WHERE ARE WE? (Sector Rotation Models)

I suppose that I could lavish you with lots of thoughts about how were are stuck in some crazy feed-back loop of Fed induced mirages and half recoveries yet it would only be tired old cry that prattles on about how the deception will work well, till it doesn't.

So, instead of singing the same old tune and holding my nose and buying those stocks that have been defensive and leading this nutty rally for the last year or so, I'll simply provide a snapshot of the old sector rotation model that we've examined before.  My guess is that we are nearer to the far right side of this image which would suggest that the equity markets have topped AND we are in early recession.  The only fly in the ointment if you will is that I have been holding utilities, healthcare, and consumer staples for almost two years and these stocks have been our leaders!  This segment of the equity markets usually doesn't maintain leadership for this long, so as usual, there are new, weird, and unknown forces at work in this screwed up Fed driven market.

If we think we really are progressing along the economic cycle, you might dip a toe in the finance area, (which I did when I bought some regional bank stocks several months ago).  Those are about flat still, so I guess we'll see how long it takes for the economy to finally break down in a real way and have those interest rates rise, bringing helpful and healthy rising net interest margin...... hold  your breath about rising rates, it probably won't ever happen.

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/

NO EXITS - GOLD AND SILVER

CONTRACTION?
This morning's release of GDP data suggested that government spending reductions in military have caused a fall in the growth USA's GDP.  The third quarter had a growth rate of 3.1%, the fourth quarter showed a -0.1% GDP.  Inventories are building, and it looks as though alot of "income" was pulled forward to avoid the fiscal cliff and increasing tax rates.

THE FED IS HERE
Despite the stock markets being down just a tad, gold and silver are higher, why?  The reduction reaffirms what we should all know, that the Fed will never exit and cannot remove their stimulative QE which is shuffling $85 Billion monthly of Federal Reserve Notes between different assets like treasuries and MBS.

GLD
Intra-day Gold looks to really like the report of GDP contraction as it's ETF proxy GLD is bouncing.

http://scharts.co/XSeCgL

SILVER 
Silver also bounced.  The key for silver will be to clear through the $32.50 area.  Stock charts won't do an intra-day chart for commodities in my set up, so I'll have to post a chart later.

In addition, here is a view of silver that is a 1 year look.

$36.88 seems a long way away from here, but continued real action by the Fed cannot hurt.  If anything, this continues to provide a very solid "fundamental" base from where silver will mount an attack higher.

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/

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/    

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/    

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/

MINING FOR PROFITS - SILVER UPDATE

Photo by Florian

THE NO-THOUGHT WAY TO PRINT MONEY
I wanted to revisit the silver and metals trade and check in on our latest call post QEIII that all metals would be awesome.....forever and beyond.  Since Bernanke made his unlimited and unending threat just like Draghi to sterilize and monetize away every bond on the planets, we have suggested that it is quite a good strategy to simply buy metals, watch, and wait.

So far, that mindless and plodding strategy has paid off and we haven't even had to be patient since just one week ago QE has essentially blasted SLV into the stratosphere with an overhead test coming at $35.00

SLV CHARTING (Click on the Chart for a Better View)
http://scharts.co/QGaYV9  - WEEKLY CHART

Let's look at SLV's chart and I'll pull out some items that suggest we are going higher and I'll also highlight points that at least make me believe we'll slow a bit and digest these very short-term gains.

THE BULLISH CASE
First, we note that the QE announcement pushed SLV out of its declining channel which had been holding since the peak in silver of May 2011.

There was a crossover just yesterday on my charts of the 14 Week EMA and the 40 Week EMA AND it was upward sloping.  This is a longer-term indicator of significance and has proven for me to be a powerful tool in making very profitable longer term swing trades.


The daily CCI chart I add to the bottom of my SLV has also shot into wildly bullish territory.  The guy I picked up the use of this indicator from calls this the Crazy-Investor Indicator and it really measures the herd mentality of the market participants.  In this case, when the CCI goes into the "Green" area this is a significant signal that there is real momentum.  You would stay out and not purchase when in the red.

CCI - CHART FOR SLV

THE BEARISH CASE
I see a couple of things on the chart that might cause you to pare positions if you were a shorter term trader in hopes of loading up again in the future.

Overhead resistance at $35.00  There is no doubt that the $35.00 level for SLV has been rejected twice now and this will be the third attempt to thrust through that area.

The green Bollinger Bands I use are set at 2 standard deviations above and below.  Notice how SLV nicely fits in that moving envelope and can only briefly ever plow through these levels.  Obviously trading prices above or below the outer bands suggest you should quickly reduce position or buy and this is why I use them.  In the most recent case, SLV has been hugging the upper Bollinger band and in fact has been outside them for several weeks.  This does leave me wondering if we're a bit overdone in this most recent move.

FINAL SLV THOUGHTS
The $35 level will once again fall and SLV will move higher eventually, but not yet.  In the short-run I do think that all the "good news" is out and we don't have much to look forward to except for the bad stuff (China and Europe slowing more than anticipated).   Headline concerns like continuing short-falls in the periphery of Euroland, Greek elections in October, and the looming fiscal cliff and elections will serve to put a lid on SLV's upward trajectory until we see more inflation information in the coming month.

(EDIT)
CHART OF GOLD
I was looking at a few other charts and so wanted to post this one of gold as well.  Clearly $1800 is strong overhead resistance.

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/

A LITTLE FRAUD IS OK --- MARKET SYSTEM IS A JOKE

A LITTLE FRAUD NEVER HURT ANYONE?
I am on vacation this week, but couldn't resist making a quick post after seeing this clip today.
Without more comment other than a brief introduction we have Rick Santelli speaking on CNBC about the Federal Reserve Chairman's off-hand dismissal of the Libor-gate under reporting incidents.





Key take aways from this whole mess are;

1)  As long as the fraud you are doing is to save "the banks" it will be seen as ok.
2)  As long as you are manipulating markets and it is only a few bps, then it is ok.
3)  As long as the Fed knows about the fraud you are doing, it is ok.
4)  As long as the markets are close or open, it is ok to commit fraud.

WE ARE NO DIFFERENT - BANANA REPUBLIC HERE WE COME
I don't know why I am so upset by this.  In the midst of the crisis there was talk about this happening and it was pretty obvious that it was.  I think that I am so disturbed because it really does reveal the level of absolute corruption in our "free" market where if you are connected and big enough, anything goes with the blessing from the government and leadership. We have become a centralized communist state where those in power skim off the top and receive blessings and financial rewards.  The people are simply the mechanism to create the wealth that is stolen.  Are we Russia or China or perhaps Mexico?  Perhaps, it is clear though we are not above fraud, corruption, and manipulation.

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/

LET PAPER BE OUR FUEL! - GASOLINE UPDATE

AMPLE PAPER FOR EVERYONE!
The seasonal gasoline trade has been my target for the last two years and so far they have been quite profitable.  I've highlighted trades in WNR, VLO, and UGA and all have done well.  As I have laid out previously there is a seasonal component to this trade, but it is also one based on the view that Benny has our back and he and his central banker pals are finding ways to goose the global financial system through their respective liquidity providing measures.  (Explicit or not).  As they go to work making sure that no civilization is ever short on paper or electronic currency, this forces things with real tangible value like commodities to move higher.

THE GLOBAL FEDOLUTION
Last year around the time the Tunisian riots began to break out I suggested that our Fed could be directly and indirectly to blame because global food prices were sky-rocketing and starving people have little choice but to rise up and take action.  I coined the phrase the Fedolution as we can give the credit or rest the blame for the Arab Spring's spark largely with the Federal Reserve.

As we fast forward, incarnations of Fed action have resulted in a continued liquidity driven asset frenzy that has spilled into other commodities.   Since early 2011 we seen hard asset prices bounce around, but thanks to a significant rebound in December 2011 and January 2012 we see that almost all commodities move higher significantly.  Our economic measures suggest that price inflation is really almost non-existent according to the Fed's definition, but somehow we find that domestic gasoline prices are at the highest level for a January ever.

Average January Gasoline Prices

DEMAND SURGING?
There are legitimate reasons for gas prices to be high including refinery maintenance and supply bottlenecks, but I'm not sure this tells the entire story.  We automatically may tend to jump on the notion that the US economy is rebounding and we are seeing a rise in demand.  Unfortunately that isn't really true as US domestic gasoline demand is at it's lowest point in more than 175 months!  Clearly the US driver is not expressing any positive views on the economic situation by filling up more!

Zerohedge does a nice job of describing why gasoline consumption is tanking here - Zerohedge

NO NEED TO DRIVE
While our cars are more economical, this too isn't the reason we are not using gas.  Frankly, I believe we are not using gas is that we have a huge portion of our labor force shut in and they are simply don't need to or can't afford to drive since they don't have jobs.  Despite my assertions on why gas consumption is low, we still see gasoline prices moving higher and the prospects for even steeper fuel prices are pretty good according to Joe Petrowski, the CEO of Gulf Oil.





There are some really good items in this interview that we need to highlight.  Joe mentions that financial issues in Europe are having some impact on refiners there (remember, Swiss refiner, Petroplus filed for bankruptcy in late January) and this is causing a pricing issue globally.

Summer prices for gasoline could be as high as $4.00.

Brent crude could go as high as $130 in his estimation.

Higher gas prices are impacting C-Store retail sales!!

An Israeli / Iran conflict would driving prices to the point where there would be a rationing effect (I think he is suggesting that demand in the USA would crater due to pricing pressure rather than a rationing scenario where the government would limit your ability to fill up).

Every $.50 increase in gas prices takes $150 Billion out of GDP or about 1%.  A price of $4.50 or $5.00 will result in massive cuts in demand.

BRINGING IT TOGETHER - WHY IT TURNS NASTY
I'm concentrating on this gasoline topic purposefully as I am trying to draw together for you my original thesis regarding how the year will play out.  I do see gasoline prices moving higher over the next few months (UGA probably won't rival the 7/2008 peak of $65.00) but as it moves higher, we will get a forced slowdown in our economy as a result of the gas tax on our economy.  The dramatic impact these prices will have will serve to stifle any potential growth and actually cause our economic momentum to swing the other way.  This is why I feel strongly that we will see the market highs for the year in late April or early May.

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 at http://www.goatmug.blogspot.com/ 

HAPPY THOUGHTS - MACRO UPDATE FOR FEBRUARY

IT JUST FEELS BETTER 

Clear your mind for a second and forget that there are these things called bonds, that there is a European economic zone called the EU, and that a small little island country called Greece owes a boat load of money to just about everyone.  Don't you feel calm and relaxed?  I thought you might.  Now that you've erased from your consciousness any troubling aspects related the global economic reality, we can focus on good thoughts and ponder just how great things are getting in the USA.  Are you ready?  Let's hit it!

MONSTER EMPLOYMENT INDEX - http://www.about-monster.com/employment/index/15

The Monster.com Employment Index is a metric I like to follow because it gives us a pretty good look at what Monster.com is doing when it comes to on-line job listings.  January is usually a down month, so we can't get too worried about a decline following the year-end holiday.  Despite the drop, we have see a pretty consistent improvement in year-over-year terms where listings have been on a steady 8.5% to 9% increase over the previous year.

It is critical that we don't see a continued slowdown in the trend here through February as it usually marks the turning point for online job listings for the year and typically we see a peak in the late summer and early fall months.

SCRAP COMPOSITE INDEX-
The Maestro, Alan Greenspan, watched the prices on scrap metal as an indicator of financial expansion.  Who are we to argue with the greatest money printer and bubble blower of all time?  Scrap prices were in a serious decline until December when almost every asset on the planet caught a bid.  The move up may indicate that global inflationary forces are at once at work within our economic system.

FOODSTAMPS - SNAP DATA
I wanted to include this information without further comment.  If you missed the recent post on this data, please go to the link at - WHAT'S UP WITH THE PO' FOLK

BLOOMBERG FINANCIAL CONDITIONS INDEX - http://www.bloomberg.com/quote/BFCIUS:IND
The Bloomberg Financial Conditions Index is still below the 0.00 level which highlights in some improbable way that the economy and markets are still in contraction mode.  How is this possible when market indices are nearing October 2007 levels?  Who knows, but the Financial Conditions Index simply reveals that we are still in a recessionary mode, although we are very close to breaking out into the clear again.  Interestingly, each time we have approached a level that was positive or near 1.00, our markets have corrected significantly.

USD INDEX -
The USD's travels to the lower right corner of my chart below puts the US situation in a pretty clear light as we can really evaluate the longer term trend of our currency.  Don't ever question whether out-going Treasury Secretary Geithner wants a strong currency....(cue Chinese student and Goatmug laughter!!).  Another interesting point is that the USD is near the level we saw in October 1, 2007 at $77.81 right as things US markets attempted for a retest of equity highs achieved in July of 2007.  (On 1/31/12 we ended at $77.86)

USD (CON'T) - http://www.bloomberg.com/quote/DXY:IND
Here is a 1 year view of the USD Index.  The fall of the USD in the last two months has been the fuel for much of the stock market rally.  What happens if the fall doesn't continue?

BALTIC DRY GOODS SHIPPING INDEX - 
I'm about to throw the Baltic Dry Goods Index in the pile of "Who Knows What is Happening Here" as we continue to see a monster decline in spot shipping rates for global dry goods transport.  We have heard all of the reasons for the decline, that there is an over-supply of ships coming into the market, depressing the spot price.  We've heard that China is no longer importing commodities at the rate they did previously.  The one serious take away one can make is that shippers are enduring quite a collapse in prices as this index just a few years ago was over $100,000.  It is hard to imagine any company being able to withstand an implosion of 95% of their pricing.  Did I mention these firms are more debt than Greece?  Can't be a good recipe.

INTERBANK LENDING RATES - 6 MOS LIBOR -
Below is a picture of a 25 year history of 6 month Libor rates.  At .75% we can see the affect that this prolonged period of stress has had on lending rates.  In an effort to provide extreme liquidity in the face of bank distrust, central banks have driven inter-bank lending to historic lows.

Euribor also gives us a tip that something coordinated is going on with the banking environment.  Notice in November rates began going down.  As central banks goosed the system we've seen lending rates decline and equity markets rise.  Coincidence?  Probably not, recall that equity market have simply risen without a red day for the last 2 straight months.

TED SPREAD - http://www.bloomberg.com/quote/!TEDSP:IND/chart
Building on the theme from the Euribor chart above we examine the Ted Spread which is another stress or fear indicator.  According to the Ted Spread, everything is just getting finer!

TRADING UPDATE

The year has progressed right along the path that I anticipated it would and as I laid out in my 2012 Predictions post titled CONFIDENCE LOST; 13 For 2012.  What I mean by, "it's progressed like I laid out", I mean that we are moving much higher in the indices and we are making a strong run into the late April or May top we'll see.  Does this mean that there won't be a few down days?  Can it be possible to have a 5% drop here and still keep this thesis in tact?  Of course, in fact, I am looking for a  drop here as even the $SPX is up 8% year-to-date.  If anything, we'd really have to question what would propel the market higher in such a short time wouldn't we? (Tongue and cheek of course!)

I looked back at a few of the items that I was really centered on in the predictions post and I highlighted a few that have easily hit their targets.  WNR and UGA have already hit $17 and $54 respectively.  Each of these have posted pretty respectable gains since I put those on.  I mentioned that VLO could go to $27 and I still believe that is easily in the cards, but it has clearly lagged WNR, (which was and is my favorite).  Here is the deal though, with almost a 50% gain in WNR and a health 20% profit in UGA, is there any reason to press my luck?  No!  In fact, a drop here would be a perfect set up to leg in and rebuy my positions for a move higher into late April and May.  Profit is profit!

I am still very bullish on gasoline and am staying with that slant through the next few months.  I still think there is a possibility that we move as much as 8% to 10% lower in the next couple of weeks.  

TIRED RALLY?

I am trying to keep an open mind about several positions that look very suspect.  I've played around with very small positions on XHB trying to find a successful entry on a short position, but have managed to take a few flesh wounds in the process and have been glad to have stops all the way up as XHB defied gravity last week.  The open mind here comes in play in that this housing etf could very well scream higher to $23 which is the September 2008 level.  XHB bulls are saying that new housing looks to be improving, that the mortgage settlement will clear the path for more new homes, and housing financing rates are low.  A bear might just hear that and say that lots more housing supply is coming online and no one can get financing anyway.

From a chartist perspective I see that XHB has pushed above resistance at the $19.90 level, but has dropped back through it over the last two days AND was trading previously at a level 2 standard deviations above the 50 day SMA on this 3 Yr Weekly Chart.  I like to think that stocks that trade that high above the overall trend will fade back down to at least the overall trend line, so this has been the basis for my short attempts.  

Finally, I don't have the courage to short this one, but if there is a chart that shows something WAY above it's trend and trading well above 2 standard deviations, it would be this little company.  Everything in me says to short it, the last 3 years of history keep me from doing it.

Domestic economic stuff looks pretty good right now and perhaps the US economy is getting on track.  In early January I anticipated a continued improvement in economic metrics in the first half of this year.  I was a bit worried when two of my favorite writers disagreed fully with my analysis and made projections that the first half of the year would be flat and the back half of the year would be strong.  I think both writers felt that the election cycle would come into play and markets would rally.  I feel almost vindicated as Chris Puplava has intimated that he actually sees a reversal setting up in his outlook where the first half is good and the back half is....not so good, which aligns with my stated market direction.  My other favorite writer also has altered his forecast so there I'm not surrounded by folks that agree with my way of thinking.  (Perhaps it is time to change my view?)

For me, the key is that if we have continued Federal Reserve action we will see gasoline surge higher. As gasoline exceeds $4.00 in early April and May, we will see an immediate drop in US domestic economic activity and all these happy thoughts we've been training ourselves to have won't mean much as our growth grinds to a halt.  I've have more on this topic this weekend.

Be Careful!

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 at http://www.goatmug.blogspot.com/ 

THE FACEBOOK ECONOMY

I had an interesting discussion with a friend the other day when he asked me if I spent anytime on Facebook.  I answered that I didn't "do" Facebook since I was too busy.  (There are a host of other reasons of course, but that's another topic).

I asked him why he Facebooked and he suggested that he did it to keep in touch with people and to network a bit.  I told him that I had read an article recently that had stated that research is beginning to show that Facebook makes people depressed.  To my surprise, he totally agreed.

FACEBOOK LEADS TO DEPRESSION

"The researchers who conducted the analysis noted that “for a significant number of users, the negative effects of Facebook outweigh the benefits of staying in touch with friends and family."

"Things like rejected friend requests caused 32 percent of the people who participated in the study to feel guilty -- and 12 percent of the people said that Facebook just made them generally anxious."

When I read these items about Facebook, there is certainly part of me that is relieved that I don't participate!  

As we closed our conversation I also considered something else that might add to poster's stress, that Facebook lives are not real.  Let me give you an example.  

FACEBOOK DISTORTION

During the holiday season, my wife received a wonderful Christmas card from a person we know.  The lovely card pictured a charming couple holding their 1 year-old baby.  The family hugged and seemed happy to be together to celebrate a beautiful Christmas season.  While everything in the photo and card seemed perfect, the truth is that this couple is separated and living in separate homes.  The father never sees the child and has begun a relationship with another woman.  The appearance of the father in the picture is quite odd, since it isn't an accurate depiction of reality at all.  But there you have it, the woman and the man set up a time to create this photo-op and staged a classic Christmas tradition for all of their "friends and family".  

In some ways, I suspect that just like this holiday card, Facebook is represented by this distortion of reality as well.  Sure, you can un-friend your spouse, but my guess is that members of Facebook (in general) don't highlight that they just had a fight with their husband, got fired for being a terrible employee, or have a kid that is abusing drugs in school.  In other words, Facebook probably is a depository of the version of life that we wish we had where all the good things get posted and none of the bad things get attention.   

FACEBOOKED

As I continue to think on this topic, I realized that our economy and the investing markets are very much like a Facebook post.  We are told all the good things like employment is getting better, rail shipping is at highs, consumer spending is rebounding, companies are starting to hire, but all of that seems hollow as we really measure it against reality.  Think about it, our DJIA is nearing levels we haven't seen since May of 2008 so the logic must be that if the market is really improving, then all of the credit issues and insolvency problems we've faced are well in the rear-view mirror.

Unfortunately, we too know there is an another, real reality in our economy.  In this version, we know that job seekers cannot find a great job, that employees work long hours because they feel threatened  that they may be replaced if they don't work more, we know that money is very tight, and our government continues to take more and spend without constraint while promising more benefits.  In addition to that list, Europe is even worse!  

TRADING PERSPECTIVE

Simply look at the last 26 trading days and you'd be hard pressed to discern that there was any problem in the global economy by looking at the stock market.  Its upward march has been a thing of beauty!  Yet, underlying the wonderful performance, we know that there is a lingering, even gnawing sense that there are other issues that must be tackled for real price action to propel markets higher.  Even with my beginning of the year call for higher markets through April, I do believe that markets do need to pause here and even pull back.  Take a look at almost any chart and they are ramming headlong right into previous highs.  Without some sort of new and positive news, there is no chance that they ramp higher.  If you've been in great dividend payers that have made lots of ground, sell them and reload later!  No one ever did poorly by locking in profits.  If you find yourself questioning this notion, at least set stops in case the reversal really gets going.  

The best case scenario for bulls is that we consolidate here and then push higher on great news, however I actually believe we'll pull back 3% to 5% and then hold for another push higher with a few more words from our benevolent leader in the Federal Reserve.

FACEBOOK IPO

Perhaps we started talking about Facebook as a result of the news leak that Facebook is preparing to unleash its IPO on the world in the coming months.  While I have no doubt that the IPO of Facebook will bring billions of dollars of wealth upon Mark Zuckerberg and many others that somehow joined the firm over the years of its infancy, I have to question if the general investing public will be so lucky.  Certainly, recent tech IPOs leave us with feelings of the dot.com era rather than a sense that these firms are long for the investing world.  Friends on Slope suggest that Facebook is different, that the very name Facebook is part of our daily lexicon and therefore it will be a winner like Google.  Perhaps.  We will certainly see, but isn't it interesting that Facebook's timing could be almost perfect as the estimated IPO date may be in mid-May, right where I have indicated that I see the top in the market for the year.  

Before I go, I wanted to check back in on GRPN since I have publicly stated that I think this is the worst of all the new and hot IPOs that hit the market last year.  The business is one that is easy to replicate and unfortunately for many of the clients the results have been very negative.  Have a glance at GRPN's chart.  If we were trying to spin this for a Facebook post, what would we say?

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 at http://www.goatmug.blogspot.com/ 

YOU CAN NEVER HAVE ENOUGH OF A GOOD THING

More QE?  Now?  I thought the economic situation in the US was getting better?  I thought employment was improving?  What could possibly lead the Fed and it's newly elected doves to conclude that the US economy needs another dose of the economic elixir that heals all woes?

Apparently, there is something out there that these guys see as a significant risk to cause them to want to double down and flood the economy with more liquidity.  It doesn't matter if it doesn't help the real economy, asset values may go higher, so thus we probably need more of it huh?  Or, is it even more simple, is it just the non-partisan Fed working the election cycle?

Enjoy the video where Steve Liesman from CNBC examines the possibility of more action by the Fed to save us from even the possibility of a slow down.  He also mentions something I highlighted last year that the composition of the Fed has changed again and those terrible fiscal and monetary hawks have been replaced by doves that are all for pushing the envelope of monetary safety.



The stunner here for me is that message expressed in the video that even if GDP comes in a 3% or more, there is a real possibility for Fed intervention.  Perhaps this talk is simply setting the ground work with a plausible threat for action by the Fed as we know they like to believe that the mere mention of their action will cause market participants to act in new and risky ways.

If we consider that a breakdown of the Greek situation is coming and very rapidly, these may be not-so-subtle efforts to pre-warn the market that they will be acting to keep the world from ending.....again.

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 at http://www.goatmug.blogspot.com/