NEGATIVE BOND YIELDS, MATTRESSES, AND FRAUD

MORE DISTRUST
Yesterday I penned a post called, COMPLETE COLLAPSE OF TRUST that outlined a few of the significant events that I believe have created a market environment that is bereft of morals and "doing the right thing" and is focused on simply taking every last cent (ok even fraction of a cent) from investors.

I guess there are two other ones that come to mind as well;

*Co-location of HFT computers at the trading centers so they can front-run trades and also step inside of the bid/ask and steal from investors.

*The Facebook IPO disaster where Morgan Stanley and other underwriters destroyed RETAIL investors in the over-hyped initial offering of a declining company.  Further, I think it will come to light that management and the underwriting team hid information that the company's health was getting worse (growth rates of subscribers) and this frankly amounted to selectively sharing inside information.

The list could probably go on and on.  Is there any wonder why every day investors shun this market?  You must have really thick skin to wade into this environment.

MARKET INSANITY?
As I wrote yesterday, we have had a common theme for investing over the last couple of years that have worked out pretty good.  The main idea is to purchase large dividend paying stocks and then also to selectively buy commodity type names in the period of January to May and then sell.  That has worked great.

I also mentioned that perhaps we are really slowing down and with that, all boats will sink, the use of defensive dividend payers might just help you lose less.  I also lamented the issues with fixed income approaches as the entire credit spectrum is a risk/reward screw up as the Fed's actions have managed to destroy all traditional fixed income methods for examining risk in markets and causing investors to make really bad choices.

One example of fixed incomes complete irrationality can be found today where Bill Gross tweeted about 2 year government bonds....

WHY CONTINUE TO LAMENT ABOUT THE STATE OF THE FIXED INCOME MARKET?
The reason I continue to prattle on about the fixed income markets is that they are huge and typically have been known to be the truth-teller or the only adult in the room compared to the equity markets.  Since the Fed and US Treasury and every other central bank have been buying bonds and instituting their ZIRP policy, they have blown up any normalcy and any accurate representation of reality.  How can we make rational decisions about where we are or where we are going if everything is made up and screwed up?  I need only to point to Pimco's Bill Gross to highlight that people are BUYING government bonds from Germany, the Netherlands, and Switzerland and LOSING money because the yield is negative.  They are PAYING the governments because they desire their money back more than they desire earning any interest.  This is damning and this reflects the total disaster that our global investing environment is in.

ARE WE SLOWING DOWN?  WHAT TO WATCH FOR
Finally, I found a nice summary from Barry Ritholtz of The Big Picture Blog.  He made a post called,
THE 7 FACTORS TO WATCH IN A SLOWING ECONOMY (link above in the Big Picture Blog).  I think this is a nice list and it affirms what we've talked about for a while.  In addition, it highlights many of the macro-indicators I watch when I do the monthly macro update.

• Transports have been very soft and confirm slowing global trade. Pay attention to UPS, Fed Ex, and Rails.
• A corollary is energy prices and the shifting revenues of the major oil companies.
• Retailers often feel the bite first. Middle market retailers, than luxe goods. Watch for signs of improvement amongst the discounters like WalMart, Target and the dollar stores as consumers feel stressed.
• Defensive issues such as Utilities and Consumer Staples attract buyers (but should not see big changes in revenues)
• Pay attention to visibility and revenue expectations from companies. I expect the uncertainty trope to be in full flower;
• More  important than that, watch S&P500 Quarterly earnings growth; Is the rate of growth (2nd derivative) slowing?
• Valuations remain reasonable but not cheap; See where the SPX ends after earnings season is over.

I need to do an monthly macro update as very interesting things ARE going on in the economy.  While we continue to hear over and over again that the collapse is coming and that a recession is on the horizon, many indicators ARE showing a slowdown, but then some others just aren't.  There truly is a non-economic factor in play (call it political and policy driven) that could ensure a recession or save us from a recession.  I plan on expanding on this more in a post in the next week or so.  Until then, thanks for stopping by!

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/

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/ 

14% OF US CITIZENS CAN'T BE WRONG

THE NUMBERS JUST KEEP GETTING BIGGER
Any thoughts of an abatement of the increase of food stamps recipients were squashed today as I pulled up the latest government statistics on those productive citizens of the US that receive assistance in the form of food stamps.
As you might recall last month, the increase in people taking stamps had its lowest gain in more than 25 months, so foolishly I thought that there would be a chance that the number of folks on the government dole might have a chance of actually decreasing this month. 

WISHFUL THINKING WON'T MAKE THE SITUATION BETTER
Once again, my assumption was completely wrong as we find that this month's increase equaled the 1 year average growth rate.  44.6 million families received benefits at an annualized cost of $6 Billion.  The average family receives about $284 a month in free food. 

So, let me see here.  We have a stagnant economy where food, energy, and all costs are increasing.  We have a poor job environment where there are no prospects for wage increases, a terrible housing market, and a US dollar that is frankly in the toilet.  On top of all that, the Fed's transfusion of QE II is now ending.  That's that bad news of course, the good news is that awesome companies like Linked In have gone public and have captured the hard earned money of investors on the hopes that there will be other suckers that come and pay higher prices for a company with little revenues, but a whole lot of potential (snicker).

WHAT DO THEY KNOW THAT THE OTHER FOLKS DON'T?
Perhaps it is just me, but I thought the goal was to turn the economy around, not add more and more folks to the government assistance list.  We know that the Fed has been doing, but what is our CONgress or administration doing to make our nation's small businesses get back on track?  Do any of them have a plan?  Perhaps these are the wrong questions.  Maybe I should be wondering what it is that 1 in 7 Amerikans know that I don't.  These guys may know the tricks that I don't when it comes to receiving $284 a month in these tough economic times.  My guess is that these guys will continue to convince others that the water is just fine and that others should join them.

GOATMUG