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, March 5, 2013

PAPER TIGER? PAPER CITY?


GHOST CITIES
Please take a few minutes to watch this 60 Minutes video on China's ghost cities.  I've written about this several times, but given the recent new action by the Chinese government to curb real estate inflation, it seems as though the may be new movement in possible deterioration of their most-loved asset market.  The Communist government announced new taxes that require sellers to pay 20% capital gains taxes and also mandated that purchases of second homes must be paid for with 60% cash down payments.

WHAT ELSE CAN THEY DO?
Given the investing approach and lack of alternatives, who knows if this will be the final straw that blows them up?  As we know, central planning and central banking and a zero interest rate world creates all sorts of mal-investments and mis-allocation of investments to compensate for distortions in yield and risk.

Enjoy;



Thanks for reading.  I've been slammed with lots of projects, please check back frequently as I am trying to post more.


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, February 21, 2013

THE TURN?


Here is an interesting chart I've posted before showing the XLU as a ratio vs SPX (defensive utilities versus market) and the SPX is also shown here.  If you follow the logic, market participants seek safety and more defensive holdings and sell the market in scary times.  They sell their defensive stuff and go into the market when they are bullish leading to a decline in the XLU:SPX relationship.

We appear to see a turn here where investors have begun looking for safety instead of a face-ripping rally.  Hope Joe 6 Pack didn't get all in last month.





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, February 10, 2013

PAIN AT THE PUMP (GASOLINE)

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

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

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

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






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





GOATMUG

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

Friday, February 8, 2013

THE END OF NORMAL? - TBF

I think 2012 was one of those years that made you just say, "What the heck?".  Examine the following chart of TBF (short 20 year treasuries) and SPX in the background.

DECOUPLING?
The "normal" relationship between stocks and bonds suggest that when the bond price falls (yields rise) and stock indices will actually increase as you assume that money flows out of bonds (sending prices lower) and into stocks (chasing prices higher).

In the graph below, which includes TBF (the short version of treasuries)  we see that in 2010 and 2011, these two charts moved in tandem, just as expected.  Suddenly, in 2012, the relationship turned on its head and did just the opposite.  In 2013, we have a resumption of the old co-movement.

TBF and SPX - http://scharts.co/WHPScS




INVISIBLE HANDS
What could have caused this divergence from the normal relationship?  What caused it to come back into alignment?


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/