Friday, September 4, 2009

Things that make you go Hmmmmm.....

Good afternoon folks!

Just a couple quick thoughts before we head into the holiday weekend.

Let's take a look at TNX today:

Now let's take a look at the dollar:

My Take:

All right now let me get this straight: We have gold holding its highs, treasuries majorly selling off, and the dollar collapsing after rising sharply earlier in the day.

Oh and of course stocks are also up! What a shocker!(sarcasm off).

Folks, the disconnect between whats going on in the economy and the stock market is at an all time high IMO. Unemployment rose to 9.7% today and the economy lost another 200,000+ jobs. How is this bullish?

The bulls say "things are improving". I say where? The greatest analogy I read today around this line of thinking is "after you slice the throat of a pig, the bleeding slows down after awhile".

The charts above tell me that we could be seeing a major flight out of the us dollar. In fact, we could be seeing a flight out of US assets all together based on the price action in bonds today. I was very curious to see if gold would hold its highs today and it has.

The Bottom Line

When the cats away the mice will play. I think the HFT's were able to take this casino higher today because everyone is in the process of heading to their favorite Labor Day spots.

My view has not changed. The fundamentals of this market are stunningly bad and worsening in my view. We should hit 10% unemployment by the end of the year. U-6 unemployment now sits at a stunning 16.8%. That's right folks, almost 1 out of 5 people are now out of work.

How is the economy going to grow when almost one fifth of the nation is not working?

The big boys are back from the beach next week. It will be interesting to see how they react to today's unemployment numbers and the big move in metals this week.

Keep an eye on gold, the US dollar, and bonds moving forward. If they keep acting like they did today, we could see a 5 alarm fire in no time in the stock market.

Well I am off for some R&R. Enjoy your Labor Day!

Thursday, September 3, 2009

Silver and Gold!

This is all I have to say today:

Jobs # tomorrow. Should be a market mover. I will have a full market update following the number.

Wednesday, September 2, 2009

A Crisis in Confidence

Let's take a look at gold today:

My Take:

Fear is creeping back into the markets folks. I see it in many areas. Treasury yields have collapsed as investors run for the hills into government bonds. You need to wonder(given our massive treasury issuance's) if this is the equivalent to running into a burning building.

Stocks have steadily fallen throughout the week as jittery investors look for someplace to hide.

Today it was quite apparent that gold and silver benefited from this flight to safety.

Right now its obvious that there is a lot of capital that is looking for a "safe haven" to ride out the storm. The problem is no one really knows where to hide! The confidence in the stock market has been shattered after such brutal volatility over the past 10 years.

When people ask me where to hide I must admit I have to just shrug my shoulders. I tell them that nothing is totally safe right now.

I mean let's go through the list of the supposed "safe havens":

1) Treasuries? HA! This may be the biggest bubble of them all. We are selling trillions of this stuff without the means to pay it back. Safe? Hardly. Shorting treasuries as a hedge is probably a smart thing to do if you park money here.

2) Money markets or CD's? Works for me as long as you are under the FDIC insurance limits. The problem here is will the dollar be worth anything over long term if we continue to print the USD like Monopoly money?

3) The mattress? Having a stash here in case of a banking holiday makes some sense, but anything more than that is just asking for disaster unless you live on top of a deserted mountain or live in an area with a 0% crime rate.

4) Stocks? HA! That's a funny one. This will make sense once the dividend yields get back up to around 6%. The average dividend yields right now are way too low given the risk you must take holding stocks at such elevated levels with high P/E ratio's.

5) Munies? I would stay on the short maturation end. Many states face the real threat of going bankrupt. California anyone? If you go there, avoid states with bubble economies.

6) High yield bonds? This has worked well over the past 6 months but I think this run is just about over. Corporate defaults are just beginning, and the Fed is rapidly running out of bailout money. Enter at your own risk.

5) Gold or Silver? I must admit I find myself gravitating towards these two. I own both metals, but there are risks here as well. Deflation can makes the metals risky, but the collapsing US dollar is an even bigger risk in my view.

The Bottom Line:

The way I see it, we could see 1932 all over again where both bonds and stocks collapsed. Take notice when you start seeing movements in gold. Moves higher in gold are a great fear indicator, and they can also be a great warning signal that inflation might be right around the corner.

If we do see inflation in the near term, it will be as a result of a collapsing dollar in my opinion. Remember, Argentina's currency collapsed 73% in a matter of weeks when the people lost confidence in its currency. Prices soared as a result.

What I see today is a lack of confidence in our economy and our government's response to it. Creating trillions of dollars in order to bailout a bunch of insolvent companies is making investors think twice as to whether or not they want to be invested in anything involving US dollars.

So what should you do with your retirement if almost every asset class looks shaky? Stay diversified in all of them and hope for the best. Also, hold something hard that will have value regardless of what the US does to it's own currency.

The way I see it, there really isn't much else you can do during such unprecedented economic times.

Must watch of the day:

As you can see below, the debt time bomb is ticking as our government is rapidly running out of money. That mattress option is looking better by the minute!:

Does the FDIC need a bailout?:

Analyst Jim Bianco thinks its possible:

Tuesday, September 1, 2009

Post Traumatic Crash Disorder?

You gotta wonder if the longs experienced a little bit of this today as September arrived.

As most of you know, last September was when the market begin its unprecedented fall as it ended the year losing about half of its value.

As I watched CNBC today, I couldn't help but notice how uneasy the talking heads looked as the market plunged nearly 200 points.

I had to laugh because everyone that I saw on the financial networks looked like they had seen a ghost as Mr. Market tanked in a matter of minutes after more "good news" was announced via the PMI.

The fact that the sell off pretty much came out of nowhere had to rekindle thoughts around the nightmare of last Sept/Oct. I bet there was a lot of Paxil popping during the commercial breaks on CNBC.

The bulls must be asking themselses: " Green shoots and the market still went boom? Whats going on?".

Folks, when the bulls are all in, you often see large moves to the downside when there there are no shorts left underneath the market to stop it from dropping.

Last year, the sell offs were usually triggered by some horrific event like a Lehman bankruptcy or a much larger jump in the unemployment rate.

I think what we saw today was simply an exhaustion of buying. Mos of the longs that are responsible for this bounce are mostly traders. Many of them are professionals and just trade the sentiment/momentum. They know all to well that going long AIG makes no fundamental sense. They don't care because the trend is the trend.

I always recall a veteran trader telling me "Jeff, its just a numba!". Traders in the pits for the most part don't care if the number moves up or down. They are in it to make clients money.

IMO, the last several months has been pure momo trading folks. The buy and holders are still on the sidelines for the most part.

The problem with this type of trading is it's not sustainable. Once insolvent or poorly run companies like Citi(C) or Fannie rise to a certain level their P/E's start to look ridiculous. AIG is a perfect example. Somehow this piece of garbage ran up to $55/share. Remember folks, this stock was under $10 before the government propped it up!

The valuation on AIG was ridiculous given the hundreds of billions in losses that are still on their balance sheet. Finally, an analyst came out today and stopped the insanity by slapping a price target of $10/share on this dog.

The Bottom Line:

We have known for months that the economy was continuing to deteriorate despite the rise in the stock market. When the banks were allowed to play with the houses money via funds from the government bailouts, it was easy to run the market up.

It appears this little game of pump and dump is about over. Once the market got to 1000-1050 on the S&P it pretty much flat lined.

Just a quick warning, if we see any follow through on the selling we saw today things could get ugly in a hurry because there is nothing sustaining the market at these levels.

The problem the bulls have right now is fundemantals. Sustainable earnings growth is a MUST in order for stocks to hold their prices after such huge gains.

We all know this earnings growth isnn't going to happen in this bailout dependant economy. The lack of short interest in the market sure won't help things either. High short interest underneath the market helps actually can help the longs because if the market moves higher, many of the shorts are forced to cover which can exacerbate a move higher.

On the flip side, short interest can also help prevent a sell off from turning into a plunge because many shorts may decide to cover at various levels.

If the short interest is light or non existant, there is nothing there to stop stocks from violently dropping deep into the red.

The ADP jobs report tomorrow is going to be a critical number for the markets. Investors are starting to question if stocks are overvalued, and if the job losses from ADP come in much higher than anticipated, a big sell off could ensue.

On the flip side, if the number comes in better then expectations, stocks may pop because the news was fairly positive today, and a better jobs outlook may embolden the bulls to believe that the recovery is for real.

Futures are flat for the most part now. Stay nimble tomorrow. Equities could get very violent on a big ADP number in either direction tomorrow morning.