World Of Wallstreet

What I'm Thinking About The General Markets, Gold, Copper

I hear the Jay Taylor, the news letter writer is all gloom and doom on all stocks (including gold miners). I presume he's calling for deflation.

I'm:
o Watching gold closely. If it goes below $1040 (what Indian govt paid) and stays there I'll start selling Jr miners hard.
o Bearish on copper - short something like 20% of my portfolio in the copper futures market. If support at $3.00/lb breaks down then look out below. Inventories are still ramping up at around 10000 tonnes/week. Yikes!
o Bearish on the general market - at least until the next round of quantitative easing is complete.

There's a lot of people using the financial trouble in Greece to their advantage:
o Germany - want the Euro to go down to boost their exports.
o USA (Bernanke) - wants the dollar to go up so that he can announce another round of QE.

o China - wants the dollar to go up (pulling the renimbi with it) to quench growing inflation.

The way I currently look at the inflation / deflation debate is as follows:

o Threatened or incipient Deflation promotes inflation - when deflation looms its ugly head then...

o The central bankers start printing money (via their governments going crazy with deficit spending and with the central bankers monetizing that debt by buying the government bonds)

o Resulting eventually in a reflation (inflation) trade.

Right now we are in a threated / incipient deflation wave.

I expect this trend (deflation) to continue for around another month at least. Will back out of the copper shorts if another round of QE is announced. Will continue to get shorter as long as inventories are rising the price of copper keeps falling. I think the price of copper has been trending strongly and will continue to do so.

I think there's a decent chance that the fundamentals for gold (central bank and investor buy, especially in China and India) will stop the gold price slide very soon. We'll see.

That's how I see it.

MontyHigh

Unadjusted Year Over Year: Census Department Durable Goods Manufacturers New Orders Down 3%

Here's the summary for today's Census Department monthly Durable Goods Orders and Shipments report:

• Labor Department News Release: click here. 
• Key Numbers: Census Dept Durable Goods Manufacturers New Orders Not Seasonally Adjusted: $181,082,000,000, Year Ago: $1186,798,000,000, -3.06%. Census Dept Durable Goods Manufacturers Shipments Not Seasonally Adjusted: $183,638,000,000, Year Ago: $189,369,000,000, -3.03%, Orders Net Shipments To Shipment Ratio: -1.39%
• My Spreadsheet (click Download 20100128yoy)

Here's my uneducated interpretation - Looks like we might see actual year over year growth soon.

MontyHigh, www.worldofwallstreet.us

Unadjusted Year Over Year: Commerce Department New Home Sales Down 11.5%, Median Price Down 3.6%

Here's my quick look at today's Commerce Department New Home Sales:

• Department Of Commerce News Release: click here.
• Key Numbers: New Houses Sold Unadjusted: 23,000, Year Ago: 26,000, Year Over Year %: -11.54 Median Price Unadjusted: $221,300, Year Ago: $229,600, Year Over Year %: -3.61.

Here's my uneducated (also not not spun by guys trying to make you a sucker) interpretation - Still no recovery in housing construction. One oddball thing that appeared in the numbers (that I don't usually report) is that the average house price actually rose year over year (from $263,100 to $290,600) Don't know what to make of that.

MontyHigh, www.worldofwallstreet.us

Unadjusted Year Over Year: Labor Department Initial Jobless Fall 11.8%

Here's the scoop on the Labor Department's weekly initial jobs claims report:

• Associated Press Headline And Lead: "First-time jobless claims drop less than expected... New jobless claims, factory order reports disappoint in fresh evidence of an uneven recovery... A drop in new jobless claims came in short of expectations and factory orders rose only slightly, fresh evidence the economy is recovering at a slow, uneven pace."
• Labor Department News Release: click here. 
• Key Numbers: "The advance number of actual initial claims under state programs, unadjusted, totaled 500,392 in the week ending Jan. 23, a decrease of 145,417 from the previous week. There were 620,143 initial claims in the comparable week in 2009."
• My Spreadsheet (click Download 20100128yoy).

Here's my uneducated interpretation - Still on track to have unemployment peak in June 2010 when comparing this downturn with the Internet Bubble recession. As you will recall, unemployment peaked for the Internet Bubble Pop recession in June 2003.

 

MontyHigh, www.worldofwallstreet.us

The Week Ahead

Here's how I see the week coming up:

• Monday (Today) - expecting a pop in the S&P, with copper and gold coming along for the ride. I expect I'll increase my copper shorts as late in the day as I can manage (will be offsite today).
• Tuesday - I expect I'll be lightening on my Jr gold miners on Tuesday in preparation for the rest of the week.
• Wed - 5 yr treasury bonds auction. I'm expecting S&P down, copper and gold down, US dollar up, to make those treasuries seem ok.
• Thur - 7 yr treasury bonds auction. More of Wed.
• Fri - GDP numbers come out. Last time the market (S&P, copper, etc) started quite a bullish run over a 3.0 number. Consensus is for 4.5% growth with some calling for 6.5%. Please note that Robry (who was bullish and made me pay attention to the GDP upside last time) remains bullish. I'll have closed my shorts for this. I expect "they" will push gold down for this regardless of how the stock market reacts to the number.

MontyHigh, www.worldofwallstreet.us

P.S., my game would improve if I would publish this before the close on Friday. I guess I'll start trying to do that.

Best Of The Web: Hussman On Inflation

http://www.hussman.net/wmc/wmc100119.htm

 

Here's one of the top quotes (but you need to click thru to see the chart that supports it):

 

"Milton Friedman is widely known for two phrases, one which is half right, and one which is exact. The half-right dictum is that “inflation is always and everywhere a monetary phenomenon.” It's half right because a government spending expansion, regardless of the form, will tend to raise the marginal utility of goods and services while lowering the marginal utility of government liabilities. It's very true that the major hyperinflations in history have been triggered by currency expansion, but as long as a government appropriates goods and services to itself in return for pieces of paper that compete as stores of value and means of exchange in the portfolios of investors, you'll get inflation."

 

By the way, his view of the stock market hasn't changed:
the Market Climate for stocks remained characterized by overvaluation, overbought conditions, overbullish sentiment, and upward pressures on yields - a situation that has historically been associated with a moderate continuation of upward stock market progress and a tendency to make successive but very marginal new highs, typically followed by abrupt and often severe market losses within a time window of about 10-12 weeks. As usual, that's not a forecast - just a regularity. But it's a harsh enough regularity to turn our knuckles white here"

MontyHigh, www.worldofwallstreet.us

Pub Power Signal Goes Negative

http://econompicdata.blogspot.com/2010/01/pub-power-equity-signal-turns-negative.html

 

Worth clicking thru to to see the graph. Quick summary:

 

"What is the Pub Power signal? ... It is the relative strength of 'food establishment and drinking places' sales vs. grocery sales (as expressed in year over year terms)... from December 1993 through December 2008 (the last period in which we have one year forward data on the Dow) the Dow has returned an average of -9.8% one year forward when the "Pub Power" was negative and 10.8% when the signal was positive."

 

What do you think?

 

MontyHigh, www.worldofwallstreet.us

Unadjusted Year Over Year: Consumer Price Index Down +2.72%

Today we cover the Labor Department's Consumer Price Index release from a year-over-year perspective:

• Labor Department News Release: click here and here.
• Key Numbers: The unadjusted index is at 215.949. Same month 2008's press release held 210.228.
• Last Month: -1.4%
• My Spreadsheet (click Download 20091217yoy)

My uneducated interpretation: Consumer price inflation is back as expected.

Unadjusted Year Over Year: USA Retail Sales Up 5.48%

Here's the year over year summary of today's Commerce Department's retail sales figures:

• Commerce Department News Release: click here. 
• Key Numbers: Commerce Department Retail And Food Services Sales Unadjusted 2009: $409,230,000,000 vs 2008: $387,964,000,000. Last month unadjusted year over year was down 5.85%
• My Spreadsheet (click Download 20100115yoy)

Here's my uneducated interpretation - Up nicely year over year. This data series indicates a recovery. 

MontyHigh, www.worldofwallstreet.us

Here's the year over year summary of today's Commerce Department's retail sales figures:

• Commerce Department News Release: click here. 
• Key Numbers: Commerce Department Retail And Food Services Sales Unadjusted 2009: $409,230,000,000 vs 2008: $387,964,000,000. Last month unadjusted year over year was down 5.85%
• My Spreadsheet (click Download 20100115yoy)

Here's my uneducated interpretation - Up nicely year over year. This data series indicates a recovery. 

MontyHigh, www.worldofwallstreet.us

FWIW: Recent Trades

Closed my PALM short for a 12% loss on Friday (based on the technicals). Woulda, coulda, shoulda had a trailing stop when I was up by 10%. 

 

Went short Copper (HG May) about 5% of my portfolio Friday. Stop is a close above the recent high (around $3.50). Will go short more if the price degrades as I expect. Decided to go short because:

(a) The price is way above the price of opening a new copper mine (and keeping all the existing mines chugging) while inventories keep rising and rising.

(b) Sentiment for the general market is way overbought and I think copper will trade with the general market and is similarly way overbought.

(c) My deflation oriented investing news letter (Bob Hoye) gave a go short signal this week.

(d) The recent highs provide a nice stop exit point.

 

I expect there's a good chance I'll be stopped out on this (for a 5% loss unleveraged), but there's also a  good chance of making a killing (with a price fall to the $2.50 level, for example, for a 30% gain).

 

Its kind of a hedge for all of my illiquid Jr gold mining stocks. Portfolio is up around 6% YTD. 

 

We'll see. 

 

MontyHigh

Best Of The Web: Ambrose Evans-Pritchard, A global fiasco is brewing in Japan

Click here for an explanation of why something really bad could hit Japan soon. The demographics in Japan make the debt situation "special". The two paragraphs below explain why things cannot continue as usual:

"The country tipped into outright demographic decline in 2005. Households have already stopped adding to their stock of JGBs. As the aging crisis accelerates, the elderly are running down their assets. The savings rate will soon crash below zero.

Japan can turn to foreign investors to plug the gap, or course, but at what price? If yields reached UK or US levels of 4pc, debt costs would soak up nearly all the budget, leaving nothing for schools, roads, the police, or salaries for the Ministry of Finance. “I doubt there is any yield that international capital markets can find acceptable that will not bankrupt the Japanese state,” he said."

MontyHigh, www.worldofwallstreet.us

Watching Technical Analysis "Work"

Here's a quick example of Technical Analysis "Working".

As you can see, Palm popped up in response to recent good news (selling their phones into the Verizon and AT&T networks). The interesting part is how far it popped. As you can see it popped right up to that horizontal resistance line just under $13 and has bounced off.

Its this kind of thing (along with the behavioral economics supporting it) that makes me count technical analysis as a useful tool.

MontyHigh, www.worldofwallstreet.us

Why Stock Market And Copper Have Been Rising

As you know, I've been struggling to figure out why the general stock market (S&P500) and the price of copper continue to keep chugging upward in a straight line.

Listened to some Puplava this weekend (click here, the big picture segments). He surveys what the consensus opinion and, among other things, characterizes the leading economic indicators. 

He says the consensus is for growth going forward around 3% and that the Leading Economic Indicators are V-shaped indicating a V-shaped recovery for at least Q4 and Q1 2010. Seems to me that everyone wants to be in the market to enjoy those "better than expected" economic numbers and the next round of "better than expected" year-over-year earnings.

 

Not saying this won't end in tears, but it does help explain why the markets (and copper) keep going up. Having all that zero-percent money floating around doesn't hurt either.

 

MontyHigh

Year-Over-Year Unadjusted: Monthly Department Of Labor Unemployment

Here's the scoop on the Labor Department's monthly unemployment report:

• Associated Press Headline And Lead: "Employers unexpectedly cut jobs in December... U.S. employers unexpectedly cut 85,000 jobs in December, government data showed on Friday, cooling optimism on the labor market's recovery and keeping pressure on President Barack Obama."
• Labor Department News Release: click here and here.
• Key Numbers: Not Seasonally Adjusted Labor Depart Civilian Non-Institutional Population: 236,924,000 vs 235,035,000 year ago. Not Seasonally Adjusted Employed: 137,953,000 vs 143,350,000. Not Seasonally Adjusted Private Hours Worked Per Week: 33.1 vs 33.2.   
• My Spreadsheet (click Download 20100108yoy).

Here's my uneducated interpretation - This data series shows the genuine employment condition continuing to degrade. From two months ago, the Full Time Employment Population Ratio = (Num Employed / Non-Institutional Adult Population) * (Avg Private Hours Worked Per Week / 40) has fallen from half a percent (see below). Compared to a year ago it has fallen 2.4%.

 

MontyHigh, www.worldofwallstreet.us

Gold Chart Is Bullish In 5 Ways

I lightened up today (around 4%) based on a general feeling of elation together with an expected interventional takedown for tomorrows unemployment results.

Looking at the above, I see a pretty bullish chart:

• Bullish 50 day moving average confirmed breakout.
• Bullish MAC crossover.
• Bullish crossover of the last fibonacci thereby targeting the recent 1224ish high.
• Bullish RSI 50 crossover.
• Bullish trend-line recovery.

I actually don't see anything bearish in this chart. I expect I'll put that money back to work tomorrow aftenoon if all of the above are still holding after 1:30 PM. 

I guess we'll see.

MontyHigh, www.worldofwallstreet.us

Unadjusted Year Over Year: Labor Department Initial Jobless Fall 11.8%

Here's the scoop on the Labor Department's weekly initial jobs claims report:

• Associated Press Headline And Lead: "Unemployment-claims data signal job gains are near... A government report Thursday on claims for unemployment aid signaled that layoffs are easing and that the economy could be on the verge of posting the first monthly gain in jobs in two years."
• Labor Department News Release: click here. 
• Key Numbers: "The advance number of actual initial claims under state programs, unadjusted, totaled 645,571 in the week ending Jan. 2, an increase of 88,000 from the previous week. There were 731,958 initial claims in the comparable week in 2009."
• My Spreadsheet (click Download 20100107yoy).

Here's my uneducated interpretation - Big change from last week in the Recession Over Recession graph as there was a major jump up in initial claims in January 2003 (long after the recession was officially over). Guess I'll have to wait thru the end of January to see if this turns around, but the top in unemployment for this downturn may be sooner than my forecast June 2010 assuming the jobless claims remain substantially better in 2010 than they were in 2003. As you will recall, unemployment peaked for the Internet Bubble Pop recession in June 2003.

MontyHigh, www.worldofwallstreet.us

How do you explain the price of Copper?

Its now touching $3.50/lb when inventories have been rising for month and every miner in the world can produce profitably at $2.50/lb. 

 

Its probably just momentum insanity, but it could be some kind of grotesque flight to safety against some looming financial disaster or inflationary spike.

 

What think ye? I think I'm going short hard as soon as the momentum gives up and turns down (providing inventories are still rising). I think its momentum insanity and that I'm going to be quite rich (not that I really want to be quite rich) when Wiley Coyote realizes he is well of the cliff's edge. 

MontyHigh, www.worldofwallstreet.us

Honestly, leave me a comment if you think you can explain the copper price action.

Best Of The PodCasts: GoldSeek Radio's Chris Waltzek Interviews Louis Navellier

Click here. Navellier makes the bull case for stocks:

• USA Q4 GDP will print a 6% number !!! This is way higher than any of the bears I normally listen to are expecting.
• USA Q4 stocks will have absolutely great year-over-year earnings.
• There is still a bunch of money on the sidelines and money that should shift from bonds to stocks on this good economic /earnings news. 

Its not what I have been expecting, but I wasn't expecting a +3.3% GDP growth announcement for Q3, either. That was the last turning point. I'd say this kind of unexpected upside is something to study further and perhaps get ready for. That +6% GDP may have a lot to do with why the copper price keeps ramping up.

MontyHigh, www.worldofwallstreet.us

P.S., Despite this short-term bullish outlook, Navellier is pretty bearish on the US unemployment and the US dollar longer term (all that debt).

Off Topic: Best Piece On Global Warming That I've Seen

http://pubs.acs.org/cen/coverstory/87/8751cover.html, cover story from Chemical & Engineering News which is a weekly magazine published by the American Chemical Society. It tries to deal with the science (and related evidence) rather than just relying on the usual authority arguments (there is a scientific "consensus").

I find, after reading this 17 page paper, that:

• Global warming is really complicated and even in 17 pages the evidence can't stand on its own. The article has way to much he says, she says and not enough look at this graph, look at that graph. 
• My main take away is that CO2 concentration is definitely rising significantly (see graph below). This is the best hard evidence I've seen for man-made global warming. 
• The impact of this CO2 increase remains not well understood. Estimates for the sensitivity of the climate to a doubling in CO2 vary from .6%C (for the warming skeptics) to 2.0%C to 4.5%C for the global warming adherents. This value seems to be the key value in the climate models (and the estimates for the impact of continued CO2 increase).
• As far being "On-Topic", that is, how does this affect investing, I conclude that there seems to be enough real science behind global warming that I don't expect global warming skeptics to make any significant progress against the entrenched "CO2 is pollution" establishment and investments in CO2 producers (e.g. Canadian Oil Sands, Coal Miners) have significant political risk. Should be somewhat bullish for nuclear power (Uranium miners).

MontyHigh, www.worldofwallstreet.us

P.S., The case for Peak Oil is much, much, much clearer than for Man-Made Global Warming. Seems like a definitely tradable situation. Just wish I had gotten back in with oil in the 60$ last month.