Weekend December 24 2016
Crisis of Meaning, Crisis of Work
In this article notice C H Smith mentions the academic idea that somehow education will overcome wage disparity between the Us and Say Mexico. As he notes,
academics promoting this idea have never hired anyone with their own money.
Profits and wages only flow to what is scarce.
We simply do not have enough students majoring for in demand job outcomes.
Oh well.
Bond to Stock Ratio Chart
The WSJ reported a very large bet in bond all options expiring in February. This ratio chart of TLT long dated bonds versus the DJIA Diamonds shows that indeed the rubber band between the two is really stretched. I doubt much will happen be fore the following week after New Year's. But this should provide a way to track a reversal. This indicator will rise as bonds outperform stocks.
Gold Silver
See the ratio chart between metals and the US Dollar published on Wednesday.
CDE
CDE has corrected about 50% of its advance from earlier this year. The PAR SAR has not generated a buy signal yet but it looks to be bottoming around 9.
HL, XAU, CEF
HL has held up better than CDE but is now falling with the rest of the complex. the XAU and CEF have also corrected. CEF is trading at a 7.6% discount to Net Asset Value. That suggests this is more of a buy after the nice rally.
Iron Ore CLF
See our very long term chart on CLF from last weekend. It is still cheap historically and is pulling back now.
The Bottom Line
Stocks and oil are too over bought to buy now. If the ten week cycle is stil valid, it bottomed November 7. Ten weeks from there suggests a turn
the second week in January. I don't expect anything during a holiday week this next week. And two weeks would allows for some sort of resolution.
The PM complex should make its final lows in January.
Bond prices also look to stage a rally.l again see previous posts.
Our near target for natural gas is 4.50 on the future.
Social Mood
I have been reading Why They Do It in preparation for my accounting ethics class this spring. The book is in three parts. The first
traces punishment for white collar crime since the 1920s. Back then there was no punishment. But things have changed. Next the author
looks at reasoning and rationalizations for crimes, personal like murder versus white collar like, 'oh it's just a journal entry.' Finally he
interviews some real life white collar criminals. Most say they never thought about it, they were just making the number.
Now out of jail, Andy Fastow makes the same recollection.
And he notes nothing has changed, everyone is looking to be legal while cooking the books.
Bill Clinton got a tax law passed limiting corporate tax deductions to the first million of a CEO's salary. Sure you can pay them more but you cannot deduct it. The CEO answer was the stock option grant. Pay us in call options and we will work to get the stock price up. And the easy way to do that is by inflation earnings. And so they did.
Lehman bet 10x to one on leveraged sub prime mortgages. And financed the long term purchase, average life 12 years, with short term commercial paper. This mis match of maturities resulted in Lehman's collapse. Now would Lehman have done that if it were still a partnership? No, certainly not. But as a public company it ain't our money we are gambling with and so they gambled.
The point here is that financial shenanigans are top of the market phenomenon. Individuals believe the parabolic rise will continue forever. And so they do whatever they can to cash in. Notably Enron, Worldcom, Tyco all blew up at the same time as did
Merrill, Bear Stearns, Lehman, and the commercial banks.
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