November 16, 2014
Here are some interesting links.
No Interest Rate Hike in 2015??? on DailyWealth.Com
Rickards says Janet Yellen - the head of the Federal Reserve - is dovish and won't be in any hurry to raise interest rates. So the list of voting members, according to Jim, is loaded with doves. This group, he says, won't raise interest rates."
COMMENT: Here we go again. It was Albert Einstein who defined insanity as doing the same thing over and over but expecting different results. The world's Central Bankers are going to keep on inflating until we have no way to accurately price anything.
It's Almost Time to Buy This Beaten-Up Energy Sector on GrowthStockWire.Com
COMMENT: I am going to be watching this one, and will hold some cash in reserve for it.
The American Consumer in Three Shocking Charts on GrowthStockWire.Com
And if you placed your bets against the trend – and in the 'landfill stuffing' corner - you got badly hurt. After Brian first introduced the 'gold to HOG' ratio, it soared from under 20 to over 100. Gold's value increased more than five-fold relative to shares of Harley Davidson.
But today, that trend has reversed... dramatically. And it has surprised a lot of people.
...In early 2011, I warned Stansberry Research readers that the uptrend in commodities had broken down... and that commodity trades were dangerous. It was sound advice. The benchmark commodity index fell 28% from its 2011 high. Mining stocks have been obliterated.
During that time, businesses that are sensitive to the health of the American consumer, like Home Depot, have done well. The Market Vectors Retail Fund, which is a great gauge of retail stocks, has nearly doubled since early 2011.
What should we do now? If you hold winning positions in consumer spending stocks, stay long with trailing stop losses. The American consumer is doing a heck of a lot better than the pessimists would have you believe. The uptrend is likely to run further... but trailing stops will get you out with a profit in case it does not."
COMMENT: I find the ratios in this article to be facinating. If the Central Banks wanted the average consumer to quit saving, and move that money instead to stocks and into spending, they have succeeded wildly. Just look at auto sales and the record high stocks.
Unemployment falls to 5.8% but "things actually aren't going well": Dan Alpert on Finance.Yahoo.Com
COMMENT: Trouble in paradise.
November 7, 2014
Tobby Connor sends along this posting:
"As most of you probably know, I have been expecting the CRB to form a major three year cycle low sometime next summer. However I'm now starting to see some things that might indicate that major cycle bottom is going to occur earlier than I expected.
Since oil is the main driver of the CRB, and most commodities will follow its lead I'm going to focus on the action in oil. Notice in the next chart that oil has now reached oversold levels similar if not more extreme than the previous two 3 year cycle lows.
Sentiment in the commodity complex is also at levels last seen at the previous multi year cycle turning points.
After breaking through support at $1180 gold has now dropped far enough to test the 61% Fibonacci retracement of the previous C-wave rally. Yes, I have been expecting a move all the way back down to $1050, but it’s entirely possible that the drop may come up $100 short and bottom at $1150 if the CRB is putting in a three year cycle low right here and now.
I believe oil is the key. When it finds its intermediate and yearly cycle bottom the rest of the commodity complex is going to turn back up. And in Elliot wave terms oil has started its fifth wave down.
We're only days away from a bottom, and it’s even possible the bottom will form exactly on election day like it did in 2012.
The movements in currencies are also connected very strongly with the commodity cycles. Notice in the next chart that the euro is within a whisker of testing its 200 month moving average where it has bottomed twice in the past. Once the euro finds a major cycle bottom the dollar is going to put in a larger degree top.
In the next chart of the dollar notice that it is approaching a level where the Fed has cried uncle in the past and acted to turn the currency back down. Also on a purely cyclical basis, the bottom in May of this year just does not have the DNA markers of a true three year cycle low. I know I’m the only cycles analyst saying this, but I think the three year cycle in the dollar is stretching and we are in the process of putting in a major multi year top right now with a very stretched three year cycle low to be achieved sometime in the next one or two years.
So for now we wait and watch the energy markets as they are the key. When oil finds its intermediate and yearly cycle bottom look for the rest of the commodity markets to turn and follow it higher, and all this nonsense about now being the time to buy a gas guzzling SUV will soon be long forgotten."
COMMENT: This is where I disagree with Toby. I think the Euro could drop a lot further - at least 10 percent more, and with it gold and oil.
October 26, 2014
Here are some links to recent reading.
The Mortgage Industry Is Strangling the Housing Market and Blaming the Government on NewRepublic.Com
COMMENT: Here we go again. It was Albert Einstein who defined insanity as doing the same thing over and over but expecting different results.
Is Congress setting the stage for another mortgage crisis? on Finance.Yahoo.Com
With regulators loosening some lending rules in an attempt give a boost to the slow-to-recover housing market, there may soon be a new crop of Americans putting out the welcome mat on a new home. New regulations would make it easier for Americans to buy a house with little or no down payment. It's a departure from the push after the financial crisis to tighten lending standards.
Rattner, who has also served as Counselor to the Secretary of the Treasury, remembers where the every-American-should-own-a-home push got us last time. '[The U.S.] went through this period - which both parties signed on for - that it was the American Dream to own your house, and then we ended up in 2007 and 2008.'"
COMMENT: There is a cure for this. First we recognize that the only folks who
benefit from this move are the top 1 percent. This is yet another trickle down manuever. How are
all the other trickle down initiatives working? The economy doing GREAT? Well then, let's quit
doing trickle down. Instead, I propose a simple idea that would halt a lot of flim flannery and
The essense of this idea is to insure that the 1 percent do actually have some skin in the game.
The idea: A simple law that requires all mortgage originators to retain ownership of a minimum of
10 percent of the mortgage in perpetuity.
And if you do not think the middle class has suffered all that much from the last two recessions,
please read the article below.
The idea: A simple law that requires all mortgage originators to retain ownership of a minimum of 10 percent of the mortgage in perpetuity.
And if you do not think the middle class has suffered all that much from the last two recessions, please read the article below.
All The Wealth The Middle Class Accumulated After 1940 Is Gone on HuffingtonPost.Com
"Many middle class families own homes and have pensions, but too many of these families also have much higher mortgages to repay and much higher consumer credit and student loans to service than before," Saez and Zucman wrote.
Another important factor has been that incomes have stagnated for most Americans over the past few decades, once adjusted for inflation. Along with rising debt levels, stagnant wages have made it impossible for most families to save very much money."
COMMENT: If you are a Keynes fan then the absolute destruction of savings by families is a non factor. But if you are a follower of the Austrian School it is an unmitigated disaster. Debt has eaten savings and raised the prices of homes to the point where the average wage earner can not afford one. Kill savings and increase debt to these levels and you get an economy that is not capable of bouncing back. Why don't we dial back the debt a bit both for families and for government. We've tried the borrow and spend your way to prosperity. Why don't we try the other way?
China's Banks Are Getting Ready For A Debt Implosion on Finance.Yahoo.Com
Meanwhile, profit margins have been thinning for some time, and China's producer-price index has deflated 6.7% in the past 36 months.
To Societe Generale analyst Wei Yao, this just adds fuel to China's debt fire.
"China's debt problem lies with the corporate sector, and so PPI deflation can cause more damage to debt dynamics than CPI deflation. The cure should be capacity consolidation and debt restructuring, rather than another stimulus package targeted to boost investment demand," she wrote in a recent note."
COMMENT: It does not look like China is in any position to save the world's economy.
Is the oil price fall more than just a coincidence? on Finance.Yahoo.Com
The U.S. would obviously deny any acquisitions of manipulation and there is no evidence to suggest that this is the case. "It's very hard to prove," Timothy Ash, head of emerging markets research at Standard Bank told CNBC via email."
COMMENT: The writer of this article dodges the bullet. My guess is that the Saudis have the valve wide open. In this way they can hurt an enemy (Russia) and help friends (U.S. and Europe).
They Studied Keynes and They're Doing This. Why Can't the Fed See It? on Finance.Yahoo.Com
COMMENT: My wife gathers info for the Census - a part time job because she can not find full time employment. My county is in a huge boom due to the oil patch. Yet, from what she tells me (and she only tells me things in generalities), there is a lot of underemployment even in our county. Meanwhile, this 'recession' began in 2008. It is still going and wages are stagnant. When do we get to call this a Depression?
October 19, 2014
Here are some links to recent reading.
The U.S. Dollar Just Peaked on DailyWealth.Com
A huge amount of dollars was needed yesterday to buy all those bonds. In a single day, the interest rate on 10-year government bonds fell from about 2.2% down below 2.0% (before settling at 2.1%). That might not sound like much, but it is a massive move.
So you would think the U.S. dollar would have gone up.
What that tells me is that everyone who wants to own a U.S. dollar already owns it..."
COMMENT: A whole lot of folks missed this turn of the dollar and even more missed the importance of this event. This is huge. Markets should straighten out now and go up. See the article below.
Cramer calls the market bottom: Safe to buy again on Finance.Yahoo.Com
"We got movement on every single issue I have needed to find an investable bottom, and that's exactly what we might have found here," Cramer said. "
Just Try to Refinance. I Dare You on BloombergView.Com
Instead, however, the banks learned an entirely different and utterly incorrect lesson. The pendulum has swung from one extreme to another. A decade ago, they gave loans to anyone who could fog a mirror, then sold the loans to Wall Street for securitization. Today, the opposite extreme has taken effect. Banks have avoided making loans to many qualified borrowers, regardless of their credit history, income and ability to service that debt. When former Fed chief Ben Bernanke has trouble refinancing his mortgage, you know there's a problem."
COMMENT: I think, besides taxes, we can count on this constant: Big Banks will get it wrong.
Forget Obama and the Keystone pipeline… Canada has a brand-new plan on TheCrux.Com
'With one project,' Energy East will give Alberta's oil sands not only an outlet to 'eastern Canadian markets but to global markets,' said Pourbaix. 'And we've done so at scale, with a 1.1 million barrel per day pipeline, which will go a long way to removing the specter of those big differentials for many years to come.'"
Sand: A Major Key to America's Energy Future on DailyWealth.Com
However, engineers recently discovered that the sand (called "proppant") hasn't gone deep enough. Only about 40% of it is actually producing oil. Engineers found that if companies use more sand (up to five times as much), the wells produce far more oil than before.
Companies continue to make other changes that improve the economics of shale... like drilling multiple wells from a single pad and drilling longer horizontal wells."
It's Still the Economy, Stupid! on HuffingtonPost.Com
COMMENT: Newscasters, on both sides of the spectrum are wonderfully ignorant
about what goes on in the oil patch. None could tell you what are the three phases in the
life of an oil well, or that some of those phases can and do get revisited. No body is talking
about the huge energy boom we are witnessing, a boom that may well economically save us from
ourselves (and the FED). No one is speculating about what happens when the new technology
from horizontal drilling and fracking oil shale is applied to old existing fields where
up to 90 percent of the oil still remains in the ground.
Absolutely no one in the news business could tell you how many pipelines already cross the
Ogalala Aquifer (hint: The number is a lot bigger than ten.).
Absolutely no one in the news business could tell you how many pipelines already cross the Ogalala Aquifer (hint: The number is a lot bigger than ten.).
October 9, 2014
Tobby Connor sends along this posting:
"Now that oil has made a lower intermediate low warning bells are ringing that the commodity complex has more than likely begun the move down into its three-year cycle low. That bottom isn’t due until May or June of next year at the earliest.
With the larger three-year cycle forces now in control, and the commodity complex in decline, intermediate cycle lows (ICL’s) will tend to be exceptionally vicious affairs. We are already seeing this play out in the gold market as it tests (and will probably break below) the $1180 support zone sometime next week. Silver and platinum have already broken below their summer 2013 lows, and it should only be a matter of time before gold follows. This is going to cause a major panic in the gold bug community, and that is to be expected during ICL’s with the CRB now in the grip of its three-year cycle decline.
Now before one gets too bearish and starts to short the commodity complex willy-nilly, remember that we are close to an intermediate cycle low here and we’re going to get a convincing countertrend rally soon. Just understand that the rally is almost certainly going to fail to make new highs and will ultimately roll over and move down into the three-year cycle low next summer. And as scary and frustrating as the current intermediate decline is, the upcoming decline next summer is going to be a nightmare of catastrophic proportions for commodity investors. As I have been suggesting for months now I think traders need to focus mainly on the stock market for the next 8-12 months and let the commodity sector finish the move down into its three-year cycle low.
During this period, as commodity prices trend generally lower, a tailwind for the economy will be created as living expenses will decrease giving consumers more money for discretionary spending. Input costs for businesses will decline causing profit margins to expand. All in all, I think this could create the environment for stocks to deliver a final parabolic blow-off top at roughly the same time that the CRB hits it’s three-year cycle low.
Now for the silver lining. At bear market bottoms, which we are going to get in the commodity and gold markets sometime next summer, valuations reach levels that have no basis in reality. They are purely driven by irrational fear. For those that can bide their time, wait patiently, and get to a bear market bottom with their cash intact, this is where real opportunities are created.
I believe at the next major multiyear cycle bottom next summer, we are going to see an opportunity in the commodity complex, especially in precious metal mining stocks, that only comes around once every 40 or 50 years. This is the spot where millionaires and billionaires are created for those with the ability to buy at that bottom.
I suggest resource investors curb their animal spirits for now, and focus on the stock market. Our time will come. We just need to make sure we get to the bottom with our capital intact.
For more in-depth analysis of how these larger cycles are likely to unfold, consider a subscription to the nightly SMT newsletter.
October 5, 2014
Here are some links to recent reading.
Also, because this ratio has been above average for most of the last two decades, it will probably spend many future years below 16.5 -- if the long-term average is still valid. It is now in the top 10 percent of its range, and when this occurred in the past, the real S&P 500 fell 1.4 percent a year over the next decade. The Shiller P/E isn't a precise forecasting tool, but its elevated level for so many years is a warning sign.
-- Slow economic and corporate revenue growth. Real gross domestic product growth since the mid-2009 expansion began has been the slowest in the post-World War II era. I expect tepid growth to persist at about 2 percent annually until financial deleveraging is completed in four more years or so. With inflation running at about 1 percent and deflation looming, annual increases in nominal GDP of 3 percent or less are in the offing. In the long run, corporate profits will grow in step with nominal GDP. Furthermore, the risks to economic growth are on the downside."
COMMENT: Starting under Greenspan, and continuing under his successors, the FED has deemed it necessary to interfere with - and get involved in - the equity markets. The more it has become involved, the more it saw it as necessary to do more. Shiller's numbers are so out of whack because of this. The FED has its shoulder to the markets and is pushing harder and harder, giving the markets a 'tilt'. This is the only logical explanation for the phenomena that Shiller is reporting. The conclusions for future actions I will leave to you. But I will add that Japan is much farther down this road than are we. Look to Japan to see what our future might look like. The only thing that might save us will be an incredible energy boom.
How is that equity thing going? And whatever happened to that Kashkari kid? Seemed like a nice fellow.
Many of you seemed to resent my annual compensation (Mohamed's too). I suspect you believed that a few hundred million dollars would be better placed in your collective hands.
Query: Is splitting up the big dogs' comp among yourselves worth the fallout of a smaller asset base in the years to come? Is that in the best interests of the firm?"
As the growth of tax revenue has slowed, states have faced tensions over whether to raise taxes or cut spending to balance their budgets as required by law.
"Rising income inequality is not just a social issue," said Gabriel Petek, the S&P credit analyst who wrote the report. "It presents a very significant set of challenges for the policymakers.""
COMMENT: Republican/Conservative legislators on both the State and National
level need to be asked this simple question: 'Since WWII the top 3 percent of earners pay
the lowest percentage of taxes they have ever paid. The rates actually paid have been particularly
low for the past 13 years (Bush and Obama). Given that fact and the fact that our economy has
really sucked for the past 7-8 years, how has giving the 3 percent such a great tax break benefitted
the economy in general and the rest of us 97 percent in particular? Please be specific on how this
trickle down has actually created more jobs.'
One really has to wonder why the Democrat/Progressive candidates are not asking this question.
Perhaps this is because, while the Republicans sit in the Right pocket Mr. Affluent, the Democrats
sit in the Left. No one, on either side of the divide is really interested in change.
One really has to wonder why the Democrat/Progressive candidates are not asking this question. Perhaps this is because, while the Republicans sit in the Right pocket Mr. Affluent, the Democrats sit in the Left. No one, on either side of the divide is really interested in change.
Although investors should monitor various indicators of slack, large shifts in asset allocations to benefit from a "new neutral" rate may not be warranted. An analysis solely focused on a lower "new neutral" rate may conclude that the current level of long-term rates is to be expected. However, a lower "new neutral" implies an earlier liftoff date and higher fair-value yields."
Then the ninth inning will arrive - and that's the time when investors go crazy for stocks, just like they went crazy for real estate in 2006, or tech stocks in 1999.
While we are in the late innings of this great bull market, keep in mind, the biggest gains typically come in the final innings."
COMMENT: Let me see if I got this one. There has been no change in the FED policy for YEARS. So the FED has been sending the same message for YEARS. So no change-in-message was giving investors NO VIEW OF POSSIBLE CHANGE IN THE FUTURE. The thinking for the average Joe must therefore be: 'This is going to go on for years into the future, low rates, easing, tra la, tra la. So why not put some of that low interest money to work doing really stupid stuff like buying junk bonds?'
GENERAL COMMENT: The FED has incredible influence and is intimately involved in the stock markets. Therefore, do not expect a ten percent correction any time in the near future. Also, the FED does not pursue its mandates and it does not work for you or me. The FED works for the really BIG BANKS and it pursues their interests. Janet won't take your call, but she will take Lloyd Blankfein's. So, given this, when do you think the FED is going to start raising interest rates? ... wait for it ... WHEN THE BIG BANKS WANT THEM RAISED!
September 14, 2014
Here are some links to recent reading.
This relationship is consistent across time frames, as the table shows. And the numbers are similar during all periods of tightening and easing, as well.
Simply put, buying as tightening begins (and during tightening in general) beats the average gain on housing – even over the next two years.
Of course, these aren't "get rich"-type returns. But if you're buying a home with a mortgage, these numbers could make a big difference."
It's a good idea to make the 'hard trade.'
A hard trade is a trade that goes against your instincts. It goes against the consensus belief. It's a trade you don't want to tell your friends about because they'll tell you what a fool you are."
Some of the world's biggest pharmaceutical companies are pouring tons of cash into this new treatment. And early results show it's making great strides in curing cancers – even those like melanoma, which were once believed to be incurable.
In short, it's one of the biggest early-stage trends shaping our world today. And it has the potential to generate big gains for early investors..."