Friday, July 12, 2013

Market Update: 7/12/13

Even with well thought out research and analysis there is no way to determine what the Federal Reserve Bank and Ben Bernanke are going to do next. Their plan to “Taper” Bond purchases was reversed in a matter of days and the stock market was sent higher. Unfortunately for us very few people are able to get Ben’s information before he goes public. In my opinion the Federal Reserve originally had a thoughtful plan to taper off their $85billion per month of bond purchases. Yes this did raise rates, but like I stated in last week’s email it wasn’t necessary a bad thing. The normalizing of rates higher would relieve the massive speculation that was going on in markets like housing. Short term pain for longer term benefits. For the stock market I fundamentally and technically feel the same in that we should use caution. Especially if Ben Bernanke and the Federal Reserve are not able to get rates to fall. Plus there is a new headwind with the rise in oil prices as a result of Egypt and market speculation fed by Ben Bernanke (pun intended!). That will act as a tax against the economies of the world and slow growth. If the S&P 500 index passes 1687 then it might have some more upside, but I feel its limited compared to the downside. Sometimes exercising caution when crowds are at a frenzy is one of the toughest things to do!

S&P 500:

10 Year Treasury Bond:


Friday, July 05, 2013

2013 Summer Market Update

Here is a new update on recent market actions to give you a clue on what we are looking at when managing your money. I have started to incorporate new trading skills by using Technical Analysis. “Timing can be everything”. And with technical analysis I hope to help fine tune those transition points and improve results. Obviously in the investment world nobody has the crystal ball, but the combination of my fundamental analysis & new technical analysis should help. Hopefully my analysis below helps you conclude the same. So without further ado here is my take on the state of things as we continue into July.

From the beginning of the year until the 2nd half of May the market was on a tear. Since May 22nd the market has slowed and languished a bit. I see this continuing until the S&P 500 drops to around 1500. If we look at the short term chart below it seems to confirm that the next move is more likely to head lower to 1500 versus back up to the peak of 1687. The short term trend has been broken and is struggling to recover. 

Next is a medium term chart showing a positive ascending channel since the summer of 2011 US debt downgrade. It has not been broken. You can clearly see that by April/May stocks really got ahead of themselves and broke above the trend only to correct below it. Based on technical analysis the S&P 500 could fall to about 1500 as it reverts back to the mean. 1500 is only about 11% off the peak of 1687 and would not break the channel. See below for the medium term chart which I feel is the most convincing one.

The S&P 500 has been following an establish ascending channel which has been positive for the long-term health of the market is since 2009. Currently I don’t see anything on the horizon that will break such strong long term upward momentum.

 Now let’s use some Fundamental Analysis to determine if these moves make sense. Again I see short term correction to possibly 1500pts for the S&P 500 before making a move back up. In the short term the reason for the drop is a result of 3 catalysts. The 1st and most significant is a potential change in Federal Reserve Bank stimulus policy. The “Fed” has really been the greatest driver of stocks, bonds, and commodity prices over the last 5+ years. The Fed came out in May and then June before backtracking that it would taper then stop it’s bond purchasing program of Quantitative Easing. Which currently has a run rate of $85billion in Treasury/Mortgage bond purchases per month! World markets have become increasingly dependent on this massive stimulus from central banks around the world. So the thought of stopping the “free money train” creates a lot of unknowns. This has had a big effect on the bond market as well. Which leads to the other catalyst for my short term bearishness. A sudden increase of interest rates across the board. In an economy that is indebted as ours that can be troublesome. Here is the 10 year Treasury Bond Yield chart showing just how big a move this is:  

The third catalyst is the global economy is showing signs of slowing with China & Europe leading the way in that department. To save ink I will leave that for another time.

The verdict is however not all bad and should keep the medium and long term trends intact. Here are the bullish factors that should keep those inline. There are no signs of an impending recession within the US. We continue to muddle through as an economy. In fact the reason the Federal Reserve is looking to slow its stimulus is because economic factors have shown improvement. They want the economy to grow organically and without stimulus. That’s a good thing, but it must still prove it to the markets. I am not worried about interest rates going much higher in the short term after their big move. Rates act to slow an economy that has been very speculative. Rates have been manipulated well below real interest over the last 5+ years. That causes speculation. The example of course is the housing market frenzy over the last 18 months. It isn’t healthy for housing to be so one-sided and going up as quick as it has during that time frame. Housing believe it or not historically only goes up at about the same rate as inflation, 3%/yr. Obviously in the last 10 years it has been a lot more volatile. Corporations are in great shape with healthy balance sheets and profits. Today’s reported number of 194,000 new jobs confirms that health. All of these factors again should keep the medium & long term trends in tact even though there is likely short term market pain headed our way.

So the next week to the next month or two I will be monitoring the charts and fundamentals as they change. There should be some volatility as things get sorted out. We will see how it all plays out soon enough! 

Monday, February 18, 2013

"Too Big to Fail has become Too Big for Trial"

Everyone should support Senator Elizabeth Warren in the quest of cleaning up our financial system of the rampant corruption and fraud. Finally 5 years later somebody in congress is trying to do something. The "Too Big to Jail" status that financial mafia of the major Wall Street banks have enjoyed has gone on long enough. Those in the industry that do it right and the general public have suffered the most out of this long developing problem. Please share and get the word out!

Saturday, July 07, 2012

Simpsons - Monorail or Governor Brown's California High speed train??

Only the stupid government of California that is currently going broke would think the "mono-rail" from San Francisco to LA would be a good idea. Waring if you are mathmatically inclined don't click on the link that mocks this outrageous project.

Welcome to the Gold Standard Steve Forbes!!

Love Zerohedge and their reporting: Steve Forbes How to Bring Back America

More and more people are coming to the realization that a true free market on a gold standard does in fact work. It is a vastly better alternative then putting politicians in charge of "stable money" and the enconomy! Welcome to the fold Steve Forbes!

Monday, April 30, 2012

Deja Vu All over Again and Again??

It has been awhile since my last email commentary on the markets, but there are some important developments playing out. For those of you I have had the opportunity to meet with in 2012 I’ve shared my theme of “Policy Driving”. Policy being driven by Governments and Central Bank actions are continuing to have a substantial effect on the markets. You turn on CNBC or Bloomberg there is constant talk of “QE”, “LTRO”, “Stimulus”, etc. The latest iteration of that was the European Central Bank (ECB) Long Term Refinancing Operations (LTRO) that was in effect from December 2011 until February 2012. The market responded extremely well. So I must have a Mae Culpa for not predicting the effect this would have on the markets as a lot of our positioning was defensive. However a lot of the funds in the portfolios by design did take advantage of the rally. 

Going forward the market since March and really April has been hitting some resistance. This seems to be playing out similarly to 2010 & 2011 where the US stock market tops around April then runs into trouble during the summer followed by stimulus from governments/central banks making the markets take off. So I think remaining in the defensive positioning going into summer is very prudent. Especially when one of my main concerns is that the US Debt Ceiling is projected to be breached after August in an election season no less! When the debt ceiling was extended it was suppose to be good until 2013, but the government deficits so far have been larger than projected. I will be monitoring this extensively as we get closer to the date. So for the time being let's hunker down and wait for intervention. Hopefully the market takes to the "medicine" like in 2010 and 2011. What I fear and what keeps me up at night is when the "medicine" doesn't take. But that's another post in the future because it's not a question of if, but when....

Saturday, April 14, 2012

Truth can also be Scarier than Fiction: Fukushima Meltdown

I guess Friday the 13th got me looking at horror stories. And a murdering deranged man in hockey mask at my age doesn't frighten me as it did in my youth. Since March of 2011 something far more sinister and terrifying to humanity occurred in Fukushima Japan in aftermath of a massive earthquake and tsunami. The Fukushima Nuclear meltdown.

The BBC does a great job reporting this scary moments over the last decade if not longer. The Fukushima Meltdown that the video documents is eerie, what is even more frightening is that it hasn't been solved. After doing more research as a result of this catastrophe I have gone 180 on nuclear energy. The risks are just not worth the benefit. What continues to concern me is that the US and many other nations has these older model reactors that are obviously inadequate against the risks.

If you would like to continue to scare yourself then I recommend following these links:

Happy belated Friday the 13th!

Thursday, April 12, 2012

Rick Santelli Exposes the Buffet Rule

He loses it on the air, but really why is Santelli one of the few that are outraged at our predicament.

Sunday, March 04, 2012

World Collapse Explained in 3 Minutes

An oldie but a goodie video on the craziness of the European banking system and the whole financial system for that matter.