Showing posts with label inflation. Show all posts
Showing posts with label inflation. Show all posts

Tuesday, July 1, 2014

WORLD CUP OF CHARTS


The US tries to keep hope alive, very much like this market.  Utilities, munis, corporate bonds, and treasuries have all been big winners so far through 6 months.  The SP500 is up around 5% and the Dow is up around 2%.  All in all, not much has happened, but a slow grind higher in the midst of a world ripping itself apart due to our leadership deficit in so many places.  Its a good thing the US soccer team has a great coach and so do we as Janet Yellen stands at the helm, guiding us ever so gently in a ZIRP environment.

Here's just a few charts I look at daily.  Near the end I've highlights stocks I've watched, bought, missed, or feel like there may be opportunities in soon.

XLU - Why not utilities?  Utilities must be signaling that rising interest rates are pretty much a myth and will never happen.



XLU:SPY


IMPORTANT CHARTS
APA - Energy Sector has had an awesome run, is this starting to tire?


ARCP - Looks constructive now.


COP  - Overbought?  Each of those recent peaks in RSI have resulted in short term pullbacks.  Traders may want to exit and buy again on any weakness


EWY - Emerging Markets finally coming back?


FB - A run into earnings.... exit a day or two before they announce?


FCX - Who knows what the cost of production is/was for gold and silver, but as gold hit $1250, the destruction of gold, silver, metals, and miners suddenly stopped.  FCX has had a nice run since hitting $30 with a unexplained pop today taking it above $37.


IXN - This etf has been a long-time powerful winner.  Short term looks a bit overbought.



JBLU - Finally breaking out.  Look at the RSI at the top showing overbought.




JOY
There is some risk here of a reversal and fall to mid 50's.




KMI - Nice run.  Is there still momentum to move higher?



KRE - US Regional banks are certainly nicer than European banks.  It looks like there is room to go 5% higher at least.


SLW - Momentum is here.  The 14 Week MA crossed over the 40 Week.  This is a significant longer term signal suggesting continued upward pricing.


VTR - We need a bounce here.  VTR is extremely tied to longer term bond yields.  The 4% dividend yield is nice.



OTHER ITEMS - FOR CONSIDERATION

AAPL - APPLE - Probably goes to $100.  Probably should wait on this one as risk/reward set up isn't great.



 DUK -DUKE ENERGY - Utilities are all the rage.  A possible breakout as the higher-highs and higher lows just keep coming.




GDXJ - JUNIOR GOLD MINERS
Will the evil gold cartels and traders allow gold to continue to rise?  COT report shows large increase in commercial shorts, probably doesn't bode well for gold, unless some geo-political shock comes to light.... we haven't had any of those lately have we?






GILD - GILEAD - Hard to buy here, but this should be a strong earnings report and the rebound has been impressive.



GMT - GATX CORP - Railcar leasing seems simple enough.  



GOOGL - GOOGLE - Same risk / reward trade off as AAPL, however I think GOOGL is better than AAPL.




INTC - INTEL - Strong breakout.  INTC seems to have its swagger back.  Any pullback can be bought.



HAL - HALIBURTON - Energy anyone?  Too late to buy here.







MSFT - MICROSOFT - Remember when we could have bought at $26 on its way to $30.  I think this is a hold and not a buy. 



OXY - OCCIDENTAL PETROLEUM - Wait for a pullback and confirm price action.  This has run a long, long way.





O - REALTY INCOME - The leader in long-term triple net leases.  I like the action here and has a nice dividend.



PPLT - PHYSICAL PLATINUM - Very nice.



SCCO - SOUTHERN COPPER - Nice chart, would have like to buy on the bounce.  Is housing going to slow?


Stocks have run quite a bit.  I like Realty Income, Gilead, and GATX Corp, and possible AAPL with an eye toward earnings.  Otherwise, energy has been unstopple, it just seems hard to buy 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 http://www.goatmug.com/

Thursday, July 18, 2013

TAPERING.....RIGHT!

I have been very busy tending to so many things I have not had much time to post. I plan on doing a chart bonanza in the next couple of days since we have just finished a very good quarter with some drama thanks to Uncle Ben Bernanke and his pals at the Fed. To think they could even hint at tapering! What a joke.

Ben's tapering threat certainly didn't get received well, but he came back and simply suggested that he was kidding!  I think the tapering talk was really forced on him and will be again as the bond market's rates are rising, and we all know that Ben can only do so much.  In fact, we've discussed often how the Fed actually follows the market, I'm guessing this is some of the same.

Speaking of the Fed, let's go back in time and examine just how things were back in the 1920's leading up to the crash of 1929. It may be instructive and entertaining. I've wanted to comment on all the best of Americana given the court rulings of the Supremes and also the case involving a hooded teenager, but alas, I have no time to comment on things that are simply a distraction from investing and trying to figure out what next weakness in the economy will reveal itself. Enjoy the video and look for more posts in the days to come.


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/

Thursday, May 2, 2013

MACRO UPDATE - Sotheby's (BID)


Over the years I've highlighted a few of the major "turning point" indicators I've watched over the course of my involvement with the equity markets.  One of those that I found years back was the relationship that has held between the overall markets and that of Sotheby's.  I guess Sotheby's is a perfect example of disposable income at its best sort of like a Tiffany's or other high end retailer.

The redish line is (BID), while I've added the SPX behind in black.  BID seems to be an early turn indicator in the last two major swoons in early 1999 and also in late 2007, I've marked those in blue.  Late in 2012 again has presented us with a major turn signal where BID certainly has fallen, yet in this Fed stimulated world.... SPX continues to fly (marked in red at the far right of the chart).




While the overall markets "should" according to this two instance example begin to turn, it might just be a safer bet to short BID and just forget about shorting the overall market.  Are we even allowed to short anything?  Tomorrow's employment report will be interesting as we've heard from the Fed that they are willing and able to pump to the moon, as labor participation rates continue to decline, unemployment figures seem to improve as well.  I'm very interested to see what happens when the unemployment trap is set and the Fed needs to restate that they didn't really mean that they would really stop stimulating when the unemployment rate actually gets in the high 6% range.

 As with everything, I'm sure we'll just have a new set of rules or a new boogey man that will require unlimited printing and liquidity-less liquidity.




GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments athttp://www.goatmug.blogspot.com/

Sunday, April 28, 2013

WHERE ARE WE? (Sector Rotation Models)


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

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



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


GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments athttp://www.goatmug.blogspot.com/

Tuesday, March 19, 2013

DIVERGENT REALITY - MARKET UPDATE


Somehow, someway, the markets simply keep moving up.  Perhaps they are climbing a wall of worry.  Perhaps stimulus that is coordinated and assisted by loose monetary policy simply keeps all the plates spinning.  At some point, gobs of stimulus will meet the headwinds of a global financial slowdown in Europe, an inflationary overheating and under performing Asia and Pacific Rim, and a flight to safety from risky assets as smarter money says, "screw this".

ISLAND BACKGROUND
Quickly, let's review a little about Cyprus.  The tiny island attempted to create its own niche economy in Europe by becoming a financial haven.  They offered very low tax rates and an even lower concern for the origins of the global cash horde that was being deposited within their banks.  Cyprus become an outsized financial powerhouse and a haven for money laundering.  Russian gangsters like Putin and his crony oligarchs have hidden massive amounts of stolen money in Cyprus.

Bankers were all too happy to take the money and of course, they had to invest in bonds of other Euroland sovereigns.  They purchased a ton of Greek debt, which of course has been a disaster.  Cyprus' financial condition has been a known problem for a while, but clearly, the ECB desired to act.  As little as a month ago, financial and political leaders in Cyprus stated emphatically that bank institutions were fine and depositor money was safe.  This weekend, this all changed as Cyprus posted documents outlining the "bailout" where the ECB would step in and give approximately $10 billion in funds, but it required depositors to kick in a total of about $7 billion.  Now think about this.  This isn't the bank getting crushed.  This isn't some bond holder or stock purchaser, this is someone that was saving and simply putting money away.  Depending on how much you have, you'd potentially pay anywhere from 7% to 12%, in a sense, you just took a pretty big haircut for being dumb enough to save and trust a bank.

LOCKED OUT
Over the weekend, the people started hearing about a bank lock up and started sharing information about the vote about the fate of their money that was going to be held on Monday.  Clearly the upset people took to the street and wouldn't allow politicians to steal their money and give it away.  As I type, political and financial leaders in Cyprus attempt to walk a very small line where they can somehow appease the ECB and global banking syndicate and yet keep their heads as they have awoken a very interested and angry population.  The Cypriot legislative body will attempt to forge a solution that placates the bankers and limits the impact on regular folk that never had anything to do with Cyprus banking institution's purchases of Greek bonds with their deposits.

Don't forget too that the Russians are the ones that will take a huge hit in this "bailout".  Possibly the ECB calculated that the funds were illegally garnered, but my guess is that Putin and his buddies will not take kindly to a 12% or greater haircut of their stash.  The ECB is screwing around with these guy's personal cache of money, they better watch it.

THE GLOBAL BANK DEPOSITOR'S DILEMMA 
Banks essentially removed the "haircut" from bank accounts almost immediately, and therefore the effective "tax" was confiscated.  As a depositor, what would you do now?  Can you trust the bank?  As a citizen in a Euroland country like Italy, Spain, or even Portugal, are you certain that this would not happen to you?  The outright theft of deposits is simply too easy for governments when they can shut a bank down electronically and remove funds before anyone has a chance to prevent it.  The Cyprus example is surely a scary test case.  So what will they do?  We are hearing that there is calm in other Euro countries and no one is rushing to take their funds.  The better question in my mind is WHY AREN'T THEY?  It only takes a few people to start a panic, reasonable depositors should be calmly removing funds.  Do you think they wouldn't do something similar in the United States given extraordinary circumstances?

I've often advocated that you should have some cash on hand in case banks were suddenly inaccessible and you should also couple that with some physical metal holdings like gold, silver, or even palladium.  Make a trip to the bank today and get enough cash to ensure you could make it through a couple of weeks with no problem.  I'll do another follow post about metals, but is there any way this cannot be bullish for them?

INVESTMENT IMPLICATIONS - EMB:TENZ -




Despite what you are told and what we are seeing, the global financial markets don't like this.  US markets somehow keeps levitating, but that divergence is getting way out of bounds of what it should look like.
Take a look here at the EMB:TENZ ratio chart.  Remember, this is a measure of the emerging markets stocks versus the ten year treasury.  Essentially, this is a measure that show when investors desire risk versus when they want safety.  Emerging markets have been really under performing and in a sense, the 10 year treasury is beating on a relative basis.  If investors were feeling risky, they'd want to go long emerging markets.  As you can see in this view, the ratio of EMB:TENZ has been very good at tracking the SPX (black line behind the red/black ratio) and probably even leading it up and down.  Now look what has happened recently.  The ratio has cratered suggesting that investors don't want emerging risk at all.  Despite the risk-off move, SPX continues to power higher.

RISK ON?  RISK OFF?
This is a slightly different look, which might be better.  It is still the same concept charted with the MSCI Emerging Markets Index against the Dow Jones Treasury Index.  I provided a monthly view and I think it shows how strikingly in sync this relationship is.  The only two questions we should be asking is how long can the divergence remain, and which direction will it resolve?





GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments athttp://www.goatmug.blogspot.com/

Tuesday, January 29, 2013

GLAD TO BE ALIVE


I watched this video of Nathan Fletcher and I begin to think that this is a picture of the US economy.  We're about to drop into this extreme ride, yet don't know what the outcome will be.  Bernanke thinks to himself, "no matter what, I've got to get to the shoulder...."print, print, and buy MBS....or I'll hit the reef and die.

The ride has begun, who knows what will be the outcome.


Enjoy.  If I was a younger man and I had to live life over again, perhaps I'd have gone to college in California and done something like this for a living.


GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments athttp://www.goatmug.blogspot.com/

Tuesday, January 22, 2013

GOVERNMENT IS HERE TO PROTECT YOU


A PREPPERS NIGHTMARE
Ever wonder what happens when there is a believable threat of government intervention into a market?  I took a trip to the local sporting goods store the other day to ensure I have ample supplies for the coming zombie apocalypse.  As I reviewed my list, I discovered I was a bit short on stores of ammo for my soon-to-be outlawed Glock 23 with a 13 round magazine.

As I wandered over to the ammunition isle I was "shocked" to find that the shelves of the store were bare and void of any .40 caliber shells.  It is simply disturbing to think that all those gun nuts out there  are swarming stores to get themselves stockpiles of lethal lead and copper.

I found out also that when and if the store receives new shipments, they will limit the purchase to one box of 50 shells per customer.

So, in God's greatest nation on earth you may have the right to bear arms, you just won't be able to fill it up with any projectiles.

GOT AMMO?




GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments athttp://www.goatmug.blogspot.com/

Tuesday, December 25, 2012

MERRY CHRISTMAS!


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

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

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

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

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

MERRY CHRISTMAS!

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments athttp://www.goatmug.blogspot.com/

Saturday, December 22, 2012

WHERE NOW WITH SILVER?



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

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




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

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

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



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

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

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

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

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

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

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


GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments athttp://www.goatmug.blogspot.com/

Monday, December 10, 2012

BRINGING HOME THE BACON - FOODSTAMP REPORT

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

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




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

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

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

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


Fox 2 News Headlines

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

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

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

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

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

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

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

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments athttp://www.goatmug.blogspot.com/

Friday, November 16, 2012

FEELING LIKE KYLE BASS


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

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

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



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

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




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


GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments athttp://www.goatmug.blogspot.com/

Thursday, November 15, 2012

TRANSPORTS UPDATE


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

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




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

Good luck!


GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments athttp://www.goatmug.blogspot.com/

Tuesday, November 13, 2012

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


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

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

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

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

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

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

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

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

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

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

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

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

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

Many small employers will simply stop offering coverage.

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

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

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

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

Please contact us at info@texashealthdesign.com anytime!

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

GOATMUG
Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments athttp://www.goatmug.blogspot.com/

Thursday, October 11, 2012

TRANSITORY INFLATION REVISITED (FOOD)

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

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

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

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

(please see the Bloomberg story from April 2011) -

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

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




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


Nominal vs Real




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




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

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

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


GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments athttp://www.goatmug.blogspot.com/