other tickers) so here is the same thing minus cotton (the colors will have changed):

Commodties Basket minus Cotton - BAL

Commodties Basket minus Cotton - BAL

JO (coffee) and NIB (cocoa) have the best look to them (those ITCZ floods and “issues” in Ivory Coast) while sugar looks like a ‘failure to advance’ as does FUD (food basket) and WOOD. FUE (bio-Fuels Index) looks toppy too. The “basket” fund DBA has RSI “surfing down” with MACD looking like it might “cross over upside” but also that same pattern can be “chopping down” or “stairsteps down” with Down Flat Down Flat showing loss of momentum. That ADX is at 22 or so and falling looks like it’s “Late in the trade time to start easing out”.

So, my take on it, is this: It was a nice cold run. Spring is coming. It’s going to be a “Whole New Season” soon, and it’s time to start edging to the exits. IFF you want to continue in this space, I’d move to “what the farmers buy in spring”. Fertilizers companies, seed companies, tractor makers and maybe those JO and NIB funds as long as the ITCZ is dumping floods on them.

Monthly Running Stocks

So what “won” and “lost” over the last months? (though remember, they may not be the winners next month… it’s just to provide ‘context’).

First up, a ‘3 month trend’. Longer than I usually look at, but I’ve been slow lately and need to pick up the context a bit better. So, December, January, February. Winter.

10 Best Performing Industries
Industry Name	Percent Change (over time selected)
DJ US Pipelines Index	27.42%
DJ US Tires Index	25.48%
DJ US Integrated Oil & Gas Index	21.43%
DJ US Real Estate Services Index	21.40%
DJ US Oil & Gas Producers Index	19.64%
DJ US Oil & Gas Index	19.00%
DJ U.S. Iron & Steel Index	18.50%
DJ US Real Estate Investment & Services Index	18.28%
DJ US Heavy Construction Index	17.97%
DJ US Insurance Brokers Index	17.90%

OK, lots of money made and I didn’t get any of it as I was being a lazy bones. Sloth, a deadly sin…

So what was it?

Pipelines… A nice safe “eat well sleep well” choice. Need to look deeper into those as an “investable” sector.

A load of “oil & gas” somethings. Obama actually let ONE lease go through and everyone is in happy city. Then we get $100 / bbl oil and folks figure it will be loads of money for drilling. Maybe, but it can be a hard fall if the revolts sputter out. I’d bet on more drilling, but on companies with significant “OOTUS” exposure (Out Of The U.S.).

Tires. I just can’t get excited about tires. YES, every single recovery all the folks who just got a job buys new tires as the old ones are threadbare. I wish I was more greedy, then I wouldn’t care that it’s just tires…

Iron & Steel, Heavy Construction, Real Estate Services. Someone is thinking there will be a recovery in major construction of industrial plant and facilities along with urban core. QE-3 or what? Yeah, we had a ‘good’ jobs report in that we’re “only” 8.9% officially unemployed. But this isn’t any boom yet…

Insurance Brokers? WUWT? Who’s buying insurance? Maybe it’s just a “we won’t nationalize you nor drive your assets to zero value” play?

A “click under the covers” shows:

Best Performing Stocks
Symbol	Company Name	Percent Change	Charts
AON	Aon Corp	20.29%	
WSH	Willis Group Holdings PLC	17.49%	
MMC	Marsh & McLennan Companies Inc	15.91%	
INSW	InsWeb Corp	9.21%	
LPHI	Life Partners Holdings Inc	-52.55%

So #5 on the “best” list has lost 1/2 it’s value. Most all the gain is in the top 3 companies and I’m not familiar with them. This is some small subset of the insurance industry. I’m not real interested…

So what about the bottom?

10 Worst Performing Industries
Industry Name	Percent Change (over time selected)
DJ US Airlines Index	-18.60%
DJ US Distillers & Vintners Index	-10.55%
DJ US Brewers Index	-10.37%
DJ US Automobiles Index	-8.76%
DJ US Gold Mining Index	-7.49%
DJ US Electronic Office Equipment Index	-6.83%
DJ US Nonferrous Metals Index	-3.87%
DJ US Platinum & Precious Metals Index	-3.62%
DJ US Recreational Services Index	-3.56%
DJ US Specialty Retailers Index	-3.37%

Airlines? Never own an airline, especially when fuel is rising.

Booze? Christmas is over or just fuel costs? HOOK and SAM are winning but TAP (Molsen Coors) and ABV (Ambev Bud) are losing. Maybe folks have started to develop “good taste” in beer :-)

Cars? Where’s our next “stimulus”?? Oh, you have to make it on your own…

Gold Mining, non-ferrous, Platinum etc. Looks like a ripple from that down dip in gold mid month.

Office equipment and recreational services? So we’re not going to be working or playing? … hmmm

Specialty Retailers? A “click through” shows a whole bunch of strange little odd companies going every which way. Not interested, especially as many of the ones that are up have “China” in the name…

So the “bets” seem to be for “recovery cycle” in industry but NOT in “folks buying the products”? How’s that going to work? Export led due to low dollar? This just isn’t speaking to me much.

One Month

10 Best Performing Industries
Industry Name	Percent Change (over time selected)
DJ US Pipelines Index	12.63%
DJ US Tires Index	10.99%
DJ US Platinum & Precious Metals Index	9.76%
DJ US Consumer Electronics Index	9.40%
DJ US Apparel Retailers Index	9.15%
DJ US Footwear Index	8.73%
DJ US Tobacco Index	8.69%
DJ US Clothing & Accessories Index	8.42%
DJ US Insurance Brokers Index	8.14%
DJ US Broadcasting & Entertainment Index	7.74%

Still with the pipelines…

LGOV	Largo Vista Group Ltd	213.33%	
EP	El Paso Corp	32.25%	
WMB	Williams Companies Inc	30.02%	
SEMG	Semgroup Corp	25.71%	
DEP	Duncan Energy Partners LP	25.66%	
HEP	Holly energy Partners LP	19.52%	
XTEX	Crosstex Energy LP	19.34%	
BKEP	Blueknight Energy Partners LP	18.57%	
AHD	Atlas Energy LP	18.51%	
TCLP	TC PipeLines LP	16.40%

I know EP, WMB, HEP, XTEX all as good. The others I don’t know so well. HEP has a 5.6% yield, but EP and WMP are nearly nothing. I wonder where the yield went, they used to have decent dividends… XTEX is 6%…

Smells like a bump on a takeover or takeover rumor to me… but I don’t remember any news flow.

OK, Precious Metals making a comeback recently, apparel sales doing well along with shoes, smokes, and accessories. So the consumer isn’t completely dead. Tires (again with the tires Moriarty…) consumer electronics and TV / movies. OK, consumer not dead. So retail might be investable even if the Christmas Trade is over. Watch for a ‘reentry’ marker.

10 Worst Performing industries
Industry Name	Percent Change (over time selected)
DJ US Recreational Services Index	-8.06%
DJ US Nonferrous Metals Index	-7.86%
DJ US Brewers Index	-7.27%
DJ US Forestry & Paper Index	-7.12%
DJ US Paper Index	-7.12%
DJ US Airlines Index	-6.98%
DJ US Automobiles Index	-6.45%
DJ US Hotel & Lodging REITs Index	-6.18%
DJ US Home Construction Index	-5.64%
DJ US Gambling Index	-5.05%

Things that need power. Airlines, paper, brewers, cars. Or things you drive to. Hotels, gambling.

OK, got that. Likely to reverse if oil drops, not likely to be much trade left if oil stabilizes high. Not interesting.

Weekly Running Stocks

The best and worst of the week? Do they tell a different story on the short term trade?

10 Best Performing Industries
Industry Name	Percent Change (over time selected)
DJ US Coal Index	5.50%
DJ US Mining Index	3.96%
DJ US Heavy Construction Index	3.57%
DJ US Health Care Providers Index	2.85%
DJ US Gold Mining Index	2.78%
DJ US Pharmaceuticals Index	2.64%
DJ US Pharmaceuticals & Biotechnology Index	2.45%
DJ US Health Care Index	2.35%
DJ US Computer Hardware Index	2.21%
DJ US Health Care Equipment & Services Index	2.20%

So the expectation is we’ll use coal after all, or sell more to China with oil this expensive. Maybe that CTL play has some ‘legs’ after all.

More mining and gold mining and Heavy Construction. The “China buys from Banana Republic” trade ;-)

Pharma, Health Care: So maybe Obama Care will die on the vine and they can avoid being nationalized…

Computer hardware? Really?

Best Performing Stocks
Symbol	Company Name	Percent Change	Charts
USATZ	USA Technologies Inc	209.07%	
USAT	USA Technologies Inc	131.78%	
SGI	Silicon Graphics International Corporation	121.94%	
QTMI	Quantum Telecom Inc	101.12%	
OCZ	Ocz Technology Group Inc	99.49%	
TDSC	3D Systems Corp	76.92%	
SCLD	SteelCloud Inc	63.93%	
HILL	Dot Hill Systems Corp	55.80%	
SED	SED International Holdings Inc	47.94%	
SSYS	Stratasys Inc	43.61%

SGI I know, but I’d not call them highly investable. The rest I’ve never heard of. In the losers in that segment are another bunch of companies I’ve not heard of plus a couple of disk drive makers I do know. I’m not feeling the love here… If someone wanted to spend a day each finding out who these companies are, what they make, and what their prospects might be, it could be a winning place to trade, but I don’t have that time right now.

10 Worst Performing Industries
Industry Name	Percent Change (over time selected)
DJ US Distillers & Vintners Index	-6.25%
DJ US Platinum & Precious Metals Index	-6.21%
DJ US Airlines Index	-5.31%
DJ US Recreational Services Index	-4.40%
DJ US Automobiles Index	-3.72%
DJ US Forestry & Paper Index	-3.46%
DJ US Paper Index	-3.45%
DJ US Hotel & Lodging REITs Index	-3.25%
DJ US Specialized Consumer Services Index	-2.90%
DJ US Full Line Insurance Index

Nothing new here either. Looks to me like some metals whipsaw action and fuel price driven jitters. That, and odd little sectors doing strange things. We’ll have to look elsewhere for inspiration.

Christmas Retail

Last time:

This is just a parting farewell to the retail trade and a look at “did I call the exit right”?

time before that:

To that I’d add that even the high end retail is starting to look a bit tired as we end the Christmas Retail trade. Coach and Tiffany are still climbing, the it’s starting to look like a flattening trend. I’d not dump it yet, but watch it more closely and use stop loss orders or protective puts.

Probably could have been more forceful about ‘time to exit’, OTOH, using stop losses or puts would have gotten you out with a nice clean profit.

So this is just a “keep an eye on it” double check. Yup, the exit was a good one. JC Penny, TIF and COH are continuing to hold up OK, but not much gain happening. Nice sideways “roller” trades available. LTD too. Macy’s has dipped but looks like it’s flattened to a ‘local bottom’. HOTT (the main ticker) looks to be making a nice bottom. “Failure to advance” to the downside. RSI rising off the bottom. MACD “blue on top” and rising, though still below the zero line. ADX below 20 (in the ‘trendless’ zone, that’s good on a bottoming stock) and with “blue on top” though not moving much yet. Even what looks like a “short cover” spike in prices at the start of last month and this month.

If you think there will always be young folks wanting “edgy” stuff to annoy their parents, these folks have what looks to me like a bottom established. Yield at 5% is kind of outrageous for a retailer. News flow has sales off 2% for the quarter and they are bringing in a consultant to give them advice. IMHO, being off 2% in a major recession where young folks unemployment rate is about 25% is not too shabby. As long as they don’t decide to do something stupid from their “consultant” they ought to do well as the economy picks up. But it will be a bit of a crap shoot.

Broad Retail Race

Broad Retail Race

What Is Our Asset Class Context?

Let’s look at the S&P 500 largest stocks in America compared with some other kinds of assets; a 20 year+ maturity bond fund, oil, gold, Yen.

Asset Class Races

Asset Class Recent Race

SPY       The S&P 500 ETF
GLD       Gold ETF
USO       Oil ETF
FXY       Japanese Yen currency fund
TLT       20 Year U.S. Treasury Bond fund
FXE       Euro currency ETF
SLV       Silver fund
BZF       Brazilian currency ETF
EWA       Australia ETF
WOOD      A wood and paper products fund

Oil and US Stocks winning, WOOD and Australia EWA too. And the Silver Bubble we’ve already talked about.

Last time I’d said:

Most interesting thing on the chart is “WOOD” (a basket with some of those paper product folks in it too).

Got WOOD? Wouldn’t hurt to get some…

It’s nice when you say to ‘get wood’ and it goes up.. even if it’s gone flat lately.

The time before last time I’d also said:

At the start of December, the SPY main ticker gave an “entry” with MACD crossover to “blue on top” and DMI+ (blue) over DMI- (red). So as of now, stocks are OK. BUT notice that RSI touched 80 at the last top and is now lower at the inflection point. The main thrust of the run is over. We’re most likely going into a ‘sideways roller’ with swing trades, though there could be a minor up trend to it. Just not a lot of “rocket ride”.

And that is where we have been. “Steady up” but not dramatic. It did the ‘sideways roller’ to the end of the year, and we’ve got that uptrend now.

So we rose into the end of January, with some roll to it, and from February 1st to Now have gone about nowhere. 2% gain by my read of the chart (easier if you take SLV off of it…).

Most interesting thing on the chart to me is the return of FXE and Gold as rising lines.

10 Day Hourly Fast Trader Chart

What a sack of worms. About as close to “trendless wobble” as you can get. Everything periodically returning to the zero line. These are all “long and short stock funds” so it’s just saying that the markets are trading together and going nowhere while they bounce.

Trader Chart - Longs and Shorts of Index Funds  10 day hourly interval

Trader Chart - Longs and Shorts of Index Funds 10 day hourly interval

What about Brazil? Also India and China.

Brazil the EWZ ETF vs the BZF currency ETF

Brazil ETF vs Currency Race

EWZ  - Brazil
BZF  - Brazilian Real currency
FXI  - China
EWA  - Australia
EPI  - India - WIsdom Tree fund
EWC  - Canada
EWW  - Mexico
GUR  - Middle East Fund

Brazil continues to “surf down”. There was a brief “reversion to trend” moment or “counter trend rally” trade, but we’re back at the SMA lines from the bottom, so if you were in that fast trade, it’s time to exit and if you are looking at it with lust, remember that the time to reenter is AFTER it crosses the SMA stack then returns to it from the topside. A “retest”. As of now, it’s just a “RTFM” Reversion To The “friendly” Mean on an ongoing downtrend. BZF, their currency, has a bit of a rise, but that is most likely just the ‘dollar drop’ in reverse. Not net inflow of money to Brazil.

Notice that FXI China is moving in lock step with it. Hedge funds keeping them locked?

EPI, India, is a lot lower, and looks more like it’s trying to make a bottom to me. We’ve got “failure to advance” to the downside and RSI starting to make ‘up steps’ from ‘near 20’. MACD is “blue on top” so all we need is DMI to be “blue on top” and / or MACD to cross over zero and it’s looking decent for an entry. HOWEVER, price is back at the SMA stack in a chart of it alone, and that’s the ‘danger zone’ when approached from below, so not an entry yet.

Australia and Mexico a bit “topped to flat”. Not that interesting. But GUR, the “Middle East Fund” is rising, of all things. Folks are betting that there will be MORE money made in Egypt going forward. Might be worth a “tiny” with “mad money”.

The real winner on the chart is Canada, though. EWC. With all those loverly oil and gas trusts and tar sands operations. In a random comment on some other posting during the thick of the Egypt Thing I’d commented to ‘buy Canadian oils and oil and gas trusts”. I ought to have added “or just the EWC fund”. Looking at a chart of it, alone, shows RSI ‘near 80’ for a couple of bumps, price above the SMA stack a ways, with MACD and DMI both “Blue on top” and ADX at about 30, so a strong trend. I’d expect about a 5% drop back to the SMA stack at some point, if troubles in oil continue, that would be an entry. If peace breaks out in Libya and the Middle East, then sell.

Closeup on Gold

Gold 1 year daily chart

Gold 1 year daily chart

Last time I’d said:

We’ll be saying goodby to the Gold Trade for a while. Yes, I’ll keep the chart in, but don’t expect me to do much other than sneer at it. There are Gold Short ETFs, and I might try one just to get more ‘short time’ under my belt, but it”s not high on my ‘must do’ styles. The biggy is that the chart is your friend, and the trend is your friend, and both the chart and the friend are saying gold is not your friend right now.

And that was modestly good advice, as gold then spiked down in a selloff. What I then blew was not watching the chart for a ‘reentry’ and especially on the Egypt revolution. I let sloth overcome greed. You need them in balance…

So the chart called a ‘reentry’ at the start of February and I was busy counting my toes or something. Blue on top for MACD and DMI. RSI only about 1/2 way to 20, but “news flow” was the trigger here. At this point, were RSI nearing 80 and with prices away from the SMA stack to the topside. The MACD top blue line is flattening a bit, and our price is just about the same as the last “3 wise peaks”. Yeah, it’s a touch above, so will likely go a bit higher to test, but I’d not toss new money at it now. That boat is sailed too far from boarding for my tastes. You have to enter on an ‘entry indication’ and this just isn’t one.

VIX the Volatility Index

Volatility Index and Related

Volatility Index and Related

VIX  - Volatility Index (not a ticker, you can't trade it)
VXX  - Short term VIX futures ETN (a ticker you can trade)
VXZ  - Medium term VIX futures ETN (a ticker you can trade)
FXY  - Japanese Yen
SH   - "Short" sell of SPY
SPY  - S&P 500 benchmark
IYT  - Transports, a leading sector
XHB  - Homebuilders, a leading sector and "canary" 
XRT  - Retail

After a drop of volatility, it’s risen lately. Gee, war breaks out in oil land and stocks get more volatile… no surprise there. The chart is looking to me, though, like there is a slight “kink” downward in the stock funds right as the volatility rises a bit. This is hard to see as that big spike in the start of the cart dampens it too much, but it’s there. If we tighten in to a 6 month view it’s easier to see:

Volatility Index and Related

Volatility Index and Related

To me that says “Caution” And “edge toward the exits on US Stocks”.

Ideas of the Week

None other than putting some more money into Swiss Francs and running some automated reminder programs.

Looking at Ag, but when the whole market heads down, they all go together when they go. It looks more like “watchful waiting” time to me.

Oh, and a cup of Jo and Nib too, but small ones ;-)

Comparison of Broader Mixed Asset Classes

The 6 month asset class race:

Asset Class Race

Asset Class Race

SPY  S & P 500 US stocks
GLD  Gold
EEM  Emerging Markets
FXY  Japanese Yen
JJC  Copper
TLT  Long term bonds 20 year+
USO  U.S. Oil
DBA  Agricultural basket
SLV  Silver
WOOD  Wood / Timber

The Silver Bubble continues to inflate. Bad news when it busts…
Oil is rising, but over $100 / bbl it kills demand and you are one Saudi Spigot away from a drop (or Obama opening the Strategic Petroleum Reserve).
EEM has a bit of lift at the end, but we know Brazil and China didn’t look good, so maybe some other emergings have some “juice”.
DBA is nice, but flattening and spring is in the air…
Copper has rolled down implying a lot of industrial / housing demand isn’t there.

Just not getting the inspiration…

Oil And Fuels?

Coal keeping up with Gold, Gasoline spiking with Oil, and Natural Gas as cheap as can be. Only inspiration here is the folks who make CNG kits for cars and trucks ought to be doing well. I’ll look for tickers on them. CLNE is one IIRC but the chart is not inspiring. Looks like a ‘bottom’ but without much momentum. Low fuel prices ought to make for more profit at chemical companies DD and DOW along with electricity generators (but they have Sovereign Risk from Obama on a jihad against power generation). Charts on DD, DOW and EMN (Eastman who use coal to make ‘petro’chemical) all look good, rising lower left to upper right. Guess that’s the place to dig around… Export chemicals made from our cheap energy carbon supply…

USO Oil, KOL coal, UNG Nat Gas, UGA Gasoline with a Golden ruler

USO Oil, KOL coal, UNG Nat Gas, UGA Gasoline with a Golden ruler

The fast trade chart looks like you can day trade the oils, even at these prices, with a ‘entry at the RSI 50’ and exit at near 80. I’d add slow stochastic to that too…

USO Oil vs KOL Coal, UNG Natural Gas, and UGA Gasoline

USO Oil vs KOL Coal, UNG Natural Gas, and UGA Gasoline

So what happened in the Tech Market relative to world markets?

They were running, now they’ve paused. We’ve got DMI “Red on top” and MACD “Red on top’ … time to be out. ADX is 15 and flat, so weak ‘trend’ and slow stochastic has made an attempt at up, that’s faltering. Even the fast trades are ‘no joy’. “Manage the risk” says “sit out now”. You might miss a nice entry, but after the long run we’ve had and with the SMA stack ‘flattening’ it’s just not worth it. It could be like 4 months back where the “breakdown” turned into a new run, so watch MACD for a new “Blue on top” to enter, but “late in early out” applies here. Don’t be a hero.

Tech vs Other Markets

Tech vs Other Markets


QQQQ  Nasdaq 100 mostly Tech companies
DIA  Dow Jones 30 Industrials
SPY  S & P 500 largest companies in the U.S.A.
MDY  Midcap  (Middle sized in terms of market capitalization)
RUT  Russel 2000 - a collection of 2000 companies from small to large.
EWZ  Brazil fund
EWA  Australia fund
EWO  Austria fund
EWW  Mexico fund

Were Bonds a good idea?

OK, lets take a peak at the Bonds Race but with TBT (the “long term bonds” short sell ETN – that is, the thing that “shorts bonds”) as the main ticker symbol:

Bonds - TBT to Short Them

Bonds - TBT to Short Them

Notice that TLT the long term bond fund has lost you 10%. THAT is why I’ve been saying to get out of your bonds for a while now. TIP the “inflation protected US bond fund” has preserved value, but not made a bundle. It’s an OK and reasonably safe investment for folks who just want to put some money away and not worry much. But the more interesting one here is WIP the “World Inflation Protected” securities. Rising nicely as the dollar loses some value. For a real “no think, sleep well” basket, I’d put my ‘bond money’ 1/2 and 1/2 in TIP and WIP…

I’ve been more of a gambler and playing in TBT, but with DMI “red on top” that trend is busted. It’s now a ‘day trade’ or ‘swing trade’ only and you ought to shift to faster charts or indicators for that. The best exit was most likely at that last “MACD Crossover to Red On Top” but almost as good is an exit at the “return to SMA stack from below”. A good example of a ‘work out’ when you screw up and don’t pay attention and discover you are out of phase on a timed trade. Catch the next wave …

What About Oils?

Some Selected Global Oils:

The Oil Majors Race

The Oil Majors Race

XOM  Exxon Mobil - Largest, U.S. / Global
COP  Conoco Philips - U.S.  with Russian exposure
CVX  Chevron Texaco - U.S.
PBR  Petrobras - Brazil
PCZ  Petro Canada HAS NOW MERGED WITH SU SUNCOR
BP   British Petroleum
STO  Norway
E    Eni Italy
TOT  Total - France
RDSA Royal Dutch Shell
IMO  Imperial Oil - Canada Oil and Oil Sands
SU   Suncor - Canadian Oil Sands
SSL  Sasol - South African Synthetic Oil Company

Last time:

Man oh man are you getting ripped off at the gas station, and Exxon and Total are loving it. Petrobras not so much…

And we see it’s still where the money is… At this point, though XOM is showing RSI at 80 then falling, with MACD “red on top”. DMI is saying there is still a trend here but ADX has a “kink” downward. More interesting to me is the Canadian tar sands folks. IMO, SU. And for unknown reasons, Conoco is on a tear COP.

PBR, Petrobras in Brazil, is showing signs of life off a bottom here. New entry indication as of mid last month with a MACD crossover to “blue on top” and DMI “blue on top” too. I’d go for it here, but with a modest position as we find out what the new Socialists in Brazil think of foreign money now…

So, those other comments with “Canadians” in them look like it was good “on the fly” stock picking… CVX Chevron is still looking good too.

Last time I’d said:

If you are in, stay in until we have the ‘failure to advance’ topping motion. I don’t see gas prices dropping any time soon, so this trade will likely cruise for a while.

Just as true now. XOM is showing a bit of a kink, but that is likely just money rolling into PBR on a valuation swap.

Some Near Oil and Oil Related Comparisions

What about oil service companies and Brazilian sugar / alcohol?

Oil Services and Oil Related

Oil Services and Oil Related

Last time: “Oil Services are doing OK and with higher oil prices ought to stay OK for a while.”

Still true. That DMI is just cruising…

Ag and Ag support / Input companies

Ag Trade 6 Month Daily Interval Mixed Players

Ag Trade 6 Month Daily Interval Mixed Players

Very volatile movements. Right now, POT, MON, and MOS all show “be out” on their individual charts. DMI with “red on top”, MACD headed down ‘red on top’ etc. Could that trade be over already? Or is it just a RTFM moment as they are a ways above the SMA stack.

If you want to trade this space I think you need to pick one target company and watch the chart very closely.

SEE the SEA!

Last time:

before Last time:

Looks like shipping has topped out for the Cruise Lines and like the rest of shipping isn’t moving much yet.

RCL and CCL did a ‘step up’ about mid-month. Probably right after I made that statement. My bad. Don’t know why. I’d speculate some kind of bookings or earnings announcement. Still not enthusiastic about them though.

And here we see them rolled over into a power dive… But VLCCF is rising nicely and with almost an 8% dividend too. They ship crude oil. I’ve liked them for quite a while and own them on and off. I think I put some in the spousal account for ‘long term investment’ IIRC. My NAT is just being “dead money” though…

Shipping Comparison

Shipping Comparison

Here is the RCL / CCL cruise lines chart. You can see how these have much more range (or “beta”) that the S&P 500 SPY fund. You can also see how after RSI touched 80, forward progress on RCL came to a halt. HOWEVER, it then resumed for one “last hurrah” and as RSI almost but not quite touched 80, we have the final roll over. Individual stocks are more likely to do that than funds. I’m happy to be out early rather than try to catch the last hurrah and get whacked when it rolls over.

Royal Caribbean Cruise Lines, Carnival C.L., and SPY S&P 500

Royal Caribbean Cruise Lines, Carnival C.L., and SPY S&P 500

The REITS race – Real Estate Investment Trusts

Last time I’d said:

OK, these are looking good. If shopping for long term dividends and some asset appreciation in an inflationary cycle, I’d look here. FFO (Funds From Operations) is what you want, and not a lot of debt.

And looking at the chart, that was a decent call! Pretty much across the board running and with nice “blue on top” charts. Toss a dart to pick one… They are a bit far from the SMA stack for an entry now, and have a ‘kink’ in phase with the general stock market “kink” so I’d watch for a return to the SMA stack for a new entry.

REITS Race

REITS Race

PEI  Pennsylvania Real Estate - Mall REIT (REMOVED to make better graph)
VTR  Ventas - sr. care, nursing homes, hospitals
PSA  Public Storage - junk storage units
BXP  Boston Properties - office REIT on BosWash corridor  
HCN  Health Care REIT -  extended care, senior care, medical offices
HCP  Health Care Properties - ex. care, senior living, Dr. offices
PCL  Plum Creek Timber - lumber and trees REIT
SPY  S & P 500 broad stock market benchmark
RPT  Ramco Mall REIT
PLD  Prologis - logistics 

Conclusions and Likely Actions

Last time:

Homework. Tech. REITS. Integrated Oils with gas stations…

I didn’t do the homework, tech has gone flat, REITS were a good call as were the oils.

At this point the list stays the same for me, minus tech, and I really do need to do that homework…

The Long Term Context

This is a very long duration chart (5 years) of NYSE and one of the S&P 500 (SPY). They will not change much from week to week (just one tick mark) so guides longer term attitude. I’ve moved it to the bottom as you really don’t need to look at it often.

5 Years, NYSE

5 years, NYSE

Spiders (S&P 500) looks very similar. Again, the indicators are “be in, be cautious”.

SPY 5 year weekly tick, RSI, Williams %R, ROC

SPY 5 year weekly tick, RSI, Williams %R, ROC

Those stocks are a LONG ways away from that SMA stack. MACD is flat, ADX is flat with DMI+ crossed over to below it. Slow Stochastic has had the ‘bottom going spikes’ step ever higher to a flat trend, now the end bit has turned down. For SPY the RSI was “near 80”, that’s your warning shot. As Williams %R or MACD heads down (for W%R the midline cross is the call) it’s the confirmation to be out.

OK, keeping in mind that this IS a very slow chart, those are things you see just before a “correction”. It’s still a “bull market” with “blue on top” for MACD and DMI, but it’s not time to toss a lot of new money in. That happens on a pull back to the SMA lines like you see last August. For long term investors, I’d be looking at selling stocks now, not buying, and putting that money in Swiss Francs or WIP / TIP until the next stock buying opportunity. For traders, it’s a different world, though. But is this exactly the moment? Given that the 1 year chart is also looking “toppy”, it’s ‘close enough’, but there is always the simple choice of putting a stop loss behind your positions and letting the market decide when to sell… Being “upward sticky” and moving it up from time to time, but never down, is all it really takes.

Automated Stock Screens

OK, nobody ever said anything one way or the other about the software based stock ticker selection, so I deleting it. Now I’m figuring I can use it as part of an “investors corner” so I’m off to tune it up and bring it back up to speed…

Stock Indicators – what and how


If all this talk of indicators is leaving you wondering what the heck I’m talking about, hit the link in the heading of this paragraph and there is a bit of an explanation.

Click for Disclaimers, Disclosures, and Where To Get Charts

Remember that on any stock or ticker I say I’m looking at, you don’t just go buy it. You wait for a stock entry indication to get the best possible entry into the position.

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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24 Responses to WSW – Monday, 7 March 2011

  1. stan says:

    I’m still trying to wrap my brain around Uncle Ben’s contention that his massive intervention in the debt markets has worked, but there isn’t a threat of inflation because such a threat would be reflected in the debt markets.

  2. Interesting Connections says:

    The unexamined issue is Saudi Arabia. If the current ME unrest hits the Saudis, I think we can look forward to $200+/barrel oil prices.

    It that happens, I suspect there will be no long term for many people in the US. The economic shock will be, ummm, interesting.

    Sure, we can shift to making oil from gas or exploit those so-far uneconomical fields, but the lead time is long, like years to tens of years (especially with all the environmental red tape and so forth.)

  3. pyromancer76 says:

    E.M., a continuing thanks for letting us in on your thoughts-evaluations of markets.

    @ Interesting Connections. We must undo big government (state and federal) propaganda-oriented interference with these realities re oil and gas: “lead time is long, like years to tens of years (especially with all the environmental red tape and so forth). This change will take elections. We are on the right path in the U.S. if the billions (perhaps trillions) from the global AGW crew, greenie corporations and foreign as well as home-grown marxist and islamist monies don’t skew the outcome (i.e., fraud) as they did in the 2008 election.

    Unlike the 1970s when too many of us, including myself, thought it was likely Americans were living in an environmnent of scarce natural resources, today exploration and technological developments have shown that we have amazing opptunities for all-out development and future affluence. This, and only this, is what will fix the job market. (Debt is another matter, but development will certainly help.)Furthermore, scientific research has developed so significantly that we now know for “certain” natural climate cycles must be attended to with planning. The warmists, alarmists, crony corporations, marxists, islamists are such old news. However, it will take conservatives, libertarians, liberals (the old fashioned kind), and independents, everyone who knows what the American promise is all about, holding together and voting together. It will take some conflict; people don’t give up their goodies easily. They must get angry and they must lose. They (everyone on the government dole) must adjust their life styles accordingly.

    I am voting today: 1. No new taxes anywhere in any form; I want bloated government and educational establishment cuts; 2. No new levels of bureaucracy anywhere; limit current agencies and use the necessary ones efficiently, more, more, more efficiently. Some of my city’s provisions seem tricky. I might agree with most aspects, but then there is that hidden something that would lead me to vote against my interests. Today I am mostly voting NO, even when my Tea Party rep suggests a “yes”, if I see any evidence of “theft” from tax payers.

  4. John F. Hultquist says:

    An interesting read by Randall W. Forsyth in Barron’s titled “Booms Away” uses comments by Charles Dumas of Lombard Street Research. The idea is that markets are going to get smacked in a manner of a sailing ship’s boom coming around and knocking an inattentive sailor in the head. In this case the “boom” is explained thusly:

    . . . Dumas, one of the few truly original thinkers about the economy and markets, thinks that boom could be pushed by one of the less-appreciated aspects of the tax deal hammered out by President Obama and congressional Republicans in the waning days of 2010—the full expensing for corporate capital expenditures in 2011 instead of depreciating the investments over a period of years.

    Think of it as “cash for clunkers” on steroids. Dumas reckons this generous accounting and tax treatment for capex could pull fully 2% of 2012 gross domestic product into 2011, mainly in the second half. Annualizing that 2% would add four percentage points to GDP growth rates in the third and fourth quarters, for a total of a 7% published growth rate—”a boom by any standard,” he writes.

    http://online.barrons.com/article/SB50001424052970204309104576172432454688332.html

    The bust would follow. Run for cover.

  5. The four doormen of the apocalypse says:

    Is someone arming a militia in Mexico?

    http://ace.mu.nu/archives/313039.php

    [ A bit off topic for a financial post, but as investments in Mexico are tied to the disruption there, and arms flow under the “watchful” eye of the ATF into Mexico fueling the violences has an impact on ‘investability’ I can see how it fits… And yeah, that really ought to blow up into a major international fiasco, but I suspect hush money will be paid and it will stay ‘page 30, below the fold’… -E.M.Smith]

  6. TGSG says:

    For the life of me I cannot understand real estate being “up” any amount at all. Granted I live in an area of small towns, but the vacancies around here are increasing not decreasing and the foreclosure mess still hasn’t been wrung out.

  7. George says:

    TGSG

    It really depends on the regional market. Where you would expect to see the worst problems would be places where there was a huge RE bubble (San Francisco Bay area) in neighborhoods that were what I call the “marginal commute” neighborhoods. These would be the places farthest out at pretty much the extreme limit of how far people would commute to work. This is where people who could barely afford to buy a home. That is where you would find a lot of “creative financing” going on and where you would probably find a lot of the people who were laid off in the current economic cycle (people closer to the bottom of the economic ladder).

    So in the SF Bay area, towns like Salinas, Watsonville, Tracy and Manteca would have been hit pretty hard. Homes that were selling for $500,000 are now selling for $200,000 in those areas.

    In places that didn’t have much of a housing bubble, say some city in South Dakota, maybe, there wouldn’t be much impact.

  8. E.M.Smith says:

    @Interesting Connections:

    Now you know why I keep an old Diesel that can eat Soybean oil in a pinch and why I’m interested in putting a gassifier on it (mounted on a roof rack for easy non-use during good times…) as a “just in case” strategy.

    @TGSG:

    It’s commercial enterprises on that chart. SELECTED commercial enterprises. Not homes. Not “Joes Bar”.

    I’ve selected for shopping malls (LARGE conglomerate owners) as folks will buy their stuff somewhere, and the mall ALWAYS gets a cut. I’ve selected for Health Care as, modulo Sovereign Risk from Obamacare, it’s going to be growing great guns as the Baby Boomers age. I’ve selected for SELECT office properties (as the central area of major cities tends to preserve value and rebound in any uptick). There there are a couple of ‘special cases’. PLD is a global logistics company. They own unique positions at ports and rail hubs around the globe. PSA is a “Got Junk?” play. Junk just grows, and folks put it in a box and pay rent on it.

    So this isn’t just any old realestate…

    And you will notice a lack of things like apartment REITS…

    @John F. Hultquist:

    The “Game” that is being played by DC is this: IF we suck enough good news into today, folks will believe it and start spending, and that will make the good times come, just in time to cover the deficit we shoved into the future.

    The “reality”, IMHO, is that: We don’t have any money left to fund the ‘good time’ so you can try to make me feel better and I’m still going to buy just the groceries, gas, and rent that I must have to get by.

    And it will all come down to that “employment rate”. The “unemployment rate” will drop as the Dimocrats eventually realize that the perpetual extension of unemployment benefits are keepin the number high. Then the smarter Democrats and the Republicans will let them expire. HOWEVER, the number to watch will be total employment. It’s not going up until actual hiring happens… and I’m not seeing much enthusiasm for taking on that risk…

    So if I had to “give odds”, I give it about 60% we have a “Boom / Crash” just like in the 1929 – 1932 delayed cycle (though with lesser damage than The Great Depression as I think Obama is bright enough to not screw the pooch as much as they did then… but I could be wrong…) and about 40% we have a very slow lingering tepid “recovery” that mostly just lays there whimpering. “Boom times” not on the chart…

    @Pyromancer76:

    You are quite welcome.

    FWIW the “demographic bomb” that I talk about will, IMHO, manifest first as an unbearable load of retirees on the Government Dole in one way or another. The private sector can dump their load via bankruptcy (which GM did NOT do, but should have done… instead the retirees were given the company) which then puts it onto the “Pension Guarantee Corp”, another of those quasi-goverment sort-of-private “corporatism” Socialist concoctions. This is ultimately backed by the Full Faith And Credit of the USA… who will also be up to their eyeballs in {Medicare, Medicaid, Obamacare, Social Security, Military pensions, US Govt. pensions, …}. The states are showing how this ends first, with places like California and several others headed for bankruptcy. Wisconsin is trying to dodge the bullet, and you can see how much turmoil that is causing…

    THE basic problem is pretty simple: We’ve promissed a whole bunch of folks they can keep on living “business as usual” based on a lifestyle with 4 to 6 folks working and “making stuff” for each person “on the beach or in the ICU”. But we are headed toward 1 or 2 people working and “making stuff” for each person “on the beach or in ICU” and it takes 4 to 6 so support them…

    So, either they keep that promise and you can have 1/4 to 1/3 of the people “Living the life” and everyone else gets NOTHING; or you break that promise.

    There is no other choice.

    There simply are not the productive folks to provide the goods and services. You can’t “third party” the workers to China, either, as we are in debt to them, not them to us. We’ve already kited that check. You can’t get out of this hole by letting Mexicans flood in either (though the Dimocrates dearly want to try) as it would take about a 3x of the present worker population influx (make that about 13 million x 3 = ~40 Million Mexicans. You think that’s gonna sit well with the present population?)

    The only other ‘reasonable’ choice is to have our retirees sent off to third world countries with lower costs to support them; and many folks ARE retiring to places like Costa Rica… but you can’t just ship folks out wholesale and Uncle Ben is trashing the dollar like crazy so just how long will “cheap places” stay cheap?

    FWIW, I see this dynamic each week as I visit the M-I-L in the nursing home. We’ve had her in 3 or 4 of them (as economics and medical needs keep shifting where HER govenment pension says she must be placed). The staff are substantially ALL either Filippino or Hispanic, often with significant accents. We must already import nursing staff from the ROW and the “Boomers” are not yet in the nursing homes…

    So the politicians are sweeping like CRAZY trying to keep this under the rug and out of sight (as it is NOT the kind of thing that gets you elected… “good times talk” and “Mr. Sunshine” get you elected, being a “Mr. Sourpuss” does not… all that “Power of positive thinking” crap.) But “The facts just are. -E.M.Smith” and will not go away. The population is what it is, and the demographics will not change. The pie is only the size that it is, and can not be retroactively made larger. AND we’ve already sold the pie to fund our present lifestyle and put it on the Chinese Credit Card….

    Have I mentioned lately that Economics is called “The Dismal Science” for a reason?….

    So, IMHO, we are in “The Mother Of All Bubbles” as the Pols try to “fix it” when it can not be fixed. They will try all sorts of financial and political machinations; and they can not make fewer old people nor more workers nor money invested in countries with young workforces paying the bills (as we are already broke and in debt, so have nothing to invest…)

    What will the “end game” be? Not pretty, that’s for sure. Exactly how it unfolds I’m not sure… “The future is murky, try again” says the ball… and that is not good…

    Right now, I think it ends with an attempt to reduce benefits for the future generations (your children and grandchildren) so that the 1/4 with the goodies still get them. (The Wisconsin appoach). I think that’s doomed to fail as the “kids” quit and go where they get a better deal and as most of the “folks” don’t want their kids in slavery to support retired bureaucrats “on the beach”. Eventually places like California will go bankrupt (they will try to ‘raise revenue’ first and continue to drive productivity out of the place until it collapses utterly first, though, then the inevitable bankruptcy as the R.O.USA declines to bail them out with a “nationalization of the state debt”). Eventually this rises to a high enough crisis level that the Feds start to sink. That will be dealt with by printing more money to ‘pay off the debts’ (which will work, as it inflates away the real value in those debts, but will result in staggering infation pressures along the way).

    The end result, IMHO, will be paying all those “obligations” but in dollars that don’t actually buy much (i.e. brings the “benefits” in line with a 20% or so tax on the 1 or 2 folks working, or about a 40% of a ‘headcount” max per retired person.). As that’s not enough to support folks “on the beach and in the ICU” some folks get stuck with little or nothing.

    The “wild card”, IMHO, is the degree of political and social unrest as these facts of demographics strike home. Especially if those already “at the trough” are clearly seen by those with nothing and no hope who are paying the bill for it…

    In any case, it will be “interesting times” and it plays out over the next 10 to 20 years, tops. That’s the “boomer bubble” hitting retirement (happening now) and then hitting the “max medical costs” years (happening in about 5 to 10 years).

    At it’s core, Obamacare was an attempt to “kick that can down the road” to the 10 year point (and out of his re-election cycle and into a probable swing back to an off-cycle republican…) by roping in the present young cohort who don’t use much medical care and forcing them to pay into a system to fund the old folks. It blows up in 10 years when the medical costs go exponential high, and the labor force is shrinking, but hey, not his problem then…

    The Teapartiers and Republicans (and to some extent, just plain folks) have figured out it’s not a real ‘fix’ (but IMHO, don’t really know the demographics of it) and are trying to put a spike in it’s heart. A good idea as then the “bubble” is not as large when it breaks… but that also does not fix the demographic bomb…

    So your instincts (vote for less in the trough) are good, but not sufficient, IMHO, to fix the total problem…

    And now you know why I’m thinking about moving somewhere warmer and with a lot of young population in a low cost part of the world ;-)

    Hope I haven’t ruined too many folks day…

  9. R. de Haan says:

    You didn’t ruin anyones day.
    Good info never does. Thanks.

    In the mean time from Zerohedge about a potential gold hike:
    http://www.zerohedge.com/article/guest-post-driver-gold-you’re-not-watching

  10. The four doormen of the apocalypse says:

    Hmmm, what about this potential near term boom and bust cycle because Capex can be written off totally during 2011?

    http://online.barrons.com/article/SB50001424052970204309104576172432454688332.html

  11. Hal says:

    With SLV being a paper silver investment, i have been moving to silver miners. GPL has been on fire recently.

    I feel since miners get the real stuff out of the ground, it’s the same as physical silver.

    I also own SLW, which is a miner’s clearing house, buying future deliveries, it has outperformed SLV. They also get real silver directly from the miners.

  12. E.M.Smith says:

    @Hal:

    Silver miners are actually better than phyical silver in that they make a profit (many of them, anyway ;-) and they often have more in the ground than is reflected in the stock price.

    @F.D.ofthe A:

    I’ve bought a lot of capital when I was at companies. Tens of millions on one P.O.

    Rarely does anyone approve a project because it can be written off. It’s generally taken as a ‘tax gift’ and otherwise ignored. Nice to have it in your presentation, and I did once get a project approved as it would get us a few hundred thousand dollars of PG&E rebate (but that’s like real money ;-) but generally it’s ‘below the fold’ and while your boss sees it, and maybe his boss, the Uber Boss doesn’t care to look that far. He wants to know the strategic reason it ought to be done and what the contribution is to growth of profit.

    So I don’t expect there will really be all that much “pull in” of expenditures. Yeah, a few percent that would be booked in Jan or Feb get pulled into Nov or Dec, but over a year+ horizon it’s more a no-op than you might expect.

    I once worked at a company that rigourously managed the profit number. They regularly bought, leased, and sold equipment (often with a lease back) to stabilize their profit number. Folks will take actions to prevent their balance sheet getting whipsawed too much.

    @R. de Haan:

    Glad to know it wasn’t too dismal…

    Per gold and retirement funds: That might happen, but only AFTER we’ve seen a significant and long term demonstration of inflation. Those guys are typically last to the party and often don’t like investing in ‘sterile’ assets with no growth. The volatility bugs them too…

    IIRC, during the Carter inflation, they were getting in to gold and collectables just as it ended…

  13. John F. Hultquist says:

    You spoke of demographics. Last year I looked at Washington State. The following had two images —
    – the second one, Fig. 6 shows the rise in average age of WA population

    There are really serious issue lurking from 40, 50, 60 years of poor decisions but those are still hidden from view (and will remain so) of most folks – for another 4, 5, 6, years.

    Here is one for the State of Washington:
    I’ve looked at a report on WA State demographics – namely the ageing of the State’s population – and what that means to $$ outlays. It is actually unbelievable. The following is something I worked on last year at this time but I’ve not updated it.

    =========================================
    WASHINGTON STATE: Forecast of the State Population (Nov. 2009)

    Click to access stfc2009.pdf

    part of contents page goes here

    Figure 6 goes here

    Here is a little text I captured from another site.
    —————————–
    This from WA Assoc. of Cities web site:
    Services for the Elderly
    America’s elderly population is now growing at a moderate pace. Soon, however, the growth will become rapid. By the middle of the next century, there could be more persons who are 65 and older than young (14 or younger). The elderly, who comprised only 1 in every 25 Amercians in 1900, made up 1 in 8 in 1994. By the year 2050, as many as 1 in 5 Americans could be elderly. Most of this growth should occur between 2010 and 2030 when the “baby boom” generation enters their elderly years.

    The profile of the elderly population in 1997, includes a growing minority population which is projected to represent 25% of the elderly population in 2030, up from 15% in 1997, and more older non-institutionalized persons living in a family setting, the majority of which are men. The fastest growing age group currently, is 85 and older and 48% of those need functional assistance in daily living. The median income reported in 1997 by older persons was $13,049. Thirty seven percent (37%) of older persons reported an income less than $10,000. About 29% of persons 65 and over lived in central cities and 48% lived in the suburbs. The elderly are less likely to change residence than other age groups.

    In Washington State, there were 647,348 persons 65 and older in 1997. This amounted to 11.5% of the total population and represents an increase of 12.3% from 1990 to 1997. The percent below poverty level from 1994-1996 was 6.9%. Based on national rates on incidence, there were approximately 73,500 frail elderly in Washington State in need of supportive housing in 1990. People are living longer and need a continuum of care. In addition to affordable housing, aging seniors may come to need chore services, help with meals, and nursing assistance. If unable to get such services, a nursing home may be their only alternative.

    The implications of these trends are tremendous. Stress on caregivers, transit, and social service agencies will be great. Public facilities will need to be handicapped accessible and new recreational resources for seniors will need to be developed. With fewer workers paying into the social security system, resources will be strapped.

  14. David says:

    “Hope I haven’t ruined too many folks day…”

    No, I have seen your positive stuff also. We will be forced into austerity, and perhaps a little wisdom. “Pain is a prod to remeberance” Perhaps we will remember that energy is the life blood of any economy and when govt programs fail we may collectively remember our can do work ethic.

  15. KevinM says:

    THanks again.

  16. George says:

    Did you see where Pimco has dumped all US Treasury debt from their “Total Return” fund?

    http://www.bloomberg.com/news/2011-03-09/gross-drops-government-debt-from-pimco-s-flagship-fund-zero-hedge-reports.html

    I have a feeling that massive inflation is just around the corner. The government is going to attempt to get out from under this mountain of debt by inflating the entire economy.

    That is, I believe, the strategy. We can’t pay it off in today’s dollars so we just inflate the economy and make it chump change.

  17. E.M.Smith says:

    @KevenM

    You are most welcome (even if I’m not sure exactly for what ;-)

    @George:

    Had not seen that move by Pimco. Expect more.

    I’ve been saying that’s the only “face saving way out” for a while now… but these things can’t happen over night. It will be a 10 year plan…

    BTW, heard on the NPR? news tonight that with the rise in the cost of cotton it now (as the bills are 75% cotton…) costs a dime to make a bill. That means that with 90% of the value inflated away (what has happened to the dollar already in my lifetime so about 30? more years) the dollar really WILL be worth the paper it is printed on ;-)

  18. George says:

    How does the price of cotton look over time in Swiss Francs?

    My guess is it probably hasn’t changed much.

  19. E.M.Smith says:

    http://bigcharts.marketwatch.com/charts/big.chart?nosettings=1&symb=fxf&uf=0&type=4&size=3&sid=2357408&style=320&freq=1&time=8&rand=1379166374&compidx=aaaaa%3a0&comp=gld+bal&ma=0&maval=24&lf=2&lf2=4&lf3=1024&height=820&width=720&mocktick=1

    Shows cotton on a “rocket ride” compared to gold and Swiss Francs as measured in dollars (i.e. with both measured against a common ruler, their relative rises are clear).

    Cotton is the “winner” by about 150%.

    (Gold up 30%, FXF up 15%, BAL up 175% more or less)

    However, the inventory of gold and Francs does not suddenly change with springtime nor with the next Paris fashion show “suddenly” “discovering” the joys of polyester…

    Last time we had a horrid cotton squeeze, it was followed in the next couple of years by a load of synthetic fabrics as “fashionable” at the clothes horse parade in Paris and NYC…

    Watch for Wool as “natural and warm” and for rayon and polyester to make a comeback… I’d also watch for the “cotton polyester blend” to make an unexplained excursion from 30/70 to 25/75 or even 20/80 ….

    Oh, and “100% Cotton” to morph into “With 20% Polyester for Durability!” ;-)

  20. George says:

    A lot of cotton was grown in the central valley of California in fields that are now dust because federal judges won’t let them get water.

  21. bruce says:

    After playing some tennis with a new acquaintance today, this person being one of the quintessential Seattle-ites, I learned that “everyone” would be out shopping today. This in reaction to Japan’s nuclear reactors. Which means there should be money in potassium iodide. And in food, bottled water etc. Finally the recognition that Japan would be export-less because its product would be contaminated.

    NO matter how myoptic it does express a notion.

    So invest in what? costco, medic supplies???

  22. E.M.Smith says:

    @Bruce:

    Korean car companies and Taiwanese Electronics ;-)

    But more seriously, there isn’t a lot of “investment” that comes out of this stuff, more of a ‘fast trade’. The classic (that would have to have been done at the begining of the event) would be:

    Short: Yen, Reinsurance, Japanese property insurance, Japanese power companies, oil (as Japan is large user and will be seen as ‘off line’ for a while), shippers who haul FROM Japan.

    Long: Dollar (or gold or Swiss Franc), construction equipment manufacturing and “Engineering Companies” like Fluor who might participate in a rebuild, competition who will benefit (thus the “Korean Car companies”) and shippers likely to take goods TO Japan.

    There is also a general trade of: Short what they buy in GOOD TIMES, long what the need in BAD TIMES. So one could hit things like Dole foods and such who might gain from replacing lost fresh produce production.

    Personally, I don’t like playing vulture, though…

  23. E.M.Smith says:

    OK, with the opening of markets in Asia the Japan markets are “way down” at 6%-7% and the yen, despite a load of BOJ “added liquidity” is not down all that much.

    Using the “buy the rumor sell the news” method, now would be the time to “cover shorts from the first bad news” and potentially “go long”. Fast charts of “buy if touched orders” to decide when…

    I’d concentrate in those companies with major operations outside Japan (like Honda and Toyota who make cars in the USA and other places too) and copanies likely to benefit from the ‘rebuilding’; but avoid things like insurance / reinsurance companies. Nikon, for example, makes many lenses in China and Thailand IIRC. So you ought to be able to pick up some name companies with little damage at a steep discount in the next few days.

    My usual rule of thumb is “three days” or “Crash, Bang, Tinkle” for looking at bottom fishing. You want to see it drop, hit, bounce, drop again, bounce a bit less, revisit ALMOST the same low, then start a slow rise. You don’t always get that perfect picture, but it can come close some times.

    “Never try to catch a falling knife”… so wait for it to stop falling first…

    Then pick it up when it just ‘lays there’…

  24. KevinM says:

    TBT fell back to 36 today.
    Has your long term hold view on this one changed?

    I see scary news flight to dollar, and status quo printing Ben hitting each other over the head with chairs in a steel cage match.

    I got stopped out last time, but I like the thesis. Rates can’t stay low forever, and with Portugal now crying unkle, people should demand at least a little more risk premium for the supposedly riskless.

    THe thanks was for sharing your thoughts on these matters.

    THe capital H’s are because my shift-key finger is too slow.

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