Thursday, June 30, 2011


June 30th has come at last and that means an end of additional capital injections by the Fed.  What the discontinuation of quantitative easing measures means is that the Federal Reserve will no longer add additional capital to the liquidity of the global monetary system, although we have been put on notice that the current level of capital will stay there. This means that as treasuries and other assets mature and are repaid, the Federal Reserve will take those proceeds and reinvest them in other bonds, it is important to point out that there won't be new money coming on line under this program. 

Bears argue that the economy and markets are simply being fueled by these overt actions by the Federal Reserve to "goose" the system, and without new rocket propellant to move the market higher and higher, we'll see a collapse without the stimulus for higher stock and asset prices.  We don't know if that is truly the case, but we do know that the Federal Reserve is stuck in a box of its own making.  They have created a "liquidity bubble" that has elevated the price of financial assets and hard assets like commodities near two year highs.  The Fed has also forced treasury rates to historic lows.  Time will tell if these levels can hold.

Beyond asset pricing, QEII serves another purpose.  QE II serves as a way for the US government to manage its interest cost.  By selectively purchasing bonds in the open market the Fed manipulates the overall pricing of bonds to keep interest rates low.  Without QE II in place, what will happen to interest rates?  Look at how TLT (20 Yr Treasury) has performed over the last couple of days in anticipation of lower bond prices. 

TLT (100 Day)

I grew up in the great days of boxing in the mid 70's and early 80's.  Some of my most memorable childhood memories involved watching boxing with my Step-Father.  I recall going to see many local boxing matches which included Olympian superstars.  Remember Sugar Ray Leonard, Marvin Haggler, and Larry Holmes?  These were greats that I grew up watching.  After years of being a boxing fan, one thing is clear, boxers never really retire.  If the paycheck is large enough or economic conditions of the fighter bad enough, they always have one more fight left.  In a similar way, QE has been so successful in achieving its goals that the Fed must see it as one of their greatest instruments to combat deflation.  While QE I and QE II sport amazing records and their heydays are past, they may be called up to fight another match in the near future.

If Treasury bond prices move significantly lower (yields higher) or stock markets fall appreciably we will absolutely see a return of QE.  While the Fed has many remaining tricks up their sleeve, QE is one that has immediate results.  QE is truly one of their favorites.  As a market participant that feels strongly that the invisible hand of government should get out of the stock markets I am not sad to see QE go.  Unfortunately I can say with great confidence that QE will be back for at least one more bout; great fighters never go gracefully.

Photo by Cliff1066 -


Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at

Wednesday, June 29, 2011


The Greek Parliament sold out its people once again today and there is one more vote that will come down tomorrow to determine the specific measures that will be employed to destroy the life style of Greeks and pillage their public coffers.  I've written a lot about the concept of these austerity measures, but let's review a list of these changes to see how it might impact the everyday lives of Greek citizens.  I've used this slide show from CNBC as a source -

1)  Property taxes and their VAT (Value Added Tax) will increase.  Their current VAT is 19% on each item purchased, it will increase to 23%.

2)  Luxury items will be taxed more and profitable businesses will also receive an additional tax.

3)  Taxes on fuel, cigarettes, and alcohol will increase by 33%

4)  Civil servants and other government workers will take 15% pay cuts

5)  Defense spending will be cut by 200 million euros and more in following years

6)  Education cuts will force mergers and closings of almost 2000 schools.

7)  Social security programs will face significant cuts and the retirement age will be raised from 61 to age 65.

8)  Greek government businesses will be privatized.

9)  Government jobs will be terminated via attrition.  Only 1 job out of every 10 retiring positions will be filled.

10)  Health care spending will be cut by 310 million euros this year and more in subsequent years.

Well, yes and no. Financial management of programs and social services are necessary, and the Greeks obviously didn't do a good job over the last 30 years of maintaining any sense of responsibility. The issue here is that these measures will be debilitating AND they will not make any dent in the piles of debt that have been amassed. The Greeks are past cutting to be able to repay all of these obligations; the figures are just insurmountable.

Take a close look at these provisions and it is clear that any normal person is going to get crushed as a result. Perhaps you are employed by the government or employed by a firm that provides a service or product to government. If you do keep your job, you will obviously take a substantial pay cut. Next, your fuel costs are going to rise and your property taxes are also going to increase. You health care costs too will be noticeably higher, and everything you buy will cost 4% more due to the move up in the VAT.

Any able bodied person that has any financial means will obviously be incented to employ any tax avoidance scheme possible. I would assume that high income earners would attempt to move to another country or at least off-shore their earnings and assets to shield them from these provisions. Clearly these efforts will undermine the financial projections of GDP and Greece will miss revenue targets, only to repeat the crisis again and again.

Is there any doubt why people are rioting? Is there any doubt there is a disconnect between the people of Greece and their politicians? No one questions that the Greek citizens did have a part in getting into this mess. However, it is quite possible that corrupt Greek leaders were bribed into taking bad loans that were not in the interest of their people. These politicians used the proceeds to hire unions and fund projects that were a form of political payback rather than society-enhancing endeavors.

The move this morning does nothing but extend the process for Greeks to default on unpayable liabilities. Major life style changes and hardships will be endured by common folk while connected politicians and the wealthy remain relatively comfortable. For more information about this topic, please read - GREEKS NEED A HERO - IS THERE ONE? The posting includes the documentary "Debtocracy" which is a must watch.

This is the future of the USA if we don't take measures to arrest our spending deficits and our out of control entitlement programs. We continue to look at Greece as some third world country that can't get its act together, but the reality is that the country is simply playing out our future today.

In the midst of seeing all of the results from catastrophic debt it is clear that the USA is rushing headlong into policies and promises that emulate the European model. Unfortunately it is obvious that we'll be implementing many of the same austerity measures to pay back our lenders too.


Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at

Monday, June 27, 2011


As we wait for a critical vote on austerity measures from Greece I wanted to share a few revelations I've had.  Before getting there, let me state emphatically that it doesn't matter if this 5 year austerity plan is approved, there will be another restructuring and another one and ultimately Greece will default on its creditors.  In addition, this same charade will be played out on the stage of each peripheral EU country for sometime. 


A)  I have written several times and thought often more that Greeks brought this on themselves through over the top pensions and union handouts.  (They did, but I am realizing that the Greeks did in fact bring this on themselves because they did not have control over their corrupt leaders who made decisions to bury their country in debt and use the spoils to enrich political allies and powerful interests.)  (Sound familiar?)

B)  Greece must choose default and essentially already has.  In life there are truly very few zero-sum games (fortunately!), but in this instance we have one.  At the present time by implementing austerity measures, Greek politicians have chosen to saddle their citizens with debt that is unpayable by any stretch of the imagination.  They have elected restrictions and tax increases and cuts that remove all doubt that they have defaulted on their citizens.  It is striking and mind blowing that a leader doesn't stand up and say no more!

C)  Oddly, the Fed's policies may cause yet another amazing uprising.  Think of the Fed as an extension or the same entity as the ECB or the IMF and World Bank.  These entities really are servant representatives of the largest of banks in the world.  Overtime these banks have extended loan upon loan to the Greeks and even helped them lie and hide financial truths in order to qualify for membership in the EU (Goldman Sachs).  Now that Greece has its back to the wall with an undeniable problem with unpayable debt, we may see the citizenry of Greece finally say, "enough is enough".  Can you imagine an entire nation facing hardships where the poorest of the poor cannot afford basic necessities and then our Fed is directly ramping up inflation globally?  While Tunisians, Egyptians, Libyans, and Syrians were trying to cast off the yokes of oppression in their Arab Spring, Greeks are looking to cast off the chains of economic oppression and slavery.

Please watch this video.  I understand that it is over an hour long, but I think your perspective will be changed by watching it.  In fact, I will go out on a limb and suggest that this is probably one of the best hours you can spend this year.  I am a pretty hard line conservative capitalistic guy, and this film was clearly made with a liberal point of view, but the truth is undeniable.  The leaders at the top of the global economic banking institutions are playing for keeps and willing to win at all costs.  This film shows the destruction that is caused by men in suits using corrupt local leaders to enrich the super rich.

There are so many powerful items in this film.

Can it be true that where ever the IMF has lent money, the life expectancy of the population declines?

"You can have freedom but no sovereignty."  Wow, that really is it isn't it.  When you owe so much you become so indebted to your masters that you essentially have been conquered with a bank ledger.  You are told how to spend your money, who to buy things from, and what you will be allowed to do for your people.  This is about control, power, and wealth.  The Fed, IMF, World Bank, and ECB have used Greece's desires and corruption against them to make them economic vassals.  Any real leader would have no choice but to cast off the chains of bondage.  Greek PM George Papandreou is clearly not the leader to stand for his people, do Greeks have a hero?

Oddly enough, if the Greeks resist they could make the global financial system shake if they have the courage to do what it right.

When watching this movie constantly ask yourself if the US is any different?  How do we citizens express and exert control over our politicians and their spending?  What are we getting for our borrowing?  What power do we have to stop the borrowing of money and the subsequent allocations of the proceeds to giant corporations?  How can we even arrest the progress down this slippery slope when companies and paid lawyers write the laws our Congress passes?  Could we ever see Americans so frustrated and broken that they rise up like those in Ecuador or Argentina?  Are Americans just too fat and asleep to notice that we too are being shackled to unpayable obligations for the benefits of others?  Unfortunately I am pessimistic and scared of the answers we'd receive if we were brave enough to ask them.


Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at


I've noted several times over the last few months that although the program named QEII has a terminal date of 6/30/2011 we aren't likely to see the end of heroic measures to manipulate and game the free market system.  The Federal Reserve continues to highlight that they will continue to make purchases of bonds over the next year or so as maturing bonds roll off.

Here is a choice quote from the article.
“I don’t think the Fed wants to remove accommodation in any way, shape or form,” said Matt Toms, the head of U.S. public fixed-income investments at Atlanta-based ING Investment Management, which oversees more than $500 billion. “It’s quite natural for them to reinvest cash,” he said. “That effectively maintains the accommodative stance.”
The Fed will continue their operations for a number of reasons.  First, they can't draw down liquidity in the system because much of the gains in asset values in stock markets and commodity markets come directly from the additional stimulative work the Fed has done.  By forcing Mom and Pop and institutions away from money markets and fixed income investments and into risky assets they have provided the feeling that things are getting back to normal.  Remember, if stock prices go up, the wealth effect kicks in and you and I get to spending right? 

Second, the Fed and Treasury are working in tandem to buy treasuries and mortgage backed assets because if they were not the buyer of last resort the USA couldn't not meet its debt and interest payments and continue the amazing pace of deficit spending and government growth.  There is no way the government could actually find enough buyers at these rates without the Fed and Treasury's influence in the bond market. 

Third, the activities the Fed will continue under this program gives them cover for operations overseas.  I hadn't really thought about this until today, but the massive size of the Fed's balance sheet and their constant work in markets gives them an incredible ability to run "black programs" elsewhere in world financial markets.  Think back to the 1980's when we heard of $200 hammers or $600 toilet seats, did those items really cost that much?  Clearly the answer is no, but the marked up tools and fixtures were ways of diverting excess money to other projects that were not approved and were funded by these creative financing methods.  In the same way, the Fed is working under its self-appointed power in QE I & II, but the sheer size of their work probably has allowed them to mask repos and swaps with foreign banks and countries that would raise concerns domestically.

In summary, the Fed is wrapping up QEII only to not wrap it up at all.  The USA cannot afford to allow a market with full price discovery because we would not see buyers at these treasury levels.  Buyers of treasuries today will lose significant amounts of money if interest rates rise even 1% on the 10 year.  Given those pricing dynamics, I wonder who is stupid enough to buy all of those new 10 years bonds?  If your answer was the Fed you'd probably be correct.  Welcome to massive losses Mr. Taxpayer, this is your reward for failure to rein in the Federal Reserve. 


Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at

Friday, June 24, 2011


My eye was caught by this story this morning regarding the potential risk US Money Market funds have to Greek and European defaults.  Please view the story here by right clicking and hitting "open in a new window" (don't click away from the blog!).

Why in the world do US money markets have exposure to the Greek debt bomb?  Well, the easy answer is that if it weren't for the Fed and Ben Bernanke, they probably wouldn't.  How is that you ask?  Well see, since short term rates are artificially low in the USA, investors must find alternative investments to find yield.  Great Grandma, Baby Boomers, Money Market Funds, and investors that are risk averse are being forced into investments they normally wouldn't ever consider in an effort to receive just compensation for their investment dollars.  While the Fed's plan has been all along to make money markets unappetizing, there are some investors that have no choice and must use them as an asset class.  The problem is that money market fund managers have this problem too.  They can't buy treasuries or mortgage backed securities anymore because yields are being manipulated lower by QE II and other invisible hands in the market.  They can't buy commercial paper, because that doesn't pay enough since everyone is competing for the same investments and prices are bid up.  They must find enough yield to earn enough to pay their fund expenses and then deliver some sort of return back to investors.  What is a money market to do?  The managers turn to buying paper across the pond and buying high rated bank and insurance company short term paper.  These funds are yield seeking and are probably taking more risk than they should due to the interference in the markets by the Fed. 

During the press conference, Ben Bernanke added to fears that we could be in a situation similar to the Lehman Brothers/Bear Stearns debacle where liquidity in the financial system simply froze up.  In situations where no one trusts each other, no one is willing to lend to one another, unless it is at astronomical prices.  This is a fear that is actually one based on truth - that if Greece defaults, European banks will be hurt financially, and that could impact other institutions.  The freeze could impact the banks and their lenders in several ways.  First, money markets and lenders could see those banks with Greek holdings as a perilous risk, one that perhaps shouldn't be traded with or one who should not receive favorable terms.  In that credit evaluation process things either slow down where lenders take a lot of time to make investment and lending decisions or they stop all together.    Second, if you are the bank on the receiving end of the freeze, you might consider holding on to money that has been lent to you and not returning it on time as you need to keep capital in house as long as possible.   As you can see, a simple default event in one insignificant country could end up being one big problem on a global investment stage.

Now let's simply dream a little here and simply make up a fanciful situation where there actually was a default in a small island nation that didn't really matter.  (I know, I know, it could never happen with all powerful institutions like the Fed, IMF, and ECB making sure that all risk is taken only by the tax payer, but run with me on this).  As a risk manager for an investment company, the first thing you do is run a counterparty report to see who you are exposed to once you learn of the default.  You do a little bit of digging and you find out that one or two of the banks you lend money to overnight have significant exposure to Greece.  (Mind you, you don't have direct Greek exposure, you just do an overnight repo or reverse repo with them).  Upon reading the report you quickly fire off an email to your money market traders and portfolio managers directing them to immediately cease all investing in those bank names and put them on a credit black list.  As soon as all outstanding investments (short term loans, repos, swaps, commercial paper) to these banks are paid back to you, your desks will not buying their issues again no matter what the yield.  As this process is repeated, the cascade of capital starvation sets in on the offending banks and they quickly die.  The death of those banks causes waves that destroy other banks because they have long term risk outstanding to the banks at ground zero and now are in jeopardy of not getting paid back.  Sound familiar?  Of course, it is what happened in the financial crisis of 2008.  And yet, here we are again, facing the exact same set of problems, yet this time we are looking at it on a global scale.  We are taking about nations defaulting and being the genesis for the financial tsunami that will swallow the gigantic ponzi-scheme that has captured the world. 

I feel so much better after reading the article where Mercer Bullard (professor) assures us that everything would be great if the SEC would just step forward and tell us it will all be okay.  There are a couple of problems with Mr. Bullard's statement. 

First, although money market funds can only hold short term investments there is no guarantee that a bank or company will actually return those investment proceeds on time if they are in financial trouble.    Banks in crisis don't always play by the rules and if they are dying they could care less if you are a money market fund, a church, or the US government.

Second, the notion that anything the government tells me will make me feel better is simply nuts!  Do you  think the SEC, the Fed, Treasury, or the Administration would tell me if things were really bad?  During the financial crisis did they tell us to get out of Washington Mutual, Lehman Brothers, Wachovia, Citibank, or a host of others?  No, if anything they came out to say that those institutions were fine and stable.  The FDIC said INDYMAC was great, only to find out they were completely insolvent.  Isn't that where we are with Fannie and Freddie too?

The SEC is too busy trying to find some small time trader that made $20,000 for insider trading when there are HFT (co-located high frequency trading computers that step in front of each trade and give you bad execution) that are ripping off investors every day to the tune of millions.  The SEC is too busy watching porn to worry about actually enforcing rules to protect shareowners of fake Chinese companies that don't actually do any business aren't they?  Suddenly the SEC is going to step in and reassure us that money market funds are just great and this will mean anything?
 Despite the stupidity of the professors comments, I am struck by the idea that we are two and a half years removed from the pit of the financial crisis and nothing has changed.  We have systematic risk embedded into the system and we have money market holdings that are still at risk of seizing up and collapsing the financial scheme.  What have we learned?  NOTHING!


Wednesday, June 22, 2011


This week has already been very interesting.  We've had the confidence vote for Greece, which means that we'll have more Greek default discussions and posts in the near future.  We also had the FOMC meeting and press conference today where Ben Bernanke seemed much less confident.  I almost feel like the market is whistling past the graveyard in hopes of not disturbing the situation.  Over the last couple of days I've sold many of my shorts and waited for an expected bounce.  Now that we've had some of a relief rally, I'm focused on two specific names that seem to have attributes of weakness.  Specifically, GS has entered a significant period of decline where the 14 day EMA has crossed over the 40 day EMA.  There seems to be some support at $131 for the broker, but it may be worth a shot with the opportunity for a much deeper decline.  FXI also is showing the same qualities although it has not officially crossed over (I expect it to be official at the end of this week).  The "crossover" usually portends nastier things to come.

From a macro perspective we have two issues that will help these trades. We have the Fed removing stimulus (no better said, not stimulating and that should deprive GS of some trading proceeds at our expense) and also China is slowing and confronting inflation while trying desperately to keep from a hard-landing.

Weekly 14/40 EMA Crossover pending.

FXI (3 Yr Weekly)

GS Weekly View
13/40 EMA Crossover

Goldman Sachs (GS) 10 Year Weekly
The 10 Year view of GS is really interesting.  There is an obvious risk that GS could go up to around $165, but with all the uncertainty and misery in global credit markets it may be worth a short shot.  I think a move below $131 could take us to the lower portion of the downward channel which is at $115 which just happens to be the level that Warren Buffett got his shares.  It would be really interesting to see GS back at those same levels wouldn't it?


Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at


The politics of destruction continue somehow as crooked Greek lawmakers voted to keep leaders in positions to destroy their economy.  By allowing the Greek PM to escape through the vote of confidence yesterday, Greek legislators essentially deferred what is going to happen anyway, it only prolongs the pain. 

In the mean time, the mass exodus of money continues as Greeks seek to find places to stash their cash fearing the coming collapse of the Euro they know is coming.  Regular folks are buying gold and silver and even an olive grove to diversify out of the doomed fiat.
ATHENS -- Greek citizens are emptying savings accounts and buying gold as they brace themselves for the possibility of a sovereign default and a run on the banks.
Pledges by socialist prime minister George Papandreou that his government would "save the country" have been widely discounted by the public. However, parliament gave him a vote of confidence late on Tuesday night. The socialists have a six-seat majority in the 300-member house.
Sales of gold coins have soared as savers seek a safer and fungible source of value.

"When the global financial crisis started, our sales of coins to investors overtook bullion for the first time," said Harry Krinakis, at Sepheriades, a Greek precious metals trader. "Now the sales ratio has reached five to one."

Tomas, a computer technician, has exchanged his euro savings for gold coins: "I keep them at home just like my grandmother did in the Second World War."

Monthly bank withdrawals were running at E1.5 billion-E2 billion in the first quarter. Last year, depositors withdrew E30 billion, equivalent to 12.3 per cent of total savings, according to the central bank. Greek deposits worth an estimated E8 billion were transferred to banks in Cyprus in 2010. But the flow has dried up this year amid fears that Cypriot banks could suffer contagion.

Andreas, a supermarket manager, transferred the family savings to Munich earlier this year. "The Swiss banks aren't interested unless you’ve got several hundred thousand euros," he said.
"We can't trust the politicians to get us out of this mess [and] have to protect our families," said Sakis, a garage owner, at an anti-austerity protest in Athens' Syntagma Square. "A bank collapse has got to be in the cards." He added he had withdrawn his savings and placed them in a bank safe deposit box "for security. Who cares about interest right now?"

Others put their savings into land when prices fell after Greece's first European Union-led rescue last year. Angelos, a software specialist, bought a neighbour's olive grove. "I grabbed the opportunity," he said. "A year ago I wouldn't have considered making such an old-fashioned investment."

As tough as this is for Greeks, the only question I have it why we Amerikans aren't taking their lead and putting our cash in safer places?  Of course this isn't a situation that will unravel here in the US tomorrow or the next day, but it certainly is a picture of our future.  It cannot be avoided.


Monday, June 20, 2011


Gas Prices are falling a bit and as you can tell from my previous post on Friday I have set a "Line In The Sand" regarding where I'd be stopped out on it. 

There are several things going on that we must be aware of.  I'll lay them out here in bullet form so we can at least have a perspective of what might be pushing this trade lower.

A)  Oil and gas were too high already due to speculation
B)  Middle East unrest was one of the major components of the spikes in oil and gas and there has been an easing of tensions and everything is fine in the area.
C)  Europe and the EURO seem to be coming apart at the seams and this is bearish for global productivity
D)  China and India have have reduced consumption drastically.
E)  The green movement in the USA has discovered a green source for unlimited fuel for cars.
F)  Summer driving season is on hold.
G)  Central bankers realized that this out of control commodity inflation has totally boxed them in and a hit was put out on high input prices. 
H)  A bailout in Europe is effectively a stimulus package gone wild.  Again, the box that central bankers have created is getting smaller.

For the home players out there, I'm inclined to believe that perhaps A, C, G, and H are the only viable answers here.

A)  Perhaps oil and gas got a bit frothy when brent hit $119 or $120 based on the demand out there and levels of inventory.

C)  Euro tension and the Greek situation can't be good for making Europe move forward and growing.

G)  Of all the answers, I think we can see that the guys that have the most to gain from a drop in oil and all commodities are the central bankers.  Coordinated moves to hike margin requirements and douse the flames of speculation are in the interest of these financial leaders.  If the price of oil cannot be controlled, the economic engineers have no room to extend stimulus, because each additional dollar provided is drawn away to speculative assets or consumed to pay for high priced inputs.  The drag caused by high commodities is nasty and has been the target of verbal attacks by Ben Bernanke when he stated that inflation is "transitory".  As we've discussed, he is making this statement to form expectations and drive the market in the direction he desires, trying to "Jedi mind-trick" the market into believing that "inflation is transitory".

H)  If the ECB and IMF and countries step up to bail out Greece, we should see a trade where gold and silver rise, perhaps oil and gas due to since it is inflationary.

Adrian Mitchell and Jennifer Waters have a conversation about gas prices in the pop-up link below.

I've summarized several of the key points;
  • Consumers initially freaked out when gas prices were rising in January and February.  At this time, they are now calming down and are making the assumption that gas prices won't be high forever, that they will be  flat to down next month.
  • Fewer delaying car purchases
  • Consumers now say they feel better and are not considering themselves poor anymore.  Who are these people?  They are still poor.
According to the interview, they quote a report by Richard Hastings of Global Hunter Securities who says that we cannot assume that just because we have a dip in gas prices that the consumer is back.  He had estimated that consumer spending in May and June would be choppy and despite a little relief, consumers are slow to change habits now that they have ingrained some budgetary discipline.  In other words, people say one thing (like things are better) but when things have been bad it takes them 4 or 5 months to act.
Finally, the message is that if conditions of falling prices persist we might see improvement in spending and a thawing of the conditions of the frozen consumer, but when gas prices go up again, then all bets are off and we'll see a big slow down.

Ultimately, there is a feeling sigh of relief, US consumers are dealing with the change and budgeting in the price of gas.  They say that the take away is that the consumer is not going to make any rash decisions during this time.

While I have a hard stop on my UGA positions I must reiterate several key thoughts about oil and gas. 

First, the impact of the growing consumption of oil by China and India cannot be ignored.  This  is one of those major macro ideas that sets the foundations for long-term trades.  If oil dips or even crashes, the long term trade fundamentals will be in tact and that should be reason to buy oil and gas. 

Second, Middle East tensions have not abated at all.  There is no reason to believe that peace has returned to an area where discord is the norm.  We must watch Iran closely at this time.  Any major actions in the Middle East have the ability to push oil and gas through the roof.  Also Libya is a mess and the entire conflict is about oil, don't let the cover story about freedom fool you.

Green transportation is quite unreliable.  Until I can be assured to go 450 miles without a refill or a plug in, AND maintenance of batteries is not astronomical, as far as I'm concerned it is a waste.

Don't let the central banker box idea pass you by.  We are going to see many creative steps engineered by central bankers in an attempt to wriggle out of the inflationary box they have created.

$48 is still the stop on UGA.


Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at

Friday, June 17, 2011


I've been doing some unusual posts of late and I'm extremely busy.  I've done a lot of looking at charts and I am going to share them with you.  These are positions I've owned for a very long time and have done well in my long term account with.  These are all plays that I've mentioned over the last two years.  Each of them (with the exception of the last 4) look very similar.  I've indicated ones that I actually sold this week, but also have indicated my levels for stops if I still have them.  I don't have time for any commentary on any of them, check out the charts and look at the stop levels, if the stock or eft is below that level, then I'm probably out.

As you know, I expect some sort of resolution to the Greek issue because the ECB cannot let that fail.  We will or should get some relief rally, but I think the bond market will immediately attack Italy, Spain, Portugal, and Ireland again, and we'll reface this same scenario and it will really hurt the prospects in the market till late summer or early September when we have some sort of new stimulus.

By the way, the short on RIMM that I've held on and off for a very long time (since mention on April 5th) has worked nicely.  I'm out of that trade now.

Stop $71.45

($71.45 - Sell)

$73.62 - SELL


EWM - $14.12







That's it, no more commentary than that.  Be careful and blow out of positions that could crush you.  Chances are we get a relief rally this weekend, but it will be short lived and that will be the chance to unload positions that you don't want to have for a long time at lower prices.
Please check out the blog at I'm got some good things cooking for the weekend.
Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at

Wednesday, June 15, 2011


While this post is somewhat off topic in terms of economics, I find it noteworthy that many will only turn to God when they are enduring such hardship and pain that they are forced to cry out for help from above.  We are currently living in times where people are without hope and looking for anyone or anything that can assist them.  It is obvious that our political leaders do not have the answers and its even true that regular folks don't have the answers.  My personal view is that only Jesus is willing and able to save us (spiritually and physically).


On August 6th from 10 AM to 5 PM Christians from the nation and the world will gather together to respond to a call to fall at the feet of Jesus fast and repent, exalt His name, and worship the risen Lord.  Please watch the video and click the links below for more information.

The Response Promo from The Response USA on Vimeo.

If you plan on attending, contact me via email and let me know, I am planning on going to Texas for the event.  If you have questions about Jesus, prayer, or fasting, please contact me as well.



I am back to publishing the macro update in one huge post again.  I found that trying to break it up might be good for web-traffic rankings, but doesn't do much for continuity and simply getting it done.  In fact, last month, I posted only half of the data.  To simplify life for readers and myself, I'll just post the whole enchilada here.  If there is too much, simply scan the pretty charts.  If you desire more detail or Goatmug's take on the data, simply read the fluff. 


Rail traffic in the US continues to push higher in year-over-year comparisons.  We did see coal shipments under perform last year during this week.  So far year to date, only food tonnage is down from last year at this time.

We continue to see the improvement over last year's shipments, while the economy has encountered a "slow patch" it will be important to follow the trend to see if we see a further regression toward last year's totals.

CP - Regular readers know that I often examine individual rail company delivery statistics to try to catch an edge on short term trades, especially to identify outpeformers and poor performers.  Canadian Pacific continues to be a laggard that I'm watching.  It appears as though railfax had some data issues because we don't see the chart populated for the last several weeks, despite that, I don't see much change in the information from other sources.

UNP is barely exceeding last year's hauling numbers so I thought it would be one to put on our radar.  It is also notable that the only other rail that is showing negative y-o-y shipping totals is Ferromex which UNP owns a 26% stake in.  Don't pull the trigger on this one, just add it to your watch list as a potential short.

Railfax continues to tinker with the information they provide and in fact are toying with the idea of limiting much of their data (boooo!).  In the last couple of years we saw shipping information on autos, scrap metal, and timber, but this month we are back to Crushed Stone and a new one, Chemicals.  Both of these metrics are good for gauging economic health.  Crushed stone is used in the commercial real estate areas and obviously chemicals are used in manufacturing, agricultural, and energy applications.  There is nothing shocking to report here.

If the Crushed Stone data didn't give us a tip off, the MIT Transaction Based Index sure will.  Once again the index is showing that real commercial real estate transactions are losing ground and seller's positions are weakening.  We note here that there was a 4.23% decline in March in the value of deals getting done.

It all can't be bad right?  Despite the poor jobs reports, Monster Worldwide is showing some pretty positive numbers in terms of the number of job listings on  May dipped a little, but clearly April and May indicated that job listings are a a higher point than they have been for almost two years.  I'm generally pretty skeptical and negative about this economy, but this is a good sign.

The average home price is finally moving up and we'll call this a trend.  Yes, of course in some parts of the nation things are nasty, but overall we are seeing a pick up in the average home price.  Pricing is still at levels that are equal to the "pits of hell" of late 2009, but at least we're heading higher.  The recent drop in the stock market and resulting bid for treasuries may actually be a boon for housing data as mortgages rates are falling.  Now, the only trick will be for those scrappy realtors to find quality buyers to scoop up all those deals!  (I've had two conversations this week already with home sellers and realtors that have lamented about the inability of folks to actually borrow).

I've decided to put the ECRI data back into the monthly packet, but have avoided populating my own graphs.  I'll simply highlight their information here about the trends in home prices, and while real home prices continue to dip, leading indicators for home pricing seem to show that there is some rebound happening.  This is of course backed up by the NAR data, which makes me feel better about the NAR data, because we've already seen that NAR economists are essentially an arm of the realtor marketing alliance.  They would never, ever, ever, come out and say that it wasn't a good time to buy, would they?  The area I live in has been totally insulated from much of the drop, so I feel like I live in some alternate reality where everyone I meet can afford a home that costs $1 million and more importantly can afford the $3,000 a month in property taxes that comes along with that house payment.  In that price range, things have been fine in my town, but clearly other parts of the US have not been shielded by such fortune.

In addition, we find the ECRI Weekly Leading Index information showing a downturn for the fourth consecutive week. I think this is one data set that has the market spooked and this is really why I brought this back out.  The "rate of change" is indicating that the "green shoots" are turning yellow and are wilting. 

Good old Alan Greenspan used scrap metal as a bell weather for the economy's health, however perhaps we should say he used it for a measure of the health of a bubble.  If it's good enough for Uncle Al, it's good enough for the Goat!  Scrap prices hit the skids since peaking in February.  While the composite index has tried to build a base over the last two readings I am not sure that the downward trend has abated.  Frankly, base metal prices and all commodity prices have been under attack since Ben Bernanke's declaration that commodity price inflation is "transitory", so the correction is not surprising.  It is in the economy's best interest to see commodity input prices fall and relieve some of the stagflationary risks we are faced with presently.

I find the Ceridian / UCLA Fuel Index study full of information, however I despise that it offers this data with a two month lag.  As I've often reminded visitors to the blog, this piece of data is great for confirming direction and slowdowns that have occurred in long term trends, we just have to deal with the dated data.  The PCI (fuel index) seems to have peaked in March and turned downward.  This study is so great because the PCI (fuel index) consists of real time (errr not so real time for us) data from commercial trucks.  Each time they fill up, they transmit the amount of fuel they consume.  This information gives us a powerful view into the real transportation activity and health in the nation's economy.

Despite all of the tremors related to Greek insolvency and all of the undeniable issues with the PIIGS, we see that 6 month Euribor is just under 1.75%.  Remember the amazing days when interest rates had a 3% handle on them?  Rates have been climbing over the last couple of month and are up almost 65% since last September.
In contrast to those really expensive 1.75% Euribor rates, we see that the 6 Month USD Libor rate is  down to an eye-popping .40%.  Unlike our friends across the pond, our rates have about 15% since last September.  Obviously "one of these pledges is not like the other".  The divergence between the two sets of rates continues to illuminate how differently our central bankers have attacked these problems.  Their leadership has attempted some sort of fiscal control and monetary restraint in an effort to actually begin steps toward normalcy, our guys have thrown caution to the wind and jammed rates lower and lower and lower. 

I always find that Bloomberg's US Financial Conditions Index is one of my favorites.  Yes, it has it's flaws especially since it is driven by liquidity flows and stock market gyrations, but despite that, it seems to tell the truth quite often.  Over the last month, we've seen a total meltdown in the FinCon Index and it has steered itself toward a sub-zero reading.  Anything below zero is a recession, while numbers above also indicate that there is growth.  We are in that no-man's land area where we can't say one way or another where we'll end up, but if we are growing, it isn't overwhelming, that is for sure.
In a valiant effort, the Baltic Dry Goods Index has battled through May to just under 1400 again, where it looks as though it may drop.

The USD has risen a point or so against an incredibly bad chart.  The buck is in a make it or break it position here, and if it doesn't hold these critical support levels, we'll see commodities off to the races with $140 oil within striking distance.  As we've discussed many times, the devaluation of the USD must be thought of as a dance, something that is choreographed and one that has a rhythm.  Our leadership simply couldn't "crash" the dollar, they have to walk it down gently or else the entire scheme would fall apart very quickly. 

If you had any doubt that your purchasing power had eroded, look now further than this graph to clearly understand what Alan Greenspan and Ben Bernanke have done to your dollar, business, family, and lifestyle.  In order to support bubble after bubble and keep interest rates artificially low, they have purposefully crushed the value of your currency.  Isn't paper money great?

I've been keeping this one around for entertainment purposes only.  As if right on queue as soon as the Coppock signaled a reversal and gave a buy signal, all hell broke lose!  Interestingly, if the Dow Jones stays under 12,350 it will signal a SELL.  Perhaps the indicator will redeem itself after all.  Please note, according to Coppock rules, it is still in a BUY till the end of the month as these are monthly data inputs.

William Dudley, NY Fed Governor said  recently that "Despite our recent soft patch, economic conditions have improved over the last year."  Typically Dudley, Yellen, and Bernanke are the only 3 Fed bankers that you need to pay attention to, because they are the driving force behind the Fed.  As you might expect, they usually support the same positions and don't ever go "off the reservation" like some of the other guys.  As many of you know, I believe the "other guys" are simply there to make it seem like there are honest discussions occurring at the Fed, when in reality all the other players matter little.

As I mentioned though, Dudley is one of the guys that matter, so I often make sure to read and re-read his statements because they are another read into Bernanke's views.  In fact, they often use the same words and language to describe our economy and its challenges.  In this case, Dudley gives us more of the reasoning behind the famous "commodity price inflation is transitory" because he lays out that our weakness in the economy is due to several key issues.  He states that rising commodity prices, the Japanese earthquake, and severe weather are passing issues.  Dudley goes further, just like Ben Bernanke and highlights that they can have faith in their notion that inflation is transitory because long-term inflation expectations are stable, BUT what is even more illuminating is that he says that these levels are now elevated and it does have the Fed concerned.  This is much less confident of a statement than what we heard from the Chairman in April. 

This is the rub.  The Fed still believes that it is in control of the situation despite the fact that it is having funding issues, has tremendous balance sheet risk when interest rates rise, and is backed further into a corner when commodity prices rise.  No wonder why we are seeing them impress upon us how small inflation is, how temporary it is, and how it really isn't anything to worry about.  These comments are part of the PR campaign to make expectations a reality. 

The problem with this "soft patch" is that many of the important metrics we are watching are still falling and weakening.  If the continued weakening persists and they can't force oil, gas, softs, and other commodities lower to kill longer term inflation expectations they'll be at risk for driving us off a cliff.  We've noted many times before that each basis point of interest rates cost us taxpayers billions, and this doesn't include all of the bad execution on treasuries we've bought at less than best prices.  If this soft patch gets any worse, we'll certainly be in for a hard landing.

I have continued to hammer home the idea that we've lived through this before.  We've endured the issues with falling economic metrics, a weak stock market, and political threats to collapse the financial world if the debt ceiling isn't raised.  Couple that in with a few legitimate jitters over the status of the Greek bailout and you have a perfect storm for trading challenges.  The question is really though, can the markets deal with it and still go higher?

Here are specific plays to think about over the next few weeks as you position your portfolio.

Look, about 80% or more of professional money managers must be fully invested all the time.  As they perceive areas like energy and industrials to be more risky, they need to rotate out to the next thing.  In the sector rotation model I posted a couple of days ago we find that Consumer Staples, Defense, Utilities, and Healthcare are all part of that next step in the process.  I personally love cash, so I view these trades differently, as usual we need to know the game that is being played by portfolio managers that are trying to beat the index.  The gamble is that these defensives will lose less or outperform the risky stuff, therefore they can incrementally beat their benchmark and get paid their bonus.  We on the other hand have cash as an option, I'd use it too.

PPA (Defense)
XLV (Healthcare)
XLP (Consumer Staples)
XLU (Utilities)
Oh yes, I'm short a few technology names in anticipation of the rotation out and a slow down.  I'll highlight a few of these in other posts where I can give more specifics.

GLD or physical gold would be the answer here.  Everyone knows this will be the final outcome, no one wants to end up holding the bag.

Gasoline has continued to be a tough trade that has been very volatile.  I have closed this trade, but there is still a good potential for a move higher, one little hurricane in the Gulf of Mexico would move this solidly higher.

EMLC - I like this play here, it is an etf constructed of sovereign and foreign debt in the local currency of the issuers.  If Bernanke is able to slide the value of the dollar  lower, you will gain in the currency play as well as the yields associated with these foreign bonds.

Physical gold or silver and GLD if you like fake paper stuff.  My view on silver and gold is oddly different here, I am a long term holder, therefore this is NOT a quick hit trade like I usually focus on.  Silver could easily test $32, but I still have a very large position in physical silver and it isn't going anywhere.  Who knows, I may need to kill an intruder with a 40lb brick of silver if we go Mad Max anytime soon.

That's it for the monthly update, I'll do more in the coming days about specific trades mentioned here and also reveal other positions that I have on now.


Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at .

Tuesday, June 14, 2011


Larry Summers, former advisor to President Obama in his role as Director of the National Economic Council, wrote a couple of articles this weekend stating that the answer to all of our problems must be "more stimulus". 

Unfortunately, economists and government leaders have this infatuation with the government and believe that the only answer for every question is "more government and more of my money". 

Summers came up with two brilliant ideas that are absolutely not original;
1)  Increase the payroll tax holiday and expanding it a bit
2)  Greater spending on public works projects!

Personally, I don't agree with Summers that the payroll tax could have an impact in this environment.  Small business owners are scared to death of the potential for tax increases and more regulatory interference.  These worries all prevent them for taking steps to hire more and especially hire a person that would throw their company over the 50 headcount threshold.  Some readers may say that I'm over doing it and going too far.  I would simply reference the study on Health Care from McKinsey released last week that stated that as many as 30% of employers would drop health coverage and force their employees to use a government option in 2014.

What does health insurance have to do with a hiring decision?  A lot.  Health insurance costs are just one more justification for not taking additional risk in this scary environment.  Note also something that didn't get much play in the fervor after the study release.  When employers were extremely informed of the ramifications of Obamacare on their business, they stated that they were MORE LIKELY to drop coverage for their employees.  50% of these informed employers reported they'd make this decision.
This is pretty damning and will undermine the stated goals of the Patient Protection Act, the foundations were based on employers continuing to offer coverage, not shifting the burden to the government plan and exchanges.

Finally, our President quipped yesterday that we haven't seen as much job growth in the US because "shovel ready" jobs weren't really shovel ready.  The excuse made was that government regulations held up many of the projects that were slated to have amazing impact on the jobs markets.  Clearly, this acknowledgement rebuts Summers' notion that government projects could be a boon for the jobs market.  What we do know is that government stimulus and jobs does little in the long run to change the employment landscape.  We also know that too much government crowds out private sector jobs, and finally we see that the threat of more government keeps employers from hiring and providing benefits for new and existing employees.

Let's just stop the stimulus and get back to solid fiscal management of government and our out of control spending.  Many of the absurd policies made by the Fed and US Treasury are made in an effort to obscure our reckless deficit spending, let's not give them more reason to create inflation and unrest.


Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at   Please check in often as we are updating stories daily.