HERE WE GO AGAIN (QE 3)?

Bloomberg had a post up this evening that is going to probably be the first of a string of commentaries and interviews from Fed leaders that state that"Now is just not the right time to stop stimulus".

LOCKHART WANTS TO KEEP THE STIMULUS -
http://www.bloomberg.com/news/2011-05-15/atlanta-fed-s-lockhart-says-it-s-too-soon-to-consider-exit-from-stimulus.html

Atlanta Fed President Dennis Lockhart stated that the Fed should remove stimulus only after the recovery is much more sustainable!  Are you kidding me?  Hasn't he recession officially been over for 2 years?  Haven't we stimulated the economy with trillions upon trillions of wasted worthless dollars already?  So the thought is now that the recovery is not sustainable?  What amount of time would sustainable be?  3 years?  5 years?  According to their definition we'd need to apply stimulus until growth finds its way into the system despite the highest corporate tax rate in the world and a regressive system that continues to make business evil. 

STIMULUS JUNKIES
As a trigger or a condition for pulling back, Lockhart wants to see expansion and health growth.  Just like a drug addict, the economy is showing us now that it is entirely dependent on stimulus to function.  In the same fashion as a user, the US economy now is fixated solely on getting that next high.  Withdraw it or threaten to withdrawal it and you get a serious reaction and tantrum. 

In addition, Lochart commented on the inflation in commodity prices and claims that indeed he agrees with Chairman Bernanke that rising commodity prices are simply just transitory.

PLAYING THE MEDIA NOW -
Remember, this is probably just the beginning of the media blitz where we are told that the only why that we can keep things going is to have more intervention from the Fed.  We are told by Bernanke now that we must raise the debt ceiling or else we'll face doom.  We are told that the recession will come back if we don't supply as much liquidity as possible.  We'll see more Fed Presidents and more government officials telling us that we must be saved by the Fed's actions.  I guess I must ask what good have they done if all we have gotten is a delayed effect of what we have tried to avoid all this time?  Where are the jobs?  Where is that sustainable growth?  The Fed can make us "feel" like we are going somewhere, but we are certainly not getting anywhere.  We're doing a lot at a huge cost to accomplish nothing. 

GOATMUG

MONTHLY MACRO UPDATE - PART 1

I'm going to try something new this month where I produce the monthly macro report, but break it into two or three slices over the course of a couple of days.  I think this will help you as readers actually take a few moments and look at and digest the data, and it will also help limit my writing fatigue.

TOTAL RAIL TRAFFIC CHART - http://railfax.transmatch.com/
May rails during the first week of May are above last quarter's dip.  The tonnage exceeds last year although the rate of excess over previous months and quarters is certainly declining.  We did have declines in coal, autos, forest products, and food vs last year.  However, year to date all categories are showing increases since 2010's end.

CANADIAN PACIFIC (CP)
Canadian Pacific continues to have worse tonnage shipments compared to last year.  They are the only major player that is facing this issue and therefore this is why I continue to highlight there production.  I'm not crazy about shorting this one at all unless we see a breakdown of the $60.50 area.  At that point, CP would be a true winner from the short side.

AUTOS
Despite the poor weekly performance, Motor Vehicles continue to be shipped at a much higher clip than last year.

WASTE AND SCRAP
Hauling of waste and scrap continues to be muted and in the last few weeks has actually dipped below the 2009 and 2010 trend line. 

SCRAP COMPOSITE INDEX - http://www.scrap.net/cgi-bin/composite_prices.cgi?id=100000&num=5
As noted above with the rail shipping of scrap and waste, the Scrap Composite Index has briefly stopped its ascent.  As we always mention, Alan Greenspan always watched scrap prices as a tell for the direction of the economy.  Since it was good enough for the 2nd biggest bubble blower in the free world, it is good enough as an indicator for Goatmug.

MIT / MOODY'S TRANSACTION INDEX - http://web.mit.edu/cre/research/credl/rca.html
The Moody's / MIT real transaction index data for March 30th 2011 showed another decline of 1.2% on all national real estate transactions.  If you were calling for a recovery in asset prices related to commercial properties, you'd still be looking for it.

NAR HOME SALES - http://www.realtor.org/research/research/ehsdata
NAR reported that home sales actually increased for the first time in several month.  While that may be the case in total, I am interested also to see the distribution of the sales across different price points.  In my area which is mostly affluent, I am seeing a tremendous amount of interest for homes that are in the $800,000 to $1,000,000 and above.  Where I live, that is a very large amount of money (perhaps unlike New York or San Franscisco).   

As you examine this posting from a NAR press release, we will note that this is exactly the case.  Comparisons of prices from one year ago demonstrate that homes from the $100,000 to $750,000 level continue to face declines while those that are able to afford the priciest abodes are actually paying up. 

I've highlighted quite a few times that this economy is becoming two, one where the rich are happy to carry on their lives with little impact, and then another where the middle class and poor scratch to earn an existance.  Clearly, Greenspan's housing bubble took the middle class to the cleaners as they reached beyond their means and were caught in a trap of their own greed and "right" to live in a specific way.  Now you may say that there are those that are blameless, that they couldn't help but purchase houses in a market that was over done because the price was the price.  I will only retort that this is absolutely not true.  They made a decision that was they they deserved a house and that renting was below their means.  They never once looked at their home choice as an investment that could lose, rather many just saw the potential for gains.

FOOD STAMPS - http://www.fns.usda.gov/pd/34SNAPmonthly.htm

If there is some good news this month, it is that the rate of change of food stamp users is finally beginning to slow.  Despite the fact that food stamp usage once again increased, at the slowest pace since November of 2008.  At the end of Febuary we saw that 44.2 million Americans were using food stamps.  This amount is a 11.6% increase year over year.

While this is great news, it should also make you sick to know that the US Government (you) is paying $5.9 Billion a year to support these families.





There you have it for part one.  We are seeing continued stability in the rail shipping area, just an uptick in residential housing, and continued transaction weakness in commercial real estate.  The good news is that food stamp usage growth is slowing too.  In general perhaps we'll see a continued drop in commodity prices as we find out if Mr. Bernanke was correct in his thought that commodity price inflation was merely "transitory".

GOATMUG

RARE EARTH CORRECTION OR RARE EARTH REALITY?

On January 6th of this year I posted an article called MCP BREAKDOWN about the craziness of the valuation of a company in a "hot" sector.  Molycorp (MCP) has been the darling of Wall Street receiving loads of hype and a tremendous amount of attention.  A perfect storm has developed as the company is exploiting a space where there is real need in terms of the product that they intend to mine and geopolitical issues related to the supply that is already available in the world.  Back in January and the preceding months China had taken overt actions to limit the amount of rare earth metals they were going to sell on the world market.  Obviously the threats of controls jacked up prices and also pushed stock prices of those mining companies through the roof.

As we all know, investing is about anticipating the next move, not just catching the one that is in play today.  If you are not looking forward, you will end up catching the tail end of a rally only to be left holding the bag.  (Ask buyers of silver at $48.00 how that feels just one week later).  Is the "anticipation effect" enough to justify the valuation of MCP where it is?
I'm not sure is the clear answer, but everything in me says no.  Recall in the post that I discussed how revenues were expected to be $15 Million for the year and the valuation of the company was close to $5 Billion?  It is great to see that since that time revenues have increased to $35 Million, but of course the valuation of the company is even greater now that the stock has traded almost $20.00 higher.  Now this post is a bit late to the party since MCP is now trading around $63.00 a share, but it is still noteworthy because that price level is still about $8.00 greater than when I called it overvalued in the first place! 

Who knows what the future will bring, but one thing experience has taught me is that companies that have rise fast and furiously often produce situations where obscene valuations don't match the hope and speculation about future growth.  More often, these situations usually don't end well for the stock holder.

Take a look at the chart and notice there is some weak support at $63 where it has bounced as I finish this note, however, the bottom of this ascending channel could take MCP down to the $50 area.

Be Careful!

GOATMUG 

IMPORTANT NEWS FOR PEACE LOVING CITIZENS

I will probably have more to say on this subject, but please view this video, it is well worth your 3:22.

President Bush Reacts to Osama Bin Laden's Death with Will Ferrell from Will Ferrell

On that note, I'm struck by how many inconsistencies we are having getting the story out.  I feel like I'm getting the Pat Tillman version of the account on the bin Laden assassination as everything has been shared, unshared, and then changed.  Here are a few that I can think of now.

STORY 1 -  Pakistani Intelligence was involved in the raid. 
STORY 2 -  Oh, no they weren't and the President of Pakistan suggests that it is an attack on their sovereignty.

STORY 1 - Osama was holding a rifle when killed
STORY 2 - Ooops, he was without a weapon.

STORY 1 - Osama used a woman as a human shield
STORY 2 - Osama's wife yelled something and got shot

So, I wanted to add my own little rumors to the pot.

STORY 1 - Obama ordered the Code Red on bin Laden
STORY 2 - Former President Bush ordered the attack.

STORY 1 - NAVY SEAL TEAM 6 performed the attack.
STORY 2 - NAVY SEAL TEAM 6 supported Dick Cheney who, armed with shotgun took care of business on May 1.

I can only wonder how many more versions of the story we are going to hear.

GOATMUG

MOS HITTING LONG TERM TREND - SHORT

Mosaic is making a run for the bottom a very long term channel bottom.  This presents several options for those that are more focused as traders. 

15 MIN - 20 Day Chart on MOS - NASTY

LONG TRADE?
Where one sees blood, other see a purchasing opportunity, and it is always a good idea to look for the trade that would be on the opposite side of yours if you took a trade. Obviously one that has a bias toward going long can attempt to go long near the $71.55 area, setting a stop just below around $69.00. This provides an opportunity to catch a bounce with little risk. Personally, with all commodities looking pretty weak and entering into May (historically one of the crummiest months for stocks), I am not in this camp at all.





SHORT TRADE?
The good trade has been to be short MOS, and I have enjoyed that position for several days.  As we near this significant area of support, I am on high alert because I do not want to give up my gains.  As I examine this trade I have now entered in stops at $73.50 to prevent me from giving up a large portion of these great profits.  On the flipside, if the $71.55 area breaks down I am looking for a potential move to $65.00

Long term 3 Yr Weekly Channel is close to being broken. -

Daily View - 200 Day



As always, be careful.

GOATMUG