TECH WRECK - GRPN UPDATE

COUPONS EVERYWHERE
In November of 2011 I posted an update on Groupon and essentially said it was terrible as it made its IPO debut.

A BAD TASTE IN YOUR MOUTH

Ultimately I felt that Groupon (GRPN) was a strong short because its business model was easy to replicate and it really wasn't fairly valued after its IPO which vaulted it into the stratosphere.  I made the argument that GRPN was simply a tech bubble fantasy that would crash back to earth.

A ZERO?
In early November, Groupon reached a price of $30.00 a share and on the 22nd of November it was already trading at $22.  In my year-end kickoff post, CONFIDENCE LOST, 13 PREDICTIONS FOR 2012, I went further as I wrapped up the article with the following quote;

"Groupon will be one firm that is out of business in the next 5 years and therefore it is clearly an equity to focus on (to short) if it can ever gain any traction and get a bounce."

Let's check back in on this great technology story and check out where it is trading and where it might be headed.  Please examine the chart below;

WHERE IS IT HEADED?
I will spare you the sophisticated technical analysis on this $3.90 stock, and summarize this view on GRPN with this final thought on "Groupon still hasn't formed a bottom".

OTHER TECH NAMES
As I wrote in an recent article, I have softened on LinkedIn (LNKD), I think that is one of the few "internet firms" that has a real business and could be amazing.  The chart looks ok here too, unless it falls through $101.  I love to shop using Priceline (PCLN), but that chart looks really shortable after the monster gap up last week.

THE FUTURE
The election is tomorrow and I am simply praying that God would give us the candidate that he has for us rather than the leader we are asking for.  I'll give you a hint about the people of Israel, it didn't work out very well when Saul was named their king.

1 Samuel 8: 6-20


⁶ But when they said, “Give us a king to lead us,” this displeased Samuel; so he prayed to the Lord. ⁷ And the Lord told him: “Listen to all that the people are saying to you; it is not you they have rejected, but they have rejected me as their king. ⁸ As they have done from the day I brought them up out of Egypt until this day, forsaking me and serving other gods, so they are doing to you. ⁹ Now listen to them; but warn them solemnly and let them know what the king who will reign over them will claim as his rights.”
¹⁰ Samuel told all the words of the Lord to the people who were asking him for a king. ¹¹ He said, “This is what the king who will reign over you will claim as his rights: He will take your sons and make them serve with his chariots and horses, and they will run in front of his chariots. ¹² Some he will assign to be commanders of thousands and commanders of fifties, and others to plow his ground and reap his harvest, and still others to make weapons of war and equipment for his chariots. ¹³ He will take your daughters to be perfumers and cooks and bakers. ¹⁴ He will take the best of your fields and vineyards and olive groves and give them to his attendants. ¹⁵ He will take a tenth of your grain and of your vintage and give it to his officials and attendants. ¹⁶ Your male and female servants and the best of your cattle^[a] and donkeys he will take for his own use. ¹⁷ He will take a tenth of your flocks, and you yourselves will become his slaves. ¹⁸ When that day comes, you will cry out for relief from the king you have chosen, but the Lord will not answer you in that day.”
¹⁹ But the people refused to listen to Samuel. “No!” they said. “We want a king over us. ²⁰ Then we will be like all the other nations, with a king to lead us and to go out before us and fight our battles.”



Have a great week

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/

THE END OF GROWTH

I found an interesting video about growth and how growth itself is unsustainable.  In this video, Professor Albert Bartlett shares his very rational and realistic understanding about simple math and how growth has some unsettling implications on the way we live as a nation and as a human race.

THE END OF GROWTH
http://www.planbeconomics.com/2012/10/14/professor-albert-bartlett-on-the-end-of-growth/



As I expected when I first started watching the video we do end up in some of the usual places that liberal professors go.  Ultimately, Professor Bartlett found his way to the concept of population control and resource scarcity.  I think if we let him continue and were off camera we'd witness the professor explaining the benefits of abortion, euthanasia, and championing China's one child policy.   Fine, I'll put up with that as his story is one that applies to just about everything we deal with in the markets and investing.

Clearly, uncontrolled growth (even slow growth) causes really big problems three and four generations out.  This is why we need to have seriously responsible leaders in the Congress and the Presidency to deal with government spending, inflationary costs, and declining energy resources.  Unfortunately, we don't have these leaders, we have children that would rather line their own pockets with stock picks based on insider knowledge and we insist on candidates that tell our special interests "Yes" when they should all be told "No".

Below are three or four key areas where growth will cause major life-altering changes in the way we live;

US Debt
Energy usage versus available resources
Food
Water

Just another pleasant topic to lift you up for the day!

TRADING UPDATE
We've seen a 3% to 4% drop in equities this week as earnings reports continue to come in with misses despite earlier downward revisions and guidance.  In fact, even future guidance is suggesting lower earnings as well.  I am beginning to hear mixed stories from my clients about business orders and what larger customers are doing, but I still continue to hear that small businesses are fearful and they will not hire till they get through the election.  Many of these owners are very against President Obama even though their current business seems to be improving.  Notice what I just wrote, business is improving, but they don't give Obama credit, they feel like the recovery is just due to normal cycles.  

We may be back to the sector rotation where instead of cyclicals, industrials, financials, and technology are the place to be, we are seeing a move to utilities, consumer staples, and healthcare.  This is a recessionary fear rotation and is evident by the way that CAT and others have been clobbered.

Treasuries also have started to rebound and even high yield and corporate bonds have sold off a bit.

TAXING FUTURE
I don't want to forget to highlight that many of the "safe haven" sectors and dividend payers we've highlighted and invested in over the last two year may also become the target of significant selling pressure even if they fit into the healthcare, defense, consumer staples, and utility space.  The reason for this is that many investors will attempt to take their tax lumps right now in 2012 before capital gains rates go from 15% to 20%.  Add in the Medicare tax for high earners, and this could go as high as 23.8%.  In all, investors will pretty good gains in these dividend paying stocks may be inspired out of a fear of higher taxes to sell in the next two months to avoid higher capital gains rates in the future.  Significant selling will obviously bring the markets down.

In addition to tax-based selling, we are seeing firms guide earnings lower, in fact 100% of healthcare companies and 100% of energy related companies that have reported earnings have ALL guided future earnings prospects down!!!  That can't be good.

FACEBOOK
Stop.  Before you buy Facebook remember these three things.  Facebook is no longer cool.  Second, who is buying stuff on mobile and who really wants to buy stuff through their Facebook page?  (Goatmug does not have a FB page by the way).  Last, more than 1 BILLION SHARES will be unlocked for employees and investors to sell in November and December.  WHY WOULD YOU BUY BEFORE THAT TSUNAMI HITS THE SHORE?  I am happy for those that saw a 25% increase in the price of Facebook this week, just know that you'll be able to buy this stock 75% lower than today in less than one year.

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/

DEBATABLE RESULTS - ROTATION

I think it is clear that the election is important, yet I get a depressed feeling when I see the two candidates trade jabs and lie to each other and this country.  The false choice that each present is quite clear as Romney agreed with Obama throughout the evening, illustrating how it doesn't really matter who you choose.

Before you make a bunch of comments that suggest that I am one sided, negative, or simply misinformed, I'd interject that Obama is actually quite like Bush and in fact more bellicose than I would have ever expected given his pacifist words.  Likewise, Bush shocked us all when he went soft on immigration and attempted to do amnesty light and ran up tremendous deficits and grew government.    Ultimately, we have to identify the men and women behind the scenes like Karl Rove or David Axlerod that set the agenda and create the platform for Presidents to stand upon.

To lighten my mood I've provided this nifty little video that I've had in the queue for a while.  This post has nothing to do with any market related topics and is simply here to make me laugh at how humans are just entertaining.




The guy in the video is a CEO and founder of a Korean company.  Unfortunately I've heard his business skill is not as good as his singing, dancing, and video production.

TRADING UPDATE
The DJIA is down 250 points as I'm typing after Dupont, UPS, and 3M reported poor earnings.  It seems that the safe-haven dividend paying multi-nationals are being taken to the woodshed.  It is possible that a major sector rotation is now underway.  FB reports after the close and AAPL (who is responsible for almost 95% of the gains for the entire SPX for this year) is going to unveil an I-Pad Mini (who cares). I don't think either of these two events will revive the markets today.   Ultimately, no matter which candidate gets elected the increase in tax rates bodes very poorly for the stock market and so you need to begin crafting your equity exit post election or pre-New Year.

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/

TRANSITORY INFLATION REVISITED (FOOD)

THE FED'S WAY OF THINKING
I find myself reflecting back on the old days of my early career in Finance when Alan Greenspan shared wisdom and knowledge in a manner that left all of us wondering, "What the heck does that mean?".  Greenspan's watch over the US economy earned him the nickname The Maestro since he was able to save us from the financial cataclysm of the 2000 (remember when the world would end because the year changed from 1999 to 2000?).  Greenspan guided us through recession and even gave us a wonderful housing bubble to comfort us after the tech collapse.

Greenspan's cryptic and smooth delivery left a high bar for all following Federal Reserve Chairmen to follow and it is obvious that Ben Bernanke is not quite as eloquent as his predecessor.  As we reflect back, we now know that Greenspan is actually not The Maestro, but probably should be called The Destroyer as his policies clearly contributed to the real estate collapse of 2006 to 2008.  On his watch he avoided oversight and management of banks and lending institutions that pursued profit without concern for solvency.

THE SAVIOR
Bernanke has done a remarkable job "saving" the existing system by performing heroic measures that are by anyone's assessment, simply extreme.  The new Fed Chairman has done the impossible and so he is credited by many as the savior of the financial world.  This blog has often declared that the extraordinary steps taken by Chairman Bernanke really are going to be the undoing of the world financial system as the actions really have only delayed the inevitable and probably made the collapse even more dramatic and far reaching.

THIS TOO SHALL PASS
I wanted to remind readers of the famous discussion Bernanke had where he defended his policies and stated that if there was actually an inflation in terms of food or gasoline, the impact was "Transitory".  In addition, Bernanke stated confidently that if there was discernible inflation in the system, the Fed would aggressively intervene and address the situation.  

(please see the Bloomberg story from April 2011) -

In an effort to check in on how Mr. Bernanke keeps his promises, lets examine an interesting graph I put together using data from the UN Food and Agriculture Organization.  The arm of the UN tracks world food prices so that we may look and see if in fact prices are going up or down over time.

FOOD FIGHTS
As you can see clearly, in April of 2011, food prices were rocketing much higher and this has to be one of the most significant reasons for the "Arab Spring" last year.  Starving people don't tolerate bad leadership for long, and these food prices caused them to take action.  Bernanke was able to step off the gas and we notice that astonishingly Bernanke was correct, prices moderated almost at the same time he gave his speech.  2012 has been a year of decline of food prices, but since September of 2012 and the announcement of QE 3, we have seen the UN Food Price Index reverse and begin to move higher.

Since I don't want to present data that tells an incomplete story, I've also posted a chart below that gives us a view of the nominal prices of the food index (as shown above), but also presents the inflation adjusted values.  The adjusted values still highlight that the food index is close to 30% higher than 2009 levels.  Let me say that again, food costs are close to 30% more than  3 years ago.

Nominal vs Real

The FAO data also has a breakout of the component commodity food prices and I have posted them here too.

Sugar continues its fall, but meat, dairy, and cereals all have move higher since their lows in January.

TWO CHOICES - BEN PICKS INFLATION!
As I wrap this up, the point I am trying to make is that Bernanke told us that inflation was moderating and seemed "transitory".  Almost in tandem with his statements, inflation worldwide reversed course and prices came off significantly.  In 2012, we have seen a reversal to this trend and we now see that food inflation is now heading higher.  It will be interesting to see additional data for October as it will include more of the results of the QE 3 announcement.

At this point the consumer worldwide is paying more for food and we all need to question Bernanke as to how long "transitory" really means and how he plans to aggressively intervene to stop inflation while he is aggressively holding rates at ZIRP through mid 2015.  My guess is that he will gladly let inflation stay awhile longer (forever) rather than stop his zero interest rate policy.  Our government and the Federal Reserve would gladly export food inflation and instability throughout the world to keep the financial system alive for a little while longer.

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/

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/