Fearful Thursday – Manic Over, Depression Sets In
by Phil - August 12th, 2010 8:59 am
The markets are clearly insane.
I diagnosed manic depression in the markets years ago but it’s been getting worse and worse to the point where we now have mood swings from week to week and sometimes even day to day. Much of this is politically driven with the Conservatives currenly in overdrive – looking to "prove" that every single thing the Democratically-controlled Government does is nothing short of a disaster. Nothing works, nothing will work and nothing proposed will work other than more tax cuts and "throwing the bums out" (the Democratic bums, not the Republican bums).
There is a 24-hour television network that is slightly conservative and, if you look on the Fox web site, you will find out that 8% of the children in the US are born to "illegals," that cutting the World’s largest defense budget will make U.S. less safe (YOU DECIDE – they say), Democrats IGNORE ethics cloud by attending Charlie Rangle’s 80th birthday party, Democrats are using the Tea Party against the GOP (but don’t worry because "the tide is turning at the polls"), the drilling ban is crippling the Gulf, we’re "wasting" Billions of dollars by sending aid to other countries and, best of all, the page is sponsored by BipolarDepression.com!
Heck, after reading that page I’m ready for a few Xanex myself!
The front page of the WSJ is not much better with the headline: "ECB Warns on Economic Recovery" along with their very accurate Page 1 print headline: "Markets Swoon on Fears." Of course, if you actually read the ECB article, you’ll find what they actually said is "The sustainability of the recovery in global and euro-area trade will depend critically not only on a further strengthening of private demand, but also on the robustness and health of the global financial system" IN THE CONTEXT of an article analyzing the collapse of global trade in the wake of the 2008 financial crisis. But that doesn’t make a great headline does it? That doesn’t make you pick up the paper or stay tuned through the commercial so it’s ALTERED, spun to maximize the FEAR reaction in the readers – the one that is most likely to lead to a purchase decision.
The European Union’s Eurostat statistics office, meanwhile, said industrial output dropped 0.1% from May and was 8.2% stronger than last June. Economists…
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DiggTuesday – Bill Gross Gives Us 90 Seconds
by Phil - March 2nd, 2010 8:28 am
Our favorite bond pimp is in some mood this month!
Maybe it’s because, despite PimpCo’s best efforts, they failed to tank the markets last week but Gross starts his March newsletter off with this harsh chart but his words are even harsher - saying of cocktail parties:
I suppose the parties wouldn’t be so bad if there was something original to be said, or if “you” had a genuine interest in “me” as opposed to “you,” but let’s face it folks, no one does. The only reason any of us really cares about cocktail conversations is to quickly redirect someone else’s stories into autobiographies that we assume to be instant bestsellers if only in print. If not, if the doe-eyed listener seems simply fascinated by what you’re saying, you can bet there’s a requested personal favor coming when you finally shut up. “Say Bill, I was wondering if you knew somebody at…that could…” Yeah right! But, as my chart shows, 90 seconds into a typical conversation, no one gives a damn about you and your problems – maybe those shoes and that dreadful eye shadow you’re wearing, but not anything audible coming out of your mouth.
Yow Bill! Tell us how you really feel… After telling us how appalling he finds it to endure 90 seconds of our time at a party, Bill then asks for his own 90 seconds to teach us about economics. I’m not going to edit as it is about 90 seconds worth but after that opening – don’t you find it kind of hard to read what he has to say without looking for a place to throw a virtual punch?
To begin with, let’s get reacquainted with the fundamental economic problem of our age – lack of global aggregate demand – and how we got to where we are today:
(1) Twenty years of accelerated globalization incrementally undermined the real incomes of most developed countries’ workers/citizens, forcing governments to promote leverage and asset price appreciation in order to fill in what is known as an “aggregate demand” gap – making sure that consumers keep buying things. When the private sector assumed too much debt and asset prices bubbled (think subprimes and houses, or dotcoms/NASDAQ 5000), American-style capitalism with its leverage, deregulation, and religious belief in lower and lower taxes reached a dead end. There was a willingness to keep on consuming, there just wasn’t
…
Testy Tuesday Morning – $1.70 for a Pound? I Don’t Think So…
by Phil - August 4th, 2009 8:12 am
Has the dollar fallen too far?
The British Pound is now fetching $1.70, a huge break-out and well above the June highs, now valued higher to the dollar than any time since last October. Britain has aggressively cut rates and expanded their money supply and Britain had banks falling like dominoes before being taken over by the government. The UK’s budget deficit as a percent of GDP is forecast to be 11.6% this year, the second worst on the planet, exceeded only by the US’s projection of 13.5% but the UK is forecast to catch up in 2010 with 13.3% of their GDP taken up by debt. Why then, you may wonder, is the British Pound up 25% against the dollar this year and almost 10% this past month?
The answer to that is the same as the answer to many irrational market moves – SPECULATION. The dollar in general has been pushed back down to 1-year lows by currency speculators and the Pound is benefiting from their No-Euro policy that makes the UK a relatively safe-looking investment for currency traders who are worried that Eastern Europe will eventually prove to be a weight that drags the rest of the EU down. With a population and economy about the size of California and the independence of a sovereign nation, any small sign of improvement (like the recent uptick in manufacturing data in the UK) can quickly pull money back to the Pound who, just 30 years ago, were the second strongest currency in the world and, for 500 years before that, was the undisputed global leader. The UK, as it was 500 years ago, is still ruled by its powerful banking sector and again the fishbowl-like nature of the island nation tends to magnify small improvements we’ve seen in the UK banks, which causes Japanese housewives (who are very into FOREX trading) to push more money into British currency.
Today it may become apparent that the Japanese housewives have become a little irrational in their Pound exuberance as nationalized British Bank, Northern Rock, showed a 31% increase in first-half losses to $1.25Bn as bad loan provisions jumped to over $1Bn from under $300M last year. Even worse for the bank – deposits fell 17% despite the bank’s 100% government guarantee while mortgage delinquencies rose 10%. This is a pretty clear indication that Britain is not quite out…
Q2 Tuesday – Ending With A Whimper, Not A Bang
by Phil - June 30th, 2009 8:27 am
What happened to our great rally?
We started the quarter off well enough, with the Dow at 7,522 and S&P at 787 on April 1st, we flew right up to 8,000 on the Dow and 840 on the S&P the next day but then it took us the rest of the month to gain 200 more points and the last day of May we finished at 8,500 Dow, S&P 920 - nothing to write home about on the whole. June 1st was very exciting as we made all our gains for the month that day, flying up to Dow 8,800, S&P 944 but that’s where we called a top and cashed out and it’s been pretty dull ever since as we’ve bounced up and down between 8,800 and 8,300 on the Dow and 940 and 900 on the S&P, waiting for a breakout one way or the other.
It’s dull to stay in cash, it’s like going to the track and not betting on any races. We really thought we’d get a proper indicator by now and we had fun betting the downturn from the middle of June but even that fizzled and left us back in cash as we head into the holiday weekend. On the bright side, the VIX has come down substantially and we are now able to pick up long options again at reasonable prices. This will be fantastic and give us some great leverage but we still need the market to pick an actual direction.
At least now we have earnings coming so we can evaluate various sectors and place some bets for Q3 but index buying has ruled Q2 and the performance of individual stocks has been washed away as a factor as machine trading has yanked the broader market up and down on a daily basis. It used to matter how IBM or INTC was doing as an individual company, now the entire Nasdaq can fly to the moon and take PALM, AAPL and RIMM with it, even though it’s not very likely that all can do well in the same space for very long (remember MOT?). We are no longer deluding ourselves that 2Bn people in Asia and Africa will be sporting the newest smart phones on the beach next summer yet the pie in the sky valuations persist, as if there is infinite room for all competitors to sell in the global marketplace. In fact, emerging…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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