Friday, March 4, 2011

The Only Chart that Matters

For the near term anyway:

My Take:

I hate to keep putting this up but the market is obsessed with oil.  We broke $105 briefly today before pulling back to $104 and change at the close.

We saw a sharp rally off the lows at the end of the day. I say no reason for optimism near the close other than oil pulling back a tad.  I will chalk this move up as a robo rally and nothing more.

I thought we would end the days at the lows because it was a Friday, and I figured traders wouldn't want to be stuck in positions over the weekend due to fears of what might happen in the Gulf region. 

One thing is for sure at this point:  Volatility is back!  I expect more of the same moving forward as the market worries about the ending of QE and oil prices.

The way I see it: Stocks are doused in gasoline, and all it will take is one spark to turn this thing into a towering inferno.

What could trigger the blaze?

Let me count the ways:

$140 oil.

Saudi Arabian revolution(Keep a close eye on the scheduled March 11th protests).

PIIGS default/Euro debt collapse.

European interest rate hike(which was hinted at this week by the ECB).

Sharp sell off in the US dollar(look at the chart of the dollar folks, it's ugly).

Sharp rise in interest rates on treasuries.

Buyer beware:

If any one or a combination of these things strike we are in deep trouble. 

The Bottom Line

The jobs number of +193K was decent but it's not enough to allow us to grow out of our problems.  We need at least +200k new jobs a month in order to start lowering the unemployment rate to any large degree.  Given our devestating job losses since 2008 the number needs to be even higher than this for now so I think the market was a tad disappointed at the number.

Remember, we have about 100,000 people entering the job market every month so you need to peel this number off when you look at the jobs number when it coems to putting people back to work.

Stay focused on oil for now, and let's all pray that the Middle East settles down before things get out of hand. 

The Fed's QE will be the next crisis.  Worries about the ending of QE are already hitting the market  after today's tough talk from the Fed:

"Federal Reserve policy makers are signaling they favor an abrupt end to $600 billion in Treasury purchases in June, jettisoning their prior strategy of gradually pulling back on intervention in bond markets.

“I don’t see a lot of gain to reverting to a tapering approach,” Atlanta Fed President Dennis Lockhart told reporters yesterday. “I don’t think that is necessary,” Philadelphia Fed President Charles Plosser said last month."

Bottom Line Continued:

Translation?  Umm...Things are really getting out of hand and we better settle down before oil hits $200 a barrel.

I have said it over and over again:  Bernanke has painted himself into a seriously bad corner.  I think the global chaos is forcing the Fed to rethink things.  The problem is if Ben ends QE than interest rates are going to soar.  This in turn will then KO the housing market and the banking system.

Nice choice for the Fed eh?  $200 oil and raging inflation or a deflationary spiral/banking collapse with double digit interest rates on treasuries. 

Being Fed Chairmen at this point just has to plain stink.  It didn't have to be this way if we had taken our medicine in 2008.   Talk about a no win situation.

Thursday, March 3, 2011

Bill Gross Walks Away

Sorry for the silence.  It's been a busy week!

I have thought a lot about how the markets trades these days.  The new Wall St is now dominated by billion dollar backed trading robots that buy or sell stocks in milliseconds when any news hits the wires.

At this point around 70% of the trades on Wall St are done by these amazing machines.  I can't help but wonder how intimidating this must be for the average investor.

Cash on the sidelines remains high and I can see why.  Everyone has to be asking themselves the same question at this point when it comes to investing in today's markets:


The answer:  You can't.  If you are trading the markets I suggest you that you use one of these bots or read an investment newsletter that has one.

These machines all look for similiar trends, and if you are caught on the other side of their trades you risk being taken out to the woodshed and shot.  I see more and more individual names that are being shot dead or pumped alive by these algos for no apparent reason.  Be careful if you are stock picking and be aware that what you own could become a target.

The police love to say "speed kills".  I believe the same saying can now be used when it comes to investing on Wall St.  The problem with these machines is it's turned the markets into a casino.  Investors are being rewarded on the long side for being the flavor of the day instead of P/E ratios.   Just look at stocks like Netflix and  I haven't seen such idiocy since the tech bubble.

There problem the market now has is there is no fundamental method to the algos madness.  Like predators, they scan the markets everyday looking for the next kill long or short.  They are in and out of their trades in seconds which means the fundamentals are irrelevant.

The next question we must ask ourselves moving forward is can a market run efficiently without fundamentals? 

The answer is of course not, and over time it's going to hurt the markets because I think you are going to see more and more "investors" walk away from the game as long as the robot insanity is allowed to continue. 

I mean think about it:  When the fundementals no longer matter how can you logically remain in stocks if you invest based on fundamentals?

A "fish" at the poker table eventually learns this after repeatedly getting his teeth caved in day after day.  I can't help but think that many investors will eventually come to the same realization.

Case in point:

Bill Gross.  The world's most famous bond investor basically announced this week that he is walking away from treasuries because he thinks the government is now a Ponzi scheme.

Here is his conclusion in his most recent letter to his investors:

"Investors should view June 30th, 2011 not as political historians view November 11th, 1918 (Armistice Day – a day of reconciliation and healing) but more like June 6th, 1944 (D-Day – a day fraught with hope for victory, but fueled with immediate uncertainty and fear as to what would happen in the short term). Bond yields and stock prices are resting on an artificial foundation of QE II credit that may or may not lead to a successful private market handoff and stability in currency and financial markets. 15% gratuities may lie ahead, but more than likely there is a negative two-bit or even eight-bit tip lying on the investment table. Like I did 45 years ago, PIMCO’s not sticking around to see the waitress’s reaction"

Take Continued

He is putting his money where his mouth is.  His largest fund(PTTRX) has dropped it's treasury holdings down to 12%.  I have seen PTTRX hold quadruple this in the past.

Can you blame him?  How can anyone after looking at the chart above conclude that this is sustainable?

The Bottom Line

How much more "gamesmenship" will it take before we all pull a "Bill Gross" and walk away from the game? 

Let's all just face it:  The market now trades on day to day news.  You could actually say it now trades second to second at this point!!  If bad news from the Middle East hits the wires then stocks plummet.  If we get a decent jobs report like today's claims number then the market soars.

It's gotten totally ridiculous!

Watching today's stock market reminds me of watching a young boy that has ADD.  The stock market and it's zero attention span spends each day bouncing around like a pinball as the robots react to the various news items of the day. 

It's time to give the market a gigantic dose of "Ritalin" in order to slow this train down before it runs itself right off the tracks.  This could easily be done by simply increasing the costs of each transaction. 

Don't hold your breath waiting for this to happen.  The gamblers are all addicted, and the Fed is fueling their "animal spirits" by dumping billions of QE dollars into the markets via helicopters.

Tuesday, March 1, 2011


This about sums it up today:

My Take:

The world is a scary place right now:

Bernanke is in complete denial as inflation continues to strengthen it's grip on the world.

Tanks are rolling through the streets of Bahrain, Libya, and Egypt as the Middle East remains on the brink of total chaos.

Goldman Sachs takes another hit to it's permanently scarred reputation as one of their board members gets accused of insider trading by the SEC.

Congress prevents the government from shutting down after making a last second deal that lasts for a whopping two weeks.

The US consumer takes another blow to the head as oil rips through $100.

States, the US government, and the banks are all bankrupt!

I could keep going but I will end it there.

The Bottom Line

I don't know what to say folks.  I am speechless at this point.  All I can do at this point is pray that we somehow find a way to keep things together. 

The rising stock market over the past few years has been very effective at hiding the Ponzi scheme that our whole world has morphed into.   It's now all beginning to burst, and I don't see how it can be stopped.

Our 2 year economic recovery was built on a foundation of sand which means it had no hope from the beginning.  

The debts that were created during a 30 year credit bubble have become insurmountable as inflation rears it's ugly head.  Rates will inevitably rise as a result which will then make our debt too costly to service.

All we can do is hope for a miracle because that's the only thing that will save us at this point.

Monday, February 28, 2011

Who's Right? You Decide...

Great exchange here between Schiff and the Fast Money guys. 

Bullard's Tells the Savers to Piss Off

The market partied on today as the Fed rolled out Bullard on CNBC this morning.  The Fed President preached QE, easy money, and low rates for the whole segment.  The market responded with an immediate boner as they become convinced that the "easy money" game will keep rolling on.

Take a look at Bullard's arrogant reaction below when CNBC pressed him on the devestating effect that zero rates on have on the elderly who live off of fixed income.

He basically tells them "tough shit" and blames them for not taking on enough risk.  I am continually amazed at the size of the balls the Fed has. 

The P/E's on stocks are now at 24 which is the highest levels seen since the tech bubble.  Historically stocks P/E's usually remain around 16.  This is hardly sound advice from a Fed President. 

Today was also a POMO day which helped stocks.  For now it's party on.  The Fed shows no signs of taking their foot off the "easy money" gas pedal despite the turmoil in the Middle East.

I fear the day when this all comes back to bite us.   Enjoy Bullard's remarks below:

Sunday, February 27, 2011

Oil Futures Surge Higher as Libya Burns

Things are not looking good folks.  It looks like crude is headed back over $100 by the morning:

My Take:

The market looks AWFUL tonight.  Stock futures are diving and gold and silver are surging as Libya sinks into a full blown civil war.

Qaddafi has officially reverted back into his old "lunatic" self as the walls begin to cave in around him.   The situation in the Middle East is bordering on the brink of chaos. 

IMO, There is more uncertainty over there today than ever before which says a lot when you look at the history of this region.

The questions are endless:

Who will rise to power in Egypt and Libya(after the regime falls)?
What happens to the Suez canal?
Which government will fail next?
Does oil go to $200 if Saudi Arabia is next?

I could go on and on.  Wall St will spin all of this change as being one gigantic positive for the markets as the crazy dictators come crashing down like a ton of bricks.  The market rallied on the rumored death of Qaddafi on Friday.

This is retarded thinking in my view.  The reality here is millions of impoverished arabs are becoming desperate as inflation takes the cost to living unaffordable levels.  These worries are now starting to drift over into the Western world:

The EU is getting increasingly concerned about rising prices. there are reports that they might bolt on the Fed and start raising rates in order to quell inflation:

"(Reuters) - The Federal Reserve and European Central Bank may go their separate ways if Middle East unrest provokes a sustained, inflationary oil price spike.

Crude prices creeping back into the triple digits have sparked concern about slower economic growth and will no doubt reignite two long-running monetary policy debates:

Should central banks have a single inflation-fighting mandate, as the ECB does, or dual goals of price stability and full employment, like the Fed?

Should policymakers focus on headline inflation rates or strip out volatile food and energy prices?"

Take Continued:

This is NOT good folks.  If the EU starts taking rates higher then our currency is toast unless the Fed follows.  Gas is closing in on $9 in the UK, and I am sure the prices are similar throughout the whole EU.

The PIIGS simply cannot afford this type of shock as their unemployment rates hover over 20% in some areas. 

The walls are closing in on this whole charade people.    The Fed is slowly getting "boxed in".

What will Ben do next?

Does he risk a huge surge in global inflation as he continues dropping money out of helicopters?


Will he be forced to raise rates which then risks the whole economic recovery?

The Bottom Line

The right answer is to raise rates of course.  There is no economic recovery to save.  Government spending created an artificial one there for a bit, but we all knew all along that this was not sustainable. 

The problem the Fed has if it raises rate then it will likely put this country into an economic depression.  This is why I fully expect Ben to choose option A.

This means you should expect to see prices continuing to rise until the whole thing inevitably collapses.  $140 oil should do it.  

Remember, we are much less prepared for an oil spike this go around.  Unemployment is nearly twice what it was when a similiar "shock" occurred back in 2008.  This means the consumer will roll over much faster this go around as Americans continue to remain jobless.

This is all going bad much sooner than I originally thought.  If oil continues surging like this then the central banks of the world are going to have some tough decisions to make when it comes to interest rates.

Sticking our head in the sand and running up the government credit card with mind numbing amounts of debt is not the answer.  The market will eventually force the Fed to raise rates if Ben continues to deny that we are seeing inflation.

Keep an eye on Bernanke's testimony in front of Congress this week.  What's interesting here is the ECB has their policy meeting regarding interest rates right in the middle of his testimony.  We should learn a lot about what Ben is thinking as he is forced to take some tough questions.  I am sure the phone lines of the central bankers will be lit up in the hours before Bernanke speaks.

That's all I have time for tonight.  I didn't even get a chance to discuss Ireland's dramatic election results..  The ruling party got abused by the voters.  In fact, the ruling party came in 4th place which is mind boggling when you really think about it.

The concern here of course is what will the new regime do in regards to the EU bailout of Ireland?  Does the Irish now tell the ECB to take a hike and refuse to pay the money back?  I would if I were them.  Why would any government sacrifice it's people in order to pay back a bunch of greedy bankers?  Afterall, that's what the bailout is all about.

Keep a close eye on this.  Until next time.....