The Market Perspective

Modern History in Sixty Seconds

Friday Feb 23, 2012

 

Just going over old e mail and ran across this observation by yours truly, perhaps some readers will enjoy the Perspective.

Here is a short history  of the decline and fall of western nations since the Renaissance

 

Italy - Florence and Venice, daVinci

Portugal - Columbus

Spain   the Armada sinks, the inquisition terrorizes

the Dutch - world traders, Amsterdam, tulipmania

Germany - Guttenberg

France and Britain vie for control of the US, Spain looks for gold after looting South America, finds none and heads home

France and Britain lose the American continent, France sels out, Britain loses out

France and Britain after years of pointless wars against one another manage to stalemate against the end of the Austrian empire, 1870 leading to the rise of Germany

the two world wars exhaust Britain, France, Italy who become military wards of  America, as does a divided Germany, European countries live under a USA nuclear umbrella allowing them to build welfare states while their own military shrinks, unable to defend themselves or even mount a sustained campaign against, egads, Libya

Russia fritters away a WW II victory never producing a single consumer good competitive in the world market since 1945 other than the AK 47 and vodka

 

American fritters away its victory, endless wars, growing govt and welfare state, everyone is a victim, now over 45 million on food stamps

 

And so here we are, most of those countries had about a 200 year span with a few decades of real prominence like the Dutch in 1636, but they all fell back into welfare states

 

Greece and Egypt the oldest civilizations worthy of that title, are today basket cases

 

China is doubling down on real estate bets with a skewed demographic and  a sort of alternate dynasty govt, all the other countries on the Pacific Rim  lean economically against China,

India after all is China with more bureaucracy

 

and that is modern world history according to TMP, and that's what's wrong with the USA

 

We are Rome, circa 400 AD, handily we have the Atlantic and Pacific oceans between ourselves and potential Visigoths and Huns, at least other cannot march here....

 

Social Mood and Oil Prices

Friday Feb 23, 2012

This Forbes Article Tired of High Gas Prices You Ain't Seen Nothin Yet is a good example of what I meant about the emotion surrounding crude oil pricing. 

The article admits, as I pointed out, there is no shortage of supply .And demand is down. A Univ of Houston professor is then quoted as, of course, blaming the Saudis, claiming in the familiar Houston chant that the Saudis control the oil price. Gee Prof don't the wish. 

Our point is that the article misses the big picture here. There is no mention of social mood which is driving prices on everything from 1939 comic books to Malibu homes to new levels. There are supply bottlenecks here thanks to our own government. And the patchwork quilt of crazy different grades of gasoline means we do not have a sell it anywhere to anyone gasoline formula which is jus plain nuts. 

I hope they will interview that same professor in a few months when I suspect prices will have mysteriously dived. Gee did the Saudis manage that as well?

OPEC always cheats in these situations. How else does one pay for the 1-77 Aston Martin for $2 M?

And it is the cheating on production that inevitably brings prices down, you know that supply and demand thing. The lure of $90 gross margin on oil is just too much, no way a Sheik is going to throttle back on that opportunity. 

But the charade that OPEC works marches on, at market tops. No one asks why OPEC fails to prevent prices from tumbling, but that's fickle social mood for you. 

 

Markets Closed Today

Monday February 20, 2012

 The SPX is at 1368. That means it is a mere 2.3% to reach 1400. Our judgement was it was not worth the risk of being long when the reversal occurs and so we exited a week ago. We listed three  reliable indicators this weekend

Dow Theory

Summation Index

Bullish Percent 

All of which are flashing warnging signals. One comment on this blog is whether the market might celebrate the March 9 low with a three year anniversay high. Given the bullish percent in the high 80s, another two weeks would surely take it over 90% at which point the exit bell would be ringing loudly. 

Recall the violent reversal of this past May and of course August. Relax and enjoy the show for now. 

Energy Service Flashing Negative Signals

Tuesday Feb 14, 2012

The market had a  bounce Monday after out exit on what was regrettably a down day Friday. See our reflections on Strategy in a recent post. 

But the evidence is quickly mounting that the deision to exit was correct, if a few days behind the orthodox top. 

We also noted the increase in insider selling last week. Note we bought in October when the insiders did as well. An alert reader brought Mark Hulbert's report to our attention.  Also note the video link about hte lagging Transports potentially flashing a Dow Theory Sell Signal. 

Transports

Transports look ot be completing some sort of third wave. Note the downturn in MACD aat bottom. This is not screaming sell just slipping out of the trading room when most are not noticing. And the Trannies are way ahead of their trend line. 

Socionmomics

Social mood is positively expanding  as noted in our comments about the skyscraper in Cambodia and the return of the McMansion in friday's WSJ. Now Bloomberg jumps on board. 

Yet another alert TMP reader brought this to our attention. It dovetails nicely with new highs in Ralph Lauren RL. 

 

Bloomberg has just announced a magazine catering to the luxury market. " Bloomberg Pursuits"

 

Magazine will be sent to those with an average household income of more than $450,000. while Chanel, Cartier, and Porsche amongst others have all bought ads for the first issue.

 

Publications like Departures sent to Platinum and Centurion cardholders of American Express show increased ad expenditures up 46 % and its pages up 39.4% from same period a year ago

We are always gratified to hear from readers as we are all in this together. 

Energy service is the leading indicator for Energy which reflects surging demand for everything in the economy. Here are couple of early warning signs.

Patterson PTEN

While Patterson is only one company its concentration ins work over and drilling rigs makes it a real Boots on the Ground oilfield indicator. It briefly rallied in November and then collapsed ever since as the overall market moved higher. Now it is a bare $2-3 off the market panic low in October. LIttle or money at bottom is flowing into the stock. 

This is a divergence. The oil market is up while Energy Service is down. After the high in oil in 1981, the number of rigs working in the US continued to soar over 4,500, a number not seen since. But the price of oil started a slow descent. Now we have the reverse. Energy service investing down, with oil still up. Recall our observation that North Dakota oil fell just last week from $95 to $70. 

 

 

And there's more.

RIG

Monday yesterday was na outside reversal day in RIG, to the downside. An outside reversal occurs when the range exceeds the prior day range to a new high and low and price declines. The buying is exhausted. 

And this is happening well below total book value for RIG. 

Insider selling, expansive social mood, a very weak PTEN, and an outside reversal day in RIG, 

all of which supports our idea of taking profits last week. 

OH looks like GM finished five waves up from December, support at 23.5.  We bought at 20 and sold Friday around 25.5.

Various articles in the media and on the WSJ op ed page today suggest that the Greek vote is mere window dressing. The population, busy burning down Athens, does not eralize the economy has been floating on a sea of spending via government borrowing. Now the borrowing has ended and the huge transfer payment economy of government employment is ending. This explains the US Dollar re surgence. 

The market of course will do everything it can to keep the majority long as warning signs are ignored. Not the euphoria over Apple hitting $500, now the most valuable stock on the planet. The media will continue reoporting stocks hitting new highs convincing the average viewer that all stocks are rising. 

The seasonal pattern is a final high before tax time April 15. That may come a bit early this year but we are watching from the sidelines. This is a high risk market where most stocks are way elevated from their October lows and the majority are now over MAs, where as less than 15% in some cases were over those indicators this past fall. 

thanks for reading TMP.

Sell !

Sunday Feb 12, 2012

 

If We Were Perfect We Would Start a Religion.

Richard Ostberg, duPont Glore Forgan Class of 72-2

Internal Indicators hit new highs this week. It is clear we should have sold when the PAR SAR flashed a sell signal on our CEF and GDXJ positions but we made good profits. And should everything fall apart on Monday or later in what has to be a correctiion coming, we can watch from the sidelines waiting for the market to come to us. 

NASD Weekly Summation Index

for some reason my annotation tools are not working but one can readily see a wave one up from the August low, then a wave two down to the Dec low and then a wave three peaking this week. And so we sold, This would be our Chart of the Week, what else is there to say?  Interanl indicators and QQQ hitting new highs. 

The failure of TLT and the Dollar to follow VIX down suggests that we have begun a fourth wave correction. That is hard to see on the QQQ at top but quite obvious on the NYSI weekly. I believe Elliott Waves are easier to spot and more reliable on the indicators than on the price quit frankly. 

Dow Diamonds

 

Long time tech guru Bob Farrell at Merrill Lynch had ten rules One had to do with reversion to the mean. Note that DIA is about ten points over the 200 day MA. Near the Oct low it was ten points under the 200 day MA. It was oversold in Oct and overbought now, as the talking heads on CNBC of course all recommended buying this past week. Note how Chakin Money Flow increased and the maximum inflow of money came at the worst time to buy!

Oh well otherwise who would read the Market Perspective....

Crude Oil The Master Market

Robert Frost observed that Fog sneaks in on little cat feet. I would add that it leaves the harbor the same way. 

This is the USO Oil fund meant to duplicate the price of oil. Price has fallen below the 50 day MA. Now at bottom note that the money via the Chakin Money Flow is exiting as well, and in pretty impressive amounts. At top note the US Dollar has been climbing and after a correction turned up at week end.

Now couple the technical with two fundamental observatinons from the WSJ Weekend Edition.

Page B 4 China Commodity Imports Decline

Page B 18 Clearbrook crude oil plummets to $70 from $95, and that happened in the past week!  Clearbrook Minn represents the huge supply of oil coming from North Dakota. Well yes, there is supposedly no way to get that oil to the refineries on the Gulf Coast.

But as Alan Abelson observed decades ago, oil is pretty slippery stuff. It can pop up in the darnedest places. So let's go back to this same date, Feb 12, in 2008. What was happening then? 

Same chart, 2008

Note the similarity, the Dollar at top dipped a couple of times before really taking off in 2008. 

IN 2011-12 well the dollar has dipped a couple of times and oil peaked and

 

well it is not a perfect comparison but this is a good reason to bank our profits and see how this all plays out. NOte that USO lost over 75% of its value in a few months in 2008. The last failure of the kiss of the 200 day MA was truly The Kiss of the Spider Woman. Black Spider that is. 

We have written hundreds if not thousands of words describing the pent up negative mood emotions around the world. The same potential via Lehman that existed in 2008 lurks in Euro default, student loan default, Russian protests,  USA state financial failures, you name it. And so you say, well Dennis don't get so taken with yourself, you do go on. Yes I do but how is this next piece for truly weird, and I ran across it in the San Antonio paper no less, yep, Abe Lincoln as a Vampire Hunter...

Socionomics

No doubt some of you think I am just going on about socionomics, and how social mood shapes our perceptions. Well hw about, yes, Abraham Lincoln, Vampire Hunter?

As Dave Barry says, I can't mae this stuff up...

There is a good column in today's Express News about how the view of Lincoln changes with the times. It is apparently not on the internet so no link.

The 1940s and 50s saw Lincoln as a traditional post war hero. That puts him right there with Ike as the one who won the War. that is to be expected. 

By the 60s and 70s he was a counter culture figure in We Can Build You. Then he was a cyborg struggling to live in a world cominated by rapacious capitalism, really.

Speilberg will have a film viewing him through the prism of political genius. 

But with vampires on the loose in bookstores and theaters and tv, go figure, now presumably he is armed with a hammer and wooden stake....

Hey no kidding, this movie has a $70 M budget,

Dennislelam@gmail.com

 

 

The Market Perspective bases its information on techniques and sources that have been found to be reliable in the past, and The Market Perspective tries to base opinions on sound judgment and research, however, we do not guarantee that future results will match past performance ands no guarantee can be made that advice will be profitable. The Market Perspective accepts no money for stock recommendations and is purely motivated by its own research in recommending any stocks.  Put another way, the responsibility for decisions made from information contained in this letter lies solely with the individuals making those decisions. The editor and persons affiliated with The Market Perspective may at times have positions in securities mentioned.  Nothing contained herein represents an offer to buy or sell securities. The Market Perspective encourages investors to be diversified, and to maintain sell stops and risk control over their valuable investment capital.  No guarantee can be made to the accuracy of text or charts.

 

 

 

A Time to Sell - Strategies.

Sunday Feb 12, 2012

We regularly visit the topic of social mood on this blog. Psychology is a big part of investing. Indeed the more I study markets the more I negative mood forcing market bottoms, such as last August and October. Those are identified by low reading on bullish percents and the summation index. The latter is a lagging index but certainly lows there coincide with lows in the market. Positive mood causes markets to soar, witness this January, one of the best ever. But once everyone is in, the money and mood run out and the market reverses.

One can probe market bottoms buying in dribs and drabs or with a succession of lower orders, averaging down if you will. Once the market reverses, one will have bought some at the very lowest prices. 

Getting out however is a different matter. It is a matter of timing for price and of personal psychology. 

A succession of higher and higher orders will not of course guarantee that the entire position gets sold. Then if the market violently reverses, profits can evaporate quickly. And of course all stocks do not top at the same time. We have noted the different timing cycles of say oil versus gold. One simple indicator is to watch the total value of the account, once it stops gaining, one needs to look for topping action. That happened in all our accounts the last two weeks. And now that computers can track our holdings with intra nd daily totals, that brings up the issue of personal psychology. 

Your account is gaining in value through January. The gains continue into February. Naturally one starts extrapolating these gains via a sort of inspired regression ever higher. Positive social mood starts taking over, of course it does. But then the numbers stop rising. Now, one can utilize moving averages or the parabolic stop and revers PAR SAR indicator to lace a trailing stop sell order. But then of course, one is guaranteed to be selling on a down day. The psychology effect then is this. Let's say in December we had $10,000 invested to keep things simple. By the end of January it is $12,000, then $12,500. This of course induces all sorts of mental self congratulations and confidence, a dangerous combination. Placing stops under the positions might result then in an exit on a day like Friday, the biggest down day of the year. You move the stop sell orders up daily, and then return Friday afternoon to find you sold everything and now you have, $11,975. 

On the one hand you did well, you have 1,975 more than in December, nice going. But having seen the 12,500 number, one might well fret that over $500 was left on the table, how could you have missed, in  retrospect, the top?  This is foolish, one never has the money until the trade is closed and the money in the account. But we are humans. 

Conversely one might have sold on an up day, your account has swelled to say $12,100 by Feb 1. And so you sell capturing all those gains. Then you watch as the market continues to gain, and you think gee I could have had more!  So, which is the better alternative?

I suspect selling on an up day is th better idea. One is not subject to a severe reversal. One captures all the gains to that point. And one can then plan to buy again on a day when most investors are fearful, the summation index is down, and the BP indicators have reversed. 

You will earn every dollar you make trading the markets. It is hard as you have to do the opposite of what most people are doing. When the talking heads are recommending Apple at 475 you need to be looking for an exit strategy. When the DOW is down 400 points Oct 3-4, you need to buy. 

This is not a business for sissies. 

 Learn to be happy with your successes. There is always a coulda woulda shoulda success story and the media will find it and broadcast it at tops. Conversely they will beat the drums over the endless bad news from Greece or Slobovia or wherever at market bottoms. 

If you are making more money that a bank account would make, you are doing something right. 

Our suggestions of GDXJ CEF RIG GM HPQ and stock indices bought in October should have performed well if you bought in our time frame. More later today on what's next. 

McMansions Grow Again with Social Mood

Sat February 11, 2012

Upon completing the Friday post about the Skyscraper in Cambodia alonng with Bob Prechter's article about that, we opened the WSJ to find that, yes, the McMansion is back. A story detailed the growing number of 20,000 sf homes under construction. 

This is not surprise to those of us following social mood. It is of course a comlete reverse of the mood of 2008-09. And that is the point. Just as the NYSE A/D weekly bottomed back then and reached a new high this past week, social mood has been on an expansive mood since. This results in the 

if you  got it

Faunt it

attitude that results in what we might term 'homes that make a statement.' Now that I think about it this is nothing new dating back to the Egyptian and Mayan Pyramids, homes for the eternity of occupant!

Castles in the Middle Ages kept up the trend. Climb the Pyramid of the Sun outside Mexco City and you can clearly see the outline of what were the larger homes in the center of an ancient Mayan City. 

Plantations sprouted across America. The Vanderbilts constructed Biltmore in North Carolina, Hearst spent years completing San Simeon on the California Coast. (I have not been to Biltmore but can assure you Hearst Mansion is a bucket list item if you have not been there). The Kennedys have Hyanis Port and even John Edwards finished a 20,000 + sf abode. 

We noted a Ferrari sold for $32 M this past week. Trade has been brisk at Sootheby's. Indeed both Ralph Lauren and BID hit new highs this past week, again proving to be reliable indicators of expansive social mood. 

I suspect the amarkets hit some sort of third wave peak this past week. After a pullback we should have one more high. Look for the list of Distinguished Properties in the WSJ to expand over the next few months. 

Reaching for the Sky

Friday Feb 10, 2012

Ambitious projects are the result of positive social mood. The desire to build 'the highest building' (think Dubai) or the largest stadium (think Jerry Jones' $1+Billion Bet) or Palm Island (Dubai again) or Las Vegas City Center (heavily indebted MGM). 

And so an article on a 38 story $138 M tower in Phnom Penh, Cambodia caught our attention. Okay  38 stories may not be a skyscraper in NYC but after all this is Cambodia with a population of 15 M. 

This quote from the developer resonates with the optimsim about the stock market in papers and on television. 

"We believe that the only way is up" for Cambodia, says Vattanac Sam Ang, the executive director of Vattanac Properties, thanks to its position as a crossroads between Thailand and Vietnam. He said the project had secured the financing needed to complete construction, but declined to provide details.

A 42 story building remains unfinished.The point is that this sort of mood fuels multi-million dollar sports star salaries, taxpayer funded stadiums, and the like. 

Our friends at Bob Precther's Socionomist published this story about Dubai skyscrapers in 2009. I think yuou will find it interesting. 

A Socionomic Perfect Storm on the Horizon

Monday Feb 6, 2012

The news is here for all to see, our job at TMP is pointing out how that news affects social mood and what is therefore likely to happen. 

A peak in positive investing mood lies immediately ahead. But a similar spike in unrest and negative sentiment world wide is also brewing .This is the result of repressive dictatorships, now no longer able to control the news citizens receive. It will also be the result of vastly inflated real estate speculation in commodity producing countries. They are about to experience their first taste of the downside of the business cycle-Sao Paulo ain't New York City. 

Mood shifts to an\ Risk On Investing Peak

This weekend using Chakin Money Flow we showed that investors rushed out of stocks at the Fall Lows when they should have been buying. Instead they bought govt bonds, at the highest prices of the year.  Here is an article page  C1 of today's WSJ that confirms our research,

Itchy Investigators Ramp Up the Risk

Robert Marcotte can't afford to play it safe anymore. With interest rates likely stuck near zero for nearly three more years, the 61-year-old retired telephone-company manager is about to ramp up his holdings of stocks and municipal bonds, using money now at the bank in certificates of deposit.

"It gets me a little uneasy," says Mr. Marcotte. "Since I'm not working, I am very risk-averse, but still need to generate income."

Mr. Marcotte is clearly not one of our 'alert Market Perspective readers!' He is about  to buy in near the top of the markets, going back to year 2000. Even a casual look at a ten year chart of any index shows the foolishness of this strategy. This is where the money will come from that will move out of TLT as we have been predicting, and into stocks. 

The article later states

One worry is that investors will take on risks they are not prepare d to handle.

That precisely reflects our investment outlook here. One adviser is quoted as saying he has received lots of questions about high yield bonds (junk bonds) international bonds, and REITs. This is classic wrong way investment behavior. Amateurs are always seeking yield when the bank offers none. And that increases risk geometrically. We will be selling out REIts, the few we own, in the next few months. 

At any rate, the hourglass is tilting towards risk for the little guy when risk is the highest it has been since Spring 2008. 

That should result in a peak in various indices to new highs, the SPX stopped as short as it could of my 1345 breakout, 1344.9 to be exact. The markets are exhibiting their usual monday morning weakness today. 

Meanwhile the winds of discontent are clearly blowing. Our cluster of Ides of March dates looms. Consider these stories

World Wide Revolutionary Strife Grows

It is all right here on pages A 6 and A 7 to see,yet Mr. Marcotte above is clearly not reading the paper. To wit - 

Egypt to put foreign workers on trial-that won't set well with the US Congress

Russia and China veto an Arab and US backed resolution calling for the ouster of Assad. Condoleezza Rice and Hillary, like Captain Renault at Rick's, are shocked. Hillary calls on an international coalition of our Allies to force Assad to step aside. Who pray tell does she have in mind?  Costa RIca perhaps?

The Kremlin Resorts to Anti Americanism - and so the Russians are right where East Germany was in 1989 when the Berlin Wall came down. Note it is roughly a Fib 21 years later. 

Sao Paulo is now one of the most expensive cities in the world thanks to an elevated real. A police strike spurs a crime wave. 

But surely the winner of Most Naive Expectation of the Day award is the op ed on page A13 by Alwaleed bin Talal, a member of the Royal Family, and CEO of Kigdom Holding and as I recall an  investor in Citcorp. He calls his piece

The Lesson of the Arab Spring

Here is the seminal paragraph about three fourths of the way into the article. 

If there is a lesson to be learned from the Arab Spring, it is that the winds of change that are now blowing in the Middle East will eventually reach every Arab state. Now is therefore an opportune time, particularly for the Arab monarchical regimes, which still enjoy a considerable measure of public goodwill and legitimacy, to begin adopting measures that will bring about greater participation of the citizenry in their countries' political life.

Prince, I suggest you call Mikhail Gorbachev who reached that same conclusion in 1988, only to be reversed in East Berlin. There is no putting the genie back in the bottle. As one of my clients commented on a return from the Soviet Union in 1991. They have VCRS and satellites and can see how the rest of the world lives, and are not going to put up with their status any longer. The idea that the wealth of the $100 oil should be concentrated in even a large Royal Family will not continue to 'enjoy a measure of public goodwill'

Yep, as Gary Cooper might say. 

THe kings of England and France, post Magna Charta, had several centuries to adjust their monarchies to such change. Still, Marie Antoinette calculated her timing very badly. Today's leaders will ot have the luxury of that kind of time frame. The swirl of events moves much faster. 

A Tunisian street vendor sets himself on fire. This is the butterfly effect pure and simple.

In chaos theory, the butterfly effect is the sensitive dependence on initial conditions; where a small change at one place in anonlinear system can result in large differences to a later state. 

WIki

And so the collision course is set, it is now just a matter of tracking these forces at work.

We hope you enjoy reading The Market Perspective.  

Ferrari GTO Fetches $32 Million

Friday Feb 3, 2012

As a TMP reader   e mailed me, the socionomic events are piling up faster than we can report on them. 

The Paris Auction is bringing out rare cares like  the DB$ left hand drive, one of only 32 produced. 

A Ferrari GTO similar to the one at left from Ralph Lauren collection brought $32 M, as far as I know a new record for a Ferrari. 

Our point here is that social mood is positive. Buying an automobile, a rather illiquid purchase, for seven figure prices is a real bet on continued upward prices for collectibles. 

We are seeing that in stock, gold, and oil prices as well today. 

Bright colors from Ferragamo, seven figure Italian collectible cars,  and an all time record IPO for a company that produces at best only service items. Looks a lot like March 2000 to TMP!