ALL IN - ECB PUSHES ITS LUCK

Photo by Phil 

STRONG MOVE
Ok, I admit it, I am one of those people that watch the World Series of Poker on ESPN every year.  It's not because it is good television or even that I like poker, it is simply that I like watching people attempt to win using a number of interesting strategies.  Sometimes players will be loud and almost belligerent, others will be quiet attempting to hide any emotion and even covering their eyes and wearing hoodies, finally others will talk and blab in an effort to throw off their opponent.  The competition is a perfect mix of bullying, guile, and negotiation all in a venue that is shockingly rewarding to the final winner.

BINARY EVENTS
We've discussed how the markets continually are positioned to offer binary outcomes and frankly I hate them!  We face some serious issues this week where the direction of the market will certainly trade based on two huge headline events that happen tomorrow (Sept 12) and Thursday.  First, the German high court will weigh in on the constitutionality of the ECB's measures and determine if there is a violation of the German constitution.  Second, the Fed will meet and the market expects some further market stimulus probably in the form of continued low interest rates, cessation of payments on excess reserves, and more "twisting" by targeting the yield curve and buying specific treasury bonds. It is pretty obvious, if the German courts rules against the ECB's moves or the Fed only partially delivers stimulus in the form of more QE, we probably see markets go down significantly.

DRAGHI GOES ALL IN
As if there wasn't already pressure on the German high court, ECB head Mario Draghi  doubled down in the past couple of weeks and issued statements that the ECB would begin unlimited bond purchases of countries that had yields that "were not reflective" of real market pricing.  In otherwords, the ECB just promised unlimited bond purchasing to manage rates and keep them under the critical 6%, 7%, or 8% level (who knows what really is critical now as 6% was the key rate).

By issuing this promise, Mario Draghi simply pushes all the ECB and Euro's chips into the pot and has demanded that market participants fold in the face of an overwhelming and serious threat.  The question that investors, traders, and speculators must ask is, "Does Draghi really have anything in his hand?"

ROYAL FLUSH OR HANDFUL OF CRAP?
So, despite the back drop of the two headlines this week, the real story is the ECB's head and his promise to save the Euro no matter what.  The bet sounds convincing and seems to have been exactly what markets needed to hear to drive investor confidence higher.  I've read a number of bullish stories that emphatically state that the Euro is saved and there will soon be a rush to purchase fire-sale priced European assets as the fix will stabilize markets and put a floor under them.  The USD and Euro have been trading like it is Draghi's pot too.

So what could lead us to believe that perhaps the ECB Chief doesn't really have a royal flush?  What didn't get much attention in Draghi's announcement is that all of the unlimited purchases would be contingent on the nation receiving aid to comply with full austerity measures and submit to the IMF and ECB conditions.  In otherwords, Spain and Italy will be required to become Greece-like and bow down and implement processes they just haven't been willing and able to do.  In otherwords, Draghi's promise is based on the requirement that distressed nations reign in spending and raise taxes even more.

PUSHING PEOPLE AROUND
In reality then, Mario Draghi probably has nothing in his hand, but he probably was able to win the pot as his competitors don't have a strong hand that would be worth challenging such a bold and overwhelming bluff.  Effectively, the ECB has played a similar hand to what the Fed has and the all-in moves force reasonable players in the markets to simply bow out and hope they can survive and capture a hand on better terms.

Ultimately, sterlization of bond purchases won't do the trick and rates for distressed sovereign nations will get out of hand, but the Fed's and ECB's strategy has nothing to do about winning long term, these players are only interesting in winning the next few hands and extending the game as long as possible.

While I don't think we'll see any shocking news coming from the next two days, I suggest that you review your positions and watch for a continued move higher in commodities and metals.  While we are promised that sterlization and QE hasn't produced inflation we need only look to the charts of gold, silver, oil, and corn to note that central banker promises, bluffs, and all-in bets produce commodity charts that go up and to the right.

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/

GOLDILOCKS - METALS UPDATE

AMAZING PUSH HIGHER
Gold, silver, and pretty much all commodities have been on a tear recently.  I had updated a post several weeks ago mentioning that silver was a strong buy and thought that we might see resistance at $31.50.  I never posted that post here on the blog, but put it up on Tim's blog www.slopeofhope.com .  I suggest you visit his site daily.  Anyway, the title of that post was POUR SOME MONEY ON ME - SILVER UPDATE from August 12th.  In the post I suggested that everyone was supportive of the Fed that is supportive of the policies that will push silver and other commodities higher.  With unlimited bond buying promises from the ECB and a Fed meeting on the 13th, the commodities markets went into overdrive and quickly blew through all previous areas of overhead trouble.

Levels on SLV to watch now include $35.50 and $42.50.  Please note, I used SLV, not silver in this chart!

Finally, enjoy this bullish video from Frank Holmes and Jonathan Barratt as they discuss the outlook for gold, silver, wheat, and other commodities.

BIG WEEK THIS WEEK
Key things to watch this week are the German High Court ruling on the legality of the ECB bond-buying actions (Wednesday) and on the 13th, the Fed will come out an stimulate us again.

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/

MARKETING WORKS - FOODSTAMP UPDATE

SNAP IS AWESOME!  GET YA SOME!
The government's Supplemental Nutrition Assistance Program has been a powerful success by any measure.  While hard economic times have certainly driven participation in the program in recent years due to the "Great Recession", longer term trends suggest that the foodstamp initiative is amazingly effective at adding to its roles.

The government released June data this month and highlighted that more than 46.67 million Americans are now receiving food assistance.  The new figures show that we have erased the recent drops in participation in February and April and have pushed to new record highs.  We are 3.3% higher than a year ago and 1/2% greater than last month.

DIFFERENT WORLDS?
Stock markets would have us believe that things are better and the outlook much more positive, how can we justify equity index gains and the record participation in government food programs?  We must look only to a massive effort by the last two administrations to drive up enrollment.  The USDA under the leadership of George Bush and President Obama have emphasized participation in the program and we've even had tremendous marketing efforts on television and radio to get the word out that free food is available.  The USDA is spending almost $3 million dollars to get eligible participants to apply for the service in California, Texas, Ohio, and New York.  They are specifically targeting the elderly, working poor, unemployed, and of course.....hispanics (why this group is singled out I have no idea, as if they wouldn't fit in the other highlighted groups??).

TERRIBLE STORIES
The USDA has stepped up its efforts saying that there are more than 1 in 4 eligible people in the US that still haven't applied for the benefits they are eligible to obtain!  Take a look at the video from CNN below.  As I watch this I am simply mortified for this family that they have endured 4 years of struggle.  The frustration they must feel and the shame they obviously feel is terrible as they wouldn't agree to show their faces on camera.  As much as I can empathize with them,  I am also disturbed by the lack of creative thought and noticeable lack of initiative their entire family has shown.  I can guarantee you that the father could start his own small cleaning business or janitorial supply business and earn more than the $18,000 annually the family has made as he labors as an hourly worker.  In addition, I find it hard to believe that the wife isn't working too.

After four years, I would hope that they had improved their situation and I am sure that they do too.  I just almost believe that these "safety nets" have created a group of people that are incapable of being self-reliant and creating their own success.  Clearly they didn't have significant savings as they said they were broke immediately and clearly they have some situation that prevents them from undertaking heroic measures to address their situation (possibly some health issue?).  While I am sorry that the son cannot go to college, I am left wondering why he isn't working and contributing his earnings to his family?  The family has had food assistance, free living (not paying their mortgage), and obviously other benefits too, the question is how will they get out of this mess?  Will they just continue to hope for a corporate job, or will they endeavor to try something new?  My guess is that Obama or Romney won't be able to help someone that clearly hopes to be restored to his previous position and station in life.

SAFETY NETS ARE TRAPS - GOVERNMENTS CREATING DEPENDENCY
Instead of ramping up food program expenditures, I would rather see the government get out of the business of trying to serve more folks.  If a government program must be created, make it mandatory that recipients enter a technical job training co-operative as we continually hear that America lacks skilled labor and jobs at specialized manufacturing plants are plentiful.  I am choking as I'm writing this as it sounds like I'm advocating more government, but it seems as though it is inevitable that the government is going to spend, spend, spend, perhaps it is more reasonable to demand where they are going to allocate it.

The USDA sees lots of new candidates out there and we've seen how effective they are at using marketing to reduce the stigma associated with the lack of desire or inability to provide for basic needs for a family.  I guess we can only predict that we'll see increased role size and more than $80 Billion in annual program expenditures in the near future.  One has to wonder what is wrong with the 85% of the population that isn't using foodstamps, I'm guessing it won't be long till some are enticed to join the program.

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/

LET'S EAT - FOOD COMMODITY UPDATE

Photo by - Alan Turkus

As August ends and markets hold their collective breath about what decisions will be made at Jackson Hole, I wanted to see if I could debunk the commonly held notion that we'd be in for more QE3 later this Friday.

LOTS OF TALK
I have noted in several posts that I think Bernanke will announce that interest rates will continue to remain low through 2015 and not just 2014 as he previously disclosed.  The hope is that another year of low interest rates will continue to underpin the housing market's "recovery" and of course ZIRP will force Mom and Pop and Grandma and Gramps out of their savings accounts into riskier assets.

Unfortunately, I think the market is really looking for more out of the great academic than just constant rate twisting and therefore we may actually see the markets correct a bit here as banks and traders need another boost from the central bank to push the indices higher.  There is only one problem with the conventional notion that we'll get more of the stimulus that we need, it is simply that real food and gas prices have been increasing significantly even though the Fed's own inflation measures remain in check.

HOT CAKES?
What types things are going higher in price?  We need to look no further than food commodities to see some dramatic prices increases.  July 2012 was frankly the hottest July on record in the USA.  In addition to the heat, the midwest also suffered a severe drought that has really destroyed corn and soybean crops.  As a result of impaired crop growth, prices for have farm products have increased.  Soybeans and Corn have not only moved higher, they have exploded to near record highs.  Rice is one of the lone exceptions to have not vaulted into record territory.

SOYBEANS

CORN

RICE

WHEAT

The point in putting these charts of the "softs" is that Bernanke may just have put himself in a box with the help of these weather conditions.  If he were to implement a fresh round of QE3, 4, 5, or something here, we can be sure to see these food inputs go even further above their ranges and records and also we'd see gasoline blow sky-high.  I noted earlier this summer that gasoline has actually done a Crazy-Ivan and actually gone up in July which is HIGHLY unusual.  Bernanke can't push gas prices and food input prices much higher without really slamming on the brakes of our economic recovery.  UGA has broken out and now could be headed to test its 2008 high near $67 (currently at $58.50). (Not charted here).

GASOLINE

TRADING UPDATE
I have been watching agriculture related commodities since last year and in the new year wrap-up and outlook I mentioned that "AG STUFF" would be a place take advantage of our central bank's foolishness.  I've copied a selection from that post here;
TAKEN FROM CONFIDENCE LOST - 13 FOR 2012 - PREDICTIONS

"6)  AG STUFF -Yes, I said it again, corn, wheat, soybeans, sugar and anything that can be consumed will move much higher.  A safe play is to time the exit in May as well, but I think that agricultural commodities will be the one uncorrelated asset this year that just kills it.  The more intervention we see domestically by Uncle Ben and his round table of doves we will see more food disruption in the form of out of control prices fed into the system.  Tunisia, Egypt, Libya, and Syria will all just be the tip of the iceberg as world citizens rise up to confront their leadership's ability to control prices of food as a result of the never-ending liquidity spigot originating in the USA.  Names to watch here are CORN, JJG, SGG."

One I do own now and have had since earlier this year, but didn't mention in the piece is DBA, the Powershares Ag Commodity Trust.  I've had a decent 8% gain since obtaining it, but I feel that there is going to be more in this trade coming from macro-factors.

DBA

While I own DBA, I'm not loving where it is sitting now unless Bernanke does go ahead and announce something this week.  Clearly, DBA is in between these two trend lines and without new news we'll see it bounce between $32 and $28.00.  Overall, I think I am ok with a solid $28 floor here, so I am still waiting on this position.  A move through $32 could set up a much larger move to $36.00

WHAT COULD TEMPER THE BULLISHNESS?
While US farmers and agribusiness producers are having a terrible time this summer, Brazil has jumped into a significant leadership roll.  Brazil is now the world's largest soybean producer and also had their best corn crop ever.  Brazil's role in global food production and exportation has never been so large and important.  All the bullishness for agribusiness commodities could dampen if Brazil posts larger than expected production or if the US farmers could actually save some of their crops.

Ultimately, if Bernanke doesn't move to fire up some form of QE as a result of fear of overheating commodity prices or concerns about retaining fire-power as the Euro situation continues to deteriorate, these commodities like corn, wheat, or soybeans could shock the markets and fall significantly.

GROUPON UPDATE - DEATH OR COFFEE? (GRPN)

HOW ABOUT THIS COUPON---- 80% OFF
The problem with getting things right every once in a while (blind squirrel) is that you begin to look like an a-hole when you bring it up.  I actually wrote a couple of posts in the last 8 months that have absolutely nailed some big moves downward in crazed stocks.  Unfortunately, I found one on CMG that was simply brilliant, but was stuck in my "draft" file that was never published.  On the other hand, I've been quite public about my disbelief about Groupon and it's ability to achieve the lofty expectations and valuation that the market gave it earlier this year.

Please take a look at this link - GRPN - Same Old IPO Scam
In this post I highlighted how bad Groupon has been for a few businesses that used their services, how easy it was to replicate Groupon's services, and how sick the chart looked.  The last line of the article can help summarize how poorly I felt the trading prospects for this dog were, "I can't even identify any support below this level, so unless we get back up on the close, I think it is a stock you can short with impunity."

So, eight months later we can see that GRPN has been destroyed from the $20 to $30 IPO range to its current price of $4.50 (OUCH!).  Let's revisit the stock and see if anything looks interesting as we delve into Groupon's plans to revive itself.

NEW COO ATTEMPTS TO RIGHT THE SHIP-

In the article we hear that Kal Raman is attempting to reduce the sales force, fix their payment system which has been called an accounting scam, and push new technology.  All of these problems are real and should be addressed but I am skeptical that if they are fixed that they will bring about any real change to the firm.

FIRE THEM
First, Groupon is apparently bloated with a huge sales force for what they actually produce.  Clearly if the sales reps are not bringing in substantial deals they need to trim the fat.

SLOW PAYMENTS
 Second, their payment system has been said to essentially be based on holding back customer (vendor) revenue and potentially counting it as Groupon revenue.  Raman must fix anything that could be looked upon as a scam or accounting loophole.  Apparently, GRPN would receive money from online buyers, pay 1/3 out to business owners upon purchase, and hold back the remaining for several months.  In addition, they would pay out these slugs of payments via check.  This is amazingly odd since Groupon was said to be a technology company and this was the reason for the obscene valuation at the time of the IPO.  I would imagine that a technology company could set up immediate payment systems that used direct deposit, wouldn't you?

Whatever you may say about the accounting, the slow payments must have absolutely killed many of the small businesses they were working with as cash flow issues are the biggest problem that most micro-firms face.

NEW TECHNOLOGY - COFFEE IS THE SAVIOR?
Uh oh.  Here we go again.  I've heard that new advances in technology were going to save companies since I've been around stocks.  I think Groupon should have already had real-time metrics available to clients so they could monitor their future-client purchases and even stop selling them if they desired at any given moment.

Groupon's new software called Coffee is reported to be able to show reps from the firm other deals they have sold to businesses nearby in order to frame the sale better and present similar ideas to new customers.  I am not sold that new technology does anything to change the problems at this firm.

BOTTOM LINE
At the end of the day all of these changes make Groupon better, but at the real problem with Groupon is that it was over-valued and was a company that had no real or unique key that was a barrier to entry or replication.  In fact, Groupon was the biggest coupon seller online anyway, Living Social had been at work for years and had done a much greater volume of business, Groupon just had a better team of underwriters and VC firms greasing the markets to swallow another over-hyped and over-valued "online" game-changing business.  I don't believe that Facebook is as bad as Groupon, but it is clear that the same type of market-bringing strategy was used in both names.

TRADING
I don't think it matters if Raman can implement the fixes he has been brought in to address.  Groupon is frankly a coupon company that uses an email distribution list to sell its wares.  Give me a list of 500,000 email addresses that I could probably purchase from Linkedin and I bet I could replicate Groupon's business quite easily.  By the way, I have softened my dislike of LNKD, of all the internet IPOs we have seen, it may possibly be the only real-deal out there.  It is hard to continue being short GRPN, I'd simply suggest that it is a zero and that it will not be a viable investment candidate......ever.

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/