Technical Take: In a Pickle

Tuesday, July 10th, 2012

by Guy Lerner, The Technical Take

Last week’s comments will certainly  suffice to explain how sentiment is impacting the current price action, so here they are: “From a sentiment perspective, the data remains consistent with a market top rather than the next launching pad to a new bull market or even a sustainable bull run. For several weeks, I have been of the opinion that whatever bounce develops would not carry too far because sentiment really wasn’t too bearish at the bottom. Large rallies usually start with real extremes in investor sentiment and consensus among the sentiment data, which we did not see despite the SP500 dropping about 10% over 8 weeks from the April highs. Although the “dumb money” was bearish (i.e., bull signal), corporate insiders were neutral. Throw in the fact that investors have been primed to front run anything that sounds like quantitative easing or bail out, you can understand why investors weren’t too concern. Don’t worry some central banker has your back.”

What I find fascinating is that investors know what is exactly driving this market.  It is bailouts,  quantitative easing, asset purchases or whatever you want to call it.  These plans can be real or just come from the mouths (i.e., jawboning) of central bankers.  I was listening to CNBC earlier in the week, and the disappointment of the hosts over the market’s response to the European Central Bank’s rate cut was palpable.  With the pre-market futures down about 0.5%, they immediately understood that some entity (i.e., Federal Reserve) would need to step in and do more.  Mind you this is pre-market action, and the SP500 is still only a couple of percent below the recent cyclical highs!  No reason to hope for a good jobs report or better earnings.  Maybe that is asking for too much.  Or maybe investors understand that positive data points takes more QE off the table.

The promises to fix the economies (i.e., equity markets) of the world with more debt are coming almost daily now.  The market’s response to each of these “fixes” seems to be getting less and less.  In addition, whether QE is the right policy still remains in doubt.  After all, it hasn’t turned the US economy around yet and some would argue, asset purchases and debt creation have put the US economy on a weaker foundation.  It would seem that investors are in a pickle.  More of the same is not working, and it just may require lower equity prices for investors to get what they really wish for.

The “Dumb Money” indicator (see figure 1) looks for extremes in the data from 4 different groups of investors who historically have been wrong on the market: 1) Investors Intelligence; 2) MarketVane; 3) American Association of Individual Investors; and 4) the put call ratio. This indicator is neutral.

Figure 1. “Dumb Money”/ weekly

Figure 2 is a weekly chart of the SP500 with the InsiderScore “entire market” value in the lower panel. From the InsiderScore weekly report: “Insider trading volume began a seasonal decline last week. Companies generally close trading windows for insiders 10-14 days prior to quarter’s end and reopen them following their subsequent earnings announcement. Volume will continue to dissipate over the next few weeks and getting a macro read will be difficult because of the limited number of insiders who are free to trade.”

Figure 2. InsiderScore “Entire Market” value/ weekly

Figure 3 is a weekly chart of the SP500. The indicator in the lower panel measures all the assets in the Rydex bullish oriented equity funds divided by the sum of assets in the bullish oriented equity funds plus the assets in the bearish oriented equity funds. When the indicator is green, the value is low and there is fear in the market; this is where market bottoms are forged. When the indicator is red, there is complacency in the market. There are too many bulls and this is when market advances stall. Currently, the value of the indicator is 63.72%. Values less than 50% are associated with market bottoms. Values greater than 58% are associated with market tops. It should be noted that the market topped out in 2011 with this indicator between 70% and 71%.

Figure 3. Rydex Total Bull v. Total Bear/ weekly

Tags: Asset Purchases, Cnbc, Corporate Insiders, Cyclical Highs, Disappointment, Dumb Money, Extremes, Federal Reserve, Guy Lerner, Investor Sentiment, Launching Pad, Market Futures, Mouths, Pickle, Pre Market, Qe, Quantitative Easing, Rallies, S&P500, Sentiment Data
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Can the World Hold 7 Billion?

Thursday, January 6th, 2011

Some time this year, there will be 7 billion people on the planet. If we all stood shoulder-to-shoulder, we would fit inside the city of Los Angeles.

National Geographic just kicked off its year-long series dedicated to this global milestone. Check out this video.

According to National Geographic, no human had lived through a doubling of the human population before the 20th Century. Now, there are people on this planet who have seen it triple. In fact, the world population hasn’t fallen since the Black Death wiped out nearly 60 percent of Europe’s population.

The problem with population isn’t space—we have plenty of it—it’s resources. Nearly 1 billion people go hungry every day and 20 years from now there will be 2 billion more mouths to feed.

If you’re analytical, you can think of it this way—the Earth has a finite number of resources but the demand and use of these resources are the variables. That demand not only depends on the number of people, but how intense their usage is.

Today, usage intensity is picking up in the emerging world—which happens to be home to the majority of the global population. As these people move, for example, from using bicycles to cars, or candles to electricity, the pressure on that finite amount of resources rises.

This, in a nutshell, is why we’re positive on natural resources—the supply of resources is limited while the demand is rising. Daily, monthly and even yearly fluctuations in demand or geopolitical events will cause volatility in prices, but the overall supply/demand fundamentals remain intact, and we believe these fundamentals lead to higher prices for these increasingly rare commodities.

Since this population theme is a cornerstone of the natural resources story, we’ll check back in on the National Geographic series as it progresses.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

Tags: Bicycles, Black Death, Commodities, Cornerstone, Finite Number, Fluctuations, Geopolitical Events, Global Population, Human Population, Intensity, Milestone, Mouths, National Geographic, National Geographic Series, Natural Resources, Nutshell, Rare Commodities, Shoulder To Shoulder, Volatility, World Population
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A Crisper Solution

Thursday, July 8th, 2010

This article is a guest contribution from Dan Ariely, of Predictably Irrational.

I personally find fruit and vegetables to be not only healthy, but also delicious. I enjoy cooking and preparing them, and try to eat them often. Sometimes I wind up spending egregious amounts of money getting the freshest local organic produce. Still, even when I empty my wallet at the farmer’s market, some of my fruit and veggies inevitably end up wilting or rotting in the fridge, leaving a fairly unpleasant sludge. A number of things could contribute to this waste – but I’d like to point out a few simple design flaws that I think we can fix.

1) I suspect that one of the main culprits is the produce drawer in the refrigerator. Most refrigerators have a special drawer designed to hold produce, usually located at the bottom of the fridge. The drawer is often just barely opaque and for some reason difficult to open. Because of these “features,” when you open the fridge door, you look straight ahead, to the leftover lasagna or apple pie (and their convenient position) come to mind, leaving the carrots and nectarines hidden and forgotten in the vegetable drawer. If the design of the produce drawer is one of the barriers for eating the fruit and vegetables we have already purchased, what can we do about it? For one, instead of using the crisper to store fruit and vegetables, we could put them on a higher shelf so that they are more inviting when that door is opened. We’ll smile and say to ourselves: “oh, right, I now remember I have blueberries and I want to eat some of them.”

2) Another obstacle that keeps us from eating our vegetables before they’ve gone rancid is the sense of immediacy and gnawing hunger that compels us to open the fridge in the first place. We usually go to the fridge when we are already hungry, and are looking for something to pop in our mouths right away. Because there are usually a few steps between raw vegetables and ready to eat food, we shy away from them in favor of something faster and more convenient. One way to solve this would be to wash, cut or cook them in advance so that they are already prepared at the pivotal moment of hunger.

3) In addition, these perishables don’t come with any indication of an expiration date. Until we discover the point-of-no-return, it is hard to tell how far the produce are from the end of their useful lives. We know that when we buy fish, we should eat it within the next couple of days. With milk, there is a date stamped right on the container, undisputable and in plain sight. Because we are averse to losing money (even money already spent), these expiration dates compel us to make sure that we use that pound of Mahi Mahi, eat that yogurt, and finish the milk. By leaving the produce’s expiration date ambiguous, it is hard for us to plan when to eat our produce, and we often discover that we have missed the expiration date after it’s too late. If we were to make our own expiration dates and stick them on our celery sticks, we would be more likely to use them before they’ve turned into a mushy mess.

This type of waste worries me because I think that it also prevents us from future purchases of fruit and vegetables. Imagine this scenario: You buy a bag of grapes for $7.50, throw them in the crisper drawer, and forget about them. A couple weeks later, you open the crisper on a whim and are alarmed to find that the former bag of grapes has now turned into a moldy pile of muck. You feel awful, not only because you have to clean up the mess, but because you paid seven dollars and fifty cents for this. You grumpily go for the sponge and think to yourself, “Well, I’ll never do that again.”

My general point is this: There are all kinds of reasons why we eat badly, but some are more fixable than others if we only look at our behavior and undercover the nuanced forces guiding our actions. Instead of throwing the bag of grapes into the dark drawer in the bottom of the fridge, we can save that drawer for the cupcakes and instead put some grapes in a tray on the top shelf with some mixed greens and pecans, ready to grab and go. The rest of the grapes can be prewashed and stamped with a homemade expiration sticker. If we make plans to eat them within a few days and mark them as such, we are more likely to stick to our goals. This way, we can eat more fruit and veggies and avoid wasting money or creating a mess – benefits all around!

Copyright (c) Predictably Irrational

Tags: Apple Pie, Blueberries, Carrots, Culprits, Design Flaws, Fridge, Fruit And Vegetables, Hunger, Immediacy, Lasagna, Money, Mouths, Obstacle, Organic Produce, Raw Vegetables, Refrigerator, Refrigerators, S Market, Sludge, Wallet
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