Happy New Year?

2015 was a tough year for most traders. The broad averages went nowhere and there were few real trends to trade.

Oil and energy had an historic decline caused by overproduction as a result of new exploration technology developed over the last decade combined with a long period of historically low interest rates that spurred investment. Combined with a lack of will to control prices by the OPEC members oil has declined to a level that is not profitable for many of the new producers. This has resulted in a wariness on the part of bond investors for the low grade/high yield bonds of the oil patch. The worries over the fate of oil and junk bonds has been a drag on the overall stocks all year. This at a time when the U.S. Federal Reserve bank has finally initiated the long awaited first move to rise interest rates to a level that is more in line with history. And as they do this there are signs that the U.S. economy may be losing momentum. This business cycle is long in the tooth, as is this bull market in stocks.

With that said I think we may see a strong rally in the first months of the new year that is spurred in large part by a rally in energy. Most of this will be contrarian greed and short covering by speculators. There will probably be some stories out of the middle east and I would not be surprised if the Saudis start to talk up the price of oil with promises to reduce production. The can move the market with words right now.  (If they were Russians they would trade the market to their benefit.)

On the charts JNK does look to be trying to find a bottom. The dividend payers in the gas transportation area have been hit hard during this year and should rally as investors try to pick bottoms and secure dividends.

China may see more inflows than this year. And it may, MAY, finally be a good year for emerging markets, but only if the U.S. dollar is weakened by a slow U.S. economy and a Fed that is slow to raise rates. Time will tell.

Buy on the way up

Always control your risk and limit your losses

And cherish those you love.

Happy New Year,

gh

Late to the Party

In a widely anticipated move yesterday the U.S. Federal Reserve Board raised the target range for the Federal Funds Rate to .25-.50%. This comes after many months of jawboning the markets with promises to act when the time is just right. In the meanwhile the U.S. Dollar has appreciated massively against other main world currencies, in the process dragging the profits of multi-national corporations down and further depressing the prices of real commodities. Iron, gold, silver, wheat, corn, and of course oil depressed by a world that produces too much for demand as it is. China is wrestling with a slowdown in their economy, emerging markets that have overbuilt in the China trade over the years having debt problems of their own, and high yield/junk bond markets worldwide in a swoon. The junk debt of U.S. oil producers is in jeopardy resulting in concern over banks that may hold the debt. It is true that employment in the U.S. has rebounded and from ground level it appears the U.S. economy is firing on most cylinders. This is as auto loan debt is at historic levels along with student debt at similar heights, leading to the conclusion that these debts will be a drag on new spending and debt creation for some time. Surely the cycle is near a peak.

The Fed Fund rate increase in and of itself is probably of little consequence since it has been so low for so long. But the Fed also raised the rate that it pays to member banks on the reserves held at the Federal Reserve. There have been complaints of the banks not lending as they should with the easy money made available to them by the central bank for years. Now they will have increased incentive to leave money in the Fed. This seems a puzzle. Why increase the incentive for reserves to be held out of the economy? This is surely a tightening of economic policy in the real sense of the word. At a time when the rest of the world is still in an increasingly accommodative stance such policies will further strengthen the U.S. dollar and further constrain manufacturing in this country and further stimulate the imports of goods. How can this be good for the long term health of the U.S. economy? Debts remain high, manufacturing is declining. Eventually the strength of the U.S. dollar will correct and perhaps catastrophically so.

From the latest Fed statement:

"Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; some survey-based measures of longer-term inflation expectations have edged down. "

"The Board of Governors of the Federal Reserve System voted unanimously to raise the interest rate paid on required and excess reserve balances to 0.50 percent, effective December 17, 2015."

Full Fed statement here

I think the Fed has inadvertently raised rates too early in an effort to avoid being early. They have missed the timing of the cycle by 180 degrees.

I am not a fan of debt creation but I am a proponent of defending the country against the predatory currency devaluations of the rest of the world. And the fact is that the world has indulged in the greatest debt creation in world history over the last couple of decades and the only way out is debt forgiveness in the form of devaluations of currency. The U.S. Federal reserve has made the same mistake that they did in the 1930's with the former Great Depression, only with great deliberation and hindsight.

I will add this:

Auto loans outstanding

Hyperbolically yours,

gh

Jobs and Tech

This article presents other sides of the technology vs. jobs argument, but I believe that the forces of capitalism ensure that over the long term technology does cause decreased employment due to the fact that if tech is not productive it isn't used. It must be productive from an economic standpoint to survive, ie, it must make a return on the capital expenditure. This includes all of the costs of the technology; materials, labor, and intellectual input. Tech concentrates the... wealth of an industry. It is the few that own the tech, relatively, that reap the monetary gains. Monetary gain is the value of output minus the value of labor. The arguments against the net loss of long term employment caused by tech have been buttressed by the effects on inflation of increased productivity combined with wage pressures that has led to huge debt creation which has mitigated the immediate effects of job loss and wage pressures.

 

How Technology Is Destroying Jobs | MIT Technology Review

Automation is reducing the need for people in many jobs. Are we facing a future of stagnant income and worsening inequality?

technologyreview.com

 

 

 

gh

Fundamentals Rule

Just a thought.


Much of the glut of oil that has accumulated has been due to the long period of low interest rates and the way that this has enabled cheap exploration and easy drilling and other investment in production of products that otherwise would not be economical. But the cheapest oil comes from the traditional sources, still, and OPEC is desperate to keep the cash flow. The Saudi's to support their welfare society, and other smaller producers with the need of cash to survive the slowdown in Chinese demand that also impacts overall supply. So the price of oil declines as the glut in supply persists.

And this comes at a time when the "new technology" producers, to coin a phrase(?),(the frackers and miners) are increasingly needing profits to pay off the debt they have undertaken. Junk bonds are pressured and banks that hold that debt will be pressured. And of course we are getting to the point where wages are starting to rise, economic growth seems to show signs of life, and interest rates are under pressure to rise, if not just because the rise is 'overdue' from a policy standpoint, but perhaps in the case of high yield debt, due to the increased risk of the debt itself. We may see another example of reflexivity where interest rate rises increase the risk of defaults which causes interest rates to rise... etc.

If this scenario plays out it would lead to increased volatility in asset prices and increased volatility in derivatives. Near the end of the process, of course, would be decreased production of energy, rising prices of energy, and thus more reason for interest rates to remain high.

So, the fundamentals of supply and demand will always, in the end, remain supreme. It may be that the cheap oil will have to be exhausted before the world can move on to the less efficient energy. And that means we have been fooled by low interest rates that have led us to believe we could grow our economy on other sources of energy that does not have the energy ROI that led to the last 100 years of rapid growth.

Wasn't that cheery?

Control risk,
gh

Deja Vu

Once in awhile I get that feeling that "this" has happened before.
Today I got that feeling looking at the volume in DIA and FAZ.

Part of the feeling is a result of the narrative in the financial sphere that acknowledges the high valuations of stocks on a P/E basis, and acknowledges the strong U.S. dollar and the increasing likelihood of a rise in interest rates. There is the divergence between the few leaders of the market and the many losers as reflected in the A/D line. And all we can talk about is stock buybacks, and unicorns.
Unicorns.....

 And I found this really interesting picture...

Do your stretching exercises,
control risk.

gh

Paris Terrorism

Terrorist attacks in France.

Why does a downturn in the stock averages precede every major terrorist event?

It seems that way.

Cnn Attacks in France


Is this the new 'Real Politic' ?

gh

Fed is Hamstrung

Just the thought of a rise in interest rates has financial markets swooning. Stocks are one thing, it wouldn't hurt for a healthy correction to happen, but the bond markets are another thing. Particularly with the levels of debt that has accumulated over the last several years. Instead of the last few years spent paying down debt the world has created more. And much of the debt is priced in US Dollars. As I have said previously the Federal Reserve, like it or not, is the central bank of the world. The charts below show what has happened with just the thought of a "normalization" of interest rates over the last year.

I do not think they can touch interest rates until inflation is actually a fact. If clear heads prevail there will be no rate hike in December. And the market will shortly catch on....

Perhaps.

Nations always inflate away excessive debt. And the world is no different when interconnected by finance. Whether inflation is a moral good or not is another question. I am trying to see what will actually happen when crowds prevail upon policy.

Control risk,
gh

US Dollar Top?

It seems I am interminably trying to pick a top in the Dollar.

Oh, well....

control risk,
gh


Nov 11, 2015  
0702 PST
They are jumping into the weak dollar trade this morning. Yikes!

gh

No Keystone Pipeline?

The POTUS is to speak momentarily about his nix of the Keystone.

The financial/political talking heads are talking bad about his decision.

Nat Gas showing some strength. Drillers and pipelines showing some strength.

It could be that NOT doing Keystone will slow imports, raise domestic energy prices, and save some of our oil business jobs that would be lost with the shutdown of domestic production due to low prices.

This at a time when interest rates are set to rise. What better time to raise interest rates than when energy prices gain. And what better time to raise energy prices to save oil businesses than when interest rates are set to rise and make the oil debts worse, thus saving many from bankruptcy. It is even good for the banks who hold oil debt.

I think they just don't like the Pres.

gh

Not As Weak as Expected

Just a note here.

Gold and Silver are not as weak as I expected over the last two days. Two days is a short time, I know, but GLD and SLV do not break with the sellstops like they usually do.

And UUP is weaker than I would expect. Seems more are selling the rally than expected.

A trading rule I have is that when something surprises me I wake up and pay attention.
The dog that didn't bark.....

Control risk,
gh

Break Time!

I sold the rest of my 'weak dollar' trades today. Started selling a few days ago. This trade saved the year.
The Federal Reserve changed their language in the statement released today and seemed to put themselves back on track for a rate hike sooner rather than later.

I will not attempt to predict whether gradual rate hikes will crash the "fragile" economy or not. What I do expect is for the speculative markets to begin anew to worry about interest rates rising, and more specifically, worry about the negative effects of a strong U.S. Dollar.

There is no hurry. And no shame in buying things back if wrong. Right now it seems to me that the probabilities are for a weakening of stocks and real asset derivatives.

We may revisit the junk debt and the emerging market worries. Even as China surprises?

Stay dry.

gh

Repos Rise!

OMG! WTF! Reposessions up 60%!

Or perhaps the banks are expediting the repos because they can take them back on the books and maybe they see a market for these homes. At long last....Z

Perhaps.

The banks want these homes.

Z

gh

"To the Moon, Edith!"

"Oh, Archie....)

People are waking up to a weak USD.
Oil will come alive probably sooner than widely anticipated.

Control risk,
gh

BREAKOUT!

Silver stocks and the metal itself is on a tear, relatively speaking after years of decline. The miners are showing some life. Undoubtedly a lot of short covering going on, but that is the first step in a change in trend.
Dollar weakness will come to the forefront in coming months and years.

Control risk,
gh

ZIRP as Passive Aggressive Protectionism

The U.S. has been the leader in international banking for at least 50 years. And for nearly all of that time a policy of supply side economics has been in play. This has meant continually lowering interest rates to accommodate business. The result is that the world is awash in US Dollar denominated debt. Now the Federal Reserve bank has interest rates at essentially zero, a "Zero Interest Rate Policy" (ZIRP) and the U.S. seems to be the only economy on fairly firm ground. Seems is a deception. We are interdependent with the rest of the world. The politicians and "conservative" economists in the U.S. are clamoring for a rise in interest rates by the Fed and looking for a strong dollar. This would in essence bankrupt many of the companies and countries in the emerging parts of the world, as we would be raising interest rates around the globe and demanding repayment of debts in a more valuable currency. Ours. The effect of a move like this is to cause inflation in those countries whose currency values decline, thus making food and energy more expensive to the people who live in these places. We, the U.S., should fall on our sword this time by letting the U.S. Dollar go. If we do not, and demand repayment, we will have what amounts to a global insurrection. We are seeing this in the middle east already with the results of the Arab Spring uprisings of a few years ago that were caused by economic downturns in these countries and rising prices of food. An interest rate rise will cause the same in Latin and South America. And we will have plenty of food to export but no one will be able to afford it.

The U.S. Federal Reserve is managing the primary currency of the world and must manage it with an eye to long term stability. And that means long term world stability. Even at the expense of the long term supremacy of the U.S. dollar. A weak dollar will also put Americans to work again. It is the importers who object. We must assist China in a transition to domestic consumption, and do it without protectionism. Keeping interest rates at these levels will put the world on notice.

FXY

The Yen looks set to rise.

Gold has a rough correlation to Yen. Intraday is often pronounced.

I am still in the weak US$ camp.

The Fed is on a weak dollar course, and Japan seems to be striking out on the Three Arrows.

Control risk,
gh

Real Estate Warming Up

There seems to  be a bottoming forming in the real estate sector. Most notably is the outperformance of DR Horton.
I feature Zillow (Z) here because of what appears to be substantial accumulation of the shares, and a chart formation that is often very bullish.

For some time I have felt that we are at the beginnings of a long decline in the value of the U.S. Dollar even as interest rates grudgingly rise, lagging the economy due to political influences. Recent wage increases and political pressure to raise them is contributory. Any rise in interest rates may stimulate some to "buy now!" before further rises even as it will make saving for a down payment easier. The next housing bubble is surely many years away, but the trend may be starting now.

As always, control your risk. Know when you are wrong. For me it is if I am losing money....

gh

They Are Gonna Reflate

The worries of you and me cause us to despair once in a while. And see a path of decline and loss of wealth. These worries are not lost on the U.S. Federal Reserve Bank. It is just that they see these things as part of a much broader and slowly changing event. But the same things are seen. And as long as these things are seen, however defined, they represent a loss of wealth. And it seems to this observer that the Central Banks of the World are sure that they can control the wealth creation of the world, and that they will not accept defeat. It is a game of macro-politico-economists now. The world is interconnected and the Central Banks are interconnected, and as long as nationalist politics prevails they will try to outdo each other to win the game for the home team.

This causes me to doubt the wisdom of protectionist sentiment. However patriotic it may be. If we are a free economic zone (the world) we will destroy ourselves with economic war if we compete as nations. But if we abandon our nationalism we seem to be at a disadvantage in the world. At least in the short term, and if all participants play fair....

just thinkin'
gh

How I Channel the US Dollar

I see a 15 year cycle in this short series.

Timing can take years.....

control risk,
gh

Weak Dollar Policy Choices

Now that the Fed is in charge of currency values in the U.S. and a weak dollar seems to be the policy.

I covered this stock not too long ago,

gh

Don't Fight the Fed

There is an old saw in investing that says, "don't fight the Fed", meaning if the U.S. Federal Reserve Board is easing interest rates then "go with the flow" and buy bonds or stocks. It also implies that the Fed's "got your back" and they will keep trying to influence markets until they get their way.

Today, Sept. 17, 2015, a much awaited Fed decision day and the Fed left rates unchanged, at essentially zero.


The U.S. economy is by most accounts getting stronger and is probably the strongest economy in the world at present.

Todays decision is a nod to the other troubles in the world. The Fed usually has a mandate to optimize growth in the U.S. economy and to control inflation in the U.S. economy. Now it may be that the U.S. Federal Reserve is acknowledging their role as the "central bank of the world". This may be a recognition by the Federal Reserve that the bank that controls the major reserve currency of the world controls inflation and growth around the world.

I do not think they will get ahead of inflation until LATE in the game. Any rises of rates will always lag inflation.

DON'T FIGHT THE FED.

US Dollar reserve currency/JPMorgan


Control risk,
gh

Tidal Flows

The game of macro-economic speculation is all about determining the magnitude and direction of money flows. As regards the possibility of China cashing in their U.S. Treasury bonds and using the cash to stimulate their economy, we must remember that these are the savings of the Chinese nation that they are withdrawing from our bank, and spending. Our bank, in this case is our government. The money was loaned to U.S. and now is being repaid. The way I see this is that US dollars will be transferred to the China account where, presumably, they will be exchanged for other currencies and spent. Those US dollars will now be in the world economy. It is an open question if the magnitude of this event will be large enough to move the needle on US Dollar strength or weakness. But the end effect should be for dollar weakness as these "new" dollars compete with existing dollars in the world market.

With that said, I was thinking of Laffers curve of diminishing returns to governments regarding taxes, whether too high or too low. Taxes returned to the US govt. have been inadequate to offset spending for many years. US Treasury bonds were sold to finance the difference. The money was spent. Now for the US govt. to repay the bonds money must flow out of Treasury and back into the world economy. This at a time when the U.S. economy is the strongest, at present, in the world. The US Dollar is still the dominant currency in the world. More of this dominant currency present in the markets must be stimulatory or inflationary. I do not see the U.S. government spending less so the offset will be minimal to these outflows. Any flow of these dollars back to this country will be stimulus and will generate taxes and the circle will be complete and perhaps the long period of diminished velocity of money will reverse as well.
Velocity of money has been that long gone elixir of vitality.
Do you remember those days. When govt. debt was financed by pure depreciation of the currency, and not the savings of savers. The long bond bull may be over and it may be a good thing. For awhile. The debt must be eased.

Laffer's curve site

Laffer may have been more influenced by the contemporary velocity of money than he knew.

Just thinking,
gh

China Exports Inflation?

 Over in China more weak economic numbers tonight. Our S&P futures down sharply. And the US $ down.

 So this ain't about the Fed raising interest rates. If the Fed was raising the dollar would strengthen. And if this is about China exporting DEFLATION the US$ would be strengthening.

 The news reporters are reporting that hard times in China will make them work for less and thus sell to us for less, equaling deflation. But, 10yr US treasury yields are rising, the dollar is declining. What if things are SO bad in China that their means of production comes to a standstill? (ie, financial crisis) That will export INFLATION. Who will be making the stuff they sell us and that we demand?

 And another reason for a decline in the US $ and inflation is that the Chinese govt. is selling US treasuries and then cashing in the dollars for their own currency to prop up their economy. This releases those dollars into the world economy. As those US dollars look for a home they will compete for good and services with the US dollars that you and I already have. Inflation. As Milton Freidman, a famous economist said, "Inflation is always and everywhere a monetary phenomenon." So beware. Things could go either way.


Disclaimer from a trader:

"It is hard to make predictions, especially about the future".
Yogi Berra
The above quote, often attributed to Mr. Berra, is an accurate assessment of the difficulty of predicting the future.
...

Those who know me know of my passion for economics and financial markets. My perspective is from the traders view of markets and other goings on. I often make what may seem to be intelligent prognostications about markets or economies or other macro-economic events, real or imagined.
The point of this post is to remind myself as well as the reader of my poor record of forecasting. I do not know what will happen in the future.
As a trader my goal is to adequately manage my affairs as the future unfolds. As a trader I constantly try to intuit what is going on under the surface of markets by what I see and hear. But there is only ONE outcome. And we don't know what that ONE outcome is until after the fact. Sometimes well after the fact.
There are, however, many things that do not happen that MAY have had a chance to happen, or not. In order to limit my risks I try to arrange my bets to match what seems to be happening while thinking of as many things as I can that could also happen and make me wrong. And often, in my excitement of new discovery, I will write what I think.
Do not use anything I say as a definite prediction. Anything I say MAY happen, but chances, thus probabilities, are that it won't happen. Put simply, I try to manage probabilities by imagining possibilities. Only one thing happens out of an infinite number of possibilities.

Manage your risk,
gh

Rising Yields Beget Inflation?

Price of oil up $10 in the past week and the markets love it. The Saudis have been over producing on purpose for some time, but now that they've invaded Yemen things are better?

The price of oil has been too low to sustain the debt of the high cost producers and many banks were looking at the specter of bankruptcy in the oil patch impacting their loan portfolios. So maybe we just need to pay more for this cheap oil. By "us" I mean us. Then every thing will be fine. LOL.

 Low energy prices have been a major impetus for deflation, perhaps low energy prices will paradoxically cause a rise in interest rates (see junk bond yields) resulting in less oil production leading to higher oil prices, higher inflation, higher interest rates, higher inflation, lower oil production, higher oil prices, higher inflation, higher interest rates..... Oh well, you get the picture....


The recent low prices of oil are largely the result of low interest rates. but the true cost of oil/energy is how much energy it takes to get a barrel of oil out of the ground. There is no doubt that we are working harder to get this energy to consumers. The recent finance has distorted the equation.

There seems to be a shift out of consumer goods and into materials.

Bull Market in Volatility?

Very interesting action in the VXX today. I see steady buying all day regardless of the minor fluctuations in the averages. I get a sense of foreboding when I see these sorts of things. We usually need to retest our recent lows to make them valid. Or to show their tenuousness, as the case may be.
As I post this I see the SPY attempting to rally....

control your risk. It is not necessary to always be IN the market. That is the short term view of a trader. Longer term it is necessary and prudent to be diversified. Paper, tangible assets, and friends are a few diversified categories.

gh

For reference here are charts of the SPY and QQQ.

This is pretty amazing.

gh

"The Banks are Just Fine"

Any question of the health of banks is dismissed by the "experts" today as the averages are down dramatically. Of course early in 2007 no one thought the banks were in trouble either. Except those early sellers. But they weren't telling then either. Please keep in mind that we will not hear the real reasons until after the facts.

All that makes sense is that the emerging markets economies have no end in sight to the commodity depression and they will have trouble paying back dollar denominated debt.  AKA debt default. Who holds the debt? And what will the response of the worlds central banks be? I can only see paper sacrificed on the financial alter to appease the market gods.

control risk,
gh

The Real Deal?

The stories seem to be coming harder and faster lately as the stock averages slide down faster and faster.

China seems to be in the drivers seat.

Free Fallin'

This is my favorite bear market tune.....

It was either this or that picture of the shiny metal again!

Watch out,
gh

Watch Z

I've noticed some unusual activity in Zillow Group. Looks like sudden buying. I have no idea why.

Housing stocks have been perking up lately due to lack of supply, contractor sentiment, and increased purchasing power for workers, and of course the possibility of continues extremely low interest rates.

Perhaps a good opportunity here.

control risk,
gh


Aug. 21, 2015:
This thing is going to make a move.

gh

Deflation?

The talking heads are warning that the Chinese currency devaluation means another round of deflation. On the face of it that would seem true, as China is able to export "cheaper" products and bring prices down in consuming countries. But the markets don't seem to be saying this. The Euro bounces up, the Yen bounces up, and the USD gets weak. The reason for this is that a devaluation by China will make the US Fed reconsider the tightening, or normalization, of interest rates. Whatever "normalization" means these days.

The fact that China devaluation has the potential for a renewal of the decades long currency wars, and the forward looking Fed, despite their protestations of "data dependency", will drag their feet on anything that leads to a stronger US Dollar.  Jobs are part of the data. They may raise short term rates a tiny amount in the short term, but they will be dragging their feet in the longer term. There are still huge debts around the world that must be inflated away or down. Growth is an elusive chimera. I don't believe the world will see the growth that characterized the last 50 years. We are running out of room to grow.  All that is left is for a loss of faith in money. Whatever "money" means these days.....

So I repost that gold picture. It is so shiny!

control your own risk,
gh

Bullion Direct Belly Up

I received this e-mail today:

I tried to get my balance back with no luck. It seems the site is shut down and not transacting in metals. I didn't have much on balance so no big deal. The bigger question is why a gold seller goes bust. And what this means in the larger picture of gold prices. When people go broke, there is usually a bottom in fundamentals near....

MARTINEC, WINN & VICKERS, P.C. The attached Agreed Order (Doc#36) relates to the Debtor's Emergency Motion for Order Limiting Notice and Implementing Notice Procedures CLICK: Agreed Order Granting Debtor's Emergency Motion for Order Limiting Notice and Implementing Certain Notice Procedures

Forward this email This email was sent to ghickey@frontiernet.net by white@mwvmlaw.com |   Update Profile/Email Address | Rapid removal with SafeUnsubscribe™ | About our service provider. Martinec Winn & Vickers P.C. | 919 Congress Avenue, Suite 200 | Austin | TX | 78701

China Devalues Yuan

Well, you heard it hear first....

The news from last night: China changes direction


The next question is what this does to the calculations of the U.S. Federal Reserve and their intents regarding interest rate hikes in the U.S.

Do we want to appreciate our currency and thus enable increased imports of goods from China with the understanding that that means less domestic production.

Do we continue the currency war, or do we unilaterally disarm. I don't sense an attitude of unilateral disarmament in the U.S. these days.....

gh

CNY top?

Here is a link to a 10 yr chart of the Chinese currency.

LOOK OUT BELOW

Rant and Ramble

My. Look how time flies. I better post something. I hope my attitude is not too obvious.


Here is a rambling rant. Or maybe it is a ranting ramble. Whatever.


Financially, the world has become lopsided. There has been an historic concentration of wealth, as it is commonly defined financially, in relatively few hands. This has occurred because of the creation of debt. I do not believe it a simple correlation that the rise in debt mirrors the rise in wealth accumulation. I believe there is an argument to be made for causation. The debt has been issued, in one way another, by those that have accumulated wealth as it is (again) commonly defined. The problem that is occurring and looming at some point in time is due to where the accumulated wealth is stored. The money that represents wealth has been "stored" in stocks and bonds. Therefore a crisis or decline in any of these broad investment classes will be a decline in money. A decline in the value of "savings". Financial instruments are where people save. And I could really care less if the value of the 1%’s savings decline, but mine will too, and I need that money at some point in the not too distant future. And I am not alone. If there is a definable middle class in this country, that middle class saves the same way that I do. Think about what this does to a culture when the savings of all the people are tied to the profits of the corporations whose share prices define the value of the employees retirement savings. This is the definition of "company town". One of the ways this affects common belief, and culture in general is that people will have financial incentive to lean politically to the right, defined as more sympathetic to business and financial capitalism. They will tend to vote and demand that the economy remain in an expansion mode, that is ultimately needed, to pay off the debts accumulated in a consumer and service oriented society. The economy MUST remain in expansion to pay interest on the debts that fuel the economy. Any slow down in the economy threatens this house of cards that has been built.

Another thing that threatens this scheme of wealth creation is any fracture in the belief system that enables the scheme. If the public begins to question the need for credit and debt as needed for survival, then the flows will reverse, and credit, and therefore wealth, will be withdrawn or destroyed. A belief in the advantages of socialism, a socialism without government debt, is one way to provide, through common effort, an alternative to the provision of services (now paid for by debt, a fungible item). It is a crippling idea, if commonly adopted, for the definition of wealth. So the people, leaning to the right for very practical reasons will tend to believe in only those solutions that do not disrupt the status quo. This, as the status quo inexorably moves toward the wall of the physical boundaries of the earth. And then "growth" must stop. It must. There are other ways to slow down and coast to a stop before the wall. The wall is imaginary, of course. Unless people SEE the imaginary wall. Then it is real and can be managed. Are you able to get a glimmer of the wall?

Chinese Currency Crisis?

The stock market in China has taken a terrible nosedive over the last couple of months and was down 30% the last I hear. The Chinese government is determined, if one can believe the reporting, to get the stock market going up again. It appears they have encouraged their citizens to invest in stocks and many are looking to retire on the stock gains. (Sound familiar?)
If the stock market, any market, is artificially inflated then the currency used to value the securities is deflated. That was the first thought.
Second thought. The Chinese have a cultural affinity for gold. And even priced in US dollars increased demand would benefit the gold producers.
Enough said. I've been wrong on that one for quite awhile....

control risk,
gh

Announcement Pending?

Short post. I'll just throw this out. Watching the trading on this Greek debt day....Puerto Rico in the news as well.
But, is an announcement pending. Seems something at this point in the day is cooking... the way things are trading...

Just for the record. Might be a sharp rally.

gh

Materials and Mines

I just feels like it is about time for THE bottom in prices of the basic metals and thus of the miners and suppliers of miners.

Every day for the last months, it seems, the talking heads on the business channels are talking about the TOP in the markets. Every day the question is, "Is this the top?", or "The stock market is approaching bubble territory". But the market keeps grinding up. Not zooming up, grinding up.

And in the next segment they will talk about weakness in China or the effect of rising interest rates on the economy and/or the stocks. If there is one thing I have learned over the years it is to not give much credence to what the talking heads are warning of if the prices of the securities affected by the predicted calamity are not collapsing or giving signs of selling. In fact lately the buying comes on the dips. It is not the type of selling that is typical of a general market top.

To go further, my impression of the economy is influenced by what I see around myself. I live in a tiny backwater of America, far from the economic centers. A pickup in the economy in our little backwater shows that strength in the economy has the pressure, to use an analogy, of blood being pushed through the smallest capillaries in a body. The road that I live on is busy. Much more so than in the last few years. The log trucks are running again, and the delivery vans are busy. And the attitude of people is optimistic despite some lingering unease left over from the last financial crash. If things are picking up and people are still cautious, then we have a long ways to go.
And last I heard we are still making more people in the world. And they still have connectivity to the world so they still want things.

It feels like a bottom in the demand thing.

Time will tell,

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Oh! I just post this and Josh Brown comes on talking about the breakout in Deere (DE). I had took my eyes off of that one!  Confirmation?
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Silver Standard Strength

Why is Silver Standard Resources going up as silver goes down......?

Whenever I see a stock that acts strong as others are weak, or as the underlying fundamental would suggest weakness, I pay attention.

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Dianna

DSX

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Paradoxical Effects

Sometimes there are unexpected effects from changes that otherwise are interpreted to cause a particular change.

One of these may be the effect of a rise in interest rates on shale oil and gas producers. It is my understanding that the boom in shale and in fracturing technology over the last few years has been in great part a product of low interest rates. If rates start to rise, and in particular if they rise too rapidly as they have of late, those oil and gas producers with high borrowing costs and high debt levels may be impacted enough to destroy supply in this sector. This would be an example of a paradoxical effect. Normally rising interest rates are thought to constrain demand. But producers going broke would cause a supply constraint. Come to think of it, low interest rates and the general "supply side" emphasis over the last decades seems to have resulted in the commoditization of everything, with low prices worldwide. Not discounting the effect of cheap labor. A double whammy, perhaps? And deflation prompts lower interest rates. (See Soros on "reflexivity") If this phenomenon reverses there could be hell to pay. Someday......

I am making no predictions about these companies, the charts are just a couple of those that I watch, but are two that have had trouble keeping up despite the rising price of oil lately, and to a lesser extent do not seem to be well correlated with any small bounces in the price of natural gas.

just thinking,
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Where is the Exit?

It seems like the long bond market is coming around to the reality that interest rates WILL rise at some point and that point is getting closer every day now. Economic numbers out this morning show an U.S. economy that is picking up steam.
It has been a 30 plus year bond bull market. At some point the idea will start to spread that it may be time to shift from long bonds to a shorter duration bond, at the least. And given the length of time that bonds have been in an uptrend there are surely some lopsided positions out there in the aggregate.

It does seem that the bond market may be setting up for a rout of sorts...

Although I don't know what the reasonable alternative might be.

Can money just vanish? I guess we know the answer to that. The financial markets are THE saving vehicle in these times and there is no real backing to any of it. Except the liquidity in markets that set prices. And there are rumors of a lack of liquidity in the bond markets.

The bond FUNDs may lead the way facilitated by the interconnectedness of modern "investors". Are there any real buyers left?

control risk,
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Reading GLD

I watch charts closely and in real time. Yesterday GLD went below the low of the 2nd and 5th previous days and there was NOT a sharp move down. This is unusual for gold and GLD. And it indicates, so far, that there is not much nervousness in this market and perhaps that there is accumulation by stronger hands. Time will tell and things change. Let's watch.

Read the chart:

 

 

 

A lower open this morning and the volume is subdued.

 

Control risk by keeping your eyes open.

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Japan Debt

As interest rates look set to rise in the U.S. and in Europe as these economies seem to be picking up steam it may be wise to wonder what effect higher interest rates in the world will have on Japan. The search for yield makes the money flow, in general, to those places paying the best return while taking risk into account.

Japan depends on debt to keep their government running. In fact they have one of, if not THE highest debt to GDP ratios in the world. This has been so for some time. Usually when a country reaches the 90-100% debt to GDP level alarm bells start to go off for lenders to that country. This happened in the U.S. a few years ago, and the bells rang loudly, particularly in the political circles. The U.S. debt, as a percentage of GDP has improved. Of course this is a ratio, and is dependent on the level of debt as well as the level of economic activity. (GDP)

Investors are always on the lookout for the next BIG thing that may derail a recovery or cause turmoil in financial markets. Japan may be a big deal in the future with the level of debt they are in and if interest rates rise around the world. Japan has been the source of lending from Japanese banks at the same time their government has propped up those banks with borrowed money. This has been going on for decades now, since the 1990's real estate bubble burst in Japan. (the US has repeated the pattern remarkably so far) Japan's government does hold a high level of domestic debt, meaning they have borrowed from their own citizens to a great extent. How much more they can save and lend to their government is an open question, particularly if exports take a hit due to decreased competitiveness caused by currency or energy.

Here is a list of world countries and statistics of debt. Pay attention to the debt/GDP numbers.

World Debt Levels

And the chart of the Japanese Yen as represented by the FXY ETF.

The chart says look out for a rise in the value of the Yen. A rising Yen makes repayment of debt more difficult and usually is the result of a rise in interest rates in a country, but is actually a valuation RELATIVE to the world. Any rise will crimp a country with a high level of debt. And there is a good chance of a financial dislocation with any sudden moves. ( google "Reflexivity") A rising currency makes exports less competitive and Japan depends on exports.

Safe havens like gold usually do well in these scenarios.

Just thinking,

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Safe Bulkers?

Although this stock is still in a downtrend technically speaking, it seems the selling is about done, and given the general rotation going on in the market it may be time to buy this one.

From the profile on Yahoo!:
SB

Control risk,
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What High Interest Rates Mean

From the Wiki definition of "interest rates":


Economy: Interest rates can fluctuate according to the status of the economy. It will generally be found that if the economy is strong then the interest rates will be high, if the economy is weak the interest rates will be low.

http://en.wikipedia.org/wiki/Interest_rate

All I have heard for months if not years now is how the economy, and most certainly the stock market will crash if the U.S. Federal reserve raises, or allows interest rates to rise. The are said to have a mandate to optimize employment and to ensure stable prices. (Here)

If the economy is strong enough to let the Fed finally act after these years of low interest rates and lack of growth it will be past time.

And furthermore interest rates will not be raised, but allowed to seek a more natural level. If interest rates go up it will be because the economy is strong and that means there is more demand for money and debt, and less demand for the safe haven of U.S. Treasury Bills.

More demand for money.

Need I repeat that.

More demand for money.

More dollars will come into circulation and the velocity will increase.

There will of course be some fluctuation in stocks since there are many still dependent in their minds on the Fed and "cheap" money. But the fact that interest rates rise is proof of demand.

Sell those bonds. Buy stuff that is real or does real things.

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What To Buy?

Lets see. US Dollar going down. Oil going up. Bonds going down.
And people are selling stocks.
What are they going to do? Buy bonds?
They are going to have to buy those stocks back.....

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Dry Bulk

The main theme of the year so far has been the volatility in the tech stocks, with may high fliers dropping overnight, including the biotech darlings of the last few years. The money seems to be rotating into the materials. The possible reversal of the US Dollar strength along with firming in the price of energy has contributed. I have been anticipating this for some time. Probably because my heart is in the commodities, imprinted like a turtle, if you know what I mean....

It is about time to see a bottom in the dry bulk shippers. The charts support this with volume drying up even as new lows are made. This, if it proves a bottom would be for a long term trade as it may take a couple years for things to get really going again....

Buy as the price firms up. Don't get in a hurry.

Control risk,
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Fall Up aCliff

Here is a chart that portends a change in trend. Most likely in the short term due to short covering. The steel stocks have been perking up lately. Cliffs Natural is an iron ore miner.

The volume tells the story. As always.

Control your risk,
only buy a boatload.
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Dollar Top?

The U.S. Dollar may decline from here. The chart of UUP certainly suggests a decline in the Dollar Index.

A decline in the U.S. Dollar could be the result of a decision by the Federal Reserve to delay raising interest rates as has been expected. This delay, or change in mindset, may be due to the effects on the U.S. balance of payments and on the exchange of goods in particular. 3M came out with earnings today (HERE). Their earnings have suffered due to the strength of the USD as this raises the price for foreign buyers of goods. In the spirit of "mercantilism" that seems to have become the way countries compete in this modern age, and due to the fact that the first country to actually raise interest rates and thus appreciate their currency outright give up advantage in trade and thus employment, I believe the Fed will delay an actual rate increase. As this becomes apparent the USD will decline.

Then we will be back to worrying about the foreign holders of US Debt, and thus long term interest rates again.

GLD looks demoralized lately, as do some of the energy and miner stocks. So now is a good time for a bottom, as investors look the other way....

Here is an interesting read:

Minneapolis Fed

And some background on Balance of Payments

Furthermore, it seems that for too long the Fed has been "pushing on a string". As the U.S. economy starts to show some traction I can't imagine the Fed not using their increased leverage.
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Traders v. Investors

I was thinking about the differences between traders and investors.
There is really only one difference.
Investors believe the story.



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Social Events Drive Economics

Demonstrators demand a raise




Economic trends are social phenomenon. At present in the U.S. there is pressure building to raise wages for low income workers. Hardly a week goes by that I don’t see a demonstrators somewhere demanding a rise in the minimum wage. This time to $15. Nearly double what it is now. It is about time that labor woke up. I guess all it took is the stock markets going up for five years and zero interest rates for the same time.

So, it looks like low interest rates will cause inflation, and not just in the asset prices. The social public is not unaware of the rises in stocks and assets in general, and the greater divide between the rich, those who benefit from low interest rates, and the poor who watch the goings on and become increasingly angry. Angry enough to demand a share of the largesse.

Economics is a social phenomenon.

Look for wages to rise over the next couple years. Look for prices of goods to rise moderately as the increased buying power of the lower working classes pushes the cost of basic goods higher. They won’t be buying Tesla cars, they will buy Fords and Hyundai cars, and new cell phones.

Business may see a shrinking of the profit margin, but volumes will increase and this will be the carrot in front of investors who will hope to rein in the labor costs or increase productivity in order to regain the lead in money accumulation.

This is a recipe for inflation. The central banks will be reluctant to kill this golden goose after decades of deflation terror. The Fed will lag the inflation and therefore encourage prices to rise and the Dollar to decline. All the while "keeping their eyes on the data".

Now is the time to look long term at energy, metals and even the banks who will lend as the velocity of money increases with the wealth infusion at the bottom of the pyramid. There will be extra money in the hands of those without debt. They will want to catch up fast.

The next few years may make the 70's look tame.
The trend will change!

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Short Covering Rally

Here is an example of what to look for in "bottom picking" and trying to catch a rally caused by the shorts covering.
Oil and energy is firming up.
Cliffs Natural Resources is in the coal bidness.
After a long decline with the opportunity for many short positions to be built up it may be time to reverse. (For awhile)

CLF broke to a new low not long ago, but now the price is bumping up against that ceiling. If price goes higher from here it may be a signal to shorts watching to cover their positions (rightly so, as I expect energy to continually grow stronger from here as the WORLD regains mo).

Buy the breakout, add on strength for a 20-30% gain.
Maybe.
Control risk,
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RWH

Enjoy your weekend.

This is where I'm at.

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Watch Japan

In recent years there has been much angst in markets over debt. Politics in this country, (USA) has been keen on debt worries, particularly as a populist message to unseat a Democrat president. I think the politicians miss the main point most of the time.

Japan has huge amounts of debt and for years the warnings have been sounded about what could or will happen if interest rates and therefore borrowing costs rise in Japan, or there is a loss of confidence in the Yen around the world.

Shinzo Abe took unprecedented action in the last couple years as he, the prime minister of Japan, as well as the governing body in Japan went on a concerted effort to devalue the Japanese Yen. So far it is working. The Yen is weak, and presumably Japanese exports are competing with the rest of Asia.

I watch charts. If something significant is happening to prices, or the correlations between markets change, I don't expect to hear about it on the news. Eventually it will become news, but the time to take note is as the changes are happening, and I never know for sure what the cause of the changes may be until later.
For years there has been a correlation between strength in the Japanese Yen and strength in the gold market. It is marked in the intraday charts. This morning, again, the Yen opened up strong and gold opened up strong. It is almost like there is a fear for a strong Yen that prompts the gold buying. There may be other reasons of a macro financial reason that I am unaware, and to my way of thinking they don't really matter. I make my decisions on what the price is doing.
I do listen to chatter of professionals. Some are right, most are right eventually. The timing is the key, as always.
John Mauldin, who is a fine writer and student of macro-events has been warning for years that Japan is living on borrowed time.
Mauldin here

I am making no predictions regarding timing here, this post is a reminder to myself and any reader to keep an eye on the Yen and how it acts and how it affects the price of gold. There does seem to be some worry in the markets about Japan. And the big events are usually not in the news until they are the news. A catastrophe in Japan would be hugely disruptive to the world of finance.

Control risk,
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BABA Buy?

Alibaba

went public last fall and the price ran up and then has declined in a controlled fashion.

Now may be a bottom in the price of this stock.

I present this chart as an example of how to look for a bottom in a stock. This may or may not be a trend change, but the price does give some defined parameters for limiting risk and evaluating for a change in trend.

Control risk,
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Surefire Way To Make Money!

Originally a post on FaceBook by yers truly.

So the way to buy a stock is to buy it as it goes up. And the only way to know that it is going up is because it has gone up. This sounds like the reverse of the time honored advice to buy low and sell high, but this is the only way to buy if you are a trend follower, and the “trend is your friend’ is the best advice anyone can ever give regarding how to make money investing or trading in financial markets. If you think a stock is going to go up, one way to do it is just buy as much as you can and wait for it to pour money in your pockets. But it usually doesn’t work this way if you have been buying what you thought was the bottom. It usually isn’t the bottom and the trend grinds on. But if you do get lucky and the stock rises you will have a hard time believing your good fortune because the dozen losing trades just like this one have jaundiced your eye, so you sell it for a relatively small gain as soon as it looks like it is going to turn down again. And these poor trades grind down your account and your confidence.
Bottom picking must be done with care or the picker will tend to have smelly fingers and a small account. And there is rarely a sharp long term bottom in any stock although some short covering rallies are certainly worth the effort to catch. Most bottoms take time to form and buying the low price of the movement is rare and often after several months of see-saw action the buyer has remorse as the money has been parked in a range bound stock. But if one can be patient and wait for a long bottom to form and then buy the high price as the price moves up and out, as the trend looks to change, sometimes a good trade can be started. At least the price is moving in the right direction to make money. But don’t buy too much. There are still a lot of stock owners who bought early and are sitting on a loss and will tend to sell if the stock looks set to resume a downtrend. Overhead resistance, to use the parlance. But give it some time, watch how it acts at the obvious resistance areas. They are usually previous highs where selling in the past had proved the right decision and where many found the nerve to buy in the first place.
But if your stock can weather some selling and move back up and then press on higher, well, buy some more. It IS moving in the right direction and now you have a bigger position on in a stock that is in an uptrend.
As you do this watching and waiting you are taking the pulse of this stock. After awhile you kind of get to know how the stock acts and all stocks do tend to have a personality in the way the price moves. This is called “reading the tape”, and it is a good skill to have.
So your stock acts all hunky dory and you have built up a pretty large position as you average in on higher prices. This does mean that your average price is somewhere below where the stock is trading, so if you are watching and showing some restraint about your purchases it is hard to lose money on the trade after awhile. But one day the stock opens up strong or breaks out above a trading range and the selling comes in strong and pushes it back in the range and then down out of the range. So you sell.
And that is trading. And if you keep in mind that this principle of buying and selling works in many timeframes you can see how it can be made to fit the personality of most anyone who wants to try their “luck” at the stock market. Maybe you only hold a stock for a month as it moves up, adding as it goes, and you get out and look for another trade. You will be feeling how the stock acts and picking those trades that fit your comfort zone. But if you don’t have time to watch a stock from minute to minute all day and just want to glance at a price chart in the evening for a few minutes. The same principle of buying new highs will work. The price swings will be greater as the timeframe is greater, but the possibility of much larger percentage wins grows as well, so your position size as a percentage of your account will not be so large.
The point of all of this is predicated on the trader or investor having the sense to sell those purchases that don’t work out. Don’t let any trade cost more than a percent or two of your capital. Period. No matter what your feelings are about the prospects for the company. If the price is not going up, but down, sell it. If the company is a winner the price will go up when the world comes to see it, not before. If they do. Perhaps those sellers know something that you don’t. Be smart enough to not hold losers for long. Survival of the fittest, so to speak. At the very least your timing is wrong.
So there you go. If a stock is working for you, buy more. If it is costing you money, sell it. If you can do this in a dispassionate manner you can not help to make money in any active market. If you can do this totally dispassionately you are not a human being. Your mind will be your own worst enemy in trading. So get practicing.
And these principles work great in life as well. Add to the winners and cut the losers short.

 

 

And that is why I always sign off with,

 

Control your risk,

 

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