Monday, June 30, 2014

Good Morning America, How Are You?

I hope you had a wonderful weekend.  I did.  I went fishing, and for the first time in many days, the fish were biting.  But fishing was not all that made my weekend. 

I read a story about a family that is running a small crop farm.  I talked to the wife over chat about what they are doing.  They have a story in GRIT magazine  "Growing Together".  You do not have to go to college to be successful in the USA.  One does have to work hard, and I'm pretty sure that success includes close family ties. 

Small Business Outlook

Summary: 

·         Friday,  I commented that the market was going to open down, and then very likely fill the gap down open. I said it would be choppy.  Well I was semi right.  The market was very choppy until 10:25, when for whatever reason, the market headed higher.  Overall, the week ended down very slightly for S&P 500 and up very slightly on NASDAQ. 

·         The coming week in the headlights.  (I did not say headlines).  The market news is mixed at this point, with everyone expecting that Dr. Yellen is correct in that the GDP number 1st quarter was an anomaly.

o   There is a huge amount of economic news this week.  Thursday will be the big day with Employment Situation and Jobless Claims being reported. But there are lots of market movers starting today with Pending Home Sales and Chicago PMI. 

o   Stagflation is on lots of analysts and Economists minds.  See this.  I personally do not see anything in the economic numbers (here or Europe) that suggests we will have anything but slow growth with a continued downward spiral in labor participation and increase in earnings for the middle-class. 

o   Obama's economic policy will continue to be attacked by ultra-liberals (wanting more stimulus) and conservatives who want the debt reigned in.  Health Care is taking a toll on GDP.  But it is a huge tax increase folks, and why should it be a surprise?  See this:

o   Many analysts that are Democrats with a liberal view, expect that March turned around the economy.  Bonddad blog  

o   My friends, this is the same data with wildly differing interpretations.  Investors must use care as we are human.  We must not mix up what we hope for (economic growth and jobs) with sound investment decision making.  Which of these viewpoints are correct?  All and non at all... that is my take.  Which is not helpful, I know. Instead I offer you, that inflation is on the rise at the consumer level, and even Dr. Yellen has not denied that.  The Federal Reserve is not concerned with that inflation.  There are still major deflationary (debt reduction) currents that the Federal Reserve continue to focus on. The public does not hear about those very often, but they are there.  There was encouraging news from consumer confidence.  However, consumer spending diverged from consumer confidence.  So it was not as good a news as one might expect.  Brookings Institute has an interesting interactive chart that I found informative.  Janet Yellen's Dashboard

·         I am cautiously bullish this week.  If the really bad news last week did not knock the markets and the Democrats down, I don't perceive the news this week will be bad enough to take a toll on the market.  The wild card is geopolitical pressures from the Ukraine, Syria and Iraq (with Iraq being the most volatile as they have to depend on an very undependable USA to help them).  In this day and age, countries in trouble would seem to find a better ally in Russia than in the USA.

·         Today, the market will open flat (as you know since I'm late).  Then price should chop until 6:45 and then try to anticipate Pending Home sales at 7:00 AM PDT.  More chop should be expected after that with an upward bias.

Friday, June 27, 2014

Good Morning America, How Are You?

I undertook the very large job of cutting grasses and weeds around the Country Store yesterday.  After 3 hours of work, I fully understand that I should have been wearing a mask as I have a sticker inside my nose.  That in turn is causing me sinus pain.  I sincerely hope I don't have to see a doctor. 

Other than that, yesterday was a good day all around.  I put a fake owl in my garden to discourage the crows (ravens).  The funniest thing you ever saw happened.  The crows perched all long the roof of my garage.  They looked with their heads cocked this way, and then that way.  They squawked  (as only crows can).  They gabbled.  They moved toward the back, then toward the front, then squawked some more.  It was the funniest thing I've seen in a long time.   Today, according to the OWL instructions, I have to move the fake owl.   

Isn't it strange after you retire from a stress filled job, how simple things can make you smile? :)   Why two days ago, I caught a German Brown trout out of the river. (I released him.)  That is the first German I've caught in my 12 years on the river.  Smile...  And yet, why should my pleasure in fishing bring pain to another creature?  I'm thinking about that.

Small Business Outlook

I'm told that all signs in the USA point to stronger growth.  That is basically hogwash we've been fed for the last 3-4 years. 

We get told something like this: "We expect economic growth to pick up the pace and be stronger in the 2nd half of this year". 

I'm telling you right now (and check with me later) it is not going to happen.  We can't raise minimum wages, contend with consumer inflation without commensurate pay increases, downturn in middle-class, and people retiring at a stupendous rate and enjoy economic growth. 

The jobs (except at McDonald s, Burger King, Taco Bell, etc.) for minimum wage are being shipped overseas.  Our large corporations are not hiring, or if they are they are in places like Walmart and Costco at minimum wage. 

Consumer confidence report will be published today.  At this point, consumer confidence is at the highest in since the upturn.  We have a situation where consumption is falling but confidence is high.  From a small business owner's perspective, consumer confidence and consumer spending do not add up.  What makes consumers more confident, and at the same time our small businesses see less consumption?  How does this compute?

We are stuck in the mud; the same mud the Japanese have not been able to extricate themselves from.  Yes, the economy will show spurts, but almost always these spurts do not show much trickledown effect to the consumer.   

The USA cannot have the massive debt we have without dragging the economy down.  Any rise in interest rates, and the debt will be un-serviceable in my opinion (and probably yours if you are not a liberal academic from the Ivy League Schools - or a French Socialists like Thomas Piketty.

I will close today with, the Federal Reserve Interest Rates will remain low for some time.  While inflation is beginning to get away, Dr. Yellen and her cohorts along with Dr. Paul Krugman seem to be in denial about inflation. 

Summary: 

·         Yesterday I commented that the market was giving no indication of direction.  However, the first 25 minutes after the market opened, the market made a significant down move.  Then it spent the rest of the day going up.  If you (or any trader) had a good trend following system (and the trader could stick to it as price climbed the wall of worry), you made a great deal of money. 

·         The Financial sector has been weak for some time, but the other sectors finally gave in to pressure from the financial sector.  Treasuries spent the bulk of the day positive as the yield moved lower to 2.53%.  Weekly job claims level fell, but missed estimates for how far it would fall.  This is expected to accelerate payroll growth.  (I'm dubious, but summer is a good time for employment, and maybe it will happen.)  Personal spending increased, but if inflation is factored in, spending declined .1%.  It rebounded, but missed expectations by a large margin.   

·         WAIT A MINUTE:  That means Q2 GDP is not going to be good, and the first quarter anomaly (as Dr. Yellen called it) may show Q2 is not back on track. 

·         Personal Spending data from may printed yesterday.  It rebounded, but missed expectations by a large margin.  This is also

·         Consumer Sentiment is to be published at 6:55 PDT (9:55 EDT).  It is expected to improve slightly.  (Why consumers are more confident, I have no idea; unless the rise in stock prices just make people feel everything is OK).  Consumer Sentiment was soft for June looked soft, but again is expected to rise.

·         From yesterday: China appears to me to becoming comfortable with capital markets (rather than centrally controlled planning).  Peoples bank Of China (PBOC) printed that they would remove the ceiling on foreign currency deposit rates in Shanghai.  The State Administration also announced that Chinese companies would be allowed to sell foreign-exchange options starting in August rather than only buying onshore.  Starting in August this allows a two-way flow of money.  Be warned:  This is an ongoing move to remove the US dollar as the reserve currency.

·         SO THIS OVERNIGHT:  " GAZPROM READY TO SETTLE CHINA CONTRACTS IN YUAN OR RUBLES: CFO"  from Bloomberg.  This will not be told as front page news to the USA citizen, but it is a major spike in the coffin of the US dollar as a reserve currency. 

·         Today's equity markets look to open down, and the market is poised to go either direction with little pre-market bias.  Oil is up slightly, and that suggests the open will move up to close the gap.  Before market open, there is no real strong bias for down or up.  That suggests more choppy trading with low volume.    

Thursday, June 26, 2014

Good Morning America, How Are You?

Yesterday was a challenge to remain positive in the stock market. It was an exhausting day helping bond traders from my desk.  I'm glad I was not helping with the equity markets yesterday.

Summary: 

·         Yesterday I commented that the market would probably not move much higher.  I was wrong, and that is the first call in over a month where I was that incorrect. 

·         The GDP news and almost any other news was negative.  The market kept moving up relentlessly.  I rarely comment on "why" the market did what it did; being a believer that prices are relatively random on a daily basis.  Of course, some of you will argue there are trends during the day, and that is certainly correct.  Trends (in my opinion) depend on your time frame.  In the 24th the trend on any intraday time-frame was down.  On the 24th it was up.  On the daily chart, the trend is up.  On the weekly chart it is up. 

·         GDP revised to -2.9%...  Ouch... Something is definitely wrong somewhere Dr. Yellen.  Everyone is going to be on pins and needles now until GDP is released for the 2nd Quarter. 

·         Durable Good Orders missed expectation, and were down substantially.  The stock market went up.  We have 2 months in a row that durable goods are down.  That has not happened since August 2011.  There has been larger drops than yesterday's print of course; November 2013 for example, but not 2+ months in a row.  Basically, durable goods were much lower than expected.  Transportation was hard hit.  Equipment investment improved, which was a bright spot.

·         Treasuries were on the rally track yesterday.  10 year yield fell to 2.54% from 2.58%.  Yield is what it is, and like prices in nearly every asset class, prices are not reflecting fundamentals very well.  Are traders betting on the Fed? 

·         China appears to me to becoming comfortable with capital markets (rather than centrally controlled planning).  Peoples bank Of China (PBOC) printed that they would remove the ceiling on foreign currency deposit rates in Shanghai.  The State Administration also announced that Chinese companies would be allowed to sell foreign-exchange options starting in August rather than only buying onshore.  Starting in August this allows a two-way flow of money.  Be warned:  This is an ongoing move to remove the US dollar as the reserve currency.

·         Watch out if you are a day trader in Gold.  It could go either way.  Longer term, Gold is showing bottom pricing action.  Gold's price will depend on geopolitical problems (Ukraine, Syria, Iraq, Pakistan).  Radical Muslim groups are within miles of gaining control of long range missiles and a nuclear bomb. 

·         FATCA's rules were eased yesterday by the IRS.  The problem for foreign banks still exist, but I continue to write that unlike some pundits in the world, FATCA will not cause the collapse of the US dollar or a revolution in the streets of the USA.  The overseas US citizen uber rich will become expatriates as they renounce their citizenship.  The number of expatriates are increasing, and the USA has never seen this level of activity.  I expect that to increase - not from taxes, but from the onerous reach of bureaucracies taking away the last rags of freedom provided by the USA Bill of Rights.

·         This morning's jobless claims are a small amount above the forecast.  Not to worry though, it had no affect on the S&P 500 futures markets or the NASDAQ. The number is always revised next week.  Why depend on it? It is useful if one uses a 4 week moving average. Using a 4 week moving average and comparing jobless claims against recession starts, the current jobless claims indicate there is no recession in sight.  Jobless claims (using the 4 week MVA) has been a very good indication of when a recession is to start.  The raw jobless claims data is too volatile to be used effectively. 

·         I hear lots of pundits comment on the VIX.  I submit to you, the VIX has little forecasting power when it is below 15.  More information is provided when the VIX is high.  Right now all the VIX is saying (to me) is the market is calm.  If you do not know,VIX is calculated from the implied volatility on S&P 500 company options.  It is to measure the volatility over the next 30 days.  However, VIX (statistically) is much more sensitive to declining price, and why high values of VIX are associated with bear markets.  Very little information is being provided at these low values - for example what will the S&P 500 close at today is not forecasted by the current VIX readings.  Takeaway? - in the current environment traders should look to other indicators to forecast movement in equities market. 

·         Today's equity markets look to open flat, and the market is poised to go either direction with little pre-market bias.  Oil is down a bit, and it may suggest a bias to a down day.  However, that is a weak argument at best.  It is better to say the market is giving no indication of direction today (at this point).  At 7:00 AM PDT Kansas City Fed Manufacturing Index will be released. Since Jobless claims has not moved the market, the Kansas MI may cause a blip.  Econoday consensus is for a small decrease from the prior level.  

Wednesday, June 25, 2014

Good Morning America, How Are You?

Yesterday was a good day in the markets for yours truly.  After trading, I took my mother back home. 

While I attempt to make everyday a good day, yesterday was a nice day with rain purifying the air and taking the dust down.  The sun came out at sunset.  The air warmed, and the evergreens (pine, fir and spruce) provide a clean fresh fragrance.  It seems to me the plants rejoice in the rain after a dry spell.  It was a magical time, as the sun reflected off the river's waters and into my front room.

I can hardly believe it is nearing the end of June already.  Where did the days go? 

Small Business Outlook

I suspect our leaders in the Federal Government and the State of Washington realize that small business provides the bulk of employment in the USA.  I know President Obama talks about the need to help small business, but the rhetoric never seems to have much positive effect. 

In my opinion, the leaders are misguided when they raise the minimum wage.  Small business cannot pass the costs along to the consumer like the big businesses can due to customers just turn to big companies like Home Depot and WalMart.   The results of rising minimum wage in a stagnant economy is less jobs where most of the population is employed - small business. 

As a small business owner, I study as much information as I can on banks and interest rates, since our cash flow (and control of expenses) depend on our approach to short term cash flow needs. 

Small banks (such as in our area) depend on deposits and savings.  (Large banks due the same, but are much less dependent on deposits and savings of the average joe.) 

Banks borrow short and lend long.  They take checking and savings deposits.  These are very short term debts (that for the most part today pay no interest to the "loaner" the bank's customers).  They in turn lend the money out in long-term debt such as mortgage or shorter term loans to small business.  Most of the money lent is tied up up, and the small banks run the risk of losing money if unexpected changes occur between short term money from customers and long-term debt they lent out. 

If you are a small business owner, you should be concerned with banks at this point (especially small banks).  They are in a rate risk situation at this point where interest rate risk is caused by the mismatch between asset and liability maturities.  The prolong period of low interest rates (nearly zero on savings) causes duration risks - the money lent at 4-5% on 30 year mortgages and the possibility long term rates going much higher than the currently are, and that the banks have to start paying more to the people they borrow from.   

We saw this kind of risk in 1980s with the savings and loan crises.  Of course, the financial situation is much different today than it was then. Yet the same "duration risk" arises when interest rates rise quickly from the current low levels.  Yes, interest rates are low right now, but they are expected to rise.

Are small banks prepared for interest rates to return to a more normal environment?  I contend that small banks are at risk, and that worries me.  Banks must be forward-looking and focus on mitigating this risk now.

However, our small bank's managers have no idea how to even discuss this issue.  The head quarters in Walla Walla, Wa. may know, but they are not providing "training?" to the small business they service in rural areas of Washington State.  Since our small bank is not a publically traded company, they do not report public information that may provide insight into a specific bank's duration risk.

The FDIC www2.fdic.gov is helpful when looking at banks, but provides little (or no) help with the duration risk of small banks.  They do provide valuable information on an FDIC insured bank.  The small banks in our area are not on FDIC problem bank list.

Summary: 

·         Stocks on Tuesday were way up then way down.  Ultimately the DOW and S&P posted very modest losses (Dow -.7% and S&P .6%). 

·         Economic news at 7:00 AM PDT provided some strength.  As I suggested yesterday, the market would open down and likely fill the gap.  Well it did that, and then continued on up until around 9:30 AM PDT when the markets lost ground and the down turn gained momentum until near the close.

·         Wall Street Journal posted an alert that a Syrian fighter jet struck targets in Western Iraq, and that seemed to coincide with the selloff.  The more likely scenario is that the markets reached a high for 2014, and after consolidation, profit taking took hold.  If that is true, the market may turn back up today.  However, do not bank on it.  The markets have a propensity to trade 3 days down in a bull market, and rebound on the third day. (Look at daily charts to observe that phenomenon.  However, about the time a gambler bets on such patterns, they get clobbered.)

·         The USA and Europe are still fighting deflationary forces set in motion by the collapse of Lehman.  I find it hard to understand what tools the Federal Reserve and the European Central Bank (ECB) have left to maneuver.  If anything, anything at all negative happens, there is no room to maneuver when interest rates are essentially zero.

·         Grant Williams had another Seuss inspired ditty on the Fed. Let's see what he had to say now. There isn't a bubble in equity prices, nor housing, nor bonds, there will be no surprises.  The Slip 'n' Fail Mutts have their eyes on the ball, There's no need to worry, there's no need at all.  But wait just a second here, what if they're wrong? What if they've had no idea all along?  The tech bubble fooled them, the market got caned, remember when Ben said subprime was "contained"?  These people are clueless I'll venture to say, Not that they'll listen (to me anyway).  But time after time when they face a new bubble, They never once think they're the cause of the trouble. - Grant Williams.  (If you don't know of Grant, Google him and his blog, and sign up for his free newsletter.)

·         I expected the market to open down, and not make a move to close higher. (Only time will tell.)  Instead, this is still a profit taking day, which should make the $$$ move higher as well.  Money is not moving to gold, so "real fear" has not entered the equity markets, I think.  

Tuesday, June 24, 2014

Good Morning America, How Are You?

Yesterday I went fishing with my brother.  I am sad to report we were skunked.  I'm happy to report it was good to be outside breathing clean air and taking in the sunshine.   The river was still too high to fish the still water, and we probably should have used a drift boat.  

Small Business Outlook

Summary: 

·         Yesterday was a see-saw small range low volume day.  The news was plentiful, but the action was non-existent (in my opinion).  S&P closed down slightly as well as the DOW.  NASDAQ closed up a little.  VIX closed up a bit, but it is still finishing near multi-year lows.  If you read my "take" on the markets yesterday, I suggested this was what would happen Monday.  " Friday's stock market activity was nearly non-existent.  Look for more of the same today.  "

·         Treasuries were in the same funk as the stock markets. 

·         I think I will repeat this from yesterday:

o   The media and talking-heads will engage in their favorite sport - second guessing the Federal Reserve.  Everyone with a microphone will expound on the question: Is the Fed "behind the curve"?  My take:

§  The Fed continues to attempt to increase inflation, and there are still major deflationary factors at work.  The Fed uses PCE rather than CPI.  PCE is showing less inflation than CPI.

§  The Fed does not use commodity prices to indicate inflation.  They view moderate inflation as manageable, and much less a threat than trying to fix deflation. (I would concur, while we all know hyper-inflation is not controllable either.  A fine balancing act to be sure.)

§  The Fed policy will tolerate a 2.5% inflation rate on PCE. 

§  The Fed's mandate does not protect emerging markets (such as the Ukraine and the article from MarketWatch indicates they should have.  The Fed does not protect savers, and we all know that after 6 years of stimulus.

§  The Dual Mandate is inflation and employment - not anything else. 

§  Food and Energy are noisy components of inflation, and they do not relate to the mandate.  They cannot control draught or disease in pigs with interest rates.  The same for Foreign Affairs.  They cannot control foreign affairs with interest rates. 

§  Policy does not shift on monthly changes in their data.  Much longer term trends are required.  (However, as with all these points, information is now immediate world-wide, and trends.

·         Did you see Citigroup's report on China?  wow... hard to believe.  Citigroup says they are bullish on renminbi, and that they see China's growth stabilizing.  They believe a cyclical rebound is underway in China, and because of this rebound, the Renminbi/Yaun will gain 3% this year.  That is the first positive report on China I've seen in a long time. 

·         Gold continues to get a boost from the Middle East crises of the day (or each second actually as a new one crops up moment by moment).  We'll see, but once rhetoric calms down a bit, investors will get complacent again.  Again, who really knows what is going to happen in the Middle East, but it worries me more when Russia and USA exchange barbs, and China pushes it military agenda in the South China seas.  Those problems cannot be hidden forever by the Middle-East.  The political situation in the world remains dangerous and volatile.  But then that has been true for some time, and precious metals remained in the doldrums. 

·         As of 6:30 AM PDT, the S&P 500 futures market is just about at where it opened last night.  DOW and S&P will open down.  Expect price to close the gap (go up), and wait for the 7:00 AM PDT news.  For your information the Case-Schiller HPI was announced at 6:00 AM PDT.  It missed expectations badly, and home-price growth slowed sharply.  Was it the weather?  No, finally, analysts are mentioning negative signs are popping up all over the USA.  News reports on Bloomberg, Wall Street Marketplace and Yahoo seem to be lacking at this point regarding home sales.  The pundits may be waiting for the New Home Sales at 7:00 AM PDT and the Consumer Confidence Report.  The Consumer Confidence is expected to rise.  How in the world consumers are more confident is beyond me.  Inflation for consumer goods on a major scale is everywhere, and story after story shows pay is going down; productivity is going down; and home prices are on the verge a downward cycle.  How can consumers be so confident?  I tell you what it is:  "Obama koolaid" even though the President's approval rating is nearing zero.  (Or more accurately, it is the Federal Reserve koolaid that keeps confidence high.)     

Monday, June 23, 2014

Good Morning America, How Are You?

I woke up sort-of this morning, feeling off.  Do you know that feeling?  I've felt good for a number of days, and I thought maybe I was finely over what ever was making me sick every day for months.  Oh well,  this too shall be worked through.

I'm going fishing today, and that is something to look forward to. 

Have a great day.

Small Business Outlook

Summer is not proving to be a turn-around to sales yet.  I went to Spokane yesterday, and I took my un-scientific count of business on Division Street.  It was not good news.  New business seems aimed at human vices rather than the retail business previously.  More vacancies are apparent than they were 3 weeks ago when I went to Spokane. 

In my recollection, now is the time when summer type businesses start filling vacancies.  It is not happening, and human vices lead to city blight.

Congress Person  Lynn Jenkins

I joined Lynn Jenkins newsletter some years ago, as her political philosophy matched with mine.  She is a Congress Person from Kansas.  She is not my Congress Person, but I wish she was.

I hope she would support my quoting her here, and that I'm doing the right thing. 

"I discussed the latest inexcusable claim by the IRS for how they lost two years of Lois Lerner’s emails.  The IRS not only kept this from our investigation for months, but they also cannot produce records from six other employees tied to improper political targeting."

"Lerner’s response to the lost emails, was ‘sometimes stuff just happens’. Ironically, ‘sometimes stuff just happens’ is not a valid excuse for Americans if they get audited by the IRS."

"This is another example of hypocrisy within a powerful government agency that says ‘do as I say, not as I do’. Big government has proven time and again it cannot be held accountable. This is what a government looks like when it is too big and out of control, it runs amuck."

Sadly, the IRS is only one of a very powerful set of bureaucracies that are out of control beyond any known way to reign them in, and have them return to serve the USA citizen instead of their own existence.  

Summary: 

·         I think the most important item in the world right now is Iraq.  Our current administration made serious mistakes withdrawing from Iraq abruptly, supporting rebels in Arab Spring, training Al-Qaeda affilitates to overthrow Syria, and on and on.  The insurgents in Iraq are brutal.  Syria and Iraq are a human and governmental disaster with MOMENTUM.  More could be said, but I think the US needs a new approach to government (not just foreign affairs) that neither the Republicans nor Democrats can fulfill.  ISIS is a nightmare realized - and an awful lot of their ability lies right at the feet of the CIA's despicable approach to training the USA enemies. 

·        Friday's stock market activity was nearly non-existent.  Look for more of the same today.  S&P 500 on futures is just below Friday's close.  Look for Existing Home Sales at 10:00 AM EDT to provide some direction.  Consensus is for a small gain, after April's nice gains.  S&P Case-Shiller home price index will be tomorrow. In other words, this week will focus on homes in the news.  But Durable Goods Orders on Wednesday along with the GDP will be closely scrutinized.  I suspect Durable Goods Orders are going to be down.  GDP is expected to be negative.   We are getting economic signals that are in divergence with the Yellen's guidance.  Are these economic signals one time events as Dr. Yellen says, or are they the beginning of something more sinister? 

·         There is a lot of USA economic news this week.  Mostly all news is met with oh-hum... guess we'll invest more in stocks.  If investors and traders ever question their belief in the Federal Reserve, all hell is going to break lose.  When (not if) belief is lost, the Federal Reserve will not be able to stem the flood this time. (I so pray this does not happen, but the stock market and treasuries price seems irrational from economic fundamentals.  But you know that without me pointing it out.

·         The media and talking-heads will engage in their favorite sport - second guessing the Federal Reserve.  Everyone with a microphone will expound on the question: Is the Fed "behind the curve"?  My take:

o   The Fed continues to attempt to increase inflation, and there are still major deflationary factors at work.  The Fed uses PCE rather than CPI.  PCE is showing less inflation than CPI.

o   The Fed does not use commodity prices to indicate inflation.  They view moderate inflation as manageable, and much less a threat than trying to fix deflation. (I would concur, while we all know hyper-inflation is not controllable either.  A fine balancing act to be sure.)

o   The Fed policy will tolerate a 2.5% inflation rate on PCE. 

o   The Fed's mandate does not protect emerging markets (such as the Ukraine and the article from MarketWatch indicates they should have).  The Fed does not protect savers, and we all know that after 6 years of stimulus.

o   The Dual Mandate is inflation and employment - not anything else. 

o   Food and Energy are noisy components of inflation, and they do not relate to the mandate.  They cannot control draught or disease in pigs with interest rates.  The same for Foreign Affairs.  They cannot control foreign affairs with interest rates. 

o   Policy does not shift on monthly changes in their data.  Much longer term trends are required.  (However, as with all these points, information is now immediate world-wide, and trends could start and not be stopped by waiting long term.)

·         China's PMI was up, and this was good news for Russia.  Yes, economically Russia has tied their world to China.  

·         As of 6:37 AM PDT, the stock market opened down, and is headed down.  If you are a day trader, be very careful.  Only later will be able to analyze what is different today than Friday (or all last week).  

Friday, June 20, 2014

Good Morning America, How Are You?

Spring (and early summer) require a lot of physical work in the gardens.  Yesterday, I turned the compost pile and I turned the new grass clippings (lots of grass clippings) so that they dry out a bit before going in my compost bin. 

My wife asked me to help her prepared beds for artichokes yesterday.  That entailed turning 32' X 5' dirt beds by shovel, raking them out, digging compost out of the pile, spreading it, putting leaves from last year over the bed, and collapsing in a puddle of sweat somewhere between gardens and the green green grass of home. 

The good news, is I slept very well, and that is a blessing, believe me. 

Have a great day.  Enjoy your food, wine and your family.   

Small Business Outlook

Sales in our small businesses are down over last year at this time.  Our one tourist attraction that draws visitors, shut down early due to lack of attendance and rain. 

The stock market goes up, but the price of stocks does not help small business (in our case anyway) at all. 

Summary: 

1.   Yesterday was a very interesting day in the capital markets.  Major stock went into the day up, then they collapsed, then they chopped, and the S&P 500 and the DOW closed higher. 

2.   Longer-dated Treasuries experienced a notable reversal that left 10-yr notes down 12 ticks.  Commodity prices were higher, and precious metals moved up sharply.  Now that Gold penetrated and closed in the low 1300's, I expect all the perma-gold bulls to start shouting how they called the bottom, and Gold is going to the sky.

a.    Do not believe that.   Precious metals have a place in asset allocation.  They also have a place in providing some catastrophic insurance from chaos in the streets (in the USA or Europe). 

b.    Currently there is a lot of uncertainty (as you know) about major war in the world.  Inflation is heating up.  Gold is reacting.  But may I be so bold as to say, wealth is gained in investing by systematic investment; not by following the latest HOT TIP. 

c.    There may be inflation concerns, but the front of the Treasury curve yield held up fine.  It is still too early in the game to determine if investors really have genuine inflation concerns based on a few days bounce off the low in price on June 3 in the Gold Futures market.

d.   Why did Gold go up so much?  Well, Google "gold" and you will find information about gold short positions building up to levels unseen before.  After Dr. Yellen's speech on interest rates, gold started to rally.  This almost assuredly was due to short positions being closed (before or because of margin calls).  Then I submit, gold's rally was short covering; nothing more.

3.   Weakness in Finance Sector acted as a restraint on S&P500 and the Nasdaq.  More on the Nasdaq than the S&P500 as Nasdaq closed down on the day.  Mostly the VIX shows no indication of fear in the markets although volume went up a bit suggests NY traders went on vacation yesterday.

4.   S&P500 will be interesting today as it will re-balance at the close.

5.   Watch the EURO today.  The latest Long Term Refinancing Operation (LTRO) is to be released.  LTRO was short term loans made to the Eurozone banks to help them weather the financial crises.  The banks repay the loans and the ECB (European Central Bank) reports on the repayments.  If the amount is large (say over 5 billion Euro) then the Euro gains in strength against the dollar.  If it is smaller than last week's 3.7 billion Euro, the Euro will go down. 

6.   China should be in the news (and you may have to look hard to find it).  China cut their US debt holdings; according to China Daily.  They report that China's holding is down $8.9 billion.  I suspect that is just the beginning of China's liquidation as the threat of war in South China seas escalates.  I think what is happening is that China is NOT selling US Treasuries into the market.  They are letting the debt mature, and they are not replacing it.  This allows China to stay under the news media radar (and chumps like Timmy Geithner's rants against China in politics). 

a.    To put things into context (from my perspective).   China is important to the world.  IT is the second largest economy in the world.  If it has problems, it will affect the whole world (just as the USA does).  Organizations (and people) who do business with China will suffer as China deals with its problems (such as the copper fiasco). 

b.    Does China have significant problems? I do not know, but every country has problems somewhere along the line, and it has been a very long time since China has had major problems. That is unusual.

c.    Keep yourself informed about China (not from the Geithners of the world who have an ax to grind).   China Daily is one place you can look.   BBC News China does a pretty sound job as well. http://www.bbc.com/news/world/asia/china/ 

d.   China is the second largest economy in the world and if the second largest economy in the world has problems, the problems will have negative affects many people. If nothing else, the people who do business with China will be suffering.  And that is a lot of people because it is such a huge economy now. It`s just like if America has problems, it affects a lot of people. If Japan has problems it affects some people. So, there`s no question that China will have problems. I don`t know what or when or why but every country has problems somewhere along the line.  It is not a good time to be investing in China. 

7.   What will happen in the stock market today?  Who knows, but overnight the futures market in the S&P 500 (at 5:49 PDT - 8:45 EST) says the market will open up.

a.    If we use VXX as a proxy for $VIX, then VXX is down which also suggests a good opening. 

b.    Oil is up, which is usually good for the stock market (until it is not good for the stock market if investors believe it will cause inflation).  At the moment, up is good for the stock market.

c.    Finance sector is down.   - bad for a large rise.

d.   DAX (Eurex Index) is up, but not strongly.  - neutral

e.    Expect a positive opening in NY with a move down temporarily to close the gap from yesterday's close.  Then a move higher, with a lot of choppiness.  The DOW, S&P500 and NASDAQ 100 are all up in overnight trading.  Remember, look over the last weeks trading, and you will often see the markets move into a weak position below the previous day's close, then rally to close barely higher (or in the case of the FOMC meeting rally to extreme highs). 

f.     The economic news is mixed.  There is uncertainty everywhere about China, Middle East, Ukraine and so-on.  Therefore, it remains a guess about "trend".  None-the-less, if the market is moving up, price is what it is, and be very careful about shorting the USA stock market.

a.    Overall, the market is prone to go up no matter what...

Thursday, June 19, 2014

Good Morning America, How Are You?

Were you treated to a good day yesterday?  If you were a day trader, your life should have been very good indeed after the FOMC announcement.  Me?  I don't choose to try to guess what investors are going to do when Dr. Yellen says nothing different than she has said before.

So, I spread out a tarp, spread my newest batch of compost to dry, and mowed my 2+ acres of lawn.  Now, I have no idea whatsoever why I was so tired, but I slept well last night.  A good night's sleep is a pleasure for me. 

Have a great day.  Enjoy your food, wine and your family.   

Summary: 

·         When Dr. Yellen said little about anything, the one thing I picked out was her saying that the GDP numbers for the first quarter were an aberration, and the Federal Reserve expects the economy to regain momentum.  Everything is peaches and cream I guess. 

o   She did say the Fed had lowered it projection for near-term growth. 

o   However, employment is to be better than forecast. 

o   Fed-speak is ridiculous.  Do they think that the only ones in the world that understand Fed-speak is the PhD's in Ivy League schools?

o   Basically, what she is saying is:

§  We don't have a clue about the economy,

§  But if all things are equal, and there are no disruptions, and Arab Spring does not turn into Arab Hell (which it is doing), then

§  Interest rates will rise slowly in 2015. 

·         Wow, did the stock market investors ever love what was being said.  On the other hand, the dollar was taken to the woodshed, and the dollar's shellacking continues this morning before the opening.

o   I wonder what the ECB thinks of that, as they tried so hard to drive the Euro down against the dollar (without admitting that is what they were doing).  I do not think Super Mario is a happy camper this morning. 

o   Basically, Europe is in a race with Japan to devalue the currency.  It has not worked for 25 years for Japan, why should it work for the EuroZone? 

o   Gold is finding some love overnight in Europe.  The futures market is up over $15 as I write.  James Grant, in a MarketWatch article yesterday, said that "The Federal Reserve is pouring fire on the glowing embers of inflation. The Fed with a remarkable lack of self-awareness, is now deploring complacency of the capital markets, with the Fed having administered the sleeping potion."   And then he said: " the interventions are like lies - you do one and you need another one. You can't just lie once. You can't intervene once. You must keep intervening to negate or counteract or mollify the effect earlier interventions."

·         Of course, it is not just the Feds' zero interest rates that are damaging the dollar.  As the owner of several small businesses, I talk to people about the economy, but most are ignorant of the devastation of the value of the dollar, and why that is driving consumer prices higher even if the government does not report higher inflation. 

o   The US 1st QTR Current Account Deficit was reported yesterday.  The Current Account Deficit is a measure of the transactions between the US and the rest of the world in goods, services and primary income.  The DEFICIT widened in the 1st QTR by $23.9 Billion, from the 4th QTR, to $111.2 Billion.  This will put downward pressure on the USA dollar.  But you knew that, right? 

o   It is only a matter of time (shorter maybe than many pundits talk about) before the USA dollar is removed as the reserve currency of the world.  The assault on the dollar cannot continue, and have any country taking the currency as a mechanism to trade with any other currency. 

o   Do you understand the game being played out?  I don't.  But I do understand that currency is debt when there is not even one asset that backs it.  If the eurozone attacks the value of the currency, the UK attacks the value of their currency, Japan attacks the value of its currency, and the USA attacks the value of its currency, then what has been solved by devaluing anyone's currency?  The USA crushes the value of the dollar, then Japan must respond or face export problems.  In the meantime, China continues to sign more and more trade agreements in Renminbi / Yaun.  After the FOMC announcement, if you were limited to only one investment in one sector in the USA, what would you buy? 

After the FOMC announcement, if you were limited to only one investment in one sector in the USA, what would you buy? 

I will submit to you that Warren Buffet would probably advise you to buy an index fund an hold it.  But there is one business and sector that offers extraordinary rates of return and that take little material risk to invest in. 

There is only one business that maintains a truly competitive advantage over any other, and studying and investing in these business could make you wealthy (if one invests consistently). 

I point you to the insurance companies.  Are you thinking about health insurance?  Well, they may do well, but they are not the best performing, and the political uncertainty surrounding them makes me anxious.

Ask yourself: Who are the best underwriters in the world across all asset classes?  Answer that question and I submit you will have a competitive advantage in stock market investing.  In the financial world, there is not one thing I can think of that is more valuable than having the skill and discipline to underwrite insurance profitably. 

Over the long term, they make money with very little risk.  Their success is almost guaranteed (as long as there is a USA), and the process is repeatable. 

Do not take my word for it.  Go look for yourself, and try to understand that most of Berkshire's wealth (Warren Buffet) was built on insurance companies.

If you would like me to follow up with a discourse on the top performing insurance companies, leave a comment.  Otherwise, take the time to research my assertions. 

Wednesday, June 18, 2014

Good Morning America, How Are You?

Yesterday was great.  Yes it rained off and on, and I got soaked planting marigolds.  

I planted tomatoes in the morning (got rained on).  I planted lobelia in the early afternoon (got rained on).  Planted alyssum in and around the lobelia (got rained on).  Late afternoon, I planted marigolds (got deluged on).  That did it. I was wet, cold and mosquito bitten, so I went in and took a long hot shower.

It is the little things that make life pleasurable.  Late in the evening around 9:00 PM PDT, it was still light, and the sky had cleared.  I went out and sprayed deer repellent.  I don't know if it will have any effect on the deer, but it stunk bad enough to repel me. 

I had a buck (Mule Deer) that took a dislike to me yesterday.  He is rounding up and protecting his harem, and he thinks my yard belongs to him.  I fixed him.  I was cleaning up the frost cloth that I use over my boxes.  He was staring me down, with his head lowered.  I looked at him.  He looked at me.  I moved toward him.  He did not back up.  I ran at him with my white frost cloth flapping in the wind.  That spooked him, and he ran off about six feet.  We repeated this behavior until he (along with 2 does) gave up, and swam the river.  There take that you, you, so and so... :)    

He was cavorting with the ladies the other night, and knocked down my rocks that I have a decorative boarder around my GrowCamp.   I fixed that in the rain yesterday.  Grrr... 

Have a great day.  Enjoy your food, wine and your family.   

Small Business Outlook

Summary: 

1.   Today is FOMC news.  The FOMC announcement is all that matters.  All liquid markets will be on hold (low volume and small moves) until 11:00 AM PDT (2:00 PM EDT).  The exceptions come when a leak occurs.  Of course, there could be a world emergency, but that would be outside the normal events of Fed Watching.

2.   Today there is really big news that will not affect the stock market.  Tomorrow morning (before you and I awake in the USA), the Chinese renmibi/yuan will be exchanged directly with the British pound in Shanghai.  The pound becomes the 5th major currency in that the world to allow trade directly with the renminbi/yuan without using the US $$$. 

a.    Takeaway?  This is huge, and the Chinese are serious about removing the US dollar as the reserve currency of the world.

3.   CPI was released yesterday... Oh hum, the markets said. I can't help but wonder if pretty much every investor and trader is ignoring the report as the numbers are ridiculous most of the time.  Yesterday, inflation spurted up unexpectedly.  Was that good news?  or was that bad news?  If the numbers are accurate, then the Federal Reserve committee is smiling an pumping their fists as inflation (according to reports) is reaching 2%. 

a.    You may want to take in the price for meat, poultry, fish and eggs.  The BLS started tracking this in 1967.  In 1967 the index was at 38.1.  As of May 2013 it was 234.572, and as of May 2014 it stands at 252.832. 

b.    Basically, inflation for the normal consumer is very high, while inflation the government wants to report is much lower. 

4.   US printed some pretty awful housing data (depending on your spin of the numbers).  Housing starts were down -6.5% in May.  Building permits were down -6.4%.  This was against the bad weather months.  Was there bad weather across the US in May?  I cannot help but think that Housing is about to imploded - dive off the cliff - let the air out of the tires.  That is not good news. 

5.   As far as I'm concerned, the economic news is too confused to drive the market until the FOMC meeting.  I expect the market to open above yesterday's close, and then chop.  Day traders might wait until 11:00 AM PDT, and then get in on the excitement whatever way the excitement drives the market. 

Tuesday, June 17, 2014

Good Morning America, How Are You?

Listening is not easy for me anyway.  I did not talk to anyone yesterday except my wife.  I tried to give my full attention to her day.  My mind wandered.  Sigh... Today I hope to do better, although I don't expect to talk to anyone but my wife again today.

It rained hard off-and-on yesterday.  My early peonies have the petals lying in a puddle on the ground.  The life-cycle starts again, and the shiny green of the leaves are still attractive in the overall garden (or so I think).  My Tree Peonies look so sad after having huge 24 inch blooms all over them.  I look forward to next year.   My late peonies are just blooming. 

Have a great day.  Enjoy your food, wine and your family. 

Small Business Outlook

The NY Times had several articles and opinions on immigration today.  The one that caught my was "Migrants Flow in South Texas, as Do Rumors".  Carmen Avila recently came to the US, seven months pregnant and with a 4 year old son. 

" I heard in Guatemala that people were caught by immigration, but then they let them go and gave them a permit. The word got around, and that's why so many people are coming."

To immigrate in the way many from Central America are immigrating is a tough and dangerous journey.  And yet, where are the jobs?  For if they come, then there must be jobs. 

Are not nearly all of these immigrants basically untrained for anything but menial jobs?  If so, then what are the young USA citizens trained for? (meaning why are the large majority of young people unemployed? Is it not because there are only a few jobs for the untrained vs the amount of people willing to take those jobs?)

The articles in the NY Times pull at your heartstring, but they don't explore the other side of the issue for the USA citizens themselves.

Small Business is where most of these people that are allowed to stay will be employed.  Yet, irrespective of the White House's rhetoric, the government is not helping the really small businesses that must employee these folks. 

Summary: 

Did you know that the stock market is nuts.  Looking at the news from yesterday, (not just financial news, but all news) does the market move make sense? 

Here is a 5 minute chart of NQ mini futures starting at the opening in NY from yesterday.

  

The market went up, then collapsed, then went up and chopped.  What does that tell you?

Possibly, the news on Industrial Production drove the market until the housing report at 7:00Am PDT. 

No, the housing report was not that bad.  It actually beat consensus.  New Home sales were showing improvement. 

Then what happened at 8:30 that made the market reverse with no consolidation?  Who knows, but the DOW, S&P 500 and the Nasdaq all closed in positive territory. 

Somewhat the market is waiting on the 2 day FOMC meetings that start today.  Are investors, banks and traders expecting any earth shaking news?  No, but it is the rule now to wait for the Federal Reserve and the European Central Bank to tell us how they are planning to rule the world.

This morning, the consumer price index is showing warmer inflation than expected.  The inflation Genie is trying to escape the bottle, and the Genie is not benign. 

However, if the Genie is anywhere near escaping, would we find metals exploding to the upside?  Well the Gold Bugs would certainly want you to believe that, and if you follow them, then Gold is being hammered down yesterday and today.  Copper is also moving lower with only a couple of days of respite.  What does that say about inflation?  Actually, nothing... If you don't get irate over "nothing", think about what leads? Does inflation lead Gold and Silver, or does Gold and Silver forecast inflation? 

Central Banks are still fighting deflation, and have chosen to ignore any inflation. Investors worldwide will very likely be looking for Janet Yellen to clarify the global economy and the USA strategic position on QE.  If so, look for the market to be choppy until Wednesday's FOMC announcement and Dr. Yellen's statement on the meeting. 

Maybe, just maybe, markets go down sometimes simply because there is more selling interest among traders and investors than buying interest.  And on the flip side, markets sometimes go up because there is more buying interest than selling interest.  There can be all kinds of opinion on why markets are doing what they are doing.  But in the end, price goes up and it goes down; sometimes without any information that explains why. 

This morning the S&P futures market were higher.  Then the CPI report and housing reports were released.  CPI was higher than expected (as noted).  However, housing starts were lower.  CPI caught the trader's ears in Treasuries which fell to a new session low after the release of the CPI. 

Housing starts fell 6.5% in May.  Single family starts declined 5.9%.  Building permits are used as leading indicator of future housing data.  Building permits were down. 

Overall, I can't help but wonder if the economic news is mixed, and the markets will chop (once NY is open for trading) until FOMC minutes on Wednesday.  Things are just too confused at the moment.