Three Simple Trends You Should Not Be Fighting

October 5th, 2010

I’ve been discussing this ‘triple-play’ extensively in the Weekly Reports, but I wanted to pull the perspective back and show the pure price moves that seem to be tripping up a lot of traders right now.

I often show in blog posts and in member reports that the picture can become clearest without a myriad of indicators or complex methods.  The last month has been a resounding victory for simple charting methods and a defeat for complex methods.

Let’s take a look at the three trends that have materialized and will continue indefinitely until price breaks respective trendlines.

First, the “weakening” Dollar:

Next, the corresponding surge in Gold:

The relationship between these two has been stable – in that the Dollar has been steadily declining as Gold has been steadily rising.

In such environments, we return to simple Technical Analysis 101 principles that state:

“Trends, once established, have greater odds of continuing than of reversing.”

The over-arching explanation for the move seems logical and clear:

The Federal Reserve is all but guaranteeing additional quantitative easing  for the economy, and now that strategy has gone beyond the United States to involve other countries, notably Japan, who are willingly weakening their currency to provide economic stimulus measures.

Currencies are in the cross-hairs, and gold is surging as a ‘consequence’ of currency weakening measures – measures designed to stimulate the economy.

And what’s the final trend you shouldn’t be fighting?

If the Government/Federal Reserve is successful at saving a weakening economy, then we would expect the economy to recover/strengthen, and thus stock prices will rise (even though the Fed is looking to add Treasuries to its balance sheet to keep yields low).

Cue the S&P 500 chart:

Sometimes you have to take a chart purism – or specifically price purism – viewpoint and go with that.

It looks like the last couple of months – and perhaps going into the near future – will be a potential continuation of these moves.

And as long as these markets remain above or beneath their respective short-term trendlines, you fight the trends at your peril.

Trends can’t persist forever, but they often persist longer than most people think they will.

If you feel absolutely compelled to fight these trends, do so on confirmed trendline breaks – not until.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Read more here:
Three Simple Trends You Should Not Be Fighting

Uncategorized

The Impact of Japan’s Negative Interest Rates

October 5th, 2010

The grenade that economist Joseph Stiglitz threw from left field at the euro (EUR) yesterday, was a one-day hit. You see… The euro is back to moving higher versus the dollar this morning. More on that, and the RBA leaving their powder dry, in today’s issue, so let’s go!

OK… I guess I have to crawl like a viper through these suburban streets, and try not to get hit with a shovel, as my tea leaves were all wrong on the RBA’s rate decision… Recall, that originally, I said the RBA would not raise rates at this month’s meeting, but then began to drink the Kool-Aid that was being served by the recent data coming from Australia, with the most important one being that inflation was above their target rate; I said that I was 2/3rds in on a rate hike…

Well… The RBA left their interest rate powder dry last night. That disappointed the many that had bought the Aussie dollar (AUD) and driven the price higher on the expectation that the RBA would hike rates. The Aussie dollar was sold BIG TIME after the “no hike” decision. Now, not all is lost here, as the RBA did retain their tightening bias, and hinted about a rate hike… So… Like I said yesterday, “Don’t expect their OCR to go back to 7.25% in the near future… But 4.5% is going higher, and if not tonight, then the next time the RBA gets together!”

And so it is… I truly believe that the RBA will hike rates at their November meeting, unless things go really south on them, economic data-wise…

Alrighty then… It appears that the Bank of Japan (BOJ) was in the markets again last night attempting to manipulate the yen (JPY) lower. And get this! The BOJ announced a rate cut! I know… You’re saying, “But aren’t rates almost zero there?” Yes, you would be correct, rates were 0.10%… But the BOJ cut them to -0.10%!!! Negative interest rates! And… On top of that, the BOJ also announced that they were setting up a pool of funds for quantitative easing…

Talk about doing everything they can to introduce inflation to their economy! But, Shoot Rudy, the Japanese have been doing these types of things for years, now… Hey! How do you think rates got to 0.10% in the first place? These guys are rearranging the deck chairs on the Titanic.

The currency guys and gals weren’t swayed into believing that they should back off their buying of the yen, and so it is that Japanese yen is barely weaker this morning than it was yesterday before the BOJ did all these “wonderful, economically and fundamentally sound, creative moves”… (I sure hope you understand that I’m being facetious with those descriptions; for in my real words, the BOJ did bonehead moves!)

Well, once again this morning, I came in and saw 1.38 in the euro, only to see that wiped out almost immediately after turning on the screens… Hey! Maybe if I don’t come in tomorrow, and my screens don’t get turned on, the euro will remain above 1.38? Hey, Frank… HA!

Anyway… The euro got some wind in its sails overnight when Eurozone manufacturing reported a rise in September. The Eurozone manufacturing index (like our PMI), saw the index rise to 54.1 from 53.6.

The euro also saw some strong statements about the single unit from ECB members who were speaking around the Eurozone. The ECB members took the opportunity to follow up on the strong vote of confidence the Chinese Premier, Wen, gave the euro the previous night. (We talked about that yesterday)

The Irish Eyes are not smiling on the euro, though… Just about every time the euro gets its legs under it, news from Ireland cuts the euro’s legs right out from under it! Last night it was the ratings agency (Geez, Louis, again with the ratings agencies! These guys have become persona non grata with me!) Moody’s, saying that Ireland’s rating of Aa2 will “most likely” be downgraded… UGH!

And the price of oil continues to rise, further underpinning the Canadian dollar/loonie (CAD)… And the Swiss franc (CHF) continues to push further past parity to the dollar… Pretty amazing move by the franc, folks…

And what do we have here? Gold is up $11 this morning to $1,326.90!!!! And silver is following with a rise to $22.26 this morning! Oh! And the S&P Agriculture Index is at a two-year high, folks… Food prices are rising – which is inflation, whether the government tells you this or not. You should know one of the reasons people/investors are rushing to protect their wealth with gold and silver…

So… Did you see where the final figure on the US deficit for 2010 was… Drum roll please… $1,641,083,866,542.37 … That’s shameful… $1.6 trillion added to our national debt, bringing it to… Drum roll please… $13.548 trillion… And that doesn’t even take into consideration the unfunded liabilities, but I can’t even bring myself to type that number… But if you promise to put away all the sharp objects first… You can click here. But don’t go there if you don’t want to get depressed!

Oh… A new feature of the Debt Clock is the US population data… In this data, you will see the thing that I talk about all the time… The “Official Unemployed” total: 15,166,627… But the “Actual Unemployed” total is: $26,204,754… And the total number of Food Stamp recipients is now: 42,762,385…  Of course, these numbers are real time, and change instantly, so when you go the link, the numbers will be different than what I just recorded!

And why do I care about all this deficit stuff? Ahhh, grasshopper… Deficits are the root of economic evils…

Hey! I see where Cartel Chairman, Big Ben Bernanke is thinking clearer these days… Big Ben called on lawmakers to consider rules limiting federal spending and deficits, and accumulated debt. Big Ben believes that by controlling these lawmakers can curtail the risk of a fiscal crisis…

Ahem… Hello? Can you hear me? OK… I’m a long time listener, but first time caller, and want to ask Big Ben just what he calls what we’re in right now, if it isn’t already a fiscal crisis?  Thank you for taking my call, I’ll hang up now, and listen for the answer…

OK… I can be a little hard on the Beaver… I mean Cartel Chairman… But, he did say something recently that’s right up my alley of things I truly believe… Bernanke said, “unless the US makes a strong commitment to fiscal responsibility, the country in the long run will have neither economic growth nor fiscal stability”… Right Arm Ben! Farm out Ben! Outta State Ben!

Then there was this… Well… The Bloomie had a great story this morning, which I’ll give snippets of… But first… It seems that world-renowned economists are coming over to the Chuck Butler way of thinking regarding global growth being able to be sustained even with the US in recession…

Just three years since America began dragging the world into its deepest recession in seven decades, Goldman Sachs Group Inc., Credit Suisse Holdings USA Inc. and BofA Merrill Lynch Global Research are forecasting that this time will be different. Goldman Sachs predicts worldwide growth will slow 0.2 percentage point to 4.6 percent in 2011, even as expansion in the US falls to 1.8 percent from 2.6 percent.

Underpinning their analysis is the view that international reliance on US trade has diminished and is too small to spread the lingering effects of America’s housing bust. Providing the US pain doesn’t roil financial markets as it did in the credit crisis, Goldman Sachs expects a weakening dollar, higher bond yields outside the US and stronger emerging-market equities.

This is the same stuff I’ve been telling people for months now… That as long as the financial meltdown doesn’t occur, and the US just continues to be swallowed by recession, that there will be global growth, thus proving that the reliance on the US and the dollar, for trade, is dwindling…

To recap… The BOJ intervened last night, announced more quantitative easing, and cut their interest rate to a negative -0.10%! The RBA left rates unchanged, much to the dismay of traders, and the Aussie dollar suffered big time from this disappoint. And Eurozone Manufacturing rose in September, pushing the euro higher.

Chuck Butler
for The Daily Reckoning

The Impact of Japan’s Negative Interest Rates originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
The Impact of Japan’s Negative Interest Rates




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

Do even CDs trump long-term Treasuries right now?

October 5th, 2010

Nilus Mattive

Last week I told you why many mutual fund investors could be setting themselves up for serious losses in Treasury bonds.

Just to recap — the idea was that mutual funds often buy and sell before their bonds reach maturity, which can translate to big losses for fund holders if interest rates rise. And the upshot was that, if you wanted to truly guarantee against any type of loss, you would have to hold individual bonds to maturity.

Of course, if your goal is absolute safety … and you’re already willing to accept the relatively low yields being offered by long-term Treasury bonds right now … then I want to give you something else to think about today:

Many Certificates of Deposit Are Currently
Yielding MORE Than Treasuries … And Locking Up
Your Money for LESS Time in the Process!

Make no mistake: In nearly all cases, I continue to favor dividend-paying stocks over Treasuries or CDs in income portfolios, especially in this low-rate environment.

However, I also believe in diversification. I recognize that many investors aren’t willing to accept any risk at all these days. They might be okay with parking some of their money in a government-guaranteed account for a couple percent a year.

chart1 Do even CDs trump long term Treasuries right now?

And if any of the above applies to you, I encourage you to take another look at the staple of banks and credit unions across the nation — the lowly Certificate of Deposit (CDs).

Available from financial institutions around the country, CDs lock up a fixed amount of money for a fixed period of time, and pay you interest in the process. Generally speaking:

  • Interest payments are fixed for the life of the CD, though some CDs do offer variable rates,
  • Interest payments move up with longer terms and higher deposit amounts,
  • And smaller institutions pay better rates than large banks.

In nearly all cases, your principal and interest are guaranteed by a government agency — either the Federal Deposit Insurance Corporation (FDIC) if your CD is with a bank or the National Credit Union Share Insurance Fund if the issuer is a credit union. (You should still make sure that the issuing institution is covered by one of these agencies before you purchase anything!)

Assuming your CD is covered, there is currently a maximum insured amount of $250,000 per owner or depositor at any given financial institution. But since the chain of dominoes ends at the U.S. government, an insured CD offers practically the same level of safety as holding a Treasury until maturity. In either case, only a complete federal government default would hand you a loss of principal.

The downside to CDs is that earned interest is subject to both state and federal taxes while interest on Treasuries is exempt at the state level.

CDs are also considered harder to unload than Treasuries. That’s because, while CDs can be bought and sold just like bonds, their secondary market is nowhere near as liquid.

Regardless, you can always redeem your CD before maturity … you will simply be penalized for doing so (generally by forfeiting a portion of the interest). These penalties are spelled out before you commit any money.

There are plenty of other intricacies that can arise with CDs, of course — including call provisions (which allow the issuing institution to buy back your CD before it matures). But if you stick to plain-vanilla varieties, things are very straightforward.

Now, let’s take a look at what some plain-vanilla, five-year, fixed-rate CDs were recently offering in the way of interest:

chart2 Do even CDs trump long term Treasuries right now?

All three of the issuers above are insured by the FDIC … and although their yields are factoring in reinvestment of the interest received over the life of the CD, these rates are still extremely competitive with the current yield on a TEN-YEAR Treasury bond (2.5 percent as of yesterday).

So let me summarize: With these CDs, you can get the same implicit government guarantee. You can commit your money for half the time. And you can get a similar interest rate in the process.

Mind you, those are just basic nationally-available rates on standard deposits. If you want to put away larger amounts of money, issuers like USAA and Discover Bank are offering rates as high as 2.75 percent for “jumbo” five-year CDs

And if you look locally, you can probably find even better deals. In the last week I’ve seen credit unions offering seven-year CDs with annual percentage yields as high as 3.49 percent. You’d be getting a full percentage point more in interest with three less years of commitment!

So even if you’re placing the utmost importance on protection of your principal, I still think it pays to do your homework and look beyond the world of long-term Treasuries right now.

Sincerely,

Nilus

Related posts:

  1. Long-Term Treasuries: PIIGS In A Poke
  2. Treasuries, Treasuries Everywhere, but Not an Aggressive Bidder to Bid
  3. Treasuries, Treasuries Everywhere, but Not an Aggressive Bidder to Bid

Read more here:
Do even CDs trump long-term Treasuries right now?

Commodities, ETF, Mutual Fund, Uncategorized

Do even CDs trump long-term Treasuries right now?

October 5th, 2010

Nilus Mattive

Last week I told you why many mutual fund investors could be setting themselves up for serious losses in Treasury bonds.

Just to recap — the idea was that mutual funds often buy and sell before their bonds reach maturity, which can translate to big losses for fund holders if interest rates rise. And the upshot was that, if you wanted to truly guarantee against any type of loss, you would have to hold individual bonds to maturity.

Of course, if your goal is absolute safety … and you’re already willing to accept the relatively low yields being offered by long-term Treasury bonds right now … then I want to give you something else to think about today:

Many Certificates of Deposit Are Currently
Yielding MORE Than Treasuries … And Locking Up
Your Money for LESS Time in the Process!

Make no mistake: In nearly all cases, I continue to favor dividend-paying stocks over Treasuries or CDs in income portfolios, especially in this low-rate environment.

However, I also believe in diversification. I recognize that many investors aren’t willing to accept any risk at all these days. They might be okay with parking some of their money in a government-guaranteed account for a couple percent a year.

chart1 Do even CDs trump long term Treasuries right now?

And if any of the above applies to you, I encourage you to take another look at the staple of banks and credit unions across the nation — the lowly Certificate of Deposit (CDs).

Available from financial institutions around the country, CDs lock up a fixed amount of money for a fixed period of time, and pay you interest in the process. Generally speaking:

  • Interest payments are fixed for the life of the CD, though some CDs do offer variable rates,
  • Interest payments move up with longer terms and higher deposit amounts,
  • And smaller institutions pay better rates than large banks.

In nearly all cases, your principal and interest are guaranteed by a government agency — either the Federal Deposit Insurance Corporation (FDIC) if your CD is with a bank or the National Credit Union Share Insurance Fund if the issuer is a credit union. (You should still make sure that the issuing institution is covered by one of these agencies before you purchase anything!)

Assuming your CD is covered, there is currently a maximum insured amount of $250,000 per owner or depositor at any given financial institution. But since the chain of dominoes ends at the U.S. government, an insured CD offers practically the same level of safety as holding a Treasury until maturity. In either case, only a complete federal government default would hand you a loss of principal.

The downside to CDs is that earned interest is subject to both state and federal taxes while interest on Treasuries is exempt at the state level.

CDs are also considered harder to unload than Treasuries. That’s because, while CDs can be bought and sold just like bonds, their secondary market is nowhere near as liquid.

Regardless, you can always redeem your CD before maturity … you will simply be penalized for doing so (generally by forfeiting a portion of the interest). These penalties are spelled out before you commit any money.

There are plenty of other intricacies that can arise with CDs, of course — including call provisions (which allow the issuing institution to buy back your CD before it matures). But if you stick to plain-vanilla varieties, things are very straightforward.

Now, let’s take a look at what some plain-vanilla, five-year, fixed-rate CDs were recently offering in the way of interest:

chart2 Do even CDs trump long term Treasuries right now?

All three of the issuers above are insured by the FDIC … and although their yields are factoring in reinvestment of the interest received over the life of the CD, these rates are still extremely competitive with the current yield on a TEN-YEAR Treasury bond (2.5 percent as of yesterday).

So let me summarize: With these CDs, you can get the same implicit government guarantee. You can commit your money for half the time. And you can get a similar interest rate in the process.

Mind you, those are just basic nationally-available rates on standard deposits. If you want to put away larger amounts of money, issuers like USAA and Discover Bank are offering rates as high as 2.75 percent for “jumbo” five-year CDs

And if you look locally, you can probably find even better deals. In the last week I’ve seen credit unions offering seven-year CDs with annual percentage yields as high as 3.49 percent. You’d be getting a full percentage point more in interest with three less years of commitment!

So even if you’re placing the utmost importance on protection of your principal, I still think it pays to do your homework and look beyond the world of long-term Treasuries right now.

Sincerely,

Nilus

Related posts:

  1. Long-Term Treasuries: PIIGS In A Poke
  2. Treasuries, Treasuries Everywhere, but Not an Aggressive Bidder to Bid
  3. Treasuries, Treasuries Everywhere, but Not an Aggressive Bidder to Bid

Read more here:
Do even CDs trump long-term Treasuries right now?

Commodities, ETF, Mutual Fund, Uncategorized

Is the Fed Better… as the Devil You Know?

October 4th, 2010

If Dr. Ron Paul is one of few voices of reason in Congress, then Thomas Hoenig may be the Fed’s Ron Paul. As president of the Federal Reserve Bank of Kansas City and voting member of the Federal Open Market Committee, he’s been the lone vote of dissent against the Fed’s ultra low-interest rates –six times.

Here’s how Bloomberg describes Hoening in a recent profile:

“This is Tom Hoenig’s moment, and it’s a strange one. In Washington, he is the burr in Fed Chairman Bernanke’s saddle: the rogue heartland banker who keeps dissenting alone — for the sixth straight time on Sept. 21 — to protest the Fed’s rock- bottom interest-rate policy. Hoenig warns that the Bernanke majority is setting the country up for an as-yet-unknown asset bubble: the next dot-com or subprime craze. He can’t tell yet where the boom-and-bust will materialize, but he can feel it coming, like a Missouri wheat farmer senses in his bones the storm that’s just over the horizon.”

Yet, even with un-Fed-like views — enough so to serve as a Tea Party speaker in the clip below — he articulates well a few points against ending the Fed in a hurry. Here’s a sample of his reasoning…

“I know many of you are very strong supporters of end the fed, and I respect that, the Congress can end up changing it. But, you better have something else in mind. If you have the gold standard in mind, that’s fine, but it’s not going to end crises. And, remember the populist movement was about ending the gold standard, because it was a very strict requirement on debitors who happened to be in agriculture at the time. So, know what it is you want. And, if you’re gonna end the Fed, and you think you’re going to do it, make sure that what you’re going to end up with isn’t a more centralized institution, located in Washington or on Wall Street.”

Check out the actual video of his talk below, which came to our attention via a Daily bail post on Fed President Thomas Hoenig’s speech to the Tea Party on Bernanke’s QE insanity.

Is the Fed Better… as the Devil You Know? originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Is the Fed Better… as the Devil You Know?




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

Connecting the Dots of Chinese Gold and Currency Reserves

October 4th, 2010

Bill Bonner here at The Daily Reckoning is one of those guys who, for some reason, figures that we (represented, apparently, by me) are smart enough to “connect the dots,” when some of us (again, me as “everyman”) are obviously not smart enough to engage in such mental gymnastics.

For example, as the gold-bug, Austrian school of economics, gun nut, paranoid, lunatic, greedy lowlife that I am, I am instantly alerted to buy more gold when he writes, “Gold makes up only 1.7% of China’s foreign exchange reserves. Many analysts believe China is targeting a 10% figure. If so, it would have to buy every ounce the world produces for two and a half years. Or, if it relies on only its own production – China is the world’s largest producer – it would take nearly 20 years of steady accumulation to reach the 10% level.”

‘“Wow!” I said to myself!

The problem for me is that China’s annual production of gold is, obviously, relatively fixed in the short run and, due to depletion of a finite resource, bound to hit something like Peak Chinese Gold, especially since gold and gold mining are not new to China!

So this “20 years of buying all internally produced gold” figure also supposes that China’s foreign exchange reserves will not grow at all – zero growth! – for 20 years.

Watch carefully here, as I note this inevitability of China accumulating more foreign reserves, which is, I figure, a dot to be connected! A dot!

I was so happy to have discovered a “dot” that I quit work early and went out to have a few congratulatory drinks to celebrate, and thus only needed one more dot to have something to connect! Wow! This is the kind of thing of which careers are made!

Sadly, I never did discover another dot, no matter how much I drank and/or thought about it, and I ended up getting really smashed, which is, admittedly, how I would have ended up if I had celebrated actually discovering another dot, and actually connected something.

So, either way, I ended up the same! It’s a win-win situation! Hahaha!

But it was still a rewarding experience, as towards the end of the night I noticed, as I “relaxed” on the floor of the bar, that the old wooden floor was tilted. Because of this slope in the floor, and my unique perspective of lying face-down on the ground in a puddle of what I hope was only beer, I could see by the light of some neon beer signs and a jukebox that two puddles of some unidentified liquid were slowly draining downhill, and the trails of them both curved down and around in big arcs. Arcs! Of course!

“Eureka!” I shouted, which caused the rest of the patrons to shout out, almost as one, “Alaska!” and then, apparently, argue about whether or not Eureka was the capital of Alaska, and if it wasn’t the capital of Alaska, then what is the capital, you loudmouth, which evolved into a discussion of who is calling who a loudmouth and who is going to do something about it, with or without the help of some alluded-to army.

“No, you morons!” I shouted from where I lay on the filthy floor, prostrate and stinking of beer, “I emulate the excited exclamation of Archimedes upon discovering the principle of specific gravity to indicate that I see, glinting in the glaring neon of the beer signs of this dreary little bar, the curving, upward-sloping line of China’s foreign reserves rising exponentially faster than the upward-sloping line of their internal production of gold, meaning that China cannot ever have enough internally-produced gold to equal 10% of their reserves if foreign reserves keep rising unless gold goes up a lot – a lot! – in price when priced in the currencies of those reserves, one of them being the dollar!

In that case, gold will go up wonderfully up in price!

Otherwise the Chinese are going to need to buy a lot – a lot! – of gold from the rest of the world, which will also drive up the price a lot – a lot! – to the point where today’s gold-bug people are going to be rich, rich, rich, and who will be a happy band of people who abruptly disappear from one town and mysteriously appear in another, fabulously wealthy, sporting nice clothes and snazzy new convertibles, and about whom lurid, wickedly delicious stories are told in whispers.

Fortunately, the Austrian school of economics and the Mogambo Lazy Bum Portfolio Plan (MLBPP) both figured that this was going to happen, and while I can’t speak for an entire school of economics, the MLBPP dictated that one should buy gold, silver and oil when the Federal Reserve is creating so outrageously, so unbelievably, so insanely much new money.

And because merely buying gold, silver and oil is so easy, one can only say, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

Connecting the Dots of Chinese Gold and Currency Reserves originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Connecting the Dots of Chinese Gold and Currency Reserves




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Uncategorized

October Could Be a Long Tough Month for Stocks

October 4th, 2010

It was the best of times… The best September for the broad indexes since 1939. Alas, “the September rally looks tired,” opines Dan Amoss, editor of Strategic Short Report, as we kick off this first full week of October.

“The timing and size of the Federal Reserve’s next round of money printing,” suggests Dan, “are driving the stock market right now. My read of both factors tells me that the market is at risk of another sharp move lower.

Stock and Bond Yield

“The S&P 500 is encountering strong ‘resistance’ at 1,150. One can easily imagine a return back to 1,050 – the starting point of the latest sprint.

“Plus, one of the key indicators of a sustainable rally is missing: Treasury yields haven’t budged much at all (see blue line above). Contrast the barely noticeable blip up in yields with the spring 2009 leap of 150 basis points in a few months.”

Then notice how the benchmark 10-Year Treasury yield sits about where it did when the S&P hit bottom in March 2009.

“The Fed is promising to buy more Treasuries,” Mr. Amoss explains, helping to put this week’s trading into context for us. “Primary dealers have run out of other attractive trades and are front-running the Fed.

“Personally, I think these traders jumped the gun. With gold breaking out to new highs and the stock market in a happy mood, I doubt the Fed will be aggressive anytime soon. Rather, I expect the Fed to spend its limited political capital when financial market indicators are much more stressed.

“In other words, because the markets have already anticipated quantitative easing (QE2) by pushing up stocks and Treasury bond prices, it’s less likely to happen soon.”

In this light, it’s worth pointing out the “retail investor” sat out the “best September since 1939.” Money has fled stock mutual funds ever since the late-April highs, to the tune of $43 billion in the third quarter.

Money Leaves Stock Mutual Funds

Trading volumes are thin. Hedge funds are guarding against potential losses and banks are taking free money from the Fed to play high-frequency trading games, but that’s it.

Quality stocks?

“Investors aren’t responding to quality in any shape or form,” says Morningstar’s director of equity research Pat Dorsey. “In fact, forget about quality – they’re just not responding to stocks.”

Here’s another figure weighing on institutional minds…if not individuals.

On Friday, as the new fiscal year dawned, the Treasury was still crunching the numbers for the final day of the old fiscal year…it appeared Uncle Sam ran up the national debt $1,545,753,247,046.20.

This morning…looks like they were off by some $100 billion. The official total rang it at $1,641,083,866,542.37.

Meh… What’s a hundred billion among friends?

“The tax base just isn’t recovering anywhere near where it was near the peak in GDP,” Dan points out. Despite campaign rhetoric about reigning in federal spending, neither party is committed to making it happen – regardless of turnout or outcome in the first week of November.

So what’s it all mean for stocks in October?

“With year-over-year earnings comparisons getting tougher,” Dan concludes, plus “federal stimulus spending fading, 99-week unemployment benefits beginning to roll off for the chronically unemployed that were laid off in fall 2008 after Lehman’s bankruptcy, this should be an interesting earnings season…”

Translation: a long, tough month for stocks ahead.

Addison Wiggin
for The Daily Reckoning

October Could Be a Long Tough Month for Stocks originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
October Could Be a Long Tough Month for Stocks




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Mutual Fund, Uncategorized

Watch Out For Dollar Dead Cat Bounce

October 4th, 2010

A couple of weeks ago I mentioned the the dollar was on the verge of a collapse. The dollar has significantly fallen since that time and is now reaching extremely oversold levels evidenced by the stochastics and RSI. So a dead-cat bounce may be beginning in the dollar, which may put short-term pressure on equities and miners.

Could we be on the verge of the next deflationary crisis? Ben Bernanke said he’s still concerned about deflation. The financial system is still under pressure with high unemployment, foreclosures, and defaulting credit. There will be further sovereign debt issues from Europe and further weakening in real estate as defaults continue to rise. This tug of war between deflation versus inflation seems to be an ongoing cycle and we may have further news out of Europe surface soon.

Click to enlarge

You can observe the chart of the dollar the cycles of deflationary periods versus inflationary periods. The dollar is reaching extremely oversold levels and a price floor, which means we may see a dead-cat bounce. This may put pressure on gold and silver temporarily. It will provide further market entry points for precious metal investors who enter the trend when gold and silver is on sale and oversold, reaching long-term trend support.

There may be further dissent from central bankers to complete a new round of asset purchases unless we see further debt issues from Europe. Many are concerned about the deteriorating dollar and the rise in gold and silver. This indicates investors are concerned about the stability of the US currency. This lack of confidence in a sustainable recovery will put into question the past monetary easing of the Fed. The quantitative easing isn’t making a sustainable recovery and producing any real economic growth. Although the equity markets have recovered, it’s been a direct result of the dollar collapse. The housing market isn’t showing signs of any improvement from the record low interest rates and still hasn’t been able to penetrate its 200-day moving average.The unemployment rate is still high and the devalued dollar is putting further pressure on wage earners.

The falling dollar also has hurt emerging markets that rely on a favorable exchange rate in order to export goods. Recently the Bank of Japan had to intervene to push the yen lower. However that was short-lived as the market shrugged off that news item and reversed higher. Although the Fed’s monetary policies may be good for the equity markets, they’re not making a significant impact on the average American. The rapid decline in the dollar will spark further pressure on emerging economies especially in Asia. This decline in the dollar will increase merger and acquisitions in the natural-resource sector as many Asian nations who are becoming net importers of certain commodities are trying to increase their supply. Although the downtrend in the dollar is confirmed a short-term bounce from these oversold levels may occur, which may provide further buying opportunities in gold and silver.


Click to enlarge

The S&P 500 is appearing to show signs that the rally is losing steam. The MACD is making a bearish crossover and the significant rise without any pullbacks shows an extremely volatile move that could see a nasty pullback. The breakout of $114 — which I didn’t expect to occur — seems to be a fake breakout. The breakout occurred without forming any real base. Thursday appeared to be an outside bar day, indicating that the uptrend of September is losing strength. The price volume action is bearish and now the MACD has made a bearish crossover. Stochastic indicators have also signaled a sell signal from extremely overbought levels. Caution needs to be exercised.

Although gold and silver may be under pressure from a weak equity market and dollar dead cat bounce, I believe it will provide another opportunity for precious metal investors to enter the trade at a more reasonable level.

Read more here:
Watch Out For Dollar Dead Cat Bounce

Commodities

Europe’s Best Currency (Hint: It’s Not the Euro)

October 4th, 2010

When it comes to high-yield investments, few instruments have surpassed emerging market currencies over the past two years or so. As equities and commodities struggled, BRIC (Brazil, Russia, India and China) currencies soared. The Russian ruble (RUB) turned in an 18% return in 2009, while the Brazilian real (BRL) gained 30%.

Naturally results like those have garnered a lot of press – especially with major currencies like the euro (EUR) and British pound (GBP) offering just single-digit returns. But all the hoopla has given investors a bad case of tunnel vision. Their focus on emerging markets has led people to ignore interesting investment opportunities in more developed economies.

Perhaps the biggest victim of investors’ myopia is Sweden. With plenty of positive underlying economic fundamentals and potential for interest rate increases in the short term, the Swedish krona (SEK) is worth a closer look.

For one thing, Sweden’s economy is on its way to full recovery from the global recession. As an exporting nation, it boasts an almost $1.6 billion trade surplus. Rising demand for raw materials like timber, iron ore and copper have significantly helped boost the $130.5 billion exports sector.

A diversity of trading partners has also helped. Bigger and more developed economies tend to have a few main trading partners. For instance, China and Mexico combined represent 35% of the US export trade. But for Sweden, export trade is fairly shared among trading partners. Germany, Denmark and Norway lead the two-way trade with Sweden, with the Netherlands following not too far behind. This diversity is likely to keep the Swedish economy protected should any major trade partner fall on harsher economic times.

A strong export trade sector and rising services industry will help any economy’s growth prospects. For Sweden, it means an estimated growth rate of over 4% growth this year. And it expects continued positive pace of growth as the economy expands an average of 3.2% over the next two years, fueled by double-digit growth rates in industrial production. That’s more than double the recent assessment of US growth. And since foreign direct investors love higher rates of economic expansion, even more opportunity is likely to surface in the Nordic nation in the near future.

Another point in Sweden’s favor is its status in the European Union. It is part of it, but has not adopted the euro as its currency. That means its Riksbank, the world’s oldest central bank, has a free hand in monetary policy.

Even with that power, benchmark interest rates in Sweden are some of the lowest in the European Union. But with high growth rates, that is likely to change. In fact, the Riksbank raised interest rates by 25 basis points, or 0.25%, at its meeting last month. This brings the country’s benchmark rate to 0.75%, or 50 basis points higher than rates in the United States. Higher interest rates in the near future will only ensure higher rates of yield for investors.

On top of all that, Sweden’s inflation rate is set to rise towards 2% over the next two years. To fight it, policymakers are expected to keep raising benchmark-lending rates. An influx of investment dollars into the country looking for higher yields will help to spur the Swedish krona.

So, putting it all together, we have an economy that is supported by high export demand, which is helping a robust domestic recovery. That success will force higher interest rate considerations and boost medium-term currency appreciation.

There isn’t much more to consider when looking for an investment in an economy and its currency. The krona is already up 11% against the US dollar since its June 2010 low of 8.1400 – but more appreciation is expected. If Sweden’s economy continues to defy expectations, the krona could soar.

Richard Lee
for The Daily Reckoning

Europe’s Best Currency (Hint: It’s Not the Euro) originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Europe’s Best Currency (Hint: It’s Not the Euro)




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Uncategorized

Thoughts on the Greater Depression

October 4th, 2010

The Gold Report: Doug, at a recent conference you said that the US ought to default on its national debt now. Why that rather than letting it play out?

Doug Casey: Several other things almost equally radical should be done besides defaulting on the debt. I recognize that an outright default is most unlikely, but the national debt should be defaulted on for several reasons. To start with, once the US government defaults on its debt, people will think twice before lending it any more money; giving politicians the ability to borrow is like giving a teenager a bottle of whisky and the keys to a Corvette. A second reason is that the debt is an albatross around the necks of the next several generations; it’s criminal to make indentured servants out of people who aren’t even born yet. A third reason would be to overtly punish those who have been lending money to the government, enabling it to do all the stupid and destructive things that the government does with that money.

The debt will be defaulted on one way or another. The trouble is they’re almost certainly going to default on it through inflation, by destroying the currency, which is much worse than defaulting on it overtly. That’s because inflation will wipe out the relatively few people who are prudent in this country, those who are actually saving money. Because they generally save in the form of dollars, they’re going to wipe them out financially.

It’s just horrible. Runaway inflation will reward the profligates who are in debt – people who’ve been living above their means. And punish the producers who’ve been saving and trying to build capital. That’s in addition to the fact it will destroy millions of productive enterprises. A runaway inflation is the worst thing that can happen to a society, short of a major war. They just should default on it honestly, as it were.

TGR: But your belief is we’ll try to inflate our way out of it to pay for it.

DC: Don’t say “we.” Say the US government. I don’t consider myself part of the problem. Americans have to learn that the government isn’t “us.” It’s an entity that has its own interests, its own life, its own agenda. It views citizens as milk cows – or perhaps even beef cows – strictly as a means to its ends.

TGR: Whether it’s overt or by default, doesn’t that end up in the same place down the line?

DC: There are two ways they can default – one by saying, “We don’t have the money and we’re not going to pay you,” and the other by continuing to print up money and giving people the number of dollars that they’re owed, except the dollars are worthless. The first alternative is by far better, for many reasons we can’t fully explore now. But it’s going to be traumatic either way.

TGR: But the assumption that we could actually just print more dollars and pay off the debt implies that somewhere the debt will stabilize.

DC: Oh no. It doesn’t have to stabilize. To pay interest on the national debt, and to pay for additional spending, all the Federal Reserve has to do is buy bonds from the US government. It doesn’t have to stabilize at all. The government is most unlikely to cut back on its spending, most of which has become part of the social fabric – Medicare, Social Security, unemployment benefits, food stamps, corporate bailouts, continuing foreign wars, domestic “security”…These people are crazy enough that it could get like Germany in the ‘20s or Zimbabwe a few years ago.

TGR: At what point do we tip over and turn into a situation such as Zimbabwe or the Weimar Republic?

DC: At the moment we’re in an economic twilight zone or, if you wish, the eye of a hurricane. There is apparent stability in the economy. The stock market’s high. The bond market’s high. Only the real estate market is in visible trouble. Retail prices are level; they’re not going up and maybe they’re even going down in some cases. This is a temporary situation. We will inevitably – and soon – hit the other side of the storm. At some point those trillions of dollars created by the US government – and many other governments around the world have created trillions of currency units – are going to have an effect. When will that be? The timing is uncertain. But I think it’s going to be soon.

TGR: Will it be rapid?

DC: If these things were perfectly predictable, it would be easier to dodge the bullet. This is an almost unique time in world economic history, and I think we’re not only going to have economic consequences, but social and political consequences, and very likely military consequences. So hold on to your hat.

TGR: To protect what individual wealth we may have, you’ve recommended selling real estate and renting, holding assets outside the United States, owning gold, etc. When we’re out of the eye and in the thick of this economic hurricane, what types of equity investments should people be holding?

DC: Now is a very bad time to have most kinds of equities; stocks in general are very overpriced, by almost every parameter. I’m not looking to sell my gold until I can buy solid blue chip stocks for dividend yields in the 8% to 10% area. That’s after they cut their current dividends. Although it’s certainly not the bargain it was 10 years ago. Nonetheless gold will go higher. Stocks will go lower. I don’t know exactly when I’ll sell my gold and buy stocks, but it will be when there’s a panic into gold and when stocks are bargains.

I’m sure I’ll be afraid to make the trade when the time comes – but good trades almost always run counter to your emotions. Perhaps the tip-off will be when Newsweek or Time – if either still exists then – run a front cover with a golden bear tearing apart the New York Stock Exchange. I think it will be a generation before American real estate is a solid buy again. And the world at large will likely have quite a different character then.

TGR: I take your point about equities in general, but are you also staying away from gold equities? Or do you maybe see an opportunity there?

DC: They’re a special situation; on the one hand they are a play on gold, but on the other hand they’re stocks. There’s an excellent chance that with the trillions of currency units being created, the government inevitably will wind up inflating other bubbles. There’s a very good chance for a bubble in gold and a very big bubble in gold stocks. So I would say that they are an exception to other equities. We could see these juniors go up by an order of magnitude or more, even while most other stocks are going down. Historically, junior resource stocks are the most volatile class of securities in existence.

TGR: Might other sectors also be in that situation?

DC: My crystal ball is hazy, but it seems to me that junior resource stocks are the best speculative place in the equities market. There’ll probably be others, but I don’t see them very clearly at this time. I’m waiting to see what materializes. You have to look at all markets of all types, everywhere in the world, to find things that are overpriced, as well as things that are underpriced.

Most of the time the trend in any given market is uncertain. I prefer to act only when, in my subjective opinion, the odds are greatly in my favor, and when the potential return is a multiple of my investment. In other words, most people invest 100% of their capital in hope of a 10% return. I prefer to wait until I can invest 10% of my capital for a 100% return. As to what’s going to happen over the next few years, I feel confident that we’ve entered upon the Greater Depression in earnest. It will be an extended period of time when most people’s standard of living drops significantly. But as I said, I think there’s an excellent chance of a bubble igniting in resource stocks. That will build on the bubble that’s going to come in gold.

High levels of inflation make “investing,” in the Graham-Dodd sense of the word, very hard. And inflation makes speculation almost necessary. Just don’t confuse speculation with gambling – they’re very different. Speculation is the art of capitalizing on politically created distortions in the market.

TGR: What’s your definition of resource stocks? For some, it’s very broad and includes metals, agricultural commodities and such. Are you referring specifically to gold?

DC: I’m most friendly toward gold; it’s the only financial asset that’s not simultaneously someone else’s liability. I’m friendly toward silver, too, because silver is kind of poor man’s gold. I’m very friendly toward oil because I do believe a good, solid argument can be made for what was first defined by M. King Hubbert as “peak oil.” Also, oil is likely to be a major player in the next major Mideast conflict. I like uranium; nuclear is certainly the safest, cheapest, and cleanest form of mass power generation.

There’s an excellent case to be made for agricultural commodities in general, and live cattle in particular. I’m not very friendly toward base metals such as lead, zinc, copper, aluminum, iron and so forth. Usage of industrial metals could drop considerably in the ongoing depression.

TGR: You mentioned earlier that you thought it would be a generation before real estate represents a good investment again. Many economic theories, though, tell us that real estate is a good thing to have in an inflationary environment. How do you reconcile those two schools of thought?

DC: The problem is that we’ve just finished a decade-long real estate boom. Actually, there’s been a property boom, largely driven by debt, since the end of World War II. There’s been immense overbuilding and it’s got to be absorbed. A lot of the overbuilding will have to be bulldozed, quite frankly, because it’s completely uneconomic. I think the economic contraction we’re going into is so serious that in this country you’ll be able to buy real estate for back taxes, much like in the last depression.

But it’s much more serious than what happened in the 1930s when real estate taxes were de minimis. Now many people have to pay $10,000, $20,000, even $30,000 a year in taxes on their houses before they even start paying the mortgage and the utilities and maintenance. And municipalities are likely to try raising the mill rate, because they’re largely bankrupt, and assessed values are way down.

There’s a great deal more I could say about what’s yet to come in the real estate sector. But let me just say the real estate bubble has a long way to deflate yet.

TGR: Is it both residential and commercial or is it worse in one sector?

DC: That’s tough. Is emphysema worse than Parkinson’s? I suspect, however, that commercial is going to be worse than residential.

People’s shopping habits are one of the things that the Internet has changed and will continue to change. It makes more sense to buy things online and have them delivered to you, than to take the time and expense of going shopping, and the merchant having to deal with retail space, inventory, a geographically limited clientele and so forth. I wouldn’t be surprised to see prices on a lot of commercial property come down 80% or 90%. You’ll see a lot of properties permanently shuttered. That’s a disaster for owners, who will still have to pay taxes. There will be no money for maintenance.

TGR: We spoke earlier about inflation and the likelihood of the US government printing its way out of debt. Do you see a point in time where the United States or even other governments will go back to the gold standard?

DC: It’s both essential, and inevitable. That’s because they have no reason to trust one another. They need a medium of exchange and a store of value that’s not faith-based.

All the other governments of the world know that the US is bankrupt and the dollar is nothing but a floating abstraction. Why should they hold billions or in some cases trillions of these things on their balance sheets? They’re going to go back to gold because it’s the only financial asset that’s not simultaneously somebody else’s liability.

It’s not because gold is magic in any way. It’s just because it has characteristics that among the 92 naturally occurring elements make it uniquely well suited for use as money. It’s durable. It’s divisible. It’s convenient. It’s consistent. It has use value in and of itself. And it can’t be created out of thin air by some government. It’s a better combination of those things than any of the 92 elements. It’s infinitely better than paper. So yes, I think they’ll go back to gold within this generation.

TGR: Thanks Doug!

Casey Research and The Gold Report,
for The Daily Reckoning

Thoughts on the Greater Depression originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
Thoughts on the Greater Depression




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Real Estate, Uncategorized

A Market for Long-Term Investors

October 4th, 2010

What to do now… I really don’t know
I really don’t know, what to do

– The Rolling Stones

Stocks are up…should you buy? Wait, stocks are up…maybe you should sell!

Here’s the report from The New York Times:

The broader S&P 500 rose 8.8pc on the month and the Dow Jones was up 7.7pc.

The last time Wall Street saw a stronger September, when the Dow Jones soared 13.49pc, was at the start of the Second World War, when traders anticipated a strong rise in demand for US manufactured goods and war materials.

However, on Thursday the S&P 500 fell 3.53 to 1141.20 and the Dow dropped 47.23 to 10788.05 as new data on jobs and economic growth continued to indicate the economy was recovering at a slow pace.

Gross domestic product, which measures the output of goods and services in the US, increased at an annual rate of 1.7pc in the second quarter and the number of Americans filing new claims for jobless benefits fell more than expected last week for the third time in four weeks.

So you see, everything is looking up.

Gold keeps going up too…it rose another $8 on Friday. Experts say it is going to $1,500 next year. Or maybe $2,000. Or $3,000. Maybe you should buy.

China is buying. Insurance and pension funds are buying. Even central banks are buying. Wait a minute…maybe you should sell!

But it’s too early for the final stage of the bull market in gold. The average fellow is not buying gold. There’s no frenzy yet. Nobody is worried that his savings will disappear.

The final stage seems a long way away.

Gold may not be ready for it’s great blow-off…but the dollar seems headed for the basement anyway. You should get rid of the dollar. It’s trash. It’s headed for the dump.

But wait. Aren’t we in a period of major de-leveraging? Isn’t this the Great Correction? Isn’t everything going down? Shouldn’t the dollar be more valuable? Maybe the dollar doesn’t know we’re in a major correction?

But shouldn’t you be holding onto dollars…saving dollars…hoarding dollars?

What to do now?

The more we think about it, the more we like the solution offered by Rob Marstrand. Rob has just taken the job as chief investment strategist for our family office. That is, he’s advising us on what to do with our very long-term oriented family money. This is money that we’re not going to spend. It is supposed to go to the next generation…and the one following. So, we’re not looking for profits anytime soon. We’re more concerned with not losing it.

Rob told us about one vegetable producer in China. It’s a huge company, but still growing like a teenager. And nobody ever heard of it. You can buy it for barely 4 times earnings – Great Depression levels, in other words.

Another one of his discoveries is a company based in Singapore but with huge real estate holdings in the “other” BRIC – Indonesia. He reckons you can buy it for only about 60% of its break-up value. In other words, you can get the business for free.

And since these companies are in emerging markets, we can expect that they will do better than stocks in the US. Maybe not this year. Maybe not over 5 years. But over 20 years? Well, who knows, but it seems like a good bet.

Which do you think will be worth more, dear reader? Twenty years from now. A $20 bill issued by the US Treasury. Twenty dollars worth of US stocks? Or $20 worth of profit-making companies in high-growth economies?

We don’t know how much the stocks will be worth. But we have a strong hunch that a $20 bill won’t be enough for a cup of coffee. Why? Because dollars don’t cost much to produce – especially the electronic variety. And the feds are going to need a lot of them.

They’re spending $2 for every $1 in tax receipts. You can’t do that for too long before your credit is shot. And what’s behind the US dollar? Nothing but the full faith and credit of the US government.

What to do now? Find solid businesses at bargain prices. Invest in real estate with good cash. Buy collectibles…jewelry…art – things you want to own no matter what the price.

Bill Bonner
for The Daily Reckoning

A Market for Long-Term Investors originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
A Market for Long-Term Investors




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Real Estate, Uncategorized

A Chart Look at Amazon AMZN at the 160 Level

October 4th, 2010

Investors in Amazon.com (AMZN) have been treated to a multi-month rally, but we need to watch the $160 level as overhead resistance, look to short-term support, and note the key price levels that will be important in determining the next likely move for the stock.

Let’s start first with the Monthly ’structure’ view:

Without going too deep in the charting, I wanted to highlight the $160 level as being upper Bollinger Band resistance, a tiny ‘upper shadow’ on last month’s power-candle, and a slight rising trendline connecting the two prior price peaks to the current peak.

I also wanted to highlight the key support that occurred on the rising 20 month EMA in mid-2010 as a great lesson in how long term moving averages can be helpful for entering short-term positions.  That’s a classic “ABC” pullback there.

Anyway, now let’s drop down to the daily chart and see what short-term levels are important to watch:

September was an amazingly bullish month for Amazon.com, rallying from the $125 level all the way to peak at $160.

Whether or not $160 remains as an intermediate term peak, or just a shorter-term ‘blip’ in the bullish road depends in part on what happens during this recent pullback in price.

For example, we want to watch the $150 level, which is the confluence support of the rising 20 day EMA ($149.80) and the prior 2010 price high from April ($151) – both of which round down to the $150 ‘easy to remember’ level.

So if price continues its pullback decline to test $150, supports there and rallies higher, we may expect a further price break to new highs above $160.

A failure for price to hold support at $150 paints an entirely different chart picture, which would suggest at least a test of the rising 50 day EMA at $140.  And what happens at $140 would determine if we expect to fall further to the rising 200 SMA at $130.

These are all easy to remember reference levels that traders and investors should note as the stock continues to tread its way into the future.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Read more here:
A Chart Look at Amazon AMZN at the 160 Level

Uncategorized

A Chart Look at Amazon AMZN at the 160 Level

October 4th, 2010

Investors in Amazon.com (AMZN) have been treated to a multi-month rally, but we need to watch the $160 level as overhead resistance, look to short-term support, and note the key price levels that will be important in determining the next likely move for the stock.

Let’s start first with the Monthly ’structure’ view:

Without going too deep in the charting, I wanted to highlight the $160 level as being upper Bollinger Band resistance, a tiny ‘upper shadow’ on last month’s power-candle, and a slight rising trendline connecting the two prior price peaks to the current peak.

I also wanted to highlight the key support that occurred on the rising 20 month EMA in mid-2010 as a great lesson in how long term moving averages can be helpful for entering short-term positions.  That’s a classic “ABC” pullback there.

Anyway, now let’s drop down to the daily chart and see what short-term levels are important to watch:

September was an amazingly bullish month for Amazon.com, rallying from the $125 level all the way to peak at $160.

Whether or not $160 remains as an intermediate term peak, or just a shorter-term ‘blip’ in the bullish road depends in part on what happens during this recent pullback in price.

For example, we want to watch the $150 level, which is the confluence support of the rising 20 day EMA ($149.80) and the prior 2010 price high from April ($151) – both of which round down to the $150 ‘easy to remember’ level.

So if price continues its pullback decline to test $150, supports there and rallies higher, we may expect a further price break to new highs above $160.

A failure for price to hold support at $150 paints an entirely different chart picture, which would suggest at least a test of the rising 50 day EMA at $140.  And what happens at $140 would determine if we expect to fall further to the rising 200 SMA at $130.

These are all easy to remember reference levels that traders and investors should note as the stock continues to tread its way into the future.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Read more here:
A Chart Look at Amazon AMZN at the 160 Level

Uncategorized

FOMC Itching to Implement Quantitative Easing

October 4th, 2010

Just Friday, Chris Gaffney said to me, “it’s about time the Eurozone GIIPS deficits get back in the news to stop this euro rally”… And so it was to be last night… The euro (EUR) actually traded over 1.38 last night, to 1.3807… But then, Nobel Prize winning economist Joseph Stiglitz came out and said, “the euro’s future is looking bleak”… Stiglitz is concerned because countries such as Germany have trade surpluses, while the GIIPS (remember, it’s Greece, Italy, Ireland, Portugal, and Spain) have trade deficits…

OK… So, it’s Germany’s fault that these countries didn’t see that the way to make a wealthy nation is to make things, produce things, invest in those manufacturers, and export? Anyway… We used to see that way here in the US, but those days are gone with the wind, and Rhett Butler riding off into the sunset!

Well… Since I arrived this morning, the euro has rallied back from 1.3660 to 1.3690… So, maybe the Stiglitz bomb from left field, won’t be that damaging…

The news that pushed the euro over 1.38 came this weekend in comments from the Chinese Premier, Wen, who said, “I have made clear that China supports a stable euro. We will NOT reduce the holdings of European Bonds in our foreign exchange portfolio. China has already bought Greek bonds, and China commits very positively to buy new bonds to be issued by Greece.”

Talk about a boost for the euro! But again, Stiglitz turned the lights out on the rally that came about from comments by the Chinese…

Well, folks… As I said on Friday, I’m 2/3rds toward the Reserve Bank of Australia (RBA) hiking rates this week (tonight for us, tomorrow for them) after all the things we talked about last week… But there was one more clue for us on Friday…

You see, Australia tracks the prices of their commodities… Not all commodities, but the ones that are Australia’s, like iron ore, coal, and others. They put their commodities into a Commodity Index… And guess what the index showed last week?

The August Australian Commodity Index went up 1.5% in September! That puts the index at a 52% increase this year, and is now actually higher than the peak it reached in 2008!

So… Why has this moved me to believe the RBA WILL HIKE RATES now? Well… The Official Cash Rate  (OCR) in Australia back in 2008 was… 7.25%, now it’s 4.5%… Guess what needs to go higher to fight inflation from this commodity boom? You got it! The current Aussie Official Cash Rate!

Don’t expect their OCR to go back to 7.25% in the near future… But 4.5% is going higher, and if not tonight, then the next time the RBA gets together!

OK… Here in the US the debate about when and how much Quantitative Easing (QE) is going to be administered by the FOMC is dominating the news wires, and TV talking heads. The New York top Fed Head, William Dudley, is convinced that more QE is on the way, unless “the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long.”

I guess, the “too long” leaves the door open to wonder how long the FOMC will wait… Well, the FOMC next meets the first week of November, so they’ll get to see 1-month’s worth of data here in the US. And at the end of this week, the first of those pieces of data that will move the FOMC will print… This Friday will be a Jobs Jamboree, with the September labor numbers printing… Right now, the “experts” believe the overall job creation for September will be flat, and may even show a net loss of jobs.

I would have to say, that if we show a net loss of jobs from September, that the FOMC would most likely begin their process to implement more QE… So, this Friday is HUGE on the data scale… Oh, there will be other data this week, but none-so-important as the Jobs Jamboree on Friday!

The FOMC is just looking for an excuse to begin implementation of their next round of QE… And a less-than-stellar result for September employment could very well be the thing the FOMC is looking for… Look folks, the FOMC said in the statement following their last meeting that inflation was too low… Then we had Fed Heads talking all around the country, and all of them were concerned about inflation being too low…. So, in case you missed that, I think it’s central bank parlance for “we going to implement QE and get inflation moving higher again”…

Now… The dollar has already been sold on the QE implications, but what happens when the FOMC actually pulls the trigger? Well… I personally feel that when the FOMC pulls the trigger this time, it will be HUGE! The amount they announce will be so large, that everyone will believe the FOMC really means it when they say that inflation is too low! And the mere size of this next round of QE will “surprise” the markets, and that will cause some major dollar selling… Just my opinion, folks…

On Friday I talked briefly about the latest run-up in the price of oil… Well, the price of oil is still moving higher, reaching $81 this morning. And that, as long time readers of the Pfennig know, underpins the Canadian dollar/loonie (CAD). The loonie is rising again, getting close to 98-cents. So… What are your thoughts for the price of oil? Because if you believe that oil prices will continue to be high, or even go higher, then you’ll want to look to buy loonies… If you don’t believe in the strong oil prices, then you’ll want to look to sell loonies, and take your profits…

Yes, loonie has other things going for it, like a positive yield differential to the US dollar, but, right now, oil is ruling the roost.

I see that gold and silver have sold off a bit overnight, with gold down $3, and silver down almost a dollar… You would expect to see some profit taking after a week of record setting trading in gold, and so it is overnight. But, if the US data this week is weaker and shows more uncertainty… Well, you know the routine…

Lets go back to Friday’s data… Remember, it was the Personal Income and Spending day? Well… Personal Income out-lagged Personal Spending for once in August, as Income was up 0.5%, and Spending was up 0.4%, and the PCE Deflator that I made a such a big deal out, and even sang “Puff the Magic Dragon” to, was a non-event… The U. of Michigan saw their Consumer Confidence Index come in flat, and the ISM Manufacturing Index was also flat in August…

There’s two ways you can look at those “flat” results… Either they are going to slip badly, or they are forming a new base to move higher… Well, since data isn’t like the markets, I would say they are getting ready to slip badly.

Then there was this… Well… I really stirred up a hornet’s nest with my talk about how close the states were to a Constitutional Convention (35 states are “in” 38 states are needed)… Look folks… I was just stating my opinion; I would love to see Senators go back to the way they were assigned by each state. I would love to see income tax revised, and I would love to see the end of the Fed/Cartel… That’s what I meant when I said repeal 1913, for all of those were put in place in 1913, by Woodrow Wilson… But again, it’s just my opinion, if you don’t agree, that’s fine, just say so, there’s no need to call me a “nut job” or other things…

To recap… The currency rally of Friday was initially added on to overnight, as China’s Premier Wen, voiced confidence in owning European Bonds. But that rally ran into a roadblock put up by Joseph Stiglitz’s comments about the euro. However, since early this morning, the euro has rallied and gained some of its lost ground back. Fed Head Dudley had plenty to say about inflation being too low, and the need for more QE should the economy not turn around… In other words, more QE is coming! The Jobs Jamboree this Friday should be the keymaster for the gatekeeper… In other words… The FOMC will be looking for any sign of weak data as an excuse to implement QE…

Chuck Butler
for The Daily Reckoning

FOMC Itching to Implement Quantitative Easing originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
FOMC Itching to Implement Quantitative Easing




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Uncategorized

FOMC Itching to Implement Quantitative Easing

October 4th, 2010

Just Friday, Chris Gaffney said to me, “it’s about time the Eurozone GIIPS deficits get back in the news to stop this euro rally”… And so it was to be last night… The euro (EUR) actually traded over 1.38 last night, to 1.3807… But then, Nobel Prize winning economist Joseph Stiglitz came out and said, “the euro’s future is looking bleak”… Stiglitz is concerned because countries such as Germany have trade surpluses, while the GIIPS (remember, it’s Greece, Italy, Ireland, Portugal, and Spain) have trade deficits…

OK… So, it’s Germany’s fault that these countries didn’t see that the way to make a wealthy nation is to make things, produce things, invest in those manufacturers, and export? Anyway… We used to see that way here in the US, but those days are gone with the wind, and Rhett Butler riding off into the sunset!

Well… Since I arrived this morning, the euro has rallied back from 1.3660 to 1.3690… So, maybe the Stiglitz bomb from left field, won’t be that damaging…

The news that pushed the euro over 1.38 came this weekend in comments from the Chinese Premier, Wen, who said, “I have made clear that China supports a stable euro. We will NOT reduce the holdings of European Bonds in our foreign exchange portfolio. China has already bought Greek bonds, and China commits very positively to buy new bonds to be issued by Greece.”

Talk about a boost for the euro! But again, Stiglitz turned the lights out on the rally that came about from comments by the Chinese…

Well, folks… As I said on Friday, I’m 2/3rds toward the Reserve Bank of Australia (RBA) hiking rates this week (tonight for us, tomorrow for them) after all the things we talked about last week… But there was one more clue for us on Friday…

You see, Australia tracks the prices of their commodities… Not all commodities, but the ones that are Australia’s, like iron ore, coal, and others. They put their commodities into a Commodity Index… And guess what the index showed last week?

The August Australian Commodity Index went up 1.5% in September! That puts the index at a 52% increase this year, and is now actually higher than the peak it reached in 2008!

So… Why has this moved me to believe the RBA WILL HIKE RATES now? Well… The Official Cash Rate  (OCR) in Australia back in 2008 was… 7.25%, now it’s 4.5%… Guess what needs to go higher to fight inflation from this commodity boom? You got it! The current Aussie Official Cash Rate!

Don’t expect their OCR to go back to 7.25% in the near future… But 4.5% is going higher, and if not tonight, then the next time the RBA gets together!

OK… Here in the US the debate about when and how much Quantitative Easing (QE) is going to be administered by the FOMC is dominating the news wires, and TV talking heads. The New York top Fed Head, William Dudley, is convinced that more QE is on the way, unless “the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long.”

I guess, the “too long” leaves the door open to wonder how long the FOMC will wait… Well, the FOMC next meets the first week of November, so they’ll get to see 1-month’s worth of data here in the US. And at the end of this week, the first of those pieces of data that will move the FOMC will print… This Friday will be a Jobs Jamboree, with the September labor numbers printing… Right now, the “experts” believe the overall job creation for September will be flat, and may even show a net loss of jobs.

I would have to say, that if we show a net loss of jobs from September, that the FOMC would most likely begin their process to implement more QE… So, this Friday is HUGE on the data scale… Oh, there will be other data this week, but none-so-important as the Jobs Jamboree on Friday!

The FOMC is just looking for an excuse to begin implementation of their next round of QE… And a less-than-stellar result for September employment could very well be the thing the FOMC is looking for… Look folks, the FOMC said in the statement following their last meeting that inflation was too low… Then we had Fed Heads talking all around the country, and all of them were concerned about inflation being too low…. So, in case you missed that, I think it’s central bank parlance for “we going to implement QE and get inflation moving higher again”…

Now… The dollar has already been sold on the QE implications, but what happens when the FOMC actually pulls the trigger? Well… I personally feel that when the FOMC pulls the trigger this time, it will be HUGE! The amount they announce will be so large, that everyone will believe the FOMC really means it when they say that inflation is too low! And the mere size of this next round of QE will “surprise” the markets, and that will cause some major dollar selling… Just my opinion, folks…

On Friday I talked briefly about the latest run-up in the price of oil… Well, the price of oil is still moving higher, reaching $81 this morning. And that, as long time readers of the Pfennig know, underpins the Canadian dollar/loonie (CAD). The loonie is rising again, getting close to 98-cents. So… What are your thoughts for the price of oil? Because if you believe that oil prices will continue to be high, or even go higher, then you’ll want to look to buy loonies… If you don’t believe in the strong oil prices, then you’ll want to look to sell loonies, and take your profits…

Yes, loonie has other things going for it, like a positive yield differential to the US dollar, but, right now, oil is ruling the roost.

I see that gold and silver have sold off a bit overnight, with gold down $3, and silver down almost a dollar… You would expect to see some profit taking after a week of record setting trading in gold, and so it is overnight. But, if the US data this week is weaker and shows more uncertainty… Well, you know the routine…

Lets go back to Friday’s data… Remember, it was the Personal Income and Spending day? Well… Personal Income out-lagged Personal Spending for once in August, as Income was up 0.5%, and Spending was up 0.4%, and the PCE Deflator that I made a such a big deal out, and even sang “Puff the Magic Dragon” to, was a non-event… The U. of Michigan saw their Consumer Confidence Index come in flat, and the ISM Manufacturing Index was also flat in August…

There’s two ways you can look at those “flat” results… Either they are going to slip badly, or they are forming a new base to move higher… Well, since data isn’t like the markets, I would say they are getting ready to slip badly.

Then there was this… Well… I really stirred up a hornet’s nest with my talk about how close the states were to a Constitutional Convention (35 states are “in” 38 states are needed)… Look folks… I was just stating my opinion; I would love to see Senators go back to the way they were assigned by each state. I would love to see income tax revised, and I would love to see the end of the Fed/Cartel… That’s what I meant when I said repeal 1913, for all of those were put in place in 1913, by Woodrow Wilson… But again, it’s just my opinion, if you don’t agree, that’s fine, just say so, there’s no need to call me a “nut job” or other things…

To recap… The currency rally of Friday was initially added on to overnight, as China’s Premier Wen, voiced confidence in owning European Bonds. But that rally ran into a roadblock put up by Joseph Stiglitz’s comments about the euro. However, since early this morning, the euro has rallied and gained some of its lost ground back. Fed Head Dudley had plenty to say about inflation being too low, and the need for more QE should the economy not turn around… In other words, more QE is coming! The Jobs Jamboree this Friday should be the keymaster for the gatekeeper… In other words… The FOMC will be looking for any sign of weak data as an excuse to implement QE…

Chuck Butler
for The Daily Reckoning

FOMC Itching to Implement Quantitative Easing originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”

Read more here:
FOMC Itching to Implement Quantitative Easing




The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Commodities, Uncategorized

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