how inflation starts

Consumer Sentiment numbers out this morning show a sharp increase in consumer attitudes. The market sold off from a high with the news however. The selloff co-incided with a commentator on CNBC presenting the results of her business survey in which respondents said their inventories were high and they felt constrained to rise prices.
Well, if consumer sentiment is up while the price of gasoline has been going up strong and while a presidential race is on and while "pink slime" is in the news and talk is of war with Iran and the possible spike in oil prices from that and whatever else is bad news, and who doesn't think prices haven't been rising all along. Then I think it is well within the realm of possibility that business can raise prices!
This is how inflation starts. With expectations of rising prices and accepting that they will. With low interest rates and asset prices starting to rise.

Here is the latest:

DJ End-March Reuters/UMich Sentiment Rises To 76.2 Vs 74.3 in Early March

NEW YORK (Dow Jones)-- U.S. consumers felt a bit better about the economy in late March, according to data released Friday.
The Thomson Reuters/University of Michigan consumer sentiment index at the end of March stood at 76.2, compared with a preliminary reading of 74.3 and the 75.3 posted at the end of February, according to an economist who has seen the report.
The latest reading was better than the 74.5 expected by economists surveyed by Dow Jones Newswires. The current conditions index rose to 86.0 from 84.2 in early March, while the expectations index increased to 69.8 from 68.0.
The end March top-line and currents readings were the highest since February 2011.
Earlier this week, the Conference Board reported its measure of consumer confidence weakened this month. Although the job picture is improving, households are facing rising gasoline prices.
Within the Michigan survey, the one-year inflation expectations reading edged down to 3.9% from 4.0% early in March. The inflation expectations covering the next 5 to 10 years stayed at the preliminary reading of 3.0%.

-By Kathleen Madigan, Dow Jones Newswires, 212-416-2466, kathleen.madigan@dowjones.com

(END) Dow Jones Newswires
March 30, 2012 10:08 ET (14:08 GMT)
Copyright (c) 2012 Dow Jones & Company, Inc.- - 10 08 AM EDT 03-30-12

sell bonds.......buy stocks.........(And Please! won't someone buy some Natural Gas! LOL)
control risk.....
gh

The best moves are on no news.

MolyCorp is moving up on high and strong volume. I search the news boards and can find no reason why. That is good. The indexes are down today. But MCP is going up for no apparent reason. This is an indication of someone "in the know" buying and buying big. The volume over the last three weeks suggests accumulation. Or short covering. Short covering is not as good, but is the first thing to happen in trend changes.
Here are some charts:

And if you are wondering about that Nat Gas trade..... Well, I'm an investor now.  Meaning I am arguing with the market. Not a good short term thing to do. But natural gas will go up in the future....sometime.....LOL.

Try to control your risk.
gh

this is for you

A good friend moved on recently.
This is  for her...

http://www.youtube.com/watch?v=_H4PuoZDojI&feature=related

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Public Service Announcement

I know someone in the meat industry.

Here is the truth about "pink slime".

If we continue to make our economic decisions in this way we will all pay high prices and waste good food.

But most Americans like to feel part of a hysterical crowd so they deserve what they get.

Here is the link:

http://www.timesrecordnews.com/news/2012/mar/24/pink-slime-not-based-on-facts/

gh

3/23/12

I have been quiet lately. Working on the Nat Gas trade. It didn't take off like I thought it might when it went over $18.50. But I have good position.
Waiting on Iran.... Oil keeps going up. The stock markets in general appear to be running out of steam but buyers keep buying on the dips.
MolyCorp is holding up. It is a favorite of mine so I will probably lose money!
Not many trading opportunities lately. Natural resources not following through on moves up....
After a move up in long term interest rates they have moved lower. Bonds are a "back and fill" market though so the move is normal. If the dollar keeps going down interest rates will start up again.
The dollar has shown weakness that is surprising.

I am expecting to get up some morning soon and hear that Israel has attacked Iran.

Control risk.........gh

"Reading the tape"

Here are some things I look for when putting on a trade. These are not trade recommendations but are intended to illustrate how to recognize strong momentum in price movement. In my mind it is not the price I pay for something but the direction the price is going when I take a position. It is not about price it is about direction and timing.

In the Natural gas market there are probably many traders who are short. I don't mean they are of small stature. I mean they have sold the NG market short. They have sold shares or futures contracts of the commodity they don't own in order to profit from a fall in the price of the market when they buy those shares back and return them to the party they borrowed the shares from. In a market that has been in a long decline it is not unusual for many traders to have hopped on the bandwagon and sold short. If the price starts to rise they often get in a hurry to buy those shares back that they sold short. This has the effect of pushing prices up faster and a snowball effect can occur, the result being a very sharp rally. This is one reason it is so difficult to make money by shorting a market. The sharp rallies. If a market goes in a sideways pattern for awhile after one of these long declines a line in the sand gets drawn and traders decide they will get out if the market goes above the line.  I think I see the line in UNG:



And a 15 min. chart showing the "ceiling" at $18.50

It is probable that there will be a sharp move up if the price crosses above the line.

And by looking at the daily chart it would probably go to about $20 rather quickly.

But it might not. Probabilities. Not guarantees......

gh



This is the long downtrend with the small pattern at the bottom. It is still a downtrend.

If I was a NG short I wouldn't sleep very well this weekend!!

Personal responsibility

　
A few days ago I overheard an aquaintance telling someone that "I'm a Republican and we believe in personal responsibility". Well, I'm a Democrat and I do too. It is hard to argue with the idea of personal responsibility. Its kind of like trying to argue against apple pie or cute puppies. But he was referring to politics when he said that, so I thought I would take the idea of personal responsibility one step further.
We can all agree that taking personal responsibility is a moral thing to do. It is honorable to work hard. It is honorable to tell the truth and to abide by your personal committments. But how can we separate our personal responsibility from our responsibility as citizens of a state or a nation. After all, a state or nation is comprised of individuals. Can we do one thing in our personal lives and do another thing in our civic lives? Not unless we are hypocrits.
Over the last 20 or 30 years this country that we live in has gotten deep in debt. Much of the debt was private and much has been public. The private debt is being taken care of in the marketplace through a slowdown in the economy, bankruptcys, and lower asset prices. The public debt has not been addressed. And the issue of public debt is a large part of the political discussion nowadays.
The Republicans in particular are keen on this idea of reducing taxes and slashing government spending. They say that by reducing government and cutting taxes the economy will grow. Maybe the economy would grow if those things were done. But we've heard that line before. In fact for the last three decades the Republicans have promised to cut government spending and to lower our taxes. Well taxes have been reduced. But government spending did not go down. So we have a debt problem. We can cut the government if we choose but the debt will stay. We all approved this course of action by our vote or nonvotes. So the debt is ours.
Is personal responsiblity different from civic responsibility? If it is morally right to pay off our personal debts, why do we want to avoid our public debts. Why is raising taxes on ourselves to pay our debts such a difficult undertaking? It really shouldn't be all that hard for a moral and upright nation, suffused with the ideal of "personal responsibility", to dig deep and pay off our debts to ourselves and others. And think of what the world would think of us if we could be so righteous. Why they might even extend us more credit!

Let's celebrate St. Patty's Day!!

Ireland Bank


IRE

gh

Revisiting AAPL

I wasn't going to put this up. But I will.
Top picking is the same a bottom picking. Fraught with danger. But AAPL looks toppy. There is no "trade" here for me. But I am using AAPL as a proxy for market sentiment. Particularly in the tech sector or the QQQ.
There has been a monster move up in AAPL this year and in particular over the last few months. The volume has ramped up and has been very high over the last few days. Whenever I see high sustained volume with price moving in a sideway pattern I pay attention. Often it signals a top or a bottom. At least temporarily.
Here are some charts of AAPL.

In the case of a head and shoulders pattern, a continuation of the trend is signalled with a move above the right shoulder. AAPL may have another big day or two left to go up.........

Control your risk................gh

Release of "emergency" oil supply

The U.S. and Britain have agreed to the release of emergency oil suplies. Why now? There is talk of a China hard landing. Oil suppplies are abundant not withstanding the high prices.  And there is not enough in the SPR to make a real long term difference in oil prices.

What do they know that we don't? I don't believe as some do that O'bama is stupid.
The wild card is Israel and Iran's nukes.
O'bama met with the Israeli leader Netanyahu last week.
If they wanted to get the price of oil going down as the Israeli's launched a strike it would make sense. At least they could be getting their ducks in a row in anticipation of an oil shock.
They may be concerned about supply and demand. In this case maybe it is supply!
Maybe........
Just thinking.
gh

@ 0919PST
this just in: The White House is denying any agreement regarding oil. They just ""Talk regularly".
I thought it was a good conspiracy theory.....
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The Three Horsemen?

These were supposed to be the "Bond Vigilantes".....

Update 3/14/12

Sold GLD yesterday for a small gain. Gold and precious metals weak today on the rise in interest rates. PM's don't pay interest so they are vulnerable to higher rates. Currencys like higher rates also.

Citi broke above the recent range yesterday. If it holds it will be a good sign for the markets in general.
Natural resources strong despite the interest rate rise and China news today.

Bot some CLF a couple days ago. Also look at JJG.....
Steel is looking interesting intraday. Support may hold at the previous resistance.

And finally some interesting and violent rallies intraday in UNG. I am looking for a break above $18.50............

Some charts:

And interest rates finally broke to the upside. This could go a long way.

But as always, take what you get.
Control risk.............

gh

Are bonds a safe place to be?

Bonds have generally been going up for 30 years. A whole generation of people have grown up and grown used to the idea that bonds are a safe investment. The rise of the retirement account has led to a rise in popularity of bond funds.
It is important to understand the difference between owning A BOND and investing in a BOND FUND. There is a world of difference.
When you own a single bond you have lent money to someone who promised to pay your money back, with interest.(yield) If they don't go bankrupt you get your money back, plus yield. So a large part of your risk is whether you will get your money back.
Another risk to a bond is inflation. If you buy a bond that pays 3% and inflation goes to 4% you are losing 1% a year due to inflation and the eroding purchasing power of your money while you wait for your bond to mature and get your money back. This makes your bond unappealing if you want to sell it. If you try to sell it when inflation is rising and you are getting a low yield, you will have to lower the price to make it a good buy for someone to buy it.
A BOND FUND holds many bonds. They pool the money from many investors and use that money to buy bonds. But the value of a bond FUND is constantly changing as the resale value of the bonds they hold is changing due to inflation, changes in interest rates, or changes in the ability of the bond issuers to pay off the bonds. The bottom line is that the value of a bond fund is constantly changing.
How much the value of a bond fund changes has a lot to do with the duration of the bonds the fund is holding. Duration generally refers to the time left till the bonds mature. The price of a long duration bond will be more sensitive to changes in interest rates since changes in interest rates can change a whole bunch before a long dated bond matures and the money could then be used to buy another bond with higher interest rates.
The value of a bond fund can also change if a lot of people decide to sell that fund. The price goes down, money comes out, and the bond fund manager has to sell some of the funds holdings. Putting further downward price pressure on the bond market in general.
Bond prices have generally gone up for 30 years. This has been due to the low inflation the world over. Yes, I said LOW inflation. The rise of China and Asia as low cost exporters has kept a lid on prices of goods. (Think Walmart) But now that the people in those countries are demanding a rising standard of living they are pushing up demand for the same goods that they produce. They are pushing up the cost of energy. They want cars and refrigerators and all the stuff we take for granted. And oil is getting scarcer and harder to find. And oil is the basis for everything that happens in a modern economy.
The result, in my estimation, will be a steady rise in world interest rates over the next several years. This is the effect of energy feeding through the economy as the advantages of an abundant supply of cheap labor wanes. As this new trend becomes evident, and I think it will become evident over the next few months if not earlier, all of a sudden the light will go on in a lot of heads and bond holders will head for the exits. They will sell bonds. The price of bonds will go down and the yield of new bonds will be higher. The money will have to go somewhere and I think it will be in to stock markets the world over. Banks will be able to lend at higher interest rates and will be more eager to lend, increasing consumption and thus inflation. Until interest rates get too high and the process reverses.
But the point of this article is to warn the innocent holders of "safe" bonds who are invested in bond funds. There is coming a rapid unwinding of the "safety" trade and it will cause a sharp fall in long dated bonds. And it may be the start of a trend that will continue for some time. Many of the people I know personally do not have a clue about the financial markets. (You know who you are.) They follow the advice of the "experts" who tell them to be diversified in stocks and bonds. Many of my friends are older people who are mostly in bonds because that is the standard "wisdom". It used to be the wisdom. I think that 10 years from now many will not think the same....The bond vigilantes are coming. Here is a link that provides further education.
http://news.morningstar.com/articlenet/article.aspx?id=172614
And a chart of the TLT long bond fund. Which way is this going to go??:

Everybody has to make their own decisions and be responsible for them. Mine is only an opinion. Read and educate yourself about bond funds and make an evaluation of the future as best you can. Take into consideration your own personal situation. But please understand that paradigms change. What worked all of our lives may change. It will change slowly with fits and starts, but the time to realize what is happening is near the beginning and not at the end of the process like so many of the public in the financial markets!
Don't be average....
gh

it's a bull market you know.....

Looking thru charts this stands out...
When the banks do well the market does well.

Many of the other banks look even stronger. WFC, UMPQ, etc.............
Slow day. So far....
Control risk,
gh

What's next?

It is said that the stock market climbs a wall of worry. That is in part because the participants are looking and remembering back to the last bad event that happened and worrying that it may happen again. I think that has been the theme of the last 3 years. Worrying that the credit bubble will continue to implode and what "Lehman-like" events are lurking. The good thing about worry is that it prompts action to avoid the same bad events that cause the worry.
The Euro/Greece thing seems to have been put behind for now. Even the ISDA announcement of a "credit event" did not make for more than a blip last Friday afternoon. From a tape perspective the selling on the ISDA announcement started as the news was being broadcast and only amounted to a few S&P points. It did appear that the selling was being absorbed by equal buying, leading me to believe that there is still big money that is trying to get into the U.S. stock markets. We'll see....Although inflation will start to rear it head if the economic numbers keep improving. And the specter of higher interest rates....
Some charts:

I included MolyCorp . Bought some  on Thurs. and this was the move on Fri. This is the result of watching the intraday action and how their appeared to be accumulation over the last few days. It just "acted right". I did not know what, if anything was going to happen. It just acted right. ie, Somebody knew!!
A very bullish daily move.
gh

Risk on?

This bear got gored by the bull. Well, it wasn't that bad. Nearly a breakeven trade, which I actually consider a good trade. But the markets in general still have an upward bias. It is true that a bear market starts long before the averages turn down, but the time to be a bear is NOT now.

So I closed out short positions yesterday. Somehow I knew it wasn't going to be the top a couple of days ago but had to make sure of the trade. Which brings up another subject.

Writing this blog is another exercise in trying to sense my emotions and moderate my emotions. I find myself making predictions and then wanting to cling to those predictions in my trading. I usually get out of my trades before I admit it on this blog, as I have said before, but the fact remains that I tend to get "invested" in the things I say here because I want to be "right" to anyone who may be reading this. My advantage in the markets is my "tape reading" ability. I saw some selling happening in various stocks and that selling in the context of where the market in general was lead to the impression that a correction was due and probable. Well, there was a couple down days but the market has recovered to the highs. The point of tape reading is to make money by reading the market so now is not the time to be short.
So, thence the advice: "Neither a tipgiver nor a tiptaker be!"

Bought some GLD at $162 a few days ago. Almost the exact bottom of the move. So Far. Historically that day looked the same as many of the intermediate bottoms in this security. Chart below.

Bought some DE, MCP, and UNG yesterday. We'll see how these work out from here. Still have some TBT.....

Control your risk. Limit losses to a small percent and let your profitable trades or investments run.....
gh

3/8/12 pre-open rant.

Futures set for a higher open.
Jobless claims up slightly. CNBC trots out the usual Republican politician, this time Judd Gregg, to complain about the people who are getting unemployment benefits and who are not getting a job because they like being on the govt. dole. This followed a report by CNBC on a company that can't find enough skilled welders. They have to pay a $2500 bonus to attract qualified workers. OMG!! They had to pay more to attract workers! How about that. Isn't that capitalism. Demand and supply. But these pontificators would prefer that business had lower labor costs in order to keep corporate profits up. Isn't that what American business did when they moved to China. They wanted the low labor costs and now sell the products to the American consumers who have gone deep in debt to buy those same products. So, if wages in the U.S. come down to a level where workers are hungry enough to take any job at any wage, who the hell will buy these products that our magnificent businessmen are creating? China? I don't think so.
When Henry Ford started mass production of cars he knew that if he paid his workers more they would be able to afford the products that they made. He wasn't trying to arbitrage worldwide labor prices! He was an American who supported the American economy. Of course it was the only play at the time.

All of this angst over the economy and blaming the president for political purposes misses the larger picture. And that is that it is the cost and availability of energy and land that makes prosperity possible. All wealth comes from the earth. Printing money is only possible when those dollars can be matched up to natural resource production. Oil is getting scarce or expensive to get to the market and the alternatives are more expensive. Land is in short supply. The rest of the world has been given the idea that they too can have the standard of living that we enjoy and are competing for those natural resources that are increasingly in short supply. So all of these economic crises that are happening are the very macro-economic manifestation of a shortage of plentiful and cheap energy and land. Yet the die-hard capitalists will not see any other alternative but to stimulate growth to keep profits up. Growth has only been stimulated with ever increased debt over the last 30 years.
Think of when the debt bubble started. It was in the 1970's. Right after the first "oil shock". We were lucky to have a currency that was in world wide demand as a result of WW2 when the rest of the world was reduced to rubble. That gave us the ability to print money/create debt. (Same thing) Well things have changed. We will not be able to continue our unchecked consumption and "growth". And politically we will have to change from a capitalist competitive model to one of co-operation. I fear that process of change with the mindset of the American populace being what it is!

Lets see what the markets are going to do today....
gh

I have to add this: The bond market is the "adult" in the markets. The bond market has been manipulated for years by the governments of the world. Interest rates are artificially low. The shortage of natural resources will eventually cause interest rates to rise. This will restrict usage of resources and is the way that capitalism works. However, we have dug such a deep hole of debt that to allow the markets to correct naturally will cause massive anguish. The Republicans want a free market, so they say, but if what they want came to pass it would cause the biggest depression the world has known. And they wouldn't survive to claim victory. So politically we will muddle through with inflation and a gradual erosion of wealth regardless of who is in the white house.
gh

a tune while we wait.....

http://www.youtube.com/watch?v=hp6Zx_fzpq8


gh

When failed breakouts attack!

As I have said before breakouts tend to start failing as the sentiment changes from bullish to bearish in a market. Instead of buyers coming in on the upswing, sellers start looking for volume to sell into....
Here is CDE from last week.
I did not buy any of this. I have been wary for a couple weeks now. But as a chart pattern it is classic. A buy above 30 would soon yield a 10% loss. My own style would be to have dumped it the second day after the breakout when it reversed on high volume. It has pulled back to the up trend line so some may buy. But the fact that the move higher reversed means that the type of trade that I look for did not happen. At least not this time. If this stock turns higher from here, and goes to a new high I would be a buyer. Because something would have dramatically changed. But for now this stock looks like a messenger telling me the market is getting weak. Of course this is the result of silver and gold's about faces last week. So if the gold and silver market are nervous enough to change direction on a dime I have to believe the whole market may do the same......
CDE:

TLT is a conundrum:

If China suffers a slowdown and they need to raise cash it is alway possible for them to have to sell US Treasurys. But that is a ways off. In the short term if the stock indexes correct TLT will still be safe haven......IMHO  Blah, Blah, Blah......
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Prediction

Who is buying this stock......?

gh

Its quiet

Things got really quiet really fast. It is 0750 PST. Here is a daily of the QQQ. Intraday volume is LOW. Sitting at a high with no volume......
WYNN Resorts trading halted.....

We'll see.

gh

Potential for another flash crash.

This chart and the notes say it all......



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Added 3/1 @ 1137 PST:

http://www.surlytrader.com/vix-futures-showing-dissent/

gh



3-1-12

Before the open.
Markets to open up this morning. Interest rates on the UST up. Usually I would expect the stock market to go up when there is less buying in treasurys. However, I expect the relationship to change for awhile here.

The stock market may have to digest the fact that interest rates will not be low forever. It is to be expected that if the economy picks up interest rates will rise. But this markket seems to be sensitive to interest rates. In fact it seems that the markets have becoming increasingly sensitive to interest rates over the last several years. Like a junkie needs increasing doses of drug to maintain the high!

So, I will attempt to make myself stand aside and wait for a p ile of money to be laying there before I try to  pick it up.....
And of course there is Iran and oil and the debt.....
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