Emerging Markets

As the US Federal Reserve moves to a more normal interest rate policy that is characterized by modestly higher interest rates, the US dollar should continue to gain strength. This strength will be a sign of a stronger U.S. economy. The Fed will be "data dependent", as they have stated many times, so the transition to higher interest rates will be a slow one. If a strong US dollar persists it should stimulate exports from the "extractive" economies in the emerging world. A strong dollar makes it cheaper for US consumers to buy imports and that will continue.

Gold looks set to confirm a medium term downtrend, making a declining triangle on the weekly charts. A drop through to new lows will probably happen in the next few weeks. (strong dollar)

In my longer term view I have to concede that the lows for Europe are probably in. Europe seems on the verge of stimulating and eventually developing some sort of Eurozone bond sale. European recovery will help the Euro. This also should revive demand from the Emerging markets.

It is for these reasons that I went long the emerging markets today.
I had bought the US small caps a couple weeks ago on purely oversold conditions and that they just seemed to have declined for technical reasons, the decline being so fast.

I believe that over the long term low energy prices are good for world economies and will restart inflation later. In the meantime, probably several years of demand will recover.

The swing trader in me thinks we might have another down leg, but the market is strong.

Blah, Blah, Blah....

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Quite a reversal from my last post, eh? The debt issues will rear again, but not for now.

Unsustainable

So, I will admit that bearishness is probably a chronic condition with myself.

But it has served me well by enabling a honed sense of skepticism regarding what the herd is doing. The timing is the key of course.

Lately I have not been able to shake the feeling that something is wrong with the stock market and it's relationship to economic conditions. In the very long term, it seems to me that the expansion of credit must continue to contract.

We saw a huge expansion of credit several years ago in the housing area. That area has been trying to contract to reasonable housing prices for years despite a concerted effort to keep homes unaffordable for new buyers.

The expansion of credit in the student loan area must be at a peak. The ability of newcomers to the labor market to pay off their student loans with the wages that prevail in the marketplace will need to change in order to keep the student loan sphere aloft. And these new workplace entrants cannot afford the aforementioned homes.

The car market rebounded after the '08 crash on the back of low interest rates. Cyclically, the auto industry must be near a turn for the worse. And the questions about the quality of auto loans are the same as the questions of the quality of student loans. All are vulnerable to a rise in interest rates, should that come.

The talk on the financial channels in the past few years has gone from manufacturing to finance to what the latest social network stocks are doing. Along with the latest gadget that is selling. My point here is that the size of credit purchases has gone from large housing purchases to smaller car loans and student loans and now the hot sellers seem to be gadgets. Will we figure out how to buy the gadgets on credit?

One after another over the last couple months I wake to see the latest high flier stock down dramatically. Usually crushed by a disappointing earnings report or projection. I will not list them here. Volatility is up. (Down today :( ...)

The rest of the world is having problems that persist since the big crash of a few years ago. The only reason the markets in this country are able to resist the downturn seems to be just a case of the best of a bad lot. And the USD being the worlds reserve currency, still.  And fundamental conditions as a function of the effect of credit on the economy must prevail. Some day. Or currencies must adjust.

Timing of course is everything. But the latest in the stock market is surreal to me.

Grrrr.

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Why Buy?

The stock indexes are back up to the downtrend line established over the last few weeks.

And the question remains.

Why buy now? If you haven't bought stocks in the last five years, why buy now.

I think the bid will disappear again.

Time will tell.

Here is the news from DECK today.

GOOD NEWS!

here is the chart:

Hmmm. There seems to be a divergence.


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DECK Weak

Deckers is weak intraday and seems to be rolling over. In the past I have used DECK as an indicator of what the Dow and thus the indexes are going to do.

Of course I ignore it when it doesn't match my expectations. Or maybe I am just more tuned in to it than I think I am.

As a swing trader I am anticipating a rise in the VXX again....

control your risk,
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TOP O' THE BOND MARKET?

Isn't it about time for the long bond bull to die?

I hear many people talking about deflation and how interest rates will be low for a long time.

Oil is down and gasoline is down. And OPEC is history....

Europe is down.

Gold and silver are down for the count, never to rise again.

There is no logical reason to short the long bond.

So. SHORT THE LONG BOND.

Add to positions as they move in your favor.
Control risk.
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High Energy Prices Are Deflationary

As I've stated in the past. It seems to me that high prices of energy are in and of themselves deflationary. This is counterintuitive. But lower energy will stimulate people to move about and do things. And as they do this they spend money and get creative ideas. And then they borrow.

As long as this latest downtrend in energy prices is due to oversupply that is a good thing.

This may be the headfake traders are always on the lookout for. That last whiff of deflation sentiment that signals a bottom in prices......

I have always contended that high energy prices were deflationary.

Control your risk,

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One, Two, Three...

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How Could An ED Miss Ebola?

I work in an emergency department.

This is how they could miss the first case of an exotic disease in the country.

HOW COULD THEY MISS EBOLA?


We won't miss the next one.(s)

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Two

Now it is two.

Groan.

TWO



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TBT

GH

Irrationality

Irrationality


And by the way. Did you know that silver kills germs.

I hesitate to mention this here on my allegedly serious site. But when I googled silver and Ebola I got many sites that showed how to concoct colloidal silver.

I don't know if it really would kill Ebola virus, but it is out there. And when I mentioned it to my wife she said she had noticed advertisements in the store, and mentions of colloidal silver on social pages.
Neither of us could be considered believers in alternative medicine.
But it wouldn't surprise me if a rumor could sweep the nation on the benefits of owning silver.

just thinking.

And the selloff in the markets seem to be getting rather irrational.

There has been one death in this country. And one transmission of the virus. ONE.

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Ebola v.

A link to Wikipeidia:

Ebola Virus

It has occurred to me that money passing from hand to hand may be a problem.

Clorox anyone?

In fact this may be another chronic problem, and that the recent stock weakness is a "shot over the bow".
After the initial shock, life will resume. With precautions.

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Like a Rubber Band

Snapback?

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I'll Say It

People are trying to find a fundamental answer for the recent market declines.

Ukraine?  Probably not.

Europe weakness. Not new. And fixable with policy changes.

U.S. weakness? Maybe. But the Fed won't raise rates if that is so... Ditto the EU thing.

Ebola? This may be the cause. Ebola may not be easily communicable. But it will cause terror. And it would cause a dramatic decrease in activity by everyone if the threat became credible.
And I'll say out loud what I've heard in private.
It wouldn't be very hard for ISIS or al Queda to get people infected and move them around the world.

And if they didn't seek help they would infect many, particularly if they wanted to infect people.

That would justify fears of a dramatic economic slowdown.

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Bounce

SPY is running out of volume as it declines.

Bounce imminent.

??

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No Do-Overs

That last post is one that I really want to take back....

Can't do it.

Now I have to sit on my hands for awhile.

At least a few minutes.

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That's all for Now

I think that is all the selling for now.

I sold my vix for now. Bot some more SSRI.

Silver is looking good. Talk of more easing in EU with US to stand pat.....

It is all about sentiment.

Control risk,

gh

Doh!

Big short covering rally today. I would have thought we had more conviction. If I hadn't been away I might have sold my volatility.
But that GG I bought this morning helped. And that dog SSRI I'm still hanging on to.....

The rallies have been running out of steam fast lately. Let's see what happens here. We may be on to the idea that if the economy is slowing, the Fed won't raise interest rates. Whoopee! Maybe the unemployment rate will go up! Wouldn't that be great!

At some point we have to get over this notion that low interest rates are good for us. Interest rates are low because inflation is low. Inflation is low because the supply side has been subsidized for so long, and labor is weak. As long as labor is weak, the consumers are living on debt. Those that have a job. The rest are living with their parents or under a bridge. But they are alive. And they are citizens. Whether we like it or not. It is certainly an inconvenient truth that they are living in the United States of America, in poverty.

So, the stock market does not reflect the reality of the whole country. Only that part of the country that is captured by the statisticians. Only that part of the country that has a decent credit score.
And it is a world economy now. Particularly the stock market. So beware.

This may be where it gets dicey.

Keep your bets small and control your emotions.

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