The Market Perspective

Pirates Read the Papers

We reported here on April 8 that Maersk Shipping was slowing down their ships to save fuel. Indeed Maresk is avoiding the high cost of using the Suez Canal. 

One of their ships has been taken by pirates. Regrettably our Secretary of State has announced that the US intention is to resolve the situation without any loss of life. No doubt this is most reassuring to the pirates. 

Perhaps this will bump the Baltic Shipping Index a bit....the cost of shipping is certainly going up. 

Where are We Now?

Saturday April 11, 2009

dennis.elam@att.net

www.fortucast.com

The S & P is up 28.5% since the March 9 low at 666.  Various sites including  are heralding this as the biggest rally since the last one in the 1930s. This seems scant re assurance to us that all is well but such is the state of reporting. Shorts must cover and yes sentiment reached all time pessimistic levels at that point so up we go. It appears that November was the third wave low, another 200 point rally, gee just like this one occurred to a fourth wave, and then the fifth to March 9.  Elliott wave counting is a real art, never a science till the dust settles so we will eave that to others. Previous fourth wave highs are the usual targets for corrections, that would be about 934. the double top at 875 seems a realistic resistance level.  MACD is now a bit higher than at the previous fourth wave and the histogram is weakening. Markets often get toppy around tax time and this seems to be no exception. ONe more thing, this has the look of a reverse head and shoulders with the neckline at that red resistance line, 

monitoring....

Back on April 1, we stated that the XLF Finance ETF needed to better $10 and move volume was needed in the SPX, both have now happened. Bank stocks led the rally and the XLF closed at $10.63. Even the President says the banks are doing better. 

So for now we expect resistance at 875 setting up a possible retracement of recent gains. 

Shipping in the Slow Lane

Wednesday April 8, 2009 2054 CST

dennis.elam@att.net

Maersk is cutting costs by slowing down, even adding a couple of weeks to shipping times by avoiding the $600K cost of using the Suez Canal. In a world focused on Enterprise Resource Planning supply chain solutions this is surely high irony. the above chart of the Baltic Dry Index explains why.  The Baltic Index is the price of renting ships to ferry freight. It has in a word collapsed. Even the dead cat bounce to 2,000 has lost steam, no pun intended. The hyper link will take you to the article in the WSJ. 

This certainly has ramifications for vaunted globalization. Consider

Shipping has slowed so that conserving fuel cost is more important than Just in Time JIT Delivery, another new theory dies a hard death. 

Shipping has slowed since demand has slowed which has idled factories in Eastern Europe, and everywhere else but

And so Western European loans to Eastern Europe have soured

As Eastern European currencies have tanked which

Yes has led to less confidence in the Euro which

has further boosted even the US Dollar with all our mortgage problems, think Iceland freezes up...

Deflation Rules

Market Internals Improve

15 stocks out of 500 is a small numer but it is a start!  The market internals are slowly improving, last week they improved a bunch.  This  indicator put in an outside reversal week and broke above the hugely bearish downtrend line

At bottom MACD is improving. This does NOT mark the end of the bear market but at least someone is wading in the water of depressed values. Note this is  a weekly chart.

Last week updated the monthly charts so let's take a look.  Several items merit attention.

• Yes this is worse, much worse than 2002, prices and MACD are much lower indicating the overall completion of  a much more important cycle in the long term economy (Elliott Wave Winter)
• S & P 1,000 becomes important as the downturn of the very long term 200 month MA. Barry commented that the January high at 942 would likely be resistance for a long time. That is also just above the low points of the 2002-3 decline.
• Good news, the histogram is attempting to tun up and the Black MACD line looks to be bottoming out. But we caution readers, monthly charts move in near glacial time. This suggests the market has factored in some of the worst news for the time being. We are of the view here that this next seasonal low in Fall 2009 will likely give us the next test of the 666 low.

The Weekly Rant

Wednesday April 1, 2009 

Selective Outrage

Surely the most ironic twist this year is the international interventionists  on the right decrying the Government GM Intervention on the left.   Indeed, Usama bin Laden has bedded down with Senator Shelby of Alabama, both decry the intervention of the US Government. Bin Laden is distressed that the US wants to run every other country in the world, Shelby is distressed the Government wants to run General Motors. The irony of all this is that interventionists like Shelby regularly vote for foreign wars but selectively oppose some domestic intervention.

Where has the US Government thrown its weight around the world, let me count the major spots, just in my lifetime. Since WW II the US has intervened in Berlin, Korea, the Mid East (Lebanon, Kuwait, Israel, too many times and places to list), Quemoy and Matsu, Guatemala,  Cuba Bay of Pigs, Cuban Missile Crisis (closest brush with nuclear war), Viet Nam, Grenada, Iraq 1979,  Panama, Serbia Croatia, Kuwait, Georgia, Iraq 2003 to now, Saudi Arabia,  Pakistan, Afghanistan (again and again which promoted bin Laden to his current status), and the latest gunboat Bush diplomacy with a gunboat cruising near Soviet influenced Georgia. Let’s not forget CIA botched efforts like the U-2 Gary Powers fiasco or the Pueblo spy ship kidnapped by Korea. U S soldiers have been killed, wounded, or captured in all these efforts. The US has brazenly told the countries involved how they should be run and indeed, who should be be in charge. Is it any wonder a world weary of the US calls for another reserve currency? As Congressman Ron Paul observes, Usama  wants us back here because we are over there….

Supposed conservative (smaller government) types like Shelby have supported most of these international interventions.  By the way, Shelby’s web site just announced a $380,000 earmark for streets in Aliceville, AL!  No problem with government intervention in Aliceville, eh Senator?

It will no doubt shock conservatives opposed to the US attempting to bring some order to GM to learn of President Truman’s action in 1946.

When the railway workers turned down a proposed settlement, Truman seized control of the railways and threatened to draft striking workers into the armed forces While delivering a speech before Congress requesting authority for this plan, Truman received word that the strike had been settled on his terms.

Gee that sounds pretty interventionist to me!  Critics of GM has long called for an ouster of the existing Board and management that has shrunk the company to less than a 25% market share. Now it is a reality.  By the way, President Truman is regularly hailed as a great US President by both parties, because of his unprecedented actions, the ironies abound here.

This column has noted the enormous cost of a GM failure, or even a court bankruptcy.   GM extends to Andrews, unlike Eastern Airlines.  Michigan has already added to the mortgage problem a GM collapse would bring massive  supplier employment and loan defaults, just what is not needed now. Calls for GM to go to court ignore the reality that would be a Chapter 7 liquidation without more government money.

The same Congressional critics that have urged US intervention in countries around the world now decry intervention in GM.  For once the US government is at least doing something in this country regarding US employees in a large US industry.  What did George Bush do about this looming problem for eight years?  Answer - invade Iraq.   A three month expenditure in Iraq  would wipe out all GM debt, think about that.

Congress rarely flinches at the idea we dictate who presides over Iraq, Kuwait, or Viet Nam. The suggestion that Rick Waggoner step down pales in comparison to this Viet Nam era stunt.

The CIA was in contact with generals planning to remove Diem. They were told that the United States would not oppose such a move nor punish the generals by cutting off aid. President Diem was overthrown and executed, along with his brother, on November 2, 1963. When he was informed, Maxwell Taylor remembered that Kennedy "rushed from the room with a look of shock and dismay on his face." He had not approved Diem's murder. The U.S. ambassador to South Vietnam, Henry Cabot Lodge, invited the coup leaders to the embassy and congratulated them. Ambassador Lodge informed Kennedy that "the prospects now are for a shorter war"

 

Meanwhile, Congress bloviates about GM but the money flows to Aliceville, Alabama. Outrage it seems, is very selective.

 

Dennis Elam teaches at Texas A & M San Antonio and can be reached at dennis.elam@att.net.

Market Psychology - Weekly Column

Wednesday April 1, 2009

Market Psychology

 

Buy low sell high sounds simple but who does it?  Lately Warren Buffet had to admit his high priced purchase of Conoco Phillips last year was not such a good idea.  I guess selling out BRK/A at $150,000 was not either as it was cut in half along with the rest of the market. So, if this has been difficult for you, at least you are in company with Warren Buffet.

 

The S & P 500 hit a low March 9 at 666. That was the low from the high of about 1500 back in October, 2007. I read several websites from various gurus, no one suggested going long at that level though several suggested we must be getting close. The result  was a geyser of buying at that price. The S & P soared unchecked to about 820 in short order. How did that happen so quickly after so much selling the last few months? The averages have been down 13 of the last 16 moths by the way.

All that selling in fact is the very key as to how this happened.  As it turns out, everyone is not, ahem, a long term investor. Investors sold all the way down from S & P 920 in January to that 666 level. Someone of course was buying for every investor that sold. Those ‘someones’ do not necessarily constitute the same number of investors that sold. So all that stock is likely held in fewer hand, a smaller mob if you will. Once all the sellers had been both materially and psychologically sold out, the buying began. Somehow Adam Smith’s Magic Hand always knows where to start that process. But with the sellers exhausted, and substantial stock now in the hands of the buyers, there was no ‘overhead selling left.’

 

And so averages soared. The change in psychology was instant. This is to say the least, very, very difficult for a person to accomplish. It requires the opposite of following the herd. One must buy when everyone else is selling.  Note that one could have started buying  at 866 or 766 but the correct point was in fact 666. Picking the correct level is the tough part.

Already some are announcing the start of a new bull market in stocks. We doubt that.   The markets rose from either 1974 or 1982, depending on the start point, to 2000.  This collapse has been underway from 200 or more recently since October, 2007. So we are not even two years long in a second vicious correction. Next October will likely tell the tale. Trading in such a vertical rally is dangerous.  The move up can stop at any time. There has not been a coherent plan from Bush Obama on bank bailouts.  Mark this down as a rally in  a bear market, no matter what a talking head says on CNBC.  And seasonally stocks usually top after April 15 tax time, after May go away is the saying.

The same thing holds true for any market. The time to hire great employees is when they are being laid off in the oilfield, but that requires a cash hoard gathered in the previous run-up in price. But like our shrewd stock investor, the shrewd oilfield company will buy on the way down, realizing how difficult it will be to start up at the bottom again.

Our suggestion to be patient has paid off. Crude oil dallied with sub $40 prices but as the months fell off the calendar, prices rose to the higher distant months and now stand at $52. Natural gas bounced nicely off the $3.75 level mentioned here last week. It has risen to $4.42.  It would be nice to see it fall back to a higher low in price to herald a bottom.  Expect a correction below $50 in April.

What, you thought it would go straight up?  At that point we will see who has the courage to buy oil low at $42 or so, that is the way to make money, right?

 

Dennis Elam teaches at Texas A & M San Antonio and can be reached at

Dennis.elam@att.net.