Sunday, January 25, 2015

Where are we?

O'kay. The ECB did the big bond buying thing last week. And the U.S. stock market went up one day and then down. There was no follow through on the long awaited salvation of the world economy.

The conversation seems to be changing evermore to the topic of currency wars and what the endgame may be. The game seems to be accelerating is my feeling. The Chinese yuan made a move a few hours ago that looks to my eye as an out of normal move for that currency, which is normally tightly controlled by the Chinese govt.

And of course the Swiss move the week before last.

And the issue of Dollar strength and it's effects on US exports and spending.

The longer term positive must be low energy prices. IF they stay low. That will depend on how fast the rig count falls in this country and how many drillers go broke before the price rebounds. If money stays cheap the drillers will probably have a chance to prolong the pain. (for themselves) And the consumers and delivery drivers will be happy, but the rebound in energy price would be sharper, presuming that the demand for petroleum products increases.

I continue to think that this may be a sideways to down year. The volatility, so far indicates this. One could just step aside for awhile. Are we counting on that last 5%?

Quite a change from my last post. Was it Mr. Buffet that described Mr. Market as a manic-depressive personality? I feel that way trying to anticipate the herd.


Thursday, January 22, 2015

Emerging Markets Outperform

Maria Draghi and the ECB took the plunge and commit to buy assets.


This will continue the "money printing" and will tend to further depress the value of a Euro. The U.S. dollar will continue to gain strength for the time being. The Yen is another question, and it may tend to weigh on the USD as time goes on. The currency war continues.

Energy will, by most accounts, remain weak and cheap for some time. The war between Saudi "overproduction" and the shale revolution in the U.S. and Canada, fueled by cheap money will continue. This is good for consumers and users of oil the world over.

Combine continued easy money with continued cheap energy and it seems to me that you have a potentially explosive mixture. Demand for energy will rise, energy conservation will ease, and activity will increase worldwide. I believe this will be the catalyst for an increase in the velocity of money. The velocity of money has been the factor that has limited the effectiveness of the central bank policies for many years. The velocity of money is the willingness of the horses to pull against the harness. (To reuse a previous analogy)
As the US dollar stays relatively strong, consumption will increase in the US, combined with the cheap energy optimism.
Emerging markets will see increased demand for their exports. These conclusions have been reinforced  in the action in the markets lately. See the charts. I think that emerging markets will outperform for the next couple of years. This will be the timeframe for inflation to start to take hold worldwide.  After that, all bets are off. But, in the long term......

The charts illustrate the recent relative strength in EEM.

It is important to remember that in the early stages of inflation all assets have the potential to go wildly higher. This includes stocks. We saw this in 2003-2007.


Friday, January 16, 2015

First Solar


First Solar has declined from about $70 to $40 with no great increase in the volume. It is odd for a stock price to change that much without some sort of capitulation in sentiment as evidenced by an increase or a spike in volume on the selling. This hasn't happened in this stock. This gives me an indication that there may be a good buying opportunity if the recent trend reverses, and it could be a rapid rise.
I would assume the price action in this stock is predicated on continued profitable business despite the recent and sharp downtrend in the price of energy. The price of oil and gas either does not affect this business, or the holders of this stock think that the price drop of oil and gas is temporary. Or perhaps for other reasons of which I haven't imagined.

But, from a technical perspective I would expect a vigorous rebound if one starts.

 Of course this may not be the bottom, and the volume could spike later in a decline.

Control risk,

Thursday, January 15, 2015

Weak Stocks

There was no rally off of support today. There was the beginnings of a rally about an hour before the close, as there usually has been lately, as the buy orders are placed by the funds, but the buying was weak and was met and ultimately overwhelmed by selling into the close of trading, leaving the averages sitting on the recent lows.

Todays news was the surprise move in the Swiss franc precipitated by the Swiss Central Bank announcing that they would no longer keep the Swissie pegged to the Euro. The SF rallied up 20% at the peak of the move, settling up about 14%. If you are a stranger to currency moves let me explain. A 1-2% move in any currency is a big move, so todays move was historic.  A few months ago the Swiss had a referendum on the question of whether to require their central bank to buy more gold as a reserve since the Swiss people seemed to be getting tired of their currency declining and the higher prices they had to pay, as well as the usual difficulty saving in your own currency if it is continually debased. Common people understand that at some point the currency becomes worthless and it is a good idea to have some assets that retain some value as a hedge.

This move will surely impact investors around the world. But the story will continue to play out over coming months. Just yesterday a European Supreme Court ruled that it was legal for the European Central Bank to purchase assets on the open markets. This is and will debase the Euro, and the Swiss central bank was in danger of going broke trying to maintain the currency peg. A debased and devalued Euro is thought to be the medicine that will finally stimulate the Euro-zone and give their imports a shot in the arm. It may give the world a shot in the arm as well, as all those cheap Euros are available for worldwide investment. Over the last decades it has been the Yen carry trade, then the US Dollar carry trade, and now the Euro carry trade?

My thoughts are on what a strong US Dollar does for the U.S. It makes imports less expensive so we can consume more imported stuff. But it hurts exports. And exports are how a country gets the cash to spend on the imports, unless it borrows the money. And we aren't in a borrowing mood anymore. Thus the conundrum. A strong dollar also buys more shares of stocks, so the price should come down, and the price of the exporters' stocks will come down if export sales decline. And I don't think that the savers in the U.S. are in favor of doing what the Swiss did today. Their currency went up but their stocks went down. That would not go over well in this country. So we, as a herd will continue to chase the paper prosperity, in the end. When the going gets tough we will demand the easy button.

Another point is that if stimulus is expected to work in Europe, investment money will flow that way, not toward the U.S. as has been the case for some years now.

If these macro events unfold then the U.S. will slow and stocks will continue to weaken and the Federal Reserve will be forced to initially back off of the plan to raise interest rates and ultimately what? They have interest rates at zero. They have purchased trillions in assets. What could they do next? About the only thing left to do would be to drop cash from helicopters. Mr. Bernanke never got the opportunity to do that, but perhaps Ms. Yellen will. (Google "helicopter Ben")

And this is why, over the long run, assets will hold value and paper will become increasingly worth less.
There is a "race to the bottom" in the world currency markets. Every country in the world wants to put their own people to work by making them competitive. "Competitive" meaning working for less compensation. And the sly way to do this is by making the paper they get paid in worth less.

Here is a price prediction of the next stock declines:

I will probably be wrong. I am about 1/2 the time.
But the danger is increased.

If a wolf was prowling in the neighborhood, I would sound the alarm. Maybe the wolf would just wander away and no harm done. But I want my friends to know when the wolf is around so they can keep the children close to the house. They don't have to keep the kids close if it is too much bother, but at least they know the risks.

Good Day.
Control your risk! Do you get that?
Control your risk.
A wise trader, Richard Russell, said "He who loses the least.................WINS!"



Emerging markets stocks and countries have been facing a headwind with the strong dollar and the prospect of an interest raise out of the U.S. Fed.

Now Europe looks set to take over the money printing: Draghi swagger

It is early in the day, but this is what I see in the charts. Emerging markets look strong. Perhaps some firming in oil, and the metals on the prospect of more easy money to come.

Looking at EEM for a change....


And do you remember that vote on gold by the Swiss a few weeks ago, that did not pass. Well perhaps it would pass now.

Not that gold is cost more in Swiss francs, but just to have the safety as the currency wars heats up.

Swiss Central bank shocks

Gold anyone?

Furthermore, the Fed must see now that it would be disastrous to U.S. exporters to proceed with raising interest rates as planned. If we still have a trade deficit, we are not getting wealthier, nor working. Currency war?
Well, it may not be a war with malicious intent. It seems to me it is about the same as the housing bubble and the sale of CDO's. Everybody was doing it, so most banks did it rather than be left behind. Same with worldwide interest rate manipulation. Everybody has to do it, rather than be left behind. That is why it is referred to in polite circles as "competitive devaluation".
The only currency that will be left standing is that solid metal. Gold, copper, silver, palladium. You get the picture.

Wednesday, January 14, 2015

Rock Paper, Scissors.

I am always alert for when any market hits the same level three times. Whether on the way up, or on the way down. The market eventually, most of the time, goes through the triple top/bottom.

The S&P has made a triple low.

Maybe not today. But....

How IS China Doing?

Markets hit hard today, oil down some more with a surprise inventory report. JNK weak again.

One of the hardest hit is Freeport McMoran (FCX), a copper miner in Australia.

I wonder what this says about the expectation of demand from China.


Tuesday, January 13, 2015

Et Tu, Banksters?

I will repeat.
Where are the banks?

What is wrong with the banks. Citi still at $5 a share. (You didn't forget that 1/10 split did you?)

If the banks aren't in this stock market party then the punch bowl will not be replenished.



Tide strong the other way today. Lots of shorts getting squeezed by Alcoa earnings coming in strong and talk in Europe of their version of Quantitative  Easing, meaning the Eurozone may buy actual assets to keep prices up. Like we did. Everybody's doing it. It's all the rage! (think currency war)

Oil down again, but there seems to be some bottoming going on in some of the drillers and producers. Some may be hedged better than others. Time will tell who will survive and I am not privy to the finances of companies nor do I care to trouble myself at trying to best Warren Buffet at his game. My game is to trade on price, to try to buy low and sell higher, to buy at any price when it seems that the price will move in my favor by the signals that the market is giving in price and volume. The trick is to actually keep your winners for the long term if you are correct at picking a bottom. A trick indeed!

Here is a oil producer that appears to be at a price that some think is value. Time will tell. But for now it is trying to make a bottom in price.

control risk,

Monday, January 12, 2015

Somethin' happenin' here

There IS something happening. I don't know what it is in particular. But, when I get this feeling from what the various markets are doing it is often a correct interpretation. My most memorable was on the week before 9/11 2001. 

Perhaps not.
But here is a tune to ease your mind:
Watch that sign....