Interest Rates and Energy

The easiest oil and gas has been tapped.

The recent declines in energy prices were the result of overproduction that was the result of new technology combined with ultra-low interest rates. Easy money.

The breakeven price of oil and gas is higher than 20 yrs ago.

Now interest rates are rising. There may be a reflexivity in the relationship of interest rates and oil/gas production. The cost of money may inhibit drilling and the rising cost of energy may cause interest rates to rise.

Energy production is much more money intensive than in the past.

Natural gas prices on the rise.

Control risk,

gh

Putin as an Honorable Leader

Just for the record. Putin is a dick.

gh

A Monetary Phenomenon?

I am conflicted.


Economist Milton Freidman famously said, "inflation is always and everywhere a monetary phenomenon."

The U.S. stock markets are supposedly going up on the promise of Trumpian inflation, aka fiscal stimulus with borrowing. Bonds are selling in anticipation. The Federal Reserve board raised short term rates. So the U.S. Dollar continues its rise to the sky.

Inflation is not consistent with a strong currency. If the U.S. Dollar is strong and remains strong then by definition the currencies of other nations are weak. They will get the inflation from weak currencies. They will get the benefits of higher food prices and higher fuel prices. (LOL) They will get the benefit of unrest and riots. Isn't this how the Arab spring started? Wasn't it high prices that raised interest rates in 2007? And the U.S. will have a leader not anticipated to be a humanitarian.

I am baffled as to how higher interest rates will help housing. I am baffled how a strong dollar will encourage exports and lead to domestic manufacturing.

I can see why other governments might have to raise their own interest rates to stop domestic inflation. I do not see how this helps economic growth.

I do not see how the piles of debt in U.S. Dollars are easier to pay off with a strong dollar.

Yet the bankers and stock touts are giddy with anticipation of future profits.

Yikes!

gh

Money is King

Money is King. Trump is money and money is King.

I am reminded of the kings of centuries past who fought wars amid royal extravagance and ran up debts galore. When the peasantry was asked to pay more in taxes it was met with sullen resistance that eventually became outright rebellion. Usually before things came to this point the king and his court would come up with some scheme to raise money. This often took the form of a scheme to sell the people stocks or bonds with the chance of riches for all. In the end everyone had to face the fact that there was no wealth to create out of thin air, and that the schemes were just that.

The Federal Reserve is coming out with some sort of interest rate increase today. In the past any threat to a rise in rates send shudders through financial markets. Not so much now. The King has promised prosperity for all. And all expect the Fed to drag their heels on any limits to the creation of money. All are looking forward to inflation and do not expect any institution concerned with money creation to stand in the way of everyone getting rich. We may be at the start of a fantastic time in the world and the country that may last for years and may give the illusion of properity. Inflation is a joyous event to those with debt. The prospect of debts becoming smaller is intoxicating. I wonder how the peasants will react to higher prices for goods after they realize any wage gains will not keep up with the rate of inflation. When they are dissappointed yet again there will be hell to pay. This may take some years.

U235?

I am waiting for the tweet about nuclear energy....

This resource would fit all of the things that King Donald would like.

Infrastructure.
Rebelliousness.
and it will piss of the greens...

Nuclear facts


gh

Trump Nation

                                        
                                                                                                 The Economist photo


We are three weeks into a new era.

President elect Donald Trump continues to cause alarm among many as he goes about his business of staffing a cabinet. Most of his picks seem intentional to cause further divide amongst a divided electorate in the United States.

The antics and blunders of Trump also cause alarm around the world. China relations being the latest example.

An initial rally in the stock market and selloff in bonds seems to anticipate increased federal government spending. At the same time there appears to be a coalescing of efforts to rescind many of the social safety nets, and thus a new cause for discord.

Trump raises questions about the role of the President of the United States with his personal intervention in the United Technology/Carrier deal. What will the role of the new federal govt be with regard to market forces?

The bond market seems to anticipate government borrowing and currency devaluation even as the U.S. Dollar strengthens. I think the dollar rally will be temporary as the uncertainty over Trump administration policies increases.

Brexit was the epitome of uncertainty.  Trump is reinforcing the tenets of his policy that lend to global uncertainty. How long this uncertainty lasts is up to those in control of influencing Mr. Trump and his policies. And, upcoming elections in Europe have the potential to add to the influence of nationalist and populist sentiments, leading to a general decrease in international trade. To my mind populism and protectionism means higher prices.

Rising interest rates were something that the right wing in the U.S. have been actively encouraging. The Tea Party movement was strident in its criticism of the Federal Reserve and central bank policies worldwide. It remains to be seen how they temper their criticisms in the face of actual Fed tightening with a Republican in power.

It could be that we are at a moment where winds change in a direction that precipitates a storm. Probably centered on the bubble in bond prices that has taken hold over decades.

My sentiment has turned bearish for the short term to medium term. There is much uncertainty about the future and I think this must have a bearing on those who control the largest purse strings.
Rising interest rates will surely weigh down asset prices, stocks included, and the stock market has a huge influence on mass psychology in our financial economy where savings are defined by stock and bond holdings.

Sleep well,

gh

The Cheeto Wins!

Trump will be POTUS.

He promised protectionism.

He promised infrastructure.

He promised to do away with regulation by govt.

He promised an end to ObamaCare.

He promised a wall on the southern border.

With the exception of the end of the ACA, all these promises are inflationary.

It was Trump we smelled.

He has not promised an explosion of national debt, but that is what he will bring.

It is a sad day for The United States of America.

I predict a huge inflationary flameout taking a few years to play out, and then we will find another Franklin Delano Roosevelt.

Control risk,

gh

What's that smell?

The markets act like they are getting a whiff of inflation.
Or more easy money.
What is the difference?

Finally more buying in materials.

Some of these things are starting to look like long term bottoms are in.

Time will tell.

Control risk,
scale in on the way up so you are following an uptrend.

gh

Bonds Sell Off

Supply side economic theories and policies came of age in the 1960-70's. How could supply side ideas not gain traction in a period of inflationary forces. The cost of goods was rising steadily after WWII. What else is there but to encourage more production. And as inflation spiked in the early '80s and then was crushed by Volcker supply side theories came into their own. Decades of intentional low interest rates to encourage supply also had the effect of encouraging consumption through consumer financing innovation enabled by a steady decline in bond yields and interest rates in general.

It does appear that the world has reached the limits of supply side benefits. Perhaps a few years ago. Now producers yearn for a time of increased demand sufficient to raise prices for basic commodities. Over production of goods and services, combined with technologic advances in production has combined to produce a stagnation in western economies even as the consumers find themselves over burdened with debt and lacking wage leverage.

The long decline in interest rates produced a financial based economy that increasingly put it's earnings and savings in financial instruments, bonds and stocks and other derivitives, anywhere for any yield, due to the lack of opportunity in manufacturing or services.

At long last we may begin to see some wage pressures in an upward direction. Consumers may begin to see an increase in purchasing power and basic materials prices look to have bottomed. And the Central banks of the world are beginning to lean toward "normalization" of interest rates after years of a zero interest rate policy.

We see pressure on the long term bonds with, perhaps, the start of a trend change in the direction of interest rates.

With the massive sums that are parked in bonds I wonder what an exit from the 'safety' of bonds will look like. The bond market has certainly gotten lopsided over the last few years. The normalization of interest rates could be rapid.

But the question remains. If not bonds, then what?

And if normalization due to mild inflation, then what?

Mild inflation is good. And the money has to go somewhere.

　

The Dollar and the Fed

There has been talk for some time of the Federal Reserve keeping the value of the U.S. Dollar in mind when considering interest rate changes. The currency war, and all that.

So, the Fed seems to keep looking for reasons NOT to raise short term rates, despite their 'data dependent' stance on decision making.

All of this is due to the U.S. economy being the best of a bad lot, so to speak, in the world.

We now have two weak ISM surveys in a row. What if the U.S. economy is slowing, despite the 'weak'  dollar.
How long would it take to get to the point where the Fed had to actually DEFEND the dollar?

What would that look like?  Weak dollar. Slow economy. Inflation as a monetary phenomenon.

Would long bonds hold up with a serious dollar weakening?

Is the present dollar weakening just a response to expectations of fiscal stimulus? Perhaps....

What if there are actually some bond vigilantes out there? I bet there are too many of them.

Just thinking.

Control risk,

gh

Fischer Spills the Beans?

Stanley Fischer was being interviewed. When asked if he thought that the Fed would raise rates later this year, or even twice this year, he answered, "yes to both your questions". The stocks started selling at those words. The stock indexes have some soul searching to do with the prospect of a raise in interest rates. There have been two or three "tantrums" at the prospect of this over the last few years.
Earnings for some retailers have been surprisingly weak. Notably Dollar General yesterday.
The Fed may get the timing wrong. That is the risk.

Hence:
Free Falling


Time for another tantrum?

gh


 

Weak Retail?

Dollar General down sharply today.
How can retail sales be weak if wages are rising?

From DJ news:

General Hit by Weakest Sales in a Decade -- Market Talk

14:26 ET - Frankly, Dollar General's (DG) F2Q results weren't THAT bad. But this is an expectations game, and after seeing shares jump 28% in 2016 they will notch their biggest decline since late 2009's return to the stock market. In fact, DG hasn't had a double-digit decline before today; it's at session lows with a 17% decline to $76.17. It hasn't been the most-volatile stock, notching just 3 double-digit stock gains. But when you log the slowest same-store-sales growth since a decline at the end of 2005, investors are bound to sit up and take notice. Dollar Tree (DLTR), which posted its own soft sales this morning, is down 9.1% in what would be the biggest drop since February 2009. (kevin.kingsbury@wsj.com; @kevinkingsbury)

(END) Dow Jones Newswires

August 25, 2016 14:26 ET (18:26 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.- - 02 26 PM EDT 08-25-16


"Slowest same store sales growth"

AND WE HAVE JANET YELLEN SET TO SPEAK TOMORROW IN JACKSON HOLE. AND THE TALKING HEADS HAVE BEEN SCREAMING FOR A RATE RISE FOR MONTHS, IF NOT YEARS.
WILL THE FED MAKE AN HISTORIC BLUNDER?

ANYTHING IS POSSIBLE.

CONTROL RISK,

GH

Watch FCX

Freeport McMoran has had a huge run up this year, as have many of the miners. Looking at a long term chart I see that FCX could have a long way to go.

I am a fairly short term trader, often holding for only for 2-3 months, but I keep an eye on long term charts because many large funds hold for much longer time frames and invest for those lengths of time.

A cup and handle is a powerful chart pattern simply because it forms a 'triple top' and gives anyone who wants to sell at "the top" plenty of opportunities to do so.  When evaluating chart patterns I pay attention to what volume does during a move up, or down. A strong bullish signal is given when there is strong volume on the upswing and declining volume on the downswing or sideways 'consolidation'.

FCX shows all of these and is a good stock to watch for an indication of what may happen in the mining sector as a whole, and the world economy for that matter.
A weak U.S. dollar and the effect of that currency on materials prices is a major factor.

A breakout above recent one year highs could be the start of a major trend change in the miners.

A small position here is warranted, with additions as the stock moves up. IF IT MOVES UP.
IT MAY NOT MOVE UP.

But I think they all will eventually, probably after they fake out all of us chart readers. LOL

Control your risk,
gh

Squeeze the Bonds

Short of ideas for a title I settle on the aforementioned.

It is my belief that way too much money is parked in the bond market. In order to get that money to come back into circulation the governments of the world will have to let inflation get going good before any raising of short term interest rates. They need to flush some of the money OUT of the long bond markets. Any rising of short rates risks an inversion of the yield curve.

Squeezing long bonds would mean a squeezing of yield shorts. The reach for yield may be coming to an end as the economies of the world start to improve. Todays Robust Jobs Report is evidence that the U.S. economy continues strong. I think it is only a matter of time before the rest of the world follows. Emerging markets (EEM) continue to look strong in the face of strong U.S. data.


I am making bond shorts a core long term position. TBT is the vehicle of choice.


Will be controlling risk however......

gh

On Fiscal Stimulus

If you look at politics the world over it is hard to miss the populist sentiments.

As I pointed out HERE several weeks ago the outcome of coming elections will be fiscal stimulus in the form of infrastructure type projects.

Japan is working on this now.....

If we ask, "why the populist sentiments?" we can come up with an answer that includes the amount of debt that has accumulated over recent decades and the effect that debt has on growth and consumption around the world. Lack of growth, combined with the accumulation of wealth at the top has left people angry. (the accumulation of money looking for rent is why interest rates are so low and why their are no 'bond vigilantes')
If we can accept these facts of life, then we can conclude that aggressive fiscal stimulus, ie, putting money into the bottom of the wealth pyramid, is the same as debt forgiveness. Fiscal stimulus will finally spur inflation and inflation wreaks havoc on the bond market. The bond market is where all the wealth  is parked.

Debt forgiveness is a redistribution of wealth by resorting to inflation.

Unfortunately it is the only option left short of raising taxes on the rich and providing a broader social safety net.
You makes your choices....

Invest accordingly,

gh

Lithium

Every once in a while I get something that may be useful from CNBC. A few days ago one of their reporters was standing in the desert in Nevada reporting on a massive lithium deposit under the ground. A search revealed the company in question to be Lithium X.

Given the faithful and devoted followers of Tesla I expect Lithium X to have the sort of trading potential that comes from an association with TSLA.

Control risk,
gh

TBT

TBT stands for "The Bottom Trade".

We may be at a bottom in interest rates. There may be a period of change, but I think we are in the first stages of a world inflation. Most of the talking heads do not recognize that this is what is going on.

The negative interest rates in Europe is driving money to U.S. higher yields. This at a time when the U.S. economy is doing well. The Fed has no control over interest rates. They can not raise short term for fear of crashing the banks as long term rates are much too low. All this supports the US Dollar, paradoxically. As soon as it is recognized that there is a turnaround in Europe, the money flows will reverse and crash the Dollar and may well change the reserve currency status of USD. This will inflate the world. Probably a couple years off. In the mean time the U.S. markets will enjoy an increasingly hotter economy. Real Estate is already booming and no one is noticing.... Silver and Gold holding up very well as Brexit fears subside... China is starting to support the Yuan.....

TBT:

gh

Economics of Populism

If there is one idea that comes to mind when I think of the populist wave washing across the western world it is fiscal stimulus. The populists won't say it that way of course, but wherever populists win government they will be under pressure to put the dissatisfied voters back to work. And they won't wait for normal market forces to make that happen.

At long last fiscal stimulus is in the making.

Roads, bridges, and airports in bad need of work in this country for sure.

I like iron.

control risk,
gh

Post Brexit Fed

British voters have decided to leave the Eurozone.

Markets in disarray today. Down sharply on the open.

Bonds rally, yields historically low.

People have been saying that the U.S. Federal reserve "is itching to raise rates".

I doubt they will be 'itching' so much now.

It is easy to draw parallels between the "Leave" movement in Britain and the Donald Trump campaign in the U.S., with Trumps xenophobia and protectionism much the same as the Brexit.

Greenspan on CNBC this morning with a very gloomy view of world economies.

So who thinks the Fed will be in a hurry to raise interest rates before the U.S. election?

Not I.

Control risk,

gh

Triple Top Bottoms in Chart Reading

I have said that I love triple tops. I love it whenever the price chart shows that a "high price" has been reached three times. The reason I like these setups is that usually, if the price pulls back on lower volume then it will move up and sharply through the "top". It is easy to trade these. I know when I am right and I know when I am wrong. And they usually turn out good from a speculative point of view.
In the context of a bottom they are particularly powerful as they signal to most participants that a bottom has been formed and there is a change of trend to contend with. In a stock that has a large short interest there can be amazing rallies as the shorts scramble to cover.

There is a triple top bottom in the British Pound as we wait for the Brexit vote next Friday. This strong Pound move coupled with a strong Yen has made the US Dollar weak.  At some point this weakness will become a trend. Emerging markets love a weak dollar. And US exporters love a weak dollar, for the same reason Chinese and Japanese and just about every other exporter loves a weak domestic currency. And that is why we have a currency war going on and nearly every country in the world wants a weak domestic currency.

In my opinion the WORLD needs a weak US Dollar due to the amount of debt that is denominated in US Dollars. I know that it will rob from the fixed income people, but I think it will finally scare the money out of the bond market, perhaps to be put to good use.

control risk,
gh

Yellen's View

As evidenced by todays speech I do not think Chair Yellen expects inflation.

I, and the market, are saying she is wrong.

I think inflation is just around the corner.

Time will tell.

She is an expert economist after all.

High Altitude Low Opening

There goes the dollar.

Big little number in the jobs report this morning.

Fed on hold for longer?

Emerging markets like the weak dollar.

Here is a recap of a chart from a few posts back. This may be the breakout bottom for the VNM index.

Gold and silver not doing so bad today either.

Looking at Potash and Mosaic to take off. The grains look strong. There are more hungry mouths to feed every day in the world.

Control risk,

gh

The Dog That Didn't Bark

In one of Sir Arthur Conan Doyle's well known stories, the story of "Silver Blaze", there is the famous line about the dog that didn't bark in the night. A racehorse had disappeared and a man had been killed. But the dog didn't bark during this incident. Holmes was sure this indicated that no stranger had been at the scene. The dog didn't bark because there was nothing to bark about.

The above thought came to me as I watched another in a long line of talking heads on one of the business channels talking about the great swoon yet to come in the stock markets of the world when the Federal Reserve raised interest rates. The recurring theme over the last few months has been that the "market has not priced in" the raising of interest rates by the U.S. Federal Reserve Bank.

Yet, everywhere I turn I am hearing about the imminent raising of interest rates or how the stock markets of the world will sell off in the consumation of this radical deed that will unsettle the world's financial arrangements.

But the dog is not barking. The S&P is perhaps 3% off of the all time highs and has been in a range for over one year. Yet is at the high end of this range. When will the dog bark?

The stock markets are forward looking. And after several sharp selloffs over the last few years, including the "Taper Tantrum" of a few years ago and the "flash crash" of more recent, I would think that the responsible money out there has found a safer way to invest, or at least, the intestinal fortitude to withstand a 1/4 point interest rate rise.

Much depends on the actual state of the world economy. Much of the world has been in slow recovery for several years. The recovery, according to most accounts, is agonizingly slow and has dissappointed all who long for the good old days of debt creation and GDP growth above 2%. However, as I stated recently, the consumer is coming back due to a period of savings growth, or at least debt reduction, and coming back also due to a strengthening of wages. The cost of energy seems to be stabilizing at a lower level and this will give some confidence. On a personal level, just watching what is going on around me, I see the traffic on the freeway going stronger than ever, the slow lanes filled with trucks carrying goods, and vacationers on the highway in numbers. I see people changing jobs with the confidence that they will find another and survive the change. And the ranks of the retirees are swelling and younger workers are taking the reins. This makes me optimistic about the dynamism of the world and in particular the U.S. economic situation.

How the markets react to any raise in short term interest rates is anyone's guess but I am guessing that the dog has not barked for a reason and that the markets will survive a strong economy, despite their own worst fantasies.

There may be a knee jerk reaction when and if the dreaded day of an interest rate increase arrives, but this amateur thinks that reaction will be the twitching of algos whose instructions are in need of a paradigm change driven rewrite.

Time will tell.

Control your risk,

gh

　

Confirmation

We all know about 'confirmation bias'. That tendency for humans to look for information and opinion that supports their own beliefs or opinions. Sometimes that bias is just that, a bias that leads one astray. And sometimes one is right in ones beliefs and the signs of confirmation are just that. Confirmation of a trend or event.

The numbers on consumer spending and prices came out today and showed surprising strength.

This is the first strong sign of possible inflation because when consumers pay higher prices they can afford to pay higher prices and higher prices allow further price rises, etc.

Higher prices stimulate production which requires money and money is credit, etc...

And all of this together means the money tends to circulate faster....

The gold bugs may be right again.

Keep an eye on the U.S. Dollar. The next question will be 'when is the Fed going to raise rates to control this inflation?'.  My answer is that the Fed is in no hurry to nip this delightful prospect of inflation, and a weakening U.S. Dollar, in the bud. I think they will want this economy to regain some money velocity so they will drag their heels on raises.
The "bond vigilantes" have been neutered. They are licking their wounds so this counterbalance is a long ways off, not to say that bonds may not work their way down some....

If I had to pick one day to spot a trend change in the disinflationary trend of the last years this would be it.

Time will tell.

Consumer price news today

Keep an eye on the Baltic Dry Index...

Control risk,

gh

Dollar Rally Over?

I am seeing some cracks in the U.S. Dollar today. The slide may continue soon.

The selloff in the indices of the last few days is tepid, and I saw no sign of serious selling.
That could change with time of course but for now it doesn't appear to be worrisome.

Check your static lines, prepare to exit the aircraft.

The dollar will descend, emerging markets will rise, and banks will finally see some light at the end of the tunnel.

Is that clear?
Control risk,
gh

A New Idea!

With a lull in the action over the last few days I cast around for new ideas for trades or investments.

This chart jumped out at me.

Time will tell if Vietnam takes off like it has in the past. The volume is a bit low on this latest rally. But in keeping with the constant ebb and flow of money around the globe......

Much will depend on the appetite for risk in the stock markets. I feel we are running out of buyers. The volume near the top of the S&P here seems weak. Feeling a bit bearish here. We'll see...

Control risk,

gh

When money moves..

The long commodities bear market has left all economists wistful for the good old days of robust demand for basic materials. All hope seemed to have left the space in just a few short years.

But the piles of money that influence interest rates to be so low could start to move. The world is waiting for the next big thing.

Africa as a land starting to develop.

India short on infrastructure after all these years.

It really shouldn't take too much to take up the China slack. There are more people every day.

This is what I am reminded of.

This from earlier

Baltic Dry Bottom

These charts presented without further comment:

gh

Peak Financial Economy

There can be little doubt that the last 25 years of declining interest rates and disinflation has been good to the big banks. We have seen the financial havoc that bank shenanigans have wrought. And we have seen the extent the Central Banks will go to in order to "save" the banks from themselves.

We have witnessed over the last decades a financialization of the world economy, and certainly the U.S. economy. There is a bank or insurance company on every downtown street corner. Working men and women save for retirement by investing in the stock or bond markets. And providing financial advice is a big business.

During this time paper assets have gone up many multiples in price. What good, though, to a consumer or a retiree, or a nation, for that matter are paper assets. We CAN consider these paper assets as "savings".  So what happens when the world needs to spend these savings.

I think of the sovereign wealth funds of S. Arabia, et. al., cashing in some chips and using the proceeds to fund their societies.  These savings, which I presume were denominated in US Dollars, are now used to buy actual physical goods. This lowers the value of the Dollars and raises the price of goods.

If this idea catches on. This cashing in of paper to actually use the 'value' for something. If this starts to raise the price of real goods and lower the value of paper we may see something we haven't seen for a long time. And there is a whole lot of paper out there.

I asked the question: "What is the effect of inflation on big banks?"

Here is an old article from the Richmond Fed. Written before the last decades of paper.

Richmond Fed on Inflation

I sense a change happening.

Control risk,

gh

Reflexivity?

Here is a thought.

Let us assume the world is oversupplied with oil. So there should be a fundamental pressure to push down on the price of oil.

Several nations, mostly in the middle east, have grown accustomed over the decades to a relatively high price of oil and their societies are dependent on a subsidy from oil exports.

Recent liquidations by sovereign wealth funds pushed down the stock markets. The liquidations were presumably to raise cash for sustaining the economies and societies of oil producers suffering from a low oil price.

Oil is mostly transacted in U.S. Dollars. Oil overproduction tends to support a strong dollar. However, years of profits by the oil producers were invested in stocks and bonds, and as sovereign funds liquidate those funds, the currencies realized are spent in the real economy. To the extent that the original profits were in US Dollars, can we assume that the liquidation of profits will be in US Dollars? This should be the "freeing up" of US Dollars. The spending of savings. Perhaps the reversal of the financial economy/"saving economy", and resuming the spending of that 'savings'.

As these monies are recirculated they will stimulate. Demand for oil will rise, the price will rise, inflation will become evident, interest rates must rise, bonds will be sold; those savings come into the economy providing further stimulation and demand. A reflexive feedback occurs. Inflation is seen as good after decades of disinflation. Big bond holders reduce holdings and invest in equities.

We may still have a "5th Wave" coming in equities.

And then the oil runs out. Yikes!

Double Top in U.S. Dollar

From a technical perspective there is a double top in price in the US Dollar index.

This shows up well on the weekly chart perspective. From my experience, the longer the perspective the more true the indicator in question.

Some of the great trades are made in the big moves in commodities prices and the US Dollar is the ultimate commodity.

There is the possibility of a dramatic fall, on a weekly perspective, with a break through the 'neckline' of this price chart. At the least this chart signals a change in sentiment for a strong dollar.

Don't fight the Fed.

VALE is strong.

Control risk,

gh

Down and Dirty

I think the dry bulkers are in a bottoming process.

At least for those that survive.

It occurred to me that I remembered Jim Cramer talking up Diana Shipping some time back. A google search revealed that it was in Nov. of 2009. He never seems to pick a bottom for his devoted followers. Mostly he picks tops. On a couple of occasions I have looked at a chart of something he is recommending and the chart looked fairly strong, but the stock then sells off strong. I think his recommendations are used to distribute.

I, on the other hand, despite my professed desire to buy late and sell early, also cannot resist the temptation to pick bottoms. Although there are many bottoms, the trick is to be there at THE bottom, and that is only evident in hindsight. So the first rule is do not lose too much on the bets. The way I do this is watch the volume for evidence of accumulation or short covering and buy on the way up, trying to have a maximum or near maximum position on when the stock finally confirms a bottom by a price pattern over a period of time. Rounding bottoms are my favorites for this exercise. (look at a chart of GLD)

Here is Jim Cramer's Call in 2009


Here is my call:

Control risk,

gh

Yellen Speak

Chair Yellen set to speak in minutes before the Economic Club of NY.

Is there any real doubt about what it will take to resolve the debt problem?

Will the Fed cause the US dollar to appreciate substantially?

I think not.

gh

US DOLLAR TOP?

The Federal Reserve decision yesterday and comments by the chairman seemed like a pivot in expectations as Chair Yellen made clear that the board had no intention of raising interest rates until inflation was clearly in the 2% range.

The market seems to take it as a fact that there is an unstated move to weaken the US Dollar on the part of the Federal Reserve.

Gold is holding up pretty well, as well, without near the volatility one would expect at multi-week highs in price.

On a related note, the Baltic Dry Index has been moving up for the last month after a long steady decline. Again time will tell if this is a bottom, but if the dollar is topping I would expect finicky ship owners to demand more dollars per ship/day as compensation for the risk of a weakened currency, not to mention the costs of bunker fuel rising.


On this weekly chart the dollar looks to be making a long term top. Time will tell.

gh

Kuroda is a Lightweight

Compared to Janet Yellen, Mr. Kuroda of Japan is a lightweight.

Janet Yellen is doing a masterful job of guiding the U.S. dollar down to it's real level.

Is there any doubt that there is an unstated goal of weakening the dollar?

Ms. Yellen speaks of a goal of a 2% inflation rate, and puts her expectations of that goal to be two years away. My expectation is that she will be very careful to stay behind inflation with any moves by the Fed to raise rates. She runs the risk of a runaway inflation because of her desire to not let this opportunity to stimulate get away from her.

She will be the next Alan Greenspan.

We may be in for the 5th wave in a stock market surge. (Another 5th wave?)

We live in interesting times.

Control your risk,

gh

Solar?

Here is a stock that has held up surprisingly well during a long and vicious decline in the price of energy. First Solar is forming up on the price charts as a triple top bottom, to coin a phrase.

I suspect the solar space will be the future. And furthermore I expect a Democrat in the White House in a year, with a renewed push for alternative energy sources.

It is the technical aspects of this chart that look strong to me.

I am in this for the money.....

Buy on the way up.

control your risk,

gh

The Long View

No, I'm not making predictions.

I am remembering the story of a famous trader, who when asked what his secret was, threw a chart down on the floor and got up on the desk to look down at it. The point being that it was necessary to look at the big picture. I find it helps tremendously to always see where a stock is in relation to time.

Look at the weekly charts for several years. Particularly when trying to catch a bottom.


The examples abound in the mining and materials space.

USE THE SHORTER TERM CHARTS TO POSITION YOURSELF FOR THE LONGER TERM.

CONTROL RISK!

gh

Oil Supply Certainty

The advent of fracturing technology, in addition to shale oil recovery, has cast a pall on the outlook for the traditional structure of the energy business. Present overproduction is, as we all know by now, causing financial pain to the many over leveraged explorers and producers in addition to those countries that have developed a dependence on a higher price for their oil exports, leading these countries to dip into their savings to sustain populations that expect a higher standard of living than may be presently realistic. The world price of oil is the result of expectations that develop over time regarding the future price of oil. This is best illustrated by the high prices that persisted only until lately in the grand scheme. Now, it seems that the whole investing world is resigned to a persistent oversupply and low prices for far into the future. Saudi Arabian spokesmen speak today of a refusal to decrease production and lose market share. The whole world seems to be waiting for a higher price for energy to pluck the bond holders out of the fire and rescue the emerging markets from their debt loads, not to mention the large international banks rumored and suspected of holding large positions in commodities. JPMorgan on the ropes today....

I think that world politics are being ignored. The middle east countries are selling some of the holdings of their sovereign wealth funds to raise money lately, but this cannot persist for long before cuts must be made to the standards of living their pampered citizens demand. In fact the turmoil we see in Iraq, Syria, Somalia, et al can be traced to a decline in the outlook by the poorest people in these countries. At the same time the western world is not dependent on the good will of these countries to keep the price of oil low due to the domestic production increases of recent years. The west is distancing ourselves from these countries and their monarchies and dictatorships. We are not willing to expend our blood and treasure to prop up these oil producers. In fact it is to our immediate benefit for supply from the middle east to be disrupted. Russia stands the most to gain from this dynamic.

In short, I think the oil investors are being typically myopic and perhaps missing the longer term real politik that influences the production and distribution of hydrocarbon energy worldwide.

gh

What's Eating Devon?

Lesson in trading.


Look for relative strength among members of a sector. Buy the strongest, sell the weakest. Case in point lately is Devon Energy. Today oil up a bit and many oil stocks up. Not Devon which broke down through support.

Something is wrong with Devon. Probably tooooooo much debt.

Carry on,
gh

NAT

 I had the opportunity to watch an interview by the staff of CNBC with the CEO of Nordic American Tanker recently. Herbjorn Hansson gave a convincing presentation of a CEO who is focused on running a profitable company and focusing on the business without excess debt. Please watch the video of NAT CEO

Control risk,

gh

Consumer Demand and Credit

Just a few pictures to tell the story today.

LINKS:

Loan Demand


Auto Loan Demand

Average Amount Financed/ 2011

Auto Loan Amount Outstanding

Securitized Loans Outstanding

This last one has me scratching my head. ??????

So this:

From Reuters

Fed Balance Sheet

My conclusion from this is that consumer loan demand is falling. This would correspond to the top of a business cycle. This is at a time when consumer debt is very high.

In the "Fed Balance Sheet" link is a graph of bank reserves kept at the Fed. As many have noted the banks are not lending, but hoarding. A negative interest rate policy would penalize banks that hold excess reserves and thus theoretically stimulate more lending and securitization. Banks may be wary of having large amounts of securitized holdings, however, and may put pressure on the Fed for another round of Large Scale Asset Purchases (QE).

This is all money printing. How it can NOT show up as inflation is only dependent on where you look for inflation. How much would a new car cost if people could not access credit for the purchase? The same question applies to housing. Appliances?

A continuous flow of new money as credit lent out is essential to keep the prices of assets up. It is the assets that are on bank balance sheets, and on the Fed's balance sheet. There is no going back, only forward, but demographics of an aging population who is retiring or preparing for retirement by attempting to save, has complicated the grand scheme.

More QE will be forthcoming at any slowdown, or catastrophe awaits. This is the conclusion I reach every time I pursue the answer to credit, money, and consumer credit in particular. Consumer credit, in the absence of productivity gain sharing must fail as a house of cards fails. In a complete collapse, for there is not the support at the base in the form of saving and wage power for support during any contraction. Savings are essential.

Just thinking.
Buying more gold and silver for the savings....

control risk,
gh

The Bell is Ringing

There is a saying that 'nobody rings a bell at the start of a bear market'. But I think a bell is ringing.

The bell is the action of the Japanese Yen. Despite the best intentions of the Japanese govt. and Japanese central bank the yen will not stay down. Japan has one of the highest levels of govt. debt in the world, and they are the worlds third largest economy, second only to the U.S. and China. And China's banks are known to have little in the way of reserves as a slowdown appears to be worsening in that country. The Chinese yuan is falling, the yen is rising, and the U.S. dollar is falling as there dawns the expectation that the central bank of the world, the Fed, will have to put a rate rise on hold or risk a collapse in world markets. It remains to be seen if they can bring themselves to recognize this state of affairs. World debt levels have only risen since the last great financial crisis. And we appear to be on the cusp of another.

Gold, metals, and emerging markets in general have seen relative strength in the last few days. Perhaps on the prospect of a weaker dollar and debt that is easier to repay.

The China problem appears like it will precipitate a Japanese problem. I don't know how it will end, but I must say I have a sense of foreboding.
The Chinese have a cultural affinity for gold. Gold has been flowing to the east for some time now. See this well documented by Jesse at Jesses Café .

See also this great article The Big Reset.

I conclude with these charts.

May you weather the storm.

Control risk,
gh

A Bright Shiny Future?

China on the ropes.

High Yield yields higher.

Stock indices down around the world.

Oil leading the way down with the prospect of widespread bankruptcy.

All of the above spells DEFLATION.

Central banks hate deflation. They have been fighting the deflationary forces for decades. Deflation bursts debt bubbles.

What is next?

Central Bank easing will come down the road. Just as the Fed started to back off ZIRP.

And the Democrats will win big in the next election. And then FISCAL stimulus will happen.

The bottom is IN in gold and the miners.

Plan ahead.   (Forget about that frog with wings. Nothing to see there.)

gh

Supply Side Blowback

Decades of declining interest rates and manipulation of interest rates with the intent to stimulate production has resulted in overproduction. This is not more apparent than in energy production. Technologic advances enabled by easy money has resulted in over supply. This has occurred as the traditional oil producers became dependent on oil revenue to sustain their economies. The people in these countries are accustomed to high living standards and accustomed to not paying taxes to support those standards. This leaves the governments of oil producing countries with a cash crunch. What better place to get some cash than by using savings. And many exporting countries have large investments in stocks and bonds around the world. Countries, like many individuals with extra money, don't just save, they invest. Stocks and bonds are the savings of the world. What happens when we cash in the savings. This at a time when a large cohort in the western world is approaching retirement and any retirement "savings" are in stocks and bonds......



Sovereign Wealth Fund Institute

Post Election?

I have noticed the strength in solar, most notably FSLR. As a general rule solar depends on high hydrocarbon prices to maintain viability as an industry despite gains in the efficiency of the solar technology. The industry still depends on tax breaks and support from government.

But solar has been strong, relatively, lately during this latest general market selloff and during the last year of precipitous declines in oil and gas prices.

The market may be of the mind that solar has a future despite the gloomy outlook for petroleum energy. This may be due to political factors. It looks like the Democrats have the best shot for taking the presidency in 2016, and may make gains in Congress. And solar has always been a favorite of progressive voters.

Another thing that may happen if Democrats win may be the long awaited national investment in infrastructure. Cement and steel come to mind as investments at this time. Steel in particular has remained resilient despite China's precarious position.

Time will tell. But a massive infrastructure investment by the U.S. would take a lot of the slack out of world markets, put Americans to work, and increase the velocity of money.

Lots of 'ifs' there....

Look at Brazil as well. Enough is enough..... 

GGB


control risk,
gh