Archive for November, 2010
Is Gold Stuck Between a Rock and a Hard Place?
Tuesday, November 30th, 2010
The gold market has been pushing out its normal level of frustration and anxiety for the past several weeks.
http://www.ino.com/info/654/CD3871/&dp=0&l=0&campaignid=3
So the question becomes, is the gold market pausing to move higher, and of course the Bulls would argue this, or is it forming the head and shoulders top that many technicians are looking for? Of course, this would be a bearish sign for gold if this technical formation is completed.
I’ve just finished a short video that shows you what we’re looking at right now in gold and how I think it is going to be resolved. The video is a little over 2 minutes. It’s quick and to the point while supplying you with what you need to take your place in or out of this market.
Watch the video here: http://www.ino.com/info/654/CD3871/&dp=0&l=0&campaignid=3
Miracle of Survival and Falling Inflation Expectations
Tuesday, November 30th, 2010
Miracle of Survival and Falling Inflation Expectations
by Michael ‘Mish’ Shedlock, Global Economic Trends Analysis
In Unthinking Economic Parrots and Deflation Fighting Madness I trashed unthinking writers who parrot the Fed’s misguided beliefs about the importance of inflation expectations and why falling prices are bad.
I specifically quoted one parrot who said “Deflation is particularly damaging to economic growth as consumers delay purchases until prices fall further.”
This was my rebuttal….
The ineptitude of Japan’s policies hoping to combat deflation is staggering. Worse yet, unthinking economic parrots talking about the “economic damages of deflation” have no idea what they are even saying.
I wish economic writers had the ability to think rather than parrot ideas espoused by Keynesian clowns.
Series of Questions
- If your refrigerator conks out, will you buy a new one or wait 6 months to take advantage of lower prices?
- If the transmission on your car fails will you wait 6 months to get it fixed?
- If your pantry is bare, will you wait 1 month to buy food even if you expect food prices to drop?
- If you need a new winter coat, will you wait and if so, how long?
The answer to that last question is “Perhaps for a bit, but you will not wait 3 years even if you expect prices will be even lower 3 years from now.”
Short of assets like stocks, bonds, and housing (and except for periods of hyperinflation) it is tough to cite any examples where inflation expectations mean a damn thing.
Miracle of Survival
Today I received an even better example from “Chris” who writes…
Hello Mish
The best argument in your “winter coat” deflation comparison is consumer electronics. Everyone knows that as soon as they buy something from the consumer electronics department the price next month will go down or the same product will be offered with more bells and whistles for the same price. Yet by some miracle Best Buy seems to survive!
Thanks Chris
Thus, the next time you hear the Fed or some parrot taking about the importance of inflation expectations and how people will hold off buying stuff if they expect prices to fall, please calmly ask them how the hell Best Buy stays in business, making a huge profit on hundreds of stores, selling merchandise that will undoubtedly be lower in price in a few months.
According to the incredibly silly “inflation expectations” model, Best Buy cannot possibly exist, so it must be a miracle that it not only exists, but thrives.
Are Falling Prices a Bad Thing?
Ask anyone on fixed income if falling prices are a bad thing. Ask students or those on minimum wage if falling prices are a bad thing. Ask anyone but the Fed, the Banks, or Government if Falling Prices are a Bad Thing. Look in a mirror and ask yourself.
Parrots trumpeting nonsense about inflation expectations and why lower prices are bad, are nothing but pawns for the wealthy, for central bankers, and for government officials all of whom benefit from inflation because of rising taxes and/or because they have first access to money.
Government in particular benefits from a bigger piece of your paycheck via rising sales taxes, rising property taxes, and rising income taxes.
In reality, inflation is theft from the middle and lower classes for the benefit of government, the wealthy, and also public union workers who have inflation adjusted benefits written into many of their contracts.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Tags: Bells And Whistles, Best Buy, Conks, Delay Purchases, Economic Damages, Electronics Department, Food prices, Global Economic Trends, Hyperinflation, Ineptitude, Inflation Expectations, Last Question, Michael Mish, Mish Shedlock, New Winter, Parrot, Parrots, Rebuttal, Stocks Bonds, Winter Coat
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As Euro Tumbles, Gold Squeeze Gets Vicious
Tuesday, November 30th, 2010
Someone with a long euros/short gold position was just carted out feet first. Our condolences to Blythe and the rest of the RICO defense crew. And yes, no expert networks foresaw or were consulted on this latest squeeze. If those ever louder rumors that a bank is standing for December delivery end up being true, today’s move will be an appetizer to a 10-fold bigger move.
Tags: Appetizer, Condolences, Euro Gold, Euros, Expert Networks, Gold Position, Squeeze
Posted in Gold, Markets | Comments Off
Bogle, Cohen and Doll on the Markets
Tuesday, November 30th, 2010
Discussing geopolitical risks and the dollar, with John Bogle, Vanguard founder, Abby Joseph Cohen, Global Markets Institute, and Robert Doll, Blackrock.
How does one ride the markets during a lame duck Congress? Bogle, Cohen and Doll offer more wisdom in the video clip below.
Source: Source: CNBC (here and here), November 29, 2010.
Tags: Abby Joseph Cohen, Cnbc, Dollar, Global Markets, John Bogle, Lame Duck Congress, Vanguard, Video Clip, wisdom
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Technical Talk: S&P 500 in Critical Area
Tuesday, November 30th, 2010
As seen in the chart below, the S&P 500 Index (1,187) has been flirting with its 50-day moving average (1,177) over the past few days. The two-week consolidation holds the key to the market’s next move. “The 1,175 level is a critical area for the Index as it will either gain support here and work higher or it will break the 50-day line and the recent corrective wave of the last few weeks will continue to play out. At this point we would have a solid risk management plan in place (i.e. stops) in case the market breaks lower,” commented Kevin Lane of Fusion IQ.
Source: StockCharts.com
A useful discussion of the key moving average levels also comes from Brian Shannon of Alphatrends.net.
World Map – Rearranged by Population
Tuesday, November 30th, 2010
“What if the world were rearranged so that the inhabitants of the country with the largest population would move to the country with the largest area? And the second-largest population would migrate to the second-largest country, and so on?” asks Frank Jacobs on the big think blog.
As shown below, the result is a “disconcerting, disorienting map” with the “differences in population density between countries less extreme than they are today”.
Click here for a larger image.
Source: Frank Jacobs, big think, November 21, 2010 (hat tip: The Big Picture).
Tags: Big Picture, Countries, Country With The Largest Population, Frank Jacobs, Hat Tip, Inhabitants, Population Density, World Map, World Population
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Stock Markets – Mean Reversion Continues
Tuesday, November 30th, 2010
I have argued on a number of occasions recently that I thought stock markets were in a corrective phase, expecting the process to continue to mean revert (at least partially) to the key moving averages.
The tables below indicate how the correction is coming along, with the top table showing mature markets and the bottom one emerging markets. The key numbers to focus on are the columns titled “STDEV from 50 Day” and “STDEV from 200 Day”. The figures show how many standard deviations various stock market indices are above the moving averages (red) or below the averages (green).
In short, many indices have already reverted meaningfully, but others still seem to be at extended levels relative to the moving averages, implying further downside / ranging.
Click here or on the table below for a larger image.
Click here or on the table below for a larger image.
Tags: Corrective Phase, Downside, Emerging Markets, Mature Markets, Moving Averages, Occasions, Standard Deviations, Stock Indices, Stock Market Indices, Stock Markets
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Wikileaks Next Target: “A Big US Bank”
Tuesday, November 30th, 2010
Honest distributor of leaked data or a clever PsyOps front, one can not deny that whatever it is, Wikileaks does share some unique information with the world (as to how it is interpreted is a different story). Yet for the most part, the bulk of the organization’s recent exposures have focused on the US military and away from the private sector, and thus away from that which is really important in today’s world: money (of a paper representation thereof). Which is we read with interest in the latest Julian Assange interview with Forbes’ Andy Greenberg that next on the docket of Wikileaks disclosure is not some facebooky look into the gossip world of international espionage or the foreign service, but something far more tangible and relevant: “A Big US Bank.”
From the interview:
These megaleaks, as you call them that, we haven’t seen any of those from the private sector.
No, not at the same scale for the military.
Will we?
Yes. We have one related to a bank coming up, that’s a megaleak. It’s not as big a scale as the Iraq material, but it’s either tens or hundreds of thousands of documents depending on how you define it.
Is it a U.S. bank?
Yes, it’s a U.S. bank.
One that still exists?
Yes, a big U.S. bank.The biggest U.S. bank?
No comment.
When will it happen?
Early next year. I won’t say more.
One needs to ask whether this is what we need: after all the US public already has enough public data to convict the executives of all the banks for numerous consecutive life sentences as is. It almost seems that nothing short of photographic evidence of some very (in)famous bank CEOs have underage sex while filming snuff movies, dressed in drag, killing puppies and recording their market manipulation conversations with Brian Sack will even rattle the Rip van Winkle formerly known as Eric Holder. But then again, we can hope…
As for Assange’s reason for coming to public with the bank exposition:
What do you want to be the result of this release?
[Pauses] I’m not sure.
It will give a true and representative insight into how banks behave at the executive level in a way that will stimulate investigations and reforms, I presume. Usually when you get leaks at this level, it’s about one particular case or one particular violation.
For this, there’s only one similar example. It’s like the Enron emails. Why were these so valuable? When Enron collapsed, through court processes, thousands and thousands of emails came out that were internal, and it provided a window into how the whole company was managed. It was all the little decisions that supported the flagrant violations.
This will be like that. Yes, there will be some flagrant violations, unethical practices that will be revealed, but it will also be all the supporting decision-making structures and the internal executive ethos that cames out, and that’s tremendously valuable. Like the Iraq War Logs, yes there were mass casualty incidents that were very newsworthy, but the great value is seeing the full spectrum of the war.
You could call it the ecosystem of corruption. But it’s also all the regular decision making that turns a blind eye to and supports unethical practices: the oversight that’s not done, the priorities of executives, how they think they’re fulfilling their own self-interest. But it’s also all the regular decision making that turns a blind eye to and supports unethical practices: the oversight that’s not done, the priorities of executives, how they think they’re fulfilling their own self-interest. The way they talk about it.
While we refuse to pass judgment on Assange’s character, and his motivations, it appears that he may have finally figured out that to enact change in a country, you have to go not after the politicians or even the military industrial complex. After all both of those are puppets for the moneyed interests. One has to go after the very heart of the financial oligarchy. Money always has made the world go round, never more so than in the US currently. Perhaps Assange can redeem himself of all attacks on his persona if he does succeed in disclosing something that is beyond mere watercooler talk and actually leads to at least one major prosecution. After all, the US’ own regulatory and enforcement mechanisms are corrupt beyond repair, and completely unable to do so on their own…
(and yes, we certainly hope it is not Lehman Brothers, although the bank in question is most certainly going to get the Lehman treatment. The question is who will benefit from this disclosure, and now that Goldman’s FICC desk is no longer the gold mine it used to be, there are some suggestions)
Tags: Bank One, Ceos, Consecutive Life Sentences, Different Story, Eric Holder, Exposition, Foreign Service, Greenberg, Hundreds Of Thousands, International Espionage, Julian Assange, Market Manipulation, Photographic Evidence, Private Sector, Rip Van, Snuff Movies, Target, U S Bank, Us Bank, World Money
Posted in Gold, Markets | Comments Off
A Story Goes With It
Monday, November 29th, 2010
A Story Goes With It
Jeffrey P. Ryan, CFA, Senior Equity Researcher, Schwab Equity Ratings®, Schwab Center for Financial Research
November 23, 2010
Key points
- There’s often much fanfare over “story” stocks—ones where news is expected to impact the stock’s price.
- Investing successfully in story stocks can be difficult, but certain steps may improve your odds.
- Designed for stock investors.
A story stock is one where news, whether from a publication or an internet chat room, is expected to impact the stock’s price. This is different than thematic investing—a belief that a long-term trend, like renewable energy or rising commodity prices, will affect a group of stocks over a longer period.
My personal “story” moment occurred a number of years ago, after addressing my wife’s investment club on the topic of value versus growth investing. I concluded by saying, “Be careful when investing in story stocks—I’ll bet you a steak dinner you’re not the first person to hear the story.” As I prepared to leave, the first words I heard (thankfully, not from my wife) were, “Let me tell you the story of this great stock I heard about …”
It’s understandable that investors pay attention to stories. There are limits to the amount of information investors can process.1 Focusing on recent news is one way of limiting the number of alternatives we need to consider in order to make a choice.
But not every stock with recent news will end up a winner. Can anything make this approach more successful? We decided to find out.
What makes a successful story stock?
In order for a story stock to become a success, three elements have to fall into place:
- The story must be a surprise. If many investors already know about it, the story’s impact will already be factored into the stock’s price.
- The story must be meaningful. In other words, it must be significant in terms of the company’s earnings. For example, a new version of a product that represents less than 1% of a company’s profits isn’t going to have much of an effect on the company’s overall performance. On the other hand, the announcement by a semiconductor manufacturer that it is building a new chip-fabrication plant costing more than $5 billion—equivalent to two years’ profits—would be much more significant.
- The story must come true, at least eventually. Many dot-com and biotech stock stories went astray because the stories never turned into actual cash flows. Professor Stewart Myers of MIT once noted that top venture capitalists don’t succeed by picking successful companies, but by ruthlessly weeding out companies in their portfolios that don’t meet specified development plans and target dates (a characteristic of stories that don’t come true).
Where do the stories come from?
A stock’s story doesn’t have to be delivered via chat rooms or Twitter. Wall Street stock analysts often base their recommendations on stories (also known as “investment rationales” or “investment theses”—much more dignified terms). Clients can look at any analyst report on a stock, such as those found on the Reports tab after you enter a ticker symbol, and you’ll see what the analyst had in mind when developing the recommendation (sales are rising faster than expected, strong balance sheet, and so on).
An analyst’s recommendation can also be “news,” particularly when it deviates from the consensus and could potentially help investors focus their attention on a smaller set of potential buy candidates. But our research indicates that the stocks that analysts rate best, presumably those with the best or most powerful stories, tend to underperform the market in general.
Stocks With the Best Analyst Ratings Tend to Lag the Market
Click to enlarge
Source: Schwab Center for Financial Research from December 31, 1993, to December 31, 2008. We divided the largest 2,000 stocks (in terms of market capitalization) into five groups, based on the average of Wall Street analyst recommendations. The first set of five groups was formed on December 31, 1993. We tracked the average performance of the stocks in each group over the subsequent year. The five groups were then reconstructed on December 31 of each subsequent year until December 31, 2008, and performance was tracked over that year. The percentages shown are the gains of each group, averaged over the 16 years of our simulations.
Take a look at the chart above. It shows that on average the stocks that analysts liked best—those with the most compelling investment theses—underperformed every other group. This should serve as a warning that if Wall Street analysts’ stories are so often wrong, the average investor may find “story” investing difficult.
How do you find a story stock that may work?
If you are undeterred by the odds of finding a successful story stock, here are some steps to help keep your research on track.
First, check the stock’s Schwab Equity Rating for an objective view of the stock’s prospects, based on factors like the company’s fundamentals and valuation. We believe a Schwab Equity Rating of A or B will improve your chances of determining whether the company has a reasonable chance of turning a story into actual returns for investors. Clients can find out the Ratings of their stocks on the Stocks Overview page.
A common concern about this step is that the stock’s Rating doesn’t reflect the stock’s potential, as embodied in its story. That might be true. But the Ratings tend to favor stocks for which the three elements noted above have occurred fairly recently, before the market in general has caught on. That’s the basis for the concept of “surprise anticipation” on which Schwab Equity Ratings are built.
Second, if the stock has a Schwab Equity Rating of A or B, go through these steps as described in Managing a Stock Portfolio Using Schwab Equity Ratings:
- Check the market’s sentiment about the stock, as reflected in its performance relative to a broadly defined market index and the stock’s sector over the past year. If the stock’s price history indicates a stock in a long-term downtrend, you’ve already reached the end of the story. And if the stock’s sector has underperformed relative to the broader market, then the stock and its story may be fighting an uphill battle against a negative trend for the sector in general.
- Check the volume that accompanied recent performance, not just price. A stock that’s already had recent upward moves in both price and volume is probably one where the news has already been embedded in the price.
- Check the news. Most stories will only work if the news is generally unknown. If the story is already in the news, it’s unlikely that a “surprise” is still available.
- Check other third-party research. One of the best signs for a story stock is when institutional investors start to take positions. And generally, institutions won’t do so unless they have some research-based reason. Clients can find the number of shares held by institutional investors by going to the Reports tab after entering a ticker symbol (see Schwab Equity Ratings Report or several of the third-party research reports).
If by this point you’ve encountered nothing that makes you doubt the story or the stock, go to the company’s website and look for any investor-relations materials that might be available. If you can see how the story represents a positive addition to the narrative presented the company’s investor-relations documents—prospectuses, annual reports and SEC filings—then you’ve made a good start at doing your “due diligence” on the story.
1. Barber and Odean. “All That Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors,” Review of Financial Studies, Vol. 21, Nr. 2 (2008).
Important Disclosures
Schwab Equity Ratings use a scale of A, B, C, D and F and are assigned to approximately 3,000 stocks headquartered in the United States and certain foreign nations where companies typically locate or incorporate for operational or tax reasons. Schwab’s outlook is that A-rated stocks, on average, will strongly outperform, and F-rated stocks, on average, will strongly underperform the equities market during the next 12 months. Schwab Equity Ratings and the general buy/hold/sell guidance are not personal recommendations for any particular investor or client and do not take into account the financial, investment or other objectives or needs of, and may not be suitable for, any particular investor or client. Investors and clients should consider Schwab Equity Ratings as only a single factor in making their investment decision while taking into account the current market environment.
The information provided is for general informational purposes only and should not be considered as an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.
Copyright (c) Charles Schwab & Co., Inc.
Tags: Belief That, BRIC, BRICs, Commodity Prices, Earnings, Fanfare, First Person, Internet Chat Room, Investment Club, Odds, Personal Story, Profits, Recent News, Renewable Energy, Researcher, Schwab, Steak Dinner, Stock Investors, Stock News, Story Stocks, Term Trend, Three Elements
Posted in Emerging Markets, Markets, Outlook | Comments Off
Unthinking Economic Parrots and Deflation Fighting Madness
Monday, November 29th, 2010
Unthinking Economic Parrots and Deflation Fighting Madness
by Michael ‘Mish’ Shedlock, Global Economic Trends Analysis
The ineptitude of Japan’s policies hoping to combat deflation is staggering. Worse yet, unthinking economic parrots talking about the “economic damages of deflation” have no idea what they are even saying.
Please consider Japan passes new $61bn stimulus package
Japan’s parliament has passed a stimulus package worth about $61bn (£39bn), designed to kick-start the country’s fragile economic recovery. The stimulus was designed to create jobs, Prime Minister Nato Kan said, through measures to help small businesses and boost consumer spending.
Earlier, figures showed that Japanese consumer prices fell for the 20th month in a row in October.
The vote in favour of the latest stimulus measures represents a victory for the government, which has struggled to get the package through parliament. The move is in marked contrast to European governments’ policies, which are focusing on cutting spending to secure growth.
Japan has been struggling with weak growth, a high yen and deflation.
The core consumer price index fell by 0.6% in October compared with a year earlier, official figures showed. This was a slight improvement on the 1.1% price falls seen in September.
Deflation is particularly damaging to economic growth as consumers delay purchases until prices fall further.
Idiotic Premise
I stopped quoting the article on the frequently repeated premise “Deflation is particularly damaging to economic growth as consumers delay purchases until prices fall further.”
I wish economic writers had the ability to think rather than parrot ideas espoused by Keynesian clowns.
Series of Questions
- If your refrigerator conks out, will you buy a new one or wait 6 months to take advantage of lower prices?
- If the transmission on your car fails will you wait 6 months to get it fixed?
- If your pantry is bare, will you wait 1 month to buy food even if you expect food prices to drop?
- If you need a new winter coat, will you wait and if so, how long?
The answer to that last question is “Perhaps for a bit, but you will not wait 3 years even if you expect prices will be even lower 3 years from now.”
Short of assets like stocks, bonds, and housing (and except for periods of hyperinflation) it is tough to cite any examples where inflation expectations mean a damn thing.
Unthinking Economic Parrots
Yet week in and week out, articles like the above parrot misguided ideas about inflation expectations. Worse yet, they spew forth nonsense that falling ideas are a bad thing.
Ask anyone on fixed income if falling prices are a bad thing. Ask students or those on minimum wage if falling prices are a bad thing.
Think you will have many takers? From either group?
The only people who say falling prices are unwelcome are the bankers, the stock brokers, government and economic parrots who misguidedly trumpet economic claptrap from the bankers, the stock brokers, government, all of whom benefit from inflation because of rising taxes and/or because they have first access to money.
In effect, parrots serve as pawns for the wealthy, for central bankers, and for government officials who wants a bigger piece of your paycheck via rising sales taxes, rising property taxes, and rising income taxes.
In reality, inflation is theft from the middle and lower classes for the benefit of government, the wealthy, and also public union workers who have inflation adjusted benefits written into many of their contracts.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Tags: Clowns, Conks, Consumer Price Index, Core Consumer, Delay Purchases, Economic Damages, Economic Growth, Economic Recovery, Economic Stimulus, European Governments, Global Economic Trends, Ineptitude, Japanese Consumer, Michael Mish, Mish Shedlock, Pantry, Parrots, Premise, Slight Improvement, Stimulus Package
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