While it certainly appears that on a longer-term basis, tech is the best-positioned sector in the years ahead from the standpoint of growth, current free cash flow, and chart positioning (with the March 2000 high of 5100-ish on the NAZ still a long way off), my reading of sentiment is that the pros have started selling to the little guys. Now, the legitimate giant growth stock of our era, AAPL, is so cheap on a growth-to-P/E basis that it may be immune, but most of the NAZ is not doing well operationally (partly due to Apple). Thus I'm suspicious that this second great run of tech stocks in this calendar year "needs" to, at best, consolidate.
Yet my call that utilities (income) "should" outperform tech may or may not be true, given the ramifications of QE to infinity. After all, the premise of owning a high P/E, slow- or no-growth stock is that the dividend is desirable no matter whether the stock price rises. In this regard, the aggressive Fed rhetoric has forced me to reduce utilities' weighting. Income vehicles have simply performed poorly during QE1 and QE2. Why it should be different now, short-term moves aside, with a more aggressive QE policy, is unclear.
The Fed may have engaged in as important a policy initiative with QEternity as did the Volcker Fed in October 1979 with its new policy of restraining the money supply growth rate to fight the inflation that prior Feds had helped cause.
So as Lord Keynes said, when the facts change, so must our minds, and our strategy.
Interim pullbacks notwithstanding, it looks as though the U.S. its post-Depression history of rapid growth in the money supply in an environment of negative interest rates as far as the eye can see.
Historically, the more "negative" that interest rates are relative to price inflation, the faster gold and silver (and oil) prices rise. All other asset prices have been less predictable, including mining stocks.
Back into the inflation hedge pool big-time.
Friday, October 5, 2012
Monday, September 10, 2012
Utility Stocks Well-Positioned for the Short Term and Beyond; But Also Bullish on Cheap Inflation Hedge Plays in the Stock Market
A few months ago, I was (half-)joking that utility stocks were turning into the new mo-mo stocks. Well, the NAZ stocks as usual have turned into what they so often are, and have out-performed the XLU and such stalwarts as Con Ed by a massive amount lately. This tends to reverse. Importantly, Treasury yields are stubbornly holding at very low levels. The Treasury bond buyer is giving up quite a lot of yield versus utility stocks that both yield more and also, ultimately, provide a degree of inflation protection.
Last year my Treasury holdings peaked at about 30% portfolio weighting, mostly in very long-term zero coupon bonds. This has now gone to zero (as disclosed about 203 months ago), and I have been adding a bit more utilities to get to about a 15% weighting.
There are also, though, a growing number of undervalued inflation hedges in the portfolio, as I think the ultra-ultra-low interest rate scenario in the U.S. is looking a bit bizarre. But I think the simpler play is for a convergence of interest rates between Treasurys and high quality muni bonds and utilities, with the former yields moseying on up over time and the latter moving on down-- potentially explosively as occurred last summer with Treasury yields. If you blinked, you missed the move.
Over time, I am increasingly bullish on inflation/value stocks such as HP and AGU. AGU is of interest in that it is challenging a multi-year triple top with the catalyst of a New York-based hedge fund (Jana Partners) looking to force a restructuring. At 10X earnings with strong finances and a global reach, this one looks very interesting.
Last year my Treasury holdings peaked at about 30% portfolio weighting, mostly in very long-term zero coupon bonds. This has now gone to zero (as disclosed about 203 months ago), and I have been adding a bit more utilities to get to about a 15% weighting.
There are also, though, a growing number of undervalued inflation hedges in the portfolio, as I think the ultra-ultra-low interest rate scenario in the U.S. is looking a bit bizarre. But I think the simpler play is for a convergence of interest rates between Treasurys and high quality muni bonds and utilities, with the former yields moseying on up over time and the latter moving on down-- potentially explosively as occurred last summer with Treasury yields. If you blinked, you missed the move.
Over time, I am increasingly bullish on inflation/value stocks such as HP and AGU. AGU is of interest in that it is challenging a multi-year triple top with the catalyst of a New York-based hedge fund (Jana Partners) looking to force a restructuring. At 10X earnings with strong finances and a global reach, this one looks very interesting.
Friday, September 7, 2012
Fading the Front-Running of the Fed
Today's to-be-revised at least twice employment numbers were mediocre but hardly disastrous. In conjunction with yesterday's better-than-expected ADP employment numbers, which over time correlate with those of the BLS, and the modestly positive and better-than-expected ISM Services data also out yesterday, the macroeconomic picture in the US, and the action in economically-sensitive commodities, is better than a year ago. What happened then? Gold and silver were bid up, but the FOMC in both its August and September meetings refused to do another QE. Oops!
Silver is now up about 20% in about 9 weeks. Hedgies have been piling into the metals despite obviously depressed global demand. Sorry, China planning to build a few more roads won't do it. More junk FHA financing for a few more homes in the U.S. won't do it.
The metals are, on a yearly chart, tracing out a series of declining tops.
A massive QE is not priced in. That would be too easy a trade. However, the Fed is well aware that America still gets in its cars and shops, no matter the rise of the Amazon e-tailing economy. Unless the Fed has more control over futures prices than I know, a QE now will lead to yet higher gasoline prices, further undermining consumer psychology and perhaps leading to less economic activity, not more.
Without a high degree of "confidence", I am not seeing the case for QE to be announced next week, though of course the usual statement about being ready to implement one will be made assuming a formal program is indeed not announced.
The Fed in this estimation of mine is having the best of both worlds. It is getting asset prices up, thus making stockholders happy; but it knows there is already immense monetary tinder out there from the prior episodes of money-printing; and it believes that Operation Twist is doing more than half the "work" of QE already. It is having its cake and eating it too.
Note I am not an have not been a deflationist. There will be no "deflation" in the U.S. for the foreseeable future IMO. Precious metals prices are thus likely to work higher. We shall see what we shall see, but on a short-to-intermediate term trading basis I continue to see increasing downside to the precious metals if Europe 2012 continues to follow the U.S. 2008 pattern.
Silver is now up about 20% in about 9 weeks. Hedgies have been piling into the metals despite obviously depressed global demand. Sorry, China planning to build a few more roads won't do it. More junk FHA financing for a few more homes in the U.S. won't do it.
The metals are, on a yearly chart, tracing out a series of declining tops.
A massive QE is not priced in. That would be too easy a trade. However, the Fed is well aware that America still gets in its cars and shops, no matter the rise of the Amazon e-tailing economy. Unless the Fed has more control over futures prices than I know, a QE now will lead to yet higher gasoline prices, further undermining consumer psychology and perhaps leading to less economic activity, not more.
Without a high degree of "confidence", I am not seeing the case for QE to be announced next week, though of course the usual statement about being ready to implement one will be made assuming a formal program is indeed not announced.
The Fed in this estimation of mine is having the best of both worlds. It is getting asset prices up, thus making stockholders happy; but it knows there is already immense monetary tinder out there from the prior episodes of money-printing; and it believes that Operation Twist is doing more than half the "work" of QE already. It is having its cake and eating it too.
Note I am not an have not been a deflationist. There will be no "deflation" in the U.S. for the foreseeable future IMO. Precious metals prices are thus likely to work higher. We shall see what we shall see, but on a short-to-intermediate term trading basis I continue to see increasing downside to the precious metals if Europe 2012 continues to follow the U.S. 2008 pattern.
Monday, August 27, 2012
Betting Against QE3 Introduction at Jackson Hole
I have taken a dislike to all this QE 3 speculation and even discussion. QE was introduced as an emergency measure at a time of crisis and deflation. It ended at the end of June, 2010 and essentially was reintroduced in August 2010 after it quickly become apparent that "Recovery Summer" was not that at all. This recurrent bond-buying program was dubbed QE 1.5 and segued seamlessly into what was called QE 2. So, QE was basically one long program lasting slightly over 1.5 years taken to support economic activity in the wake of a contained depression, aka Great Recession. Since then, even the stock market plunge last year and refusal of the government to rein in the deficit did not sway the Fed to resume QE.
With economic stats decent and Europe potentially needing Fed dollars as swaps, with the U.S. gov't having no difficulty financing the deficit, and with ongoing Op Twist, I think that a much worse economic state is required for QE to be announced at Jackson Hole or any time soon.
Not to mention that the Fed would prefer not to take drastic action until after the election.
Dr. B speaks at JH on Thursday. My speculation is that gold/silver peak Tuesday or Wednesday. BBG reported Friday that a weekly poll of commodities traders was at its greatest degree of gold-bullishness in nine months, which was a bad time to buy gold. Harvey Organ reported his analysis of the COT for Ag/Au as being very bearish for Ag and somewhat bearish for Au. Thus a bear move in the precious metals next week following higher recovery highs Monday and perhaps Tues-Wed into Wed AM makes sense to me.
With economic stats decent and Europe potentially needing Fed dollars as swaps, with the U.S. gov't having no difficulty financing the deficit, and with ongoing Op Twist, I think that a much worse economic state is required for QE to be announced at Jackson Hole or any time soon.
Not to mention that the Fed would prefer not to take drastic action until after the election.
Dr. B speaks at JH on Thursday. My speculation is that gold/silver peak Tuesday or Wednesday. BBG reported Friday that a weekly poll of commodities traders was at its greatest degree of gold-bullishness in nine months, which was a bad time to buy gold. Harvey Organ reported his analysis of the COT for Ag/Au as being very bearish for Ag and somewhat bearish for Au. Thus a bear move in the precious metals next week following higher recovery highs Monday and perhaps Tues-Wed into Wed AM makes sense to me.
Thursday, August 23, 2012
Utilities Sell-Off and Precious Metals Surge Is Badly Timed for Deteriorating Macroeconomic Conditions
Based on the derisking POV expressed in my post on The Daily Capitalist yesterday, I have taken further profits in the accounts I manage in PSLV and PPLT, tho I think platinum heads higher based on newflow.
Overall, earnings estimates continue to climb for CF, more or less on a daily basis. Short-term volatility notwithstanding, I think it can trade a lot higher given EPS projections to be over $20/share for the next several years. AGU is cheap and so is DE.
However, I basically think the markets have it wrong right here. They are busting silver up to 10+% above its 50 day sma, but assuming the global recession moves thru the U.S. (per ECRI), industrial uses of silver will decline and my long-held target price of $21 would then have a good shot at being met. There remains a good deal of speculation in silver (and gold).
The reason I write the above, even tho I think the physical metals are going much higher over time, is the unwarranted sell-off in the "safe" high-quality utilities. One can now receive over 4% in WGL, with a low-ish dividend payout, and about 4% in ED. Both companies serve the two most vital cities in the U.S. and in this inflationary age, appear to be better buy-and-holds for anything other than the most hair-shirt part of a portfolio (high-quality bonds)-- and that is so even if their tax rate rises. Even as Japan was (financially speaking) "going Japanese", their 10-year bond did not go below the rate of current CPI inflation, as the U.S. 10-year did recently.
Last year I concentrated thru August on gold, and starting in the spring added Treasurys. This year the theme is to lock up an interest stream that has a good chance of being valued much more highly in future years in a ZIRP-forever (ZIRP4EVA per ZH) world. And if "NIRP" (negative interest rate policy) comes to America, one could see extraordinarily low dividend yields on these equities.
Finally, though they are riskier, both T and VZ are "growthier" than the above utes and offer higher dividend payouts.
All the above have RSI's near or below 20 tho the fundos have not changed. So I'm finishing the move into these guys.
Of course, in a new Lehman moment, the prices of all these things will collapse; but I'm betting that their dividend streams won't.
Overall, earnings estimates continue to climb for CF, more or less on a daily basis. Short-term volatility notwithstanding, I think it can trade a lot higher given EPS projections to be over $20/share for the next several years. AGU is cheap and so is DE.
However, I basically think the markets have it wrong right here. They are busting silver up to 10+% above its 50 day sma, but assuming the global recession moves thru the U.S. (per ECRI), industrial uses of silver will decline and my long-held target price of $21 would then have a good shot at being met. There remains a good deal of speculation in silver (and gold).
The reason I write the above, even tho I think the physical metals are going much higher over time, is the unwarranted sell-off in the "safe" high-quality utilities. One can now receive over 4% in WGL, with a low-ish dividend payout, and about 4% in ED. Both companies serve the two most vital cities in the U.S. and in this inflationary age, appear to be better buy-and-holds for anything other than the most hair-shirt part of a portfolio (high-quality bonds)-- and that is so even if their tax rate rises. Even as Japan was (financially speaking) "going Japanese", their 10-year bond did not go below the rate of current CPI inflation, as the U.S. 10-year did recently.
Last year I concentrated thru August on gold, and starting in the spring added Treasurys. This year the theme is to lock up an interest stream that has a good chance of being valued much more highly in future years in a ZIRP-forever (ZIRP4EVA per ZH) world. And if "NIRP" (negative interest rate policy) comes to America, one could see extraordinarily low dividend yields on these equities.
Finally, though they are riskier, both T and VZ are "growthier" than the above utes and offer higher dividend payouts.
All the above have RSI's near or below 20 tho the fundos have not changed. So I'm finishing the move into these guys.
Of course, in a new Lehman moment, the prices of all these things will collapse; but I'm betting that their dividend streams won't.
Monday, August 20, 2012
Updating Old Coverage and Introducing a New Favorite Group of Stocks
With family having left, I wanted to update the topic of recent posts.
AAPL: I penned a bullish note pre-earnings. Sales and earnings disappointed, but leaks of upcoming product intros have spurred a massive rally. This has occurred on significant declines in current quarter and next fiscal year estimates from the analysts. AAPL fans are not deterred. 40% yoy increase in earnings estimates are expected from a number of members of an AAPL-oriented forum in which I participate, whereas analysts are looking for perhaps half that yoy gain. For the first time since I started blogging enthusiastically about AAPL in spring 2010 around $250/share, except for the period of uncertainty regarding SJ's illness/impending demise, I think that AAPL is a good but not great stock going forward-- though it is a great company. I'd like to see more fear and improving fundamentals to think it's a great stock prospectively, which are situations I see with several other companies that unlike AAPL are well off prior highs though along with Apple they have record sales and earnings.
I have handled the commodities situation well so far, as well. I stood back from PPLT and PALL a couple of months ago when they just didn't act right. However, platinum was already at the marginal cost of production for a number of mines. Probably, similar for palladium, which is a thinner market.
As soon as I read about the tragedy at the Lonmin mine in South Africa, with dozens of people shot dead by police for protesting, I bought the early surge up in PPLT from lower levels than where it had been when last I blogged on it. I also bought PALL, which trades with PPLT. These stocks (commodities) are "acting well". I speculate that even in a "sluggish" global economy, these industrial (and ornamental) metals are going to rise over time. In the short run, Johnson Matthey put out a report around March of this year suggesting that platinum would like sell around $1600 this fall, and palladium would be around $715 (per ounce prices). They know the market super-well and have had a good track record on price projections so far as I have seen. These are thus both "value" metals and I think they can be bought here despite the recent price surge.
Of my current favorite stocks, one is old, two are new. Old is Con Ed (ED), which after hitting an all-time high took a tumble correlated with the sell-off in T-bonds and the NAZ surge. Relative strength collapsed to 14 from a period of time at above 80. Yet the fundos are fine operationally, earnings are rising. Unbelievably for this boring company, Value Line's computer gives it above average price potential (rank 2) and a technical ranking also of 2. I have been getting Value Line for decades. If Con Ed has ever been a #2 for timeliness of stock price movement, I can't remember it.
Remember, ED is a bond substitute in my book. I continue to foresee it trading to a 3% dividend yield, even in a scenario in which the 10-year T-bond rate rises to 2.5%. I have no idea when this might occur. (I thus see little need for most investors to hold bonds.)
New entrants, and my current momentum favorites, are AGU and CF. These fertilizer companies have P/E's below 10, strong financial strength, and rising earnings estimates. CF has the best stock chart around. AGU looks strong, as well. AGU has the advantage here of having a catalyst. Jana, a hedge fund, is an activist shareholder with a 5% stake. They want AGU broken up, as it has a large global farm retail division. I like ag over consumer electronics here. One has shortages, the other is moving to saturation in parts of the world that don't require low prices to buy the product.
Getting back to electronics, the other strategic (not necessarily tactical) fave I have are the telecoms that are "doing well". These include T, VZ and BCE. These can be yield stocks when the market again starts to worry about growth, but they participate in the growth of data usage, etc. etc. from the spreading use of mobile devices. All are rising out of bases on the stock charts, offer over 4% dividends which are expected to rise, and (importantly) have gently accelerating earnings growth already reported. These stocks could all trade much higher simply as bond substitutes, as well.
The stock market, in fits and starts, overvalued by numerous metrics as it is, has thus begun to make the (usually slow) turn to being less overvalued than bonds. This turn is just beginning, but it is clearly established for the stronger blue chips.
AAPL: I penned a bullish note pre-earnings. Sales and earnings disappointed, but leaks of upcoming product intros have spurred a massive rally. This has occurred on significant declines in current quarter and next fiscal year estimates from the analysts. AAPL fans are not deterred. 40% yoy increase in earnings estimates are expected from a number of members of an AAPL-oriented forum in which I participate, whereas analysts are looking for perhaps half that yoy gain. For the first time since I started blogging enthusiastically about AAPL in spring 2010 around $250/share, except for the period of uncertainty regarding SJ's illness/impending demise, I think that AAPL is a good but not great stock going forward-- though it is a great company. I'd like to see more fear and improving fundamentals to think it's a great stock prospectively, which are situations I see with several other companies that unlike AAPL are well off prior highs though along with Apple they have record sales and earnings.
I have handled the commodities situation well so far, as well. I stood back from PPLT and PALL a couple of months ago when they just didn't act right. However, platinum was already at the marginal cost of production for a number of mines. Probably, similar for palladium, which is a thinner market.
As soon as I read about the tragedy at the Lonmin mine in South Africa, with dozens of people shot dead by police for protesting, I bought the early surge up in PPLT from lower levels than where it had been when last I blogged on it. I also bought PALL, which trades with PPLT. These stocks (commodities) are "acting well". I speculate that even in a "sluggish" global economy, these industrial (and ornamental) metals are going to rise over time. In the short run, Johnson Matthey put out a report around March of this year suggesting that platinum would like sell around $1600 this fall, and palladium would be around $715 (per ounce prices). They know the market super-well and have had a good track record on price projections so far as I have seen. These are thus both "value" metals and I think they can be bought here despite the recent price surge.
Of my current favorite stocks, one is old, two are new. Old is Con Ed (ED), which after hitting an all-time high took a tumble correlated with the sell-off in T-bonds and the NAZ surge. Relative strength collapsed to 14 from a period of time at above 80. Yet the fundos are fine operationally, earnings are rising. Unbelievably for this boring company, Value Line's computer gives it above average price potential (rank 2) and a technical ranking also of 2. I have been getting Value Line for decades. If Con Ed has ever been a #2 for timeliness of stock price movement, I can't remember it.
Remember, ED is a bond substitute in my book. I continue to foresee it trading to a 3% dividend yield, even in a scenario in which the 10-year T-bond rate rises to 2.5%. I have no idea when this might occur. (I thus see little need for most investors to hold bonds.)
New entrants, and my current momentum favorites, are AGU and CF. These fertilizer companies have P/E's below 10, strong financial strength, and rising earnings estimates. CF has the best stock chart around. AGU looks strong, as well. AGU has the advantage here of having a catalyst. Jana, a hedge fund, is an activist shareholder with a 5% stake. They want AGU broken up, as it has a large global farm retail division. I like ag over consumer electronics here. One has shortages, the other is moving to saturation in parts of the world that don't require low prices to buy the product.
Getting back to electronics, the other strategic (not necessarily tactical) fave I have are the telecoms that are "doing well". These include T, VZ and BCE. These can be yield stocks when the market again starts to worry about growth, but they participate in the growth of data usage, etc. etc. from the spreading use of mobile devices. All are rising out of bases on the stock charts, offer over 4% dividends which are expected to rise, and (importantly) have gently accelerating earnings growth already reported. These stocks could all trade much higher simply as bond substitutes, as well.
The stock market, in fits and starts, overvalued by numerous metrics as it is, has thus begun to make the (usually slow) turn to being less overvalued than bonds. This turn is just beginning, but it is clearly established for the stronger blue chips.
Monday, August 13, 2012
Dangerous Markets
In my last post, a while ago pre-vacation, I talked up AAPL's virtues. Events proved this correct, in a funy way. AAPL disappointed on sales and earnings, yet the stock is close to its all-time high. IMO, AAPL is at best a weak hold now on a trading basis. The fanbois are loving it that a new iPhone will be out soon. LOL, that's a surprise?
If one compares the platinum ETF, PPLT, with the SPY for as long as PPLT has been in existence, and goes back to the platinum futures markets for prior history, one will see a close correlation between the two. This has diverged over the past year or so. Platinum, and even more so palladium, are priced on the margin largely because they are used in the real economy. The ETFs are secondary in importance; they are not "money" a la gold and perhaps silver. If the central banks were inflating everything so much, or about to, said inflation would include these very rare and essential metals. I thus take them as proverbial canaries. I "think" that stocks have been carried aloft on a similar mode as bonds. If I saw real strength in copper, platinum, palladium prices etc., I would suppose that bonds were all wet and go with the growth stuff. But I don't see that. In fact, the last few months that the Billion Prices Project covers (up to June 30) shows no inflation. (Note they do not cover services.)
The VIX was down today on a down day for stock prices. This joins the metals in non-confirming the action. Meanwhile, fundos matter. The European recession, misnamed a debt crisis, continues on. The sedative of the Olympics is over. For some time I have been analogizing what's been going in in Europe the past few years to what was going on in the US beginning in about 2006. Europe 2012 continues to have similarities to the US 2008 that trouble me.
There have been a few times in my investing career in which I had an atypical sense that I was smarter than the markets or the pundits and actually was right (i.e. lucky). In the 1990s, this sense was that the insanity would continue on until it didn't. I was lucky to stay with the trend until 2000 and get very much out of stocks that year, to get back in in the spring of 2003. In the summer of 2007, I got out of stocks and into cash and bonds around Dow 13000, and when it went to 14300+, I was untroubled. A year later, it had been halved.
I have a similar feeling now about things. As was the case in the US through August 2008, the markets were trading as if things were normal. But they manifestly were not. While the authorities were on the case, they were not gods, and they did the best they could. But troubles are troubles, and Europe has troubles; and the US economy has continued to trail expectations. The president's plans for the country to double exports in a five year span is not on track, as the ROW is not cooperating.
The VIX is 14. It is 1/3 below its 200 day sma. 14 on the VIX is support (resistance for stocks) for the past 5 years. Either the economic news is about to turn sunny, or the VIX is overbought. Right now, I continue to like ED and WGL over AAPL and the growth stuff.
If one compares the platinum ETF, PPLT, with the SPY for as long as PPLT has been in existence, and goes back to the platinum futures markets for prior history, one will see a close correlation between the two. This has diverged over the past year or so. Platinum, and even more so palladium, are priced on the margin largely because they are used in the real economy. The ETFs are secondary in importance; they are not "money" a la gold and perhaps silver. If the central banks were inflating everything so much, or about to, said inflation would include these very rare and essential metals. I thus take them as proverbial canaries. I "think" that stocks have been carried aloft on a similar mode as bonds. If I saw real strength in copper, platinum, palladium prices etc., I would suppose that bonds were all wet and go with the growth stuff. But I don't see that. In fact, the last few months that the Billion Prices Project covers (up to June 30) shows no inflation. (Note they do not cover services.)
The VIX was down today on a down day for stock prices. This joins the metals in non-confirming the action. Meanwhile, fundos matter. The European recession, misnamed a debt crisis, continues on. The sedative of the Olympics is over. For some time I have been analogizing what's been going in in Europe the past few years to what was going on in the US beginning in about 2006. Europe 2012 continues to have similarities to the US 2008 that trouble me.
There have been a few times in my investing career in which I had an atypical sense that I was smarter than the markets or the pundits and actually was right (i.e. lucky). In the 1990s, this sense was that the insanity would continue on until it didn't. I was lucky to stay with the trend until 2000 and get very much out of stocks that year, to get back in in the spring of 2003. In the summer of 2007, I got out of stocks and into cash and bonds around Dow 13000, and when it went to 14300+, I was untroubled. A year later, it had been halved.
I have a similar feeling now about things. As was the case in the US through August 2008, the markets were trading as if things were normal. But they manifestly were not. While the authorities were on the case, they were not gods, and they did the best they could. But troubles are troubles, and Europe has troubles; and the US economy has continued to trail expectations. The president's plans for the country to double exports in a five year span is not on track, as the ROW is not cooperating.
The VIX is 14. It is 1/3 below its 200 day sma. 14 on the VIX is support (resistance for stocks) for the past 5 years. Either the economic news is about to turn sunny, or the VIX is overbought. Right now, I continue to like ED and WGL over AAPL and the growth stuff.
Sunday, July 22, 2012
Newton's Fruit Still Falling Upwards, and Other Observations
With markets at a strange "new normal" of zero-ish interest rates for heavily indebted but "safe" sovereigns, and where an historically normal long-term interest rate of 6-7% for Italian debt is, we are told, unsustainable, a relative sanity prevails in a few sectors of other markets. To wit, large-cap technology stocks are, despite operating in growth fields, relatively cheap. Amongst them, none is as large or as cheap as Newton's fruit, aka AAPL. As much of the investing public knows, Apple discloses how last quarter went for it on Tuesday afternoon. It will offer a hint of the current quarter.
Apple is growing at an enormous rate. Last quarter, its operating margin soared to 47%. It has made no $6 B acquisition as MSFT just has written off. There will be no writeoffs. More importantly to me, there will be no non-GAAP earnings presentation. There will be no acquisition of "cheap" debt.
For those occasional investors who do not follow all things Apple as I do, the company has been on an unrecognized roll in key but under-reported areas. It has been securing potentially important legal victories over Samsung in the court battle in California heard by the Korean-descended Judge Lucy Koh. Florina Mueller, an expert blogger on these matters, said this past week:
Mr. Mueller is a cautious blogger. It means something when he words this so strongly.
Competitively, Microsoft appears confused with its transition to Windows 8. Unlike Apple, which is adjusting its Mac OS toward that of iOS but keeping it different, MSFT is going all in on the tablet-phone OS for Windows. This is tres strange, given that MSFT has almost no market share in mobile devices. Worse, MSFT's partner in telephony, NOK, had its debt rating lowered into deeper junk territory last week. Also horrible for the Microsoft ecosystem is its "Surface" tablet product. Mr. Softee is now entering into direct hardware competition with the hardware licensees that have been so
I suspect that as Retina Display-enabled Macs roll out and few Windows customers "upgrade" to Win 8, the Mac's market share in "PCs" will increase. At some point, there could be a tipping point in which the Mac platform regains the lead over Windows in desktop and larger-than-iPad mobile computers.
Last but not least, the iPad is the product of the decade. (The iPhone was the product of the prior decade.) The iPad is estimated to have 90% share of its category, namely 10 inch tablets. It is up to Apple whether it wants to make Google's new small tablet, Amazon's Kindle line, etc. wildly unprofitable by launching a mini-iPad. Small matter. The iPad is Apple's main entry into the business market. The iPhone is a worthy partner. Tim Cook, as an ex-IBMer and an MBA, is much more oriented to succeeding in the business world than was Steve Jobs.
A few months ago, Apple's head product designer, Jonathan Ive, disclosed that the current project he is working on feels like Apple's most important project yet. One doubts this is simply the next iPhone iteration. Assuming it is the long-awaited full-size television, and that it launches next year, Apple will have in 2013 a rapidly-growing iPad product or product line, an important and still-growing iPhone product, a potential third blockbuster television product, and a Mac line that continues to gain market share and could surprise to the upside. Plus, iTunes is a large business that sooner rather than later would be a Fortune 500 company all on its own; and iPods remain a cash cow that both require no advertising expense and are so small that they take up little display room in Apple stores.
Apple is the financially strongest corporation in the world. It has the fastest growth of any large company. Its retail presence is so strong that if it wished, it could increase its marketing of other companies' products, thus filling any temporary gaps in its own product lines. It is becoming more like an integrated oil company in that it is expanding its manufacturing operations backwards along with the growing direct retail presence. Its dividend yield exceeds that of the 10-year T-note. Value Line anticipates that it will have at least $200 B book value, with no intangibles or goodwill on the books, by the end of CY 2013. It could easily earn $50/share this calendar year and could easily earn $100/share by CY 2015. Why is its P/E below market when it has the best financial statement and the fastest growth of any large company in the world?
I think the answer is that the business and analytic community has never seen any very large company grow so fast organically. There is fear that somewhere, somehow, Apple will go the way of RIMM and NOK; so, the analysts "won't get fooled again". LOL.
Regardless of how trading goes before and after earnings, AAPL is IMHO the best growth stock around. It is growing at an unbelievable rate. It sells at roughly 10X expected CY 2012 earnings net of expected cash and marketable securities on hand by end-2012, even after "haircutting" the value of offshore assets. Yet its two major product lines are early in their life cycles, and a major new product line may well be introduced next year.
So far as I can see, most stocks are overpriced given the serious economic and financial dislocations that exist today globally and in the U.S. and other leading economic powers. AAPL is an exception, though it is not a "Graham and Dodd" value stock. (LOL again)
The only other stocks I find worth owning include the occasional DE-type of reasonably-priced cyclical stock and a few other high-quality equities, but I think they get cheaper before they get more expensive. Then, for now, there is the derivative bond play, as it were, in the Con Ed-type stock. Steady ED is simply too cheap if one believes that its dividend is secure. You can own a 30-year T-bond at about 2.5% per year or ED at about a 50% higher yield with some inflation protection and- believe it or not- takeover possibilities. With the 10-year yield at (say) 1.5%, ED should be about double its current share price to re-establish its historical relationship to that benchmark bond. Thus ED is already discounting a major rise in interest rates.
Spain is now widely recognized as bust. I suspect that once Italy is so recognized, that will be the end of the bad news and it will be time to buy inflation hedges again. John Mauldin is promoting France as next up. I don't think that's in the cards, at least not this economic cycle, though of course we shall see what we shall see. Thus my game plan for now strategizes 2012's coming hurricane season months as reprising some combination of 2008 (Europe's sovereigns taking the place of US financials this time around) and 2011, as economies lurch down again as they did last year in the pre-recessionary phase.
Meanwhile, the valuation and growth trends favor AAPL gaining a higher relative P/E to the market while earnings grow rapidly. AAPL and ED, a strange combo to make up my investment faves.
Apple is growing at an enormous rate. Last quarter, its operating margin soared to 47%. It has made no $6 B acquisition as MSFT just has written off. There will be no writeoffs. More importantly to me, there will be no non-GAAP earnings presentation. There will be no acquisition of "cheap" debt.
For those occasional investors who do not follow all things Apple as I do, the company has been on an unrecognized roll in key but under-reported areas. It has been securing potentially important legal victories over Samsung in the court battle in California heard by the Korean-descended Judge Lucy Koh. Florina Mueller, an expert blogger on these matters, said this past week:
I've said it before that whatever happens at the upcoming trial, Samsung won't be forced out of the market, but a very significant breakthrough for Apple's intellectual property enforcement is increasingly likely.
Mr. Mueller is a cautious blogger. It means something when he words this so strongly.
Competitively, Microsoft appears confused with its transition to Windows 8. Unlike Apple, which is adjusting its Mac OS toward that of iOS but keeping it different, MSFT is going all in on the tablet-phone OS for Windows. This is tres strange, given that MSFT has almost no market share in mobile devices. Worse, MSFT's partner in telephony, NOK, had its debt rating lowered into deeper junk territory last week. Also horrible for the Microsoft ecosystem is its "Surface" tablet product. Mr. Softee is now entering into direct hardware competition with the hardware licensees that have been so
I suspect that as Retina Display-enabled Macs roll out and few Windows customers "upgrade" to Win 8, the Mac's market share in "PCs" will increase. At some point, there could be a tipping point in which the Mac platform regains the lead over Windows in desktop and larger-than-iPad mobile computers.
Last but not least, the iPad is the product of the decade. (The iPhone was the product of the prior decade.) The iPad is estimated to have 90% share of its category, namely 10 inch tablets. It is up to Apple whether it wants to make Google's new small tablet, Amazon's Kindle line, etc. wildly unprofitable by launching a mini-iPad. Small matter. The iPad is Apple's main entry into the business market. The iPhone is a worthy partner. Tim Cook, as an ex-IBMer and an MBA, is much more oriented to succeeding in the business world than was Steve Jobs.
A few months ago, Apple's head product designer, Jonathan Ive, disclosed that the current project he is working on feels like Apple's most important project yet. One doubts this is simply the next iPhone iteration. Assuming it is the long-awaited full-size television, and that it launches next year, Apple will have in 2013 a rapidly-growing iPad product or product line, an important and still-growing iPhone product, a potential third blockbuster television product, and a Mac line that continues to gain market share and could surprise to the upside. Plus, iTunes is a large business that sooner rather than later would be a Fortune 500 company all on its own; and iPods remain a cash cow that both require no advertising expense and are so small that they take up little display room in Apple stores.
Apple is the financially strongest corporation in the world. It has the fastest growth of any large company. Its retail presence is so strong that if it wished, it could increase its marketing of other companies' products, thus filling any temporary gaps in its own product lines. It is becoming more like an integrated oil company in that it is expanding its manufacturing operations backwards along with the growing direct retail presence. Its dividend yield exceeds that of the 10-year T-note. Value Line anticipates that it will have at least $200 B book value, with no intangibles or goodwill on the books, by the end of CY 2013. It could easily earn $50/share this calendar year and could easily earn $100/share by CY 2015. Why is its P/E below market when it has the best financial statement and the fastest growth of any large company in the world?
I think the answer is that the business and analytic community has never seen any very large company grow so fast organically. There is fear that somewhere, somehow, Apple will go the way of RIMM and NOK; so, the analysts "won't get fooled again". LOL.
Regardless of how trading goes before and after earnings, AAPL is IMHO the best growth stock around. It is growing at an unbelievable rate. It sells at roughly 10X expected CY 2012 earnings net of expected cash and marketable securities on hand by end-2012, even after "haircutting" the value of offshore assets. Yet its two major product lines are early in their life cycles, and a major new product line may well be introduced next year.
So far as I can see, most stocks are overpriced given the serious economic and financial dislocations that exist today globally and in the U.S. and other leading economic powers. AAPL is an exception, though it is not a "Graham and Dodd" value stock. (LOL again)
The only other stocks I find worth owning include the occasional DE-type of reasonably-priced cyclical stock and a few other high-quality equities, but I think they get cheaper before they get more expensive. Then, for now, there is the derivative bond play, as it were, in the Con Ed-type stock. Steady ED is simply too cheap if one believes that its dividend is secure. You can own a 30-year T-bond at about 2.5% per year or ED at about a 50% higher yield with some inflation protection and- believe it or not- takeover possibilities. With the 10-year yield at (say) 1.5%, ED should be about double its current share price to re-establish its historical relationship to that benchmark bond. Thus ED is already discounting a major rise in interest rates.
Spain is now widely recognized as bust. I suspect that once Italy is so recognized, that will be the end of the bad news and it will be time to buy inflation hedges again. John Mauldin is promoting France as next up. I don't think that's in the cards, at least not this economic cycle, though of course we shall see what we shall see. Thus my game plan for now strategizes 2012's coming hurricane season months as reprising some combination of 2008 (Europe's sovereigns taking the place of US financials this time around) and 2011, as economies lurch down again as they did last year in the pre-recessionary phase.
Meanwhile, the valuation and growth trends favor AAPL gaining a higher relative P/E to the market while earnings grow rapidly. AAPL and ED, a strange combo to make up my investment faves.
Friday, July 20, 2012
Recessionary Dynamics Making Income Streams Paramount and Harming Metals Prices- For Now
Gold is vulnerable here as premium to platinum reaches about 12%.
Yet platinum is much rarer and has gotten to the area where some high production-cost mines are operating at a loss. I expect silver, platinum and palladium to lead the upturn over gold whenever the markets correctly sniff out a durable global economic upturn that occurs concomitant with additional monetary support from the central banks.
Meanwhile the Billion Prices Project has updated its findings through June 30 for the USA. Year on year price inflation as it measures it (it cannot measure services, a huge failing) is at 1% and dropping. Assuming ECRI is correct that the US is in recession, yoy price inflation is going to zero, it would appear. This in turn would allow the 10-year T-note to drop to 1%. This in turn would create yet more demand for "safe" dividend income.
Thus, GARP investing will not "work" as the ED's and even PG's of the world will not be easily sold, short of a fall 2008-style forced-liquidation panic.
Yet platinum is much rarer and has gotten to the area where some high production-cost mines are operating at a loss. I expect silver, platinum and palladium to lead the upturn over gold whenever the markets correctly sniff out a durable global economic upturn that occurs concomitant with additional monetary support from the central banks.
Meanwhile the Billion Prices Project has updated its findings through June 30 for the USA. Year on year price inflation as it measures it (it cannot measure services, a huge failing) is at 1% and dropping. Assuming ECRI is correct that the US is in recession, yoy price inflation is going to zero, it would appear. This in turn would allow the 10-year T-note to drop to 1%. This in turn would create yet more demand for "safe" dividend income.
Thus, GARP investing will not "work" as the ED's and even PG's of the world will not be easily sold, short of a fall 2008-style forced-liquidation panic.
Thursday, June 28, 2012
Investors Desperately Seeking Income, Utilities Continuing to Act Well
Utilities are acting once more like the new mo-mo stocks. Look what just set a post-financial crisis high today, closing on its high and thus moving up as the market rallied into the close:
http://finance.yahoo.com/echarts?s=AVA+Interactive#symbol=ava;range=20040621,20120628;compare=;indicator=sma%2850,150,200%29+volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;
It's a small northwestern utility with a P/E that's "cheap"- under 17 LOL. But the payout is 4.4% and people want that good stuff. Meanwhile P/E's on techs are shrinking and P/E's on a growing number of energy companies are less than 10X TTM.
One factor that actually makes sense in this rush for seemingly secure dividends w/o regard for growth is the tax treatment of foreign earnings. The foreign earnings of all multi-nationals is not able to be paid out to shareholders as dividends until they come back to the U.S. and get taxed. Thus a dollar of domestic earnings are worth somewhat more than a dollar of foreign earnings. That issue notwithstanding, the fact is that utility earnings are not necessarily predictable. Therefore their dividends are not necessarily secure either. I have a massively overweight position in utilities in my IRAs. Avista is one of them. VVC, Vectren is another. The charts are in break-out positions and unlike the new premature faves, the homebuilders, they actually have investment merits in the here and now. The homebuilders will have their day in the sun, but I think they are ahead of themselves. As was the case with gold and silver in 2009-11, sound domestic electric and natural gas utilities look as though they have more room to run on the upside as investors are increasingly reaching for income. Con Ed is at $62. I think $75 is realistic as the months roll by. Unfortunately Cramer feels the same way, but I've been saying so for awhile. He does, after all, get some mo-mo stuff right now and then...
http://finance.yahoo.com/echarts?s=AVA+Interactive#symbol=ava;range=20040621,20120628;compare=;indicator=sma%2850,150,200%29+volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;
It's a small northwestern utility with a P/E that's "cheap"- under 17 LOL. But the payout is 4.4% and people want that good stuff. Meanwhile P/E's on techs are shrinking and P/E's on a growing number of energy companies are less than 10X TTM.
One factor that actually makes sense in this rush for seemingly secure dividends w/o regard for growth is the tax treatment of foreign earnings. The foreign earnings of all multi-nationals is not able to be paid out to shareholders as dividends until they come back to the U.S. and get taxed. Thus a dollar of domestic earnings are worth somewhat more than a dollar of foreign earnings. That issue notwithstanding, the fact is that utility earnings are not necessarily predictable. Therefore their dividends are not necessarily secure either. I have a massively overweight position in utilities in my IRAs. Avista is one of them. VVC, Vectren is another. The charts are in break-out positions and unlike the new premature faves, the homebuilders, they actually have investment merits in the here and now. The homebuilders will have their day in the sun, but I think they are ahead of themselves. As was the case with gold and silver in 2009-11, sound domestic electric and natural gas utilities look as though they have more room to run on the upside as investors are increasingly reaching for income. Con Ed is at $62. I think $75 is realistic as the months roll by. Unfortunately Cramer feels the same way, but I've been saying so for awhile. He does, after all, get some mo-mo stuff right now and then...
Wednesday, June 27, 2012
Silver Approaches a Major Price Breakdown
A quick note about the spreading weakness in the four major traded precious metals (PMs), with the focus on silver (the "people's choice" PM). Silver is testing a triple bottom formation that begins with the January 2011 bottom (after which it almost doubled in short order). You can see this on a futures chart or simply with SLV. This strikes me as a sort of opposite formation to the triple top that gold was testing in late summer/fall of 2009, about which I blogged positively in several posts at that time; and, more important, personally bought the impending breakout big-time. At that time in 2009, the received wisdom was that resistance at triple tops rarely held; usually there was follow-through on the upside. I suspect that a similar phenomenon will hold for silver on the downside now.
Palladium (and platinum) has a weak chart that is consistent with the silver chart. I like to focus on it as it has the least public participation in ETFs that hold it; thus it "should" be the PM most related to industrial demand. In any case, what I find bearish is that it is testing levels that are triple the price levels that marked the 2008/9 bottom in this commodity. I think there has been lots of speculation in the commodities that is in the process of being negated, as investor preference continues to shift to muni bonds at, say, 50X "earnings" (i.e., a 2% interest rate) or utility stocks at, say, 16X earnings and a 4% dividend payout.
Investors and traders also may want to be aware that ETFs serve as a vehicle for the commercial interests to get the public to pay storage costs for excess inventory of these metals. It is not an unfair deal, and the costs are fully disclosed, but if rising commodities prices were close to a sure thing, would the commerical interests be eager to form ETFs to allow the public in on this near-sure thing?
Palladium (and platinum) has a weak chart that is consistent with the silver chart. I like to focus on it as it has the least public participation in ETFs that hold it; thus it "should" be the PM most related to industrial demand. In any case, what I find bearish is that it is testing levels that are triple the price levels that marked the 2008/9 bottom in this commodity. I think there has been lots of speculation in the commodities that is in the process of being negated, as investor preference continues to shift to muni bonds at, say, 50X "earnings" (i.e., a 2% interest rate) or utility stocks at, say, 16X earnings and a 4% dividend payout.
Investors and traders also may want to be aware that ETFs serve as a vehicle for the commercial interests to get the public to pay storage costs for excess inventory of these metals. It is not an unfair deal, and the costs are fully disclosed, but if rising commodities prices were close to a sure thing, would the commerical interests be eager to form ETFs to allow the public in on this near-sure thing?
Monday, June 25, 2012
Tipping Point? Corporate Profits Seen Heading Down
Recession in the U.S. or not, only time and NBER will tell. Corporate profits get reported much more timelier than NBER's data, and here is Bloomberg with the latest trends:
Europe’s debt crisis is putting pressure on corporate earnings globally with companies fromProcter & Gamble Co. (PG) to Danone (BN) cutting forecasts and signaling profits will fall at more companies this year.
Analysts predict members of the Standard & Poor’s 500 Index in the U.S. will report a 1.1 percent average drop in second-quarter earnings, after estimating a gain as recently as last month, according to data compiled by Bloomberg. That would be the first decline in 11 quarters after a 6.2 percent average increase in the first quarter.
This is how bear markets typically begin. Profits head south after quarter after quarter of growth and resiliency. Commodities have just entered a bear market. They tend to lead. Increasingly, last year's turbulence is looking like 2007 to this year's 2008. I hope that is not so, but as a self-styled perma-realist only interested in doing right by the funds I manage, I believe in the old physician's credo of Primum non nocere: first, do no harm.
Thursday, June 21, 2012
Updates on Recent Posts, and a Mid-Year Resolution
Two days ago, I put out two posts here. One needs little further comment beyond reiterating the title, which was "Metals Comments: Silver and Others Breaking Down Again". No change there. Just to add that I think that oil works lower yet. Do I hear $60/bbl (WTI).
The other was about Deere (DE), AAPL, and GARP investing. Anyway, I went ahead that day and put in a 5% portfolio allocation to DE and more to HP (Helmerich and Payne), and more to AAPL. When DE and HP had strong upside days yesterday in association with the VIX dropping to 17, I got nervous about this ultra-rapid drop in the VIX from 27 to 17 even as the macroeconomic data was getting worse and Spain was now clearly insolvent. So I took a one-day, 3% profit in DE and dumped HP for a profit. I love the company but hate commodities right now, as per the above-mentioned post. Anyway, I also markedly decreased my longs in AAPL and took profits in about half of my bond-like stock plays, the utilities, beginning this morning and continuing through the downturn today. Europe continues to remind me of the U.S. in 2008. There is both a solvency and liquidity crisis there. The global macroeconomic spillover is somewhat negative for the U.S., though decreased European demand for resources will help us with imported oil prices. Probably more important is the liquidity issue. Who knows, but I continue to fear a recurrence of 2011 or worse.
In the meantime, daily consumer spending per Gallup.com has collapsed to $68. This is below the level at the same date last year and a full 27% below the level seen on-- are you ready-- October 27, 2008, a month after Lehman/AIG. And, it is not adjusted for inflation.
The times are out of joint. The plain vanilla Vanguard long-term muni bond fund VWLUX has had a total return the past year of about 14%. The leveraged Nuveen muni bond fund NIO has had a total return of about 18%. The zero coupon long Treasury has returned well over 50%. Meanwhile, the SPY has returned about 4% with much greater volatility. More relevant, I think, to economic conditions here in the U.S. is the Russell 2000. Its ETF, the IWM, has had a negative twelve month total return of 4%. All this interest rate decline is what in my view has been sustaining by stocks and the economy. But said rate decline is played out, one would think.
I have had a very good twelve months and a very good 2012. It's feeling like a good time to do what I hate at a time of ZIRP and positive CPI, but I'm going to try to stick to my mid-year resolution and sit on this lead with a lot of cash in my trading accounts (self-directed IRAs). Everything except AAPL that does not look overvalued acts badly, and things like T-bonds and AMZN that act well look overvalued. Strange days...
The other was about Deere (DE), AAPL, and GARP investing. Anyway, I went ahead that day and put in a 5% portfolio allocation to DE and more to HP (Helmerich and Payne), and more to AAPL. When DE and HP had strong upside days yesterday in association with the VIX dropping to 17, I got nervous about this ultra-rapid drop in the VIX from 27 to 17 even as the macroeconomic data was getting worse and Spain was now clearly insolvent. So I took a one-day, 3% profit in DE and dumped HP for a profit. I love the company but hate commodities right now, as per the above-mentioned post. Anyway, I also markedly decreased my longs in AAPL and took profits in about half of my bond-like stock plays, the utilities, beginning this morning and continuing through the downturn today. Europe continues to remind me of the U.S. in 2008. There is both a solvency and liquidity crisis there. The global macroeconomic spillover is somewhat negative for the U.S., though decreased European demand for resources will help us with imported oil prices. Probably more important is the liquidity issue. Who knows, but I continue to fear a recurrence of 2011 or worse.
In the meantime, daily consumer spending per Gallup.com has collapsed to $68. This is below the level at the same date last year and a full 27% below the level seen on-- are you ready-- October 27, 2008, a month after Lehman/AIG. And, it is not adjusted for inflation.
The times are out of joint. The plain vanilla Vanguard long-term muni bond fund VWLUX has had a total return the past year of about 14%. The leveraged Nuveen muni bond fund NIO has had a total return of about 18%. The zero coupon long Treasury has returned well over 50%. Meanwhile, the SPY has returned about 4% with much greater volatility. More relevant, I think, to economic conditions here in the U.S. is the Russell 2000. Its ETF, the IWM, has had a negative twelve month total return of 4%. All this interest rate decline is what in my view has been sustaining by stocks and the economy. But said rate decline is played out, one would think.
I have had a very good twelve months and a very good 2012. It's feeling like a good time to do what I hate at a time of ZIRP and positive CPI, but I'm going to try to stick to my mid-year resolution and sit on this lead with a lot of cash in my trading accounts (self-directed IRAs). Everything except AAPL that does not look overvalued acts badly, and things like T-bonds and AMZN that act well look overvalued. Strange days...
Tuesday, June 19, 2012
Metals Comments: Silver and Others Breaking Down Again
The silver chart now looks terrible. PALL and PPLT look to be failing at their descending 50 day sma's. I had mentioned in a recent blog that on Saturday, Harvey Organ interpreted the COT report for silver as bearish-- that it was ready for a "hit".
I am not seeing any justification for another QE out of the FOMC tomorrow. Extension of ZIRP into mid-2015 (say), and continuation of Op Twist, very possible if not probably. Will the lack of new inflationary tinder that a true QE 3 would represent, if that is what eventuates, spark a risk-off move, perhaps with a big move down in silver?
Note that I pay special attention to PALL, as it is the commonly-traded precious metal that is hardly influenced by investor trends. It is thus the most economically-sensitive of the "Big Four" precious metals.
A major new metals bull market is coming, I expect- but FWIW, I think it remains delayed longer.
I am not seeing any justification for another QE out of the FOMC tomorrow. Extension of ZIRP into mid-2015 (say), and continuation of Op Twist, very possible if not probably. Will the lack of new inflationary tinder that a true QE 3 would represent, if that is what eventuates, spark a risk-off move, perhaps with a big move down in silver?
Note that I pay special attention to PALL, as it is the commonly-traded precious metal that is hardly influenced by investor trends. It is thus the most economically-sensitive of the "Big Four" precious metals.
A major new metals bull market is coming, I expect- but FWIW, I think it remains delayed longer.
Deere Apple: GARP's Time Is (Approximately) Here and Now
Just wanted to put in a quick stock comment. Since I think that "safe" govvies are "played", I have gone to stocks with fortress balance sheets and unique large niches in core areas of the global economy. Thus I bought back into Deere (DE), which I have traded at higher prices this year, perhaps making a buck or two but jumping out as I sensed the downtrend in the shares. DE is heading for its 175th birthday. It has seen a lot worse than the mess going on in Europe! The P/E is about 9X projected 201s earnings, and its CEO was on CNBC a day or two ago reaffirming guidance and saying that construction is doing well in the US of A. Value Line's "fair value" or "value line" for DE puts fair value at about $110, not the $75 it's now at.
Also, I scaled further back into AAPL, having largely gotten out around $620+ after the DOJ lawsuit broke and trading had gotten just too crazy in the stock. Meanwhile, Microsoft came out with some event this evening that announced something more than vaporware but less than an actual product-- and was thus in stark contrast to Apple's recent WWDC where actual products ready to be shipped were announced.
Here is a pretty funny take on the event:
http://news.cnet.com/8301-17938_105-57455730-1/who-is-the-microsoft-surface-for-exactly/?part=rss&subj=crave&tag=title&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+cnet%2FpRza+%28Crave%29
I also received an impressive e-mail from a techie who may be switching from PC's to the new Empire after being blown away by seeing the Retina display on Apple's new MacBook Pro 15 inch portable computer that was unveiled at the WWDC. He is looking at much higher AAPL prices, soon. Unlike yours truly, he actually knows the hardware-software industry as a veteran insider. I'll publish his comments in full if he allows me to.
With interest rates so low, patient money that does not have to mark to market and thus can ride out what might be a very stormy time in the weeks and months ahead will, I think, outperform most bonds with a truly select group of dominant equities that generate strong free cash flow.
Thus I have added select GARP companies to bond-like utility stocks as I have moved away from the highly-appreciated bonds that now have more risk than reward as I see it.
Also, I scaled further back into AAPL, having largely gotten out around $620+ after the DOJ lawsuit broke and trading had gotten just too crazy in the stock. Meanwhile, Microsoft came out with some event this evening that announced something more than vaporware but less than an actual product-- and was thus in stark contrast to Apple's recent WWDC where actual products ready to be shipped were announced.
Here is a pretty funny take on the event:
http://news.cnet.com/8301-17938_105-57455730-1/who-is-the-microsoft-surface-for-exactly/?part=rss&subj=crave&tag=title&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+cnet%2FpRza+%28Crave%29
I also received an impressive e-mail from a techie who may be switching from PC's to the new Empire after being blown away by seeing the Retina display on Apple's new MacBook Pro 15 inch portable computer that was unveiled at the WWDC. He is looking at much higher AAPL prices, soon. Unlike yours truly, he actually knows the hardware-software industry as a veteran insider. I'll publish his comments in full if he allows me to.
With interest rates so low, patient money that does not have to mark to market and thus can ride out what might be a very stormy time in the weeks and months ahead will, I think, outperform most bonds with a truly select group of dominant equities that generate strong free cash flow.
Thus I have added select GARP companies to bond-like utility stocks as I have moved away from the highly-appreciated bonds that now have more risk than reward as I see it.
Monday, June 18, 2012
Newton's Fruit Falling Upward Once Again
CRUS, Cirrus Logic, which makes audio chips which trades essentially as an AAPL derivative, has broken out today strongly following a positive report from the Semiconductor Industry Ass'n that business has turned. I take this as a sign that AAPL is "probably" headed to new highs as well. I had gotten lucky and sold most of AAPL around $620+ after A) Cramer called it the stock of the century (I exaggerate only slightly) and then the DOJ e-books lawsuit was filed.
I have been scaling back into the fruit big-time. First intermediate-term target: $690-700 by year-end. Rationale: After FY Q3 earnings are released in about 5 weeks, TTM 12 month earnings could be $45. 15-16X those earnings gets one to about that range. I would also note that Value Line's "value line" places AAPL's "fair value" around $900 as of today.
Am selling my last 14-year Treasury Strip at a 9% return, good in that this one was not bought till late in the rally. My rule of thumb with trading zeroes is that I sell if I net 3 year's worth of interest payments on the trade. Especially so when it's a zero that pays you nothing to own it.
I have been scaling back into the fruit big-time. First intermediate-term target: $690-700 by year-end. Rationale: After FY Q3 earnings are released in about 5 weeks, TTM 12 month earnings could be $45. 15-16X those earnings gets one to about that range. I would also note that Value Line's "value line" places AAPL's "fair value" around $900 as of today.
Am selling my last 14-year Treasury Strip at a 9% return, good in that this one was not bought till late in the rally. My rule of thumb with trading zeroes is that I sell if I net 3 year's worth of interest payments on the trade. Especially so when it's a zero that pays you nothing to own it.
Sunday, June 17, 2012
Gold May Be Looking Tired
The latest gold rally is already showing signs of having brought in too many bulls too soon in the (unending) European crisis. I was lunching Friday with a hedge fund manager who noted that a very recent survey continued to show that the favored investment of Americans, per the poll, was gold. I had pointed to what I believe was an earlier version of the same poll in the summer of 2011 as part of the reason why I had begun selling my gold when it hit $1900/ounce, and sold more as the price dropped off. Too much belief. Where were these when I was buying gold in the $300s (unfortunately I did not buy "enough"!) in 2002 as part of what I thought was an obvious weak-dollar set of policies by both the Bush administration and the Fed?
Now we see a negative CPI print and rising claims for unemployment. Plus the obvious diminution of buying power in a spreading number of regions in Europe. Sorry gold traders, against this deflationary backdrop, rumors of the obvious-- that central banks will "print" as needed-- the following survey from Bloomberg.com makes me negative on gold short-term:
Gold traders are bullish for a fourth consecutive week after hedge funds added to bets that prices will rally, exchange-traded products backed by the metal expanded and Europe’s debt crisis roiled markets.
Twenty-four analysts surveyed by Bloomberg said they expect gold to gain next week and six were bearish. A further three were neutral.
In addition, Harvey Organ's latest summary of the COT in silver looks overtly bearish to him, and his reading of the COT in gold is mildly bearish. I have found his analysis to be pretty good-- he "called" the latest gold rally well, for example.
At this stage in the game, my POV is to take bad news as bad news. Gold almost always directionally trades with silver and platinum, and both of them have even worse charts on the 50-200 day sma basis than does gold.
Meanwhile, Bloomberg also reports that Israel's stock market is up 2% today, supposedly on hopes that the European authorities will stimulate something or other.
We know "they" will do their job-- that's what "they" do. But sorry-- they are not rampant inflationists. If they were, the STOXX 50 etc. would not be in a pronounced downtrend. Copper wouldn't be under $3.50/lb. Whole countries would not be going bankrupt due to difficulty rolling over old debt and selling modest amounts of new debt, because "they" would be "printing" the new money needed to keep the game going. What's going on is more subtle than that. It's the biflation I wrote about a lot last year. I actually think that the inflation is returning to U.S. housing prices, which are historically cheap relative to gold IMHO. And while you can't eat houses, you can either live in them or rent them out for, one hopes, a positive cash flow.
Our job as investors and traders is to recognize the planted stories in the media. Thus, it was revealed that part of the latest peak in Treasury prices was spurred (finally) by buying by the public. (I don't know what duration bonds and in what vehicles these were purchased, so I don't know how much staying power these investors have if yields back up more for a while as I expect.) So congrats-- the public is finally buying Treasurys near the end of an over-30 year bull market. Meanwhile I was pounding the table last spring and early summer for Treasuries in several posts on The Daily Capitalist, beginning when 30-year T-bonds were yielding over 4%. That was just one year ago or so.
During the latest peak in Treasury prices, electric utilities that have 'A' or better financial ratings and have at least a modest amount of inflation protection were left temporarily ignored by the media and the public, and their yield spread versus Treasuries went to historically wide levels. So it appeared obvious to take profits in Treasuries and arbitrage, as it were, into the utes. I'm not perceiving any excess in the utes yet given they trade as if their yields were bond-like, and in fact when I talk to financial people, they doubt the move. They all express worries about the scheduled expiration of the Bush tax cuts. That strikes me as an uber-strange response. Aren't Treasury interest payments taxable, also? (Plus I own the utes in IRAs and own tax-free vehicles in taxable accounts.)
I mention the above as a long digression in a gold-oriented post because I continue to believe that the aging investor base in the Western world and Japan has a built-in, difficult-to-shake bias for income with perceived safety. That 'safety' will, methinks, inevitably turn out to be illusory, but the Japanese example shows that seemingly illogical phenomena often have good reasons to have occurred and to persist. When they buy GLD, the only thing that is certain is the ongoing trust expenses, plus commissions of course.
Per Bloomberg, gold traders are heavily bullish in contravention of the intermediate-term charts and at a time when everybody and his sibling knows that the world is going to pieces. Brilliant! They ignore that the same sorts of growthy trends that were occurring in 2009, 2010 or most of 2011 are not the dominant trend now. The dominant trend on a macro global basis is the ill winds swirling around and blowing out of Europe. What is going on in Europe continues to remind me of what was going on in the U.S. in 2008- cascading serious financial problems in core parts of the economy-- large financial companies in the U.S., systemically important banks and increasingly major governments in Europe. At least in the U.S., there was one national government and one powerful Fed to do what they did. Europe lacks that advantage.
Gold and silver, as assets that actually cost money to store and that are not valid to pay debts, became items that were liquidated post-Lehman, and their prices plunged to yearly lows post-crash. There simply was no rush to buy into an orderly short-term gold uptrend pre-Lehman such as has been occurring the last few weeks in gold.
Thus for people who already have core exposure to these metals, I'm not thinking that this is an opportune time to add to the holdings. (If one owns none of them, that's a different story.)
I'm also not thinking that all the attention being paid to yet another "critically important" Greek event is worth all the digital ink that's been spilled on it. I'm waiting for further events in Spain, and critically Italy, to see how these historic and sad dramas will play out in asset prices.
The numerous economic and other strengths of the United States continue to become more obvious to more and more people, and IMHO support the "America First" sort of investment strategy that I propounded last fall. When it comes to gold, I'm just speculating that we may well see a period of disenchantment with it in some poll later this year or next year out of America, and that it or silver may then be properly set up for yet another major bull move.
Now we see a negative CPI print and rising claims for unemployment. Plus the obvious diminution of buying power in a spreading number of regions in Europe. Sorry gold traders, against this deflationary backdrop, rumors of the obvious-- that central banks will "print" as needed-- the following survey from Bloomberg.com makes me negative on gold short-term:
Gold traders are bullish for a fourth consecutive week after hedge funds added to bets that prices will rally, exchange-traded products backed by the metal expanded and Europe’s debt crisis roiled markets.
Twenty-four analysts surveyed by Bloomberg said they expect gold to gain next week and six were bearish. A further three were neutral.
In addition, Harvey Organ's latest summary of the COT in silver looks overtly bearish to him, and his reading of the COT in gold is mildly bearish. I have found his analysis to be pretty good-- he "called" the latest gold rally well, for example.
At this stage in the game, my POV is to take bad news as bad news. Gold almost always directionally trades with silver and platinum, and both of them have even worse charts on the 50-200 day sma basis than does gold.
Meanwhile, Bloomberg also reports that Israel's stock market is up 2% today, supposedly on hopes that the European authorities will stimulate something or other.
We know "they" will do their job-- that's what "they" do. But sorry-- they are not rampant inflationists. If they were, the STOXX 50 etc. would not be in a pronounced downtrend. Copper wouldn't be under $3.50/lb. Whole countries would not be going bankrupt due to difficulty rolling over old debt and selling modest amounts of new debt, because "they" would be "printing" the new money needed to keep the game going. What's going on is more subtle than that. It's the biflation I wrote about a lot last year. I actually think that the inflation is returning to U.S. housing prices, which are historically cheap relative to gold IMHO. And while you can't eat houses, you can either live in them or rent them out for, one hopes, a positive cash flow.
Our job as investors and traders is to recognize the planted stories in the media. Thus, it was revealed that part of the latest peak in Treasury prices was spurred (finally) by buying by the public. (I don't know what duration bonds and in what vehicles these were purchased, so I don't know how much staying power these investors have if yields back up more for a while as I expect.) So congrats-- the public is finally buying Treasurys near the end of an over-30 year bull market. Meanwhile I was pounding the table last spring and early summer for Treasuries in several posts on The Daily Capitalist, beginning when 30-year T-bonds were yielding over 4%. That was just one year ago or so.
During the latest peak in Treasury prices, electric utilities that have 'A' or better financial ratings and have at least a modest amount of inflation protection were left temporarily ignored by the media and the public, and their yield spread versus Treasuries went to historically wide levels. So it appeared obvious to take profits in Treasuries and arbitrage, as it were, into the utes. I'm not perceiving any excess in the utes yet given they trade as if their yields were bond-like, and in fact when I talk to financial people, they doubt the move. They all express worries about the scheduled expiration of the Bush tax cuts. That strikes me as an uber-strange response. Aren't Treasury interest payments taxable, also? (Plus I own the utes in IRAs and own tax-free vehicles in taxable accounts.)
I mention the above as a long digression in a gold-oriented post because I continue to believe that the aging investor base in the Western world and Japan has a built-in, difficult-to-shake bias for income with perceived safety. That 'safety' will, methinks, inevitably turn out to be illusory, but the Japanese example shows that seemingly illogical phenomena often have good reasons to have occurred and to persist. When they buy GLD, the only thing that is certain is the ongoing trust expenses, plus commissions of course.
Per Bloomberg, gold traders are heavily bullish in contravention of the intermediate-term charts and at a time when everybody and his sibling knows that the world is going to pieces. Brilliant! They ignore that the same sorts of growthy trends that were occurring in 2009, 2010 or most of 2011 are not the dominant trend now. The dominant trend on a macro global basis is the ill winds swirling around and blowing out of Europe. What is going on in Europe continues to remind me of what was going on in the U.S. in 2008- cascading serious financial problems in core parts of the economy-- large financial companies in the U.S., systemically important banks and increasingly major governments in Europe. At least in the U.S., there was one national government and one powerful Fed to do what they did. Europe lacks that advantage.
Gold and silver, as assets that actually cost money to store and that are not valid to pay debts, became items that were liquidated post-Lehman, and their prices plunged to yearly lows post-crash. There simply was no rush to buy into an orderly short-term gold uptrend pre-Lehman such as has been occurring the last few weeks in gold.
Thus for people who already have core exposure to these metals, I'm not thinking that this is an opportune time to add to the holdings. (If one owns none of them, that's a different story.)
I'm also not thinking that all the attention being paid to yet another "critically important" Greek event is worth all the digital ink that's been spilled on it. I'm waiting for further events in Spain, and critically Italy, to see how these historic and sad dramas will play out in asset prices.
The numerous economic and other strengths of the United States continue to become more obvious to more and more people, and IMHO support the "America First" sort of investment strategy that I propounded last fall. When it comes to gold, I'm just speculating that we may well see a period of disenchantment with it in some poll later this year or next year out of America, and that it or silver may then be properly set up for yet another major bull move.
Wednesday, June 13, 2012
The 'New Normal'- Yet More Economic Deterioration Out of Europe
The real financial news today had nothing to do with Mr. Dimon at the Senate. It was again out of Europe. German mfg took a big drop per MarkIt, and Spain is nearly insolvent per Egan-Jones. So we had yet another sharp stock reversal to the downside and yet another lower high about the 150 day sma.
It continues to look as though Europe is going through the U.S. experience of 2008. Now it's nation-states, before it was the core financial structure of the sole superpower with immense global reach. Not sure which is harder to deal with! In any case, the other structural difference from the standpoint of this American observer is that what happened in 2008 occurred at the home of the most important central bank in the world. This European thing is different. The Fed in theory can loan them all they need. In this scenario in which Italy is up next and falls despite the various reassuring words out of Europe today on this topic, Treasury rates could drop to unimaginably low levels. As in Japan, the general stock averages would get hit hard. However, if no catastrophic "Lehman moment" occurs this time, there might be a lot of differentiation between stocks, as was the case in the major 2001-2 U.S. bear market.
In this scenario, volatility will go wild between deteriorating fundamentals and the certainty of intervention-- but when, oh when will they print, and how much and in what form? Summer 2011 set certain modern-day records for 1% up- or down-days. Could a rerun of some such volatility spikes be in the offing?
I am also paying no special attention to the Greek election. Whichever party wins will be happy to have the spoils of power and will do whatever they will do. It's impossible for an American to invest based on such unknowns and the high chance that even if Syriza wins, Tsipras will pull an Enda Kenny, who became P.M. of Ireland only to follow the bail-out course set by the previous guys.
Momentous, perilous times.
Sometimes cash is kingly.
It continues to look as though Europe is going through the U.S. experience of 2008. Now it's nation-states, before it was the core financial structure of the sole superpower with immense global reach. Not sure which is harder to deal with! In any case, the other structural difference from the standpoint of this American observer is that what happened in 2008 occurred at the home of the most important central bank in the world. This European thing is different. The Fed in theory can loan them all they need. In this scenario in which Italy is up next and falls despite the various reassuring words out of Europe today on this topic, Treasury rates could drop to unimaginably low levels. As in Japan, the general stock averages would get hit hard. However, if no catastrophic "Lehman moment" occurs this time, there might be a lot of differentiation between stocks, as was the case in the major 2001-2 U.S. bear market.
In this scenario, volatility will go wild between deteriorating fundamentals and the certainty of intervention-- but when, oh when will they print, and how much and in what form? Summer 2011 set certain modern-day records for 1% up- or down-days. Could a rerun of some such volatility spikes be in the offing?
I am also paying no special attention to the Greek election. Whichever party wins will be happy to have the spoils of power and will do whatever they will do. It's impossible for an American to invest based on such unknowns and the high chance that even if Syriza wins, Tsipras will pull an Enda Kenny, who became P.M. of Ireland only to follow the bail-out course set by the previous guys.
Momentous, perilous times.
Sometimes cash is kingly.
Monday, June 11, 2012
More Evidence of Spreading Economic Weakness in the U.S.
ChangeWave Research is out via e-mail today with their latest survey of business conditions. It is consistent with a new cyclical downturn or at best yet another "growth recession". They have a pretty good history for accuracy from my 4-5 year history with them. Their data are consistent with the pro-secure income thesis I have been propounding in one way or another since last May. Here is the summary:
Summary of Key Findings
Slowdown in Growth for U.S. Economy
2nd Quarter Sales
Reduced Visibility for 3rd Quarter Sales Pipeline
 |
3Q Cap Spending Also Registers Downturn
U.S. Job Market
|
Other Economic Indicators
Slowing Economy Helps Bring Down Inflation
Slight Improvement in Availability of Credit for U.S. Businesses
|
Turnaround Monday- Didn't Wait for Tuesday
As was strongly suggested on yesterday's post, today the European and U.S. stock markets staged what looks to be a major intra-day reversal, both in Europe and here. Spanish and Italian govvies were clobbered. The SPY closed below its 150 day sma once again, and has a 10 week pattern now of lower highs since the April 2 high. Lower lows coming soon to a stock market near you would be highly unsurprising.
I am long a variety of utilities because of my favorite reason to buy/own stocks: income in a world starved for seemingly secure income; and technicals. These include ED, AVA, SWX, WGL, XLU. Note these have replaced my zero-coupon Treasuries, on which I took profits the week before last, and now I am increasingly ramping into the utilities as a preferred income and price appreciation play. Today's drop in interest rates is perfect for this thesis. My expectation is that utilities will suffer profit-taking on days like today but then go up a nice amount when we have days as we did last week when stocks rebound and rates go up. I'm banking on some resumption of the historical relationship between the 10 year T-note and utility yields. Some utes could go up 50%++ if that occurred near today's record-low T-yields. (Not counting on that!)
I also own a few of the small community S&Ls/bank stocks I have mentioned for quite some time on The Daily Capitalist. I prefer not to name them b/c they are so illiquid. Finally, I own a very modest amount of stocks with varying charts that are "normal" operating companies, are ultra-high quality, have the leading position in essential growth industries, and have TTM P/Es of 7-14. In general, they all are GARP stocks that are well off their highs but with record earnings, and all pay dividends and have substantial tangible book value.
I am also long a significant amount of some of the leveraged closed end tax-exempt bond funds, the largest holdings being NIO and NVG.
I see investors turning away from the SPY until it yields double the 10-year Treasury. This process takes time. That's how it ended up in Japan, with a 1% 10-year JGB and a 2% Nikkei yield. In the US in the 1940s, the market had periods where the highest-quality stocks yielded 7-9% with T-bond yields marginally higher than today's.
Once people really start worrying about stocks, a 2% SPY yield is trivial. They can go out for lunch and come back to find the SPY down that much, just like that. Thus we saw the psychology to get high dividends- and note back in the '40s, stocks often traded close to tangible book value, which as the decade drew to an end got to be understated due to inflation. I expect the lust for high dividend income is likely to return. For now, utilities with seemingly secure dividends are the best way I see to make investment lemonade out of today's ZIRP-era lemons.
I also took very small trading profits on GTU, having bought it late last week at a zero premium to NAV, selling it today with bullion a little below where it was when I purchased GTU but the premium to NAV had rised to 3+%. Every little bit helps. GTU does not fit the income theme! With oil turning to the downside today, I don't want more than a core gold holding, the trend being your friend and all that.
I am long a variety of utilities because of my favorite reason to buy/own stocks: income in a world starved for seemingly secure income; and technicals. These include ED, AVA, SWX, WGL, XLU. Note these have replaced my zero-coupon Treasuries, on which I took profits the week before last, and now I am increasingly ramping into the utilities as a preferred income and price appreciation play. Today's drop in interest rates is perfect for this thesis. My expectation is that utilities will suffer profit-taking on days like today but then go up a nice amount when we have days as we did last week when stocks rebound and rates go up. I'm banking on some resumption of the historical relationship between the 10 year T-note and utility yields. Some utes could go up 50%++ if that occurred near today's record-low T-yields. (Not counting on that!)
I also own a few of the small community S&Ls/bank stocks I have mentioned for quite some time on The Daily Capitalist. I prefer not to name them b/c they are so illiquid. Finally, I own a very modest amount of stocks with varying charts that are "normal" operating companies, are ultra-high quality, have the leading position in essential growth industries, and have TTM P/Es of 7-14. In general, they all are GARP stocks that are well off their highs but with record earnings, and all pay dividends and have substantial tangible book value.
I am also long a significant amount of some of the leveraged closed end tax-exempt bond funds, the largest holdings being NIO and NVG.
I see investors turning away from the SPY until it yields double the 10-year Treasury. This process takes time. That's how it ended up in Japan, with a 1% 10-year JGB and a 2% Nikkei yield. In the US in the 1940s, the market had periods where the highest-quality stocks yielded 7-9% with T-bond yields marginally higher than today's.
Once people really start worrying about stocks, a 2% SPY yield is trivial. They can go out for lunch and come back to find the SPY down that much, just like that. Thus we saw the psychology to get high dividends- and note back in the '40s, stocks often traded close to tangible book value, which as the decade drew to an end got to be understated due to inflation. I expect the lust for high dividend income is likely to return. For now, utilities with seemingly secure dividends are the best way I see to make investment lemonade out of today's ZIRP-era lemons.
I also took very small trading profits on GTU, having bought it late last week at a zero premium to NAV, selling it today with bullion a little below where it was when I purchased GTU but the premium to NAV had rised to 3+%. Every little bit helps. GTU does not fit the income theme! With oil turning to the downside today, I don't want more than a core gold holding, the trend being your friend and all that.
Not Trusting the Spanish Bailout Rally
I am so skeptical of this rally tonight, I even question the validity of the alleged big increase in Chinese exports that was announced this weekend. Who on earth is increasing their imports? U.S. imports were down in the last report, and certainly China's largest customer, Europe, has not been ramping up its purchases. Congrats and good luck to the nimble traders who went into the weekend well-positioned.
This strikes me as Europe's version of America circa four years ago. So I'm into a USA all the way investment posture.
This strikes me as Europe's version of America circa four years ago. So I'm into a USA all the way investment posture.
Friday, June 8, 2012
Con Ed Lights Up Wall Street
What sort of rally is it that is led by Con Ed (ED) and its electric peers, and natural gas suppliers such as Southwest Gas (SWX) and WGL Holdings (WGL)?
A strange one. One that is playing catch-up with the massive decline in yields in Treasuries, munis and other debt instruments over the past months and even years.
If you suspect, as I do, that while said yields will bounce around including in an upward direction, but will stay "low" in general for some time, then you may also suspect as I do that while the ED's of the world look extended, they will trend higher in price simply as bond alternatives.
In other words, utilities of the local, regulated monopoly kind (as opposed to ones that emphasize competitive power situations or wind etc.) may be morphing into this year's mo-mo stocks.
Very strange.
The Internet, after all, runs on electricity. Batteries that power mobile devices are charged with electricity. Who needs gasoline when you have the Internet at home or a short walk or bike ride away at a coffee shop?
There are other good things happening in the US of A investment-wise. These fit with the theme I announced last summer or early fall after I tired of Europe and also saw TPTB in the US go for growth at the expense of fiscal prudence. (Not that I necessarily "approve", but my view was not sought.)
MCD sales were weak in China but strong in the US, they revealed today; that's backward from what we were told to expect. WMT is surging, and it's still largely a US company. Small local bank stocks are strong, though they don't trade much. And of course utilities are all US or almost all domestic.
Expect much angst over the upcoming "fiscal cliff". If interest rates are low and the economy remains challenged, I would note there is an election coming. If anyone would like to buy utility stocks and is afraid to because of the scheduled rise in tax rates on dividends for high earners, or would like to buy into munis but are afraid of the talk of taxing some portion of that income, I would simply point out that the markets don't appear to share your concerns. IMHO they are usually right. Not always, just usually.
I don't have a strong predictive sense here, but I'm just guessing that either the Federal deficit starts shrinking on its own due to an unexpected pick-up in tax receipts or else the economy stays subdued below official expectations; and that in either case, the response will be to defer the fiscal cliff for one year for either a re-elected lame duck President Obama or a President Romney with a "mandate" to take some "courageous" action.
The single main worry sign I see domestically is that ECRI's Weekly Leading Index has been moving down fairly sharply the past few weeks, and has a close correlation with stocks. Perhaps it's bottoming, or is irrelevant; we shall see. Here's a link to a 1, 3 or 5 year view of this indicator. When at that screen click on the + WLIW button. I suggest looking at the 3-year view. This shows a series of post-GFC lower highs. Will this year see a lower low? If so, some stocks will probably take a hit as recession worries go mainstream. If this is the bottom of this indicator, it could be a hot summer on the Street.
Current-ly, I'm all charged up for Fast Eddie to shoot out all the lights on the way to ? $70 and beyond.
A strange one. One that is playing catch-up with the massive decline in yields in Treasuries, munis and other debt instruments over the past months and even years.
If you suspect, as I do, that while said yields will bounce around including in an upward direction, but will stay "low" in general for some time, then you may also suspect as I do that while the ED's of the world look extended, they will trend higher in price simply as bond alternatives.
In other words, utilities of the local, regulated monopoly kind (as opposed to ones that emphasize competitive power situations or wind etc.) may be morphing into this year's mo-mo stocks.
Very strange.
The Internet, after all, runs on electricity. Batteries that power mobile devices are charged with electricity. Who needs gasoline when you have the Internet at home or a short walk or bike ride away at a coffee shop?
There are other good things happening in the US of A investment-wise. These fit with the theme I announced last summer or early fall after I tired of Europe and also saw TPTB in the US go for growth at the expense of fiscal prudence. (Not that I necessarily "approve", but my view was not sought.)
MCD sales were weak in China but strong in the US, they revealed today; that's backward from what we were told to expect. WMT is surging, and it's still largely a US company. Small local bank stocks are strong, though they don't trade much. And of course utilities are all US or almost all domestic.
Expect much angst over the upcoming "fiscal cliff". If interest rates are low and the economy remains challenged, I would note there is an election coming. If anyone would like to buy utility stocks and is afraid to because of the scheduled rise in tax rates on dividends for high earners, or would like to buy into munis but are afraid of the talk of taxing some portion of that income, I would simply point out that the markets don't appear to share your concerns. IMHO they are usually right. Not always, just usually.
I don't have a strong predictive sense here, but I'm just guessing that either the Federal deficit starts shrinking on its own due to an unexpected pick-up in tax receipts or else the economy stays subdued below official expectations; and that in either case, the response will be to defer the fiscal cliff for one year for either a re-elected lame duck President Obama or a President Romney with a "mandate" to take some "courageous" action.
The single main worry sign I see domestically is that ECRI's Weekly Leading Index has been moving down fairly sharply the past few weeks, and has a close correlation with stocks. Perhaps it's bottoming, or is irrelevant; we shall see. Here's a link to a 1, 3 or 5 year view of this indicator. When at that screen click on the + WLIW button. I suggest looking at the 3-year view. This shows a series of post-GFC lower highs. Will this year see a lower low? If so, some stocks will probably take a hit as recession worries go mainstream. If this is the bottom of this indicator, it could be a hot summer on the Street.
Current-ly, I'm all charged up for Fast Eddie to shoot out all the lights on the way to ? $70 and beyond.
Wednesday, June 6, 2012
If Today's Stock Surge Means Economic Strength, Why Did Electric Utilities Defy Weakness in Treasuries and Instead Break out to a Nearly 4-Year High?
On a day when Treasuries sold off sharply due in large part to simple profit-taking, it felt wrong to see the XLU (Utilities ETF) move up with the SPY tick-for-tick and close at a 45 month high. My take is that investors are simply moving into the lagging safety-income vehicles and away from the (allegedly) super-safe govvies such as bunds, gilts, and Treasuries. As I have been saying for some time, Con Ed ED is as good as it gets for me right now. Strange though it seems, at its current almost 4% current yield, a 15% price move higher is entirely reasonable if we assume that the 30-year T-bond yield moves back to 3%.
Meanwhile, the S&P 500 150 day sma has just begun to point downward, with the index marginally below that line.
Also consistent with a topping process is Uncle Warren coming out to say there's not going to be any stinking recession. And in the unlikely event there will be one soon, it's the fault of some other people (i.e., the Europeans). Meanwhile, a pitiful few percent of U.S. GDP comes from exports to Europe, very little of that will be lost should Europe's economy get worse, and there's an offset as diminished economic activity in Europe means lower prices for imported oil and other imported goods into the U.S.
An awful lot of people such as Doug Kass are locked into the no-2012 recession camp. (Recall that he put the risk of such an event at zero a few months ago.) I dunno, but it is more than 4 1/2 years since the last recession began in the U.S. and 3 years since it ended. All precious metals, copper and (sort of) oil are in bear markets. Interest rates plumbed multi-decade lows-- which cannot possibly happen in the absence of agressive QE unless there simply is not much demand for credit.
Regular readers know that starting in early May last year, I have been emphasizing safety, and switched to a U.S.-centric investing posture. (See Changing on a Paradigm from May 9.) At that point or soon after, I was long gold and Treasurys; no more stocks or oil/silver: pure safety. Then I got more liberal as it became clear that the U.S. really was the "best house" in a challenged global neighborhood. (See Gold on Hold; The New Play May Be in Munis from Sept. 25 -a Sunday. Weirdly, gold closed the next Monday almost exactly where it closed today. Talk about truly having been "on hold"!) Since then, the leveraged muni fund NIO has paid out about 4.5%+ in tax-exempt dividends and has appreciated about 5% in price- and to me the key is, considering NIO and its peers vs. stocks, that this followed after a substantial uptrend in NIO and a severe correction in stocks.
This I continue to see matters as laid out in my April 15 post, More Signs Of a Stock Market Topping Process Emerge. The interesting and hopeful phenomenon that strength in electric utilities may just presage a non-catastrophe, merely an "ordinary" down-cycle should indeed the top be in already and a lower low await.
Meanwhile, the S&P 500 150 day sma has just begun to point downward, with the index marginally below that line.
Also consistent with a topping process is Uncle Warren coming out to say there's not going to be any stinking recession. And in the unlikely event there will be one soon, it's the fault of some other people (i.e., the Europeans). Meanwhile, a pitiful few percent of U.S. GDP comes from exports to Europe, very little of that will be lost should Europe's economy get worse, and there's an offset as diminished economic activity in Europe means lower prices for imported oil and other imported goods into the U.S.
An awful lot of people such as Doug Kass are locked into the no-2012 recession camp. (Recall that he put the risk of such an event at zero a few months ago.) I dunno, but it is more than 4 1/2 years since the last recession began in the U.S. and 3 years since it ended. All precious metals, copper and (sort of) oil are in bear markets. Interest rates plumbed multi-decade lows-- which cannot possibly happen in the absence of agressive QE unless there simply is not much demand for credit.
Regular readers know that starting in early May last year, I have been emphasizing safety, and switched to a U.S.-centric investing posture. (See Changing on a Paradigm from May 9.) At that point or soon after, I was long gold and Treasurys; no more stocks or oil/silver: pure safety. Then I got more liberal as it became clear that the U.S. really was the "best house" in a challenged global neighborhood. (See Gold on Hold; The New Play May Be in Munis from Sept. 25 -a Sunday. Weirdly, gold closed the next Monday almost exactly where it closed today. Talk about truly having been "on hold"!) Since then, the leveraged muni fund NIO has paid out about 4.5%+ in tax-exempt dividends and has appreciated about 5% in price- and to me the key is, considering NIO and its peers vs. stocks, that this followed after a substantial uptrend in NIO and a severe correction in stocks.
This I continue to see matters as laid out in my April 15 post, More Signs Of a Stock Market Topping Process Emerge. The interesting and hopeful phenomenon that strength in electric utilities may just presage a non-catastrophe, merely an "ordinary" down-cycle should indeed the top be in already and a lower low await.
Monday, June 4, 2012
Bloomberg Now Reassures Us There Will Be No Recession in the U.S. This Year
The usual counter-trend rally stuff is crossing the wires. It's "probably" a smart trend to play for a little while, though I don't fully trust it (but may play it with small change that can just sit for years if need be). From Bloomberg.com (BBG), this headline is redolent of so many fake-out excuses from prior established ongoing downtrends that suck the sheeple in: Asia Stocks Climb Amid Global Policy Stimulus Speculation, which begins:
Asian stocks rose amid speculation global policy makers will take steps to stimulate economic growth and after a four-day drop left the regional gauge at the cheapest level this year.
And then after reminding you that others are buying the dip, there's this, a bit down the page: Growth Slowdown Seen in U.S. as Recession Dodged,which features this "persuasive" lede:
The U.S. economy looks set to deliver a repeat performance in 2012: for the third straight year, it may suffer a swoon yet not slip into a recession.
“I don’t think the slowdown will be any more consequential than the past two years,” said John Ryding, a former Federal Reserve researcher who is chief economist at RDQ Economics LLC in New York. “There are positives out there in the economy. We’ll avoid a recession.”
The not so hidden persuaders at BBG that favor the theme that all is well and shall always be well will likely modify Ryding's happy foreknowledge of the future if need be by reminding us, should economic data turns more definitively south than it already has that A) the bad news has already been discounted by the markets, so BTD; and B) the Fed will do whatever it takes to save the day, so BTD.
You can see that the recession case has advanced, given that BBG has seen the need to refute the possible occurrence of one.
What I don't trust about the apparent reflex rally in the commodities is that it's unaccompanied by any significant selling in the T-bond futures, which are ripe for profit-taking. (If rates stay where they are in the AM, I'm planning on taking profits on the last of my T-bonds, and am also sorely tempted to buy TBT for the first time ever.) At this point my short-term guess is commodities up for a while, T-bonds up in yield, but continued negative economic data points that raise serious questions about Dr. Ryding's certitude that "We'll avoid a recession".
The "Perils of Pauline" markets continue on, mostly benefiting the brokers.
Asian stocks rose amid speculation global policy makers will take steps to stimulate economic growth and after a four-day drop left the regional gauge at the cheapest level this year.
And then after reminding you that others are buying the dip, there's this, a bit down the page: Growth Slowdown Seen in U.S. as Recession Dodged,which features this "persuasive" lede:
The U.S. economy looks set to deliver a repeat performance in 2012: for the third straight year, it may suffer a swoon yet not slip into a recession.
“I don’t think the slowdown will be any more consequential than the past two years,” said John Ryding, a former Federal Reserve researcher who is chief economist at RDQ Economics LLC in New York. “There are positives out there in the economy. We’ll avoid a recession.”
The not so hidden persuaders at BBG that favor the theme that all is well and shall always be well will likely modify Ryding's happy foreknowledge of the future if need be by reminding us, should economic data turns more definitively south than it already has that A) the bad news has already been discounted by the markets, so BTD; and B) the Fed will do whatever it takes to save the day, so BTD.
You can see that the recession case has advanced, given that BBG has seen the need to refute the possible occurrence of one.
What I don't trust about the apparent reflex rally in the commodities is that it's unaccompanied by any significant selling in the T-bond futures, which are ripe for profit-taking. (If rates stay where they are in the AM, I'm planning on taking profits on the last of my T-bonds, and am also sorely tempted to buy TBT for the first time ever.) At this point my short-term guess is commodities up for a while, T-bonds up in yield, but continued negative economic data points that raise serious questions about Dr. Ryding's certitude that "We'll avoid a recession".
The "Perils of Pauline" markets continue on, mostly benefiting the brokers.
Friday, June 1, 2012
We are finally seeing the VIX and VXO break decisively above 25. Finally. Boy, has this been an exhausting wait. FB buyers and the like are capitulating. Finally.
We only had 12 weeks in a row of the NAZ being up this year-- a record, it was said, a longer streak than even in 1999. Reality can bite, n'est ce pas?
Note I'm not a short-seller. I simply have owned Treasuries (and high grade munis) as a natural hedge against the stocks-down/interest rates-down trend we've seen the last few years. Plus I own AAPL, and some OTC income stocks. I've simply been blogging "forever" that stocks have fundamentally been overpriced based on historical norms, and relative to the risks. I presume there are very good reasons why the Fed has been doing what it has been doing and why investors are finally focusing on return of principal.
The DoctoRx rule of thumb is that high-quality stocks can be bought when the above fear indices are above 25, though the timing may be terrible for a while. Typicall, these moves above 25 carry to or above 30. I would look for a BTD scenario around there.
Support for the NAZ is around 2200.
The dividend-paying top-tier NAZ tech stocks are my long-term faves for growth and income. I would look to scale into them on weakness in the bubble tech stocks (plus I own a fair amount of AAPL as a "permanent" holding).
More to say in a later post, perhaps Sunday night. A busy weekend looms on more than one front.
We only had 12 weeks in a row of the NAZ being up this year-- a record, it was said, a longer streak than even in 1999. Reality can bite, n'est ce pas?
Note I'm not a short-seller. I simply have owned Treasuries (and high grade munis) as a natural hedge against the stocks-down/interest rates-down trend we've seen the last few years. Plus I own AAPL, and some OTC income stocks. I've simply been blogging "forever" that stocks have fundamentally been overpriced based on historical norms, and relative to the risks. I presume there are very good reasons why the Fed has been doing what it has been doing and why investors are finally focusing on return of principal.
The DoctoRx rule of thumb is that high-quality stocks can be bought when the above fear indices are above 25, though the timing may be terrible for a while. Typicall, these moves above 25 carry to or above 30. I would look for a BTD scenario around there.
Support for the NAZ is around 2200.
The dividend-paying top-tier NAZ tech stocks are my long-term faves for growth and income. I would look to scale into them on weakness in the bubble tech stocks (plus I own a fair amount of AAPL as a "permanent" holding).
More to say in a later post, perhaps Sunday night. A busy weekend looms on more than one front.
Gold Up but Oil Down: A Mixed Message
Oil and gold are doing what they did in later periods of 2008 as well as last year. Oil is breaking down while gold is moving up. The gold:oil ratio is either about 20:1 (WTI) or about 17:1 (Brent). Either way, gold is not historically cheap to oil. There is clearly more room for oil prices to drop, both fundamentally and based on my reading of net short positioning of the commercials in the crude oil futures market. Thus as in 2008, a deeper low in the gold market is very possible (no guarantee), as people start really fearing deflation (perhaps). More fundamentally, in recessions, people must pay their bills with currency, not gold, plus jewelry purchases decrease. Finally, let's remember that the gold is now about 4X as expensive relative to U.S. residential real estate as it was when the ratio was at its minimum about seven years ago. You can't eat either gold or a home, but you can live in the latter (or rent it out for a profit, or so you hope). Value buyers are looking to homes this cycle for inflation protection, not only gold. I think the financial markets will reflect this relatively high price of gold compared not only to houses but to metals such as platinum.
Thus I am looking at the action in the precious metals today as technical, under cover of the "they will print" POV. But no U.S. recession is baked in the cake, and the current money flows into the Treasury market out of Europe and out of the global stock markets are probably sufficient to take the place of a new QE.
All recessions are deflationary (or disinflationary). As regular readers know, I give ECRI's views more weight than the Street does. Their WLI was down again today, and the multi-year trend is uninspiring.
If their U.S. recession call is correct while Europe works through its various problems, I think we can look forward to demand for commodities sharply diminishing. For example, there is said to be a 2-year supply of platinum in ETFs, for which the public is paying storage costs. LOL! Platinum can go into deficit, plus what do you think happens to the demand for platinum jewelry in a global recession? Platinum "could" fall a lot further from here. Just look at the 2008 lows if you are skeptical. Maybe it can't go so low, but sub-$1200 is quite possible. I just don't see gold as a good value at its current price in that global recession scenario. Message: sometimes markets should be watched and not traded.
As I've been saying since January 2009, the U.S financial structure. has been developing as Japan did during its ZIRP period. The zero bound has been a gravitational force, as it were, pulling the longer maturities toward it, with inflationary spurts during the expansion phase of the economic cycle.
I still consider stocks as a whole to be overpriced. OTOH, buy-and-hold investors are finally getting the chance to purchase a growing number of equities that are likely to outperform Treasuries on a multi-year basis, ignoring the fluctuations in between. Hint: think secure and growing income stream, a la BDX; or high and safe income stream even if it fails to grow ("we" think safe), as in ED.
Thus I am looking at the action in the precious metals today as technical, under cover of the "they will print" POV. But no U.S. recession is baked in the cake, and the current money flows into the Treasury market out of Europe and out of the global stock markets are probably sufficient to take the place of a new QE.
All recessions are deflationary (or disinflationary). As regular readers know, I give ECRI's views more weight than the Street does. Their WLI was down again today, and the multi-year trend is uninspiring.
If their U.S. recession call is correct while Europe works through its various problems, I think we can look forward to demand for commodities sharply diminishing. For example, there is said to be a 2-year supply of platinum in ETFs, for which the public is paying storage costs. LOL! Platinum can go into deficit, plus what do you think happens to the demand for platinum jewelry in a global recession? Platinum "could" fall a lot further from here. Just look at the 2008 lows if you are skeptical. Maybe it can't go so low, but sub-$1200 is quite possible. I just don't see gold as a good value at its current price in that global recession scenario. Message: sometimes markets should be watched and not traded.
As I've been saying since January 2009, the U.S financial structure. has been developing as Japan did during its ZIRP period. The zero bound has been a gravitational force, as it were, pulling the longer maturities toward it, with inflationary spurts during the expansion phase of the economic cycle.
I still consider stocks as a whole to be overpriced. OTOH, buy-and-hold investors are finally getting the chance to purchase a growing number of equities that are likely to outperform Treasuries on a multi-year basis, ignoring the fluctuations in between. Hint: think secure and growing income stream, a la BDX; or high and safe income stream even if it fails to grow ("we" think safe), as in ED.
Thursday, May 31, 2012
ISM Comment Leads to an 'Aha' Moment
Sometimes little things make the difference. For example, early in 2009, I saw a comment on a blog that was arguing with the blogger and most of the commenters. This comment went as follows: forget about the injustices you perceive about the bailouts of the banks and bankers. They have won. It shows in Jamie Dimon's swagger. Get over it.
This commenter was right, and thinking about the real-world wisdom it embodied it helped me switch from the bearish posture I had had ever since the summer of 2007-- and uber-bearish after a recession (mild, at the time) was confirmed by the spring of 2008.
In any case, a similar comment from the Chicago PMI report released this morning struck me as also bringing me to a clearer understanding of the markets, this time in a negative way. Here is part of the intro to this report:
This was an 'aha' read for me (note emphasis was added above).
Inexplicably, the purchasing managers' companies were bullish.
A problem that has vexed me a great deal has now been answered. That problem is that the futures markets show that commercial hedgers have gotten much less bearish as prices have declined. This is seen in general summary data available on the Web, and please note I'm an amateur at this and don't look at detailed COT reports and the like. But publicly available data indicate that the commercials in important markets such as copper and less important ones such as palladium are acting as they have during routine price corrections. However, in 2008, we saw similar activity from the commercials, and it merely presaged a much deeper depression. In other words, so far as they knew in 2008, the U.S. was undergoing a mild recession, the world was reacting in sympathy to temporarily decreased demand, and normal inventory policies were appropriate. And indeed, eventually, prices were higher than where they went bullish, but it took a major downtrend and many, many months for them to rise enough off of a much lower bottom for that to occur.
So we have it: if the fringe views of the ECRI and a few economists such as John Hussman and Gary Shilling (and Econophile Jeff Harding at The Daily Capitalist) are correct, then the U.S. is in or is soon to be in a recession. In that situation, China will lose even more demand for its exports, and we can expect more economic turmoil globally.
This fits together an additional way. A few weeks ago, Dr. Achuthan of ECRI went on TV and said his own 'aha'- he said that what had been going against his forecast of recession (which he had held to steadily since he first made that call around Sept. 20 of last year) was employment. He pointed to the nascent uptrend in new unemployment claims as evidence that finally, all the diagnostic evidence was in his favor.
So what did we see today? Another set of bad numbers on the employment front, both in new claims and in the ADP flash employment number. The ECRI case for recession not only remains on track, but just this week it put out a report for paying subscribers with the ominous title "More Signs of Global Economic Stress".
So, while the consensus on the Street has to be treating the current stock sell-off as a response to European turmoil, ECRI is doubling down- and it does have a strong track record.
A mild U.S. recession can be expected to have disproportionate effects on business behavior, and if so, currently "cheap" stocks may get a lot cheaper.
I am not an economist or a professional forecaster, but I do have a knowledge of advanced statistics. Thus I understand the message of simple statistics well. In this case, it is that for many years, there has been a strong correlation between recessions in the U.K. and other important European countries and recessions in the U.S. While correlation is not causation, I do respect it. Thus, putting all the above points together, my "central tendency" is for greater caution on risk assets than I think the markets are pricing in. So, again, in murky times when legitimately major events are occurring in the world's largest economic zone, the EU, I like a lot of cash. Buying into an established uptrend at higher prices only has an opportunity cost, not a real economic cost.
We are, indeed, skating on thin investment ice.
Knowing and saying all this, I now feel I should add that none of this is of any value for short-term market action. This is intermediate-term stuff.
(P.S. Due to the above, I took advantage of the late-day surge in AAPL to reverse most of my purchases yesterday. Still long, still love the fundos there, and look for it to get to its now-declining 50 day sma, but I like to prepare for intermediate-term stuff in advance.)
This commenter was right, and thinking about the real-world wisdom it embodied it helped me switch from the bearish posture I had had ever since the summer of 2007-- and uber-bearish after a recession (mild, at the time) was confirmed by the spring of 2008.
In any case, a similar comment from the Chicago PMI report released this morning struck me as also bringing me to a clearer understanding of the markets, this time in a negative way. Here is part of the intro to this report:
The short term trend of the Chicago Business Barometer, and all seven Business Activity indexes, declined in May. The Production index fell to neutral while, inexplicably, measures of Business Policy advanced.
This was an 'aha' read for me (note emphasis was added above).
Inexplicably, the purchasing managers' companies were bullish.
A problem that has vexed me a great deal has now been answered. That problem is that the futures markets show that commercial hedgers have gotten much less bearish as prices have declined. This is seen in general summary data available on the Web, and please note I'm an amateur at this and don't look at detailed COT reports and the like. But publicly available data indicate that the commercials in important markets such as copper and less important ones such as palladium are acting as they have during routine price corrections. However, in 2008, we saw similar activity from the commercials, and it merely presaged a much deeper depression. In other words, so far as they knew in 2008, the U.S. was undergoing a mild recession, the world was reacting in sympathy to temporarily decreased demand, and normal inventory policies were appropriate. And indeed, eventually, prices were higher than where they went bullish, but it took a major downtrend and many, many months for them to rise enough off of a much lower bottom for that to occur.
So we have it: if the fringe views of the ECRI and a few economists such as John Hussman and Gary Shilling (and Econophile Jeff Harding at The Daily Capitalist) are correct, then the U.S. is in or is soon to be in a recession. In that situation, China will lose even more demand for its exports, and we can expect more economic turmoil globally.
This fits together an additional way. A few weeks ago, Dr. Achuthan of ECRI went on TV and said his own 'aha'- he said that what had been going against his forecast of recession (which he had held to steadily since he first made that call around Sept. 20 of last year) was employment. He pointed to the nascent uptrend in new unemployment claims as evidence that finally, all the diagnostic evidence was in his favor.
So what did we see today? Another set of bad numbers on the employment front, both in new claims and in the ADP flash employment number. The ECRI case for recession not only remains on track, but just this week it put out a report for paying subscribers with the ominous title "More Signs of Global Economic Stress".
So, while the consensus on the Street has to be treating the current stock sell-off as a response to European turmoil, ECRI is doubling down- and it does have a strong track record.
A mild U.S. recession can be expected to have disproportionate effects on business behavior, and if so, currently "cheap" stocks may get a lot cheaper.
I am not an economist or a professional forecaster, but I do have a knowledge of advanced statistics. Thus I understand the message of simple statistics well. In this case, it is that for many years, there has been a strong correlation between recessions in the U.K. and other important European countries and recessions in the U.S. While correlation is not causation, I do respect it. Thus, putting all the above points together, my "central tendency" is for greater caution on risk assets than I think the markets are pricing in. So, again, in murky times when legitimately major events are occurring in the world's largest economic zone, the EU, I like a lot of cash. Buying into an established uptrend at higher prices only has an opportunity cost, not a real economic cost.
We are, indeed, skating on thin investment ice.
Knowing and saying all this, I now feel I should add that none of this is of any value for short-term market action. This is intermediate-term stuff.
(P.S. Due to the above, I took advantage of the late-day surge in AAPL to reverse most of my purchases yesterday. Still long, still love the fundos there, and look for it to get to its now-declining 50 day sma, but I like to prepare for intermediate-term stuff in advance.)
Wednesday, May 30, 2012
Apple Turnover: Wednesday Trading Notes
I first blogged positively about Apple in the spring of 2010 (also was positive about gold in that same post and in follow-up posts). I have ridden AAPL up from about $200 early in 2010 to over $630, though I confess I missed some of the ride largely due to A) market fears (which were correct) and B) SJ fears (which were medically correct but so far irrelevant to the stock price).
In any case, let me segue to Treasuries. I began "pounding the table" for them about a year ago. At that time I went to an approximate 30% weighting in my accounts for 10-30 year maturities, heavily weighted to both the ultra-long maturities and to zero coupon bonds. After yields collapsed, I lowered that to about 10% and held it there as "insurance". With the latest collapse in yields, I have now lowered that to about 2% just this week. These funds have been recycled into stocks. These are not ordinary stocks.
The main stock is AAPL as a long-term holding, though of course I may trade it at any time. I am bearish on the stock market over the weeks and months ahead, but I "think different" about what's safe and what's not. As I've alluded to indirectly more than once, I think that the mega-cap "blue chips" with trailing twelve month P/E's of 15-20 but no organic growth and generally little, none or negative tangible book value are much riskier than Mr. Market thinks. They are less volatile on a day-to-day basis, but riskier. I'll leave it at that for now as trading awaits.
The secondary stocks are Con Ed (ED), which I can foresee rising in price to yield 3% as time grinds on; and further additions to my already significant holdings in leveraged closed end muni bond funds.
Finally, I want to add that I think that numerous measures of fair value for the Dow that are used widely on the Street are itching to buy the Dow here.
In any case, let me segue to Treasuries. I began "pounding the table" for them about a year ago. At that time I went to an approximate 30% weighting in my accounts for 10-30 year maturities, heavily weighted to both the ultra-long maturities and to zero coupon bonds. After yields collapsed, I lowered that to about 10% and held it there as "insurance". With the latest collapse in yields, I have now lowered that to about 2% just this week. These funds have been recycled into stocks. These are not ordinary stocks.
The main stock is AAPL as a long-term holding, though of course I may trade it at any time. I am bearish on the stock market over the weeks and months ahead, but I "think different" about what's safe and what's not. As I've alluded to indirectly more than once, I think that the mega-cap "blue chips" with trailing twelve month P/E's of 15-20 but no organic growth and generally little, none or negative tangible book value are much riskier than Mr. Market thinks. They are less volatile on a day-to-day basis, but riskier. I'll leave it at that for now as trading awaits.
The secondary stocks are Con Ed (ED), which I can foresee rising in price to yield 3% as time grinds on; and further additions to my already significant holdings in leveraged closed end muni bond funds.
Finally, I want to add that I think that numerous measures of fair value for the Dow that are used widely on the Street are itching to buy the Dow here.
Monday, May 28, 2012
Caution in Defense of Capital Preservation Is a Virtue As European Economic Imbalances Roil Murky Waters
I am beginning to more seriously fear a liquidation event arising from the events in Europe. This is not a prediction, as matters may muddle through, but those of us who manage money, either our own or OPM, must think of downside risks unless we happen to be portfolio managers for a Bill Gates and handle just a small part of his wealth. But here's the updated set-up that I'm seeing based on today's headlines, and again, this is not a prediction, just a growing sense that the odds of a discontinuous downside event have increased to a level with which I am uncomfortable.
First, I have a similar sense that Greece has a failed economy that I had by midyeaer 2008 that the U.S.housing bust could not be contained. As evidence I present this article from eKathimerini titled General payments freeze takes hold. Please consider reading in full and then coming back to this blog.
Scary.
Before going on to the second, let's remember that Greece has as many people as Illinois and had an economy the size of Wisconsin. It has about as many people as Sweden. A Greek national bankrupty has not been reserved for. Again, my fear from a continent away is that Greece appears to have passed a similar tipping point as the U.S. housing market passed in 2008 once it became clear that the American national economy was in recession. Shortly after that realization dawned, Fannie/Freddie were forced into conservatorship and the jig was up. The banks could no longer pretend that their assets were worth anything close to what they were carrying them on their books at, all foreign investors closed their checkbooks, and the meltdown began. Europe is now in recession, and there are no excess funds anymore readily available to absorb losses from Greek debt.
Second, the Spanish situation is unraveling due to recession. The news today is that having rapidly increased the estimate of their bad bank Bankia's losses from a few billion euros to about 20 billion euros, the government is making more news:
Spain is considering using debt issued by the government or its bank-rescue fund instead of cash into the Bankia group, using a mechanism that would free it from raising the money from investors.
The government hasn’t made a decision on whether to use its debt to recapitalize the nationalized lender and will decide in two or three months, a spokesman for the Economy Ministry, who asked not to be named in line with its policy, said in a phone interview today.
This both appears to be a sign of weakness as well as dilatory. No decision for 2-3 months?
Other news from Spain is also negative. Spain is approaching or is on a knife's edge. Again, my point is that general recessionary conditions turn a manageable situation into a crisis, as occurred in the U.S. in 2008. Capital that would have been provided to tide matters over suddenly withdraws.
Now, let's turn to the U.S. stock market, which simply by approaching its 2007 highs has been about the best performer of any major global stock market on a 5-year basis. My take is that the FaceBook IPO really does add to the public's disillusionment with the financial establishment. It is more "in your face" (pun intended) perceived abuse of the public than something seemingly esoteric and relatively unpublicized such as the loss of customer money in the MF Global bankruptcy.
It is not only the quick collapse of the share price back to the level that the IPO was planned to have been done at, namely the low $30s per share. It is not that the insiders increased the number of shares they sold at the $38 price. These things happen. I am thinking that the tipping point for the FB IPO is the credible charge that there was selective disclosure to institutional investors after the S-1 was published that FB's current pace of business was not looking as good as expected makes it difficult for the usual parties to say, well, markets and stocks go up and down. Those who chose to buy at $38 did so. Even assuming, as I do, that nothing illegal occurred, then even so, the charge of selective disclosure makes the FB IPO an easy target for those who want to advise the public that Wall Street exists primarily for its own good and those of its clients. That can easily translate into: sell stocks, who really knows what they are worth?
Major regional recessions tend to force balance sheet readjustments. Those readjustments may be sudden, as I believe occurred after the U.S. government signaled exactly that when it acknowledged that Fannie and Freddie's assets were seriously overstated on their books. Now the problem is centered in Europe. European banks issue letters of credit for a large percentage of world trade. Europe is a larger economic entity than the U.S. plus Canada. China exports more to Europe than to the U.S. China is already selectively canceling certain import orders. If European economic output takes another lurch downward, look out below in China. It will have its planned property correction going on simultaneous with an unexpected large drop in demand from Europe.
U.S. investors are relatively sanguine. The VIX is marginally above 20. As 2008 moved along, I identified 25 as the cutoff point between true stock market panic and relative complacency. Until Lehman sent the VIX sky-high, that worked well. I'm back to that pre-Lehman way of thinking, thus I'm cautious about stocks, though a strong kickback rally would (as previously stated) be completely unsurprising even if lower lows await. Even after the recent stock market decline, quants such as Jeremy Grantham and John Hussman peg the U.S. stock market as highly unattractive. Grantham gives the 7-year prospective return from U.S. stocks as roughly prices to yield total returns only equal to inflation. And that's with a wide standard deviation. Meanwhile, tax-free bonds yield about as much, with much greater certainty. So when people ask, where else can money go expect stocks, I answer three ways: cash, tax-frees, and beaten-down emerging markets stocks, where structurally their economies are in the higher-growth phase of development. (Plus gold and U.S. homes.)
These periods where economic output is decelerating in most of the world and declining in absolute terms in a major part of it-- are the most dangerous times for stock investors. The European situation has brought matters to this point. When the Russian bankruptcy roiled markets in 1998, non-Asian stock markets were in sharp secular uptrends. The ensuing selloff was but a blip in the ongoing stock market party. Today's charts are different. Every major market is seeing failed rallies off the 2007-8 highs. Another general bear market will create yet uglier charts. Chartists who are now comforted by the SPY may then say "sell".
In other words, 2011 may have been a softening-up year, frightening though it was- perhaps something analogous to 2007 in the U.S. There were no recessions then other than in small European countries. Now the U.K. and Italy have entered at least mild recessions. France's GDP was flat the past two quarters. Not only are these very large economies, but please remember that they help drive China's economy. Both through that mechanism and directly, then they also drive the economies of raw materials exporters such as those of Brazil, Canada, Australia, the Gulf States, etc.
Such a possible downward economic cascade will wreak havoc on President Obama's stated goal that the U.S. would/should double exports in a five-year time frame.
In other words, Europe's economic and financial issues are large enough to drive an economic and financial markets reset similar to those that occurred when the mild U.S. recession as of summer 2008 morphed into something much worse as the balance sheet holes of the large financial institutions were revealed to be irreparable (absent the extraordinary government action that ensured).
Thus these appear to be legitimately perilous times. Investment discipline is paramount in these times. Reacting to the latest headline or market moves is something I am going to try hard to resist.
As Chance the Gardener said, "I like to watch". Whether this real-life movie has a happy ending is unknown; it is like Casablanca; even the scriptwriters have not determined the final scenes.
First, I have a similar sense that Greece has a failed economy that I had by midyeaer 2008 that the U.S.housing bust could not be contained. As evidence I present this article from eKathimerini titled General payments freeze takes hold. Please consider reading in full and then coming back to this blog.
Scary.
Before going on to the second, let's remember that Greece has as many people as Illinois and had an economy the size of Wisconsin. It has about as many people as Sweden. A Greek national bankrupty has not been reserved for. Again, my fear from a continent away is that Greece appears to have passed a similar tipping point as the U.S. housing market passed in 2008 once it became clear that the American national economy was in recession. Shortly after that realization dawned, Fannie/Freddie were forced into conservatorship and the jig was up. The banks could no longer pretend that their assets were worth anything close to what they were carrying them on their books at, all foreign investors closed their checkbooks, and the meltdown began. Europe is now in recession, and there are no excess funds anymore readily available to absorb losses from Greek debt.
Second, the Spanish situation is unraveling due to recession. The news today is that having rapidly increased the estimate of their bad bank Bankia's losses from a few billion euros to about 20 billion euros, the government is making more news:
Spain is considering using debt issued by the government or its bank-rescue fund instead of cash into the Bankia group, using a mechanism that would free it from raising the money from investors.
The government hasn’t made a decision on whether to use its debt to recapitalize the nationalized lender and will decide in two or three months, a spokesman for the Economy Ministry, who asked not to be named in line with its policy, said in a phone interview today.
This both appears to be a sign of weakness as well as dilatory. No decision for 2-3 months?
Other news from Spain is also negative. Spain is approaching or is on a knife's edge. Again, my point is that general recessionary conditions turn a manageable situation into a crisis, as occurred in the U.S. in 2008. Capital that would have been provided to tide matters over suddenly withdraws.
Now, let's turn to the U.S. stock market, which simply by approaching its 2007 highs has been about the best performer of any major global stock market on a 5-year basis. My take is that the FaceBook IPO really does add to the public's disillusionment with the financial establishment. It is more "in your face" (pun intended) perceived abuse of the public than something seemingly esoteric and relatively unpublicized such as the loss of customer money in the MF Global bankruptcy.
It is not only the quick collapse of the share price back to the level that the IPO was planned to have been done at, namely the low $30s per share. It is not that the insiders increased the number of shares they sold at the $38 price. These things happen. I am thinking that the tipping point for the FB IPO is the credible charge that there was selective disclosure to institutional investors after the S-1 was published that FB's current pace of business was not looking as good as expected makes it difficult for the usual parties to say, well, markets and stocks go up and down. Those who chose to buy at $38 did so. Even assuming, as I do, that nothing illegal occurred, then even so, the charge of selective disclosure makes the FB IPO an easy target for those who want to advise the public that Wall Street exists primarily for its own good and those of its clients. That can easily translate into: sell stocks, who really knows what they are worth?
Major regional recessions tend to force balance sheet readjustments. Those readjustments may be sudden, as I believe occurred after the U.S. government signaled exactly that when it acknowledged that Fannie and Freddie's assets were seriously overstated on their books. Now the problem is centered in Europe. European banks issue letters of credit for a large percentage of world trade. Europe is a larger economic entity than the U.S. plus Canada. China exports more to Europe than to the U.S. China is already selectively canceling certain import orders. If European economic output takes another lurch downward, look out below in China. It will have its planned property correction going on simultaneous with an unexpected large drop in demand from Europe.
U.S. investors are relatively sanguine. The VIX is marginally above 20. As 2008 moved along, I identified 25 as the cutoff point between true stock market panic and relative complacency. Until Lehman sent the VIX sky-high, that worked well. I'm back to that pre-Lehman way of thinking, thus I'm cautious about stocks, though a strong kickback rally would (as previously stated) be completely unsurprising even if lower lows await. Even after the recent stock market decline, quants such as Jeremy Grantham and John Hussman peg the U.S. stock market as highly unattractive. Grantham gives the 7-year prospective return from U.S. stocks as roughly prices to yield total returns only equal to inflation. And that's with a wide standard deviation. Meanwhile, tax-free bonds yield about as much, with much greater certainty. So when people ask, where else can money go expect stocks, I answer three ways: cash, tax-frees, and beaten-down emerging markets stocks, where structurally their economies are in the higher-growth phase of development. (Plus gold and U.S. homes.)
These periods where economic output is decelerating in most of the world and declining in absolute terms in a major part of it-- are the most dangerous times for stock investors. The European situation has brought matters to this point. When the Russian bankruptcy roiled markets in 1998, non-Asian stock markets were in sharp secular uptrends. The ensuing selloff was but a blip in the ongoing stock market party. Today's charts are different. Every major market is seeing failed rallies off the 2007-8 highs. Another general bear market will create yet uglier charts. Chartists who are now comforted by the SPY may then say "sell".
In other words, 2011 may have been a softening-up year, frightening though it was- perhaps something analogous to 2007 in the U.S. There were no recessions then other than in small European countries. Now the U.K. and Italy have entered at least mild recessions. France's GDP was flat the past two quarters. Not only are these very large economies, but please remember that they help drive China's economy. Both through that mechanism and directly, then they also drive the economies of raw materials exporters such as those of Brazil, Canada, Australia, the Gulf States, etc.
Such a possible downward economic cascade will wreak havoc on President Obama's stated goal that the U.S. would/should double exports in a five-year time frame.
In other words, Europe's economic and financial issues are large enough to drive an economic and financial markets reset similar to those that occurred when the mild U.S. recession as of summer 2008 morphed into something much worse as the balance sheet holes of the large financial institutions were revealed to be irreparable (absent the extraordinary government action that ensured).
Thus these appear to be legitimately perilous times. Investment discipline is paramount in these times. Reacting to the latest headline or market moves is something I am going to try hard to resist.
As Chance the Gardener said, "I like to watch". Whether this real-life movie has a happy ending is unknown; it is like Casablanca; even the scriptwriters have not determined the final scenes.
Friday, May 25, 2012
Can U.S. Interest Rates Drop Much Further? With Comments on Implications If They Do
Yes, they can. My lodestars in this regard are two-fold. One is Japan's experience with ZIRP. Japan first ZIRPed in 1999. In 2003, their 10-year yield collapsed as low as 0.5%. We are now in our fourth year of ZIRP. Respecting the charts kept me in the NAZ bubble into Y2K. Respecting the charts is keeping me long bonds. It worked in Japan, it's working here. (But I'm not betting the farm on it.)
The second lodestar is Germany in the here and now. I take the POV that Germany is a defanged country. On the most major issues, it does what it's told (and that's a good thing). But there's only country that can pull rank on Germany, and that's the U.S. So one way or another, I take what I think is a realpolitik POV and say that if investors can bid German 10-year yields down to yet another record today of 1.37%, the U.S. can sustain those yields as well.
No one said it's logical. No one said that when the NAZ hit (say) 2500 in 1999, that that was fair valuation. It was insanely high. But it doubled in about a year, and went a tad higher than a double.
That, BTW, was Japan's experience. Here's an interesting link to a history of Japan's interest rates covering most of its ZIRP era. Lots of volatility. The same could happen here.
http://www.kshitij.com/graphgallery/jpysin92.shtml#sin92
Putting it in my favored analogy, I think of ZIRP as a fisherman hauling in a fish that has taken the hook but good. The fish is doomed, but from time to time the fisherman lets it run to exhaust itself. The fish in this analogy is the 10-year, the boat where the fisherman is stationed is the zero interest rate bound. That's sort of how it's been in Japan and sort of how it's been here. Wild and crazy stuff, with the only other precedent "sort of" being the U.S. post-Great Depression period.
One way or another, the continuous nature of ZIRP makes any positive yield better than nothing year after year. As investors despair of ZIRP ever ending, they go through Kubler-Ross stages of anger toward acceptance and give in to lower and lower rates as better than nothing.
Of course, rational expectations keep investors from wanting to accept that ZIRP historically is something like the quicksand or flypaper it has been in Japan. Dr. Bernanke apparently has a whole thought construct of how ZIRP can be permanent, or nearly so. Can this really happen? Well, he's only the most important banker in the world. Think what you will of his policies, he is Dr. Big. So I give his thoughts deep consideration.
I would add that semi-permanent ZIRP almost guarantees poor stock market returns in the aggregate.
The best Japanese stocks since its bubble collapsed have been those that competed internationally. It's something I always keep in mind now, given the major differences between Japan and the United States. As I discussed in a post or two around September/October last year, I went to a U.S.-centric investment posture around then, focusing on muni bonds given their high yield relative to Treasuries. That was a good decision, but it's looking played out for new money (though I like the NIOs of the world - for now).
If the stock market takes a major tumble in the months ahead (I am not expecting a crash imminently and perhaps not at all), I want to think long and hard about whether the Japanese stock paradigm will be operative for U.S. investors going forward.
So my current posture remains to treat stock market rallies as sell opportunities and interest rate up-moves as trading buy opportunities.
The second lodestar is Germany in the here and now. I take the POV that Germany is a defanged country. On the most major issues, it does what it's told (and that's a good thing). But there's only country that can pull rank on Germany, and that's the U.S. So one way or another, I take what I think is a realpolitik POV and say that if investors can bid German 10-year yields down to yet another record today of 1.37%, the U.S. can sustain those yields as well.
No one said it's logical. No one said that when the NAZ hit (say) 2500 in 1999, that that was fair valuation. It was insanely high. But it doubled in about a year, and went a tad higher than a double.
That, BTW, was Japan's experience. Here's an interesting link to a history of Japan's interest rates covering most of its ZIRP era. Lots of volatility. The same could happen here.
http://www.kshitij.com/graphgallery/jpysin92.shtml#sin92
Putting it in my favored analogy, I think of ZIRP as a fisherman hauling in a fish that has taken the hook but good. The fish is doomed, but from time to time the fisherman lets it run to exhaust itself. The fish in this analogy is the 10-year, the boat where the fisherman is stationed is the zero interest rate bound. That's sort of how it's been in Japan and sort of how it's been here. Wild and crazy stuff, with the only other precedent "sort of" being the U.S. post-Great Depression period.
One way or another, the continuous nature of ZIRP makes any positive yield better than nothing year after year. As investors despair of ZIRP ever ending, they go through Kubler-Ross stages of anger toward acceptance and give in to lower and lower rates as better than nothing.
Of course, rational expectations keep investors from wanting to accept that ZIRP historically is something like the quicksand or flypaper it has been in Japan. Dr. Bernanke apparently has a whole thought construct of how ZIRP can be permanent, or nearly so. Can this really happen? Well, he's only the most important banker in the world. Think what you will of his policies, he is Dr. Big. So I give his thoughts deep consideration.
I would add that semi-permanent ZIRP almost guarantees poor stock market returns in the aggregate.
The best Japanese stocks since its bubble collapsed have been those that competed internationally. It's something I always keep in mind now, given the major differences between Japan and the United States. As I discussed in a post or two around September/October last year, I went to a U.S.-centric investment posture around then, focusing on muni bonds given their high yield relative to Treasuries. That was a good decision, but it's looking played out for new money (though I like the NIOs of the world - for now).
If the stock market takes a major tumble in the months ahead (I am not expecting a crash imminently and perhaps not at all), I want to think long and hard about whether the Japanese stock paradigm will be operative for U.S. investors going forward.
So my current posture remains to treat stock market rallies as sell opportunities and interest rate up-moves as trading buy opportunities.
Is It 2008 Again, with Europe Instead of the U.S. Leading the Economic Way Downward?
People who have been following my trading, on which I last posted two days ago, know that I went bullish and then neutral-bearish on palladium, one of the precious metals, on the same day. That was due to the failure of economically-sensitive risk assets to rise when oil fell on positive news out of Iran's discussion with the IAEA. In any case, commodities promptly took a big tumble.
I am reading worse and worse news about China's economy, which is tied more closely to export demand from Europe than to the U.S. I think that what's happening is that as in 2008, the sharpness of the European recession has taken business by surprise. This has led to Chinese cancellation of all sorts of orders from exporters to China. These categories are reported by mainstream sources such as Reuters and the Financial Times (of London) to range from iron ore and thermal coal to soft commodities.
This is beginning to smell more like 2008 than 2011.
Now, I am an American. The collapse in 2008 came as no surprise to me. I had been in the majority of Americans who by the summer of 2007 felt the country was effectively in recession. (The economists got around by the end of 2008 to dating the onset as being December 2007. (What do they know LOL?))
Now, much of the rest of the world did not enter recession until mid-2008.
The U.S. might be in the situation of the rest of the world then. Europe is confirmed to be, in the aggregate, in a deepening business recession. Germany's not known to be in one yet, nor is France, but Italy, Spain, the U.K., etc. are, so that's good enough for me. Not to mention Greece.
Remember, it did not take the famed Lehman moment for the rest of the world to begin to have a declining economic status. That came sooner. Lehman et al caused the virtual depression.
Now, on a trading basis, strong charts such as the U.S. stock market and AAPL enter bear markets with lots of belief in the bull argument. When the 150 and 200 day sma's are still moving up and the 50 day sma begins to curl down, as are the situations with AAPL and SPY, and then the actual price pierces the 50 day sma and spikes down, the most common response is for the bulls to push the price back to and usually slightly above the 50 day sma. If a bear market is on the way, that proves to have been just the wrong thing to have done, and the downward cascade starts.
That in a nutshell is my central tendency right now, if I may be allowed some Fedspeak.
In this scenario, U.S. interest rates will set new lows, incredible though today's rates already are.
We shall just have to see what the economic data shows, how governments, businesses, workers and consumers act, and how the financial markets act. We continue moving farther and farther into Talebian financial Extremistan.
Very strange days, to say the least. The world has never been here before. Precedents continue to be set. Maybe that gives the little guy a chance. Perhaps no one knows the new rules of the game... at least no one who is talking.
I am reading worse and worse news about China's economy, which is tied more closely to export demand from Europe than to the U.S. I think that what's happening is that as in 2008, the sharpness of the European recession has taken business by surprise. This has led to Chinese cancellation of all sorts of orders from exporters to China. These categories are reported by mainstream sources such as Reuters and the Financial Times (of London) to range from iron ore and thermal coal to soft commodities.
This is beginning to smell more like 2008 than 2011.
Now, I am an American. The collapse in 2008 came as no surprise to me. I had been in the majority of Americans who by the summer of 2007 felt the country was effectively in recession. (The economists got around by the end of 2008 to dating the onset as being December 2007. (What do they know LOL?))
Now, much of the rest of the world did not enter recession until mid-2008.
The U.S. might be in the situation of the rest of the world then. Europe is confirmed to be, in the aggregate, in a deepening business recession. Germany's not known to be in one yet, nor is France, but Italy, Spain, the U.K., etc. are, so that's good enough for me. Not to mention Greece.
Remember, it did not take the famed Lehman moment for the rest of the world to begin to have a declining economic status. That came sooner. Lehman et al caused the virtual depression.
Now, on a trading basis, strong charts such as the U.S. stock market and AAPL enter bear markets with lots of belief in the bull argument. When the 150 and 200 day sma's are still moving up and the 50 day sma begins to curl down, as are the situations with AAPL and SPY, and then the actual price pierces the 50 day sma and spikes down, the most common response is for the bulls to push the price back to and usually slightly above the 50 day sma. If a bear market is on the way, that proves to have been just the wrong thing to have done, and the downward cascade starts.
That in a nutshell is my central tendency right now, if I may be allowed some Fedspeak.
In this scenario, U.S. interest rates will set new lows, incredible though today's rates already are.
We shall just have to see what the economic data shows, how governments, businesses, workers and consumers act, and how the financial markets act. We continue moving farther and farther into Talebian financial Extremistan.
Very strange days, to say the least. The world has never been here before. Precedents continue to be set. Maybe that gives the little guy a chance. Perhaps no one knows the new rules of the game... at least no one who is talking.
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