PAIN AT THE PUMP (GASOLINE)

A NEW RIDE
I made two purchases in the last month that have been significant.  First, my old used car that was wonderful and cool, simply died.  I am a huge believer in buying a used car and driving it to death.  In the past, I've ridden cars till they were 11 or 12 years old and I could see the writing on the wall, and then I sold them.  In this case, with little warning, the transmission of my car simply went to transmission heaven.

The only complaint I ever had about my old Acura was that it didn't get good gas mileage since it had a nice 6 cylinder with some power.  With a crippled transmission, I went to work looking for a new car and quickly found a good deal on a used.....white Acura.  Several days after the purchase, I needed to go out of town and was simply shocked to note the difference in gas mileage that my new car received.  I noticed that I got about 28 miles to the gallon on this new car, way better than the 14 or 15 I normally got in the old one!  Wow!

So why would I take time to talk about this here in the blog?  Simply that my second purchase in early January was an old favorite, UGA (Gasoline).  The purchase also has been a good one and it seems as though there is no stopping the etf.

Take a look at the chart; - http://scharts.co/XOegHT

It looks like UGA has room to run, and the seasonal trend is also with us on this trade since many refiners shut down during this time.  If there is a classic trade to buy in January and sell in May, this is usually one that falls into that nice pattern.   

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/    

LET'S EAT - FOOD COMMODITY UPDATE

Photo by - Alan Turkus

As August ends and markets hold their collective breath about what decisions will be made at Jackson Hole, I wanted to see if I could debunk the commonly held notion that we'd be in for more QE3 later this Friday.

LOTS OF TALK
I have noted in several posts that I think Bernanke will announce that interest rates will continue to remain low through 2015 and not just 2014 as he previously disclosed.  The hope is that another year of low interest rates will continue to underpin the housing market's "recovery" and of course ZIRP will force Mom and Pop and Grandma and Gramps out of their savings accounts into riskier assets.

Unfortunately, I think the market is really looking for more out of the great academic than just constant rate twisting and therefore we may actually see the markets correct a bit here as banks and traders need another boost from the central bank to push the indices higher.  There is only one problem with the conventional notion that we'll get more of the stimulus that we need, it is simply that real food and gas prices have been increasing significantly even though the Fed's own inflation measures remain in check.

HOT CAKES?
What types things are going higher in price?  We need to look no further than food commodities to see some dramatic prices increases.  July 2012 was frankly the hottest July on record in the USA.  In addition to the heat, the midwest also suffered a severe drought that has really destroyed corn and soybean crops.  As a result of impaired crop growth, prices for have farm products have increased.  Soybeans and Corn have not only moved higher, they have exploded to near record highs.  Rice is one of the lone exceptions to have not vaulted into record territory.

SOYBEANS

CORN

RICE

WHEAT

The point in putting these charts of the "softs" is that Bernanke may just have put himself in a box with the help of these weather conditions.  If he were to implement a fresh round of QE3, 4, 5, or something here, we can be sure to see these food inputs go even further above their ranges and records and also we'd see gasoline blow sky-high.  I noted earlier this summer that gasoline has actually done a Crazy-Ivan and actually gone up in July which is HIGHLY unusual.  Bernanke can't push gas prices and food input prices much higher without really slamming on the brakes of our economic recovery.  UGA has broken out and now could be headed to test its 2008 high near $67 (currently at $58.50). (Not charted here).

GASOLINE

TRADING UPDATE
I have been watching agriculture related commodities since last year and in the new year wrap-up and outlook I mentioned that "AG STUFF" would be a place take advantage of our central bank's foolishness.  I've copied a selection from that post here;
TAKEN FROM CONFIDENCE LOST - 13 FOR 2012 - PREDICTIONS

"6)  AG STUFF -Yes, I said it again, corn, wheat, soybeans, sugar and anything that can be consumed will move much higher.  A safe play is to time the exit in May as well, but I think that agricultural commodities will be the one uncorrelated asset this year that just kills it.  The more intervention we see domestically by Uncle Ben and his round table of doves we will see more food disruption in the form of out of control prices fed into the system.  Tunisia, Egypt, Libya, and Syria will all just be the tip of the iceberg as world citizens rise up to confront their leadership's ability to control prices of food as a result of the never-ending liquidity spigot originating in the USA.  Names to watch here are CORN, JJG, SGG."

One I do own now and have had since earlier this year, but didn't mention in the piece is DBA, the Powershares Ag Commodity Trust.  I've had a decent 8% gain since obtaining it, but I feel that there is going to be more in this trade coming from macro-factors.

DBA

While I own DBA, I'm not loving where it is sitting now unless Bernanke does go ahead and announce something this week.  Clearly, DBA is in between these two trend lines and without new news we'll see it bounce between $32 and $28.00.  Overall, I think I am ok with a solid $28 floor here, so I am still waiting on this position.  A move through $32 could set up a much larger move to $36.00

WHAT COULD TEMPER THE BULLISHNESS?
While US farmers and agribusiness producers are having a terrible time this summer, Brazil has jumped into a significant leadership roll.  Brazil is now the world's largest soybean producer and also had their best corn crop ever.  Brazil's role in global food production and exportation has never been so large and important.  All the bullishness for agribusiness commodities could dampen if Brazil posts larger than expected production or if the US farmers could actually save some of their crops.

Ultimately, if Bernanke doesn't move to fire up some form of QE as a result of fear of overheating commodity prices or concerns about retaining fire-power as the Euro situation continues to deteriorate, these commodities like corn, wheat, or soybeans could shock the markets and fall significantly.

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/ 

RESISTANCE IS FUTILE (MAYBE) - CHART FIESTA

It's Friday, why not look at some charts and have a chart fiesta (party for you gringos).  Many charts are showing signs of hitting resistance and most in the market segment areas also have been going higher on lower and lower volume.  Housing is the only exception, which has rocketed higher on higher volume (XHB).

I am not going to give any additional commentary, cause I've laid out the case in the 2012 Outlook for most of these items.  It's as big as the Great Wall of China, but I think it will help you if you take the time to read it.  The charts below will help you compare the commentary to what I believe I see in these charts!

OH YES, AND ONE NOTE AND PROMOTION FOR WHY YOU NEED TO USE GOOGLE CHROME AS YOUR BROWSER!!! 
If you use Google Chrome as your browser and you click on the charts to get a full page view, all you need to do is page down or even possibly roll the mouse down if you have a roller ball and it will allow you to move to the next chart!  WOW!  Easy and awesome.  It took me a long time to convert to Chrome, but I almost use it exclusively now and this is an example of why!

MARKET SEGMENTS

XRT - RETAIL

XHB - HOUSING

XLP - CONSUMER STAPLES

XLV - HEALTHCARE

XLU - UTILITIES

IYT - TRANSPORTS

LQD - CORPORATE BONDS

HYG - HIGH YIELD BONDS

PPA - DFS/AEROSPACE

SECTOR / COMMODITY CHARTS

WNR (REFINER)

JJC - COPPER

JJG - GRAINS

POT - POTASH (FERTILIZER)

SGG - SUGAR

UGA - GASOLINE

There you have it, lots of charts and lots of topping and a little opportunity mixed in there too.
Have a great weekend.  Send me an email or leave a comment if you have thoughts or questions about any of them.

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/

WHEN SOFT PATCHES BECOME HARD LANDINGS - JUNE MACRO UPDATE

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

RAILS - http://railfax.transmatch.com/

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

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

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

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

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

MOODY'S/MIT TRANSACTION BASED INDEX - http://web.mit.edu/cre/research/credl/rca.html
If the Crushed Stone data didn't give us a tip off, the MIT Transaction Based Index sure will.  Once again the index is showing that real commercial real estate transactions are losing ground and seller's positions are weakening.  We note here that there was a 4.23% decline in March in the value of deals getting done.

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

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

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



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

SCRAP METAL - http://www.scrap.net/cgi-bin/composite_prices.cgi?id=100000&num=5
Good old Alan Greenspan used scrap metal as a bell weather for the economy's health, however perhaps we should say he used it for a measure of the health of a bubble.  If it's good enough for Uncle Al, it's good enough for the Goat!  Scrap prices hit the skids since peaking in February.  While the composite index has tried to build a base over the last two readings I am not sure that the downward trend has abated.  Frankly, base metal prices and all commodity prices have been under attack since Ben Bernanke's declaration that commodity price inflation is "transitory", so the correction is not surprising.  It is in the economy's best interest to see commodity input prices fall and relieve some of the stagflationary risks we are faced with presently.

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

6 MONTH EURIBOR - http://www.homefinance.nl/english/international-interest-rates/euribor-rates-6-months.asp

Despite all of the tremors related to Greek insolvency and all of the undeniable issues with the PIIGS, we see that 6 month Euribor is just under 1.75%.  Remember the amazing days when interest rates had a 3% handle on them?  Rates have been climbing over the last couple of month and are up almost 65% since last September.

6 MONTH USD LIBOR - http://www.homefinance.nl/english/international-interest-rates/libor/usdollar/libor-rates-6-months-usd.asp

In contrast to those really expensive 1.75% Euribor rates, we see that the 6 Month USD Libor rate is  down to an eye-popping .40%.  Unlike our friends across the pond, our rates have about 15% since last September.  Obviously "one of these pledges is not like the other".  The divergence between the two sets of rates continues to illuminate how differently our central bankers have attacked these problems.  Their leadership has attempted some sort of fiscal control and monetary restraint in an effort to actually begin steps toward normalcy, our guys have thrown caution to the wind and jammed rates lower and lower and lower. 

US FINANCIAL CONDITIONS INDEX - http://www.bloomberg.com/apps/quote?ticker=BFCIUS:IND#

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

BALTIC DRY GOODS INDEX - http://www.bloomberg.com/apps/quote?ticker=BDIY:IND#

In a valiant effort, the Baltic Dry Goods Index has battled through May to just under 1400 again, where it looks as though it may drop.

USD - http://www.bloomberg.com/apps/quote?ticker=DXY:IND#

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

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

COPPOCK TURN INDICATOR -

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

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

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

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

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

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

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

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

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

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

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

COLLAPSE OF THE DOLLAR TRADE (DEBT CEILING ISSUES)

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

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

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

GOATMUG

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 www.goatmug.blogspot.com .