THE MOUNTAIN TOP VIEW - MACRO THOUGHTS

A friend of mine asked me about my thoughts on the market and I wanted to capture my thoughts and also put some charts up for review (I did this under two other posts.... CHART-SLAW and SON OF SLAW).  Now we have made it through the Fed meeting and the ECB meeting we are coming to a point where we see that central banks may be boxed in and have little ability to do much other than talk about what they could do..... until they are forced to do something entirely out of the box (yes, this is still coming).

Let's break the perspective into two broad categories.  First, we'll talk about all the reasons the market looks bad and how the gathering clouds could reduce the gains that the market has posted so far this year.  Second, we'll review all of the reasons that the market could actually go higher.

CLOUDS ON THE HORIZON

ECB - LOT'S OF BARK, NO BITE
Draghi and pals really did have great success a month or so ago when they claimed they would do anything and everything without limit to save the Euro.  Well, it sounded good and the market was happy..... till everyone realized that practically no other country would approve the measures and possibly the most important one, Germany, can't constitutionally do what needs to be done to save Europe.  I'm hearing more whispers that perhaps Germany is beginning to see the light and might even consider their own exit from the Euro.  Mark September 7th on your calendar as this is the day the German High Court will decide if the extraordinary measures proposed by the ECB are allowable in the context of their constitution.  If the German court pulls a Chief Justice Roberts and twists their laws to promote a greater government, then the Euro could very well emerge stronger (with a little addition by subtraction as Greece has to go).  If though, the law really is the law, we can expect a very messy situation until the people demand to be saved by the ones that are destroying them.

FED - ON HOLD TILL NEXT MONTH
The Fed last week told us that conditions in the US were slowing, but hadn't gone so far that they would intervene.  Of course they didn't miss the opportunity to let us know that more QE could still come later.  The reality here is that more "twisting" probably won't help too much as rates are in the cellar anyway.  I had an interesting thought the other day that ultimately we would see the Fed buying index futures to bolster stock prices at some point, but so far I don't think this has happened (except during the flash crash --- we'll never know).  When we do see this type of extraordinary action, you can be sure that it will be implemented when the complete collapse is unavoidable.

What do I expect in September?  Well, I think the easy thing to expect is that we will have them tell us that they will not only keep interest rates low through 2014, but we'll also see them promise rate stability through 2015.  This could make some opportunities very interesting and will highlight those ideas later.

The script is already being played out in front of us as we've had a host of Fed Governor's give us their views on what needs to be done.  We've had calls for more stimulus and of course we've had the token hawk, Dallas Fed President Fisher explain that nothing more needs to be done except for fiscal actions by Congress.  As we've discussed at length, Fisher and any other hawks are just useful tools to make it look like there is a reasonable discussion going on.  Dudley, Yellen, and Bernanke are the only votes that count and we all know that ultimately more QE is coming.

DECOUPLED?
Despite the powerful interventions of QE, QE II, QEIII, and all sorts of other efforts, we really are slowing down in the US and globally the economic turn seems to have happened in Europe and in Asian countries.  I think we have determined that the US has not decoupled from the world and likewise, the world has not decoupled from the US.  As world economies slow, we could see the unorthodox intervention I mentioned above to save the US system.  Transports like the rails and UPS are all showing weakness and the sudden and abnormal spike in gasoline prices in July won't help them much either.  Today's MCD same store sales data suggests that Europe is a total disaster so watch those multi-nationals.


NO TRUST - GOOD KNIGHT CONFIDENCE, GOOD KNIGHT
I have posted quite a few notes lately suggesting that the retail investor is simply not on the same playing field as the high frequency trading bots and institutions.  The entire system seems to be structured in a way to rip money away from Mom and Pop and remove them from the markets.  Banks through their trading of derivatives and manipulation of LIBOR continue to show that the culture is rotten in that industry.  We also see the  regulators asleep at the wheel and the PFGBest scandal is a damning indictment of their inability to see any of these acts until the collapse of the ponzi is complete. Finally, the Knight Trading incident added to the fat-finger May 6th flash crash may be the final straw that breaks the back of small investors that are actually paying attention to their accounts.  While I am pretty confident that the average investor has no idea what happened last week to Knight and their bots-gone wild match-making test software fiasco they may hear and learn about it as more dominos appear to fall and of course liquidity will suffer in the long run.  It appears that Knight was able to somehow salvage itself and obtain critical financing to stay in business, but this event shows just how significant "fat-finger" errors can be in terms of lost capital and potential job losses.  Knight employed more than 1,500 people and it boggles the mind to think that all of them could have been out of a job as a result of a software program that ran for 45 minutes.  Makes you want to buy some stocks doesn't it?

Here is a great article today highlighting the impact our markets feel under the weight of HFT attacks.  This post looks at 1 second in time in the trading of gold prices.
http://www.financialsense.com/contributors/dimitri-speck/a-high-frequency-attack-on-gold


FISCAL CLIFF AND POLITICS
Let's not kid ourselves at all.  While Obama has a few left leaning views, Romney is no super-conservative savior either.  In fact, other than a few guys that say they are Tea-Party guys (and then don't actually act like it or don't have any power to actually do anything) both sides are equally terrible.  The bottom line is that the arguments between these two disaster parties are stupid and not based on any real substance.  In order to actually make a real dent in things we need to halt deficit spending and actually force government to quit growing!  These cuts will hurt, and our economy would absolutely grind to a halt..  Unfortunately addictions are really tough to quit and so the process will be painful.  The adults in the room need to ask themselves if they want a few years of pain or a complete collapse.  Since there are no adults in the room (Executive branch or in the Senate or Congress), we will continue down the path of destruction till Japan implodes and it will be too late to do anything but watch the event happen here.

The theatrics of budget cutting and the fiscal cliff are a sham and will certainly be a distraction and may get markets rolling over soon.  Let's not kid ourselves, we'll be rolling over the debt we'll just be subjected to political posturing from both sides with little real substantive cuts or fixes.

SMALL BUSINESS OWNERS = NO JOBS
Policy, policy, policy.  The bottom line is that no smart employer is going to add to headcount in this environment.  Why would you attempt to grow your business with the threat of more regulation and more tax obligations unless you knew there was a significant upside?  While the passage of the Healthcare Act and it's affirmation by the Supreme Court clears the uncertainty it also ensures that employers will think harder about providing benefits and adding people to the roles.  The tax roll-back issue is also one that prevents smart employers from taking significant risks at this time.

COMMODITY PRICES
Commodity prices are really at a critical juncture.  Europe is slowing.  Australia says that China has stopped slowing.  Droughts have caused massive spikes in corn and soybean prices.  Gas dropped significantly since May 1st (when we said to get out...thank you) and now have roared back in a very unusual July move.  Gold and silver seem to have gained some traction, yet also are poised to rally or fall significantly shortly.  So what is the point?  I believe that the main item we need to watch is oil and gas prices.  If oil and gas move higher, Europe and China suffer and we will too.  If oil stays below $90, we could see a domestic improvement here in the US despite some of the headwinds I've noted above.

MIDDLE EAST - ARE YOU PAYING ATTENTION?
Last, them me wrap up this section about the threats to the economy with a thought on the Middle East.  The Arab Spring, or better stated the Islamic Revolution, that seized Africa and the Middle East last year still continues to have a destabilizing impact on the region and the world.  In very short order, the very nature of the Middle East was changed.  The situation is clearly not settled in Egypt and the region's stability is very much in question until this is resolved.  The Syrian situation too seems to just be getting started and the nation's importance is not to be underestimated.  Iran needs Assad and Assad needs Iran and Russia needs a strong Iran in this theater of the world as a thorny irritant of the USA.  If Assad is close to being overthrown we could easily see the use of chemical weapons on the Syrians and or Israel in an attempt to muddy the waters and draw by-standers into the fray (NATO or the US as Russia and Iran already have assets there).  Once Assad reaches this point of desperation, there won't be a check on him as he attempts anything to delay an end to his power.

An attack like this or an entry into this conflict will move oil prices significantly higher and a sustained period of time with high prices will absolutely slow our economy and our consumption.

CONSUMER ISSUES
We are seeing a few signs that all isn't well and that the US consumer is still able to recall what it was like in the financial pit of 2008.  Revolving credit is beginning to fall again as consumers pay down debt and also the high-end retailer Coach missed big last week when they reported their earnings.  Finally, Priceline also fared poorly this week as they cited that European travelers are way down.  Remember, 70% of the US economy is based the American consumer being a total clown and spending their way to poverty.  Without Joe-6-pack blowing his wad of cash on payday, much of the Fed's improvement scheme will have been for nothing.

ALRIGHT, THAT'S ALL NEGATIVE, WHY WILL THE MARKET LAUNCH HIGHER?

THE FED
We've said it before and we'll say it again, the Fed has this market's back.  When the street is actually hoping for negative news, you know that we live in a crazy world!  As I mentioned above, we will see action within the next several months from the Fed and this must be counted as a positive for equities.  I've heard thoughts that the next move will be to drive mortgage rates so low that absolutely everyone will refinance in hopes that it causes every market participant to rush out there and buy a rent house with their uninvested cash.  Perhaps that strategy is starting to work already as I speak with someone every day about low interest rates and the potential for buying rent houses......watch out bubble here we come!

HOUSING
Housing construction and existing sales seem to be improving and certainly homebuilder stock prices continue to do well.  XHB is at 3 year highs too.  Housing related plays like Mohawk Industries all have similar charts that are right at the edge of multi-year break outs higher.

JOBS
Employment continues to look better here in the US.  We have seen great momentum in agriculture, trade, and transportation areas along with retail.  Negative areas continue to be in public education, public administration, and food service and hotels.  Broadly speaking, jobs are out there and this is shown by the continued growth in online job listings available.  The Monster.com online job index shows that the number of available listings and postings continues to grow, although at a slower pace. MONSTER INDEX

USD TOO STRONG
A quick glance at the USD Index chart indicates that the USD has gone just a bit too far, too fast as it was recently at the top of the 2 standard deviation bollinger band.  Since mid July, that has corrected a bit and thus we've had a nice equity rally.  I think I still might continue to believe that markets will continue to try to believe in Draghi and the ECB's successful management of their crisis.  I do believe that Draghi is crazy smart and was so smart in his recent tact to dismiss concerns about Spanish long term bonds while crowing about the relatively low funding cost levels in the 2 year bonds.  This powerful David Copperfield-like distraction has worked well and I assume it will till it doesn't.  If it does for a bit more time, we'll see the USD Index fall to near $80.

TRADING OUTLOOK - ALL SYSTEMS GO FOR 1 MORE MONTH
In closing, I've laid out both sides of the near term arguments for a higher and lower market.  The US economy seems to be sliding along, but mostly due to a lack of clarity on policy and fiscal issues.  Elections do matter as well, but nothing matters as much as the September 7th German High Court ruling on the fate of the ECB's coordination to save the Euro.

Until September 7th, I do believe we'll see the market defy gravity and wander up simply because this market is one where absolutely 100% of the participants believe it is too high and due for a correction.

The bond market is usually the best indicator of big macro moves, but we know that each credit market is so distorted that real decisions cannot be made based on manipulated treasury rates, Lie-bor rates, and any spread that is derived from them.  Interestingly, I have noticed some odd activity in the corporate bond market in the last several days where new bond positions have appeared for sale at unusually high yields.  While I personally haven't been able to purchase them despite my best efforts, the fact that they are there for just a few minutes indicates to me that really smart money may be liquidating positions since yields are so low (smart money exiting).  While this has only happened 4 times so far this week, this is odd that the offer price was so low and I will continue to monitor these events.

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/

MAY MACRO UPDATE - LET'S GET TO THE END

THE NUMBER OF OUTCOMES ARE DIMINISHING
The good thing about time and uncertainty is that as time passes, uncertainty also usually fades away.  I have found this to be the case in so many areas of life, especially in dealing with the family situation I've been a part of for the last couple of months.  I typically like to have a good plan (guess) of what will happen and then I like to make small adjustments to the plan as reality unfolds.  I stress out when the number of variables are so large that I can't truly grasp what will ultimately happen.  As you get closer to specific dates or milestones, your choices tend to be reduced and your actions are often dictated by one or two choices rather than ten or eleven.  Oddly, that has been the scenario we've all been investing and trading in for the last several years.  Will we wake up with a "fat finger" flash crash event, will another big black swan hit the markets destroying what is left, will Europe's experiment with the Euro finally be ended?  Each day I've wondered how will these events happen and what will the resulting impact be on us.  The trouble with trying to really dig into these uncertainties from afar is you'll have so many unanswerable questions and scenarios that you'll drive yourself crazy attempting to create contingency plans.

Before I delve into the notion that our choices and investing outcomes are now becoming less complex, let's look at the Monthly Update and catch up on a few things going on in the macro-environment.

RAILS - http://railfax.transmatch.com/
Railroad traffic has continued its rebound after a collapse in late 2010 and early 2011.  The rate of change of growth has certainly slowed in 2012, but tonnage has been solid.  We can expect this kind of trend to continue if fuel prices continue to move higher as shippers will look for any alternative other than land based truck freight to save on transport.

Coal shipments and grains are falling but the fall in these is being offset by higher metal, auto, and construction supplies.  If the summer is as hot as last year coal may rebound as utilities require more of the dirty fuel to meet peak demands in the heat.

SCRAP - http://www.scrap.net/cgi-bin/composite_prices.cgi?id=100000&num=5
Nothing new is happening with scrap pricing as it continues to trade at the whim of inflation and the USD.  The scrap metal index has fallen some 15% since its peak in February 2011, but is still 13% higher than June of 2010.  Expectations of continued inflationary "heating" up are diminishing and therefore we should see scrap decline.  Uncle Alan Greenspan tracked this indicator as a measure of the health of an economy, and thus we'd suggest that it is in agreement with the idea that the US economy has cooled and probably will continue to do so.

REAL ESTATE - http://www.realtor.org/topics/existing-home-sales
Housing is fixed!  Housing is fixed!  Errr.... perhaps it isn't.  Below is a nice little graph that seems to indicate that housing just isn't quite fixed yet.  In fact, a brief look at this chart might lead us to believe that well see a spike in home prices over the summer, but the price surge will remain lower than the previous lower high, leading to another lower low.  I continue to believe that houses (personal homes) are not investments and that is going to be proved out more and more as homeowners come to grips with the reality that their single largest investment isn't a very good one.  On the other hand, rental houses bought cheaply with very little debt may be a wonderful investment as more and more individuals discover they just can't afford the American dream anymore as their income is eroded by the cost of living that isn't tracked in the CPI.

FINANCIAL CONDITIONS INDEX - http://www.bloomberg.com/quote/BFCIUS:IND
The Financial Conditions Index still signals a contraction in the economy.  Try as the Fed may with all of its liquidity storm and steroid pumped printing presses they still haven't been able to push the Financial Conditions Index into expansionary territory for more than a few weeks.  Does this indicate a collapse?  No, in fact we just may be sitting in this steady state of blah that reveals that the US economy is just not so good, and not so bad all at the same time.

EMPLOYMENT - MONSTER JOBS INDEX - http://www.about-monster.com/employment-index
Clearly the Monster.com Jobs Index is showing some good news.  The Jobs Index tracks the number of online ads the firm has and this gives us an idea of how well the employment situation is at a given time.  As the chart expresses, we are near a 3 year high for job placement ads and this is excellent.  This indicator highlights that employers are in fact looking for candidates.  It is also clear from other statistics that is is an awful time to be poorly educated and underscores the need for specialized training and higher education.  Remember, I rag on college education all of the time for being too expensive, but I never suggest that it isn't good, and some type of technical skill isn't required.  I simply am saying that people need to weigh and balance their expenditures on higher education with what they plan to actually do in life.

Apparently, the work from home gig is easy big money and awesome as I got 3 emails today suggesting that I can replace my income in just a few months by working at home.  Why the heck isn't the 8.1% of the US population out there that is still looking for a job not jumping on this easy money?

BALTIC DRY GOODS INDEX -http://www.bloomberg.com/quote/BDIY:IND
The Baltic Dry Goods Index is still low, but has recovered from its descent into the bowels of nothingness.  I think the best way to look at this index is through a much longer term lens than can be seen here on the 1 year chart below.  A longer view shows that the index went from 120,000 to less than 1,000 in about 3 year's time.  Essentially, the $BDI should hover here in this area until we see a sustained rebound in inflation in the emerging markets including China and also in the USA.

6 MONTH LIBOR - Graphs and Rates
I wanted to highlight two key things in posting the 6 Month USD Libor chart with the 6 Month Euribor rate below it.  Note that the 6 month rate for USD Libor is around 75 bps and this is near 1 year highs for this metric of "trust" between banks.  This rate climbed steadily after August of 2011 and has plateaued in January of 2012.  Essentially, we saw a rise in rates and frankly this was probably seen as healthy as US bond rates were beginning to rise as the US economy was perceived to be improving.

6 MONTH EURIBOR -
While the chart I've used here for 6 Month Euribor highlights a longer term perspective, yet in Euribor terms we see the a contraction in rates that I personally believe can only be attributed to government coordination (ECB, FED, IMF, etc) as the weakness of the PIIGS is getting more pervasive.  Extra-governmental organizations are doing everything they can to throw liquidity at a situation we all know is unmanageable in the longer term.

USD INDEX  -
Today's closing print of 79.84 for the USD Index brings it that much closer to breaking above the critical 80 level where it hasn't been for almost two years (there were a brief couple of months above, but nothing sustained.)  Is it fear that makes the dollar the haven when the other parts of the world seem to be coming unglued?  Is it just a lack of alternatives?  It is probably both of these as investors are now running away from the Euro and finding anything else that might be a safe haven in this storm.  If and when we see the USD Index move substantially over this key level, we'll know that a real firestorm has brewed overseas in Europe.

10 YR TREASURY - Marketwatch and Bloomberg
The charts below show the 10 year Treasury bond rates.  As of today's close we settled at 1.845%, which is well below the recent highs of 2.25% of just a few months ago when everything in the world was perfect.  Today, post Greek and French elections....not so perfect.  The incredible bull market in treasury bonds continues to defy all logic and as the PIIGS continue their slide and their bonds are shunned, US treasuries will be bought and once again we'll see TLT push to even higher highs.  It is so fashionable to call a top in treasuries, but until the US is perceived as "just as bad" rather than "less bad" then our easy funding will continue.

WHERE NEXT? - TRADING UPDATE
When markets were roaring it was very hard to find anyone that questioned the ability of US markets to rip higher.  Emerging markets also were able to rebound and the last 6 months prior to mid April were simply a dream of positive performance.  Jobs data as contrived as it is with BLS manipulation seemed stronger and stronger, consumer spending had no limits, and manufacturing just continued to improve.  With the passage of a week or two, suddenly the world seems a bit dimmer and there is risk everywhere.  Could it just be a few pieces of slowing Chinese data?  Is it really word of another Spanish bank bailout?  Do elections in Greece and France really matter at all?  The answer of course is yes, and all of these things have come together in one instance to conspire against a run at all time highs in domestic equity markets.  Will the negative news prevail?  Perhaps.... and perhaps not.

On the horizon in coming weeks, we have the Facebook IPO that should wow us all and excite the trading bots a few hundred million times in the first second or so of trading.  We should also hear if the anti-austerity left in Greece is able to actual form a government.

GOLD & SILVER & OTHER METALS
Unless and until we see Chinese inflation, all bets are off on the shiny stuff.  Silver and gold could endure some serious technical damage as they continue to slide.  One strange thing we are not seeing though is a swarm by European holders of cash to buy gold as an anti-currency move.  I can only guess that we are not seeing a "Euro-collapse, buy gold response" because everyone has already hunkered down and has already diversified as much as they can into physical assets.

I personally will pick up another few ounces of gold and more silver if we near $1,400 and $26.00.

OIL, GASOLINE, AND NATURAL GAS
As long as we don't have a Middle East eruption involving Israel and Iran, we should see oil continue to fall.  Along with the slide in oil, I've suggested that May 1st was a good time to exit gasoline related trades, and that would have been a very nice exit.  Oddly, natural gas may actually be a bullish play here as we are now finally starting to hear about production being shut in.  The last couple of weeks have actually seen natural gas go higher, which is frankly very strange indeed!  NO, YOU MAY NOT BUY UNG, IT IS A PIECE OF SH$T!!! (Sorry to be profane, but I knew what you were thinking!)

IS THERE A REASON TO NOT COUNT EQUITIES OUT?
If US GDP is leveling off or falling and global investing insecurity is rising, why or how could equities still be a place to invest given that I've said for six months that you should exit in May and stay away?  Well, frankly, getting out then would have been a great strategy and if you are disciplined and have been long and in the market, then you have done well and you might consider it.  If you are one of those long only guys that hates the idea of sitting in cash even when markets are falling, then I'm talking to you!

Again, I need to emphasize that I write this because I know that some of you will demand to stay long rather than exit or even short the market.  As a result, your play here is centered on the "relative performance" aspect of fund managers as we've discussed over time.  In the past we've discussed how defensive times require you to consider utilities, healthcare, consumer staples, and defense sectors. Any continued fall in markets and a perceived overall weakness in the domestic economy will cause fund managers to rebalance and overweight these sectors.  Of course these are all dividend paying types of firms and this too will entice investors to hide here in a  relative yield search.  Essentially treasuries and corporate bonds are so overbought and expensive, new money purchasing these bonds earn you less yield than the purchase of the dividend paying company equity.  Money managers look at this risk/reward trade off and often will lean to the equity saying that it is cheap relative to the credit.  Since investors have piled out of the rigged casino....errrr stock market, they have looked to corporate bonds and have bid them up so high, stocks may be cheap.

Other institutional investors also will suggest that earnings have been great (compared to lowered analyst expectations of course) and also that the US consumer is going wild and is unstoppable, thus the spending data supports that notion that the US economy is not going to derail.

All of those positive items may be reason to support the stock market as we've said, the economy isn't the market and the market isn't the economy, so anything is possible especially when you have the threat of a round of QE loaded in the 3-barrel QE FED shotgun.  I think the key risk here is that even if you are picking up a 3% yield in your stock, you have the risk of giving up a tremendous amount of gains you've earned and could risk a part of your initial investment.  A good stock to look at to examine this action is CAT.  This stock is one I've liked for a long time and yet all of the gains earned in this name could be in danger if you still are holding it.  A friend of mine did not sell it when I advocated letting it go near $110, I think we both wish he'd had been willing to just hold cash.

REDUCING POTENTIAL OUTCOMES
I am excited to see what the coming week brings.  We are nearing a point in the Euro experiment where countries are at the tipping point and citizens have realized, really realized that "global citizen" bankers, politicians, and billionaires, are men and women without honor, without country, and allegiance to only the elite firms that provide them power.  The people of these countries are beginning to embrace nationalism rather than globalism as the deception of a global village and Euro unity has left them poorer and without industry, saddled  with unpayable debt.  As we get clarity on the direction of new governments in France and Greece we'll see that the number of outcomes reduced and be able to invest accordingly.  Until then, I'm sure that we'll see new and more emergency liquidity from every side of the pond

The coming events will serve to essentially make our investment decisions binary in the sense that we can trade according to the assumption that the Euro survives or doesn't.  If Greece exits, surely it will lead to an exodus by Spain and Portugal at least.  Clearly those economies will suffer for at least a couple of years if the global financial system can survive.  While I can imagine many other scenarios about a global financial meltdown and even potentially a stronger Euro after a big fall, the easy trade frankly is that the USD will be much stronger in the short run relative to the Euro.  That strong dollar leads to other plays like a continued short on gold, silver, and oil.  Further justification is found in the lack of strong Chinese data suggesting that global inflation is down and almost out in this round.  
      

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/ 

CONFIDENCE LOST, 13 PREDICTIONS FOR 2012

The 2012 year is off and running and before it gets away from me, I wanted to publish the outlook for the new year and get it done before the middle of January like last year.  I will do a review of the 2011 Predictions later, which I might suggest you read here - 12 FOR 2011, where I might say I was right more than wrong and really on point in several key macro level directional calls.  (Back patting over now).

Let's jump into it.

VOLATILITY, VOLATILITY, VOLATILITY
2011 was one of the nuttiest year for the broader markets that I can remember.  The SPX traded in huge ranges and ended up only 2% for the year.  There were many, many swings up and down of at least 5% and this kind of action makes any sane investor sea sick.  As I mentioned many times in the 146 posts I did last year, 3% moves up and 3% moves down in consecutive days is not a sign of a healthy market, it is a sign that the market is absolutely sick.

CONFIDENCE COLLAPSE WILL BE COMPLETE
2012 will be a year where this type of manic action will continue, so I suspect that there will be great periods of euphoria and gut wrenching falls during the year.  Unlike last year where I predicted that the US markets would be positive and increase 6%, I suspect that we'll see an unnerving drop from the closing levels of the SPX to 1144 or a loss of 9%. (everything in me wants to say a loss of only 5%, but this blog isn't for chickens).  Does this mean that there are no gains to be had this year?  NO WAY!!!  In fact, I believe that we'll see a repeat of 2011 with the theme of Sell in May and Go Away being rewarded heavily in commodity and energy names.  This further highlights that if the front half of the year has the potential of being pretty decent, it must mean that the later half of 2012 is going to be nasty for me to get to my -9% prediction.  It is with this in mind that we must note that all Euro deception and troubles will be revealed after May, and this is how I reconcile the two ideas.


The odd thing about the market losses for 2012 will be that the performance will be disconnected from the improving US economy.  What I am saying is that we will actually look back in January 2013 and say "wow, the economy isn't really that bad compared with last year, but what we'll actually see is that Europe is just that bad, and the fall of the Euro will spell a falling market for equity players.

WE JUST CAN'T AVOID IT, WE'RE STILL CURRENCY TRADERS
Even if you don't think you are a currency trader you are.  In relative terms, the USD is so much better than the feeble Euro and we'll see a continuation of the recognition of this issue, therefore the USD will be higher despite a concerted effort in the first 5 months of the year to reverse this trend.

US MARKETS - IMPROVING CONDITIONS BUT WAIT....
1)  JOBS - The jobs picture will continue to improve with the jobless rate dipping to the low 8% levels.  This rebound in the joblessness level has more to do with employers simply hiring under qualified workers to fill specialized roles as this issue has been persistent for the last year or so.  Employers biggest challenge has been to find skilled workers to fill open positions.  In 2012, employers will just suck it up and attempt to train those new hires in the open spots.

Note that there is an extremely troubling problem in our labor environment where unemployment for the uneducated is amazingly high while the unemployment rate for college grads is extremely low.  Despite the stories you hear, if you have a college degree and are willing to move, you should be able to find a job.  This bifurcation of the jobs market feeds the class warfare sentiment and who can argue with it when looking at the issue through this lens?  The trouble is that the uneducated have to WANT to actually work to get educated!  Our nation has become one where many of our citizens don't even make an effort to grasp one of the best attributes that our country offers; the hope and reality of achieving the American dream and having the ability to work hard, risk, and achieve greatness.  Unfortunately our least prepared and least equipped have traded hope and opportunity for the instant gratification of subsistence living and are pacified with social programs that placate many needs and are a facade of comfort.  Why give maximum effort when the short run gains received from working hard are less than or only marginally better than doing nothing?

2)  HOUSING - (CONVENTIONAL WISDOM DIES HARD AND ATTITUDES CHANGE)
I anticipate that the US housing markets will remain flat even in these depressed levels.  Unfortunately we really have no idea what sales numbers can be trusted from NAR because they have fudged reported sales for so long.  Despite this slight of hand and the conflict of interest, I think that we'll see a flat line amount of growth in sales as there is a significant paradigm shift occurring in the minds of the US home buyer.  In the past owning a home was part of the American dream.  Now, given the collapse of real estate markets and the lack of availability of credit (the demand that home buyers actually have 20% to put down) potential buyers are simply now believing that home ownership is quite as cool as they were led to believe.  The myth that home ownership is a great investment is being debunked and this sham is finally getting some publicity.  As this knowledge is now getting widespread acknowledgement, there will be a steady-state level of home ownership and little variation or boost to buy homes.  Add to the mix the notion that Congress is still looking at a move to get rid of the mortgage interest tax deduction and you'd see a continued decline in home ownership.

3)  USD
As I mentioned above, we are all currency traders whether or not we know it.

While it is tough to believe that the USD has merit, it certainly has "relative merit" and therefore I see an even more impressive move higher in the USD currency basket.  The continued revelation that the Euro is done in its current form plus the continued efforts of politicians and financial leaders to keep the "ponzi" intact will only serve to boost the USD to higher levels.  I think a level of 84 is very easy to achieve on the DXY. (See the 5 year chart below).  If USD goes higher, stocks go lower. (chart by www.marketwatch.com )

4)  INTEREST RATES
Did I tell you that predicting interest rates is a fools errand?  Ask Bill Gross, the king of bonds, if guessing where US Treasuries will go is easy!  I am going to say that the last two directional calls of Mr. Gross have made him look like a complete dolt!  Of all of my predictions last year, this is the one that I missed as I expected rates of 3.5% or more!  Ha!  Who is the idiot now?  I guess I anticipated a decent year in the markets and assumed that we'd achieve that decentness by way of actual growth and a clearing of some tough issues.  Unfortunately, I could not have known that we'd achieve the average returns on the Dow by doing what central banks always do, which is create really low interest rate environments that ultimately blow the real economy sky high and collapse financial markets!  (Oddly, I think Bill Gross miscalculated the level of insanity that the Fed would go to to keep the scheme in place, even though he is one that is really close to these nut jobs).

So, where do we go from here?  Lower.  How about a bold call of 1.65% to 1.75% on the 10 Year.  Despite a stronger dollar, we'll actually see yields lower as the flight to quality and away from the Euroland disaster will push 10 years to Japanese type levels. (chart by www.marketwatch.com )

COMMODITIES
Now we get to the fun stuff.  I nailed the macro level calls on commodities this year which makes me feel very nice and warm inside for about 3 seconds.  Unfortunately, that is about as wonderful as it gets as I am reminded that you have to trade the strategy to make money on it!  Yes, I did trade these, and yes, I did make money, but I didn't make as much as I could have because I stayed longer in the trades than I had outlined in the 2011 outlook.  Essentially, the call on all of these was to stay in till May and get out.  If you did that and actually exited on May 1st, and never traded again (or dare say even went short) you rocked.

I will spare you the gloating about how I nailed the calls on oil and gas to almost perfect calls on the high and low, etc.  I will however say that this year is even scarier than last in that we have a quickly escalating Iranian problem and the countries involved are removing all wiggle room for themselves.  It looks like the US and Europe are on a collision course with the real nut job and no one wants to back down, in fact, it could actually be in their best interests to pick a fight!  Without further ambling about things I will obviously write much more on.

I think intra-year, oil and gas ARE the big winners this year, even though they will fall after mid year, other than that, the big winners at the end of the year will be the ag-type commodities like sugar, corn, and wheat.  The play here is that central banks must fight for their lives by providing stimulus in the face of the deflationary forces of the Eurozone collapse, while they won't be successful in saving that which cannot be saved, they will resume the process that helped tear down many of the Middle East regimes by way of out of control food inflation.  Buy your freeze-dried stuff now, cause it is going to cost more by the end of the year!

5)  OIL AND GAS -
This year the theme to buy now and sell in May is again right on.  There is mounting evidence that the US economy is resilient and not collapsing, there is the Fed giving oil and gas an inflationary wind at its back, and finally, Iranian President Mahmoud Ahmadinejad is pushing all of his chips onto the table to buy enough time to go live with several nuclear warheads.  If he can weaponize just one device, he suddenly has tremendous leverage over his neighbors and the USA in the region.  With the brinkmanship at record levels, oil and gas will not sit idly by, they will lurch higher with $110 within easy reach by mid February.

The seasonal play also works well for the plays I made last year and in fact, I am already involved with several of them.  I think WNR and VLO will be winners in the first half of the year and a play in UGA also looks solid.  Targets for these plays are $18, $27, and $54.  I think all of them could easily exceed these levels, but I will stick with the "exit by May 1 strategy" this year even if it means missing out on other gains.

Oh yeah, the big oil names and service companies are awesome too, especially if they pay a dividend.    Portfolio Managers are still in the game of security selection where one would pass on bonds and buy dividend paying equity stocks instead because corporate bond yields are so low.  This benefits almost all large firms and energy firms that are dividend players seem to be a solid approach to capture upside and income.


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.

7)  GOLD AND SILVER -
I am telling you what, I nailed this one too last year.  While I undershot the move upside in gold and silver, the pricing action did just as expected and clearly the move isn't done.  The crazy euphoria is now gone from the trades and that is awesome because I feel like both gold and silver can now be entered rather safely for longer term trades.  It seems like central bank intervention has eased some fears related to the "buy gold, cause the Euro is going to collapse", but it will return and with a vengeance.

I hesitate to give price levels and targets here, but what the heck it's not like you are paying for this.
I think we will see a revisit to the $1,900 level in gold and probably beyond that given the circumstances that need to be in play for the shiny metal to return to its highs. (charts by www.kitco.com )

Silver, will probably NOT revisit its $50 highs, but will settle in at $44

I think either of those would be nice if you pulled the trigger and then made a hasty exit.

As I noted last year, I actually DID sell 1/2 of my silver position as it was blasting near its highs.  I had experienced enough misery by giving away gains in my refiners and gas trades that I locked in profits on much of my silver holdings.  I am looking to purchase a new replacement slug any day.


8)  COPPER
Copper too was one of the trades that made me look really good in my predictions from last year.  I suggested that copper was going to be a big loser, and it was almost from the start.  There is a chance that copper goes higher this year for several reasons despite the fall of the Eurozone.  First, there is some hope of a recovery in the emerging markets.  Any improvement there will be a benefit to copper.  Second, copper got shelled last year and as a result, is a relative better play.  Despite the chances for a rebound, I won't be buying JJC anytime soon, however a play in FCX might be good for the same May 1 sell time frame since a move higher will absolutely benefit FCX as a miner of gold and copper.  I think this is the best way to play this angle, AND you get a dividend too.  $44.00 is probably a very conservative target (only a 10% move from today's levels, with $55 as a realistic area to expect).

FINANCIALS - 
I just have to say it, I hate them.  They are hard to understand and chock full of liabilities and counter-party risks that are not truly known.  This statement unfortunately goes for banks, insurance companies, and brokerage firms (are there any left?).  There might be gains out there, buy if we can get them from other areas should we really try here?

9)  BANKS - I missed it on banks last year.  I expected that things would improve and they would perform much better, they didn't.  Oddly enough, I think that bank performance could rebound in 2012 IF yields begin to rise.  The margin compression they are suffering as a result of Operation Twist and other FED intervention has been costly and we should see some abatement in this as the program nears its end in 2013.  I think BAC is still a big fat loser and suggest running away from it as some type of Country-Wide or Mortgage Fraud stuff is going to have an impact on them.

It isn't lost on me that Kyle Bass invested a slug of $200MM into Mortgage Guaranty Insurance Corp which is probably more a statement of his feeling that housing is at least bottoming domestically, but it also might be a signal to watch that stock (yes, it is already up 50%, I know and since he bought at $2.50 a share he is also doing quite well).

In this short to medium term for the year, the chart also suggests that GS could rally almost $15.  If we see a $110 or $112 handle on GS and you are crazy enough to be long it, I suggest an exit.

FIXED INCOME -
The question is, does fixed income exist anymore?  The answer clearly is no.  Treasuries are a scam in that the US government through a scheme of the Treasury and the Fed are distorting the prices for bonds to achieve their own goals of suppressing borrowing costs.  The private sector is buying US Government debt as a result of absolute fear, and so are other sovereign nations.  There is no real market here, just a concoction of lies and more lies to cover the first lies up.

The average investor who is a retiree cannot live on the interest produced by any fixed income investment and so they are force to yield search and carry more risk than they normally would or simply abandon this asset class and reach for dividend paying equities.  Unfortunately that strategy will back fire, we just don't know when.  The Fed strikes again.

10)  GOVERNMENT DEBT -
I've already highlighted this topic in the INTEREST RATE section.  Bonds will go higher and yields lower as we near year-end.  The safety trade to flee to US Treasuries will be firmly intact next Christmas.  Downgrades of sovereign debt abroad will make the US yields even cheaper despite the fact that US spending is totally out of control.

TLT looks like it could spend some more time falling to at least the $113.50 area, but if my call for a move up in equities and then down again is correct, we could see an attack at $123 on the long side by year end.  (That's not much you say??? They are treasuries I say, should they really trade in a 10% range?)

11)  MUNI BONDS - 
Meredith Whitney seems like the biggest loser when it comes to Muni Bonds in 2011.  Meredith learned a hard lesson that a great call one time doesn't mean that you will make every call right.  Further, the better lesson is that once you make an awesome call, DON'T PUSH YOUR LUCK and predict the apocalypse!  Everything that Meredith Whitney said is true, the only problem is that she, like Bill Gross, misunderstood the commitment of the players in the system to keep the system afloat.  Also, Ms. Whitney didn't state a realistic time frame for the collapse to hit.  If the Euro crisis has shown us anything, it is that they implosions are slow and are delayed and delayed until they can't be delayed, and then suddenly the market and its willing participants simply wake up one day and reject the credit of entities and borrowers that just one day prior were perfectly fine.  Perhaps if Goldman Sachs had made a prediction like that, things would have fallen apart faster, but it didn't.

If you take a moment to look at Muni yields you are first struck with how crazy one has to be to  buy munis.  First, it is very difficult to get financials for these municipalities that are timely.  Second, it is impossible to get a decent yield, and finally if you attempt to stay shorter in your maturities you will get paid absolutely nothing for the risk you can't evaluate.

Perhaps the best way to approach Muni Bonds is to short them.  Take a look at MUB which looks like it should at least revisit $107 or even $102.

12)  CORPORATE BONDS -
I am going to copy word for word what I wrote last year in this space and I'll only change a word or two.  Wait for commodity and market ramp. That move higher will continue to push corporate bond prices lower and finally put them in a pricing area where they again become interesting. Please note that I usually target buying corporate bonds that are less than 7 years in maturity. I do not subscribe to the hyper-inflation theories and therefore I do believe that a chance to buy solid company bonds yielding a 5%, 6%, or 7% rate will be great.  What did I change?  #1 - You may only get an opportunity to get into corporate bonds in February or March (last year that was the low).  #2 - I reduced the target yields on bonds by a percent or two.  Right now I would do just about anything for a 5% 4 year bond, you just can't find it, (without buying some stupid financial company bond) so when you do, you better buy it with the money that is allocated to a more conservative type investment.

As you look at LQD it seems ripe for a correction to $107 or even $104.  The crazy shorters out there may look to take advantage of a drop in this etf, but the fear trade will drive buyers right back in to fixed income assets by year end.

EMERGING MARKETS
Other than Bill Gross and Meredith Whitney the other big loser of the year was the emerging market trade.  All of these markets were smashed as the shiny veneer was rubbed off the glorious BRIC trade.  The trouble these countries ran into was one of a slow-down in growth, a wind down of credit bubbles, and finally importation of inflation served to them directly from their friends at the Fed.  I've commented often about the currency race to the bottom as they attempted to counter each move of the Fed to stay competitive.  The only problem with fighting the Fed in this fashion results in run away inflation and citizens tend to get really pissed off about paying 10% higher prices for veggies and meat each month!


13) COUNTRIES TO WATCH -
Based on the three causes of the beating that the emerging market players took last year I am hard-pressed to see if there is any abatement in any of those issues.  The answer is no.  Based on this, I think it is quite easy to simply pass on China as an option for further long-sided investment.

I am still a huge fan of Indonesia (IDX) simply because it is a really nice chart to trade.  I would not be caught adding a position here on IDX unless I saw a pop through $31 (I waited all last year for that)  and I'd certainly be watching closely at the $25 level.  In a year when China's FXI lose almost 20%, Singapore's EWS lost 21%, and Russia (RSX) lost 29%, IDX was flat when you calculate and add in the dividend. (Chart below is IDX)

I'm a fan of EWS despite the brutal beating and I like EWM too, but once again sell early.  Finally, readers will recall that I've had this stalker-like love affair with India where I'd wait and wait and wait for EPI to do something positive.....and it never did.  I must believe that India will one day be a powerhouse, but it wasn't last year.  I like the bounce EPI had over the last week and if there was a time to do it, it was then.  A bounce here could take it to $18 or even $20, I'm just a bit gun shy after seeing a 40% loss of a blood-letting over last year.

Let me wrap things up here.  There are the ideas for 2012 and the outlook for the major macro-level areas of the economy.  I could say much more about the defensive approach that fund managers are using going into healthcare, consumer staples, defense, and utilities, but I've already said that many times last year, and it was a highly successful venture for any that took action.

SHORTS
I was fortunate enough to call a few big shorts this year too.  There were a couple that I was very, very, very early on and just killed it being short on like NFLX, MCP, and RIMM (don't believe me, do a search on the blog for those symbols!).  I did tend to sell those too early as is often the case, I think I am so conditioned to believe that some invisible hand will appear and save crappy companies that I am willing to exit trades that I know could be much bigger winners.  That is one of my goals for this trading year, to keep my foot on the throat of dying losers and cash in on them in a much more significant way.  I'll be looking for those entries in earnest in April.  I can't let this section go without mentioning GRPN.  Groupon will be one firm that is out of business in the next 5 years and therefore it is clearly an equity to focus on if it can ever gain any traction and get a bounce.

DISCLAIMER - THE EVENT THAT MESSES UP ALL PREDICTIONS (A swan that makes black swans shake in their boots)
Finally, let me throw in one last disclaimer because it is important.  All of these predictions in some way assume that the US, Israel, Europe, and Iran (along with the Persian country's allies, Russia and China) don't get involved in a real and escalated shootin' match.  If that happens all bets are off.  I don't think this is a situation where the markets rally like they did in 1991after Saddam invaded Kuwait and we invaded Iraq in the first Gulf War.  If there was a quick overthrow internally of the Iranian leadership and hostilities ceased then I think that a bull market rally could follow, but I don't predict that kind of easy internal outcome and frankly I am terrified that an EMP attack on the USA is really something that is possible.  If that were the result from a conflict our markets would cease to trade and the world as we knew it would be over in the blink of an eye.  An EMP assault on our country would make New Orleans after Katrina look like a picnic and a fun day at the park.

Please read the follow up post that I'll put up over the next couple of days which will include bonus predictions on the elections, healthcare, and foreign policy.  Honestly, I think all of those topics may drive the markets more than we appreciate, but this post is about stating where I think things will go and specific reasons why.  The broader drivers like these topics should be covered in another post, so look for it soon!

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/