The Market Perspective

Short Term Top for Stocks

Monday July, 29 2013

I have been in West Texas / Permian Basin this past weekend. I drove back yesterday and am catching up. 

However it appears we have a short term top at least forming. The Dow Indus trials, Transports, and Crude Oil have combined to form a Dow Theory Confirmation. This requires them to all make new highs. I am including Crude in the theory though that was not Charles Dow's idea. Retail Gasoline prices are now $3.89 for 88-89 octane. This is about $4, the inflection point at which consumers complain and costs start to become prohibitive. But so far stocks and transports are holding up. 

Transports have the best performance. This is not doubt due to the rails experiencing tremendous business moving oil and gas. I can testify that the Permian Basin and hte Eagle Ford Shale areas alone may have revived light truckmanufacturing in the US. I spotted 50-60 refrigerator white pickups of all descriptions on a the Chevy Dealer lot in Andrews. In normal times there wold have been perhaps a dozen or less. 

A big story in Texas is the road destruction caused by large truck traffic hauling sand, water, and fracturing equipment. 

Another odd story here is that crude oil is at new highs while other commodity prices continue to drop. Here is the same chart with the D Bank commodity index substituted for oil.

Half of DBC is oil related products. But as you can see the index is down 10%. We have written that the collapsed in silver and gold and now the slow down in China may be suggesting a deflationary wave. That is happening in the rest of the world while the US parties on.

SPX and Bullish Percent

The 200 day MA Bullish Percent Indicator is at 90%. The SPX is putting in a new high. This may be tme for a  retreat before an assault on new highs later this summer. 

thanks for reading The Market Perspective

Dennislelam@gmail.com

 

 

 

 

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.

 

 

Historic Oil Prices are at an Inflation Adjusted Historic High

Thursday July 25, 2013

My newspaper column which will be published this next Sunday is based on the chart below. Our point is that as socionomics holds, maximum mood occurs at the end of a move. After a mere 16 months of prices closing over $100 at various times, individuals have decided tht $100 is a perfectly normal event. It is not as the graph shows. 

Normal prices are about $20-40, abnormal once i a blue moon prices are the triple digit ones now present.One can only guess but it would seem reasonable that a few more months as in 6-18 months would bring another 2008 or 1981 style top in oil prices. 

 In a similar vein, Dick Evans CEO of Frost Bank make the comment that he was trying to avoid doing something stupid like making a 1.78% loan for ten years to a commercial customer. Dick Evans understands that such low rates, like high oil prices, are spike not permanent events. 

The New Bull Market in Yields

I had hoped for more pullback here, but we are not getting it. Notice the 1.5% jump yesterday. 

The move  to higher rates is on.

I will be travellin West Texas the rest of the week. I will be posting some impressons of the wild West Texas economy. 

China Hits the Wall

July 23, 2013 Tuesday

Paul Krugman predicts the end if not the slowing of the Chinese growth ecnoomy. 

Last week, the crisis was announced with a flourish. First, The New York Times columnist and Nobel Prize-recipient Paul Krugman penned a piece titled "Hitting China's Wall." He wrote, "The signs are now unmistakable: China is in big trouble. We're not talking about some minor setback along the way, but something more fundamental. The country's whole way of doing business, the economic system that has driven three decades of incredible growth, has reached its limits. You could say that the Chinese model is about to hit its Great Wall, and the only question now is just how bad the crash will be."

Later in the week, Ben Levisohn authored a column in Barron's called "Smoke Signals from China." He wrote, "In the classic disaster flick 'The Towering Inferno' partygoers ignored a fire in a storage room because they assumed it has been contained. Are investors making the same mistake with China?" He goes on to answer his question, saying, "Unlike three months ago, when investors were placing big bets that China's policymakers would pump cash into the economy to spur growth, the markets seem to have accepted the fact that sluggish growth for the world's second largest economy is its new normal."

 

Read more: Recognizing the End of the Chinese Economic Miracle | Stratfor 
Follow us: @stratfor on Twitter | Stratfor on Facebook

George Friedman at Stratfor

While Friedman does not see a Chinese collapse, there will be a Japanese style slow down from unstoppable Juggernaut to 'what happened.' The articles detail that China routinely produces the statistics the West likes to hear but they do not bear any resemblance to reality. China is able to produce such stats faster than any other country which suggests a fictional base. The Shangahai suggests China is already well on its way to becoming the next Japan of the 1990s

Shanghai

As we have noted, China peaked in the Fall of 2010. The SSEC has lost 37% of its value since then. 

This will clearly affect the countries surrounding China that have been the suppliers of iron ore, cement, and such like Australia.

The weekly trend is up. But just as the US Markets recorded a high in May, Australia may be signalling

trouble ahead. Already housing prices there are falling. 

Crude Oil

I suggested crude oil had topped last Friday and indeed it pulled back Monday. 

Health Care

Whatever else one may say about Obamacare, it has been good for health care stocks. This looks like a well developed third wave, note the high RSI at bottom. 

Bonds

The idea that TBF would fall a bit and TLT would advance was correct. The idea that municipal funds would follow suit was incorrect. I began exiting the municipal funds yesterday. We will look for a suitable entry for TBF anticipating higher interest rates into the fall. 

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And the award for Revisionist History goes to UAW President Bob King who said

United Auto Workers President Bob King, speaking publicly on the Detroit bankruptcy filing for the first time Monday, said he is outraged at how the city's 20,000 public-sector employees have been treated by the governor and the city's new leadership.

"I know how bargaining can work in difficult crisis situations," Mr. King said. "In the auto industry, labor with management, the community and government, we all worked together and look at the industry now."

Earth to Bob, if you had worked together GM and Chrysler wold not have gone bankrupt, and the Administration not your hard work, saved the UAW. 

 

 

Skyscraper Theory Spotted in Midland, TX

Dennis Elam authors the weekly energy column for the Odessa American and the Andrews County News. These two cities are the epi center of the Permian Basin, a 50 county area that has traditionaly produced about 20% of America's oil and gas. 

Monday July 22, 2013

Careful What You Wish For

This grand project will define Midland, its leaders, and the people of this city for decades to come.

Brochure for Energy Tower at City Center

I don’t doubt this statement …..

Ask someone who lived through the famous 1972-1986 Permian Basin oil boom about oil prices. You will probably get an answer that prices were double-digit beginning in the early 1970s and then everything was just fine until 1986 when things fell apart. But that is not what happened.

In fact oil traded for about $3 a barrel prior to the first OPEC Embargo in 1972-73. That after all was the reason for the embargo, OPEC wanted to raise prices. The result was that price moved up into the higher single digits. It was not until 1979. And the second embargo, that oil went double digit. Crude put in a  parabolic rise to $36.  Market tops occur amid wildly positive social mood with prices climbing in Jack’s Beanstalk fashion. Crude took five years, while everyone was certain the price would rebound, before it fell from $24 in January 1986 to $12 that summer.

(A recent example would be the way silver shot from $17 t $50 from August 2010 to April 2011. Today it is $20, again.)

Champagne corks are popping from  Midland to over $106 oil this week. May I predict an intermediate top at $108 by Friday? Oil poked above a downtrend line from its $115 high in April, 2011. I suspect that means oil pulls back for three months, and then scampers to a final high next February.

There is considerable confusion, particularly among real estate developers, about the cause and effect of an oil boom. Real Estate development does not drive the price of oil up. In fact the price of oil does not drive real estate development. Indeed, it is the expectation of ever higher prices that prompts real estate development. Socionomics, the study of how social mood determines events, dictates that the extreme expression of mood tends to occur near the end of a trend. 

Does the social mood now correspond to what occurred in that final run-up from 1979 to 1981?

We need look no further than Midland, Texas where a $400 M 58 story building is planned. The developer has no oil field experience and in fact hails from Connecticut. Social mood is so expansive the kick-off leasing party took place at the Houston Country Club. The usual suspects were present with nary a discouraging word spoken.  (Oddly I was not invited, imagine that!)

The skyscraper theory holds that positive social mood results in the tallest buildings ever being built at precisely the wrong time. Examples include the Empire State Building which opened at the start of the Depression, City Center in Las Vegas which opened during the financial mess of 2008, and the Burj Tower in Dubai which managed the same result.

In 1979  multiple new buildings were constructed on the East End of  Odessa. Some sat vacant for years. A Rolls Royce Dealership was begun and the First National Bank of Midland added ten stories to its downtown Midland Tower.   Expectations were that Highway 191 would quickly fill with business.

Energy Center will have it all, just like City Center in Vegas-residences, a hotel, theaters, a sky top bar and restaurant, and office space. Interestingly the office space in the brochure appears to be for one and two office arrangements, not exactly One Shell Plaza. Here is a quote from the Energy Tower brochure.  Projections for the Cline Shale contribute to the expectation that the US will become the world leader in oil production by 2017. 2017 is the date Energy Center will open.

Note the developer’s use of the word, expectation. In 1979 it was the prospect of limited oil available (two embargos after all) that supported ever higher prices. This time it is different in one regard, it is this very promise of unlimited new supplies that causes all to believe prices will remain high. This is the very opposite of basic macro-economics. More supply should lower price.   While the US may well produce more oil, the oil being produced still have to be artificially lifted. In Saudi, Arabia, the wells flow with no mechanical assist. It is a bit much to think that wells which require artificial oil lift can compete with those that do not.

But this time it’s different, right?

 

US Crude Finally Priced with Brent Crude; Stocks and Oil Hit New Highs

Weekend July 20 2013

China

Paul Krugman  comments on China Hitting the Labor Supply Wall. I heard a presentation by a former US ambassador to China. His take was that China will have a decline of at least 50 million in the available work force due to the one child policy. As the parents die ( does anyone retire in China?) there are simply not two children to replace them. This will mean fewer workers. And that means less ability to produce for other nations. And it means the low cost of Chinese labor will be disappearing, this is already happening. 

_________________

 MSFT - why did the price of MSFT run up anyway?

In the Weekend WSJ on page B1 Bad Day for Tech Titans - MSFT, HPQ were both hit, here is the comment I posted for my accounting students on the professorelam blog.

The announcement by MSFT of earnings and a write off on its 'high profile Surface RT Tablet' (the WSJ description not mine) offers a good deal of insight on why we study accounting. 

E/S  Expectations were for 75 cents, actual versus  66 cents

I assume the R & d expenditures were capitalized once the Tablet came on the market. but MSFT hd to admit there is nothing there and so the impaired asset was written off.

Here is the CFO's comment. 

“We reduced the price of the Surface RT by $150 to $349 per device,” she explained. “As a result of this price change, as well as the inventory adjustments for related parts and accessories, we recorded a $900 million charge to our income statement.

Read more: http://www.itpro.co.uk/tablets/20229/surface-rt-900m-write-down-hits-microsofts-q4-hard#ixzz2ZUm2bEEL

And so the stock price dropped 6.3% in after hours trading. You see, the failure to hit an earnings estimate impacts the stock price. Frankly I was mystified as to why MSFT stock had risen to over $30, does anyone reading this blog own a Surface RT Tablet, better yet, has anybody even seen one in use, i have not. 

Or as Amy Hood CFO put it

'I want to be very clear. We know we have to do better particularly on mobile devices.

Yeah but when will that happen? MSFT dropped the price on the table by $150, from %500 to $350, a 30% price cut. Do you suppose there is any gross margin in that for MSFT?

_____________

Oracle, Intel, IBM, MSFT, SAP, Google, all delivering disappointing results.The Heard on the Street article concludes all are too big and too slow to respond to changing tastes. 

WSJ Page B 14

TMP Comment - Hmm, that would be part of the stock market topping process

 _____________

Crude Oil

I have been asking why the price of WTIC was so high, as there is plenty of supply and reduced usage for gasoline and the highest gasoline inventory since 1984. Page B 5 Crude Oil Prices Converge explains that expanded rail and pipeline shipments have distributed more oil to refineries in the US. Brent and WTIC traded for $108. Friday.  Tom McClellan notes we have backwardation in crude prices with a year out trading at $95. 

And we have noted the high correlation between crude and stock prices. I suspect crude oil topped for the time being Thursday and Friday. Interestingly John Murphy made a big deal of this, John seems to be coming onto the field at market highs these days. 

___________________

Yields on investment grade debt fell below 6% at Thursday's close for the first time since June 4. fueling the bounce, investor sentiment, the prices of T bonds have risen amid reassurances by the FED that the FED is in no hurry to curtail its $85B bond buying program. 

Junk Jumps as Bond Boom Page B5

This was our suggestion a few weeks back. I bought some municipal funds that admittedly have lagged this move up in other bond prices. The problem is with ETFs that are thinly traded. TLT for example has moved just opposite TBF. 

______________________

Okay let's start with Crude OI.

If this pattern holds we can expect a low into october and then another high in February. Note that Brent in the top panel and WTIC in the main panel have achieved parity at $108. Also note the 25% rise from April. The rapid rise here reminds one of the summer of 2008 when oil hit $145.

Weekly Crude Oil

Crude oil an numerous energy stocks and service companies took out downtrend lines poking to new highs. We noticed last week that oil had broken this downtrend. We suggested Conoco Phillips COP as a best bet and it set a new high this past week. 

While the daily MACD in the previous chart looks toppy, the weekly has a way to go. That supports the idea of a final high next February. The trend in crude oil remains up, this suggests higher stock and oil prices in the six moths ahead. 

 SPX Correlates with Conoco

Again we remind readers that commentators on tv hve it all wrong. Here Conoco is highly correlated to the stock market via the SPX. One is the image of another, it is confidence in the economy that raises oil prices, even in the face of plentiful supply and reduced demand and increased production, all of which happened during this period. 

 SPX is getting  far ahead of its moving averages. We think stocks and oil begin pullbacks here. 

Bonds TLT, JUNK, MHD

TLT government bond fund on top, Junk in the middle, and MHD muni closed fund at bottom. Clearly TLT and the municipals have badly lagged Junk in attracting investment. Let's see if things improve this week. 

Make no mistake about what is going to happen here. The Federal Government gladly gave the GM bondholders nothing. That was frightening enough. I would not be surprised to see it happen again in Detroit.  And if that happens, bond holders everywhere will have a good reason to be frightened. First they are likely facing insolvency. Second there will be no traditional bulwark of support for creditors in bankruptcy court. The next chart tells us what the market is expecting. 

US Dollar

The dollar as been in an uptrend since the lows of early 2011. This market sees a scramble for dollars developing. Sure the US has printed lots of the world currency, but then there is lots of dollar denominated debt around. Even supposedly rock solid Texas has problems; Houston, TX has unfunded pension liabilities of over $2 billion. MISH reported on this possibility in October 2009.  The bankrutpcy of course is that the city cannot cover future poromises of pensions, this can be put off for some time, and Detroit and GM are prime examples of that. 

Consider the left side of this chart. As the financial crisis worsened in fall 2008, the value of the dollar soared, as everyone scrambled to sell assets to raise cash, in dollars. At the moment we do not have a national financial panic. But the dollar has risen to the same level now, as it was during the panic of 2008!  This is the 84 level.   Meanwhile the value of gold has plummeted. No one expects debts to be paid in gold, but the wise are looking to accumulate more dollars. That is the only rational explanation of why gold is down and the dollar is up.

The Bottom Line

Stocks and crude are a bit overdone but on target for higher prices in late summer. 

Bonds will likely bounce and then continue down into the Fall.

The Dollar remains quite strong.

Gold and silver remain on target for Fall lows. 

Socionomics

Market extremes are accompanied by extreme behavior. We have noted that bright colors and styles are characteristic of market tops. Still I just cannot agree that this plaid jacket goes with the checkered shirt. 

The WSJ noted this week that one of six Democrats are now voting wiht Republicans to dismantle portions of Obamacare requirements. Even Obama's administration selectively dropped parts of the act for a year. Amid NSA, IRS (see Peggy Noonan this weekend), Syria, Palestine (Brett Stephens described Secretary of State Kerry as a fool on a fool's errand this week), and Snowden, our 1973-74 political meltdown analogy continues. 

 

It's official, the rating is now negative. We are a mere seven months into the new Presidential term, again I am not being political just reporting the amazing analog with this and the Nixon Presidency in its second term. 

thanks for reading The Market Perspective

Dennislelam@gmail.com

 

 

 

 

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.

 

 

Stocks Up on Low Volume; Summation Index Still Moving up

Thursday July 18 2013

Stocks and oil appear to be toppy for the time being. 

90.6% of SPX stocks are over their 200 day moving average. But the Summation Index argues stocks are not done yet. 

 

We are still thinking stocks are up into August. 

Crude oil

Crude Oil looks done for now. It may well be entering a final parabolic push to new highs early this net year.

Bonds

Ben Bernanke cannot seem to make up his mind on buying bonds, the latest is that tapering off wil wait until later this year. I think if stocks pull back a bit we might see more upside for TLT here.Neither TBF nor TLT has really changed trend here yet. 

GLD

The trend has not turned up for GLD, we continue to look for an October low.  130 looks to be resistance.

Perusing the Wall Street Journal

Tuesday July 16 2013

Let's take a look at today's WSJ for a sample of what it tells us about what is going on.

Yesterday the op ed columns warned ofa  coming disaster in disability payments, too many on disability. And another column suggested individuals would be able to sue the government over required health insurance as the government arbitrarily changed the date for business coverage. 

Today Brett Stephens former Editor of the Jerusalem Post, refers to Secy of State John Kerry as a fool on a fool's errance dealing with Palestine, no fudging on his opinion!

At any rate, the retreat from Law Schools continues. An old joke has it that medical researchers are replacing lab rats and mice with attorneys. Reasons include

-there are more attorneys than rats

-researchers tend to bond with cute babyrodents,not so muchwith lawyers, 

-and frankly, there are some things a rat just won't do...

At any rate regional Hamline Regional Law School in St. Paul has seen its enrollment drop 55% since 2010, now only 100 in the entering class. Seton Hall in Newark cut its enrollment 43%. These are huge adjustments. What's the deal?

In my lifetime the practice of law and the idea that law school was some sort of gilded quest for greatness took hold in the 1970s. Numerous movies and television series held the study of law out to be both difficult and supremely reward, something never suggested about accounting. Lawyers were portrayed as larger than life heroes, always fighting for the underdog. 1973's The Paper Chase won John Houseman an Oscar for his portrayal of the tough Harvard Law Professor, it became a tv series for several years. 

And so tens of thousands of liberal arts majors, with no particualy job prospects in sociology and such, went to law school. College discovered this to be a wonderful source of revenue. No labes, no expensive electronic equipment, just a blackboard and a lawyer in front of students. Schools raised money from law firms, built fancy buildings, and then, there were lots more lawyers than demand. Today computers can scan documents for potentail erros while many law grads work by the hour. Now law school grads are suing law schools over false promises of job prospects. 

 

 

Skyscraper Theory Spotted in Midland, TX

Monday July 15, 2013

The Skyscraper Theory holds that the tallest buildings on record are planned at the peak of economic expansion. This is a result of positive social mood which is peaking at that time. We have detailed examples such as the Burj tower in Dubai, the world's tallest and still not at full occupancy. 

I am set to visit  West Texas in a couple of week and will be snapping photos to recall what happened in 1980-1986 as well as what is happening now. Which is to say that energy boom of 1972-1981 ended with massive real estate speculation

Odessa was left with at least three new office buildings, two of which sat vacant for years. Clayton Williams' Calydesta project in Midland was also on hold. The First National Bank of Midland FNB, then the largest independent bank in Texas, blocked off Wall Street for a Year to add ten stories to its downtown office tower in  1979. FNB went bankrupt in 1986. 

We now have perfect set up for a repeat of that era. Tower Project for midland Under Review has the story. Joseph Jacobs a resident of Greenwich Connecticut believes this is perfectly logical. He has been acquiring downtown Midland office space. A video promoting the building was shown just this past week at of all places, the Houston Country Club. This too is a perfect set up in that Houston and Midland are the book ends of the oil business in Texas. Most energy firms are headquartered or at least have substantial presence in downtown Houston. When the oil economy is booming, they generally expand operations to West Texas. When the bust hits, that expansion is abrupty ends. Now someone totally outside the area, in CT no less,  who did not experience the boom and bust of the 1980s is supremely confident this will succeed. It  simply confirms that it takes the absence of anyone experiencing the last bust to set the stage for another one. 

The articles detail that law and accounting firms are having trouble finding office space. The same thing happened in 1979. The big accounting firms that would never have considered Midland or Odessa, bought local firms and increased billing rates 50%. The hapless owners of those firms were returned to sole proprietor status by 1986 when oil settled at $12.

The actual project is named energy Tower at City Center. This is surely ironic as well. Recall that the largest construction project in the US, City Center in Las Vegas, broke ground in February, 2007.  LIke the Empire State Building in New York in the early 1930s, it opened amidst a real estate crisis.  MGM is still struggling with the project.

Ground breaking is set for January 2014 with the building opening in 2017. Our expected high in oil prices by February 2014 wold be the perfect backdrop for that ground breaking event, which will be an echo of what happened a fibonacci 34 years ago in 1980. 

Blaxploitation is Back!

Weekend July 14 2013

Markets, both social and financial, are experiencing some interesting forty year anniversaries. 

On August 15, 1971 Richard Nixon issued Executive order 1615 which among other measures, closed the exchange of dollars for gold. With US Dollars flooding the world, it was feared that foreign governments would literally drain Fort Knox of its remaining $10 billion in gold. Forty years later on September 5, gold peaked at $ 1923.70. it then spiralled into a bear market. 

While financial markets were careening off the  Bretton Woods cliff, the years after the violent Civil Rights era of the 1960s saw the emergence of what became known as blaxploitation movies. A list of those movies is found here.  Readers can run their eye down the list to note how many of these were produced from 1971-1974.

The urban dictionary defines blaxploitation as 'a film genre from the 1970s that targeted the urban African American audience. The actors used were mainly black and this was the first style to use funk and soul music. Although initially popular, it quickly disintegrated as a film genre crirt5icized for its use of stereotypes. 

The prominent examples certainly included  Super Fly (1972) and Super fly TNT (1973). Other films were a take off on the hugely popular Dirty Harry series but with blacks cast as cops or private eyes. In Super Fly however, Ron O'Neal plays a cocaine dealer. At left note the extravagant outfits and large automobiles characteristic of that era. 

Richard Rountree had success in 1971's Shaft followed by Shaft's Big Score in 1972, and Shaft in Africa ending with a thud in 1973. 

All such movies glamorized a larger than life style often financed with illegal activities, certainly no one had what might be termed a 'regular job.'

Now let's fast forward to 2011-2013.Jay Z has in his tenth album, American Gangster had this to say.

Jay-Z released his tenth album entitled American Gangster on November 6, 2007. After viewing the Ridley Scott film of the same name, he was heavily inspired to create a new "concept" album that depicts his experiences as a street-hustler.^[54] The album is not the film's official soundtrack, although it was distributed by Def Jam.^[55] Jay-Z's American Gangster depicts his life in correlation to the movie American Gangster. At the start of the album's first single, "Blue Magic", Jay-Z offers a dealer's manifesto while making references to political figures of the late 1980s

Wikipedia

And so life imitates art!  Here we have an admitted street hustler becoming a mainstream success. In 2009 Oprah disagrees with Jay Z's use of the N word, which features prominently in his songs. Jay Z claims to have turned the discrimination around with his use in the rapper vernacular. Oprah disagrees. 

Interestingly one can purchase these lyrics as a rington on your cellphone, Expletive DeletedWithMeYouKnowIGotIt.  Decorum precludes my printing the lyrics but here is the  link. The actual lyrics as you will see do not begin with expletive deleted. 

The N word apepars  eleven times. There are degrading references to women. And recall that the defense for all this is to empower his fans. 

He has sold 50 million albums and Forbes estimates his net worth at $500 million. 

So, why all th fuss over Paula Deen?  Deen admits to using that word in the past. But while Jay Z has turned the vernacular into a fortune, Deen is losing clients right and left. Periods of negative mood typically witness a fall from grace for various heroes and heroines. But this juxtaposition of one star rising  and another humiliated  is truly an amazing example of how far mood can swing in such an era. 

Our take is that this is an example of a different form of blaxploitation taken to new levels in verse. 

 

 

How Bull Markets Begin A Look Back at 1982

Weekend July 13, 2013

The National Security Agency has conservative philosophers upset that its surveillance program is ushering in Big Brother. What's more concretely frightening is that a dweeb like Edward Snowden could download the content of the NSA's computers onto a thumb drive and walk out of the world's "most secretive" agency. Here's the short answer: The NSA has 40,000 employees. (Some say it's as high as 55,000, but it's a secret.)

Daniel Henninger, Big Government Implodes, July 10 2013 WSJ

Our analogy to 1973-74 ala government breakdown is proceeding with incredibly accuracy. Now even the staunchest of government supporters, unions, are rebelling. 

When you and the President sought our support for the Affordable Care Act (ACA), you pledged that if we liked the health plans we have now, we could keep them. Sadly, that promise is under threat. Right now, unless you and the Obama Administration enact an equitable fix, the ACA will shatter not only our hard-earned health benefits, but destroy the foundation of the 40 hour work week that is the backbone of the American middle class.

James P. Hoffa
General President
International Brotherhood of Teamsters

Joseph Hansen
International President
UFCW

D. Taylor
President
UNITE-HERE

These quotes are re printed here to remind readers that all is not well. Bull markets usually begin when things are improving, not when things are imploding.

A  couple of writers  suggest that the markets have reached  new bull market. This idea is that investors will rotate out of bonds and into stocks. 

If so, the alternating 18 year cycle stock market cycle has been repealed. And, the idea that the stock market generally reflects positive social mood would also be incorrect. 

Let's go back to the start of the 1982-2000 bull market. 

DJIA and Interest Rates 1981-1985

The solid black line is the yield on the 30 year bond, scale at left. And yes, in lat summer 1981 it stood at 12.5% on a non callable Government Bond, for thirty years no less.  On the right hand scale, the Dow Jones had jumped to its 1966 and or 1972 high of 1,000, only to fall 20% to 800 by summer 1982. 

I put the 30 year yield on top of the stock index to underscore that lower rates, from 14.5 to 10%, jump started the DJIA from 800 to 1450 in one short year.  Yields made one last thrust to 13% in 1984, stock pulled back but  held their gains, and then it was off to the stock market races. Note the 300 point rise in the fall of 1985 in the DJIA as interest rates dropped. 

Here is the wiki summary of how it happened. 

The Federal Reserve board led by Volcker raised the federal funds rate, which had averaged 11.2% in 1979, to a peak of 20% in June 1981. The prime raterose to 21.5% in 1981 as well. Thus, the unemployment rate became up over 10%. The economy was restored since the tight-money policy was over in 1982. According to William Silber ^[15] "His policy of preemptive restraint during the economic upturn after 1983 increased real interest rates and pushed Congress and the president to adopt a plan [the 1985 Gramm-Rudman-Hollings bill] to balance the budget. The combination of sound monetary and fiscal integrity sustained the goal of price stability."

However, despite the Gramm-Rudman-Hollings bill, US debt as a percentage of GDP more than doubled under the administrations of Ronald Reagan and George H.W. Bush.^[16]

And so the nightmare of unending inflation, unemployment, high interest rates, the hostage stand off in Iran,  and two oil embargos came to an end. Note this marked the end of the 1966-1982/4 period of stagnation and kicked off th 1982-2000 period of expansion. That period ended in March 2000 and another period of stagnation began. This period has matched 1966-1982 with vicious stock market drops, political polarization, unnecessary foreign wars, high unemployment, you name it. 

The inability to simply buy a bond or CD and obtain a double digit return forced investors into high yield stocks. Exxon was paying a 10% dividend at the time for example. This is when Warren Buffet made a huge bet on Coca Cola. Reagan and Thatcher helped open new markets for just such a product around the world. 

It seems to me that to support another multi year bull market we would need the same sort of circumstance now. Do we have that, here are the same parameters, brought up to current times. 

DJIA Current Weekly versus Interest Rates

And the answer is, NO. Rates are rising not falling, and decidedly so. Yet I grant that the stock market is continuing to rise as well. The  answer is that the internals of the stock market have turned to the upside. The rally will continue until these internals top out again. 

Summation Index

 The NYSE Index is in green. The summation index is the red blue line. Notice that once the summation index turns up, it moves quickly, 

fall of 2011

summer of 2012

fall of 2012

now

It seems to me that this supports the idea of stock market  highs in to late summer early fall say August September, which is a typical seasonal high anyway. And it may be that these are much higher than most think which would to some degree validate the bullish scenario we are hearing. 

Is This a Great Opportunity?

Older readers will remember the classic Sears Catalog marketing approach. Three items would be offered labeled good, better, best!  I ranked the last four lows for this indicator as you can see above. 

 Crude Oil strongly Correlated with Stocks

The bullish scenario is clear in this view. Both stocks, NYSE at top, and crude oil, main panel, have broken above downtrend lines going back to 2008. What's not to love here?  And at bottom we have a near perfect 1.0 correlation at times between the two. 

 Note that oil is right where it was in April 2008, $100,  just before it rocketed $45 or about 50% in three months.  Could history repeat, I am guessing it will. We project crude much higher. It may be that this is keyto much higher stock prices as well. Note the correlation. 

Our friends at Elliott Wave had this take on it.

Interest Rates TBF Inverse bond fund versus TLT Long Bonds

TBF has been on a tear. One would think there would be a bit of pullback here after such an extended run but not really, not yet. TBF price is staying well above its 21 day exp moving average. 

Gold Mining Wipe out

The ratio chart of HUI Gold Bug index to Gold is headed to its original 2001 low. It has already fallen through its 2008 low. Barrick ABX is doing the same. the XAU is re visiting the 2008 low but no sign of a bottom yet. Gold bugs are continuing to announce THE LOW with every new low. 

Gold topped in 2011 with its 40th anniversary of Nixon closing the gold window at the FED. 

The Bottom Line

Stocks are short term overdone, A pullback over th next five to seven trading days is in order. Indicators suggest a stock rally into early fall, will that be the final top?

Crude Oil is headed higher, even now this means higher pump prices. Eventually the cost of transport will cool a stock rally. Oil looks to be peaking short term over this next week. 

Bond prices continue to fall, yields rising. But as crude and stocks top, we expect a a short term low in bonds over the five to seven trading days. 

Again, stocks and oil up and peaking short term over the next week or so with bonds making a short term low at that time. 

Gold and silver have probably not seen THE Bottom yet, HUI to gold is headed back to its 2001 low. Final lows are expected in October. 

By the way, readers guffawed when I recommended GM at 20 months ago based on the stellar GM balance sheet, it ended the week at $36.40

 

Social Mood

Mercedes W 196 fetches $30 Million.  Well actually $29.6 M but...this is the most money ever paid for an automobile. We cannot know if Mercedes purchased it for their own museum until of course it might appear there. Auctions continue to bring high prices for things viewed as collectibles.

Two Senators Suggest Abolishing the IRS.   That will not happen of course, and certainly not before an alternative was in place, but it says a lot about mood right now. and notice is is on finance.yahoo not just another right wing  blog. 

 

thanks for reading The Market Perspective

Dennislelam@gmail.com

 

 

 

 

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.