The Market Perspective

1973 Parallel Continues

Monday March 11, 2013

The amazing parallels with 1973 continue. During the 1972 eleciton Nixon and Kissinger claimed to have a secret plan for ending the long Viet Nam war. It ended all right but not as planned. It was a short two years and three months from the 1973 inauguration to the Fall of Saigon. 

By1975 the Democrat controlled Congress wanted nothing to do with Viet Nam and refused to fund any more operations. It was the end. 

Fast forward 40 years and on newspaper front pages,  Afghanistan's Karzai accuses the Taliban of killing Afghans to support the US staying in his country. This was of course denied but the damage is done. When the exodus time in 2014 rolls around this will be remembered. There will not be any Republicans or Democrats wanting to stay any longer. At that point Karzai's Afghanistan will be all alone. 

Since I penned the above yesterday, Karzai now accuses the CIA of kidnapping Afghans, the wheels are coming off this story faster than we can report it. 

On Wall Street there is a saying that a couple of generations need to pass between crashes. In this way there are not many around to warn of the danger remembering what happened. It seems the same is true for foreign adventurism. 

Jeff Gundlach  likes silver, thanks for a reader bringing this to our attention. The detail time line is hard to see but half way through he spotlights the rising tide of 90day + delinquent student loans. We have repeatedly warned this would be part of the economic problem.

Northwestern Law trims enrollment by 10%. There are twice as many law school grads as job opennings. Pair this with Gundlach's graph of delinquent student debt. 

As the new net creditor for the world, could China demand a new Bretton Woods agreement?

Another problem is looming unfunded public debt, now the SEC charges Illinois Pension Fund with fraud but lets them off the hook for any wrongdoing. No doubt the IL politicians believe the Federal Government will bail out the pension fund, we shall see.  

 GDX to SPX An Inverse Relationship

As we said in our e mail yesterday this is one of those rare times on Wall Street.  Stocks are in what could go wrong Mary Poppins valuations while no one wants gold miners. GDX is at the same disparity of March 2009. No doubt this is contrived by Central Bankers to make us think their plan, printing money, is working. 

 Consider the inverse relation of stocks and miners, then think about the world wide money printing regardless of its impact on recovery thus far. The number of individuals on food stamps in the US neared 48 million yesterday. 

The Canadian and Australian Dollars continue edging up, let the US Dollar roll over and we should see oil and metals off to the races. 

Another A & M Professor and I are presenting a paper at the FBD Conference in Alburquerque this week. We leave Wednesday afternoon and return Friday evening. So  don't expect much in terms of updates till the weekend. It does appear the commodity rally is getting underway 

Thanks for reading TMP. 

 

Crude and the Dollar

Monday March 1 2013

Longer term Jim Rogers likes the dollar.

We now address an article on page C3 of today's WSJ, Crude Gets Left Out of Latest Rally. One analyst as is usally the case at these times in the market, remarks that we are 'practically swimming in oil.'  He theory is that supply is too high for price to rally here. 

Supply relative to demand was never higher than at the end of 2008. Ships were at anchor unable to unload their oil cargo, all over the world. Price had fallen below the cost of production at $35. Yet prices rallied, eventually to $110 a triple. 

The reason is that oil is priced in dollars which has a lot more to do with its pricing than demand. 

But what has the actual price of oil done lately, as in the last two days?

Crude Oil and the US Dollar

The Dollar bottomed February 1 and crude oil topped. Since then, the Dollar had a termendous rally. Indeed the same WSJ article quotes Harry Tchilinguririan (really that's his name) pointing out

that the latest FED bond buying program is likely to give oil prices a lift by pressuring the US 
Dollar. And indeed, oil prices advanced the last two trading days.  The fact that oil prices would start to move as the US Dollar is likely finishing its run up is even more telling. 

As we showed this weekend the energy complex is more likely to advance from here than fall.  

Thanks for reading The Market Perspective. 

Bold Spring

Weekend March 10 2013

Socionomics

Market tops are accompanied by bold colors and expansive displays of wealth. At the same time fractal negative readings are occurring. We have highlighted many of these the last few days and found a few more worth mentioning

In the San Antonio we learn of Bold spring

Courageous color, gutsy prints, fearless fabrics — there's nothing shy about spring fashion.

Consider Ralph Lauren's jumbo ruffles, Rachel Zoe's androgynous leather and Tadashi Shoji's nearly neon lace. And then, there are Marc Jacobs' whopping stripes — loudest in black and white.

Bold modern floral motifs and other unexpected digitally produced prints from photographs of nature and people are also among spring's extraordinary — and wearable — works of art.

 

William Flynn, a Cape Cod Barber, ran $150,000 into $500,000. He has been through two booms and busts in the thirteen years since. The article details that his barber shop has gone from a hub of investment speculation to Wall Street being a taboo topic. I mention this as the perfect example of someone who failed to realize the change from an 18 year period of expansion, 1982-2000, to a period of stagnation, 2000-present. The best bet is that we now have yet another big fall ahead of us, this would duplicate past such period. 

 

We hope that reading TMP will allow you to avoid the kind of mistakes that still plague Mr. Flynn's barber shop. 

And finally we hope you are getting the idea of expressions of social mood at the top. Faster, bigger, bolder, expansive. Seeking to break records not only on the racetrack but at sea as well, on again off again Maserati has found a home with Ferrari.Maseratil has sponsored a sailboat which just set a new record on the New York to San Francisco  round the tip of South America at  Patagonia voyage. 

Or as Hal Holbrook remarked to Charlie Sheen in Wall Street, 'enjoy it while it lasts son, cause it never does.'

 

Does a car company helping set a sailing record sell more cars, I wonder...

 

If you can't afford the $1 M Ferrari, how to make an extreme statement, well Ford Chevy Dodge to the rescue for our Urban Cowboy. 

Here is Dan Neil's take on the latest version of the Connestoga, just the thing for hauling bare bones  necessities back to the Urban Ponderosa Ranch House.

If you ever wondered what a $55,630 half-ton pickup truck would look like, here it is. Our tester was the maximum specification: crew cab (125.3-cubic-foot cabin); full-time, dual-speed 4x4; 5.7-liter Hemi V8; eight-speed transmission. This thing has load-compensating, ride-height adjustable air suspension. It has heated rear seats and lockable storage compartments built into the cargo bed walls. It has 20-inch chrome wheels with gold accents and a mirrored chrome grille you can see from Tycho's rim. 

 

This Time It's Not Different

Weekend March 9 2013

“After several depressing years, wealthy drivers in Europe think the worst is behind us, and they’ll start spending again on their favorite cars,” said Fabio Barone, the owner of two Ferraris and chairman of Passione Rossa, an owners’ club.

Ferrari $1.3 M Hybrid Hits Resurgent Luxury Market

Thanks for an alert reader for sending us this link. It it typical thinking at market tops that this time it is different, just because we are back at the same level which preceded the last crash, how could it happen again?  Today Jaguar, Bentley, Rolls, Ferrari jockey for the ultra luxury market, in the US in the 1930s it was Auburn, Cord, Duesenberg, all out of business by the end of that decade. 

Our last two posts listed significant instances of mood change. We would add at least one more. Harry Browne, Libertarian candidate for President observed that if either existing party were to disappear, it would be the Republicans. The Democrats stand for something whereas the Republican are an ever shifting mirage. Lindsey Graham and John McCain are grappling with Rubio and Rand for national control of that party.

I just thought Bentley's operation was expensive, how about million dollar dog! Thanks to a reader for bringing this expansive story to our attention. Bentley is our adopted stray who is recovering from knee surgery. Stitches are out, has to be reminded of restraint!

Stocks

Stocks continue to power up the advance decline volume is in heady territory but not backing down. This is typical of the seasonal high for stocks going into April 15 tax time. 

Re living the Fall of Apple

On balance volume turned on that proverbial dime at the top for Apple. This could be instructive in watching other stocks at their recent high like say, how about Google.

Google

Google dropped 80 points in one day last October. Now price has jumped to a new high, note the gap up at far right and then pulled back along with a small retreat in OBV at bottom. This looks like the start of the same set up from last october, don't you think? GOOG is 160 points above its 200 day MA.

Bonds finally Give Way

TLT held to 116 throughout February. The lure of stocks at all time highs is causing the public to shed its love affair with low yielding bonds for high priced stocks. As Jim Cramer says, you gotta buy now, we of course are not saying that at TMP.

Weekly TLT likely headed to...

The weekly parabolic stop and reverse gave another sell signal at the start of the year. This past week it broke through its second Moving Average. Real support lies at the 200 week MA of 100.

Copper

You better stop
Look around
Here it comes, here it comes, here it comes, here it comes
Here comes your nine-teenth nervous breakdown.

Rolling Stones, Nineteenth Nervous Breakdown

CNBC has been flashing headlines on screen about how Copper has reached a new three month low-surely a version of the 19th nervous breakdown. They of course neglected to suggest that might be a buying opportunity, Cramer was taking the time recommending stocks of course. 

Copper fell with gold this past month. It is putting in a higher low in price. At bottom MACD is curling up. 

COPX

After extensive negative publicity on the sector, copper miners look for a bottom and turn up. Again this is another significant event of the past week. 

 

US Dollar versus Canadian Dollar

The puzzle piece that still does not fit is the US Dollar. It reached another high Friday. The Canadian Dollar shown in red also had a nice bounce Friday. The Aussie still lacks an upward bias. 

GDXJ....and now the moment we have all waited for....

GDXJ appears to have found some footing along with XME, COPX, SIL. On balance volume is beginning to bounce at bottom. OBV also bounced on the weekly chart, not shown. So the last phase of the bull market since March 2009 hs begun. Commodity producers and commodity prices are moving up as a result of excessive money printing world wide. 

Unleaded Gasoline

We suggested a few days back that gasoline wold fill this gap and then begin climbing once more. Here we go. Local news is forever focusing on the pump price which lags the futures about three weeks. Expect cute young ladies on tv announcing that consumers are finally getting relief at the pump this next week. But the real story is that prices will be at new highs over the next three months. 

 Crude Oil

The Previous high was $110. Let's set our sites on that number for now. At bottom the Energy Service XES pulled back and now advances. While it is clearly higher, it is perhaps the best way to play energy to the upside. 

GDXJ to SPX

The ratio chart of gdxj to stocks shown by spx finally begins a reversal. Note the volume spike at top and the curl up in MACD at bottom. 

Bottom Line

Markets now enter the final phase duplicating the move from late 2007 to mid 2008. This period saw stocks topping and commodity prices wildly surging. Oil as mentioned many times here hit $145, then collapsed to $35 by Christmas. Whether that will be repeated remnains to be seen but the road map is clear. Clear meaning stocks topping while commodities make new highs. 

Stock favorites like Apple and RAX have already begun their respective bear markets. We suggested earlier that Google's  pattern looks the same as when it last fell. 

What could go wrong on the way to US Energy Independence?  It costs a $70 a barrel to drill for oil and gas. A collapse in the price of oil later this year would be a disaster for all the money now betting on Eagle Ford, North Dakota, and the Permain Basin once again. We will monitor that situation. 

I just went to gmail and found another thoughtful question from a reader. The reader noted my comparison with 1973-74, did I really think we might fall 50% again. Indeed, let me share my answer as his was an excellent question, and clearly he and I are thinking on the same lines,I completed these posts just as he wrote. My reply below.

 

We are clearly thinking on the same track at the same time. I was just finishing three or four posts for TMP this weekend. The reason for so much is that exactly like yourself we have not seen this level of complacency since 2007-08 or March 2000.  And believe me this is the way it was in 1973. You could have gotten astronomic odds against a bet that Ross Perot would go out of the stock business but that is exactly what happened. I have listed all these events as clear evidence it is 1973 all over again. 

You ask, could  the whole thing could collapse 50% and that is an excellent point. Apple just collapsed 39% in six months!!!!!!! Apple was the guaranteed cannot fail no debt sitting on $137 billion cash Wall Street Darling... And last October everyone on CNBC thought Apple was going to 1000, not whether it was but how fast would it get there, remember NASD 5000 on CNBC in March 2000,  

Bill Griffeth was beside himself excitedly announcing every new 1,000 point rung on the NASD ladder. same thing. Recall the last 3,000 NASD points then happened in a matter of months after an 18 year climb. 

[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.

 

Weekly Newspaper Column

Sunday March 10, 2013

Dennis Elam has authored a weekly newspaper column at various times since 1998 for the Odessa American and the Andrews County News. These two cities are located in the center of the Permian Basin. This 50 county area has historically produced 20% of the nation's oil and gas. The Permian Basin is epxeriencing a fracturing boom again bringing new construction and activity to the area in yet another 'boom'   This boom has an echo in the Eagle Ford Shale region between San Antinio and Corpus Christi. This column ran today in both papers. 

Four Years to the Day Since March 9 2009

 

This weekend marks the fourth anniversary since the Financial Panic low of March, 2009. US Stock Indexes have doubled. Sentiment has rocketed from the depths of despair to Jim Cramer’s Why You Should Buy Now headline interview on CNBC this week. Let’s address the question on everyone’s mind.

My 401K is about where it was in March 2000, 13 years ago, how come? We are in an era of economic stagnation just like 1930-1948  or 1966-1982. Stocks move sideways but are subject to huge swings up and down as the market moves in fractals of bull and bear mood. Buy and hold works great in an eighteen year up period but fails to deliver in an era of stagnation.

Why is 1982-2000 so different from 1966-1982? Eighteen year periods of social mood alternate from an expansive positive mood (1948-1966)  to a gigantic correction of the excess of the previous bull market (1966-1982). The purpose of a bear market is to eradicate the excesses of  the previous bull market.

Is there anything to the fact that we are thirteen years to the month from the high of March, 2000 and five years from the high of March, 2008?  As a matter of fact, yes. For whatever reason these cycles seem to fit into a pattern of numbers first noticed by Leonardo Pisano Bigollo aka Leonard of Pisa. He introduced Europe to the Hindu-Arabic numeral system and what is known as the Fibonacci number series.  His book Liber Abaci published in 1202 introduced the additive series of numbers resulting in 1,2,3,5,8,13,21. Each number is added to the previous number resulting in a ratio of .618 of the former to the latter. This ratio is known as the golden mean and appears in the dimensions of architecture and art that appeals to the human eye. And there is your five and thirteen year cycle.

You’re wandering off the Land of the High Sky, Italian mathematicians and such, how about updating us on what to expect next, and remember you’re in the Permian Basin, not Tuscany! Well you did ask. Social mood for stocks should be peaking now. At the end of even a fractal bull market which we have been in since March, 2009, investors crowd into fewer and fewer stocks. The move out of stocks means that every investor is selling at the same time.  Apple was $700 six months ago, today it is $425.  Apple is down 40%, Rackspace is down 30%, social mood reverses violently at market extremes.   And so the market crowds into fewer stocks still climbing like Google, now at $830.75.

What can we look for to spot a trend change? Look for a  reversal in the US Dollar.  The US Dollar may have  peaked last week. The Canadian and Australian dollars appear to be making lows here. Currencies of commodity exporters like Canada front run commodity rallies.

Why? The constant printing of money, today known as QE,  by the governments gives rise to speculation with cheap low interest funds. Recall that crude oil ran from $50 to $145 the last year of the  2007-2008 fractal bull market.  This past Tuesday heating oil, and it is not buying season for oil, jumped 1.64% in one day. Crude oil bounced at its 200 day moving average and unleaded gasoline came back to support at 3.10. Let the U S Dollar roll over from 82.50 and the final leg of the fractal 2008-2013 bull market will be underway.

Which means what for the Basin? I suspect it means a final burst of prices to new highs for the energy complex, oil could challenge its last  $110 high. The most detested sector today is gold mining and even it could shine, pun intended. As long as the FED keeps rates low, speculation abounds. But…. 

But what? High energy prices are likely to choke the economy setting us up for the next bear phase of this era, meaning much lower stock prices.

Any idea of how long to a top in oil?  In 2008 oil ran from $85 n January to $145 by early July. It may take even less time this go round. The excessive optimism expressed  in building permits, billboards begging for help, and reports of endless years of energy bounty from shale discoveries match the 1980-81 and  2008 optimistic Basin social mood.

 Keep up with markets between columns at http://www.themarketperspective.com by Dennis Elam

 

Numerous Events Signal Social Mood Change

Friday,  March 9 2013

The news is there for all to see. The job of the socionomist is to point out what it really means in terms of evolving social mood. 

We have warned  of this time period for the last two years, the peak in social mood that would turn the market back down. Recall the transition from 1966 to 1968 when LBJ did not seek re-election sweeping in Richard Nixon, the last think LBJ could imagine. The TET Offensive, the Kent State Shootings, the assassination of ML King and Bobby Kennedy reflected the negative mood that was taking the stock market down. The market had recovered by January 1973, preparing to fall again as it is now.  The cluster of 'out of the blue reversals of corporate and political icons' in such a short period typically ushers in big changes. If you have not read our Thursday post, please go back and start there, this list is a continuation of enumerating the 'unexpected events.'  If you have been reading TMP none of this is unexpected but rather the only thing one could expect to happen, a reversal at the top tick of social mood. Consider this list along with our last post including the $1 million La Ferrari. 

McDonald's sales fall less than expected.  This is how the bear market started in 1973, 40 years ago in this time period. 

US Retailers post tepid growth.

 It only took one year for Ron Johnson to wreck 110 year old JC Penny. The Board that hired him is considering selling the company. 

 Apple is  was headed for $1,000 ( hey every talking head on CNBC said so) last October is now $425  a drop of 39%. Investors demand Apple share the wealth.  The interesting point here is that Apple cannot find an investment it believes is worthy of merit for the $135 B in its cash hoard. 

Talks are underway for a Chinese partial purchase of the GM Building in New York.  This is high irony at its best. The financial crisis featured a bankrupt GM. Now the article states  this would make the GM property the most valuable tower in the US at $3.4 billion. Our take is otherwise, it makes the GM building the most expensive tower in the US. Recall hte skyscraper theory that tall buildings are planned at market tops. Collapsing REITs will be a prominent feature of the forthcoming bear market.  Remember the concern in the late 1980s about Japan buying America?  Sean Connery appeared in Rising Sun in 1993 a movie about Japanese influence which had already peaked in 1989. 

By 2001 Mike Dell had achieved mythic status in Austin, the Texas version of Silicon Valley. One realtor remarked to me at the time that he guessed you just put your money in Dell and forget about it, Dell stock peaked about a year later. One would think the wonder boy could count votes before announcing a private buyout. But now Corporate Raider Carl Icahn demands a $9 one time dividend joining Southeastern Asset Management the largest shareholder in opposing the deal. 

The entire Page A8 in the friday WSJ is heralds the weekend new section, The New Face of Wealth. Again this is the sort of top timing headline one would expect. 

Turkey's Prime Minister declares Zionism a 'crime against humanity.  What a way to kick off the move down to negative social mood, we take no joy in reporting this. All that we have written about social mood the last few years has been leading to just such a moment. 

Bear Markets crush worn out unsucessful plans and embrace new ones. This would be the case for a Thriving Poland and a moribund Paris.

 

 The President appeared unstoppable beating Romney in all the swing states. He cowed the Republicans into accepting more tax increases and retreating from the Fiscal Cliff. But his luck ran out doubling down on the sequester. This is similar to Nixon firing all his staff and asking for new applications at the start of his second term. In eighteen short months, Nixon would get his own pink slip. The President's Approval Rating Turns with the Market

The market bottomed in the summer of 2001, along with a low aproval rating for the President. The correlation is not perfect but close. One can see Obama's aproval rating rising with the market from the lows of summer 2011. The Market moved sideways through 2012 as did the President's approval rating. Finally the President's rating peaked with his re election. Now that gasoline prices are rising and poor retail reports are surfacing, along with the bungled sequester initiative, his rating is falling rapidly. This duplicates the rise of Richard Nixon into his inauguration in 1973. His ratings also began a dramatic fall once his second term began. This also demonstrates that markets top at different times, even political and stock markets.

Kim Strassel notes that Barack jumped the sequester.  The article features this photo of sixth graders on You Tube Asking the President to restore White House Tours. Three weeks ago Majority Leader John Boehner could not outmanuver the President, today sixth graders can, that is a change. 

 Recall not so long ago that the then head of Disney declared the day of big budget movies was over, that kick started the careers of Bett Midler and Richard Dreyfus. Well big is back, all $200 M worth, Joe Morgenstern turns thumbs down on OZ, Nowhere Near the Rainbow. Again expansive mood begets expansive but not necessarily successful projects. 

 

Wool a post apocalyptic thriller about   the last remnants of humanity living in a giant underground silo has gone viral. it as sold half a million copies and generated 5,260 Amazon reviews. Author Hugh Howey has sold the film rights to Alien producer Ridley Scott. Recall Dr. Strangelove's idea of just such an existence as a result of the Doomsday Machine in Dr. Strangelove. Dark themed novels and movies featuring vampires and zombies have dominated best seller lists, now the end of the world looms in the imagination. 

The story of the author Howey is even more evocative of the kind of changes a transformative bear market can generate. Howey, like J K Rowling and Stephen King when they started writing,  was unemployed. He wrote Wool as a short story and published it digitally. Readers asked for more. He ended up producing a five sequel series earning over one hundred thousand dollars a month on the digital series. Now he has sold the paperback and hard cover rights to Simonand Schuster, he keeps the digital version selling for $5.99. Will people pay more for paper and hard cover?  We are seeing huge technology changes in this era of stagnaton just as the 1930s saw radio and commercial air travel become realities. 

Thanks for reading The Market Perspective. This has been an extraordinary week in terms of peaking social mood. We have expected this for years. This and the last post are short summaries of some of these events, present, but overlooked by most as significant. We will update you on the markets this weekend.  Our commodity picks are rallying. 

In the News

Thursday March  7 2013

Wed March 6 2013 WSJ

Buying at high flies in the face of common sense but it is often hard to resist.Ordinary investors wind up buying at elevated prices and get caught when the  market eventually turns down. But this time there is a wild card, the Federal Reserve

Front Page Article

The fact that an article rationalizing buying at all time highs would be on the front page of the WSJ the very day of the high says it all about expansive social mood!. Note the graph of Google in the last post versus XME. 

Five stocks Handled the Heavy Lifting A9

IBM, CAT, MMM, Chevron and United Technologies accounted for one third of the rally since the financial crisis.

This is classic herding at the top of markets, investors all chasing the same thing. It will take a while but investors will be selling these just as the miners have been sold the last few months. 

We're going to our Happy Place

T shirt logos for Coffey Securities headed for Florida retreat

I can't make this stuff up....

IL Governor Pat Quinn nixes Chicago Mayor's idea for casino gambling in the city A 19

How long until Chicago becomes New  York City of the mid 1970s. broke, Detroit is there now, on the editorial page the WSJ notes dozens of Michigan cities are broke as is Los Angeles and they cannot all be baile dout-this will set the stage for the 2013-2015 financial meltdown along with student loan defaults

White House Tours Cancelled while Dept of Agriculturejets to California wine tasting A 20

I speculated Obama's ratings are in for a tumble here is an example of how it starts

La Ferrari - Ferrari gets on the hybrid bandwagon

Befitting the new high in stock markets, in the same time frame Ferrari introduces La Ferrari, its first
hybrid at a price matching SPX 15335, La Ferrari boasts 949 bhp and weighs just 2800 pounds. Only 499 will be built at a price of over $1 million. The 1930s saw similar expansive tastes via Dusenberg (she's a Duzie) Auburn and Cord. We have featured numerous over the top car offerings the last couple of years but this seven figure outlandishly powered Italian Stallion seems the perfect crowning touch for the market.

 along with Jim Cramer's inteview, why you have to buy now, the WSJ front page article rationalizing that this time it's different, we have the FED (which has been around since 1913), the Mansion Expansion in the Friday WSJ, and a dizzying number of $100K + SUVs and numerous exotics like this one, social mood is truly expansive at the top. Today's WSJ featrures a well to do lady gardening in her green house adorned in Hermes scarves and other expensive attire. A show it off attitude prevails at market highs. 

 

 

The Social Mood Switch Has Turned

Wednesday March 6 2013

I wrote my weekly newspaper column today. In it I noted that when social mood changes at market extremes it often does so violently, just ask an Apple or RAX shareholder. Today we had dramatic sentiment shifts, prices up,  on GDXJ, XME, REMX, KOL, although gold was relatively subdued. But miners usually precede changes in the metal itself. This morning we noted a potential top in the US Dollar and lows in the Canadian and Australian Dollar. Stand by thngs are about to get quite interesting.

Herding at the Top

Wedneday March 6 2013

Jim Cramer Says its Hard to Get Out of Stocks Now

We have written extensively about social mood driving social action. Here is the polar (I struggle to find a more descriptive word) opposite of November 2008 or March 2009. Note the rationalization in the article, with Google making so much money why get out? this was the same rationalization for why Apple at 700 HAD to go to 1,000.  Stocks do not go up because they make money the go up because people buy them. Once we run out of buyers the party ends. Recall the dot.coms went up and never made a  dime. 

Investors are receiving positive vibes on buying stocks as Buffet buys Heinz for $23.3 billion. Buffet's position however is not that of an individual shareholder. No doubt Heinz will continue to sell ketchup and salsa no matter what, Buffet owns the literal cash flow, just as with his railroad. Buffet busy cash flows, not stock prices, there is a big difference. 

Here is the picture of people piling in at the top.

Dow Transports

I don't follow Cramer but my guess is that he was not recommending buying during the Fiscal Cliff debate when CCI bottomed last November. Notice that just yesterday investors and I use the term carefully, piled even more money into the Transports, middle,  and Industrials at top. Please notice the spike in CCI yesterday in the lower panel.

The question Cramer should be asking how many potential buyers are out there, still?

What has happened here?  The answer is that the expansion of the money supply by the FED has offered banks and funds near zero interest money to throw at markets. Expensive home prices and now expensive stock prices are the result, it did not cause business expansion or more hiring. 

TLT Bonds

Look closely and you can see last week's action, remember the Dow diving Monday over a week ago?  That spiked bonds as investors moved back to bonds but now money is flowing out to stocks in the top panel. This is the very picture of investors frantically racing back to stocks at new all time highs. 

US Dollar shown by UUP

Markets go to extremes driven by extreme emotion. Here UUP in two hour format has soared as MACD in the lower panel finally backs off, this suggestion a potential topping action. At top detested GLD edges closer to its moving average.

GLD to Stocks

Buying when there are no bids is painful. The ratio of paper gold GLD to stocks is back to March 2009 levels.  Hard to believe but true, the ratio then and now at .1. 

Japan Central Bank Plans more QE

Bank of England Ready to Pump More Cash Just yesterday the WSJ featured an article of shuttered small sops out of business in England

FED should Not Scale Back QE

Let stocks drop, and they are in all time high territory now   and you can bet the Central Banks will hit the QE button. In the short run that can only be inflationary boosting commodity prices. The US Dollar looks toppy on the daily chart. 

In closing this morning, the most compelling argument for a commodityrally  is, would you believe

Heating Oil

Did anyone notice heating oil up 1.64%, yesterday, when it is not buying season for heating oil?  If anything ought to be out of favor it would be this. But note the low MACD and RSI. And it bottomed just above the November low. 

Stay tuned to The Market Perspective.

 

What, Gold up $10?

March 5 2013

This is certainly the most extreme social mood we have seen since March 2009. Then negative mood took stocks to a new low while gold and miners had already begun recovering. 

Gold is up this morning after a brutal day for mining stocks yesterday. insiders are buying mining stocks. If the Dollar rolls over we should see a powerful snap back rally in metals.

The green red line is the Dollar, the pink line is GDXJ. They have moved completely oppostie since our exit Sept 18. MACD looks to be peaking and the Dollar actually pulled back yesterday. Markets can only be manipulated for so long. 

Canadian Dollar versus US Dollar

The US Dollar is in green and the Canadian is the red black bars, gee, same chart as the first chart!  That is because Canada is primarily a commodity exporting country as is  Australia. 

I am still long some gdxj, remx, sil, and fidelity gold and global commodities. As one reader remarked to me an an e mail, this should be interesting, no kidding. 

Longer term we have a serious problem at the FED. The FED continues to accumulate Treasury Bonds, it is the biggest purchaser in the world. When not if interest rates rise, the bonds will rapidly decline in value. That leaves the FED with a loss on the books and they will be flooding the market with bonds as prices fall. That will lead to an even more rapid rise n interest rates. More on that later. 

While the overall stock market still is climbing, we have suggested using up moves to exit not enter. The recent air pocket drops of RAX and AAPL suggest how nervous the market is. At market tops funds typically herd into a few favorite stocks, when they all went of the exit at once is favorite Apple, well you can see what happened, ditto RAX. As we said last Sept, it is easy to exit when things are going well.