Tuesday, December 25, 2012

MERRY CHRISTMAS!


I wanted to extend my deepest and most sincere blessings to you and your family this Christmas.  I pray that you are blessed and that this year-end time brings you closer to God who through His son, Jesus brought salvation to all that desire it.

I pray that readers gain a real relationship with, rather than an intellectual understanding of their Savior.

I began preparing for the year-end wrap up yesterday and as I reflected on the blog I couldn't help realize what a hard year this was for me personally due to family illness issues and professionally thanks to the Fed and also President Obama's healthcare law.  I have grown up a lot this year and have had so many great opportunities to make hard choices.  Fortunately, I was able to make many of them correctly, but could not have done it without input from God, family, friends, and physicians.  I am very blessed.

As I'm typing this Christmas morning and my family is taking a break in their present opening, I wanted to wish you so many great blessings this year.  Know that I am praying for each of my clients (I do daily) and for the folks that stop by and read this blog.  

The coming year is going to be just as nutty I feel, thanks be to God that I have faith.  I've questioned so many times how bleak life would be without a belief that there is something more, something greater, and something for which there is a purpose.  How hard a life this would be without Jesus!  And thank God that those Mayans ran out of rocks!  Please look for a year-end wrap up and outlook for 2013 coming soon.  

MERRY CHRISTMAS!

GOATMUG

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 athttp://www.goatmug.blogspot.com/

Saturday, December 22, 2012

WHERE NOW WITH SILVER?



SILVER DONE?
Clearly the recent action in the markets has caused many to completely abandon the notion that precious metals are awesome and they now contend that they are dead and gold and silver will become the next prepper's widow maker.  This may be true, and to confirm it, I wanted to examine the charts and also some of the reasons that this would be correct.... and why it wouldn't.

CHART HEADING DOWN....MAYBE
Take a look at the weekly SLV chart.  Some may ask why SLV, the easy answer, is this is the one that I have saved in my stockcharts system, but very importantly, this is what you'd buy if you didn't have a safe full of silver bullion or Silver American Eagles.




In this example we see that SLV did hit near the $35.00 area that we had identified a turn and then melted lower to the $31.00 level where it bounced off it's 200 day moving average (black line).  That strong bounce sure looked good, however the rebound was short lived.

Last week, the $30.00 level was breached and the etf suffered a nasty close at the $29.00 level.  If you were an owner of SLV you'd have to be very concerned that a fall back down into the downward channel through $27.50 would be very, very ugly.

$SILVER
For those of us that hold silver in other forms than SLV, I wanted to put up the commodity silver price up so we could look and see if there were any differences in the chart.



Unfortunately, real silver is already in a downward channel and a similar level of $27.50 is very important.  The close on Friday was actually odd to me in that the equity markets got spanked (if we now call down 1% spanked) while silver was up a tad.

As bad as it looks for silver, there is one shining hope left, and that is that the 14 day EMA is still above the 40 day EMA (on a weekly chart) and the slope of that relationship is still positive (flat to up to the right).  As of this moment, this very long term trend indicator still has a hold on the trade and no sell has been signaled.

WHY NOW?
It has seemed like that ever since the Fed tied their unlimited QE to achieving some job employment number that all precious metals have been falling with renewed vigor.  I'm not sure it that is a result of many suggesting that there is now some end on the horizon of infinite Federal Reserve action and that would somehow tame the beast of inflation that was surely expected to come.  Or, perhaps traders realized that the Mayan calendar prophecy was going to fall on its face and therefore there was no need for extra stores of the shimmering metal.

Another rumored explanation for the recent vicious sell off is none other than that some hedge funds are forced to sell GLD and SLV due to redemption requests.  The famous manager John Paulson has been rumored to be selling his largest positions which do include GLD.  As we all know any significant move in gold will cause silver to move in lockstep with it.

In the last week, Morgan Stanley and Citibank both called on their clients and advisers to sell shares of Paulson's fund and GLD was the single largest holding at nearly 30% as of September 30, 2012 - http://www.stockpickr.com/pro/portfolio/john-paulson/ .

AN EYEBALL'S GLANCE
As I eye ball things, it also seems like the period from October through year-end is always weak for silver as well.  Perhaps it is seasonal.  2011 was up significantly, so we can't say that it works all the time, but hopefully it won't be like October 2008 where silver was completely destroyed and taken down to the $8.00 level.

CONCLUSION
The real story here is that silver has some issues and you'd be smart to look for some kind of bounce at the $27.50 area.  If it doesn't come, the low twenties are easily in play.


GOATMUG

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 athttp://www.goatmug.blogspot.com/

Monday, December 10, 2012

BRINGING HOME THE BACON - FOODSTAMP REPORT

GOVERNMENT SUCCESS!
The SNAP program (Supplemental Nutrition Assistance Program) is enjoying a record amount of success as it recorded a huge  monthly increase.  The Federal Government released September data showing that the foodstamp roles added more than 600,000 participants, the largest monthly gain since December of 2009.

The current count shows that we have more than 47.7 million Americans obtaining food through the program, this is about 15.5% of the US population.  The projected MONTHLY cost of this support is $6.4 Billion.




THE FOODSTAMP CHALLENGE!
As the number of citizens and non-citizens on foodstamps increase the politicians cannot help themselves but wade into the mess and attempt to make the folks on SNAP feel good about themselves.  In fact, politicians like Corey Booker, mayor of Newark, NJ go further and attempt to make the point that the nation should INCREASE foodstamp benefits for recipients.

NEWARK MAYOR SHARES FOODSTAMP CHALLENGE
Corey Booker tweeted his experiences and shared the misery of living on $4 a day which is about the amount that he would receive as a single person that qualifies for benefits in the program.  Unfortunately, Mr. Booker hasn't keyed in on a significant part of the program that is revealed in the name, which is SUPPLEMENTAL ASSISTANCE.  The foodstamp program is not intended to be the food source for 100% of a participant's food and is not envisioned to be a long term provider for a single person or family.

In my opinion, the real reason Mr. Booker took the challenge and has made this a big issue is that he has grand aspiration of higher office like governor or senator.  

BRINGING HOME THE BACON
Politicians understand how this works better than most of us.  See, Mr. Booker sheds light on just how hard it is for his constituents to live on foodstamps, and he is perceived as a guy who fights for the poor.  The federal government increases their monthly allotment and then they vote for him.  Or, sometimes it is the other way around.  They vote for him and then they expect him to "BRING HOME THE BACON".  At least that is how Joann Watson of Detroit believes it should be done.


Fox 2 News Headlines

My guess is that Mr. Booker will get elected to some office and he'll deliver more taxpayer money to more foodstamp participants ensuring that they get something extra.  I personally wish that we'd work to add jobs not an extra portion of hog.

WASTE AND FRAUD
The federal government has a target of 3.8% error or fraud rate for the SNAP program, that means they are hoping to only waste or have stolen $2.5Billion this year!

ATTITUDE
I think one of the largest issues I have with the SNAP program is that our federal government attempts to "sell" this program as if it is good to everyone.  Here are a couple of examples;

  • Advertising to add more recipients - The SNAP program spent millions earlier this year in LA and Texas attempting to add more people to the foodstamp roles.  They purposefully try to reduce the stigma associated with "getting some bacon".

  • Politicians tell us it just isn't enough.  Mr. Booker is a perfect example of this problem.  There would never be enough to satisfy people.  Even if we raised the benefit by 50% we'd be told that the amount isn't enough to buy organic fresh veggies or meat.  

  • Sales -  For some reason the USDA believes that it needs to sell taxpayers on the merits of the program.  Their website tells us that for every $5 dollars spent on the program it generates $9.2 in economic activity!  Yeah!  Frankly, I don't need to be sold on the need to help someone out and get them back to work.  I actually support the idea of the SNAP program and don't need to be sold on the idea that the program is good for the economy.

WE NEED SNAP
Don't get me wrong.  There are people that are in poverty that need "temporary assistance" to get to a self sustaining level.  I feel strongly that programs like SNAP, housing assistance, free Obama phones, and more make life more comfortable than it should be FOR MANY able bodied men and women.  I think the fact that SNAP continues to increase despite all of our government's reports that show how the economic situation is improving.  If our economy is better and the employment rate is lower, how is it possible that the SNAP program continues to expand at an even greater rate? 

GOATMUG

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 athttp://www.goatmug.blogspot.com/

Tuesday, November 20, 2012

USEFUL PAWNS FOR POWER


LARGER CONFLICT
Obviously the Middle East situation is serious and all the countries in the region are using the Palestinians as their tool to achieve their goals.  The recent use of rockets by Hamas is said to be at the prompting of Syria and Iran in an attempt to draw more blood in the region and complicate any move to remove Assad from power.

Israel needs to respond strongly in this situation to achieve their own political motivation as there is an election coming and PM Netanyahu must strengthen his position and solidify his support amongst rival political parties.

DISTRACTION IS THE TOOL OF CHOICE
Egypt's new leadership will play a familiar set of cards where they blame Israel and make every effort to make its neighbor's life hard.  Why take ownership and responsibility for how you lead your country when you can create a distraction about how evil the people are in the country across the way?   We are beginning to see the delicate balance that the Muslim Brotherhood must walk where they have very strong ideological feelings on one side, but the harsh reality of actual war on the other.  In a sense, the radical Egyptian leadership suddenly sees how difficult it is to really rule and manage tough situations.  The good news is that at this point they haven't gone "all in" nutso like Syria and Iran and still value life somewhat and their hate of Israel isn't strong enough for them to sacrifice the lives of their people for their ideas.  The bad news is that for decades we haven't had to worry about the level of fanaticism in Egypt, but now we do.

GIVE ME POWER
Hamas, is well, Hamas where they will gladly shoot off thousands of rockets and bring retaliation on their people all in the name of "struggle" which is actually simply a tool to reinforce their power within the Gaza strip.  They make political calculations and gamble with the lives of innocent civilians knowing that their attacks will result in the deaths of many of their own.

If the situation in Israel and the Middle East wasn't so dangerous, it would be funny.

Here is a perspective on Hamas you should see.




GOATMUG

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 athttp://www.goatmug.blogspot.com/

Friday, November 16, 2012

FEELING LIKE KYLE BASS


MOCKING LAUGHTER
Oddly enough, the most viewed posts on my website over the past three years relate to Kyle Bass, the founder of Hayman Capital.  I'm not sure if I should take that as an affirmation that I've done a good job of finding interesting and relevant material or just that I have been a conduit for posting his newsletters and trading ideas from time to time.

Prior to the latest market swoon, I've been feeling a bit like Kyle Bass as I've been reflecting on the market's performance and direction over the last four years and have been personally lamenting to myself that all of the gains in the market are not truly based on a real recovery or fundamental economic production.  Yes, I've been able to document many winning strategies over the course of this volume-less levitation as I've suggested that corporate bonds, dividend paying stocks, defensive industries like healthcare would shine, metals would benefit, and refiners would surge higher.  While those plays have led to healthy gains, I'm not a big fan of holding your nose and buying, I'd like to invest (long) when I felt convicted that there were solid underpinnings for company and economic growth rather than an approach based on reactions to unlimited QE and stupid government fiscal ineptitude.

WHEN WILL IT END?
In a way, I probably feel much like Kyle Bass as he is frequently poked and mocked for his "doom" trades where he has shorted JGBs and has other several sovereign bond disaster bets in play.  One only has to look at the Japanese 10 Year Bond yield to note that the Hayman Capital short there hasn't been a pleasant one to hold.



While Bass may be a loser in this trade, the magic question will simply be, "How long can he stay in it?" since yields have fallen almost 25%.  The answer is certainly, I don't know, but the thing I am certain of is that directionally, Kyle Bass is correct.  The toughest part of one of these macro theme trades is staying solvent long enough to see the strategy through till the prediction is manifest.  Personally I've felt like the fall of Chipolte (CMG) would never come and took some significant losses along the way.  Happily though, reality does set in and if you have managed your exposure well enough, you can see the fruits of your shorts....

Kyle shared in a recent Bloomberg interview more of his dire and reasonable predictions about Europe.  Please enjoy, it is very short, only about two and a half minutes.




It is interesting to note that he is now using a 3 to 4 year time frame.  I am betting that he really thinks it will be shorter, but we've been able to witness just how adept sovereign nations are at extending and pretending and somehow keeping reality from actually hitting.  The central banks and politicians may be able to delay the day in which payments are due by rolling debt and cramming it down on investors, but I think I agree with Kyle that unemployed teens and disgruntled citizens will ultimately force an end to an ugly and financially unstable system.


GOATMUG

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 athttp://www.goatmug.blogspot.com/

Thursday, November 15, 2012

TRANSPORTS UPDATE


GOING LOWER?
I posted a few articles in the last month on the Transports and how I felt like they were due for a correction.  Please see "5% Fall in the Transports Dead Ahead".  I did a follow up post that frankly was even more focused on using a fall in the transports to identify a larger drop in the SPX called, "Historical View - Transports and Tulips" that examined several past drops in the transports that led the SPX much lower.

Now that the transports are flirting with the 4900 level, let's take a look at a chart and see if we can figure out if the fall is done or if more is on the horizon.




Based on the chart above it appears as though we will test the 4625 level and if that does not hold, another 10% fall would bring 4250 into play.  Obviously a drop of the transports would also mean that the broader markets would be under full assault too.

Good luck!


GOATMUG

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 athttp://www.goatmug.blogspot.com/

Tuesday, November 13, 2012

4 REASONS YOUR HEALTH INSURANCE WILL INCREASE BY 50% IN THE COMING YEAR


I haven't seen much information that is helpful to aid employers in preparing for the impact of the implementation of Obamacare in 2014.  Today, I happened to read a great blog post which summarizes the real results that will come from the passage of the greatest change to our entitlement system since Social Security and Medicare.  My friend, the owner of Texas Health Design penned a great article that needs to be read and reposted and retweeted.  With his permission I've included it here in the Goatmug blog for your reading.  If you are in many of the southern states and need health insurance, make sure to go to his site and get a quote.  www.texashealthdesign.com

Also, I suggest that you add his blog to your blog visits.  He posts pretty infrequently, but when he does, it is worth the read.  http://texashealthdesign.com/thdblog/

BAD NEWS NOW IS BETTER THAN LATER
I hate to tell you the bad news, but it is best to get a dose of reality earlier than it is to have a shock when bad things hit. Despite the fact that our leaders told us that we could expect lower healthcare rates, you’ll be paying more for health insurance next year. Politicians have a funny way of doing things and often the name of their legislation is an indication of the coming irony. While the sweeping healthcare law that passed in 2009 became dubbed, “Obamacare”, the formal name for the legislation is the Patient Protection and Affordable Care Act. Washington insiders must have simply chuckled as they must have known that the law would do anything but make healthcare affordable!
The re-election of President Obama ushers in the notion that Obamacare is here to stay and while Republicans will gnash their teeth and complain and threaten to defund specific portions of the bill, they really cannot do anything to prevent the wholesale change to the healthcare distribution system in the United States. Don’t get me wrong, the medical and healthcare system is cracked, but I’m not sure the solution is to simply break it off entirely and throw it in the trash. Many of the anti-capitalists and socialists in our country proclaim that this “fix” is the ultimate deathblow to evil insurance companies and will usher in a one-payer system for the United States. Perhaps we’ll see this, but one thing about those insurance companies, they are pretty smart. In recent months we’ve seen them acquire large physician and medical practice specialty groups, purchase medical billing firms, and also electronic medical record firms in an attempt to own the entire process. In their eyes you may squeeze their profitability on the insurance side, so they’ll simply own everything.

Now the election has passed, insurance companies have about 13 months to prepare for all of the final steps of implementation required by January 1st 2014. Because of this, every purchaser of health insurance (whether a mega corporation, small business, or individual policy buyer) will get a rude awakening over the next year. How is it possible that the Affordable Care Act could make health insurance unaffordable? It really is simple, there were provisions within the law that mandated specific changes to how health insurance premiums were calculated and also requirements that prescribed how much or little insurance and risk could be taken. In the following paragraphs I’ll highlight four reasons why your health insurance premiums will increase by 50% by your next one or two renewal cycles. These mainly focus on group plans, but the same metrics will affect individual policies too so we’ll see a convergence to higher prices in the coming year.

As you read this you might be inclined to interpret this as condemnation that the law’s application is wrong. I would argue that I’m not saying that at all. I am simply reporting what the impact will be on health insurance purchasers. The key change that is made through all of their adjustments is simply that there is a fundamental cost shift going on. In the past, sick and unhealthy people or folks that used the system or cost the system more paid more. In the new system, sick and unhealthy or statistically higher users actually pay less AND their portion is shifted over to the healthy non-users. That is the key, just because the sick people pay less doesn’t make the cost disappear, they end up being the cost of other people. I argue that this is fundamentally wrong.

GENDER NEUTRAL PRICING
Let’s face it, women consume more health and medical services than men on a typical basis. I know this because my wife visits the doctor once a year even if she isn’t feeling poorly. Men on the other hand don’t often use their preventative care benefits and won’t even visit a physician even if they are ill or know that they are in need of attention. While I’m making a broad generalization, it is true from an actuarial perspective as well and insurance companies created pricing for men and women based on their consumption of health services. As a result of this evidence, men received cheaper health insurance rates than women. Obamacare legislates that insurance companies can no longer do this. The effect of the law is that men and women will no longer receive prices that are different based on their gender. As a result, we may see some policies for women go down in price, but policies for men will go up significantly. This is the first example of cost-shifting.

AGE BASED PRICING
A sixty-four year old will go to the physician much more than a twenty year old typically. As a result of this, insurance companies were creative enough to create pricing metrics that essentially included eight pricing bands where as a policy holder aged their premiums would go up. To clarify, that meant that age based calculations could be a factor of eight to one where the older person could pay eight times the amount of a young teen. In the new system, the spread between an eighteen year old and a sixty four year old insured can only be three times higher, meaning that there is much less difference in available pricing for insurance companies to target. In this case the impact will mean that younger people that consume significantly less health services will pay much more for their coverage because insurance companies will tighten up their factors and raise the lowest premiums and slightly reduce the premiums for older folks. Again, just another example of how the new law passes someone’s actual cost to others.

INABILITY TO ADJUST BASED ON PRE-EXISTING CONDITIONS
The third blow to consumers in the legislation is that insurance providers cannot rate a policy based on a person’s health conditions. In other words, a fifty year old applicant with cancer and a history of four heart attacks will receive the same price as a fifty year old personal trainer with no medical history. As a result of this stipulation, healthy purchasers of insurance will absolutely pay more as the average premium that insurance companies receive must rise to absorb the new influx of sick people that will rush to obtain health insurance. In the past, individual insurance policies could be declined as a company would not want to insure a person with a history of cancer and four heart attacks. In 2014, the health insurance provider MUST insure them and therefore they will adjust pricing for everyone to make up for the higher costing sick applicants they will receive in the future.

MANDATED LOWER DEDUCTIBLES
I think many have discussed one or two of the pricing adjustments discussed above, but one other change that is required that will hurt many is simply not being discussed. A provision of the Affordable Care Act requires health insurance plans to have a minimum of $2000 deductible. As health costs and health insurance costs have risen over the years, employers have struggled to find a way to afford health plans to provide their employees coverage. As a result of increasing premiums, employers have decided to offer higher deductible plans in an effort to control their expenses. The Affordable Care Act simply attacks this coping mechanism by mandating that employers cannot offer plans with higher deductibles to their employees. I estimate that more than 50% of the small employers here in Texas use plans with a deductible that is greater than $2000. What this means is that employers must now purchase a lower deductible plan which will increase their monthly premium costs significantly.

I am currently working with a small general contractor that has two families on their health plan. In their situation I just quoted a $4000 deductible Blue Cross plan which cost $2683 per month to extend coverage. The same plan with a $2000 deductible plan would cost the firm $3216 per month or 20% more!

WHAT WILL EMPLOYERS DO?
If 50% of the employers are “under-insured” they will certainly take several actions in response to the realization they are facing significant price increases. Remember, not only will health insurance prices go up due to the deductible mandate, but they will go up for other reasons including the pre-existing pricing issue, gender neutral pricing, and age based pricing requirements. In response to the looming price hikes, what do we expect employers to do?

First, if the small business is subsidizing the amount employees pay for coverage, they will reduce the amount of financial help they are providing. By law, employers are required to pay at least 50% of the employee-only health insurance costs. If the employer is paying 100% or 75%, they will certainly drop their contribution to the minimum of 50%.

Many employers will stop paying a portion or all of family coverage for their employee’s dependents.

Many small employers will simply stop offering coverage.

Finally, employers that have at least 50 employees will begin cutting hours of existing employees to ensure that their employees work less than 30 hours per week. By reducing their hours, employers can avoid the requirement to offer and provide employer health programs. This move alone will have a dramatic impact on our overall economy.

BUSINESS KILLER
I think we’ve done a good job outlining the issues created by the Affordable Care Act. I recently visited with a company that is a retailer (alcoholic beverage industry) that has 500 employees. This successful business has been working and growing for thirty years and has expanded throughout a few states. The owners of the firm are some of the hardest working people I have ever met and they continue to work sixty and seventy hours a week despite the fact that they are extremely wealthy and sixty years old. As we visited about their business and the impact of the healthcare legislation they became very serious. They see this as an attack on their business that could kill it. Their business has razor thin margins and they simply cannot afford a 50% or even a 20% increase in their expenses. While our leaders express that the rich can pay their “fair-share” and that everyone deserves health care they really are saying that hard working people will pay everything for others. I asked what they planned to do in response to the coming changes in 2014 and I was shocked by the seriousness of their response.

First, they planned to reduce the hours of every employee that was not a manager to 29 hours a week.
Second, they would consider dropping their current health plan entirely and paying the penalty of up to $2000 per full-time employee if the increasing cost burden was too much to handle.
Third, they would close all but their most profitable stores as the margin compression they see might be too great to keep those average stores open.
In this example, the penalties this firm could face could be as much as $1 million per year (if all the current employees were full-time). Have you considered what you would do if someone came up to you and told you that because a law changed you would now need to pay an additional $1 million per year!?? In their minds, this is simply robbery. We will hear more stories like this as large and small employers grapple with the impact of the sweeping changes that will without a doubt increase health insurance premiums by 50% in the coming years.

INDIVIDUAL PLANS
If you are reading this post and wiping your brow saying, “whew, I have an individual plan, I’m glad this doesn’t impact me”, you are wrong. All of the pricing stipulations also apply to your policy so you will be soon paying significantly more for your policy. Essentially what I’ve been saying is that there will be a price convergence of individual policies to meet or match employer pricing. While we do have 13 months till the final implementation of the Affordable Care Act you can still review your options and attempt to lock in decent pricing before the health insurance carriers really begin to factor in all of these provisions.
If I can help you examine the impact of the law changes on your existing employer plan or your individual plan please let me know, I’d love to help you navigate this process to help you manage your benefits and costs.

Please contact us at info@texashealthdesign.com anytime!

GOATMUG WRAP UP -
There you have it, a great article and great perspective on the health insurance market that will really impact the US economy.  As Nancy Pelosi promised, we'll have to pass it to see what's in it..... she wasn't kidding was she?

GOATMUG
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 athttp://www.goatmug.blogspot.com/

Sunday, November 11, 2012

OVER THE EDGE? - LESSONS FROM THE FED

COMING DOOM
We are going to hear more about more about the fiscal cliff and how it will bring the country to its knees.  In reality the fiscal cliff should be a great opportunity for both parties to achieve a level of success and implement a long-term strategy for fiscal and economic success for our country.

Unfortunately our elected officials don't live in reality and the election results suggest to the President that raising taxes is the course the people have demanded.  On the other hand, Republicans, spurned by voters will hold fast their fidelity to the "producers" and attempt to keep taxes low for the highest income earners.

Truthfully, no outcome will really work as the politician's plans for 10 year deficit reduction and projections about reigning in spending are all simply made up accounting garbage.  The healthcare mandate alone will have cost overruns well beyond anything estimated and our other entitlements won't fare much better.  Despite this truth, our politicians aren't in the business of taking serious aim at real issues, they are in the business of dividing and wrangling for a small victory on a meaningless issue to be able to say to their special interest that they got something for them.

WWFD?
So why is this important?  As odd as this seems after writing the text above, I'm pretty convinced that the Dems and Repubs will do exactly what the Fed would do and do more of what got them in this mess in the first place.  Since we know that the Fed's response to all negative news and all empirical data that shows that what they've been doing hasn't helped is simply to do more of their devaluation and do it in bigger size, we can guess that Congress and the Senate will do exactly the same!

The solution is not to fix anything or change structurally any spending or tax course, it will be to simply defer entitlement cuts and agree to raise tax rates slightly.  The grand bargain will allow both sides to win and will damn our country to lose.  The country's loss won't matter though because both political sides will be able to crow to their supporters that they did what was best and achieved a great deal.

This non-solution course will buy time and isn't that what leadership is all about?  Look at the ECB as it deals with Greece.  Look at the Fed dealing with banking solvency.  Look at our President in dealing with Middle East issues.  The problems are so big that leaders simply work to defer the day of reckoning as often there is no other way to handle the massive problems.  As we know though, if you lie and put off recognition of issues they often become unmanageable and can't be handled in a fashion that limits damage.  After years of Presidents and Congressional leaders putting off the tough issues, we are about to see just how out of control they are.  The incredible $1 trillion deficit spending we've had over each of the last 4 years has only brought the issue to the top of the heap, these issues were there already, they just can't be put to the side like they have been so often before.



GOATMUG

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 athttp://www.goatmug.blogspot.com/    

Thursday, November 8, 2012

PRESIDENTIAL THOUGHTS


Our country's voters (and probably a few voters that are not from our country) have cast their ballots and re-elected Barack Obama.  I am not shocked by the outcome of the election, although I did think that Romney might win the popular vote only to lose the electoral college vote, so the end result is the same.

How did we get here?  I'll list a few major themes that allowed Conservatives and Republican's to lose another major election.

NO ONE WANTS A PRESIDENT FROM MASS.
1)  Republican's selected a John Kerry-like candidate for their man.  As wonderful and honest a man as Romney is, he is a Boston RINO from the upper crust of society.  He is soft spoken, cultured, and totally dry.  Poor people and minorities would not give this guy a chance simply because he is typical "white guy" that hates them or doesn't understand them in their view.  Romney could give 100% of his annual earnings to charity and the poor and this would only reinforce to them that "rich whitey" has so much money he didn't even need it.  While we don't want to say it, many of the religious right and the African American religious did not support Romney because Mormanism is perceived as a cult.  It was not until mid October when the Rev. Billy Graham endorsed him that some Evangelicals came into the fold, but I am sure this was an issue for more than a few people.

FALSE PARTY
2)  Republican's are not conservative.  The Republican machine did a pretty good job of co-opting the Tea Party movement in 2010 and essentially neutralizing the threat of those wacky tea-party people.  Right-wing conservatives are waking up to the fact that the Republican party is very similar to the Democrat party on 90% of the issues with the exception of three social issues.  These issues are immigration, sexual orientation, and sex/life issues.  While the Republican's all speak a ton about fiscal control and limiting the size of government, they somehow don't think that applies to two major things as they end each sentence with, "We'll never cut defense spending and don't tax the wealthy".  So, effectively they don't believe in reducing government or fiscal control.   Real conservatives are tired of this bull and the facade that Republicans are their party is falling apart.

47% OR WAS IT REALLY MORE?
3)  47% is really closer to 51%.  Romney said some pretty politically incorrect things when he was video taped speaking to wealthy donors.  The only real issue with what he said was it was correct.  The unfortunate truth is that the demographics are really worse than the 47% he spoke about and we are now entering a stage where I believe it will not be easy to reverse.  When almost 1/2 of the electorate relies on government for some sort of service or income, it is difficult to sell them that "free stuff is not a good thing".  Obama has used the economic crisis to increase dependency and the future is very bleak for politicians that promise austerity and cuts to bring the US fiscal house into order.  Right now, Republicans are saying we'll cut your benefits and Democrats are casting them as evil and promising more help.  If you were the 50% of American's on some sort of government program or service, who would you support?  Another strike against the Republicans is that this 50% is the only group that is growing (having kids or coming across the border).  Hispanics, African Americans, and others have birth rates that far exceed those of conservative whites.  This growing group of voters will clearly vote for candidates and policies that force the wealthy to support them.

A SOCIAL CHANGE
4)  Social issues need to frankly go away in the Republican talking points.  Yes, conservatives love to talk about how they hate abortion, gay marriage, and other moral high-ground issues, the problem is that the US is no longer moral.  Our country is a collection of people that simply desire to distract themselves with sex, sexual expression, drug use, and technological distraction.  As long as they are "satisfied" with cheap food, a home, electronics like cable tv, games, and computer access, a sexual partner, and transportation their basic needs are met.  The secularization of America simply means they don't care what God says and they feel they have no right to judge that gay guy or child molester as long as it doesn't bother them.  Anything goes in the US today as long as it doesn't interfere with Joe 6 Pack's time in front of the toob or on his IPAD.  If the Republican's want to win, they must drop the social platform and simply answer every question about social issues with the following statement, "My personal view on XXX doesn't have anything to do with government, I think we need to concentrate on making the government smaller and more efficient and getting American's jobs.  The bigger government is, the more it crowds out the private sector.  Next question."  Until the Republicans master this statement, they will be doomed to run out a bunch of vanilla candidates that often times will be found as adulterers and will lose every election.

Now my fellow Christians might be offended that I am saying to repress my/our thoughts on social issues that are sin and an abomination in the eyes of God, but I will state emphatically that we must know the real state of the country we live in and realize that we will never have elected officials win positions of power with our current approach.  Our children have been fed daily doses of inclusiveness and have been told that all people deserve to win even if they don't make an effort.  Even in children's sports we award the worst team a trophy encouraging poor results and essentially reducing the accomplishments of the winners.  Kids are told they are told to never discern between right or wrong as wrong might be "right" for those people.  The liberal agenda has been successful in destroying the moral fiber in much of the United States and it is getting worse.  Those kids that have been the target of this re-education are now voting!.  My point here is simply that real conservatives need to focus on the issues that will put them in power, after election they can then attempt to change the tide of moral bankruptcy as leaders.

LADIES
5)  Finally, the Republican's didn't win women.  As crazy as it sounds Democrats did a great job of painting Romney (and all Republicans) as monsters that don't want to let them have contraception or abortions.  Think about this just how low our country has fallen when a single issue defines if a person votes for a candidate..  For younger women the election hinged on who would allow them to get the pill and abortions so they could have sex without consequences!!!!  When this is as far as our female voters think, we really are in trouble.  Once again, this issue underscores that voters are now more concerned with their own welfare and pleasure than that of the country.  The Declaration of Independence states that we are endowed with the Right of Life, Liberty, and Pursuit of Happiness.  We now are a nation that believes we have a right to Free Food, Free Healthcare, Free Homes, Free Phones, and Judgement Free Pleasure.  Notice that I used the word FREE not Pursuit.  The issue for the Republican party here is that they need to address the economic situation of these women and leave the moral choices out of the political arena.  Telling women that they cannot have birth control will not endear themselves to the new voting women.

RACE
6)  I planned to end this post here, but I'll state what I've thought since last election in 2008.  I am proud that my country elected Obama as our first half-black man to the office of President.  Race hustlers like Al Sharpton and Jesse Jackson will tell you that our country is terrible and that racism in this country is pervasive, but clearly that isn't true as we would never have elected Obama had that been the case.  A huge group of white women and white young people re-elected President Obama this cycle.  Frankly in my mind, it is simply more supportive of the fact that the US is not racist as we elected President Obama twice.  It is hard not to argue one single thing though, that African American people are racist.  Exit pooling data suggests that black voters voted 12:1 for Obama, meaning that only about 8% of African American voters went for the other guy.  That is pretty much block voting and that suggests to me group-think rather than individual assessment and analysis.  Group think is essentially racism.  My contention here is simple, that black voters voted based on the color of the candidate and not based on the merits, skills, talent, experience, or the record of the two people.  Perhaps it is like Obama said, it was revenge, but I've never seen revenge work out well for anyone involved.  Ultimately African-American unemployment is higher than it was 4 years ago and I see very little that this President has done to improve conditions for our minorities except promise them help.  Republicans better find a minority candidate that will appeal to African-American voters or else they will remain on the outside looking in if African Americans continue to vote based on color.  You might counter and simply say that Republicans just don't address or represent the issues that blacks are concerned about, but I'd simply say, till we have a viable African American candidate we'll never know.

WRAP UP - GASOLINE, GOLD, AND SILVER
To wrap this up, I've considered this election cycle to be entertaining and revealing.  I still believe that no matter who would have won, the US is in a terrible situation and the financial consequences for our collective irresponsibility will hit home very hard in the next four years.  The reality is that the winner of this election is/was going to be a big loser and receive the blame for the "big one" that is coming.  Perhaps Romney will be grateful that he didn't win as the situation unfolds.

Continue to watch the Middle East as this win puts Israel in a position that it is alone and now will act in a fashion as a person that feels cornered and unsupported.

The election of President Obama bodes well for gold and silver as Bernanke now has received a clear mandate to continue what he does best.  I also like gasoline here and am actually buying UGA.

GOATMUG

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 athttp://www.goatmug.blogspot.com/    

Monday, November 5, 2012

TECH WRECK - GRPN UPDATE



COUPONS EVERYWHERE
In November of 2011 I posted an update on Groupon and essentially said it was terrible as it made its IPO debut.

A BAD TASTE IN YOUR MOUTH

Ultimately I felt that Groupon (GRPN) was a strong short because its business model was easy to replicate and it really wasn't fairly valued after its IPO which vaulted it into the stratosphere.  I made the argument that GRPN was simply a tech bubble fantasy that would crash back to earth.

A ZERO?
In early November, Groupon reached a price of $30.00 a share and on the 22nd of November it was already trading at $22.  In my year-end kickoff post, CONFIDENCE LOST, 13 PREDICTIONS FOR 2012, I went further as I wrapped up the article with the following quote;

"Groupon will be one firm that is out of business in the next 5 years and therefore it is clearly an equity to focus on (to short) if it can ever gain any traction and get a bounce."

Let's check back in on this great technology story and check out where it is trading and where it might be headed.  Please examine the chart below;




WHERE IS IT HEADED?
I will spare you the sophisticated technical analysis on this $3.90 stock, and summarize this view on GRPN with this final thought on "Groupon still hasn't formed a bottom".

OTHER TECH NAMES
As I wrote in an recent article, I have softened on LinkedIn (LNKD), I think that is one of the few "internet firms" that has a real business and could be amazing.  The chart looks ok here too, unless it falls through $101.  I love to shop using Priceline (PCLN), but that chart looks really shortable after the monster gap up last week.

THE FUTURE
The election is tomorrow and I am simply praying that God would give us the candidate that he has for us rather than the leader we are asking for.  I'll give you a hint about the people of Israel, it didn't work out very well when Saul was named their king.

1 Samuel 8: 6-20


But when they said, “Give us a king to lead us,” this displeased Samuel; so he prayed to the Lord. And the Lord told him: “Listen to all that the people are saying to you; it is not you they have rejected, but they have rejected me as their king. As they have done from the day I brought them up out of Egypt until this day, forsaking me and serving other gods, so they are doing to you. Now listen to them; but warn them solemnly and let them know what the king who will reign over them will claim as his rights.”
10 Samuel told all the words of the Lord to the people who were asking him for a king. 11 He said, “This is what the king who will reign over you will claim as his rights: He will take your sons and make them serve with his chariots and horses, and they will run in front of his chariots. 12 Some he will assign to be commanders of thousands and commanders of fifties, and others to plow his ground and reap his harvest, and still others to make weapons of war and equipment for his chariots. 13 He will take your daughters to be perfumers and cooks and bakers. 14 He will take the best of your fields and vineyards and olive groves and give them to his attendants. 15 He will take a tenth of your grain and of your vintage and give it to his officials and attendants. 16 Your male and female servants and the best of your cattle[a] and donkeys he will take for his own use. 17 He will take a tenth of your flocks, and you yourselves will become his slaves. 18 When that day comes, you will cry out for relief from the king you have chosen, but the Lord will not answer you in that day.
19 But the people refused to listen to Samuel. “No!” they said. “We want a king over us. 20 Then we will be like all the other nations, with a king to lead us and to go out before us and fight our battles.”



Have a great week


GOATMUG

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 athttp://www.goatmug.blogspot.com/

Thursday, October 25, 2012

THE END OF GROWTH



I found an interesting video about growth and how growth itself is unsustainable.  In this video, Professor Albert Bartlett shares his very rational and realistic understanding about simple math and how growth has some unsettling implications on the way we live as a nation and as a human race.

THE END OF GROWTH
http://www.planbeconomics.com/2012/10/14/professor-albert-bartlett-on-the-end-of-growth/



As I expected when I first started watching the video we do end up in some of the usual places that liberal professors go.  Ultimately, Professor Bartlett found his way to the concept of population control and resource scarcity.  I think if we let him continue and were off camera we'd witness the professor explaining the benefits of abortion, euthanasia, and championing China's one child policy.   Fine, I'll put up with that as his story is one that applies to just about everything we deal with in the markets and investing.

Clearly, uncontrolled growth (even slow growth) causes really big problems three and four generations out.  This is why we need to have seriously responsible leaders in the Congress and the Presidency to deal with government spending, inflationary costs, and declining energy resources.  Unfortunately, we don't have these leaders, we have children that would rather line their own pockets with stock picks based on insider knowledge and we insist on candidates that tell our special interests "Yes" when they should all be told "No".

Below are three or four key areas where growth will cause major life-altering changes in the way we live;

US Debt
Energy usage versus available resources
Food
Water

Just another pleasant topic to lift you up for the day!

TRADING UPDATE
We've seen a 3% to 4% drop in equities this week as earnings reports continue to come in with misses despite earlier downward revisions and guidance.  In fact, even future guidance is suggesting lower earnings as well.  I am beginning to hear mixed stories from my clients about business orders and what larger customers are doing, but I still continue to hear that small businesses are fearful and they will not hire till they get through the election.  Many of these owners are very against President Obama even though their current business seems to be improving.  Notice what I just wrote, business is improving, but they don't give Obama credit, they feel like the recovery is just due to normal cycles.  

We may be back to the sector rotation where instead of cyclicals, industrials, financials, and technology are the place to be, we are seeing a move to utilities, consumer staples, and healthcare.  This is a recessionary fear rotation and is evident by the way that CAT and others have been clobbered.

Treasuries also have started to rebound and even high yield and corporate bonds have sold off a bit.

TAXING FUTURE
I don't want to forget to highlight that many of the "safe haven" sectors and dividend payers we've highlighted and invested in over the last two year may also become the target of significant selling pressure even if they fit into the healthcare, defense, consumer staples, and utility space.  The reason for this is that many investors will attempt to take their tax lumps right now in 2012 before capital gains rates go from 15% to 20%.  Add in the Medicare tax for high earners, and this could go as high as 23.8%.  In all, investors will pretty good gains in these dividend paying stocks may be inspired out of a fear of higher taxes to sell in the next two months to avoid higher capital gains rates in the future.  Significant selling will obviously bring the markets down.

In addition to tax-based selling, we are seeing firms guide earnings lower, in fact 100% of healthcare companies and 100% of energy related companies that have reported earnings have ALL guided future earnings prospects down!!!  That can't be good.

FACEBOOK
Stop.  Before you buy Facebook remember these three things.  Facebook is no longer cool.  Second, who is buying stuff on mobile and who really wants to buy stuff through their Facebook page?  (Goatmug does not have a FB page by the way).  Last, more than 1 BILLION SHARES will be unlocked for employees and investors to sell in November and December.  WHY WOULD YOU BUY BEFORE THAT TSUNAMI HITS THE SHORE?  I am happy for those that saw a 25% increase in the price of Facebook this week, just know that you'll be able to buy this stock 75% lower than today in less than one year.


GOATMUG

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 athttp://www.goatmug.blogspot.com/

Tuesday, October 23, 2012

DEBATABLE RESULTS - ROTATION


I think it is clear that the election is important, yet I get a depressed feeling when I see the two candidates trade jabs and lie to each other and this country.  The false choice that each present is quite clear as Romney agreed with Obama throughout the evening, illustrating how it doesn't really matter who you choose.

Before you make a bunch of comments that suggest that I am one sided, negative, or simply misinformed, I'd interject that Obama is actually quite like Bush and in fact more bellicose than I would have ever expected given his pacifist words.  Likewise, Bush shocked us all when he went soft on immigration and attempted to do amnesty light and ran up tremendous deficits and grew government.    Ultimately, we have to identify the men and women behind the scenes like Karl Rove or David Axlerod that set the agenda and create the platform for Presidents to stand upon.

To lighten my mood I've provided this nifty little video that I've had in the queue for a while.  This post has nothing to do with any market related topics and is simply here to make me laugh at how humans are just entertaining.




The guy in the video is a CEO and founder of a Korean company.  Unfortunately I've heard his business skill is not as good as his singing, dancing, and video production.

TRADING UPDATE
The DJIA is down 250 points as I'm typing after Dupont, UPS, and 3M reported poor earnings.  It seems that the safe-haven dividend paying multi-nationals are being taken to the woodshed.  It is possible that a major sector rotation is now underway.  FB reports after the close and AAPL (who is responsible for almost 95% of the gains for the entire SPX for this year) is going to unveil an I-Pad Mini (who cares). I don't think either of these two events will revive the markets today.   Ultimately, no matter which candidate gets elected the increase in tax rates bodes very poorly for the stock market and so you need to begin crafting your equity exit post election or pre-New Year.


GOATMUG

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 athttp://www.goatmug.blogspot.com/

Thursday, October 11, 2012

TRANSITORY INFLATION REVISITED (FOOD)

THE FED'S WAY OF THINKING
I find myself reflecting back on the old days of my early career in Finance when Alan Greenspan shared wisdom and knowledge in a manner that left all of us wondering, "What the heck does that mean?".  Greenspan's watch over the US economy earned him the nickname The Maestro since he was able to save us from the financial cataclysm of the 2000 (remember when the world would end because the year changed from 1999 to 2000?).  Greenspan guided us through recession and even gave us a wonderful housing bubble to comfort us after the tech collapse.

Greenspan's cryptic and smooth delivery left a high bar for all following Federal Reserve Chairmen to follow and it is obvious that Ben Bernanke is not quite as eloquent as his predecessor.  As we reflect back, we now know that Greenspan is actually not The Maestro, but probably should be called The Destroyer as his policies clearly contributed to the real estate collapse of 2006 to 2008.  On his watch he avoided oversight and management of banks and lending institutions that pursued profit without concern for solvency.

THE SAVIOR
Bernanke has done a remarkable job "saving" the existing system by performing heroic measures that are by anyone's assessment, simply extreme.  The new Fed Chairman has done the impossible and so he is credited by many as the savior of the financial world.  This blog has often declared that the extraordinary steps taken by Chairman Bernanke really are going to be the undoing of the world financial system as the actions really have only delayed the inevitable and probably made the collapse even more dramatic and far reaching.

THIS TOO SHALL PASS
I wanted to remind readers of the famous discussion Bernanke had where he defended his policies and stated that if there was actually an inflation in terms of food or gasoline, the impact was "Transitory".  In addition, Bernanke stated confidently that if there was discernible inflation in the system, the Fed would aggressively intervene and address the situation.  

(please see the Bloomberg story from April 2011) -

In an effort to check in on how Mr. Bernanke keeps his promises, lets examine an interesting graph I put together using data from the UN Food and Agriculture Organization.  The arm of the UN tracks world food prices so that we may look and see if in fact prices are going up or down over time.

FOOD FIGHTS
As you can see clearly, in April of 2011, food prices were rocketing much higher and this has to be one of the most significant reasons for the "Arab Spring" last year.  Starving people don't tolerate bad leadership for long, and these food prices caused them to take action.  Bernanke was able to step off the gas and we notice that astonishingly Bernanke was correct, prices moderated almost at the same time he gave his speech.  2012 has been a year of decline of food prices, but since September of 2012 and the announcement of QE 3, we have seen the UN Food Price Index reverse and begin to move higher.




Since I don't want to present data that tells an incomplete story, I've also posted a chart below that gives us a view of the nominal prices of the food index (as shown above), but also presents the inflation adjusted values.  The adjusted values still highlight that the food index is close to 30% higher than 2009 levels.  Let me say that again, food costs are close to 30% more than  3 years ago.


Nominal vs Real




The FAO data also has a breakout of the component commodity food prices and I have posted them here too.




Sugar continues its fall, but meat, dairy, and cereals all have move higher since their lows in January.

TWO CHOICES - BEN PICKS INFLATION!
As I wrap this up, the point I am trying to make is that Bernanke told us that inflation was moderating and seemed "transitory".  Almost in tandem with his statements, inflation worldwide reversed course and prices came off significantly.  In 2012, we have seen a reversal to this trend and we now see that food inflation is now heading higher.  It will be interesting to see additional data for October as it will include more of the results of the QE 3 announcement.

At this point the consumer worldwide is paying more for food and we all need to question Bernanke as to how long "transitory" really means and how he plans to aggressively intervene to stop inflation while he is aggressively holding rates at ZIRP through mid 2015.  My guess is that he will gladly let inflation stay awhile longer (forever) rather than stop his zero interest rate policy.  Our government and the Federal Reserve would gladly export food inflation and instability throughout the world to keep the financial system alive for a little while longer.


GOATMUG

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 athttp://www.goatmug.blogspot.com/

Wednesday, October 10, 2012

HISTORICAL VIEW - TRANSPORTS AND TULIPS

BLAME IT ON THE BOTS
Late last month I penned a posted titled, "5% Drop in the Transports Dead Ahead".  Like many of the posts that I hang out there, the HFT bots must have read the headlines and conspired to make me look a bit foolish on timing as the market has been able to tread water and the transports didn't immediately lose 5% with 3 minutes of posting like it should have!

STRONG RELATIONSHIPS
Seriously though, as soon as I posted it, I began to look at the action in the transports over longer time frames and make some notes that I wanted to share.  The first point I wanted to show is that the transports are important!  There is a pretty strong relationship between the transports and the stock market, and darn it, between the real economy too.  While I remind myself daily that the stock market is not the economy and the other way around, in longer term time frames the economy does matter to the market.  Ben Bernanke seems to think so as well, since he believes strongly that the market can drive the economy.  If he didn't, he wouldn't have spent trillions increasing his balance sheet to buy treasuries and MBS to make everyone feel like the economy is better.  Remember, feelings may lead to reality....he hopes.

I  think I have to reinforce here that the transports really are the ultimate indicator of the real economy, thus I have often posted the rail traffic and tonnage data in past years when it was easier for me to post. That is the important linkage, that at the end of the day, rails and freight and air deliveries are a direct result of the production and health of the economy.  If UPS, Fed Ex, Con-Way, JB Hunt, and Kansas City Southern all show a slowdown, my guess is that the general economy is slowing down.  Stocks will typically try to predict that slowdown unless there is some process that interferes with the pricing discovery in the market (QE3 anyone?).

So, where are we going?  Check out this chart which contains twenty years worth of prices for the transports.  In the back ground of the chart I have included the SPX in purple.



DIVERGENCES AND HOW THEY PLAY OUT
I searched this chart in an attempt to find periods of time where the transports declined, but the SPX did not.  Previously, we had an instance in 1992 where the transports dropped for almost an entire year and the SPX simply moved sideways to higher.  At the beginning of 1993, the transports ripped much higher.  This seems to be the one point of divergence that wasn't corrected.

TULIP MANIA
The other significant period where the transports dropped and the SPX did not was the time frame from early 1999 to early 2000.  This of course was the blow off top of the tech bubble where you were an idiot if you didn't have your entire net worth wrapped up in CMGI, JDSU, Peapod and Pets.com.  During that phase, transports fell and the SPX ramped higher.  We all know that in March 2000, reality somehow interjected itself into the market frenzy and despite the rally in the summer, Mop and Pop ultimately ended up holding the bag for the great tech swindle.  

TRADING UPDATE
So, the point of my post here is not to revise my article stating that the transports were going to decline 5%.  In fact, this breather serves to reinforce that exact notion that the transports are tired and cannot generate enough momentum to break overhead resistance.  The tired trading is shown here below and I still look to 4700 as the target for the transports.  Additionally, I have to highlight that the 14 day EMA is now well below the 40 day EMA.  This is entirely bearish from a longer-term swing trade view for the transports.  The question we need to ask ourselves is, "Is this 1992, or is this 1999.  Let's hope it's 1992, because I don't think Mom and Pop can stand another summer of 2000.







GOATMUG

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 athttp://www.goatmug.blogspot.com/