The Market Perspective

Down to the Wire

Monday December 31 2012

Please read this summary of the real resolution of the fiscal cliff by Charles Hughes Smith.

Here is another link. 

This is the  best summary I have seen thus far; I suggest you book mark or print it out for future reference. His point is that like Greece or Spain the promises made by the US Government far exceed the ability to perform on said promises. And so the US has become another General Motors, while continuing to spend borrowed money. Eigseting that lengthy article should keep all busy until my next post either later today or tomorrow. 

Make no mistake about it. The long term picture is clear no matter what story you hear from Washington. The US follows Spain and Greece into the Debt Abyss. Already China has ceased to be the largest buyer of our bonds, ie promise to repay. Now it is our own FED. Bernanke, in classic banana republic style, simply prints the money adn buys the debt. Indeed, the shorthand is even faster than that,the actual p0aper money need not be printed merely a sort of Drawing Right accounting entry on the FED Balance Sheet. 

Our comments that follow  on the DOW that follow are STRICTLY SHORT TERM,  WHICH IS TO SAY WE ARE MUSING ABOUT WHAT MIGHT HAPPEN THE NEXT VERY FEW MONTHS, AS IN BETWEEN NOW AND APRIL 15.  I put this in all caps so readers will not confuse my longer term view teo paragraphs above with the short term picture. 

The Dow Industrials

While we  put a lot more stock no pun intended in the market internals here is a view of the Dow Industrial for this past year. At this point one can make a short term  argument either way on using price itself. 

The Bull Case is that the trend line underlying all this continues higher. That would be the brown line still ascending in the main panel. 

The Bear Case

I am reading Ed Carlson's book on George Linsday's Aid to Market Timing. Lindsay observed a formation he called Three Peaks and A Domed House which I label in blue. I am not  expert on Lindsay but he too used the Dow Industrials years ago. 

In addition one can see a head and shoulders pattern which I labeled in red. 

At this point none of these patterns has resolved so the jury as it is said is still out. This figures given the mania over the Fiscal Cliff negotiations. In the lower panel daily MACD could reverse here but is rolling over to the downside. 

One argument for the bull case is that too many people are out of stocks. The exodus indeed continues. And so the argument goes that  those folks must be dragged back into the stock market, the stock market makes  a high, and then it runs out of buyers. Well, someone holds stocks and is bidding up prices,  or the Dow would not have made the high it did in October. And when, not if, interest rates finally begin to increase, money will go to service debt of which there is plenty both at the government level and individually speculating on everything from homes to commodities to stock prices. 

A Multi-Year Picture of Ultimate Complacency

Thirty year bond prices are on the left hand scale and are represented by the black line. 

Thirty year bond yields are on the right hand scale and are represented by the red and black bars. 

The multi-colored ribbon are moving averages of various length. 

Here we have a the very picture of social mood swinging from one extreme to another. The absolute easiest and best bet of our lifetimes would have been, now obvious, to have simply bought non callable thirty year government bonds in 1982 which paid about 14%, sorry stock charts labeling of the MAs obscures that left hand portion of the chart. VIrtually no one wanted to buy double digit yields back then. The thinking was that even 14% would not be an adequate bulwark against rising inflation. But the US did not become the Wiemar public or Zimbabwe. Now investors believe they are 'safe' from a stock market crash by owning a thrity year promise to pay 2.908%. Such bonds are currently priced at 150% of par, that being the left scale. Par would be a 9% yield, the right hand scale. So a return interest rates the prevailed as recently as 1993-95 would wipe out 50% of portfolio value. And remember this sad story is for thirty years. The corporations choosing to borrow money at such low rates are doing the right thing. The buyers/lenders  are not. Yet Financial Planners are cheerfully recommending what is surely one of the most dangerous courses of action in the past 30 years to their retired clients, falsely believing this is a 'safe alternative.'

Stock Market Mania

I point out in my classes the mania for stocks like LULU. One need only click on insider transactions in Finance Yahoo to see that the insiders at LULU are granting themselves options and cashing them out in multi-million dollar fashion every week. This happens in the realm of public knowledge while the same folks parade reasons to 'analysts' of why the stock they are selling should instead be purchased. The analysts oblige writing supporting reports for LULU. Henry Blodgett, founder of Business Insider,  was kicked out of the business for doing just this at Merril a few years back. 

LULU

A look at a stock market mania. Now care to guess what LULU does for a living? Lululemon sells high priced work out togs for yoga class. I am not making this up. Now look at what the insiders are doing, these numbers are in millions, the last three zeros are eliminated. 

You read it right, no insider is buying but they have sold 54 million shares to an eager public the last six months. What is amazing is this information is available to all but they the story sells to the public, That's social mood at a top for you!

Historic Anecdote, the First National Bank of Midland

At any rate I observed  in 1984 that interest rate had peaked, as had oil prices, and rates would come down. They did and I embarked in participating in the launch of the bull bond market which actualy began about 1982. Living in West Texas, most in the oil business refused to believe me.  In 1979 the First National Bank of Midland blocked off Wall Street to add ten stories to its building. The oil price peaked a mere 18 months later. One clue was that the number of drilling rigs operating in the US continued to rise even as the oil price topped out. That was an important divergence.  In 1986 FNB Midland would be the largest independent bank in Texas to go bankrupt. 

This is precisely the kind of social mood that marks a market turn. 

The Market Perspective

I just returned from a trip to New Orleans and am reading e mail, thanks to those of you that correspond.  I am also highlighting  that social window on the world, the WSJ. I will be posting considerable socionomic comment (there is a wealth of examples in the news) and  a look at the longer term markets over the next couple of days. Stay tuned and Happy New Year.  

I Don't Think so Tim!

Sunday Evening Dec 30 2012

I literally do not have time to do justice to a full weekend TMP but

never mind the politicians here at TMP we listen to the market

and the market is turning down, it is oversold enough to generate a bounce but we suspect the trend is now to the downside for stocks

Predictions Trickling In

Thursday Dec 27 2012

Matt Lynn  makes some interesting predictions, I think he is kidding about the Apple iCar but the others are pretty interesting. For example, will France and England wake up to the idea they could produce their own oil?  In the case of France I doubt it. 

The retail strategy of openning on Thanksgiving Day strikes me as a Cash for Clunkers idea. This year retailers merely spread the total sales dolllar out over a larger period. This is the slowest Christmas since 2008. I make this post to make the point that in a fifth or final wave, the markets move higher but with much less momentum; breadth is waning. Here is such a sign. 

E Bay and the Consumer Society

Thursday Dec 27 2012

I posted Emerson's Essay on Gifts again this year. It only garnered one comment. But here is a gem of an observation, mind you written in 1841. 

But it is a cold, lifeless business when you go to the shops to buy me something, which does not represent your life and talent, but a goldsmith's. This is fib for kings, and rich men who represent kings, and a false state of property, to make presents of gold and silver stuffs, as a kind of symbolical sin-offering, or payment of black mail.

I recieved this offer from E Bay just this morning in my e mail.

Here is the consumer society. We buy things compoulsively that people really did not want anyway. E Bay is advertising for one to sell the Christmas gift you did not want and get the money to buy something you did want.  And so they are re-sold adn re-cycled away. As Emerson observed this would not have been the case for a fine basket of autumn fruit. Times change, people don't. 

The Fiscal Cliff Soap Opera Continues

Wednesday after market close Dec 26 2012

Eric Sprott believe there will finally be a shortage of gold as world banks scramble to buy.

I am off ot New Orleans for a visit with an old friend tomorrow returning homw Sunday. So no up date until this weekend. 

There is little to report, no action to speak of today. We will have to wait till the New Year for more clarity I think. 

The biggest purchaser of US Debt is no longer China, it is our own FED printing the money to do so. This is the ultimate Ponzie Hand Off. The US has literaly become the pre-bankrupt General Motors. GM borrowed and borrowed and never paid any debt off. Some 40 cent of each dollar the US now spends is borrowed money. And we continue to spend and not on infrastructure but on transfer payments. Let interest rates return to normal and the interest will consume half the Federal Budget. 

Bullish Percent Gold Miners

This indicator has just about bottomed. In the past this has taken a couple of weeks so be patient. This is lining up with myidea of a year end low for gold mining stocks and our 1650 target for gold. 

Happy New Year and thanks for Reading The Market Persepctive. We sincerely hope our efforts have improved your investment returns. 

More Exclusionary Forces Arise

Monday December 23, 2012

As noted the last two weeks of December are usually pretty quiet on the Investing Front. But I was so struck by the Strident Headlines in the Weekend WSJ, I made  a separate post to make sure readers did not miss the socionomic implications. 

Socionomics holds that positive mood is inclusionary. Good times are not fraught with war but peace. Bad times are fraught with multiple wars. Hitler rose to power at the very depths of the Depression world wide. 1930-1948 witnessed WW II. 1966-1984 witnessed the Viet Nam conflict and the destruction in Laos later on. 

We don't pretend to be experts in geo-politics but an article in today's, Monday December 24, 2012, Wall Street Journal, please reade The Return of Toxic Nationalism.  This is an excellent follow up to my observations this weekend. Concerning inclusionary and exclusionary forces, Robert Kaplan with Stratfor makes this observation. 

Fascists are not about to regain power anywhere on the Continent, but the age of deepening European integration is likely behind us. Get ready to see more nasty and thoroughly frightening political groupings like Greece's Golden Dawn emerge across the Continent.

We truly are in a battle between two epic forces: Those of integration based on civil society and human rights, and those of exclusion based on race, blood and radicalized faith. It is the mistake of Western elites to grant primacy to the first force, for it is the second that causes the crises with which policy makers must deal—often by interacting with technology in a toxic fashion, as when a video transported virtually at the speed of light ignites a spate of anti-Americanism (if not specifically in Benghazi).

The second force can and must be overcome, but one must first admit how formidable it is. It is formidable because nations and other solidarity groups tend to be concerned with needs and interests more than with values. Just as the requirement to eat comes before contemplation of the soul, interests come before values.

I added the bold face for emphasis. The first force is inclusionary, we in the West would like to think the Arab spring mimics our values. But it is the second force, an exclusionary and toxic nationalistic force that Kaplan warns about. He points out that like it or not, Putin is representative of his voters, who loath Islamists. 

I promised I would not turn this into a political blog. But take a look at Mary O'Grady's column,

John Kerry's Record in Latin America.  The electorate did not grant Jimmy Carter a second term. But we are likely to see a later version of just that with Kerry as Secretary of State and Hagel as Secretary of Defense. 

How quickly society can slide into the abyss is clear in a column next to  O'Grady's When the Sixties Began.  A review of this book reveals how the US moved from the end of an inclusionary era of the baby boomers, 1948-1966 to an era of stagnation, 1966-1982. Within the current era of stagnation we are likely moving from a bull market in expectations, up from the 2009 market lows, to another peak in mood and the markets. The increasingly strident mood mentioned in the numerous headlines I detailed this weekend echo in kaplan's article. 

Again we are attempting to show what is happening not endorsing one side or another, nor making political arguments. Change is afoot, don't let its arrival surprise you, that is our mission at The Market Perspective. 

Specifically our point is this. When JFK sent advisers to Viet Nam and then LBJ ramped up the troop levels to six digits, neither ever imagined that we would leave with desperate refugees clinging to helicoptors as our Embassay was beseiged, but that is just what happened. I remarked Sept 18 that it was easy to sell when things were quiet, it was different after the election when the market began falling hundreds of points a day.

Putin rebuffed Angela Merket seeking release for the girls of the Pussy Riot Band. The US is being rebuffed in both Iraq and Afghnaistan. Expect much much worse to come over the next few years. That will be reflected in much lower markets around the world.

Again our point is that few politicians see this coming but the parallels are plain to see.   Our job is to make that clear. 

 

2012 Comes to an End

Weekend December 22 2012 

Jeff Clark likens 2012 to 2007.

Mark Hulbert wonders if the Dow Industrials will confirm the Transports.

Two of our predictions came to pass this last week. Gold hit 1650. Stocks probably registered the what may be come a double top. 

I suspect the general calm that has pervaded the Fiscal Cliff talks will soon fall apart.  Crude oi pulled back after moving above a key moving average. As usual gold and silver precede moves in stocks. 2012 may well be ending like 2011 with a significant low in gold and silver. 

NYSE Advance Decline Volume

Here at TMP we rely on market internals for timing signals. This chart for the past six months reveals that the signals work for highs and lows and that we are in a very very volatile period. In long periods of bull markets such as 1982-2000, mood will stay more or less positive for months or years on end. In periods of stagnation 2000-2018, it vacilates quickly from positive to negative taking the market up and down. But our indicators have not all turned down. This suggests higher stock prices before year and, which means that gold probably has one more low to go, as we suggested here the last couple of weeks. 

NYSE Summation Index

However our more reliable Summation Index rewmains positive. So expect yet another high in stocks as this internal has yet to top out. 

Gold

 

I labeled the 2011 year end as five waves down. I likewise labelled what is happening now in a similar fashion. Wave 4 and 5 occurred the last two weeks of 2001, that is the amount of time left in 2012, my guess is that happens again, forming a higher low for gold, above 2011 year end. No namby pamby wishy washy stuff allowed here at TMP. 

GDXJ Elliott Wave Count

The parabolic stop and reverse PAR SAR indicator can be a help in identifying Elliott Waves. Here I attempt to outline the pattern. This corresponds to what I should be  a final fifth wave low, just under $20 to knock out the last believers at year end. 

 Dollar versus Euro, TLT

The Dollar in Green has reached another extreme against the Euro, wne will the 78.5 level finally give way, I am guessing early 2012. The perception that the US Will print its way out of debt will send the dollar lower. Ben can only pull so many QEs before that is the conclusion. 

 The Big Picture

Frankly the future should be pretty clear here, especially with several years to run on the 18 year cycle of stagnation.  We expect a market top this next year, in 2013.  We will have more to say on that next weekend in our year end wrap up. We will be attending a wedding in new Orleans at the end of this next week. But expect slow trading for the next two weeks. 

Shanghai was up another 2.568% this week. A resurgence in China  will be a boost to commodity prices. 

Thanks for reading The Market Perspective

[email protected]

 

 

The Market Perspective bases its information on techniques and sources that have been found to be reliable in the past, and The Market Perspective tries to base opinions on sound judgment and research, however, we do not guarantee that future results will match past performance ands no guarantee can be made that advice will be profitable. The Market Perspective accepts no money for stock recommendations and is purely motivated by its own research in recommending any stocks.  Put another way, the responsibility for decisions made from information contained in this letter lies solely with the individuals making those decisions. The editor and persons affiliated with The Market Perspective may at times have positions in securities mentioned.  Nothing contained herein represents an offer to buy or sell securities. The Market Perspective encourages investors to be diversified, and to maintain sell stops and risk control over their valuable investment capital.  No guarantee can be made to the accuracy of text or charts.

 

 

Looking Over the Cliff - A Socionomic Survey

Weekend Dec 22, 2012

Boehner versus Barack, not much difference really.   This is perhaps a great explanation of why silver and gold will eventaully move higher. 

Perhaps Britain is a window on the World of 2013, which is to say dysfunctional.  Goldfarb mentions closer US British ties but I don't see that with Obama as President. 

Going over the Cliff will substantially increase AMT liability.

____________________________________________________

References are to the Weekend Wall Street Journal

I put $800 billion in tax revenue on the table. What do I get for that? - John Boehner

You get nothing, the president said, I get that for free.

How Obama Boehner Talks on the Fiscal Cliff Hit the Wall

I usually defer socionomnic comments to the end of the Weekend Post. But I am so struck at the depth of negative mood just leafing throught the WSJ that I am going to make a post on this first.

All the news is plain to see, it is the job of the socionomist to point it out and put it in, as we say, A Market Perspective.

 We have been warning for years of a coming hardening of attitudes, here it is . And knowing the President knows he never faces election again...

the President went on to remind Boehner that is the sides didn't reach agreement he would use the inaugural address and his State of the Union speech to tell the country the  Republicans were to blame. 

It's a safe bet that will happen  even if Boehner caves to the whole $1.6 T deal tomorrow. 

The reason the sides cannot find their middle ground is that there is no middle ground. The Administration wants more dependent on the Federal Government, the opposition does not, simple as that. 

A Mad Max Environment is starting to emerge in Argentina. 

What started with a raid Thursday afternoon of a supermarket in the Patagonian resort town of Bariloche quickly spread to other parts of the  country with thousands of looters attacking supermarkets and shops in the cities of Rosario, Campana, and Zarate. ...Those protest have rarely turned violent. The latest events were some of the worst acts of looting and vandalism in years. 

Looting  Tests  Leader in Argentina, A 9

One of the articles referenced in the Goldfarb article above suggests the British Government will not last the next year. This quote suggests Argentine civilization will not do so either. 

Please understand the downturn in mood is world wide. 

Let's scan the next few pages ot get a feel for the prevailing mood, and remember this is already happening at Dow 13,300. Imagine what this will read like 6,000 Dow points lower. 

Mexico Takes on Teachers Over School Control-setting up a protracted conflict with the powerful teachers union

Taliban seeks inclusive government after foreign forces leave.

Italy's Monti Quits, Setting Up Volatile Race

Russia EU Tensions Surface

Jobless Swedes Heed Call From Booming Norway

NATO Says Desperate Syria Fires Missiles

New Egypt Clashes

South Africa in Legal Row 

Ethnic Clash Kills Dozens in Kenya (not to be indifferent, but does anyone care?)

In Pakistan the Taliban has murdered UN workers attempting to immunize the population against polio.

The Russian Parliament is in the process of making it difficult to impossible for outsiders to adopt Russian orphans. 

Our point is that whether the stock markets world wide make a new high or not, the prevailing mood is quite negative. This will lead to further chaos and a decline in productivity world wide. This is already evident in places like Argentina and Greece and Spain with double digit unemployment. 

 So brace yourself as the markets are topping again in 2000 and 2008 fashion. All this borrowed and or  printed money will inflate prices in the near term eventually causing more economics hardship which will turn stock markets down. 

Stocks Fall As Predicted

Friday Dec 21 2012 Pre Market Open 6:00 AM CST

Whatever time this is, it is not time to pile into the stock market

The Market Perspective Wed Dec 19 2012

Stocks have erased yesterday's gains. Gold fell first which is typical action as gold leads the stock market. We have noted this same pattern was evident in 2008. Then gold bottomed in November of 2008 while stocks took until March 2009 to finally bottom. 

An alert reader e mailed me noting that RSI is still falling on GLD. No doubt fund managers are selling the stocks that have not performed well lately to 'window dress' their year end holdings. This is irrational in that one should be buying out of favor stocks but typical of the financial industry. 

GLD

Before one gets carried away with negative emotion let's examine several features of this chart.

Price closed under the 200 day moving average, this typically generates sell signals from computer based trading programs.

No kidding, look at the huge volume spikes in the lower panel, lots of fund selling.

Weekly Bullish Percent Gold Miners

This weekly indicator lags daily price action but, we mused that gold may fall into the end of the month. Frankly the action the last two days look like capitulation. In another two weeks the above indicator may well finally bottom. That would coincide with our expectation of a year end low, and a good buying opportunity. 

As mentioned in the opening, we thought stocks were toppy, as we said Wednesday, what a difference four weeks can make. The sell off is being attributed to the Republicans not voting last night, so we have three players, the President, John Boehner, and the tea party Republicans, what a mess. 

150 Bullish Percent Stocks

Sure enough this indicator rolled over after Wednesday and we are headed lower in pre-market trading this Friday. Stocks could have quite a fall into the new year from such an elevated level. Such frantic action is typical of this era of economic stagnation with social mood swinging wildly in both directions. Remember the headlines after the election that reflected optimism on  a quick FIscal Cliff Deal. Now we are 180 degrees from that. 

We wil post the weekend update by Sunday. Thanks for reading The Market Perspective. 

Now that the semester has ended, I have some time to devote to writing  the promised Market Perspective Strategy over the holidays. 

Prophecy Fulfilled, Gold at $1643.

Thursday December 20 2012

We have had a target for gold at $1650 for some time. It got hit ths morning as gold trades at $1643, down over $20 from yesterday. With a month end low due in two more weeks, we would not rule out a move lower than this quite frankly. I checked and Central Fund closed at a stout 4.3% premium yesterday. Recall I sold my GDXJ to the surprise of some readers, it has dropped $2 since. We should finally be coming into a better buy zone by month end.

Stocks entered overbought territory and fell back yesterday as we suggested would happen.