Monday, March 8, 2010



Rail data continues to show improvement in total tonnage shipped. Last week each category of shipments showed higher levels of cargo traffic than the previous year in except for coal shipments. In comparisons to last year's data, coal and lumber are the only categories that are lower than 2009.

As usual, we are watching lumber and crushed stone to tip us off for some sort of housing and commercial building growth. Lumber is at least pushing higher compared to last year while crushed stone still tells us that commercial building is mired in the pit.

We want to watch what CFO's of companies are thinking and how they are feeling to give us an understanding of where they predict the economy may go. I like CFO's more than CEO's because typically CFO's are a conservative lot that see what is actually going on in the firm rather than projecting what may happen. In fact, CFO's typically downplay the strength of the company and I like that as they tend to reign in spending and the projections of the sales team.

A professor from Duke interprets the data here......

"The uptick in business spending indicates the economy has bottomed out. But the recovery might be short-lived if the employment picture does not begin to improve," Graham added. "Another note of concern is the corporate sector’s expectation to decrease inventories, exerting downward pressure on overall GDP growth."

About half of U.S. CFOs say they will increase full-time domestic employment in the next year, twice as many as say they will decrease their workforce. Net full-time employment is expected to increase 0.2 percent and temporary employment 0.5 percent. Finance chiefs expect outsourcing to rise nearly 4 percent.
"Certainly, it is good news that the employment bleeding has stopped," said John Graham, professor of finance at Duke’s Fuqua School of Business and director of the survey. "CFOs, however, still expect a virtually jobless recovery in 2010. Looking further ahead, it will be two to three years, maybe longer, before employment returns to pre-recession levels at most firms. CFOs say they are keeping workforces low due to weak consumer demand and increased efficiency in their production processes."

-- CFOs’ top economy-wide concerns include weak consumer demand, federal government policies, price pressure and credit markets. Top concerns about their own businesses include maintaining profit margins, low employee morale and liquidity management

No double dip - WLI data back up after 4 weeks of decline. Now at 129.8, the WLI is showing continuing strength in the recovery.


Like the WLI, the FCI is now solidly above 0 and this tells us that the "recession" is over. We will need to continue to watch the jobs data as this will be the issue that drags the economy down if people don't find jobs. As we marry this concept with what the CFO's are saying in the sentiment data above, we need to make sure that we are enjoying the "recovery", but are skeptical of it at the same time. CFO's are telling us that they are going to actually decrease employment and outsource more of their jobs overseas. That doesn't lend support to the notion that the consumer is back and that housing is fixed.

Speaking of housing, we are seeing pricing declines. While this sounds bad, pricing drops are the only way to make homes more affordable and accessible to buyers. Lower prices will help clear the shadow inventory of homes that will continue to suppress a recovery. Why our government continues to delay this is a mystery when we all know that the only way to fix the sickness is to take the medicine.


I've been watching the BDGI lately alot as an indication of activity of shipping in overseas markets. Spot shipping rates (not contracted ones, but the rate that you'd have to pay if you needed to ship something and lease your ship today on the open market) are moving higher, moving up some 10% from last month's report. A continued move here may bode well for some shippers. An acquaintance on sent me an article on how the pricing changes in the baltic dry goods index is not that connected to the pricing of the actual shippers, but no matter if that is true, this does indicate that commodities themselves are being consumed and moved. This bodes well for the continued move higher in emerging markets, basic industries, and commodities.

The dance continues. As we have concerns over debt defaults in countries like Greece, Spain, Portugal and Ireland, we see strength in the USD. When we get word that the EU, IMF, or Germans are going to bailout these countries, we then get a flight from the dollar and a recovery in equity markets. There has been some breakdown in the traditional relationship because not only are European investors fleeing the euro and other currencies, they are also simply buying US equities as well. This is why we've actually had some equity market strength in the face of concerns over Greece's sovereign debt problem. The nasty little secret is that all of these countries have been hiding debt and this is just coming to light. We will have a debt crisis, national governments are simply trying to do what they have done forever, ----keep the charade going as long as possible.

A story released this weekend is suggesting that Dubai actually has nearly 4x's as much debt as every thought as they have hid it. Doesn't that make you feel cozy inside to thing that national governments would like to their investors and debt holders? Why would banks and people follow laws and be honest if their governments don't lead by example.

Longer term, I still expect the dollar to rise and treasury rates to go higher as well. In the short run if we get a "solution" to the Greece issue, we'll see the USD drop.

We've continued to rally since February 5th. I am still positive for the next month and 1/2 or two, but I am waiting to see a very slight pullback as investors will get overly bullish and everyone will lean to a specific side. Economic data will continue to surprise folks on the upside (jobs, housing sales, retail sales) and this could push the market higher. In addition, the resolution to the situation with the debt problems in Greece - although this is temporary because more countries face trouble. In spite of the negative potential news, slight pull backs have been tough to come by, so a good strategy may be to add purchases in an incremental fashion. Traders often call these time stops. Perhaps the timing could be to add every 2 weeks or every month. This way you don't put your entire holdings in at once.
Emerging Markets - As we see continued USD weakness, we'll see momentum build in the emerging markets. I have had the following trade on for some time, but it just broke out today and I think it still has close to $1.00 more to run before hitting resistance.
EWM - Malaysia
Current - $11.30
Target $12.35 (Target Gain = 8.8%)
Downside stop - $10.50 (potential loss -7.1%)

Oil - I think oil continues to breakout. We are now above $80. As I stated in the beginning of the year, I believe we have a shot at $100.
GOLD - GLD - For a short time horizon, I believe gold is going higher. I am personally not involved in this trade and am not going to provide levels for a trade on this item despite it's positive direction. You can comment and leave me levels and I'll take a look to confirm it if you'd like.
(VXX) - (BEARISH TRADE FOR A PULLBACK) VIX is now at 17.8 as I am writing this. I do believe we could have a short term pullback and the use of VXX to play that would be ok. This is not a long term trade, you are simply trying to capture any downside as we've moved quite far since Feb 5th without a significant fall. Take a look at . Guy Lerner is again stating that bullishness is high and this should give us some validation to the notion that we'll make money as the fear index reverses and goes higher - making money in the VXX.

KSU - KSU is now trading above $35.00. I like the gains we took on it, and will wait to re-enter.
As usual, thanks for visiting and thanks for your comments.