Consumer sentiment

A note regarding interest rates and the stock market. \

The question, of course, is "can the stock market continue to rise if interest rates start to rise?".

Since I consider the stock market rise to be a form of inflation it would seem that the bond market declines would be the natural result of that inflation.

Will those bond declines kill the stock market? Not if those rises in interest rates LAG the inflation that is actually going on. It is possible, and maybe probable, that the economy and the stocks may continue to rise if the economic activity is active and the optimism causes an increase in the VELOCITY OF MONEY. It is the turnover in the money that causes increases in GDP and causes the expansion of credit. If rates start to rise there may be an urgency to borrow. In addition, rates are historically low. A rise from where we are now would still be low interest rates. It all depends on the rate of change, and bonds are a back and fill market, usually.

The recent consumer confidence numbers, and today the producer price index numbers, show a pickup going on in the U.S. economy.

There are still some macro rumblings regarding interest rates in Japan. And that depends on the velocity of those rate changes. As usual, in evolution as well as in markets it is how fast change occurs that is the determining factor in the outcome.......

In conclusion. If rises in interest rates lag the inflation that is building, and I believe it is the goal of Mr. Bernanke to stimulate inflation, then rising interest rates will not kill the economy or the stock market. And when the economy is actually trying to expand Mr. Bernanke will be able to "pull on the string" and not continue to have the dilemma of pushing on the string..... The reins will be back in his hands and the horses are pulling eagerly. (shudder the analogy)

Mr. Market has to digest things tho.....

gh

Imagine

Imagine

　
Imagine a world where people were rewarded according to their merits. Those that were the hardest workers were rewarded with the food and shelter of the highest quality for themselves and their families. Those individuals who learned the most and increased their understanding of what was best for themselves and how to get those things were rewarded according to the efficiency of their endeavors. And those that were lazy or unable to fend for themselves were without food and without shelter. And they and their progeny did not survive. Over time the hard workers and the more educated or intelligent people would survive and soon the population would be composed of only those, who by natural tendency, were productive members of society.
When we imagine such a world we automatically place it in the context of an economic and legal system that rewards hard work, education and thrift. And that economic system that we take for granted and that matches the scenario outlined above is free market capitalism.
But what if there is another system that matches that example above. Suppose we are talking about cave people living in very primitive conditions. Those that were the strongest could appropriate the food of those who were weaker. The stronger could evict the weaker from the best and warmest shelters and provide their own families with the best chance of survival. Those of above average intelligence would in this system be able to devise ways to increase their command of resources and increase their chance of survival. And by combining forces the strong and smart could become even more powerful. There would seem nothing that would save the weak and the stupid. In short order the world would be only for the strong and the smart.
And then what? The game would be over? No, the game, if I can call it a game would go on. For what I have described is an inborn proclivity for competition amoung the inhabitants of this imaginary world. We could no more expect these people who were shaped by circumstance to be the most competitive to suddenly decide that it is no longer necessarry to compete. Competition would go on among these survivors of the previous generations. And the escalation of the competition would lead to even greater and more severe conflict between the people of this world.
At some point the intelligent members of this society, if they were the ones to survive, would surely look at their situation of increasingly severe conflict and war and would ask themselves why it was neccessary to continue to make war on each other. For it would be increasingly obvious to these wise ones that all of the best resources need not go to only a few of the strongest or smartest, even if being strong or smart was a desirable trait. Particularly when it put everyone at risk of losing their lives. And at that point in the development of this imaginary society, the wisest, in league with the strong, would develp alternative rules that would temper the competition and bend the drive to selfish gain to an end that was more to the benefit of the whole society and as a result to the general benefit of all members of this society. And at this point the wise would create a body of authority to regulate the lives and actions of fellow members of their society. They would create government. For the benefit of all. Of course conflict would persist since this is the natural way of these people of this imaginary world. The wise could be corrupted and use government for their own ends and to the detriment of society. But these trends would be self-limiting as the good of society as a whole, having been recognized by an earlier generation would be seen as the solution that history had proven best. Societies would devise ways to give all participants a part in the rules that were made. In exchange there would be an understanding among these same people that the limits to their own personal power or gain would be in the longer run of benefit to themselves and their families.
This story sounds increasingly familiar to most people today. And whether framed in a purely social framework, or if painted as a strictly economic framework, the story develops in the same way. Society as a free for all donnybrook does not work in the long run. No progress is made when all individuals are able to prey on any others. And the story progresses the same in a strictly economic sense. If there are no rules to guide the capital flows the strongest and the wisest take all of the resources and the losers find themselves without food or shelter and perish. To the detriment of society as a whole. The rich get richer and the poor perish, and then the game gets even dirtier.
So as members of this society we must be on guard for the signs of deterioration in the living standards of all members of society and we must be imaginative as well as vigilant in protecting the chance for every person to have an equal chance at the resources that make life not only possible but worth living.

Just thinkin',
gh

Confidence = Credit

I watched a commercial on TV last night. It showed a couple sitting on the couch and looking at their credit scores on a laptop computer. By touching the screen they could slide their individual credit scores up or down. As they did this, the furnishings of their apartment changed. Finally the woman moved her credit score up high and a rock singer appeared in their living room and sang and played his guitar. She was ecstatic and her face beamed satisfaction.

The message is still: Keep a good credit score so you can borrow to have the things you desire.

Consumer confidence surged to a five-year high in May, fueled by increased optimism about an improving job market.

Here

And someone mentioned that the saving rate has dropped..... Could it go lower?

Here we go again!

The only thing that baffles me about this is the reaction of gold and silver......I guess it will be a matter of timing.

If the consumer is confident she will borrow. And if rates rise, the banks will lend. And the wall of money will start to budge.

gh

Abe stimulates the world

Shinzo Abe, the current prime minister of Japan embarked on a program of intentional depreciation of the Japanese Yen last December. The program has been referred to as "Abe-nomics",

and here.

Since that time the U.S., and to an even greater extent, the Japanese stock market has been on a tear.

An intentional depreciation of a currency makes loans made in that currency easier to pay back with those currency units as they will be worth less in the future. This makes it a no-brainer to borrow now and pay back later. This, and the co-incident rise in the U.S. stock market makes me think that our stocks have been bought more for speculation with easy money than on a belief in the fundamental strength of our economy.

The charts show a correlation.....

Correlation does not insure causation....but....
What happens if the bond market in Japan sells off and interest rates go higher than the 0% of the past few years????
The next black goose?

gh

Exactly!

The Hubris of the Bulls

This is the perfect add to my latest posts. Thanks to Joe Calhoun at Alhambra Investment Partners.

gh

When the facts change.....

I first heard the quote "When the facts change, I change my mind. What do you do, Sir?" in an autobiography of Bernard Baruch. I don't remember if he was quoting John Maynard Keynes or not. But his advice was some of the most valuable that I collected in my early days of learning to trade.....

(When asked the secret of his success in the markets Baruch told the listener, "I buy late and I sell early".)

I mention this because of the frequent zig-zags that my posts sometimes take. One day for inflation and stock appreciation and the next predicting a decline in stocks.

I trade. And traders compete with each other. If you are long term, do your thing. I manage my long term investments different.  It is called being diversified!

I trade. And I have to beware of the company that I keep.

I "Trade the Traders". Another good book to read.

The history of the quote here.

gh

Fear of withdrawal

The chairman of the U.S. Federal Reserve testified before Congress this morning/now and he mentioned when questioned that it may be possible to raise interest rates at a sooner schedule than he and the Fed had previously forecast. The markets, which had been on a moonshot prior to the comments, immediately reversed course.

Most notably the inflation trade.

A junky who hears through the grapevine that his supplier is in trouble with the law and may not be there to provide the drugs he desires has an immediate surge in adrenalin and anxiety. He has been through withdrawal before and just the thought provokes a form of withdrawal even before the body has started to withdraw.

The world capital markets are addicted to easy money. This is not a recent addiction. Since the days of "Easy Al" Greenspan this phenomenon has persisted.  Any "crisis" in the money markets worldwide has since then been assuaged with increased

liquidity and lower interest rates.

If the economy is in fact curing itself the markets will eventually recover even if stimulus and easy money is withdrawn. BUT it will not be easy. Time will tell, of course, but the thought of tightening of monetary policy will temper the enthusiasm. And given the exuberance of late, a correction would be appropriate this summer.

It occurs to me that while one part of Congress is violating the public servants of the IRS another committee is politely questioning the head of the federal reserve bank. I wonder if Bernanke feels any threat of persecution if he makes a mistake in monetary policy. Or continues to make mistakes. Depending on your money philosophy......



gh

Later today:
The stock market ends down sharply. The threat of a rise in interest rates has historically had a chilling effect on the stock markets.
In 2007 the bond market had made a large head and shoulders pattern and price looked set to plunge through the floor. (Interest rates to go up) The result was the bursting of the housing bubble and the end of thecommodity bull market as well as the financial markets the world over.

Every time these cheap money addicts smell a rise in rates coming they panic. Compare a long term chart of the bond market with a long term chart of the stock market. Note that whenever interest rates are poised to rise and bond prices are poised to fall the stock market swoons.

It may happen again. Todays decline may be the opening shot of an adjustment that the world markets may have to make if we ever want to live in a world where the markets are truly free and businesses make money the old fashioned way. "By earning it".

It will take a while. Market tops are broad. They take time. A market top is a process, not a discrete event. Bottom pickers will come back in, for they missed the rally the first time. The public is coming in to the market. That is another good reason for a top.... Who else is left to buy when the public is in.

The big BUT is all of the money in the bond market. For all that money to go into stocks, bonds have to go down. But if the FED props up the bonds when the stock market gets weak, mistaking the stock market for the real economy, the money will stay in the bonds.... A conundrum. In other words the economy has to actually get STRONGER for interest rates to go up AND for the stock market to go up.

Corporations have to actually have good earnings in an environment where credit is tighter. And it is a big leap of my imagination to think that the consumer of corporate goods will spend more while consumer credit is restrained. This is because the worker/consumer has no bargaining power. Wages do not keep up with inflation. Credit has been used as the crutch to support the consumption of goods, in the place of  wage inflation and worker participation in the increases in productivity.
This is why myself, and many, do not have faith in an economy enduring rising interest rates.

Look at the charts...................

gh

My inflation argument

invest carefully. buy on the way up. Never add to a loser and don't hesitate to sell a loser....

gh

Silver making a move

Lot of action in the PMs this morning.

Bottomm????

CDE is the leverage play

gh

Is the IRS out of control?

A few words on this IRS "scandal" that is sweeping over the political landscape.

What do we hire the IRS for?   Are they not hired by the American people to collect taxes and prevent or bring to justice tax fraud?

In their role of preventing fraud. If I was running an organization with the goal of preventing tax fraud, and I was getting applications from organizations that proudly proclaimed an ideological opposition to paying taxes and who were applying for tax exempt status, I would give those applications special scrutiny. Isn't that the job of the IRS?

If I was applying for a U.S. visa and I gave my employers name as "Islamic Jihad" wouldn't I expect extra scrutiny of my application for a visa? And as an American who expects Immigration and Customs to keep terrorists out of the country, don't I expect extra scrutiny for groups who proclaim an antagonism to this country?

And despite their flag wrapped stance, the Tea Party politicos are anti-American as they seek the impoverishment of the American government. They are a tool of the Chicago economists and a tool of the corporate establishment and of the ongoing "Reagan revolution" that seeks to keep the workers working for less in order that corporate profits can continue to grow. They are misguided. It is a lack of demand due to worker impoverishment that keeps consumer demand low. And it is not government debt by the government that holds the worlds reserve currency that is the problem. The problem is consumer debt made neccessary by the lack of wage gains and by the lack of wage participation in the "efficiency" of the economy. The corporates are very efficient at capturing the money that has been printed over the years. Tea party politics are at odds with increased wages for the common man in America. It is a constant source of amazement to myself at the populist appeal of the Tea party!

Grrrr,
gh

A "Tell" ?

All of the time as I sit and look at markets trade I am looking for "tells". Those little correlations or negatively correlated markets that give a clue to what may happen in another market.

One of the things that I seem to have noticed over the last couple of months is the propensity for Deckers Outdoor (DECK) to lead the Dow Jones Industrial Average (DIA).

So, here are a couple of charts of DECK and DIA. They are 5 minute barcharts of the last few days.
Let's see what happens to the DIA.....

And the daily charts of these two.....

Grrrrr......
gh

Time for a correction?

I have been getting that bearish feeling lately. The indexes and some stocks seem to be getting ahead of themselves. This is a general statement and is not original. But the amount of what seems like "speculation" is and has been growing. I see those small stocks like AMD and EGLE having big, and predictable moves on no news or short covering, and while short covering is usually the start to a bottom and is often the blowoff to tops (TSLA?) while these things are happening the market is frothy and irrational.

I may be writing this to rationalize my recent mistakes. Although my calls on some stocks have been right on, I have not made the profits that those calls would imply. (sp?).... due to early selling and an aversion to giving back profits. So I trade a 1x profit for that 3x or 6x profit... Disheartening is a mild word....

But, putting aside or trying to put aside these emotions, I feel like a correction is overdue. The economic news is not confirming the stock market optimism.
Here

and here

and this kind of stuff that is questionable as to the value to society???

A chart of small caps:

gh

Dollar strength?

Dollar strength over the last couple of days seems a little hollow. At least that is the feeling I get from looking at the UUP etf.  I am biased and have been expecting the dollar to decline.
I know of no fundamental reason for strength in the USD. The economy IS improving, but interest rates are still low and the FED most likely will keep short term interest rates low for the forseeable future. When interest rates are too low and an economy is strong the currency is weak. At least that is my take on currencies and interest rates....
Despite the weakness in gold and silver today the gold and silver stocks saw strong buying. And there was continued buying in the energy space including the coal stocks. And continued recent buying in the steel and iron stocks. There are rumblings about a rotation from the "safe" stocks like the Proctor & Gambles and into the cyclicals. It seems to be happening. There was good money made in this situation in the early 2000's. Again in early 2009. And now.

I guess that I'm now a value investor....  Yikes!

Have a nice weekend,
gh

Shipping stocks

The world is set for a recovery. I believe this is what the stock market is telling us. The big money is buying cyclicals. Iron, steel, copper, etc....

The shipping companies have been in a serious funk since 2008. Now the look to start going up in earnest for the long term..... With some bumps along the way as is usual....

EGLE

And one more thing. For THE LONG TERM get the hell out of bonds.

gh

molly

I think MCP will breakout to the upside.
An earnings report is due in a few days.  If the earnings report is poor there may be a kneejerk down. But I get the feeling that a poor report may be ignored in favor of a future that looks brighter.

Lots of heavy volume today in MCP as well as many of the gold miners. It looks like accumulation in the miners. Even the iron miners....CLF ;)

Bon appetite,
gh

The big lie.

The Big Lie (German
: Große Lüge) is a propaganda technique. The expression was coined by Adolf Hitler, when he dictated his 1925 book Mein Kampf, about the use of a lie so "colossal" that no one would believe that someone "could have the impudence to distort the truth so infamously." Hitler asserted the technique was used by Jews to unfairly blame Germany's loss in World War I on German Army officer Erich Ludendorff. From Wikipedia here......



What is the deal with jackbooted clowns like Glenn Beck doing and say crap like this:

Article from Bloomberg here.

To have a spokesman for the right wing corporate apologists calling the democratic mayor of New York a Nazi is the big lie in it's latest version. Pathetic. Of course he is speaking to the NRA!

Cliff falling up?

Cliff Natural is getting that look. The price has run up against a ceiling several times recently. Not to say that it won't go down. It very well may.
BUT. IF it goes throught the ceiling it may go through the ceiling. If you know what I mean......

And we can take a look at copper again. Lot of volume in this thinly traded fund here at the "bottom?".

And that old chart of copper. It didn't fall as fast as I thought it might. When something doesn't act like it ought to my ears perk up!

This is all still bottom picking tho. Extreme caution is warranted!!

Long term technical take/ EEM

Here is a long term chart of a classic triangle or coil pattern in EEM, the emerging markets ETF.

Emerging markets are just getting started. This is a function of demographics. The emerging markets are where the young people are. The emerging markets are where the cheaper laborers are. Unless the free market stance among the worlds developed economies changes, these people are going to have jobs, and the money from China will continue to flow into these economies.

IF these markets and economies continue to improve it will mean that the rest of the world is successfully creating more money/debt and will be spending it on things. China will work through it's problems and will create an increased standard of living for more of it's citizens. They will most likely do this by continued appreciation of their currency, giving their workers a raise in pay while slowing inflation. They will in this manner export the inflation they are feeling now. And as they increasingly turn to other currencies besides the US dollar the dollar will weaken and we will feel that inflation.

China and the asian countries have been exporting deflation for years. They cycle is changing.....
At first inflation feels goooood!

A long term chart:

It works to put on a position in the long term the same way as it works in a short term trade.

Buy on the way up as a move looks to be getting started, adding as it proves you right.
You know you are wrong if EEM moves below the neckline on that H&S.  I would be fully invested as the price goes to new all time highs.....

Time will tell.
gh

Advanced Micro

I closed out a trade in AMD a few minutes ago.

There seems to be a lot of chatter over why this move occurred. I am quite certain that it was primarily short covering. The reason I think this is that this move started precisely when AMD was mentioned on CNBC as part of a trading/stock picking contest between teams of Fast Money commentators.

Josh Brown of The Reformed Broker was sitting on the team that picked AMD. He seemed to have a smug expression on his face when teamate Abby was talking about the strong outlook for this company. So I brought the chart up and at first glance I recognized AMD as due for a strong rally. I thought this was Josh's pick, but he assured me by e-mail that Abby "Abby is a talented technician".

Technician.  That means they were aware of the technicals..... Price.

I immediately bought my first tranche. And added to the stock as it showed increased strength.

The hardest part of trading is sitting still while the market pours money in your pocket, tho. So I sold today. I tried to talk myself into believing some fundamental story, but my sober brain says this was a short covering rally sparked by national attention on the telly.

Charts with notes:

Thanks to Abby
gh

MCP is waking up??

All the eyes are focused elsewhere but I think there is the makings of a bottom in Molycorp.

Just based on technical/chart factors.

A new low was made recently and the volume was unusually low. To me this means that there is no urgency to sell.

Lately I see bursts of upside volume intraday.

Looks like MCP reports in a couple weeks. It will be interesting to see how it acts BEFORE the report date. I have noticed in the past how stocks often telegraph the results before the public knows....

Somebody knows. OR the public and traders are just speculating. In this case the volume is down, so I would presume the traders have abandoned the chase, and that leaves only insiders..... Maybe.

Here is the technical case:

As usual, cut losses short.
Buy on the way up.
And you make your own decisions.

gh

Say it ain't so!

Oh, no.

CNBC just announced that the construction workers are preparing to place the spire on the Freedom Tower, built on the site of the world trade center disaster. When placed, the spire will make the Freedom Tower the tallest building in the Western Hemisphere.

Tall building construction has been a good indicator of the peak in economic activity over a long period of time.

From the architect

and Forbes

Skyscrapers Are A Great Bubble IndicatorVikram Mansharamani, 03.10.11, 03:41 PM EST They tend to go up before the economy goes down.

Maybe it will take awhile this time......

gh

There IS no inflation!

This from Bloomberg:



WTI Trades Near One-Week Low as Stockpiles Rise to 82-Year HighBy Ben Sharples - May 1, 2013 5:46 PM PT
West Texas Intermediate crude traded near the lowest level in more than a week after government data showed U.S. stockpiles climbed to the highest in 82 years. ......

.....
WTI for June delivery was at $90.87 a barrel, down 16 cents, in electronic trading on the New York Mercantile Exchange
at 10:15 a.m. Sydney time. The volume of all contracts traded was 60 percent below the 100-day average. Futures tumbled $2.43 to $91.03 yesterday, the biggest drop since April 15 and the lowest closing price since April 23.
Think about this for a moment.

Oil stockpiles are at an 82 year high.

And the price of a barrel of oil is $91.

$91.

And inflation is LOW.....  Yeaaahh...

Now that is a strong dollar policy!

Gold

I wouldn't label myself as a "goldbug". I trade gold and have a small physical position for the long term. But I find it interesting when various market participants and goldbugs talk about the supply of physical gold versus the paper gold that is represented by, well, paper.

Kind of like when the US Dollar was represented by gold. But the Nixon didn't want to pay for the Vietnam war with U.S. gold so he suspended payments at the gold window. And the world realized that perhaps we didn't have the gold to back up the paper......

Some curious things in the physical gold space nowadays. Particularly after the big runup in gold over the last decade...

I found this article particularly interesting.  HERE


Todays release from the Fed was not the explosion that I had anticipated based on the tone of the markets over the past few days. Some tempering economic data/ ISM came in weak/and China looking weaker than expected. But the gold stocks saw some late day strength so my opinion did not change completely. Perhaps it IS the European Central Bank that will make the big change tomorrow. Or not....

IAG/ CDE/
And how about that AMD in the tech space. !!

gh

CIG

gh