Thursday, May 29, 2014

Good Morning America, How Are You?

Yesterday, I fixed my snowblower.  No I don't need a snowblower at this time of year, but now is the time to fix winter equipment.  I replaced the drive belts that broke when rocks got jammed up in the paddles.  I love it when I'm able to fix something, as I'm so inept mechanically.

It rained all day (off and on) yesterday.  My early blooming peonies are not happy, and what looked like a spectacular season for peony blooms has been most ruined.  I will have to look forward to the later blooming.  Iris are just now starting to bloom.  Is any one like me, in that the perennial flowers bloom spectacularly, but the bloom last too short of time?  I will plant marigolds soon.  They provide cheer all summer long.  There are so many things I like about marigolds. 

Summary:

1.   As you know, yesterday, the USA stock market set a new historical high and set a new historical closing price.  Disappointing news?  So what? 

2.   I'm sure you have read several explanations of why the market is moving higher, but the reasons for this move are all over the place.  Sell in May and go away?  That advice is looking like iffy this year.

3.   Apple is leading the markets again as it gained 1.8% yesterday.  In turn the NASDAQ is gaining in price after trailing the S&P 500 and DOW for all this year. 

4.   US Treasury 10 year note rallied for 2 hours, and then fell.  That increased the yield by one basis point to 2.46%. 

5.   Later today, I will talk about the low trading volume in the US equity markets.  Volume is very light, with the final tally yesterday being the lowest volume of the year. 

6.   Russia and Ukraine are meeting today to settle their gas dispute.  The EU of course is very concerned as Ukraine is the transit nation for half the gas Russia sells to the EU. 

7.   S&P 500 is reaching new historical highs.  Is the market overbought?  I will attempt to answer this in my newsletter.   However, at this point, most economic data is mixed.  You just cannot come to a rational conclusion from that data.  Technical data is also mixed. Specifically, sectors that normally lead a bull market are not leading, and defensive type sectors are leading.  But of course, then there is health care which is skying.  Small Caps are still lagging, and that is abnormal for a bull market, but who knows, maybe that will turn around as well.  

Thursday, May 29, 2014

Good Morning America, How Are You?

Bad day physically yesterday, and that is all I have to say about that.

I had a wonderful note from my Uncle and Aunt thanking me for research on asset allocation.  They are moving into assisted living quarters soon.  When I was in elementary school and high school, they assisted my grandparents in much of the external training I received for baseball and martial arts.  I am very fond of them.

Summary:

1.   The GDP revision for first quarter was a negative - 1.0%.  It was blamed on the weather.  The GDP should be bad for the dollar.  As of 6:00 AM PDT the US Dollar Index was down.  This is the first shrinkage in the US economy in years.

2.   Yesterday, the DOW Jones closed down (a very small amount).  As of 6:00 AM the DOW is in rebound mode along with the S&P and Nasdaq.  Readers, the news remains mixed on the economy.  10 year notes dropped sharply to 2.44%.  Normally that kind of drop (and rise in bonds) are on economic concerns.  However, DOW Transportation Average made another record high.  There are other concerns, however, about the economy including but not limited to lumber prices, probability of fed fund rate hike in July 2015 is decreasing, the underperformance of the financial sector  indicates were are late in the business cycle.  The DOW Transportation stands in contradiction of negatives.  That is noteworthy.
 

3.   Weekly Jobless claims fell sharply.  They were down 27,000.  The 4 week average is down sharply as well.  That should bode well for the stock market. 

4.   Corporate Profits however are down.  That will only slow the rise in stocks, I think.

5.   European Central Bank meets today.  They will announce minus interest rates (it costs the depositor money to deposit with the ECB).  It encourages loans.  There is not expected to be any other surprises.

Wednesday, May 28, 2014

Good Morning America, How Are You?

Yesterday I thought up a new way to thwart my pet Crow.  Yes, I have a Crow that is fearlessly unafraid of me.  I've never seen a crow that was fearless.  They always fly off when I open the door to my house at least to the top of the tallest tree when I'm outside.  I think it is a female, and she has a nest in my neighbor's fir tree.   She does not fly off, and I've walked up to a few feet from her.  So, I'm not resorting to blast cannons (as we did in California).  I hated those things, and there were ineffective on crows after a short period of time.  Nor am I going to shoot her (which may be a mistake ultimately - a mistake I'm willing to make). 

So, I made up a cover for my beds and will use bird netting.  Then she can run around my two acres of lawn eating whatever she is eating; instead of eating my beans, peas, radishes and whatever else is coming up.  I made the thing out of PVC, and anchored it with re-bar.  I'm going to use the same technique for broccoli and Cauliflower except for a different reason.  I'm going to use the same design to put shade cloth over the cool crops.   I had to buy PVC, but the total outlay was $9.00 for both structures - excluding the shade cloth which I expect to scrounge from my neighbor's greenhouse when she throws away last year's shade cloth.

Stupid me... I left the water on last night on my front yard.  At 2:00 AM this morning I woke up and remembered it.  I got up, sort of dressed, and staggered out to the farthest part of my yard from my house to turn the water off. 

The night was dark, and scary too.  I avoided this and that, but did stick my foot in a gopher hole.  Soldiering on, I made it through the vast darkness.  And then? A freaking coyote started yipping over at my neighbor's cabin (about 30 feet from my water valve).  I nearly leaped over the fir tree I didn't see.  May my sins not wake me up at 2:00 AM in the morning is all I can say about that.

Summary:

Did you have fun yesterday in the USA stock market?  I talk to so few people any more, but when I was working full time traveling between NY, London and Stuttgart, I found people were really upbeat when the market went up, and despondent when it went down.  That never made any sense, by the way, since most of the Quants I knew traded both directions (long or short). 

Somehow, though, even the pros feel better about the world when the equity markets rise.  Of course, Ben Bernanke called that a virtuous cycle where stocks rise, people feel better, and thereby invest (or spend, spend, spend). 

There is no real economic news today for traders (or investors) to digest.  On the corporate front there is plenty of activity, but we'll have to wait and see.  At 6:37 AM PDT, the market is making a down move, and VIX is making an up move.  I would not trust that if I was a day-trader.   The 2014 stock market is still in a "bull" market, and one can get hammered on the short side. 

I do not call direction of the markets.  All I can say, is early trading points to profit taking at this point.

The USA economy is improving; wait no its not; wait yes it is, and the data continues to be confusing.  Housing improved, and consumer confidence rose for the first time in months.  Yet something is wrong with consumer spending.

Retail Stores across the county are in trouble. Looking at some data that about.com put together the list of U.S. Retailers closing stores, going bankrupt and going out of business, just keeps growing.

Things like: 300 Blockbuster stores, 300 Sears, 225 Staples, 223 Barnes & Noble, 200 Radio Shack, 180 Abercrombie & Fitch, 175 Aeropostale, 155 Sbarro, 150 American Eagle, 150 Rent-A-Center, 145 Brown shoes / Famous shoes, and the list goes on and on.  

Hard from looking at retail sector that the economy is fine.  If so. They why all the closings?  The list is much longer, I just didn't have the space to deal with the list here.

Leave it up to the Italians.  The news is out on GDP.  The Italians wanted to improve their GDP numbers, so they announced?  -- ha -- they would be adding "estimated revenues from prostitution and illegal drug sales.  What?  You read that right - politicians at their finest I must say.   So if Italy includes the estimates, how will the tax revenuers collect?  The Bank of Italy (this is not kidding) says the criminal economy was 10.9% of GDP.  Contrary to popular belief, crime pays.  

  

Tuesday, May 27, 2014

Good Morning America, How Are You?

The buds on my peonies are about to burst on the early bloomers.  Oh yes; a joyous time for me every spring.  Yet my wife is the only friend I have, and I just have to enjoy her joy in the beauty. 

I planted tomatoes last week and Sunday.  Last night the temperatures just missed freezing (or in lower areas of my yard frost touched down but not in my vegetable gardens).   I knew I was too early, but I protected them with walls-o-water.  Hopefully they won't pout.

We harvested and ate Broccoli on Saturday.  Now all at once we have a large harvest of Broccoli we need to pick.

My gardens are so relaxing, and I need that after reading the news over the weekend. 

While I can't stand the liberal-Democratic agenda, I'm afraid the USA is going to follow France's lead in voting for extreme right-wingers. 

Today, I will mow lawns, turn compost pile, and do some weeding (if I have the energy).  I will forget the world's problems after I'm through re-balancing my investment portfolio for the month.

Summary:

The elections in Europe have not dampened the appetite of the investors for stocks.  Wow, the equity markets have move up strongly. 

Gold is being crunched.  Readers, there is little reason I can give for the fall off in price.  You can read how the Ukraine crises has lessened.  You can read how the Russian Ruble has fallen.  I wonder if the simple answer to Gold is US and European Stock Market.  As long as the stock markets go up, why would major amounts of money shift into Gold?  The purchasing of physical gold by China and India is not enough to drive it higher.  FUD (fear, uncertainty and doubt) will drive the price of Gold higher, but the traders and investors are complacent at this point.  

I was looking at the 5 largest banks in the USA - Assets and Owner's Equity were my focus.  I can't help recall 2008 when we were told by Barack Obama and Ben Bernanke, that these banks needed support because they were Too Big To Fail (TBTF).  Remember that?  

Today the 5 biggest banks in the USA are bigger than they were in 2008.  Meanwhile the Fed has printed $4 trillion during the last six years since the TBTF.  What do you think is going to happen in the next liquidity crises?  Can the Federal Reserve stop it this time?  They only stopped it last time with the help of Central Banks around the world coordinating.  The EU vote calls into question how the ECB (European Central Bank) would react to a call for help.  How could Japan possibly help this time?  And you have Russia (under economic sanctions from the USA) that has completely pulled the rug out of any attempt at peace and global trade cooperation with Russia.  

And China is no friend of the USA.  If China's agreements with Russia says China can continue growth, why would they, China, help global liquidity?  Would you think that the EU would make China insert liquidity?  If you said yes, then you have not recognized what China did by lending money to individual countries (such as Greece) through special bond programs.

The war drums are beating between the large countries, and the USA under the current administration foreign affairs are a disaster.  

Come on America: You have woken up after the Memorial Weekend to a new paradigm in Europe.  Your TBTF banks cannot handle a liquidity crises as they are large than last time with no more reserves irrespective of all your hype about testing them.  Your states are bankrupt, and many of your largest cities are bankrupt.  Your allies and friends inserting liquidity under the last liquidity crises are disappearing with the backlash against the NSA.  Your largest Bureaucratic organizations are out of control mostly against your own citizens.  HR 2847 and FATCA are only small examples of being out of control.    

We need to work together to attempt to remove the threat of neo-fascists being elected to control the USA. On the other hand, the current Administration is nothing but the middle-stages of Communism; such as what happen in China in the late 1920s.  Sigh... back to my gardens.

Friday, May 23, 2014

Good Morning America, How Are You?

I love Peonies.  My pet doe and her 2 fawns strolled through my property last evening.  I went to chase them off, but they just stared at me.  I got within 6 feet of the year old fawn, and he just put his head down and grazed.  So much of being afraid humans.  Anyway, they are my pets (although I do not feed them).   I watch them grow from fawns to adults, and I don't tell all the redneck Mt Men around me that I like them. 

Yes, I have to have a gated community in order to grow gardens, except for Peonies.  My pet doe (I call her my pet 'cause she has lived here since she was a fawn 4 years ago) will not even go near the peonies, although she will eat the rhubarb right down to and below the ground.  (She is not suppose to like rhubarb, but she never reads the instructions.) 

Yesterday, I unloaded the first batch of compost this year.  Contrary to what I've heard, making, turning, bagging, and using compost is hard work.  I attempt to complete a compost cycle every 21 days (about 3 cubic yards per year).  That feeds my small vegetable garden with some left over for my marigolds.  (I always grow marigolds, as the deer refuse to eat them. I have to cover marigolds at first, otherwise the deer often pull them up, even though I've never known them to eat them. 

A final word on compost.  I made up a new batch to cook, yesterday.  I make a batch of equal parts grass/green weeds and leaves.  My leaves are mostly maple and cottonwood.  I have a compost tumbler, and I usually fill it to nearly overflowing.  Then I get about 13 cu. feet of finished product. 

I'm in the process of building a water storage system to deliver compost tea to the plants every day.  I bought a solar panel with lithium battery and a used commercial food barrel.  I have an old pump I used in California 20 years ago, and I plan to use the solar panel and battery to drive the pump.  I already have the pump part working.  Plumbing the barrel is causing a problem in that I can't make up my mind how I want to build it.  sigh...

My wife thinks it is time to plant beans.  YEA, I love French Fillets.  I use to have a very hard time germinating beans, but since I went to growing in pure compost, I have not had any germination problems.  I wonder how it will go this year?  Now crows?  that is a problem to conquer with my shotgun (which I don't have but dream about just for crows.)  

Today on Wall Street:

It twas the Friday before holiday, and all through the street,

Every one was gone, skipping a beat. 

Volume was low, no one around,

All the traders and geeks went underground. 

The market should open like a thunderous gnat,

The price should just sit, like a suffering brat.

Money will be hard to come by, home by, none by...

Money will be hard to come by.

Opening to the upside, however. 

Thursday, May 22, 2014

Good Morning America, How Are You?

I was up at sunrise here on the Canadian Border in Washington State.  I did not see the baby geese this morning.  The river is in flood stage, and I don't think they are ready to swim downstream to Lake Ron Paul (which is not a real lake; it is only an overflow into an alfalfa field from the Kettle River). 

My Broccoli is very close to being able to be harvested.  I use to dislike Broccoli, until my daughter grew some Blue Wind.  Now I am a fan, and I've been nurturing the Blue Wind plants though temperatures in the low teens at night for 2 months.  I've been harvesting Kale for months now. 

Sadly, my daffodils are past, but the good news - Lilacs are in bloom and creating a wonderful smell throughout my 2 acres of landscaping.  Deer love my lilacs, but once the lilacs are 7 foot high or so, they just keep the shoots trimmed back.  :) 

My old (25 years old at least) peonies are set to bloom this week.  Then in 2 weeks or so, my new peonies and my tree peonies will bloom.  I LOVE PEONIES. 

Last night temperature touched 32 degrees at 3:30PM PST.  I just planted tomatoes.  I use Wall-of-Waters, and I put decomposing compost inside.  Tomatoes look very happy at 5:00 AM PST.  I'm thinking that combination works.

I know you will think it ridiculous, but I enjoy hearing from someone that they were able to use my ideas.  I never hear from anyone about finance, but someone yesterday said they used my fertilizer formula for their gardens, and they got that formula from papers I wrote.  Unfortunately, the manufactures no longer manufacture that formula, and several years ago I converted to organic gardening.  So, I made up compost and compost tea (from grass and green weeds) that is very close in NPK composition to Morcrop.   I gave the fertilizer (along with limited instructions) to her, and instructed her to use like Morcrop and Epson salts (what I use to use).  Making the compost, however, seems to be beyond most people's tolerance for labor (or maybe persistence).  I turn out about 2 cu yards of compost per month for my gardens, with most of materials coming from leaves and grass.  Seems to work. 

Summary:

The markets are unsettled. The S&P 500 is up just above fair value which suggests a higher opening than yesterday's close. 

The stock market remains choppy and erratic.  Trading volume yesterday was anemic even though the market recovered from Tuesday's drop.

I often wonder about the talking heads on Bloomberg, and other TV.  Last nights summary seem to have a consensus.  Most seem to agree that the FOMC minutes drove prices up, and stating that investors did not have to move up expectations for interest rates to rise.

If you watched the price action yesterday, the FOMC minutes had almost no effect on price.  Most of the days gains happened well before the FOMC minutes were released.  What may have been significant over night (Tuesday night /wed moring) was China's PMI reading with ticked up from 48.1 to 49.7.  While that still signals contraction, it is moving in the correct direction. 

Today, existing home at 7:00 AM PDT (10:00 AM EDT) may move the markets.  It will certainly make an impact (or at least I think It will).

Retail Store earnings were reported last night.  Mixed information and responses.  Sears got hammered, as they reported another big loss.  Best Buy beat expectations.  So what do we have?  Retail Sales results are as erratic as the stock market. 

Wednesday, May 21, 2014

Good Morning Washington State - My Garden is growing; no bug problems yet (except deer - bigggg bugs), no fungus...  Broccoli, Cauliflower, Kale, all being harvested now.  Cabbage will be sold at the farmer's market this week.  Planted heirloom tomatoes this week outside.  Planted tomatoes in the greenhouse 3 weeks ago.  Baby Canadian Geese look like little moving dandelions in my lawn as the sun rises.  They are soooooo cute and funny.  Iris are beginning to bloom, and the early peonies will bloom this week.  Lilacs are blooming (and smell wonderful right now).  Isn't Spokane, Wa the lilac capital of the US?  I'll have to look that up.  DEER love my lilacs, but when the lilacs get large enough the deer just keep them trimmed at the bottom.

On to less interesting but vital subjects.

Summary:

US Stock Markets took a trip to the woodshed yesterday.  Small Caps led the way.  Some blamed the move on Philadelphia Fed President Plosser's view the economy is improving and rates may rise.  Actually, most of Tuesday's losses were before he spoke, and there was no selling interest in the Treasury Curve before or after his speech. 

The market appears to going to open up strongly.  Explaining why that is and whether the "WHY" will push the market higher after the opening is challenging at best.  To underscore:

1.   Foreign equity markets are mixed

2.   Bank of Japan left its monetary policy unchanged (as expected).  There is no sense that BOJ will clarify any financial policy.  I can't help noting that YEN is up this morning, and it is beyond me to understand why.   Sadly (sad because I love going to Japan and working with the Japanese has been a positive experience for me), their outlook smells like 3 day old garbage. 

3.   Bank of England thinks (stress thinks) there will be an interest rate hike.  All this talk is jawboning by BOE's Mark Carney.  He did this in Canada, and now he is doing it in England.  However, as many of us know, perception is all that counts, and the perception seems to be they will raise rates.  (Track me, but I doubt BOE is going to raise rates, but I could be wrong.)

Conclusion: 

Should see a strong opening, but there is no fundamentals to suggest why that should be.  That could lead to chop until FOMC minutes are released, and Dr. Janet Yellen speaks at 11:30 AM PDT today.

Tuesday, May 20, 2014

Summary:

This morning nearing the opening of the USA stock market, asset classes are mixed.  DOW e-mini is down 18 points (as I write).  ES mini is down 2.25.  NQ mini is down 2.25 points.  While that may suggest a lower opening, I believe it would be better to interpret this as indecision in overnight trading after 2 days of up (after 2 days of large down moves).

Gold and Silver are both down. 

Dollar Index is up. IMM futures Positions reports are very volatile (choppy), and they have not shown a true long-term trend in any currency for a long time.  There is speculation that the UK is entering an upward trend in inflation.  Does that mean a interest rate hike is in the near future?   As usual, some say yes - a rate hike; some say no, the UK will follow the ECB.  Well, if we look at the CPI print this morning, it would suggest inflation will remain just below BOE's target rate of 2% for the foreseeable future.  

ICSC Goldman Retail Sales was down -1.3% over last week, but it is up Y/Y.  The drop W/W was blamed on the weather.  Good grief  Redbook also shows that retail sales are slowing, but Y/Y is trending up.  ICSC is considered a more reliable indicator than the Redbook. 

Retail Sales is about the only major economic report today.  

Unless some surprise happens somewhere, the USA stock markets will tend to chop I think.

If the USA Economy is so strong, then why?

·         Why do we need to keep interest rates near zero? 

·         Why is the labor participation rate going down, and why did it reach a 36 year low?

·         Why is McDonald's reporting sales are down in the USA (while sales are increasing overseas)?

·         Why is real disposable income in the US experiencing the largest Y/Y drop since 1974? 

·         Why does Time report that 56 % of all USA citizens have sub-prime credit?

·         Why since Obama took over the Whitehouse, the number of people on food stamps has gone from 32 million to 47 million (and growing)? 

Dr. Yellen says there is much work to do to improve the economy.  On the other hand President Obama keeps telling everyone how much better the economy is.  His State of the Union message in January 2014 tells that story over and over. 

FACTA

Several people that read my newsletter have asked me about FACTA (again).  FACTA is the Foreign Account Tax Compliance Act which was added to the HIRE act (known as the jobs bill).

First the jobs bill has had no reportable positive effect on jobs; irrespective of what President Obama has shouted from the roof tops. 

FACTA had the best intentions, but like many Democratic programs since President Obama's reign, the unintended consequences  are many and severe.  The intention was to go after the tax cheats who hid money in overseas accounts.  Given the huge deficits, it was sensible for the government to go after the "cheats". 

One of the problems, however was FACTA is not directed at tax cheats.  It is directed at overseas banks.  We just saw with the Credit Suisse settlement how the US government is going to play out taking on the foreign banks.  Basically, banks and businesses overseas will have to do a huge amount of paper work to comply with IRS regulations for USA citizens.

In effect, FACTA has placed a very heavy burden on Foreign Companies, and rather than deal with the change, they have often just decided to disinvest from US securities and US dollars. 

As usual Congress does not know what it is doing, and the Bureaucracy who really writes these things, is not thinking through the ramifications enough.  As usual since this Whitehouse Administration, the laws being passed are not thought through. Bad execution; even if most of us can agree with the intent. 

I do not believe that the end of the USA crowd is right.  They are doom and gloom trying to sell their newsletters.  Fear sells after all.  I think the dollar will lose ground because of FACTA.  But the dollar is not going to end; the USA is not going into chaos; nor is the USA going to collapse.  If the dollar loses its trade status in international trade, then the USA dollar will collapse, and likely take the USA with it. That collapse will not be directly related to FACTA.

China has its own economic problems, but Russia is trying everything it can to destabilize international trade in dollars.  They seem to believe they can do this by sending energy to China instead of Europe. 

China and Russia's moves to destabilize international trade, forcing countries to use Yuan or a basket of currencies instead of the US dollar is much more dangerous to the Dollar and USA economic stability than FACTA.  However, I could be wrong, but I'm very tired of hearing about the end-of-America.  BS... 

The thing for the USA citizen to worry about is the racial hatred in the streets that seems to be building to some boiling point. 

Friday, May 16, 2014

Looking for a bumpy day today in the S&P500 and all USA markets.  There is little new economic news, and the correction on Wednesday and Thursday was exhausting to most traders (not investors I hope).

Hello...  Good Morning Vietnam...

That was from a great one-liner from a Robin Williams movie.  Sadly, Vietnam is not a happy place this morning.  That is all I will say about that; except Russia and China are flexing their political and military muscles.  The US under the current regime seems to stutter and dither at every step in foreign affairs.    However, it could be that I'm just not in the know.

I read a lot every evening and morning.  Let me say, that there are so many opinions on the markets out there, that I have no idea if I'm smarter or dumber before or after reading them.  I just scratch this old bald head, and wonder...

There was a new poll out by the government.  We are told that most Americans think they are smart.  Yup... we are losing our jobs to immigrants and outsourcing  from industries we created.  We have overwhelming debt (Federal, State, Local, and consumer debt) that is beyond anyone's but Obama and Dr. Krugman's imagination how to pay it off.  Our foreign affairs are a disaster after Hillary Clinton, and we are getting ready to elect her as President?  Labor Participation rate is disastrous after all the QE, low interest rates and so-on.  Our schools continue to turn out students that do not compete for the better jobs available - meaning the engineering, doctors and so-on are going to immigrants.  We gave up our freedoms for security.  We decimated the Constitution and the Bill of Rights is now worthless if the Government deems some "new rule" is better for us than the Bill of Rights (and the Supreme Court is worthless in protecting the Bill of Rights.)  

Data Points

·         NY Times - At Last, Recovery Heads Where the Feds Wants It.   The point of the article was that we are seeing a modestly higher inflation and the labor market is improving.  Specifically CPI (consumer price index) suggest a broader economic improvement is coming.  PPI (producer price index) rose year-over-year.  May I suggest that one month does not mean the economy has turned the corner as the NY Times reporter is hinting. 

·         Looking at the other side, the NY Times reporter chose to ignore.

o   April Retail Sales badly disappointed.  It printed at .1% (not 1%) growth. 

o   Industrial Production for April fell -.6%. 

o   Capacity Utilization fell 60 78.6% from 79.3% in March. 

·         All this suggests a mixed bag, and Dr. Yellen last night in her speech is telling everyone that listens, that the economy is not looking as good as one hears about from the numbers alone. 

·         Yes, NY Times, the economy is moving in fits and sputters and angst.  We seem to move in one area, then we move backward in another. 

·         This statement is so important that while it is not a data point - I think worth a bullet point.  As long as the TBTF banks (and other banks) can deposit their money with the Federal Reserve without any risk whatsoever, they are very unlikely to put the money to work in an economy where the risks of never getting the money back is very high indeed.  Dear reader (I know I don't have any readers, but just in case every one who might read this is dear to me.)  Dear Reader, if you were a bank, would you invest where your return is 100% guaranteed along with your principle in a low inflation environment or would you invest in risky businesses? 

·         So, until the Federal Reserve stops (or makes negative) deposit rates for the banks, the USA Economy is going nowhere.

Tuesday, May 13, 2014 New Highs in the USA Stock Market

New Highs!

Unless one lives in a cave and said person was asleep yesterday, the stock markets in the USA made new all-time highs.  Small Caps out-performed. 

Surprised?

With all the dooms day prophets around, it may have been surprising.  Hitting a new high very likely gets your worried. 

If so you are not alone.  Most everyone is still worried.  Traders and investors seem to hold a common belief that if we are setting new highs, there cannot be much upside potential. 

Trading and Investing for whatever the reasons we invest, is a game of probabilities.  There are millions of people and organizations investing; some think the market will go up; some think the market will go down.  Price explores where this ocean of investors think there is value.  Yes, the daily price in the market is nothing more than an auction that explores where people will buy and sell.

Your history in investing indicates your success at determining your ability to make a decent return. 

We hit new highs (last Friday and Monday).  Sixty-three times since 2009, the stock market (S&P 500) has closed the week with a new 52 week high.  That is 63 different Fridays the stock market closed higher. 

If you are a long time (not necessarily long-term) investor, if you had sold all your stocks at any one of those 63 closes, you would very likely be unhappy now. 

In academic theory, we can read over and over again why the market is efficient, and therefore, we should not have trends.  Yet trends continue to exist, and academic theorists continue to explain away trends.  

They are right, however, in that the market is mean-reverting.  In general, this means that prices will revert to their average over time.  You and I do not have to invest very long before we learn that the USA stock market reverts to the 200 Day moving average over and over. There is nothing magical about 200 days.  The average is reported on over and over, and nearly every investor follows that average.  The consequence is that trader and investor behavior tends to change at that average. 

However, note, that in the strong bull market we now enjoy, the 200 Day MVA line's slope is up.  It will continue to be up even after the price penetrates below it, and stays there for awhile. 

Buying new highs is a surprising (maybe) winning strategy.  This is the basic strategy of Momentum Trading.  The strategy out-performs the buy low investors since the inception of the USA stock market.  (Yet, I can hear anyone who stumbles across this blog.  Warren Buffet buys value stocks (buys low), and holds forever.  Many analysts recommend this strategy.  Yes, that works as well, and therein lies the conundrum of the retail trader; yes? no? maybe?  What should we do?) 

What should We Do?

You and I should have a plan and stick to it.  We should know when and why to enter an investment.   We must have an exit strategy.  We must use asset diversification.  We must rebalance our portfolio at least once a year.  At the time of rebalancing, we should "audit" each and every asset.  Is the investment thesis still valid?  If not, liquidate, and buy something better. 

What am I suggesting?  Don't worry about new highs.  Have an investment strategy, and stick to the strategy. 

History suggests that new highs are better than new lows for most all retail investors, and new highs are not a reason to sell (but not a reason to buy either unless you are a momentum trader).  Making a new investment is based on your strategy.  Value Investor's strategy and fundamentals are different than Momentum Traders technical analysis.  

Long-term investors should love new highs.  Why is this?  Because over time, stocks have an inherently upward bias. 

Daily prices are more or less random - some up some down.  Price explores value, and Mr. Market is schizophrenic, making price basically random.  Over the long term, stocks tend to go up.  Over 10 years or more, with asset diversification you have a better than 90% chance of making money (assuming you stick to your discipline).    

There will be a new high eventually, and then there will be a major correction.  When will that correction take place?  The answer: no one knows, but investment banks world-wide are spending billions of dollars in investment research to find out.  At least what they publish to the general public, they are no better at calling a "top" or "bottom" than economists are about calling the economy.

Zew Economic Sentiment

Germany's ZEW Economic Sentiment reading dropped to 33.1 from 43.2 and now stands at its lowest level since January 2013.

Wall Street Journal reported today that Bundesbank is open to significant ECB stimulus if inflation decreases.  Confusing signals between ZEW and Bundesbank for the normal investor. 

New information This Morning

Retail Sales - uninspiring

Core Retail Sales Declined in April by .2% (uninspiring). 

Is it possible?  Bad news is Good news again?  

Monday, May 12, 2014

Great News! The Sky is Falling...

It seems like an awful lot I read, predicts that World and USA economic news is going to be awful for 2014.  Many seem to be on the bandwagon that the stock market is going to crash any minute.  Junk Bonds are going to take the economy down, and it will make the Great Recession look like a picnic.

Look at a chart of the DOW or the S&P 500, and price is very near the high of 2014.  The market is choppy for all 2014, but the price is in a trading range (which as I wrote over the weekend will resolve itself soon).

The point is there is no economic news in the near term that suggests all the doom-and-gloom is eminent. 

I do think we are going to see a correction to the downside, with a better than 50-50 chance it will start this week.  Why will it correct?  The only reason is the time-cycle is due to complete on May 15.  The cycle started on April 14, 2014, which confirmed an up trend for that cycle.  

Ukraine - Pro Moscow Seperatist declare victory

The People's Republic of Donetsk have declared victory on self rule.  They declare 89% of the voters have approved the measure.  Russia will recognize them, but Europe is saying they will not recognize them as they declare the ballot illegal.  Ukraine is nearing civil war. 

Japan's Current Account Surplus

Japan's current account surplus badly missed consensus.  Japan was hurt by weak exports and rising imports.  In April they had a hike in the sales tax.  The fear is growing that Japan's current account may slide into permanent deficit.  If that continues, it will hurt investor's confidence in the country's massive debt.

Stock Market

Choppy!!! The DOW closes at an all time high.  Today, the DOW, S&P 500 look like they will open up. 

Analysts from TBTF banks, to newsletters, to talking heads on TV all suggest M&A activity should continue to run at a good clip.  High stock prices have provided the liquidity. 

This a "BIG WEEK" in economic data with retail sales, PPI, CPI, initial job clais, industrial production and housing starts due to be released. China has a big week of economic reports as well.  For the USA, all this news is particularly important, because all bad news this year has been blamed on the weather.  

These new reports cover April and part of May, and the weather can no longer be held responsible. 

Europe and Asia stocks were generally higher going into the opening.  China's Shanghai Composite Index was particularly strong. 

Tale of TWO Markets:

1.   DOW Jones Average is well above the 50 and 200 day MVA.  So is S&P 500.  Large Cap stocks are still bullish.  Both are bumping up against resistance.

2.   Russell, however, is substantially different.  Russell 2000 is down 8.5% from its recent highs.  It is below its 50 and 200 day MVA.  Nasdaq is weak also, albeit not as weak as Russell 2000.   

This kind of divergence between large cap and small cap should make everyone very concerned about the health of the market.  This may be one of the reasons we hear so much doom-and-gloom about the stock market. 

Warning:  As I've been reporting, the divergence between the indexes will resolve one way or another.  It will be resolved along with resolution of the range trading in large caps.  Which way?  Range trading breakout is relatively unpredictable.  False breakouts are common, and retail traders often get caught on the wrong side of breakouts. 

World ETFs

Symbol	Price	Change	52-Wk
Israel (ISL)	17.46	-1.2%	+21.9%
USA (SPY)	187.42	-0.1%	+17.4%
Canada (EWC)	30.33	-0.9%	+8.5%
S. Korea (EWY)	62.58	-0.3%	+8.2%
India (IFN)	22.26	+2.5%	+7.6%
S. Africa (EZA)	68.21	-0.8%	+7.4%
Taiwan (EWT)	14.70	-1.1%	+4.7%
Japan (EWJ)	11.12	+0.6%	-4.3%
Singapore (EWS)	13.66	+0.4%	-5.1%
China (FXI)	34.59	-0.4%	-6.6%
Lat.America (ILF)	38.70	-0.5%	-7.7%
Russia (TRF)	13.29	-0.9%	-9.3%

From ETFdb

In addition to investing in a country with an ETF, world ETFs are interesting as they allow us to observe investor behavior with respect to a country.  Momentum investors often use this kind of comparison for short term momentum trades (either long or short).  Mostly, I find it useful to question what is going on if a major change in order is taking place.  

Oligarchy (from Greek ὀλιγαρχία (oligarkhía); from ὀλίγος (olígos), meaning "few", and ἄρχω (arkho), meaning "to rule or to command")^[1][2][3] is a form of power structure in which power effectively rests with a small number of people. These people could be distinguished by royalty, wealth, family ties, education, corporate, or military control. Such states are often controlled by a few prominent families who typically pass their influence from one generation to the next, but inheritance is not a necessary condition for the application of this term.  http://en.wikipedia.org/wiki/Oligarchy

Oligarchy

I read a lot in the papers these days about inequality.  Thomas Piketty, French Economists wrote and interesting book "Capital in the Twenty-First Century".  Even if you are a capitalists and you throw-up when socialists (like Piketty) attempt to discredit capitalism, the book is in the process of changing the world as we know it.  

The basic argument is that the richer are getting wealthier while everyone else is not only struggling, but going down hill.

We know Dr. Krugman and President Obama have been on the band-wagon to stop the slide to inequality. (Makes good political rhetoric.)   President Obama has sort-of (kind of, maybe) introduced a strategy (if you can find it) to address opportunity (dropping the term income inequality).    

I believe both Piketty and Obama should read Princeton's paper on the fact that the USA has become an Oligarch. http://www.princeton.edu/~mgilens/Gilens%20homepage%20materials/Gilens%20and%20Page/Gilens%20and%20Page%202014-Testing%20Theories%203-7-14.pdf  

If that paper makes sense to you, then any program implemented by the President is hooey, unless we can prove the oligarch wants it (like they did with ObamaCare). 

President Obama:

• "Today, after four years of economic growth, corporate profits and stock prices have rarely been higher, and those at the top have never done better.  But average wages have barely budged.  Inequality has deepened.  Upward mobility has stalled.  The cold, hard fact is that even in the midst of recovery, too many Americans are working more than ever just to get by – let alone get ahead."
• "the White House just organized a College Opportunity Summit where already, 150 universities, businesses, and nonprofits have made concrete commitments to reduce inequality in access to higher education – and help every hardworking kid go to college and succeed when they get to campus"
• " They believe, and I believe, that here in America, our success should depend not on accident of birth, but the strength of our work ethic and the scope of our dreams.  "
• "  But I will act on my own to slash bureaucracy and streamline the permitting process for key projects, so we can get more construction workers on the job as fast as possible."
• " it’s not enough to train today’s workforce.  We also have to prepare tomorrow’s workforce, by guaranteeing every child access to a world-class education."

You can read into the President's message anything you want.  Basically at that point in January 2014, he was talking about income inequality.  However, with elections coming up, the Democratic Strategists, we are told, that talking to much about income inequality is  NOT a smart strategy.   (Don't you wonder why?  Is it because of the Oligarchy?) 

When addressing the Democratic National Committee recently, the President did not mention income inequality at all. His speech seems to be more about job creation than "Opportunity for All".  Well, it seems that way to me.  He is not discussing a progressive tax code (or major changes to the tax code) such as Thomas Pikketty would suggest.  http://www.whitehouse.gov/the-press-office/2014/01/31/fact-sheet-opportunity-all-president-s-call-action-give-long-term-unempl

I pray that the President will be able to move on this ambitious agenda forward without raising taxes.  You really should read Picketty's book, where he wants to implement outrageous taxes on anyone making over $250,000 per year.

As the President states, jobs are important.  They are way beyond important to most of us, because our very survival is based on them. 

Picketty (and others) have a point.  Some people have become very rich.  However, modern inequality is not about that gap between the ultra-rich and everyone else.  The Princeton Report says it well, but the reader needs to think much more deeply about this issue than a one-paragraph summary in that paper.

"Multivariate analysis indicates that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence."

" The central point that emerges from our research is that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while mass-based interest groups and average citizens have little or no independent influence. Our results provide substantial support for theories of Economic Elite Domination and for theories of Biased Pluralism, but not for theories of Majoritarian Electoral Democracy or Majoritarian Pluralism."

" In the United States, our findings indicate, the majority does not rule -- at least not in the causal sense of actually determining policy outcomes. When a majority of citizens disagrees with economic elites and/or with organized interests, they generally lose."

The USA is being ruled by an Oligarch - a power structure in which power effectively rests with a small number of organizations, but the USA is not likely controlled by one (or three or five) ultra-rich people.  

Recently,  Alpha magazine came out with a report on the top 25 earners in hedge-funds.  Hedge-fund managers are not entrepreneurs nor are they innovators.  They are speculators.  In behavioral finance, we might say they are good at convincing people who invest in their fund, that the fund managers can anticipate the average opinion about everything.   (Life, the Universe and Everything - Hitchiker's Guide to the Galaxy) - answer 42. 

At this point conservatives and liberal political leaders might agree (probably not, though)  that there is no evidence to support that the financial elite of this country are providing services commensurate with rewards.  

High Frequency Trading, Investment Banks (TBTF), and hedge-funds are looking more and more like a bad deal for everyone except their super-star manager.  They are a major source of economic instability - even if they do not admit it. 

We , the People are still living in economic crises brought on by an out-of-control financial industry.  We, the People, avoided total catastrophe (and we may still see a catastrophe) by bailing out these folks at the expense of the taxpayer and their future children.  

Of course, the financial industry often (or always) caused financial crises in the history of the USA. Just review (even at the surface level) every depression the USA has entered, and at the heart of it was the banks. The financial crises perpetuated by banks was the reason given to We, the People, for creating the Federal Reserve.  How has that worked out?  Surprise... The leadership from of the Federal Reserve is always (not an exception) surprised by crises; which crises are often (if not always) started by out-of-control financial institutions that the bureaucracy (including the Federal Reserve) is suppose to stop.

President Obama knows that as of May 11, 2014 (and everyone else as well) that we are nowhere close to producing jobs for the millions out of work that are part of the statistics of Labor Participation Rate (rather than unemployment). 

However, do not expect the Democrats to really take on the oligarchy, because the richest people in this country are Democrats. And the Democrats make up the majority of the wealthiest people in Congress and the Senate.  Yet, the Republicans must take responsibility for the top earners (not the ultra rich) who are in the financial industry making so much money at the expense of us all. 

Now, that makes it very difficult for me.  I do not agree with either the Tea Party or the "Occupy Wall Street" people.  I guess what I would like to share; it is time for a new party that ousts Republicans first and Democrats second.  Yet I detest the obfuscation and lying of the most powerful Democrats in Congress and Senate more than Republicans.  Sigh...

And yet if such a party and leader existed, I wonder if any party or leader can change the government bureaucracy created over the years.  No matter who is elected, the bureaucracies  remain.  They are the writers of the rules that govern the country.  They are the executors of the rules.  The most powerful of them are ungovernable - going their own way no matter what.  They have godlike powers in what they perceive their domain of control; while always looking for ways to gain more power.