JAPANESE UPDATE / WHAT TO DO?

Obviously the devastation in Japan is horrible and impacting markets with the Nikkei down over 11%.  The country is smashed and so many folks are simply trying to survive.  I have a friend and client that is in the Navy that is stationed in Japan that I exchanged emails with last night and I am compelled to share some of that with you.  He is on the mainland about 30 miles south of Tokyo on a base.  He is there with his family of 4.

At this time, they are safe and have all the supplies they need including food, water, and strong shelter.  They have electricity and Internet access so they are connected.  In addition, they say that winds are actually blowing towards them from the damaged reactors and therefore they have been stuck in their homes and told not to go outside for the last day.  Winds are predicted to stay on this path for one more day and then reverse to blow out to sea.

I contacted them to see if I could help in some way.  As I received emails from both he and his wife it became clear that they are psychologically impacted in a great way.  After each paragraph, each of them asked that we would pray for the families and people in the North.  They probably didn't do it on purpose, but they each repeated this request throughout the email.  In times like these when you don't have a way to pray, all you can do is pray to Jesus that he would intervene and save as many people as possible.

I've attached a link to pictures here.  They are sobering.

You can find more astonishing pictures here;
http://www.dailymail.co.uk/news/article-1366395/Japan-tsunami-earthquake-Haunting-mages-450-Britons-feared-missing.html

The obvious question that some will then raise is what can I do as I sit in comfort in the USA?  Many will give to the Red Cross and other organizations.  Those organizations are already mobilizing and working to begin assisting in the hardest struck areas.  We always hear that much of the budget for the Red Cross and other large organizations are spent on overhead, and I would agree, but guess what, they are often ready at the drop of a hat.

If you wanted to consider another charity, please think about Somebody Cares America.  SCA is an incredible faith based organization that goes to the ends of the earth to assist in disaster assistance.  When the earthquakes hit in Indonesia, SCA was called by the government and asked to coordinate the relief effort.  This is amazing since the group is a Christian organization, AND is staffed with a minimal number of full-time employees.  I use this as an example because it just shows how good they are and how highly respected they are for providing direction and distributing aid throughout the world.  They are unique in that they attempt to find local leaders to funnel aid and money to directly so they can provide assistance and serve the needs of the community.  In the aftermath of hurricane Rita, SCA didn't roll in and try to create their own infrastructure, they found a church that was big enough to become a distribution center and then served the congregation and the pastor so they could minister to the needs of the community there.  This is unique as most help organizations simply look to take control of the situation.  This may work in the very short run, but in the long run, the SCA model creates relationships where the community can be served in greater ways than just passing out ice or food. 

In this complete disaster scenario in Japan, they will seek to provide whatever needs they people have from food, clothing, medical care, and shelter.

You can read more about Somebody Cares America here at http://www.somebodycares.org/ and http://www.somebodycares.org/pages.asp?pageid=64986

The group is mobilizing to enter Japan and needs your help in funding those efforts to help people that are in desperate need.

GOATMUG

MARCH MACRO UPDATE - ALL SIGNS POINT TO WHERE?

We've experienced a 3% drop from the highs since February 18th.  While the 3% drop isn't too significant it certainly feels different than trading has felt over the last year or so.  The fundamentals continue to show a mixed to improving economy although the fuel that has propelled the economy over the last several months is schedule to be discontinued by June when QEII will be halted (perhaps).

Over the last month we've seen surging food and commodity prices that have been been the final straw that unleashed riots and discord throughout the middle east and emerging world.  Oil pierced the $100 level and now we must keep in mind the impact that these high costs will have on the fragile economies of the world.  Finally, the Japanese quake and unfolding disaster there will make the world economy more nervous than ever.  

TOTAL RAILS - http://railfax.transmatch.com/
Rails continue to outpace last year's tonnage with the exception of a downturn in grains and food transportation.

RAILS - AUTOS
We have seen an increase in autos that have been shipped in the last week.

RAILS - SCRAP
Scrap shipping continues to be just on pace with last year.

CANADIAN PACIFIC -
CP has recently underperformed last year's shipping totals and that continues to be the case.  In fact, CP's stock price too has been lagging relative to those other rails and has dropped more significantly compared to the likes of KSU or CSX. 

SCRAP INDEX - http://www.scrap.net/cgi-bin/composite_prices.cgi?id=100000&num=5
The Scrap Composite Index showed its first drop since the second quarter of 2010.  It does appear that there is a seasonal component to the drop if you look at the previous year-end, but it is worth watching. 

HOME PRICES - http://www.realtor.org/research/research/ehsdata
NAR reported another drop in the average home price for the month of January to a shocking $206,700. 
The highs in July of 2010 were pegged at $231,700 which highlights the correction we've seen of $25,000!  If you recall the months of June and July were the cutoff dates for the first-time home buyer tax incentives where buyers could get an extra $6,000 to $8,000 towards their home purchase courtesy of the US government (you and me).  What a complete waste!  We are now below the February 2010 lows.  In other words if you were dumb enough to buy a home based on the home buyer credit, you are close to being underwater.

MOODY'S /  MIT TRANSACTION INDEX (COMMERCIAL REAL ESTATE) - http://web.mit.edu/cre/research/credl/tbi.html
The Moody's MIT real transaction index dipped in December by almost 1 percent, although the entire 4th quarter was quite strong.  In total, the rally is not impressive, yet you've got to keep hope alive and any rebound is great.

MONSTER JOB INDEX - http://about-monster.com/employment-index
The Monster.com Job Index rose to a level of 129 in the month of February which is a 7 percent increase over the previous month.  The year over year growth is only 4%, but is positive.  The rebound is needed as it halted a 4 month slide.  The number of listings are well below the September 2010 levels.

FOOD STAMPS (SNAP DATA) - http://www.fns.usda.gov/pd/34SNAPmonthly.htm
December's SNAP (Foodstamps) data release shows up that there is no let up in the amount of Americans that are taking the government up on available programs to feed the poor.  December showed a 1.12% increase over the previous month and now indicates that there were more than 44.1 million people accepting assistance which is a 13.1% increase from the beginning of 2010.  Back in October of 2010 we saw a slowing in the rate of folks on the food stamp roles, however December marks the second straight month of an increasing rate of usage (the rate of change is increasing).  Obviously this information is dated and hopefully the numbers out of the Monster Employment Index can arrest these startling figures.  My heart is breaking for these people.  If you have any desire to see what is happening right here on US soil to your nation's children, please see the post we completed earlier this week - POVERTY IN THE USA - WHAT NO ONE WANTS TO SEE.

CFO OPTIMISM SURVEY - http://www.cfosurvey.org/11q2/PressRelease.pdf
The Duke / CFO Magazine CFO Survey was released last week and it shows that the bean counters in American businesses are more optimistic than last quarter about the economy.  They also suggest that capital spending will increase, and they predict that dividend distributions will actually be much higher.  There were a couple of reasons to pause though as they stated that they don't see much improvement in the job outlook and that any evidence of inflation could damage their outlook.  Hum.  It seems like this is more of the same here.  Company makes more money, company does not hire more employees.  One other note, the firms CFOs stated that credit conditions were improving, except for smaller firms.   

UCLA FUEL INDEX SURVEY - http://www.ceridianindex.com/
Growth in fuel usage has been slowing since January in this index.  This indicator usually follows movements in the overall indices and therefore I do not use it as a predictive tool, but more of a confirmation of overall economic activity.   

COPPOCK TURN INDICATOR
The Coppock Turn Indicator has stubbornly held its negative outlook since it flashed a sell signal all the way back in June of 2010.  If the Dow can move higher than 12125 to close for the month of March it will actually flip to bullish.  As I often comment, I think we've seen that the Coppock is pretty unreliable, but I am keeping it updated for entertainment purposes only.  Perhaps we'll see the Dow at 10500 again soon, but clearly the indicator missed out on a 2000 point ride north since then.

US FINANCIAL CONDITIONS INDEX - http://www.bloomberg.com/apps/quote?ticker=BFCIUS:IND
As we have seen over the last several months, whenever the US Financial Conditions Index eclipses the 0.0 mark it stalls out.  The zero level indicates that the economy is expanding, thus leaving recession behind.  Each time we've seen the FCI hit the 0.5 level it is slammed back and these last several weeks have been no exception.  I perceive this as a warning sign that the economy is still not out of the woods, although perhaps another $600 Billion of QE III might get us up to 1.0 at least, don't you think?  As of Friday the index was back at 0.148.

BALTIC DRY GOODS INDEX - http://www.bloomberg.com/apps/quote?ticker=BDIY:IND
The Baltic Dry Goods Index did see a reversal over the last month and has rebounded strongly.  I am guessing that part of the rebound has been directly related to stockpiling of dry goods such as grains as a result of the unrest in the Middle East.  The timing looks pretty good as an explanation for the significant move up in spot rates.

US DOLLAR - http://www.bloomberg.com/apps/quote?ticker=DXY:IND
Is that a tick up I see?  Strange.  While it is odd to see the dollar move up, I would suggest that this actually could be something we might see continue for a week or two more as this correction in equity markets develops.  We did see the dollar fall on Friday.  The dollar is at a critical place here where it needs to find support.  If not, we could easily see it usher in a new blast lower to areas not previously seen.  The push lower would cause renewed spikes in precious metals and other commodities like copper and oil.

6 MONTH LIBOR -  http://www.homefinance.nl/english/international-interest-rates/euribor-rates-6-months.asp
As we noted earlier last week, 6 Month Libor continues to move higher.  There have been rumors of interest rate hikes in Europe, as a move to stave off inflation, but the weakness in the banking system there simply makes me think that it cannot be done.  We are seeing lots of talk, but little real action.

TRADING UPDATE
In favor of getting this post up for the beginning of the week I am going to cut things a bit short and make every effort to post over the next couple of days a deeper look at specific areas where trading is at a critical juncture. Overall, markets for the last couple of weeks seem to be consolidating and trying to churn through some new selling. The selling hasn't been overwhelming, but heck, it is new to actually see selling! Remember, in our 2011 Forecast we identified March as a critical month due to the idea that big players would not wait to exit markets as QEII terminated. In other words, big funds and hedgies weren't going to wait for June to roll around before exiting positions. If the FED quits buying treasuries then that means that they quit exchanging those treasuries for dollars which somehow find their way into other speculative assets (food and other commodities anyone?). It would not be too hard to believe that we may see a decline in the thrust upward in many of these very frothy "investments" if the fund managers and primary dealers suddenly think that they may lose their source of fuel.
I don't want to get too over zealous though because markets are still weak enough that all it would take to see a huge snap back rally higher is an announcement from Fed officials that weakness is too great to stop these open market actions and QEII will actually be extended with a new batch of electronic cash. I also think that the Japanese disaster is just about enough of an excuse to put all free-market exercises on hold for another 6 months. There will always be a reason to extend an pretend as long as you have a printing press at your fingertips!

Overall, as I mentioned at the top of the post, information is mixed to improving. The overall job picture is getting better, but that doesn't mean that incomes are up. The CFO survey indicates that there are areas where there will be job growth, but as they see it, jobs won't be the big winner in the next quarter. Housing just can't get better and the decline in home prices are really troubling.

I will leave you with this last nugget that I put together with Robert Schiller's Irrational Exuberance data at http://www.irrationalexuberance.com/ . What I'm highlighting here is that we are at P/E levels that have been experienced around 6 other periods in the last 90 years. In each instance, stock markets corrected pretty significantly after those levels were reached. Now this is not to say that the correction is immediate (for goodness sakes, look at the 2000's!), but it is sort of like the treasury trade where we know that we are at historic lows and it is a pretty good bet that we'll see higher rates in the future. In the same manner, we know that we are at high P/E's and there is a safe bet somewhere and at some time that suggests that they will go lower and so will the markets. This is just one more warning that should be going off in our minds that there is risk in this system and we need to be fully aware that things could break down. The obvious question is simply when.

As markets open we should see Japan drop significantly with a carry through of the decline to as much as 10% in coming weeks. There will probably be a rebound due to printing of liquidity. One quick note on oil and other energy fuels, we should also see a drop in oil as there will be a drop in economic activity in Japan and Asia as a result of the disaster. I see this as temporary as the unrest in the Middle East is not going away and I continue to watch for the Saudis to demonstrate and attempt to overthrow their leadership. If any momentum is built in that country, oil and gas will rocket higher.

GOATMUG

THANK YOU FOR ORDERING IN THE AMAZON SEARCH BOX!!

Just a quick note to all of you.  I experimented with placing the Amazon search box up right before Christmas just to see if there was a revenue generating angle for spending so much time on the blog.  As it would happen, I made $1.12 during the Christmas rush and have yet to receive my payment from Amazon.

Having said that, someone made a large order through the search box recently and I want to thank that person for doing so.  I think my take on that one transaction will be about $20!  So, now that I am experiencing internet-bubble top line and bottom line growth resulting from this new technology business I'm in.  I wanted to let you know that I've hired Goldman Sachs and Morgan Stanley to consult with me about directions for the Goatmug Blog and how to further monetize it and bring it to full valuation.  As our growth trajectory is very similar to Facebook, I am sure we'll be discussing the appropriate time of the IPO soon. 

While I'm being a bit sarcastic here, it is neat to recieve any form of renumeration for simply writing about stuff that I love.  The blog has been in existance for almost two years now, so $10.50 a year in compensation puts me right up there with some of the citizens of countries that are rioting. 

I appreciate you reading and most of all commenting.  When you comment it tells me that I'm writing stuff that is entertaining and hopefully helpful.  If you do need to order something from Amazon, please consider using the search box to the top right of the page to start your search, at least someone you know will clip a percent or two off of the sale.

GOATMUG

INFLATION WORRIES? WHAT HUGO CHAVEZ KNOWS THAT WE DON'T

I've written a bunch about how the US economic leadership (Congress, FED, and Treasury) have interests that are absolutely opposed to the values and interests of the average citizen in the US.  One of the first blog posts I created highlighted Ben Bernanke's 2002 speech where he described that deflation was Public Enemy #1 and that the Fed would not tolerate the economic slippage resulting from inflation's scary brother.  In other posts I covered how the FED needs inflation to keep the game going and any hint of deflation creates shudders of fear.  Recently, I reviewed how deflation really wasn't as terrible for the common man in Japan despite what we hear from the Fed in the article titled TURNING JAPANESE. 

In the last several years, we've seen budget deficits and spending like we've never known and many are beginning to think that the Fed's efforts can only result in one thing, runaway inflation.  We've read how Japanese citizens deal with deflation, let's take a few moments and review what regular folks do in inflation ravaged countries like Venezuela.

Please read the reuters story below;

http://www.reuters.com/article/2011/02/25/venezuela-inflation-idUSN2527605120110225

The graphic pasted here from the article demonstrates just how bad the inflation rate in the country has been.

So, what are the tricks for dealing with inflation for the regular person?

• Because gas is heavily subsidized and is almost free - Venezuelans buy cars.  Instead of depreciating, their value increases as the car gets older!
• Essentially people borrow and buy appreciating goods like gold or cars
• They take extra jobs - I guess fat and lazy Amerikans won't do so well to keep up with inflation.

In the reading of the article it is very clear that a person must be very active in keeping up with their finances and financial situation to keep close to the same lifestyle over time.  These guys are putting money to work (or just spending it) immediately because they know that their money will be worth less in must a month or two.

Am I sold that this is our future?  No, I still believe that despite all of his work, Bernanke will fall seriously short and learn that his hubris has done nothing but create a more serious collapse.  However, one of us will be correct and it is important to understand the strategies for dealing with both outcomes.

GOATMUG

POVERTY IN THE USA - WHAT NO ONE WANTS TO SEE

Let's take a look at this recovery we are having.  Anyone not believing it is really happening?  I've written a bunch about the concept of "Recovery in Name Only" meaning that we really haven't seen a significant recovery in key areas in the economy.  Drivers like silly things such as jobs and housing are simply not participating in the asset price recovery we keep hearing about.

60 Minutes does a piece about poverty in Amerika.  While the government solution is to throw more money at the problem it is clear that there just continues to be more folks in need of assistance.





Everyone wants to believe that everything is getting better, but I continue to feel that sense of dread in me that as soon as I give in and give the green light, all hell is going to break loose.  Incomes are not rising but costs certainly are.  How long will it be before we hear that fuel costs are responsible for job cuts?  Once again these gas prices and oil prices are an assault on those in our nation (and the world) that can least afford cost increases.  These are direct taxes on their ability to survive.

GOATMUG