The Market Perspective

Exxon the new MIcrosoft?

Thursday July 22, 2009 dennis.elam@att.net

Okay it is a big graphic but probably a great shot of exactly where America is right now!

Exxon Mobil makes money no matter what.  Which is also the case for Microsoft. Yet despite its industry domination, and billions in the bank MSFT has not made its stockholders any money for years. Its decline in stock price surely heralds dome breakthrough somewhere that will break the world free form the yoke of Windows and Office. Is XOM in the same shape?

At bottom volume is on the decline.  At top XOM finally mirrors the fortunes of its primary product, oil. Price is approaching an intersection of the weekly moving averages. A downtrend is in force from the stock market top but in fairness that is true for most stocks. A wedge pattern is shaping up. 

We wonder if the market is staring to see alternatives to carbon based energy, will nuclear finally get its day?  This is the case for France and Japan, no doubt nuclear will be embraced around the world in spots eager for electricity and not so hidebound about cap and trade and trying to re make the chemical make up of the world ala  our administration. 

All the buzz this morning on CNBC is CAT, shown above. This is a better looking chart than XOM but again a traditional heavy industry leader. Volume is up and price is poking through the moving average. The ability of CAT to follow through here will tell us much about the strength of this overall stock rally. 

We are in the midst of a solar eclipse that is also getting a lot of buzz on blogs and even CNBC. Hmm, where is the ETF for solar eclipses?

Anecdotal Evidence from the Dark Side

Parade magazine is that familiar Sunday newspaper insert. Most of the articles are rather bland family fare The latest edition asks about the Child Care Crisis. In reality this is a crisis brought on by higher government taxes forcing more people into the work force as well as the idea that 'one person can live as cheaply as two' which is to say divorced. But that is not the topic today.

Rather I was taken aback but not surprised as the questions and responses in the Sunday July 19, 2009 edition.   In Personality Parade, usually a series of who is doing what in Hollywood we get these exchanges. See what this tells you about the mood of popular culture

• Does CBS realize canceling its  vampire series Moonlight was a mistake?  The answer of course is yes.
• Why would Mischa Barton choose to appear as a deranged stalker in her latest film? (The socionomic answer is because that reflects the public mood and will be popular but read her answer).  I am attracted to characters who are a departure from my own experience. My character goes to extremes which is why she was so much fun to play. Emphasis added 
• Is it true that Megan Fox is playing a dead person in a horror movie? Half true, In the horror comedy (there is a genre for you) Fox starts out as a cheerleader suffering from demonic possession: a slight problem for some of her schoolmates. (only slight?)  I spent half the movie being dead Fox said.  Professor Elam comment The movie Jennifer's Body will be out this fall, perhaps just in time to catch Wave Three down in the markets.  

The point I am making is that fascination with the dark side has now moved fully mainstream. Up and coming personalities are playing darker and darker characters. This is not Julie Andrews in Sound of Music as the Dow hit 1,000 in 1965. This is the Exorcist s the Dow plummeted from 1,000 in 1973. Watch out below.   

1987 Bond Stock Update

Sat July 18, 2009

This is the 1987 daily chart of the Dow Industrials versus the 30 Year Treasury Market. 

Bond prices drooped into that fall. Interest rates went up and up until in a day ro two, the money changed from stocks to bonds. Will history repeat? 2008 was a FIB 21 years after 1987.

IN 1987 stocks actually topped  in mid August. We are now experiencing much larger swings and volatility movements. So it would be logical for stocks to make a higher high. We are in a Wave 2 bouncing off the largest fall in participants have ever experienced. The psychology of a Wave 2 is that individuals should feel things will be okay, just before the market turns again. We already hear of 

'green shoots' and such, this is nonsense and of no predictive use of course. 

At any rate we would not expect an exact parallel but it is close enough to bear watching. Going long bonds or short stocks this fall may turn out to be very profitable...

MIchigan Long Term Train Wreck

Monday July 13 2009

California, and the midwest led by Michigan to the downside are imploding. Both I suspect are bankrupt. Considering CA would be the 8 or 9th largest nation in the world on its own, this is a real problem. As we have said, the US is now engaged in a new economic Civil War. How long will the prosperous SE support the rest of the country. The WSJ files this report. 

ut for the past 15 years, job losses have mounted in the auto industry, accompanied by cuts at advertising agencies, parts makers and retail shops. After six years of recession, the state has the highest unemployment level in the U.S., 14.1% as of May. The Michigan Senate Fiscal Agency expects the state will lose half a million jobs this year and next, with unemployment reaching 16.9% next year.

1987 Redux

Friday Morning July 10, 2009 dennis.elam@att.net

This is a look at what happened in 1987. The black line is the price of 30 year maturity bonds. The red black bars are the daily Dow Jones Industrial average. Big picture,

the bond market started its warning siren song in March but the stock market paid no attention, until September that is. Finally stocks caught up with bonds, in one day. It happened starting on a Friday in October. It was punctuated by a couple of foolish pronouncements by bureaucrats whose job is was to protect rather  than endangner financial markets. Their remarks did just the opposite. 

Tsy Secy Baker threatened the Germans, he wanted them to lower interest rates, they would not instead defending the value of the Mark, so he raised the ante saying the US  might just let the U S Dollar fall. The world took that remark to mean that the US would not defend the US Dollar. The result was a rout world wide out of ALL financial assets. Traders feared dollar weakness would spread to other fiat currencies. So much for placing  a lawyer in charge of Treasury.

As if that were not bad enough,  Monday markets dropped a couple of hundred points then recovered, I thought by noon we would finish the day down 50 points. And then at noon the two geniuses runing the NYSE and the NASD said they might close the markets. Traders ran for the exits, the Dow closed down 20%, that day. Again bureaucrats were doing the opposite of what they should have been doing.

Now let's fast forward to 2009.

 

The only thing missing here is blank space between now and October.  Otherwise this looks suspicously like the same set up. Indeed the resemblance is so striking we need to keep updating this the next few months. Bonds have sounded a warning by heading down in price. Stocks are up and now correcting. But that happened in May of 1987 also. IF stocks retreat and rally again, the parallel will be set in motion once again. Everything is not a repeat of the past. But then as now the US was pursuing a weak dollar policy. Now it is believed it will help exports, presumably Michael Jackson music videos, and allow us to re pay debt with cheaper dollars. The world did not buy that in 1987, it likely will not buy it this year either.

Students, read this post along with the It Can't Happen Here Post on Professor Elam.