Thursday, May 17, 2012

SYSTEMOLOGY / SNAP PHDs

My friend Amy from Slope of Hope wrote the following excellent comment that I knew someone would state, and she is right on.  So instead of posting the comment in the comment section that would never be read, I wanted to respond right here and give Amy her due.  Thanks for making a great point Amy.

AMY'S COMMENT
"I think we need to be careful about blaming "those damned bums on welfare". Most of them want to work. It's not their fault that we're in this mess. We're watching the biggest rip-off in history and many of those 46 million are victims who don't have a clue what's happening."

Amy, you are so right of course.  I don't want to paint the picture that most of these folks are not needing it.  Although with 46,000,000 on the roles, I'm going to guess at least 2% to 5% just aren't deserving like the recent story where the million dollar lottery winner was a participant or the report that 20,000 Wisconsin university students had to be kicked off last year.

My post really is lamenting that we are seriously saying that 15% of our entire nation's population is receiving benefits that help to feed themselves.  15% of people aren't earning enough to buy groceries!  That is really why I track this data each month, I'm of the mindset that this is awful and I completely understand that all of them would probably trade places with Mark Zuckerberg or even Goatmug in a heartbeat.

SYSTEMOLGY PHDS
Going deeper, I'm in fact not blaming any of the people that would actually be enticed to go get some aid and benefit for free, in fact it is a natural by-product of what they been told and sold.  I actually blame our entire system as it is removing the notion that self reliance at any cost is better than taking a hand-out.  Once the stigma is removed for these things you almost create an entire class of people willing to live at that standard of living in order to not have to do anything.  Just think about New Orleans prior to Katrina where you had literally generations of families "working the system".  Was it a good living, no, not one bit.  Could they be blamed, perhaps a bit, but it is what they knew and is where they were trapped.  Could the government system be blamed?  Heck yes, as it was easier and better for the government to give them just enough to keep them in control rather than have to face them, deal with them, teach them, and actually raise them up to be people that could stand on their own.  Essentially the entire system created entire classes of PHDs in systemology or the science of working the system to maximize benefits with little or no work.

This is the vision for government in our day, get funding, provide services, advertise services, grow the budget, provide services, and grow the program.  In this set up, SNAP or CALFresh government employees have misaligned incentives as their success depends on the programs growing bigger and bigger.  What motivation does the Director of SNAP have to get people to be self sufficient and get on to real productive lives?  None!  If they do get financially healthy, the Director of SNAP has less power, reduced funding, and less prestige.

A MINDSET SHIFT
In closing, I also lament the shift in mindset this entire country has begun to undergo.  Would you ever have imagined that a large part of the population in the USA would demand forgiving their student loans and demanding this as some right like the OWS movement?  The government and socialists and Democrats and Republicans have grown government so large that we've begun to see government and regulation as the answer to every problem.  In this country we used to do things without government, now it seems no matter how ineffective government is, we need more government to fix the problems created by the government.  Just ask Congress.


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/

HOW MUCH DOES $6 BILLION BUY? - FOOD STAMPS


ONLY 46 MILLION ARE NEEDY, 270 MILLION TO GO!
The release of the SNAP data for February highlights that we are still near record usage for foodstamps here in the US.   The month of February panned out with the following details.

46,326,352 of your fellow citizens are using your tax dollars to feed themselves and their families.
The cost to feed these folks was right at $6.160 Billion.  The average family receives about $278 a month.

YTD, actual participation is down 27bps!! ALRIGHT!  Year-over-year usage is still up 4.8%.


SNAP DATA - http://www.fns.usda.gov/pd/34SNAPmonthly.htm




NO REASON NOT TO, GIVE ME MORE!
The improvement in the data is slight, but I am hopeful that this trend continues.  When we examine the growth of the program it is not hard to see how it came about as the economic times have been tough.  At the same time, we have forces within the system attempting to create and increase dependency  on the government.  In 2010, California renamed their foodstamp program to CALFRESH in an attempt to remove the "stigma" of receiving foodstamps.  Is it any wonder we have citizens demanding services and saying that they deserve to be taken care of?  No, we have officials that tell users of programs that it is their right to be served and cared for, that the role of government is to make sure everyone is healthy, full of food, happy, and catered to.  The notion that government is the benefactor of course is a lie.  Government simply crowds out those people that would naturally step in and care for the needy.  Government also is only the middleman that doles out services by taking funds and spewing them out in an inefficient manner.

I don't want government programs to advertise on radio, tv, and print that they have all this "free stuff" and it is very acceptable to receive benefits.  I WANT there to be a stigma associated with living for free, for receiving free food, for having medical care that someone else provides and pays for.  When there is no stigma there is not any attribution that the services are scarce and that there is an expectation that they will only be provided for a short time.  When advertisements scream that the government wants to provide these resources it suddenly conveys that there is no limit to the amount of benefit that can be received and it costs people nothing.  By having a massive entity taking in taxes and distributing services we create an impersonal situation where recipients never see the real cost of the benefits and feel as though they need to maximize the amount they receive in any way.  (Think about having an insurance company pay your medical bills - you have no real idea about the cost, so you use the benefits as much as possible).

The promotion of dependency must stop for the good of our nation, it's poor, and for the ones that are seen as the producers in our country.  If the target continues to be placed on our most successful, we can bet that the incentive to earn and gain will be less great.


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/

Tuesday, May 15, 2012

CHARTZILLA


I had a request from a friend to slap a few of the charts that I frequently review up again, so I thought that I would oblige.  I'll add simply a sentence or two about what I think, but most are very similar in terms of signaling a sell or being very close to doing so.

As we view these charts notice that they are all set to view a weekly time frame and all have a 14 day EMA an 40 day EMA line.  Essentially a 14 EMA over the 40 day EMA can be bullish and a 40 day EMA over a 14 day EMA can be very bearish.  The slope of this EMA relationship is also important as you'd want to remain skeptical of a bullish signal where the 14 day EMA crosses over the 40 day EMA when the slope is actually heading down.  Ultimately, this longer term signal can be useful to capture bigger longer term moves.  Almost every chart here has suffered significant damage in the last month or two and so all confirm signals to sell and get into cash.


BLACKSTONE (BX) - $10 or $8 could easily be in reach here.  Another JPM hedging fat finger at another bank or hedge fund will send BX much lower.


CATERPILLAR (CAT) - Global growth slowdown.  CAT needs a serious reversal to make that right shoulder form or else it is doomed.


Australia Ishares (EWA) - Need some Chinese inflation to save the day, otherwise it will go the path of all commodities without QE3.


Canada Ishares (EWC) - Same as EWA above.




Malaysia (EWM) - I get that toppy feeling here too.  Time to exit.



 Korea ishares (EWY) - EWY has failed to break out.


Freeport McMoran (FCX) - The last year gives us a pretty well defined declining trend.  Uncle Ben needs to step in to save the metals and the miners.  A break below $32 would be disastrous.


Indonesia (IDX) - I hate to bet against this one, but it sure looks like it is about to roll over.



3M (MMM) - I'm inclined to punt this one as it looks to have stalled.  I still think it is in the large-cap dividend space which will receive benefits as investors look for yield in all kinds of places.  Corporate bond yields are so low, 3M is absolutely got to be a substitute investment for consideration.


Pfizer (PFE) - No reason to panic.  Apparently dividend paying drug companies are a shelter from a brewing storm.  Beautiful chart here.



Utilities (XLU) - Ding, Ding, Ding we have a winner!  As a safe haven and a dividend payer perhaps it is one of the best "relative value" hiding places.  If things get really scary, XLU will break down too as it faces pretty major resistance overhead.



Valero (VLO) - Didn't we say sell gas related stuff May 1?  See you at $15.


Western Refining (WNR) - This has been a wonderful gift, time to exit.  Greed can be a very bad thing if it causes you to lose your money after seeing big gains.  Don't let it slip away as $8 is a long way away.



That's it for now.  More charts to come later.




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/

A LITTLE INFLATION AIN'T SO BAD AFTER ALL...

And so it begins.  In our discussions over the last two years we've described the tendency for central banks around the work to talk a tough game but always resort to liquidity providing measures when push comes to shove.  All developed nations do it, all emerging nations do it, and yes, even the Germans, those steadfast, disciplined, hard-working, determined wunderkinds will fall back on printing and inflation when the cracks in the Euro become too great to ignore.

A LITTLE INFLATION AIN'T SO BAD AFTER ALL......
In the linked article above we are beginning to hear the change in tone of Germans as Peter Bofinger, adviser to the German government, suggests that perhaps a touch of inflation isn't so bad after all.

Here are a few snippets from the interview in Der Spiegel.  Notice how the notion is now becoming more tolerable to allow inflation into the system since this is the only option left for central bankers.  Remember, inflation equals devaluation of the currency.

"SPIEGEL: In 2011, prices in Germany rose by 2.3 percent. Should we fear higher inflation? 
Bofinger: No. During the years of the Bundesbank (before the introduction of the euro), the average loss of purchasing power stood at 2.7 percent per year. We are still far away from that figure. Despite a strong economy, the inflation rate currently stands at just 2.1 percent. And even if prices rose by more than three percent, it would not be a disaster. The logic of the euro-zone is that the booming regions have higher inflation than those that are growing more slowly."

Notice how he suggests that just "a little" inflation would be just fine?


"SPIEGEL: Can faster price growth in Germany help stabilize the currency union? 
Bofinger: Absolutely. If our wages were to rise faster than in the past, thus slightly increasing the inflation rate, that would be a good way to help us get out of the euro crisis. To boost the competitiveness of crisis countries, they can cut their salaries, which is a very painful step -- or, alternatively, our wages could increase further."



This statement actually addresses one of the major concerns that Germans have had for years.  As their wages have been stagnant for the last 5 years they have watched salaries in the weaker Eurozone countries increase 10% - 25%.  How frustrating is that?


WHY IS THIS SIGNIFICANT?
The German government is about as willing to accept inflation as the Chinese are open to accept an uncensored internet.  If you are beginning to hear highly respected advisers suggest that inflation wouldn't be the end to the Euro, it is similar to George Bush stating that "We have to abandon free market principles to save the free market".  In other words, options are limited and now we are willing to try things we know are not consistent with our values and that haven't ever worked before.  Another way of saying it is that they are beginning to become desperate.

So what is an investor to do when central banks and governments begin to take actions that are doomed and  can only result in bad things?  The only answer is to invest in commodities.  As we've mentioned over and over central banks ultimately end up seeing printing and devaluation as the answer to every problem, and the only thing that will protect the average Joe will be a healthy holding in hard assets.

HARD ASSETS / WHAT ABOUT GOLD?
As I examine the chart of gold, there really isn't anything here I'm happy about.  Gold's chart looks as though it is now breaking down pretty hard, breaking through support.  Chinese inflation is abating and this spells further doom for commodity bulls.  So how could one disregard technicals and even macro-related indicators?  Simple, what is the one action that can defeat technicals and macro-related events in the short-term (meaning 1 to 3 years)?  Central Bank action of course!  We do need a sudden and major whoosh down in the markets and a little QE3 action by our Fed along with some inflationary targeting by the ECB and we'll see a pretty significant turnaround in hard assets.  Don't go out there and blow your whole wad in one purchase!  I am still sticking to my plan that I will add to my gold at $1,400 and silver at $26.  As you keep hearing how gold and metals are dead, remember that it is when everyone repudiates an asset is when you want to buy it, not the other way around.  I have a sense that this will be the last good chance to accumulate these assets before a significant market dislocation.  No matter what, create a plan and stick to it.



Everything about gold looks nasty here as it has broken down through support and its 14 day EMA is now below the 40 day EMA on a weekly chart.  This is a very bad long-term signal.  There are only two reasons to add gold here.  First, you believe it is a form of insurance.  Second, if you believe in the unfaltering stupidity of central banks to respond with emergency liquidity and printing.  Be aware that if you are a US investor you could be correct in terms of a direction of gold and assets relative to the Euro, but be a net loser if the USD climbs higher.  Be careful adding here and make sure you have a trading plan.


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/


Monday, May 14, 2012

THANK YOU FED MAY I HAVE ANOTHER.....

I was doing market research this morning and I found yet another reason to dislike the Federal Reserve (yes, I know they have social media monitors logging in my rants).  As you examine your bank accounts, savings accounts, and all other "safer" investments we should be prepared to thank the entity that assists us our efforts to move backward away from any realistic investment goals.

Here is a real advertisement from ALLY Bank promoting a very wonderful 1.45% yield on a 4 year CD.  WOW!!!  And to think you only have to invest your money with a bank that was formerly GMAC that owned ResCap, an entity which filed for bankruptcy in the last couple of weeks.  Don't forget though, those CDs are 100% guaranteed by the FDIC so no worries!!




HOW CAN WE THANK THE FED?
ZIRP is how we can thank the Fed!  Our liquidity at all costs and zero interest rate policy is absolutely the reason we can lock our money away for 4 years and receive almost nothing.  Thank you Uncle Ben!

In comparison we can buy short dated corporate bonds and earn only slightly better if we go do the credit curve and buy riskier names.  The range I am seeing for lower quality investment grade names ranges from 1.4% to 4.0%  Still, that is disgusting considering the risk you need to take to get those rates.

WILL IT EVER CHANGE?
Unfortunately to keep the ponzi scheme going, it can't.  If the Fed lets rates rise, we can't afford it as a nation.  Ask the Japanese how that 10 year 1% bond helps retirees, I'm sure they love it!

JPM AND ITS IMPACT ON CREDIT SPREADS
Well, JPM seems to be getting a little news on its "Hedge Book that looks and acts like a Prop Trading Desk".  I find this story to be very entertaining as they were short long dated investment grade bonds, betting that price would go down and yields up.  It seems as though JPM's Hedge Book is so large that it was moving markets as it bought and sold positions (or in credit terms he sold protection on the IG9.  In addition, it seems as though the book was thrashed as several issues combined to tip the market off that there was a massive player in the markets.  As JPM's desk sold protection its daily adjustments were so large that it dislocated normal correlations of the investment grade market to the S&P500 equity market.  Those evil hedge funds began to see the divergence in markets and started trading against the mis-allocation in pricing, betting that it would come back into alignment.  In the midst of these trades, long term treasury rates fell as concerns in Europe mounted, creating an even more trouble set of circumstances.  Since the book is so big, JPM was altering credit markets in their attempts to hedge and position the book!  If JPM is still in it's positions, it is getting hammered.  In a conference call, it was released that the DV01 or Dollar Value of a 1bps move for the book was $200 million!  Since the the early rumors broke on this story back in April, the 9 year investment grade yield curve has moved out 25bps which could suggest that there really is a staggering $5 Billion loss (if they still have those positions on).  Pretty nasty loss for a risk controlling desk isn't it?

As I've written for almost two years now, investors in bonds can only be in short dated bonds.  If a person desired longer maturities they certainly shouldn't be buying bonds now as the only place for rates would be up (in sometime in the future).  Given the problems we are seeing with JPM and long dated credit, we all are left saying, "Thank you Fed, may I have another!"


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/