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...