HISTORICAL VIEW - TRANSPORTS AND TULIPS

BLAME IT ON THE BOTS
Late last month I penned a posted titled, "5% Drop in the Transports Dead Ahead".  Like many of the posts that I hang out there, the HFT bots must have read the headlines and conspired to make me look a bit foolish on timing as the market has been able to tread water and the transports didn't immediately lose 5% with 3 minutes of posting like it should have!

STRONG RELATIONSHIPS
Seriously though, as soon as I posted it, I began to look at the action in the transports over longer time frames and make some notes that I wanted to share.  The first point I wanted to show is that the transports are important!  There is a pretty strong relationship between the transports and the stock market, and darn it, between the real economy too.  While I remind myself daily that the stock market is not the economy and the other way around, in longer term time frames the economy does matter to the market.  Ben Bernanke seems to think so as well, since he believes strongly that the market can drive the economy.  If he didn't, he wouldn't have spent trillions increasing his balance sheet to buy treasuries and MBS to make everyone feel like the economy is better.  Remember, feelings may lead to reality....he hopes.

I  think I have to reinforce here that the transports really are the ultimate indicator of the real economy, thus I have often posted the rail traffic and tonnage data in past years when it was easier for me to post. That is the important linkage, that at the end of the day, rails and freight and air deliveries are a direct result of the production and health of the economy.  If UPS, Fed Ex, Con-Way, JB Hunt, and Kansas City Southern all show a slowdown, my guess is that the general economy is slowing down.  Stocks will typically try to predict that slowdown unless there is some process that interferes with the pricing discovery in the market (QE3 anyone?).

So, where are we going?  Check out this chart which contains twenty years worth of prices for the transports.  In the back ground of the chart I have included the SPX in purple.

DIVERGENCES AND HOW THEY PLAY OUT
I searched this chart in an attempt to find periods of time where the transports declined, but the SPX did not.  Previously, we had an instance in 1992 where the transports dropped for almost an entire year and the SPX simply moved sideways to higher.  At the beginning of 1993, the transports ripped much higher.  This seems to be the one point of divergence that wasn't corrected.

TULIP MANIA
The other significant period where the transports dropped and the SPX did not was the time frame from early 1999 to early 2000.  This of course was the blow off top of the tech bubble where you were an idiot if you didn't have your entire net worth wrapped up in CMGI, JDSU, Peapod and Pets.com.  During that phase, transports fell and the SPX ramped higher.  We all know that in March 2000, reality somehow interjected itself into the market frenzy and despite the rally in the summer, Mop and Pop ultimately ended up holding the bag for the great tech swindle.  

TRADING UPDATE
So, the point of my post here is not to revise my article stating that the transports were going to decline 5%.  In fact, this breather serves to reinforce that exact notion that the transports are tired and cannot generate enough momentum to break overhead resistance.  The tired trading is shown here below and I still look to 4700 as the target for the transports.  Additionally, I have to highlight that the 14 day EMA is now well below the 40 day EMA.  This is entirely bearish from a longer-term swing trade view for the transports.  The question we need to ask ourselves is, "Is this 1992, or is this 1999.  Let's hope it's 1992, because I don't think Mom and Pop can stand another summer of 2000.

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/

FREE FALLING

UPDATE - 1:45 EST - MISSION ABORTED - I will keep you updated.  See the disappointment on Felix's face.

NEW HEIGHTS
Today, we can witness an attempt to break a 50 year old record.  Later this afternoon, Felix Baumgartner will free fall from 120,000 feet (23 miles) in a quest to achieve four milestones.

1)  Felix will break the sound barrier (record is 614 mph)
2)  Jump from the highest altitude ever - previous record is 102,000 feet
3)  Eclipse the longest free fall time of 4 minutes and 36 seconds.
4)  Felix will also shatter records by having the highest blood caffeine content ever recorded as Red Bull is the sponsor for this attempt and he has been receiving Red Bull via IV for the last 24 hours (ok, I made that up, but it sounds good).

The entire jump and process will be shown live.  Watch the amazing attempt here...


WATCH THE EVENT LIVE


Here is an image from businessinsder of the capsule he'll use to get to altitude.
http://www.businessinsider.com/

ADVENTURERS AND LEADERS?
In the same spirit that Felix attempts his feat, I wish we could find a brave politician that would lead us on a quest to spend less and save more, cut expenses, grow manufacturing, and destroy special interest lobbying in Washington.  Unfortunately, Romney or Obama are not the leaders that yearn to achieve these great feats.  It seems the debate has thrown the political contest on its ear and I now find myself interested in watching the race closely although I feel strongly that there will be little meaningful difference between candidates and final outcomes no matter who is elected.

US FREE FALL DEAD AHEAD
Ultimately, I feel like this is the Republican's last shot at Presidential governance and we only have to look at Venezuela to see why.  While it seemed that there would be almost no way that Hugo Chavez would be elected, he was.  I have no doubt that there was fraud, but there was also a very powerful force working as well.  This power was the power of promises to care for and provide and gift government largess to poorer people.  Chavez' socialist system continued to buy votes and votes and more votes.  It takes a mature person to vote against receiving free stuff to see that there might be a greater growth and good in the future.  It is hard to recognize that governments involvement in the social system often will destroy incentive and lowers the economic benefit for the entire country.  Unfortunately, I think we (the US) sit on the precipice just like Felix Baumgartner will later today.  The US is so close to tipping into the Socialist abyss where the 47% Romney mentioned grows to 50% and more and the message of self reliance and greater opportunity are easily replaced with government care and compassion and fairness.

TRADING UPDATE
I keep hearing more and more that the market is primed for a big sell off.  The more I hear that, the more I don't believe it.  I felt much better about that theory when everyone was bullish, but now, everyone is just waiting for the correction.  I will update more with a post on the markets tomorrow, until then, enjoy the live feed of Felix getting his caffeine high on and exceeding 614 miles per hour.

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/ 

ROYALTIES, ZIRP, AND OLD LADIES - NATURAL GAS UPDATE

GIVE ME INCOME
A friend of mine has been blessed to have purchased some mineral rights many years ago.  Before her husband died, he told her to never sell the rights as he "knew" the land was very valuable.

Years after his passing, his words have been revealed to be extremely accurate as the income generated from the leasing of the rights has been a tremendous gift to this widow.  Since she has found that she has become the target of the Fed's war on income generating assets using their ZIRP bombs to destroy her retirement income, the royalty stream has become more important than ever.  Because the mineral right income is so critical to her ability to financially survive, she watches the price of natural gas daily.  I find that I check in on Nat Gas too especially whenever I speak with her.

She called me yesterday to ask about a health insurance policy and we spoke briefly about natural gas and also about how low it had dropped.  I mentioned that it had rebounded and after our conversation I pulled up the graph above.

In my view, it looks like natural gas may have bottomed and could easily hit $4.00 since it exploded through the $3.25 level.  Even the $5.00 2011 level could be within reach.  I had to look at the portfolio killer, UNG as well, it frankly, it looks like it has broken out too and even though I hate it, a conservative look at UNG would suggest a move to $25 would be easy.

MORAL BANKRUPTCY
My examination of natural gas also led me to find this article in Reuters today.
In the article Casualties of Chesapeake's Land Grab Across America, the authors highlight several interesting techniques that Aubrey McClendon, CEO of Chesapeake, has used to lock up parcels of land and mineral rights.  Unfortunately, the firm's approach to becoming the largest mineral right holder and leaseholder in the US has been one that has left several owners feeling they weren't treated fairly.

Specifically, Chesapeake has been said to sign contracts for leases and then many days or weeks later demands lower lease rates.  The main problem with this is that the signed lease effectively locks up the landowner and crowds out any competitor bids.  After the dust settles, Chesapeake returns and turns the tables on the owner threatening to back out completely if they don't accept the lower amount.

Second, when the driller cannot get a landowner to do business they have been using the court and legal system to effectively "steal" the land and minerals from the owners.  In these examples the company uses the notion that the lone landowner cannot deprive neighbors from using their property as they please.  The firm argues that the hold-out landowner is a block to the other owners and therefore uses legal statutes to access their land and drill.  In Ohio, the land is exploited and the landowner receives royalties.  In Texas, the landowner relinquishes their right to control the land as the firm drills AND they also forfeit the royalties!!!

I read about these practices and this only adds to my thoughts that McClendon is simply a bad guy. Recall early this year when it was discovered that he had taken out loans totaling more than $1Billion against oil and gas wells he shared stakes in with Chesapeake.  (This is scary considering losses in his portfolios could be detrimental to the positions of Chesapeake.  We saw some terrible leverage issues with the CFO of Cheniere (LNG) in 2008 as margin calls crushed the company stock).  Additionally we discovered that McClendon also was running a $200 Million hedge fund that traded commodities and had failed to disclose this.   We also learned about the serious corporate governance issues where personal expenses could have been paid for by Chesapeake (and its shareholders).....Tyco anyone?

So, while I think natural gas may be going higher, I'm surprised to see a chart of CHK (Chesapeake) and I'm not convinced that it too is going to new levels.  As I close, let's view the CHK chart and see what might be going on there.


CHK

The chart of CHK shows that there has been a solid gain in the stock since May 2012.  As it has moved higher, volume has fallen dramatically.  Personally, I feel like the bullish move in the stock is done.  IF it trades above $20.50 I believe it could go to $23, but I would expect to see a fall to $16 before we'd ever see a move higher than $20.50.

KEY TRADES
Long natural gas looks good, so I guess if you are stuck with UNG and all it's widow-maker traits, go for it!

Avoid a long CHK unless there is a powerful rise through $20.50.  If there is significant macro weakness a short CHK could work to test $16.

 

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/ 

FREE... ALWAYS COSTS YOU SOMETHING

Check out this awesome video that just makes you want to stand up in pride about the state of our nation.

GET YOUR FREE PHONE





LET THEM TAKE CARE OF ME!
I didn't start looking into this issue due to the "Obama" stuff, but mainly because I saw the "free phone" commercials on television and wanted to know more.  What is scary about the video is that it reveals an attitude of "get what you can, cause its free" and then goes on to reveal the category of eligible candidates ranging from Social Security, Disability, Welfare, and more.

I once did a post that discussed the notion that our government has created an entire generation of experts in welfare programs.  Essentially that many work harder maximizing their benefits and status as receivers of free stuff than they do in actually trying to get on their own.  I recalled the terrible situation in New Orleans where there were literally generations of families on the government dole.

WHAT'S IT LIKE TO BE POOR
"Rather than changing the system and educating the public there, we created a legion of benefit experts that could exploit all of the provisions of social security benefits, welfare benefits and all other types of assistance. 


TOUGH QUALIFICATION STANDARDS
In these tough time where many people are unemployed or underemployed and everyone including states and the government are pinching pennies, I'm sure there are pretty tight controls over who can get these phones, right?  The video below examines the process and criteria for obtaining this wonderful benefit.






EVERYONE IS IN ON IT
The video clearly demonstrates that our society has declined into a full-blown communist system where the entire goal is to get what you can from the government.  Communistic systems are bureaucratic, brutal, controlling, and most of all, corrupt.  Every participant attempts to use the system to maximize their benefit.  This is why you have dependency at the bottom and an extreme level of power and wealth at the higher levels.

In the video, we see that participants take 3, 4, or 5 phones and perhaps even sell them for $20 or $30 when they need cash.  The sales guy doesn't care, he is rewarded to give out as many phones as possible because he only earns when he "sells" the phone.  He doesn't care about qualifying participants and determining if they already receive benefits.  Finally, the cell phone company also wins because they get to bill the taxpayer.  Government program leaders measure the success of the program by counting how many phones are being used, so there is no incentive to crack down on abuse or waste (this is just like the food stamps program by the way).  Government employees are measured in how effective they are at signing people up.  In this system, the only loser if the stupid guy who actually pays his phone bill as he is the one paying for the program.

WHAT ABOUT YOUR BILL?
As I examined my bill last night I really got motivated to write this post.  I am one of the few that still continues to fight the trend and I still retain a home land-line simply for business back-up reasons.  If there were a hurricane, flood, or other emergency, I want to ensure that I have some way to communicate with clients.

Having said that, I will admit that this phone line is barebones and is simply a land line.  The base cost for the monthly service with AT&T is $21.18 a month.  Not expensive, yet not cheap if you think about the fact that this phone is used for 2 or 3 calls a month.

The killer here is that the base cost is not all I am required to pay!  Click on the graphic below and note the details of the bill that includes the surcharges, fees, and taxes.  All in, the "other" expenses total an amazing $12.62 per month!  TAXES AND FEES TOTAL 60% OF THE COST OF THE LINE!!!
Are you kidding?  60% taxes and fees?  This is worse than the taxes for cigarettes, alcohol, or even gasoline!

While the Universal Service Fees for both the state and federal portions are relatively small ($.91 and $.83) they are still adding to a completely insane situation that is clearly out of control.  I am tempted to simply move the number to a service I use that gives me a virtual number and is forwarded to my cell phone.  In a sense, I keep the number and it goes to my other phone.  This costs an all in $5.00 per month.

Finally, when you actually consider that my business requires me to have three cell phones and many other telecom products I find that I am paying a significant amount each month in the form of taxes, charges, and fees.  In total, these charges are well over $100 a month.

In conclusion, watch this last video by Arkansas Congressman Tim Griffin who has tried to pass legislation to clean up the abuse and theft of our money.





So heck, why don't you just get your own, "FREE PHONE TODAY".  The problem with all this free stuff is that it causes us to lose our independence, our ability to foster self reliance, and ultimately, it looks like it has caused us to lose our integrity as well.  There really is a cost for all this free stuff.

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/ 

5% FALL IN THE TRANSPORTS DEAD AHEAD!

BREAKING DOWN THE TRANSPORTS
I've been watching the transports closely since FedEx (FDX) and Norfolk Southern (NSC) both lowered earnings expectations last week.  The transports chart ($TRAN) looked weak, but today's action including the big rollover into the close caused me to want to put a chart up for your examination.

5% MORE AT LEAST?
Based on a couple of key things, I think we will see another 5% drop in the transports to bring us at least to the 4700 level where we'll hit the lower portion of the descending channel and also the previous upper resistance line that should now serve as support (look at April of 2010).

WATCH YOUR ALTITUDE FEDEX
FedEx had a big failure and now must hold this $84 level or $75 could be a realistic target on the short side.

The weekly chart of FDX pictured above also shows that the 14 day EMA has crossed over and below the 40 day EMA which is a longer term swing trade indicator suggesting a decline.

NORFOLK SOUTHERN (NSC)
Although not pictured here, a break of $62.75 on NSC should usher in a drop to at least $57.00.


WHERE IS THE GOOD NEWS?
A global slowdown seems undeniable at this point and the turn in the transports signals at least a 5% move lower.  With all the positive news like the Fed announcement, this round of ECB lies, and the APPLE 5 release, where will the positive news come from to reverse this move?

I have had more "bullish" conversations with friends over the last two weeks than I have had in four years.  It would seem that the Apple 5 release has brought the bulls out of the woodwork and they literally have no fear and certainly no desire to lock in gains.  I would suggest we are really ripe for a rip lower to rob Mom and Pop of 10% to 20% just to remind them who runs the show.  Queue another Flashcrash Wall Street!

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/