Thursday 2/28/2013 Yikes!!!!

It is a good thing no one reads this blog.  I might have to defend my right to spout my angry reactions to insider trading that is NOT against the law and is totally condoned by the Presidents of the USA.

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way – in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.”

-Charles Dickens, A Tale of Two Cities

Ah, a most famous book that even I had to read (which high-school students rarely are required to read any longer).  One of my favorite movies is The Muppets "A Christmas Carol", a Muppet recreation of Scrooge.  Dickens was brilliant, and my High School English teacher (if she were alive) would smile to hear me say that.

The story is a tale of the years leading up to the French Revolution and ended in the Jacobin Reign of Terror.   Today, there is no nation that stands alone, and perhaps it is neither the best of times nor the worst of times -- just in rhythm with the past (or maybe it is the oddest of times). "Oddest"? Why?

1. Italy is in disarray -- markets don't care (and USA citizens really don't care)
2. Company earnings (with only a few notable exceptions) have fallen far short of expectation -- Don't care...
3. Automatic Cuts in Government spending will happen ..  Don't Care... Yawn!!!
4. Bennie and the Ink Jets are printing money and handing out free gifts to anybody too-big-too-fail -- Don't care...
5. Medical Costs are skyrocketing as insurance companies who backed Obamacare are driving prices higher, and refusing to pay for anything they can get away with not paying. (I'm not the only fairly wealthy write talking about this. Read John Maudlin's outside the box, and he will point you to the problem even the rich -- he is wealthy - are facing.  Welcome to central planning... )  DON"T CARE...
6. Spain can't recover from austerity measures, and the PM's approval rating is 20% - sure to drive another election soon DON'T CARE...
7. Political governance has become irrelevant.. DON'T CARE...
8. Argentina is about to default -- DON'T CARE... And the US Judge in California really does not care and she says it is not her responsibility to care about Argentina's economy -- Don't care TWICE
9. Nothing Matter's -- Who Cares... Let's party (or as in Oliver "More gruel if you please".  Mrs. Worth if you are listening from above, I did learn from you and came to appreciate what you taught in English Literature.)  

What is the oddest thing  in the USA in my view, is that starting with President Nixon, the USA president's have all adopted Keynesian economics, but only the spend side.  Under 1/2 Keynesian,  money no longer has any fundamentals -- even the paper it is printed on is obsolete - it is not printed on paper any longer.  It is made from nothing at all, a digital creation of man's imagination.  It is something far stranger than the answer to the "Life, the Universe, and Everything" (42 - according to Deep Thought).  It is a financial nothingness (certainly not a system in the normal sense) cobbled together in Dicken's like Scrooge's counting houses; money made from nothing at all.  (At least Scrooge was counting his pennies, but he could not possible count pennies if he had Warren Buffet's wealth.)  Yesterday Bernanke promised QEternity and Draghi (European Central Bank) promised feeding without end.

The stock-market reaction?  Let's party, the banks are saved.

Let's continue on with the theme of "DON'T CARE"...

• Negative Q4 GDP Revised to Barely Positive...  This was the smallest possible revision to make it seem the US economy grew in the 4th quarter.  One thing is abundantly clear, the GDP trendline is ugly  -- DON'T CARE
• Jack Lew is one of the most dangerous men ever elected to be Secretary of Treasury...  In his Harvard papers, he gives every indication of being a communist - Senate does not CARE, People do not Care, and Republicans must agree pretty much with his viewpoint.   DON'T CARE  http://www.zerohedge.com/contributed/2013-02-28/jack-lew-social-security-dump-it
• JCPenney and Sears post huge losses, and Wal Mart is warning... DON'T CARE.  (unless you are invested in JCPenney or Sears... by the way these are not Value Plays -- read the book I recommended yesterday...)  
• Japan - China -- rhetoric is heating up over Islands in the South China Seas.  North Korea is making very challenging statements and threats against South Korea, Japan and the USA... DON'T CARE...
• BIG BROTHER -- creating Stupendous, Tremendous growing business in Insurance  DON"T CARE...
• Should you be worried about this?  If you have applied for Life Insurance or Obamacare health Insurance, you should ask what the underwriters know about you.  Are you even a little bit surprised at how much they know about the products and services you used or are likely want to use in the future?  DON'T CARE...  Yep... I can predict I'm on Home Land's Security SH*** list (watch list) just from the little bit I write on this blog.
• The biggest benefactor (and maybe not to your benefit) is mandated electronic recordkeeping in the Health Care sector.  Did you know the only people who can't mine your data (or even get it) is your family.  Every single health care insurer, government organization and health care consortium will have access to that data, which not only includes your health information, but also your credit information, purchasing, and so-on.  
• This is big business at its finest as it is this "Big Business" that help lobby Congress and the White House to pass Obamacare, and require the federally mandated electronic record keeping (all for politically correct reasons of course).  

Enough, as you get the idea that the real reason the stock market is making new highs is the Central Banks want the stock market to go up - period end-of story.  And for you small businesses, it is all rhetoric they want you to survive.  There is nothing about the Federal Government (and the Labor Unions) that want small business to survive.  As far as I can determine, when Congress Person Cathy McMorris talks small business, she is discussing business that make $10M-50M per year -- not the small business such as the one-owner restaurants, the small cattle farmer in Eastern Washington, the organic truck farm in Spokane.  She thinks Kinross Mining is small business; not the hardware business that employees five people in one of her small towns.

Any good news?  Yes, if you are a banker.  Generally, for years (since Mr. Obama took over the reigns of leadership) the USA and the rest of the world have teetered on the brink of disaster.  Please give the Federal Reserve credit in that I believe they have kept the economy from crashing into a deflationary pit.  Then having stated that, We the People of the USA face a debt crises somewhere in the future - a potential crises the likes of which world economy has never faced.  The numbers are unfathomable.  No matter the icon one tries to put up to explain $1Trillion, how does one's mind encompass 16Trillion dollars or more worrisome $220 Trillion in unfunded liabilities?  Do you even have a calculator that will accept a $1T dollars as input?

Good News: (I hope and pray)

1. Housing looks strong, and it appears that the Federal Reserve's buying of mortgage backed securities is working.  Pending home sales rose a stupendous 10.4% compared to a year ago. (I'm looking for good news, here; not trying to educate you on who really bought those homes (like hedge funds)). 
2. Durable goods orders (exception Transportation) jumped in January -- the most in a year rising 1.9%.
3. Chicago PMI  reading surprised to the upside.  Economist were not expecting that kind of increase.

WARNING:

If you have listened to the President of the United States over the last two weeks, he has been preaching economic Armageddon if the sequester takes place tomorrow.  Why are not the markets all worried about this?  DON"T CARE... Bennie and the Ink Jets are here to take care of us.

Will there be an economic Armageddon?  How in the world could such small cuts cause such a catastrophe the President is predicting?  Is he able to observe a tipping point that we cannot observe?  

Stay tuned (not to me obviously), but we've never had a President that went stumping down the road warning of a catastrophe without providing any solution to the catastrophe, or even explaining how a less than 1% cut in the budget spending will cause a catastrophe.  Rhetoric is cheap, and can raise all kinds of emotions. 

  Wow... Wow... Wow...    

`Speak roughly to your little boy,
          And beat him when he sneezes:
        He only does it to annoy,
          Because he knows it teases.'

`Wow! wow! wow!'

 `I speak severely to my boy,
          I beat him when he sneezes;
        For he can thoroughly enjoy
          The pepper when he pleases!'
                    CHORUS.
                `Wow! wow! wow!'

Alice In Wonderland...

You know of course, the baby turned into a Pig, but as Alice said it was an ugly baby but a handsome pig.

Wednesday -- 2/27/2013

• Euro -- the Euro found a little love after the investors were left thinking that the Monti austerity programs were in trouble.  Shoot, can you imaging that crazy Berlusconi coming very close to winning,?  He's been in trouble for ever.  In the mid '90s Berlusconi was getting in trouble.  Italian bonds are mixed this morning, which I believe translates into investors haven't a clue about where the European Union (and Italy specifically) are headed.  
• Bernanke strikes fear into the hearts of those who went short on Monday --  Helicopter Ben let everyone know in no uncertain terms that the Federal meeting minutes did not have his stamp of approval.  The "fear" was all generated by a few Fed heads questioning quantitative easing.  Dr. Bernanke said that the central bank's purchases are supporting the US economy with little risk of inflation or bubbles anywhere (including the stock market  bonds, notes, or real-estate.)  However:
• Bernanke 7/1/05 "We've never had a decline in house prices on a nationwide basis.  So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit.  I don't think it's gonna drive the economy too far from its full employment path, though."  
• Bernanke yesterday went on to stress he wants to insure that in the future none of the financial institutions will be considered "Too Big to Fail".  
• The only question I would ask of Dr. Bernanke (and you gentle reader):  What evidence exists that the Central Bank is doing anything to reduce our economy's dependence on Wall Street financial institutions?  In fact, everything that we see published even by the most liberal news outlets is that Big banks are not lending.  Then what happens to the money, Dr. Bernanke, that you are pumping into the "Big Banks"?  
• Today the DOW is up 170+  points as I write, and the market is nearing the recovery of everything it lost Monday.  Wild ride all over lip flapping.  The markets definitely love what Bernanke had to say.  Let's party like there is no tomorrow, because at some point someone has to pay off all this debt (or worse for the USA and the world - DEFAULT).  
• SWISS FRANC -- currency investors (outside NY) did not like what was going on.  Swiss Franc rose to a six week high vs. the Euro.  This appreciation will have to stop, or the Swiss Bank will have to intervene in the currency again.  
• Canadian $$$ -- loonie is up a bit today, but it got hammered when the price of Oil took a dip on USA Oil inventory report.  Basically, any downturn in the Canadian $$$ is really due to the fear that the USA's recovery is not healthy or sustainable.  BOC (bank of Canada) had signaled they may increase the rates this year, but the possibility of that happening are not very high.  Mark Carney said yesterday that some of the downside risks to the Canadian economy are materializing.  
• Brazilian Real -  the Real is hanging onto gains.  Unemployment rose in Brazil more than expected, but there are positive rate differentials with other countries that offset some volatility (and downside risk).  Brazilian inflation is exceeding 4.5%, the banks target rate, and they may be forced to raise interest rates.  Look for the what the Brazilian central bank does on interest rates next week.

Basically, all asset classes across the world are in a state of "chop", with a few exceptions in certain countries.  

I leave you with two quotes:  

"In the long run we're all dead"  John Maynard Keynes  

(No one seems to read Keynes book, and remember you spend to bring an economy to life, and you save surpluses during good times.  The complementary aspect of Keynes' guidance was to raise taxes during upswings. What the USA has been doing results in increased spending in good times, and spend even more in downturns.  Our illustrious leaders, [since President Nixon claimed he was Keynesian] have all followed (no exceptions even with President Reagan) the idea that the government backstop could not ever be exhausted. (Please read comment from Bernanke that housing never went down in value across the nation, because there is never an absolute in economies.)  

"If pro is the opposite of con, then what is the opposite of PROGRESS?"  - Paul Harvey

Tuesday 2/26

I have been under the weather since last Friday.  I don't suppose it is any more serious than just getting old enough to not recover from lack of sleep rapidly.

I did not publish this yesterday because I let my hurt and anger show through on Warren Buffet's trades after reading of his meetings with the highest political leaders of this land since President Obama took office.  I know for you quants in NY, you don't see anything wrong with this kind of dealings, but it only means that free markets are an illusion and fair trading is an illusion.  The USA made laws against insider trading, but the Congress, Senate and the Presidents have made insider trading very secret and lucrative art form.

As an understatement, Monday, 2/25 was not a good day for stocks.  I don't suppose anyone reads Zeb's blog, but I had been warning on this blog to be careful - to be very careful as the internal strength of the S&P 500, DOW and Nasdaq were weakening.  VIX exploded to the upside, with going from complacency to "fear" in a single hour.  Wow!!!.  If you invested in VIX Calls using VXX you would have done very well indeed.  Ha... no retail investor I know of caught that move in VXX, and even if they did, it would be very unusual for them to do so over and over again.  So be warned...

Copper:  In the mid-term, there is a unspoken (but well known) relationship between copper and the US stock market.  Long term investors pay attention to copper because copper is used in almost every product produced during the recovery phase of an economy.  Human behavior studies indicate that copper broke sentiment to the downside.  For technical analysis the market broke the down out of the up-trend line from Jun-Aug last year.  (Note that is the same exact time when the stocks took off, and if you are willing to go into Stockcharts.com for free and chart Copper on top of S&P 500 you will observer Copper and S&P falling together through November.)  You can also get CME's (Chicago Mercantile Exchange) report for Copper fundamentals and technical analysis.

Seasonally, it is time for Copper to adjust.  Look for the S&P to follow Copper this time around (again).

Euro -- you already know the problem in Italy.  PM Mario did the full MONTY so to speak (coming in last) in the vote.  Seriously,  the fractured election is the worst possible scenario for Italy.  The 10 year Italian bond is pushing up near to 5% again up nearly 90 basis points in a month.  This is not good for Europe and it is not good for the US.  I had some conservative Republicans attack me verbally on suggesting the US must do what it can to maintain its largest trading partner, and I would say it to anyone who can at least attempt to understand what would happen to the US if the European Union falls.  In my newsletter I pointed out it is the US Banks and Insurance companies that hold the vast majority insurance part of Credit Default Swaps in Europe.  Therein lies madness for the taxpayers of every country, but most people in the USA have never been informed of the risk the taxpayer faces in Europe.  One of these days, Greece or Spain or Italy (or even perhaps Cyprus) will default. (There is an argument that says that Greece already defaulted with the bond investor haircut, but the powers that be would not define it as a default.  Therefore, no banks had to cover the CDS for Greece.)   The threat is the default will have a domino effect across the world with the US banks taking the brunt of covering.

Good Book:  Value Investing with the Masters -- Kirk Kazanjian  There is some really outstanding interviews in the book.
One of the great weaknesses we have as investors -- even very seasoned veterans -- is the lack of understanding how to value stocks.  If one can get their hands on an analysis of Berkshire Hathaway's investment in Heinz, it would provide a view into how world-class investors view a great business. (Yes, I'm going to point out later things are not what the seem, however.)

What is even more fascinating is this purchase is a study in how to leverage.  With just $8.8 billion in new equity, Lemann and Berkshire are buying a business with an enterprise value of $28B.  Now ask yourself: Why would Mr. Buffett be willing to spend so much (and include leverage no less) for a fully developed large and slow growing business like Heinz?  The approach to that kind of investment is called "capital efficiency".  In very simplistic terms a company is judged on how efficiently it produces cash. (one way is cash generated per unit of sales).  Do you understand this secret?  Write a comment and let us know why companies like Heinz, Coke, Hershey and so-on are good investments.  Then factor in the leverage (and that this business, Heinz, will be supported by guess who? Your new Secretary of State --  John Kerry -- remember him, where his wife owns most of Heinz? Good grief)...

I read an article by some talking head about how Intel was going to go the way of all dinosaurs.

Will Intel fall?   Did it miss the opportunity to enter the mobile market?  You should educate yourself about this.  AMD is the only major competitor of Intel (and it is no more than a pimple.)  There is an argument that Microsoft will be going out of business (highly unlikely - whereas no growth is highly likely).  Then MS translates to Intel going out of business as the consumer is driven into cloud computing (which everyone now uses the cloud in some way or another).  For the laymen, basically the "cloud" is the internet, and using the cloud means using services via Internet (for example Gmail in the cloud).  There is another whole level of complexity for operating systems and distributed data required by companies providing services in the cloud (for example Amazon's Elastic Compute Cloud EC2).    Arguably Microsoft's OS has not been able to handle something the size of Google, although I believe Microsoft would argue they have implemented everything Google has in MSN.  (That is not completely wrong view by MS, but it is very misleading.)

At the heart of almost all datacenters today is INTEL based servers.  They run Linux (in all its wonderful flavors), Windows (and all it grrrrr versions), Apple, and so-on.  Will Intel fall?  What do you think?

GOLD -- Hang onto your hats.  The war between commercials (central banks and producers) and funds is heating up.  Commercials bought a great deal more gold than funds sold last week.  The risks are high, and anyone who when short after the large drops are probably hurting big time at this point.  Look for all the talking heads to start saying "gold's" correction is over - we are now going to the moon.  I'm not convinced.  What is happening is the Western World is selling its physical gold to the Eastern World.  The wealth is being transferred.

General Electric:  Did anyone notice when the US government bailed out GE in 2008?  Do you remember the big hoop-la when the USA bailed out Government Motors?  and the bigger hoop-la when GM paid back part of the debt by using other money they borrowed from the Government to pay back part of the money?  I don't remember a lot of hoop-la about GE.  In 2008 GE owed creditors almost $700B which would make them the world's fourth largest debtor.  When funding dried up, the Government lent them money to keep them afloat (and then Obama made the GE CEO the head of job creation.... How did that work out for the US?)    Do you believe that GE will ever repay debts of that magnitude?  Now, let us revisit Mr. Buffet again.  (He really should have been schooling Bill Gates before Microsoft's anti-trust loss - as Gates never understood politics obviously.)  

Imagine for a moment a billionaire (Mr. Buffet)  fundraiser for Mr. Obama invests $3B (a nice number) in a multinational corporation run by an Obama appointee.  Then imagine (actually you don't have to imagine) the multinational firm (GE) rakes in billions in loan guarantees  tax credits, overseas employment payments and additional bailout funds ($140B).  Mr. Buffet (after having conversations with Mr. Obama) invests $3B in GE and cashes in a very handsome (and satisfactory) profit.  GE spends more on lobbying than any other corporation according to the public records.

GE/OBAMA/Climate -- GE profits handsomely on government support and even more so from Mr. Obama's policy on climate, energy, stem-cells, rail, transportation  health insurance and more.  Does this provide you any insight into why the CEO of GE was tight with President Obama?

BankofAmerica -- want some more of the same... Research Mr. Buffet's investments in BofA.  Even the red-necks where I live understood that Mr. Buffet was "betting" on a bank bailout by the government (old news I know).  "If I didn't think the government was going to act, I would not be doing anything this week," said Mr. Buffet.  (I'm not mad at Mr. Buffet.  I would love to be able to get insider info like this.)

And folks, that is how big-investors really work (all the BS they spout about value aside).  And can you ride Mr. Buffet's shirt tale without investing in one share of Berkshire Hathaway stock?  Probably not, as in the case of BofA, an investor would have had to sit to a very large negative position before the investment turned positive.  Do you think you could sit through that negative position?  You never know until you try it, but what usually happens is the retail investor finally throws in the towel at the bottom and liquidates, just as the investment turns around. (But here is the conundrum:  There are just as many instances when the investment does not turn around, and knowing when to hold on is an art that "old" investors have mastered -- which art is helped if you can call Mr. Geithner and Dr. Bernanke and ask what is happening this week.)

Well, sometimes it just pays to be a Democrat.  Wait, did I not hear that the democrats are all for the "little man"?  Someone (not me) should give an opinion how raising the minimum wage is going to affect all the small business and their employees in the land.

Helicopter Ben:  Remember Helicopter Ben who said he would drop money out of an airplane to stimulate the economy?  Well, Bennie and the inkjets gave all the money to the banks (as that is what they were set up to do.)  They had a really cool helicopter (with BIG Banks and Mr. Buffet underneath the drop).  The helicopter dumped the money, but the downdraft funneled the bills only where the Banks wanted it, and did not litter the streets of the USA.  Let me see, if they took the $85 Billion per month they are "printing" and gave it away, to be spent by the consumer, would that help?  Of course, you know the answer, right? INFLATION!!!! at the Argentinian  and Zimbabwe level.  We are getting "SCROOGLED" (which term I read somewhere). (It has to do with all the data mining from word clouds and personal advertisement that Google does in gmail.  And remember, I'm using the free blogger from Google; so reader beware.  I'm probably on the S**** list of the Home Land Security at this point.

That then, is my new "best" word -- SCROOGLED...  I Look to be SCROOGLED on 401K programs, IRA programs, tax-payers taking over state medical health care for employee unions, increase cost of gasoline even though Oil is down in price.

OK,  I repent.  I went into politics, but it "ticks" me off that I'm not in the in-crowd, and struggle very hard to make even 10% returns on my investments.

Thursday's worry (or not) #2

I somehow messed up the formatting in the first post, and so I'm going to add a post about "when" to buy gold again.  Since I wrote this, I've noticed several research newsletters I read are recommending buying gold now before it skyrockets.

Be careful, be very very careful... Have a good systematic approach to buying an investment in gold; not because analysts and others say it is a good time.

So here is my 2 cents worth:

GOLD:  When is the time to buy?  

The time to buy gold coins as a hedge against chaos is right now:  immediately, do not pass go, and don't wait to get an out-of-jail ticket.    

The time to invest, however, is not now (unless you want a very risky trade going short gold).

What moves the price of gold?  Well, inflation does not really correlate well to the price of gold unlike what we've been told.  However, there is a significant correlation between the interest rates in the US and gold.  Let me be so bold as to be attacked (if anyone read this blog) by stating that it is useful to think of gold as a kind of currency whose supply is relatively fixed. (Bernanke would become extremely irritated at such a statement.) We can then look at Gold's price as simply the exchange rate between $$$ and gold. (Or if your currency is Canadian $$ or UK pounds, the exchange rate between those currencies and gold.  )

Ah those currencies... so much to learn from them. 

The big factors that control exchange rates between currencies are: 1) differences in yields, 2) The investors perception of the currency safety 3) the real exchange rate.  (If you disagree, and want to look at gold vs. dollar in action, look at the $$$ and gold yesterday.)  

Among currencies, the relative yields are the main driver of exchange rates.  Higher-yielding currencies tend to appreciate against lower-yielding ones.  

However, Gold has no yield.  The only time it has a yield advantage is when paper currencies have negative short-term real interest rates. Read that again.  If you were to use data-mining techniques analyzing gold and inflation and then analyzing gold and interest-rates, gold's price is well correlated with interest rates.  (Source Claude B Erb and Campbell R. Harvey "The Golden Dilemma" 2013)  

Currency stability has a great deal of influence on the exchange rates.  When the market questions the safety of a currency, they demand a hefty risk premium to own it; which translates to higher real interest rates.  However, gold has no risk premium.  

• KEY IDEA:  The more investors question the future purchasing power of paper currencies (including the US $$$) the greater the demand for gold, and the greater the demand for gold the higher its price.  (The mirror image of that statement is if the perception is that a paper currency will purchase more in the future, gold will fall.)
• KEY IDEA:  Gold has very little use in the production of things (excluding jewelry).    Therefore, it is an offset to currencies.  According to the Federal Reserve St Louis, the main players in the gold market are central banks and institutional investors.  Emerging markets (Russia, China and India for sure) have been diversifying their foreign exchange reserves by buying gold.  This propped the price of gold up without driving it to new highs for at least 2 years.  
• Key IDEA:  Purchasing Power Parity http://en.wikipedia.org/wiki/Purchasing_power_parity is an economic theory used to determine the relative value of currencies.  It asks the question how much money would be needed to purchase the same goods (or services) in two countries, and uses that information to calculate an implicit foreign exchange rate.  Gold's version of this in the US would be the ratio between Gold's price and the Consumer Price Index compared with the ratio's historical average.  Currently this ratio is at historically high levels approaching the ratio touched in 1970s.  Over a long time period, this ratio will converge toward its mean. 

Of course, gold has other vectors that influence price in the near term -- wars, terrorism of significant impact, and other events that drive fear into all mankind.  Consider those items to be unpredictable, and where they are predictable, gold will have the expectancy built into the price. 

Currently (even after the drop yesterday) gold's valuations vs. real goods are stretched to extreme levels. ·         Over the long run gold's price will likely converge to its historical average against the currencies.   In the short term, gold's price is supported by the lowest real interest rates in history and the Emerging market's central bank purchases.

Simple Systematic Approach TO WHEN:

1. When gold is going up against the four major currencies over the last month, it is time to buy gold (at least for the medium term and probably longer).  The major currencies are US, Euro, British Pound and Japanese Yen.  (You can set this up in Stockcharts.com using a PERF chart.)

• Going up verses all four currencies month-to-month is a very stringent filter.  The investor (vs the trader) would not be in Gold very often.
• The investor who tracks this way, would be in front of world-wide inflation, and that is a guarantee. 

1. Look for the opposite of the "Death Cross" called the Golden Cross.  When Price moves above the 200 day MVA and the 50 Day MVA and the 50 DAY MVA greater than the 200 day MVA, buy gold.  Pretty simple, is it not?  

If you are in investor reading this, then you know that MVA systems lead to whipsaws.  Read my one paragraph on money management.  The biggest issue everyone of us has is emotions.  Are we patient enough to wait it out?  The second biggest issue is not have a plan to execute (entry, risk, position sizing and so-on).

When both signals are positive, Gold (either through ETF's that invest in bullion, EFT's that invest in miners, or directly purchasing bullion certificates) will provide excellent returns.  (See Market Vectors Gold Miners: GDX)

If invested, then do not watch the Gold market everyday.  If you do, your emotions will gain control, and you will do irrational things as the Gold market is very volatile.

I get angry with newsletter that do not warn about money management.  Every investment requires a money management technique. 

• "Know when to hold 'em, know when to fold 'em, know when to walk away, and know when to run."  Kenney Rogers The Gambler

One needs an entry setup.  Then one needs to determine their risk in the trade (how much will you lose before you get out?).  Then an algorithm for determining one's position size.  And very importantly, where will you exit with a profit?  Of course, there are case studies by large university doctoral students on each of these areas.  I happen to think that most academic studies are worded in such a way as to keep the laymen from understanding, and the concepts I've mentioned are not that complicated when focusing on one asset. 

Remember, owning some strategic allocation of your investment portfolio in gold makes sense if you are concerned about your country's currency value (or chaos in the streets for that matter).  This strategic allocation is not for investment  (although it is nice if it increases in value).  

Thursday's worry (or not)

A wonderful day to all 1 of my readers :)  It is snowing outside, which is not unusual here on the border of Canada.  It snowed yesterday, then cleared, melted all the new snow, then froze hard overnight.  Winter has not given up just yet.  The Mergansers have arrived on the river, and that means spring is not far off, however.

Amazing what one day brings in the market.  All heck broke loose yesterday after the Federal Reserve Minutes were released. What little I'm able to glean was the heads of the Fed were discussing costs and benefits of additional asset purchases.  Most seem to believe that the relative strength in auto and housing indicate that lower interest rates are working.  A number of them expressed concerns on how they would eventually unwind the existing stimulus, and that more stimulus would make unwinding even more difficult.

To me there was not much there, but I must remember the stock market was in a really over-bought condition.  Many investors yesterday must have observed that the Federal Reserve has come to a crossroad.  They are worried about what the Fed is doing, and the investors have begun to think of how to unwind all this stimulation without accelerating inflation.

As we laymen can observe, then, this was very beneficial to the dollar and a punch to the gut of the Euro.

But what about Gold?  Was there a rumor on the street that a large hedge fund was being forced to liquidate its holdings?  Rumors -- my old horse -- are what the market lives on.  Traders on Wall Street would point out to you (if they weren't so high on something or another) that Gold and other Commodities had a "Death Cross".  The price of gold fell through its 200-day moving Average and also its 50-day moving average.  Believe it our not, computer program trading and pattern matching are looking just for those kinds of signals.

If you had been a member of my newsletter (and actually read it and remembered), Gold has seen the "Death Cross" before in April of 2012.  Then it rallied like mad.  Gold is now extremely oversold.  So what will it be this time - rally or more down moves?  Who knows, but look for Gold to be up today, and then build on that base for at least 2 more days.

Never forget (even though the media is not playing it up), the debt ceiling, automatic spending cuts, and all other kinds of negatives for the US are coming MARCH 1, 2013, and as far as I know there are no discussions between Congress and the White House.  In the NY times this morning was an article that reported the Republicans think they are in the driver seat this time.  (I'm dubious.)

So the media thinks the US (and maybe the global) economy is on the mend, and now is the time to move into stocks.  What if we step back and look around?  In my newsletter I recommended a way to understand the "big" picture using Economic principles that have been established since Adam Smith, father of the dismal science" stated them.  Using those principles would suggest things are not rosy anywhere.  Interest rates are zero and will remain there for some time, Feds have implemented 3 rounds of QE with little effect except to keep the economies nose above water.  Unemployment is going in the wrong direction, housing starts just fell, and the list goes on.  If the businesses were so upbeat about the US economy, why would we be seeing all this?

For most of us who cannot affect the politics or the economy, I suggest we hunker down and look for bargains.  Benjamin Graham and Warren Buffet would look for VALUE.

Banks:  Here is a report from Bloomberg that is worth reading.  I can't help feeling as an "outsider" to banks, that banks are what really run the USA.  http://www.bloomberg.com/news/2013-02-20/u-s-banks-bigger-than-gdp-as-accounting-rift-masks-risk.html  The banks are not only too-big too-fail; they are too big to governed.

I'll finish a piece about Gold in a separate post as the editor formatting is messed up, and I don't know how to correct it in Google Blogger.

Wednesday's Musings

I suspect my quant friends in NY think I'm naive (maybe even uninformed).  Ah well, I've made a considerable amount of money in the gold markets the last few days.  If only that would happen all the time.  As I've told you, the Commitment of traders report (from the Federal Government) indicated that there was a wrestling match between Commercials and Funds.  So far the volatility of the Gold market (Yes there is a volatility index for gold) suggested that Funds were winning.  Well, unfortunately I cannot say I'm consistent in making money in precious metals, but neither am I selling myself to you as the guru to follow for the next whatever the new snake-oil gurus are spouting. For your information I trade in GLD [ETF].

Today is a risk-off day as all the currency (money) flow is into the $$$.

EUR -- As I look at CME report for today, EUR (6E) is down considerably.  However, Please applaud the European Central Bank for making it perfectly clear that they will not participate in the "active exchange rate policies" that almost every other country (USA included) has turned to.  "Active et al" is the so-called Currency Wars.

KIWI -- New Zealand on the other hand went into Lip-Flapping when Wheeler said: "When the NZ dollar is coming under upward pressure, we want investors to know that the kiwi is not a one-way bet".  In other words, he is dissing the Kiwi.  After his comments, the Kiwi tanked.  Here is the scoop.  As you know NZ is a export nation.  The Kiwi has booked at least a 1.7-2.0% gain against the $$$ this year.  Wheeler would rather that not be the case, and is willing to interceded to match the YEN's demise at least.

A$ -- The Aussie's are following along with the Kiwi.  More research is needed (by me anyway) to understand what is happening here.  China's numbers should make the A$ strong, but it is looking pretty weak, and could get taken to the cleaners.

G20 Policy:  BLAAAHHH...  The G20 is could not tell the difference between currency wars and cheapening of the currency to stimulate the economy.

YEN -- Well, today not so much discourse on the YEN as Japan's Trade Balance. As the older readers will recall, Japan's trade balance has nearly always been very strong -- nearly always a surplus.  In 2012 it is showing deficits, and the January trade balance was a record 1.7 billion dollars (1.63 trillion YEN).  Japan is between the proverbial rock and the hard space.  On one hand the weaker YEN will help exports. On the other hand, it will make imports more expensive.  Remember the earthquake?  Well it took out the nuclear plants, remember?  That means that Japan has to import way more fossil fuel to manufacture exports, and with the YEN so weak it is expensive.  (Read my note on Brent Oil and gasoline -- these things are related in the global economy and especially for Japan as it has to import every single bit of Oil.  Then relate this also -- The South China Seas conflict.  Why?  Because there is a huge Oil field sitting under the Ocean there, and China wants all of it.  On the other hand Japan and the Philippines have historical claims to those uninhabited islands.  No one cared about all that until the Oil field under the South China Seas was discovered.  -- See what you can learn from Zeb's blog?)

Pound Sterling -- The pound is in trouble.  Outgoing Central bank government has garnered votes to pass for more Quantitative Easing.   The currency traders said hey -- great -- let us sell sell sell...  This is a war on currency -- not so much currency wars.  It could (but maybe not) also become a war on bonds and debt.  I hope not, as I love to visit England and I have many British friends. We need a map, gentle reader.

• Lord Melchett: “Farewell, Blackadder [hands him a parchment]. The foremost cartographers of the land have prepared this for you; it's a map of the area that you'll be traversing. [Blackadder opens it up and sees it is blank] They'll be very grateful if you could just fill it in as you go along. Bye-bye.”– From the English comedy series Blackadder (Part 2, Episode 3)

Brazilian Real -- The emerging markets are strong.  (These are known as the BRICS - Brazil, Russia, India, China and South Africa).  Brazil's central bank very much wants to drive the currency price down.  Will it be able to do so?  Probably not, but they may be able to manage slower appreciation.

I often make a comment on stocks to watch.  Since I'm not an investment adviser, I'm not making stock recommendations.  However, I hate hot tips from investment advisers, talking heads and friends at the bar.  So, I will talk about safe, long term world class companies.

Since I'm an ex-computer nerd, I think about technology companies.  Some like Cisco, I did work with directly particularly in OSPF algorithms (years ago).

CISCO -- Recently reported sales were up 5% over the same quarter last year.  Earnings were up 6.2%.  What I want in a stock is consistency in profit margins, cash flow is beyond good, and the Balance Sheet is a moat against tough times.  CISCO -- margins are consistent year-to-year (exception right after the Internet bubble, but this just supports the fact that they have a balance sheet to weather storms).  Cashflow -- up 8% for six months -- about $5.3 billion vs same period last fiscal year  Balance Sheet $43B in cash and investments and $16.6 billion in debt.  It could pay off its debt twice over and still have billions of dollars in cash.

I have a newsletter (for friends only) that I would suggest CISCO will go into our portfolio as a dividend producer and a good producer of income.

Here is something for you Windows 8 users.  Does it annoy you that you cannot restart your computer from the desktop?  Does it annoy you that it boots into that horrible windows thingee instead of the desktop?  Where is my Windows 7 desktop I want to know?

Well, I built two buttons to go on my desktop in order to reboot (or turnoff) my machine and display the desktop without going into that horrible windows thingee (oh gentle readers if you like that horrible windows thingee that comes up, please accept my condolences.  What do they call those things now? Oh yea, charms.    Good Grief, and to think I worked for MS once.  What do you think I am a believer in Leprechauns?

Here is a link that will tell you how to do this.  I wrote my buttons in C#, but you can write a batch script that does this without any programming.  http://www.techrepublic.com/photos/shutdown-windows-8-right-from-the-desktop/6396886?tag=nl.e064&s_cid=e064

Until tomorrow -- have a great day.  (And remember to give your teenagers a hug and tell them you are on their side - no matter what.  Hug them even if they don't want it.  Hugs are good...)

Tuesday's Musings

I'm not inspired to write much today.  Of course there is lots to take into account, but I'm out of ideas to share with you.

YEN - The only interesting thing that occurred over the weekend is that the Japanese Prime Minister and the Finance Minister are not on the same page.  One says to buy foreign, the says Japan should not buy foreign bonds.  That will usually hammer a currency, and the YEN did drop.

EU -- It is not going to breakup any time soon, and so all of you that are sure it is going to break up -- get over it.  Do they have troubles?  There is no doubt.  However, for now there is every indication the EU has stabilized.  However, be careful about investing in the EU, as the economic indicators still show that they are in a recession, and only the governments political leaders have NOT admitted it.

Gold - Silver -- The commercials are reducing their short positions. Their short positions are about 1/2 of what they were in October 2012.  Look for Gold to begin to bottom here, but as I stated in my newsletter, funds are going short.  The bottom, however, does not usually come until Commercials have reduced their shorts to around 100,000 contracts.  So, now is the time to watch -- not invest just yet.

• As long as the world remains fairly stable, the wrestling match between commercials and funds is at a stalemate (more or less).  

• How much do you relate gold to the devaluation of the currency?  If you do relate the two (ignore what currency vs gold as they all are devaluing, except the Renminbi, Norway and Sweden) then why is gold going down?  Imports from India in January surged 23% from a year ago. Central banks around the world are buying gold, even though they all (except Russia and China) agree that gold is an archaic form of value and does not represent money.    

• Did you ever contemplate Democracy and what its weaknesses are?  Democracy is about the "crowd" rule.  In a crowd, however, people rarely act rational or do the correct things.  "The Crowd" by Gustav Lebon reveals that groups of people can be moved to action that they would never consider taking alone.  When people get lost in the crowd they can become convinced of the truth of the message.  

• This same behavioral observation is true of investors as well.  In our times, the mass media (radio, newspapers, television, Internet news) are able to exploit the crowd without ever having politicians rent a huge stadium to sway the populace.  The gold crowd (me included) fall into this trap, and we must be especially careful to weight why precious metals are going down.  To break from the gold crowd (if one is in it) becomes heresy, but it is necessary if wealth appreciation is your goal.

• What may be correct to point out is that the price (in US $$$) of gold can turn any moment, and in a few days skyrocket due to wars, terrorist attacks, US politics, inflation out of control and any number of other situations.  

In my newsletter and portfolio allocation, I've recommended having only a small part of your investment portfolio in gold.  Buy some gold coins for a rainy day.  One never knows.  When buying coins, don't worry about the price of gold unless you are investing in gold for appreciation as you would any other asset.  Remember, Gold like currencies can be very volatile, and the price can be driven by no more than political lip-flapping.

Allocate your assets wisely, and use compounding to your advantage.

Have a wonderful Tuesday.

Monday Morning Musings

Top of the morning to everyone!  It is good to be alive and kicking.

Today is a holiday in the USA.

Some of my readers do not like it when I say the US is moving to Central Control by the Executive Branch and a Welfare Economy.  But with President Obama circumventing Congress on almost every issue that is Congress' responsibility, what can you call it?  In the NY times today, there was an article about Obama Administration's draft plan for Illegal Immigrants.  The plan was sent to officials in the government agencies that deal with immigration and border security, but it was not circulated to Congress before hand.

As Congress heatedly pointed out, this plan was not the prerogative of the Executive Branch.  Now the Whitehouse has backtracked saying there was no attempt to circumvent Congress; although there is only one instance in all US history where a "plan" of this magnitude was sent to the department bureaucracy where Congress was responsible for the plan but the plan was not voted on.

Here is the key: Denis McDounough (top White House aid) indicated that Mr. Obama has been working on immigration legislation in anticipation of the renewed push expected this year.  McDoungough indicated that if the Republicans did not cooperate and present a bill and reach an agreement with Democrats, everyone would find out what Mr. Obama wanted.

All this points out is that President Obama's second term is showing that he wants to polarize the country more and more, and is willing and able to circumvent all the 100's of years of safety circuits of the US constitution.  Politically, this drives another wedge in the cooperation between parties.

No worry though.  President Obama is not circumventing the constitution; nor planning to circumvent the constitution; nor trying to remove several amendments of the Bill of Rights.  No sir, don't you be saying that, or our own form of the KGB/Gestapo will visit you to show you the error of your ways.

There is not much or a whole lot going with currencies, depending on your view.  The Dollar is climbing, albeit giving back some of its gains from overnight.

Gasoline and Inflation:

OUCH! Gasoline prices are surging at the pumps as AAA's Daily Fuel Gauge Report jumped to an average of $3.60 at the pump.

Have you not heard that the US crude oil is production is booming?  The US pumped 7.06 million barrels a day in the week ended Feb. 8 up more than 21% year-over-year.  Haven't the gasoline companies (oil companies) received the good news -- more supply?  Is this one of those exceptions to the rules of supply and demand?

We have an abundance of US crude, but gasoline prices are up more than 12% in less than two months.  OUCH AND OUCH

Well, one of the things that explain this (in a way) is that gasoline prices are not driven by US and Canadian oil production.  It is International Oil that matters.  Most of the gas comes from imported oil that is refined.  Brent Crude Oil is rising.

http://www.bespokeinvest.com/

As one can observe, as Brent climbs, so does the price of gasoline.  One of the main reasons for this is the Saudis.  They are pumping a lot less oil, and all of OPEC is producing less oil.  Maybe some of my readers understand the consequences here, but if the only 2 things your country produced (Oil and terrorism) would you not want to withhold supply to drive prices higher?  Particularly as new oil production is beginning to make inroads into your old supply chain?

Look for investors (and politicians) to get worried if gasoline hits $4.00 a gallon again.   

President Obama is sitting on a bill to approve the Keystone Oil pipeline.  There were major protests last week and Sunday in the US against this pipeline. Canada on the other hand has made it clear that not signing this bill would be regarded as an un-neighborly act and could bring retaliation.  The Sierra Club has communicated directly with the White House (whom was undisclosed) suggesting they veto the $7B project.  This was/is based on the Sierra Club's assessment that the Canadian Oil sands have adverse effects on the global climate.

Environmentalism and Global climate were key platform items of President Obama's last election.  This is a very difficult problem for the US/Canadian relationship, the US economy, and Mr. Obama's personal and highly visible backing of the environmental movement.  Normally, the Keystone pipeline prerogative would be the State Department's, but President Obama himself will decided this.

Tricky political problem for Mr. Obama that may (or may not) get the media attention.  The reality is that everyone involved (Congress, State Department, Environmental groups backing of the President, and sadly the Canadians) have defined the stakes in such absolute terms that it is improbable to see a compromise.

Any Good News?  

1. US Crude imports have fallen 5.9% this year.  
2. US met 84% of its energy needs in the first 10 months of 2012
3. US per-capita oil use is dropping substantially.  The drop was way outside expectations.  Why?  part of it is efficiency gains in autos and all large consumers of Oil and America's aging population is driving less.
4. Canadian Oil is providing more and more of our import needs, replacing unstable partners (meaning partners that hate the US) such as Venezuela.  Canadian oil (at least for now) is a great bargain.  It sells at an even-bigger discount to Brent than US oil.  
5. The more energy efficient the US becomes, the more likely gasoline prices will move with US oil prices and diverge from Brent.

As usual, investment and economy are tied up with politics.  In the US (and the world) the media brings into the forefront only what the government wants them to high-light.  It will be interesting to observe how President Obama and the Democrats handle budgets, taxes, immigration, Oil production/refining, Canadian Pipeline, Social Security, and the ever present rise in health care costs.  

Wow... That is a huge set of problems for anyone and any nation.  

Stock Market this week...  

We are in a bull market - albeit fairly quite.  The commercials (banks and hedge funds) were buying for the last three weeks, and their signals have a long life during bull markets.  The commitment of traders indicates commercials (on the whole) have been buying since April 2012.  When there is a "dip" in the price of the S&P 500, they buy some more.  However, mutual funds within the stock index sector are currently opposed to commercials, creating some doubt in the short term.  Also the sentiment of traders is also falling.

Funds are trend traders, and when they sell it is not a good sign.

This all urges trader care.

Also review the Nasdaq.  It is not leading the other indexes.  That is also a short-term negative sign.

GOLD:  Watch out -- commercials are buying, and Funds are selling according to the commitment of traders.  This is an interesting wrestling match between the two here.  If Gold should break 1527 (and it is a long way from that) then the funds will have won, and gold could really take a beating.  Generally, gold is indicating that if the global economy keeps growing with low inflation, the traders and investors have no fear.

Gentle reader: Do not be trapped into thinking that everything is all right by these moves in gold.  In March the US has to deal with the debt and the budget.  Gold and VIX are indicating it will be solved, but if it is not, watch out for VIX to skyrocket and gold to also reassert itself.

Silver is not providing any indications what is going to occur either.

Until the next time, have a great Monday...

Friday's Musings

1. The stock market refuses to go down.   When the market is bullish, it goes up, and most bad news is discounted.  Gentle Readers, there is a huge huge amount of cash on the sidelines that is waiting to be invested.  Where is it going to go?  With six straight weeks of wins (and very likely seven after today), this is now the longest winning streak to start a calendar year since 1971.  Short term the market is way overextended.  Everyone (including me) is uncomfortable with this kind of move.  One thing we know, the market will correct at some time, but "when" is the question.  Review my last Sunday's blog.  What should we do?
1. Wait patiently in cash if not invested.  Cash is a decision, and an investor will always have lots of opportunity to invest.  Be comfortable is a terrific mindset to have.
2. Within this mindset is to keep a view toward technical analysis. What is riskier?  A market at the top? or a market that has corrected and value starts to appear in the best assets?  
3. President Obama's State of the Union was polarizing.  The divide between the parties is growing wider, and the non-conformation of the Secretary of Defense only widens the gap further. 
4. Watch the US Dollar Index (DXY).  When the dollar index is trending higher, that puts pressure on the overall US stock market (and stocks world-wide).  If it trends lower, the market usually continues to rise. (Please note:  This depends on the kind of market we are in.  With a strong bull-market that is relatively low in volatility, following the dollar provides insight. Let the VIX increase above 20, however, and the market and its interrelationships change.  For now, if the dollar index breaks below 79 that will provide a huge bullish catalyst, and much of that sideline cash will drive the market higher.  
5. Watch the long-end US Treasury Curve specifically the ten-year treasury bond (TNX) and the ten year note (TLT).  The Federal Reserve has been aggressively buying long dated treasury bonds as part of QE in order to keep interest rates lower.  Within the QE scenario, as bonds rise (interest yields down), it is positive for the stock market, as investors (long term traders) are looking for yield.  If ten-year yield breaks out above 2.1% that should be bullish in that money is flowing out of fixed income assets and rotating into equities. If ten-year yields fall back into 2.0%, then remain very patient. 
2. The dollar is appreciating this morning (DXY).  Since 2/1/13 the DXY is moving up strongly.  All the currencies (except the YEN) are moving down.   Germany's Bundesbank President Weidman said overnight that "one cannot say euro is seriously overvalued".  Draghi chimed in with "real euro exchange rates are around their long-term averages."  That provides verbal support for the Euro at this level. 
1. Why is the YEN going up?  There is no real reason except for the comments a few days ago from the finance minister and others in Japan that I reported several days ago.  
2. It is possible FOREX traders are covering the shorts as one can never tell what may come out of the G20 meetings now going on in Moscow.  As I reported, Russia in particular is harping on producing policy that would limit currency devaluation.
3. In the UK, January retail sales fell for the second consecutive month.  The media blamed it on the cold and snowy weather in January.  The outgoing Bank of England Gov. Mr. King was worried about inflation.  His replacement had better worry about the economy contracting than inflation accelerating.  
4. In Brazil... Yes Brazil is an important economy in the global market place.  The Real has been appreciating, which is surprising given their action on driving the Real lower.  The Real is pretty strong all of a sudden.  And then Brazilian Finance Minister Mantega said last night: "we will not allow for an over appreciation of the Real, and we won't tolerate abnormal fluctuations".  If you watch the currency markets, you eye and ear will become attuned to this kind of lip flapping.  Inflation is running way above targets in Brazil and has been for two years. Mantega also committed to fighting inflation last night.  [ http://www.bloomberg.com/news/2013-02-15/mantega-says-brazil-won-t-allow-currency-to-over-appreciate.html ] They will have a tough time weakening the Real this time if they continue to fight inflation. However, be aware that Mantega is signaling he is willing to weaken the currency in order to keep appreciation under control.  Currencies are interesting are they not?  
5. The Canadian dollar reached parity (briefly) with the US dollar yesterday.  The Bank of Canada would like to raise the interest rates to squash the housing appreciation in Toronto, but Alberta specifically and other provinces still need accommodative rates.  There is little (if any) reason to move up or down.  If Oil increases in price, so will the Canadian dollar. 
6. Sweden and Norway (specifically Norway) would love to raise rates.  However, how do they do that without their currency heading toward Pleides? That is a problem for them, but if you were Governor in that strong an economy, would you not do something to manage the housing appreciation and inflation?  
7. The Indian Rupe has fallen on difficult times again after a very strong run-up through last month.  

Thursday Musings

Good Morning... I'm watching the stock market this morning, and I suppose the thing that is driving it higher (and higher) is the news that Berkshire is buying Heinz.  Our new Secretary of State, John Kerry, should feel much wealthier this morning.  

I cannot help but share with you my thoughts on artificial intelligence and robots.  As you may know, IBM built Watson (a set of computers that worked together) to compete in Chess.  If you are a Jeopardy fan you will recall that the IBM supercomputer crushed the humanoid competition.  The original Watson was fairly large as it consisted of 90 IBM 750s and took up 10 full racks of space (created lots of heat).  It had 3,000 CPUs and 15 terrabytes of RAM.  Recently, IBM showed a new Watson, that can fit in one rack and is 240% more powerful (in petaflops - Cray against IBM/China) than the 90 750s.   Wow...

Then we can read on IBM's web site about entering into an arrangement to apply Watson's expertise to the medical field.  The institute will provide giant amounts of medical data, and Watson will provide suggestions to doctors on possible treatments.  WellPoint writes that doctors miss early state of lung cancer about 1/2 the time.  Watson, however, provides the correct diagnosis on the same cases 90% of the time.  Oh and by the way, the results are delivered to the doctor's iPad in about 30 seconds with possible treatment action sorted by confidence level. (You gentle reader will recognize this approach when you use Google for searching where you get the highest confidence level response first - unless someone pays Google to be placed higher on the search results -- which I hope does not happen with Medical).

There will be a huge number of new consumer facing applications coming based on Watson's compute power and AI.  Privacy?  What privacy?  http://www.extremetech.com/extreme/148220-ibm-makes-watson-the-size-of-a-pizza-box-starts-offering-cloud-access-to-doctors.

Oh course I could not help but think of ObamaCare.  Maybe all these robots will bring the Medical Costs down.  Robots will happen, but the Insurance companies, HMOs and all the other medical consortiums lowering medical costs  - NEVER HAPPEN...

The medical field is totally out of control on every level, and as far as I'm concerned it is because of Insurance companies and the elimination of the fiduciary relationship of the human doctor with human patient.   For those of you that are wealthy, you may not observe the problems, but we continually fight the problem of the doctors asking for tests and the hospitals coding it incorrectly to make us pay instead of the insurance company. (Medicare in the case of our parents, insurance for our employees and so-on.)  Or even more frustrating is the doctors being graded on how many tests they recommend and being disconnected on whether the patient can afford that or not.  There is a total disconnect between doctors, how they understand (or don't understand) billing, and the patient's deductible.  If you are fairly wealthy, the amount you pay (say $1,000 for a colonoscopy) is not much of your earnings.  But if you earn $40,000 per year and have 2 kids and covered by Obamacare, and you have to pay that $1,000  within your deductible it hurts big time.

By the WAY -- news

1. The big news -- Germany 4th QTR GDP contracted ( -.6%) and the rest of the Eurozone was even weaker.  And then this morning a small-brained lip-flapper, VP Constancio ECB, "negative interest rates are a possibility.   No decision has been made."  Result - Euro got taken to the woodshed.  That kind of lip-flapping was out of left field and totally unexpected.  Negative interest rates are unlikely to happen in my opinion.
2. The G-20 meeting is going to cause lots of consternation over the Currency Wars.  Russia is making more waves than most over some kind of policy to police the devaluation of currency. Well, who knows.  I think Germany's economy will improve this year, but real economists will point out I'm wrong.  However, those are the same economists that call for the collapse of the Euro and the breakup of the Eurozone.  They forecast-ed it would happen in 2012.  Just saying...
3. Japanese Yen is now the whipping boy.  For years no matter what the Japanese attempted to do to drive the currency lower, it went higher.  Well, everyone seems to want to short the Yen, but it  has stabilized temporarily.  
4. The Chinese are moving to widen the distribution of their currency.  For those that have read my newsletters (not this blog), this should come as no surprise.  Banks in Hong Kong and Taiwan are now offering deposit accounts in renminbi / yaun. 
5. Look for the New Zealand dollar to appreciate as their PMI (manufacturing index) increased substantially.  Also their consumer confidence has increased.  Of course the Kiwi took a jump, and then some profit taking overtook it.  A very impressive move overnight I can tell you.  
6. By the way, currencies have a tendency to trend regularly.  For short term traders, you can use ETFs to trade currencies, but warning: you need a very good money management and risk management approach to be at all successful.  Also, lip flapping can move currencies exactly opposite of the trend, creating high-volatility.  I would not encourage anyone to trade in the FOREX market directly.  Leverage is very high, and lip-flapping can cost you a fortune in the blink of an eye.  

Let me opine something that could be disturbing to you.  The currency wars are real, and it is all about nationalistic policies to provide markets for goods (and employment for the citizens).  [Read that again if you don't understand.  The political belief is that if you devalue your currency, your exports will be sold increasing jobs.  The Labor Unions all believe this, and they push for lower dollar value and protection all the time.] This war in the Western countries has become about maintaining the banks at all costs.  This results not in real employment, but beggaring the middle-class.  It is about "POWER".  It is about China wanting to regain their historical role as an economic powerhouse, and that China (and Russia) know that gold is sovereignty and power.  The Western nations Central Banks believe gold is archaic and really worthless:  that the rules of currency supply/demand no longer are applicable.  I mentioned Russia yesterday.  Well, China and Russia (Iran and others) on one side, and the debt ridden Western Nations on the other.  (Israel and Tawain beware, and if you think about that beware statement, then Israel, until Obama, had really only one ally -- the USA.)

Gold, Oil, water and the success or failure of the Yaun as a reserve currency is the only game that matters in the struggle for Global Power.  As investors we can only step back and accumulate what the powerful desire -- which leads us to energy and precious metals.  They will have intrinsic value in whatever comes next.

Fiat currencies can deteriorate overnight, and until I started following currencies (and bonds) to understand the economics of countries, I did not realize how quickly a country could get into trouble.  The US dollar is in the race to be the ugliest currency in the ugly race to the bottom.  For 90 years it has depreciated slowly, and it has accelerated downward very rapidly in the last 10 years.

Good day to all...

Good Morning

1. Is everyone trying to call a top?  It seems like it, and that I'm not the only one to say be careful.  Basically I have no idea if this is a top or not.  We can observe that the US posted its first surplus in January in many many years.  Calling a market top is nearly an impossible task.  If you listen to the talking heads, many are calling for a market turn down, and if it does turn, they will proclaim their greatness. As I've stated, long term investors should be very cautious in making long-term investments until the song-and-dance in March is resolved between the Congress and Obama.  Short term traders should follow the trend within their time horizon.  For long term investors, avoid calling a top, but practice discipline in money management.
2. President Obama in his State of the Union address, spent most of his time talking about the poor health of the US economy.  President Obama is very good at delivering a speech, don't you agree?  However, he provided no funding plan for all the programs he wants to enact.  If you want to compare (which I'm sure you do not), study Venezuela since Chavez became president.  I promised my best friend in NY that I would avoid making this a political blog.  It is not a political blog, but Economics, investing and politics are tied together.  In order to make sense of the "big" picture", one (me) has to have an opinion of what the political agenda means to the global economy, the US economy and all the other economies since the world is very interrelated economically.
3. The surprise budget surplus pushed the dollar higher against most currencies yesterday.  The report showed a surplus of $2.88 billion, and we have not had a surplus in January since January 2008.  The Congressional Budget Office is forecasting the deficit will drop to 5.3% of GDP during the fiscal year ending in September 2013.  They are also forecasting growth, and the deficit will continue to drop through 2015.  
4. The big problem is debt the US is holding as a percentage of GDP, and this figure is being forecast to continue its climb.  According to the Economist magazine, publicly held debt as a share of GDP will grow to 87% by 2023; whereas it is currently at 73%.  THE PROBLEM IS INTEREST.  And if you worry about such things, if the interest rates blip up even a little, the interest amounts will grow exponentially.  That is why Yellen was trying to calm any discussion about easing up. Gentle Reader, just what do you believe will happen if the interest rates double over the current rate?  Is that possible?  
5. Goldman Sachs retail sales numbers were not good.  These economic reports are important.  You can find a list every day at http://www.forexfactory.com/ that provides the reports across the world.
6. It turns out that the statement by the G7 on currency devaluation had a calming effect on the market.  Some lip flapping by an unidentified finance minister of the G7 said they were concerned about the excessive moves in the Japanese Yen.  BOE (England) Mervyn King said currencies should be allowed to fluctuate based on monetary-stimulus measures.  All this bru-ha-ha whipsawed the Yen yesterday, but the Yen ended up lower.  Tomorrow the BOJ could increase the pressure on the currencies with the release of their monetary-policy decision.  
7. As you know, Mark Carney  is leaving Canada to take over at the BOE.  Mr. Carney wants to keep the possibility of additional stimulus in the UK open even though inflation is beginning to show.  The pound sterling came under selling pressure as investors question the success of the current stimulus measures taken by the BOE. The UK economy is less than robust even after all the efforts to stimulate the economy.  Mr. Carney also has called on the G20 finance ministers to refrain from targeting exchange rates; specifically calling out Japan's currency policy.  Carney wants the G20 (meeting in Moscow this month) to expand on the G7 statement.  
8. The Canadian dollar had a good day yesterday.  It helps the Canadian $ when the price of Oil increases.  Crude Oil has climbed for the last 3 days, and traders in London (specifically) have been saying they are more confident in the US economic rebound.  The traders, realizing this, have bought both Brent and Sweet Crude.  In addition, US oil stockpiles slumped last week, and OPEC revealed that supplies will need to be boosted 100,000 barrels a day in order to meet current global demands.  This will help Canada's currency and the Norwegian Krona.   
9. Where is inflation headed?  It is important to have some precious metals in your portfolio in order to hedge against the possibility of inflation.  Bloomberg is reporting that inflation in the US is moving higher, while the price of gold is stable to lower.  If gold catches up, then gold (and silver) will be a good place to have part of you portfolio.
10. Remember, gold (if you buy any at all) is a long term investment.  The ROI on gold for the last 2 years is not good, and any stock market index (except China's) beat gold and silver.  However, the natural enemy of Central Banks is GOLD.  These banks want to make sure gold price stays low. Russia and China are the wild cards, in my opinion. Watch what happens in Russia now, as they buy more and more gold to hedge against the fall of the US $.  Putin is playing another game to control the world other than the game he played as part of the KGB under the Communist Regime.  Ultimately, he will have to move Russia even closer to China as Russia's #1 trading partner using Yaun and gold; not US$.  Interesting times... 
11. One Russian lawmaker, Evgeny Fedorov, laid out the strategy in simple terms. "The more gold a country has, the more sovereignty it will have if there's a cataclysm with the dollar, the euro, the pound or any other reserve currency," he said in a phone interview with Bloomberg.  http://www.dailyfinance.com/2013/02/11/russia-gold-buying-spree-vladimir-putin/

Tuesday's Musings

Good Morning...

1. As you all know, North Korea tested a nuclear bomb.  Normally this would cause a rise in gold and a rush to the US$.  It did temporarily last night, but the US stock market is up today.  The investors are getting numb I suppose to North Korea's antics.  Kim will probably do something awful here soon if everyone ignores them.  Obama's rhetoric was pretty strong this morning, but I would guess that Kim ignored it.  Most of the Asian markets were closed for Lunar New Year, and so we may get a different viewpoint tonight as Asian investors come on-line.
2. G7 released a statement pledging to avoid devaluing their exchange rates.  "We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates,"  Phooey... How will the finance ministers back their words with action when every single central bank is devaluing their currency.  Look for the "spin doctors" to explain to everyone how they are not devaluing their currency. Taro Aso, Japan's finance minister, said the G7 agrees that Japan is not devaluing the Yen, and the policy is only aimed at reversing deflation.  Hey what???
1. The truth is that most (if not all) the central banks are forcing their currency lower.  Ok, I've seen it argued that the laws of supply and demand for a country's currency are no longer in effect (or at least temporarily suspended).  I suppose then that the devaluation is just an "unintended consequence" of fighting deflation.  
3. Did you read my sentence about Janet Yellen's upcoming speech yesterday?  Yellen signaled the Fed will continue their easy policies even after the unemployment target of 6.5% is reached.  She suggested the Fed could sustain easing beyond the end of its bond buying by continuing to hold interest rates near zero.  Yellen and Bernanke are trying to calm the investors and traders fear of an abrupt end to easy money.  PROFESSIONAL TRADERS INVEST ON EXPECTATIONS.  Just a hint in dropping easy money could send the markets into a tail-spin.  However, Yellen's speech seems to show the conflict between her and James Bullard of St. Louis Federal Reserve.  He suggested recently that the Fed could "throttle back" bond purchases sometime in 2013.  
1. Yellen also supported Bernanke's warning that deep cuts in fiscal spending would be devestating to the stock market.  Hey, you can expect this from Yellen as one of her best friends is Nancy Pelosi.  Dear Nancy certainly shares the view of spend, spend, spend...  
2. Nancy Pelosi:  Did you observe what she said recently?  She said that Washington D.C. does not have a spending problem.  What?  Being out of balance to the tune of $6 trillion is the past 4 years of Obama's regime is not a spending problem?  Folks, try running your own finances that way, and observe if the banks and creditors don't think you have a spending problem.
4. Swiss Franc slipped yesterday against the Euro.  The central bank said it will take steps to prevent the Swiss Franc from further appreciation.  Ah, the poor Swiss... French President Hollande wants the Euro to "devalue" (remember he is part of the G7).  Ah, the politician vs the G7.  
5. Mexico is showing signs of a slowdown.  Production fell 1.1% in Decmber from a year earlier.  That caused the Peso to drop to a one month low.
6. Hey Canada, what is happening?  You were doing so very well.  The Canadian economy is slowing, and they just booked a 9th straight month of trade deficits.  They have revised their economic growth downward as well. 
7. Desperately seeking growth:  Robert Gordon, Economic Professor at Northwestern University...  Mr. Gordon did a study which found that on an average there are six different constraints that reduce the annual US GDP by .2%.  1. Demographics, 2. Education lags other industrial nations in reading, math, and science 3. Income inequality - middle-class is disappearing and jobs being created are in the "poor" 4. Globalization - jobs are shifted overseas or are being automated in the US.  5. Environment - the carbon tax acts as a drag on economic growth 6 Massive household and economic debt -- paying on debt is not productive for economic activity, and many people and the Federal government are not making headway because of interest payments (he is referring to state and local governments more than the Federal Government).
8. Read this http://www.bloomberg.com/news/2013-01-16/davos-pitch-for-dynamism-rams-into-end-of-growth-debate.html

Nancy Pelosi obviously does not agree with Mr. Gordon.  We do not have "no stinking spending problem" (which I assumes we don't have a debt problem either).  

As the market is rising, be aware (as I said Sunday) the risk is increasing that a correction will take place.  We could easily see a 40-45 point pullback in the S&P 500 as the S&P tests 1520.  Therefore, I strongly suggest to hold any longer term investments until the market provides a better viewpoint of the trend.  Short term traders will position themselves for trades both ways - long and/or short.

Right now the Gold market and the stock market are not providing clear indication of reversals, even after the North Korea bomb testing.  Remember, being in cash is not a bad thing in low inflation or deflation.  

Monday's Musings

1. Currency trading was moving toward the US dollar again on Friday.  Did you realize there has not been a down day in US currency in Feb.?  The Euro continued to give back some of the January gains, due to "lip flapping" by Mario Draghi.  Watch out for the US dollar at this point.  The fund (large traders) were selling all last week according to the commitment of traders.
2. Janet Yellen is Vice Chairman of the Federal Reserve next to Bernanke.  She is extremely dovish, and her speech today is expected to provide the viewpoint that more stimulus is needed.  By the way, the odds are for  her to become the next president of the Federal Reserve to replace Bernanke.
3. The crises in Europe is just simmering.  Spanish bond yields are moving higher after reports of corruption in the ruling party.  Cyprus (the European side vs the Turkish side) will need a bailout according to the Financial Times in London.  They will need an aid package to match their economy (about 18 billion Euros). Will Cyprus default?  They may if Mr. Draghi cannot concoct a bailout plan. If they default, then the worry is that will create more pressure on Greece, Spain, Portugal and Italy.
4. Nordic countries are doing very well thank you.  Norway is signaling they will raise rates to combat a new wave of inflation if it becomes a problem.  They have stated March to raise rates if inflation increased in January.  Norway's oil exports provide solid footing, and a raise in interest rates would be positive for the Norwegian Krone. There is a good article about Sweden in the Economist.  A very good article.
5. The UK's pound sterling weakened after UK employment confidence declined in January.  The pound has been weakening against the Euro giving up nearly 4.8% of its value against the Euro.  On the other hand, the trend is up against the $$$, and it gives the bulls in the US / pound a slight edge.  
6. The US trade deficit narrowed for December.  It narrowed to $38.5 billion which was much narrower than expected.  January's figure was unchanged.  This is almost assuredly due to the weaker dollar.
7. Bloomberg reported today that China has surpassed the US to become the world's largest trading nation in 2012.   Interestingly, Chinese consumers have emerged, and the import rate is growing much faster than the export rate.  Other articles related to the Bloomberg article suggests that Germany will export more to China by 2020 than to France.  Slowly, the Chinese Renminbi will overtake the US dollar, and probably replace the US$ as the reserve currency of the world.  As far as the common man can observe, this does not concern the Federal Reserve or the Obama administration.
8. There are several interesting articles in the news about how the US citizen is becoming a socialists.  http://www.nytimes.com/2013/02/11/us/politics/in-montana-young-liberal-and-open-to-big-government.html?nl=todaysheadlines&emc=edit_th_20130211&_r=0  Within that context, Venezuela is an interesting case study as their budget deficits tripled last year as the Chavez administration went on a spending spree.  Sound familiar US? The day's of freedom are past as the Federal Government takes over and the young people back a socialist regime.  What is not clear is how the Federal Government expects to pay for this?  The Republicans are useless in combating the problem, and the Tea Party has been isolated by the good 'ole boys in the Republican party.  
9. In the stock market, the commercial category from the commitment of traders indicates commericial's are buying.  Large fund traders are trend followers, and will jump on board here until commercials reverse their position and start to liquidate for profits.  There is critical resistance at 1600 on futures as price approach the all time highs.  This is a precarious market for being long for the investor.  See post below...

Musing on Sunday

“The greatest triumph of the banking industry wasn’t ATMs or even depositing a check via the camera of your mobile phone. It was convincing Treasury and Justice Department officials that prosecuting bankers for their crimes would destabilize the global economy.”
-Barry Ritholtz

I will return to the currencies on Monday, as I learn more from tracking curencies than anything else.  I also track world indexes -- just because.  OK, they go right along with tracking currencies. 

As of Friday's close of the 8 world indexes I track, six of the eight were losers.   China and the US gained slightly, while France, Germany, Hong Kong, UK and India lost more than one percenage point.  None-the-less, The Shanghai (China), while the best performer for the last several weeks, is in bear territory - 20+% decline from the high in 2009. 

Over the last 200 days, Nikki is the best performer. 



I would suggests this means we are in a bull market, that is actually rather quiet - where volatility and volume are low.  The bull market in stocks continues to be across the global economy.

The question becomes "when" do you buy?  (or sell)?  There is a "truism" among retail traders: "when the market rises, all stocks are lifted on the tide".  And the opposite: "when the market falls, all stock values fall". 

Fine, but like all truisms, this is hardly helpful to know "when" to invest.  What we can conclude is that "buy low, sell high" is another truism that is very hard to implement if one asks "when". 

For short term traders next week, the market is bullish. Just follow the trend, and be very cautious about shorting any stock or index.  For long term investors, however, the current market is very precarious.  The better part of discpline may be to wait for pullback, or even better wait in cash until Congress and the President of the US work out the budget and the debt limits in March/April.

WHEN? for long term investors

There are two technical indicators (for the greater US market) that can assist in answering "when".  This is $OEXA200R on stockcharts.com, and bullish percent index, also on stockcharts.com. 

The reader can find articles about the intepretation of $OEXA200R on stockcharts.com.  Generally, the chart is showing 87% which is very high.  If the reader will watch this chart everyday, then look for the indicator to drop below 65%.  Exit all long positions at that point.  If this indicator goes below 50%, then we are in a bear market.  Do not go long.  Go to cash if you are a buy and hold investor.

To go long after a drop below 50%, wait for the index to go above 65% again.  Then look for MACD to cross with an upward slope of the lines.  If the reader studies this, she will be able to observe that the signals are very accurate for long term conservative trading.

The other "when" indicator for the long term trader is the S&P Bullish Percent Index. 



 

The reader may read about this indicator at http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:bullish_percent_inde

Chartcraft (where Cohen created this indicator) suggests that this market is getting ready to correct, and when a column of "Os" cross 70%, there will be a significant correction. If the reader goes back and looks at weekly (or monthly) charts and compares to this chart, she should observe that reversals in this indicator are accurate.  Also, the signals last a long time which is good for intermediate term (6 mo) traders.

So, going forward next week and into March the stock market investor should be very wary.  The short term stock trader should look to be long, and a short term trader would have to have very good reason to go short in any stock index or individual stock. 

I follow a portfolio allocation based on systems and risks.  I have a long term system that is low risk and built for income.  I have a medium term system that I use for 6 month to 1 year returns.  The risks are higher than long term.  I have a short term system (which I rarely use) that invests using options (no complex strategies).  I use a very-short-term system that is high-risk with high rewards.  It is high-risk because it is leveraged and uses binary options, futures, and other derivatives.  A very small percent of my portfolio is in very-short-term systems. 

Long term systems will not invest in anything presently.  Medium term systems will use covered calls in stocks and ETFs that track indexes.  I won't be using short-term systems this month as the volatility in the stock markets is low. 

Is the American economy faltering? Is the global economy recovering?  For the last 4-6 years, it is very difficult to tell, but one thing you can observe:

The Central Banks world wide have succeeded in driving the stock markets world wide higher and higher.  They have also altered the 4 year business cycle, extending the bottoms well beyond the norm. 

However, I learned long ago:

No matter what happens in the economy, there are always opportunities to make a return on your investment.

Now here is what I hear from all the news/articles/talking heads and so-on.  (These are my thoughts in summary)

1. The bull market in stocks is now going on 4 years.  That is slightly longer than the average trend. of 3.8 years.  According to InvesTech Research this is the one of the six longest bull trends in history.
2. The China bubble is bursting with ghost cities and overinvested capital.  (These are mixed signals, as I pointed out Friday China has printed some very good numbers and seems to be recovering nicely -- thank you very much.)  Richard Band of Profitable investing says China has a problem.  The demographics are terrible with its one-child policy.
3. The US debt is being increased by "tax, borrow, and spend even more" policies.  The challenge will come in March 2013 as the Democrats attempt to override, threaten and bully the Republicans into the tax, borrow, spend budget. 
4. Washington DC does not seem to recognize that raising taxes decreases growth and revenues in the long term. But don't worry, the VIX is not indicating they are afraid of what Washington is going to do.  The option traders were correct about the fiscal cliff: Will they be correct for March?  Watch very carefully. Congress will get things stirred up this spring.
5. The reported unemployment rate is ridiculous.  Who knows what the unemployment is due to corrections every single month, but the U-6 number from the BLS is 8.1%; not the U-3 number of 7.6-7.8% being reported.
6. The medium income of the US is falling into the swamp.  Tax revenues will go down as it falls.  But don't worry, the bureacrats will find a way to spin it all so that there will be a projected rise in taxes revenues (not collected) even as the middleclass disappears. 

For long term traders please review Sysco.  It has been beaten down, but its dividend payout is excellent.  Sysco just reported earnings, and sales were up 5.4% over last year's second quarter.  That was the company's highest sales ever for second quarter.  The earnings were down as they invest in new business systems to enhance productivity.  Free cash flow was also up, and dividends come from free cash flow.  They pay 3.5% at this point, and dividends have been growing successfully over the years.

While you think about Sysco, remember investors (v.s. traders): keep your eye on the big picture.  Stocks are in a precarious position for long term investors, and we could have a blow-off up with a huge correction down.  Look to "when" indicators to provide a hint. 

Until Monday, spend time with your families.  I learned far too late, that the your young ones are the most important people to you in today's and tommorrow's success.   Enjoy them while you can, and share with them love, caring and discipline.