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Weekend Reading – Can American Consumerism Save Us?

There's hardly any point doing a wrap-up as hardly anything has been happening.

If you are buried in the daily gyrations of the market, lots of stuff happens during the day but, as soon as you step back and look at the action – you'll notice nothing really happened at all.  After a catastrophic downturn on Monday, we pretty much bottomed out at 8,250 on Tuesday until Thursday's 200-point bump and here we are, back at good old 8,450 - which is where we bumped along for pretty much all of May

Indeed our best plays have, by far, been our premium burning plays, as attested by the very nice performance of our $111,659 Virtual Portfolio, our exercise in conservative hedging that is outperforming most risk-based strategies in this very choppy market.  The other winning strategy in this annoying market has been Day Trading, and we've had fantastic performance from our Oxen Group picks each morning and Ilene has a good article what David looks for in "The 5 Keys to Identifying a Fundamental Day Trade."  Combine that article with our Strategy Section and my article on scaling in and you have your own little day-trader's manual! 

Est2009gdpThis will be useful next week as we have a 4-day week (Friday is the observed 4th of July) and there's no way we want to go into the 3-day weekend with too many positions so it's going to be a lot of in and out trading once again.  I probably shouldn't, but I keep focusing on these silly fundamentals like Bespoke's GDP chart on the right.  These are FACTS, which are the things being ignored as you hear things like Friday's Michigan Consumer Sentiment hit 70.  I often point out that these are the same consumers – 60% of whom, when polled, believe their homes have held their value or gone up in value.  Just because they are all chipper for the pollsters, does not mean they will be out there turning these economies around.

US consumers are the New York Yankees of global consumption.  They are indimidating, they are record-setting and, from an historical perspective, they give the IMPRESSION of being unbeatable - but I grew up in New York and remember a streak from 1965 to 1975 when they didn't win a single pennant.  That's a team that has averaged one World Series Title every 3.3 years since 1923 (26 Times World Champs) and one League Championship every 2.3 years over the same time period.  Like the US consumer, you come to EXPECT the Yankees to be in contention and you may make your bets that way out of habit, but that storied history of performance is NOT going to stop you from hitting a 10-year losing streak is it?

bizchartLike the Yankees, the media EXPECTS the US consumer to win.  After so many consecutive years of stuffing our faces and shopping until we drop, the global media simply refuses to believe that the US consumer can do anything more than stumble slightly before getting right back on the horse and refinancing or whatever it takes to get out there and start charging once again.  As the US consumer makes up 70% of our economy, it's no wonder all the sentiment polls think prosperity is just around the corner because everyone believes the US consumer is simply resting.  The homebuilders telll us things will rebound, the manufacturers tell us things will rebound and the companies reporting earnings, who are "beating" expectations by only doing 35% worse than last year, are all giving us sunny outlooks as well because the US consumer is coming to save us all.  

I was in a mall yesterday and I came away less than encouraged and I can't find any data to support a positive outllook but it's the DOMINANT view in the MSM – that things will be turning around in Q3 or Q4.  Barry Ritholtz posted this NYTimes chart this morning and commented that "new-home sales are now running at only about a quarter of peak levels, a fall far deeper than anything seen since the statistics began being collected in the 1960s," yet look how many people are playing this like it's just an ordinary recession and applying all their very ordinary analyticals to measure it. 

We had terrible consumer numbers from Japan and Germany last week and this weekend the OECD dropped the UK's GDP forecast to -4.3% due to a sharp slowdown in consumer spending over there and California, which is still part of America, has a 75% increase in personal bankruptcies in the first 4 months of this year and that's AFTER 2008 numbers had already doubled from 2007.  Sure, we put Babe Ruth, Lou Gherig. Earle Combs, Tony Lazzeri and the rest of the 1927 Yankees' "Murderers Row" out on the field and the fans can get very enthusiastic in anticipation of the new season but the FACT that they have all been dead for 40 years or more means that fans may be slightly disappointed with the actual performance of the players!  That's the kind of disconnect we have in economic outlook.  Everyone is counting on that old US consumer to step back up to the plate and hit one out of the park to save the game but the US consumer was clearly taking steriods in the form of low-interest loans for the past 5 seasons and they are getting a little long in the tooth to be expected to carry the ball by themselves

Then there is the myth that China or India will step up and carry the ball of consumerism.  My whole life I've heard of the "limitless potential" of the Asian markets and, until we discouver life on other planets, they always will be the focus of Western marketing efforts but most of China's growth of the past decade has been in taking over the US's manufacturing base as well as their own massive infrastructure push as they redied for their Olympic moment last summer.  This year, China is growing their GDP by 7% ($630Bn) entirely on the back of about that much government stimulus.  Stimulus is the new global steriod, everyone is doing it, even after seeing how badly all this ended for the US economy.

In other news

Here's Ron Paul, making progress now on his bill to audit the Federal Reserve in an interview with US News and World Report.

 

 

IN PROGRESS

 

 

 

 


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  1. went to the movies last night in fairfield-bridgeport Ct.  hardly anyone there in two separate threaters. Its’ the economy or the robotic, computerized crap  that passes for grown up entertainment these days.


  2. This evening I stopped at a local Walmart on Long Island, New York. I was surprised to see the lines at the registers. In the last few weeks, all registers barely had any folks during peak shopping times. May be tommorrow being Monday and coming Saturday being 4th July, people might be just doing their week shopping and just piling on the weekend part too.


  3. Good Morning Phil and All


  4. Asia/Pacific Markets    Monday, June 29, 2009
    (The following is from Yahoo, please confirm with other sources)   

    Australia All Ordinaries*             3882.70        -16.80        -0.43%
    Nikkei Average*                            9783.47        -93.92        -0.95%
    Shanghai Composite*                2975.31         47.10          1.61%
    Hang Seng*                                18528.51        -71.75         -0.39%
    Seoul Composite*                       1388.45          -6.08         -0.44%
    Singapore Straits Times*           2317.17          -0.78         -0.03%
    Bombay Sensex                         14795.31         24.55          0.17%
    Baltic Dry Index                             3703.00            0.00          0.00%

    *at Close


  5. Asian Markets Slide in Choppy Trade, Dollar Rises

    Asian markets were mostly lower Monday with many investors stuck to the sidelines as the second quarter winds down. The U.S. dollar recovered from a slide on worries about the push by major emerging countries for a reserve currency alternative.

    Asian shares outside Japan have surged 32 percent in the second quarter, which would be the best quarterly gain in 16 years, as investors embraced the region on hopes it would emerge more quickly from the deepest global recession in decades.

    Japanese economic figures highlighted this trend. Industrial output jumped a hefty 5.9 percent in May for a third straight month of growth, but forecasts showed that factories expected the recovery to taper off in coming months.

    Japan’s Nikkei finished down 1 percent.

    South Korea’s KOSPI closed 0.4 percent lower.

    Australian shares fell 0.4 percent after a choppy session as moderate losses in global miners dragged on the index.

    Hong Kong shares fell 0.4 percent. Stocks hovered as investors clung to the sidelines ahead of the expiration of index futures on Monday and a heavy calendar of key data releases from the U.S. and China later this week.

    Singapore’s Straits Times Index was flat at the close with a mixed showing by blue chips.

    China’s Shanghai Composite Index was up 1.6 percent, lifted by property and consumer goods sectors, while signs of economic recovery and ample liquidity had analysts betting on a new year-high for the main Shanghai index this week.

    Bombay Stock Exchange’s Sensex was at 14914.71, up 150.07 points or 1.02 per cent. Key indices gained momentum with positive opening of European markets and buying in oil&gas heavyweights.


  6. Good Morning Phil, Ramana and everyone
     
     
    Well they managed to get the S+P futures back to even from well down when the UK opened this morning.  IEA made a big revision (downward) of its future oil demand predictions. The latest figure is 7.4 million barrels a day (or 7%) below its original forcast for 2008-20013 made last july. Meanwhile pump continues wit futures spiking up while I type.


  7. Pharmas, Miners Help Euro Shares Advance

    Euro zone economic sentiment improved more than expected in June, especially among consumers and service providers, data showed on Monday, as hopes increased the economic crisis may be easing. A monthly survey by the European Commission showed economic sentiment in the 16 countries using the euro rose to 73.3 points in June from 70.2 in May, the third improvement from a  rough of 64.6 points in March.

    European equities rose early on Monday, with Irish drugmaker Elan leading the sector on reports Novartis was in talks to buy parts of the company, while commodity shares tracked firmer metals and crude prices.

    The FTSEurofirst 300 index of top European shares was up 0.7 percent at 850.29 points after falling in the previous two sessions.

    Novo Nordisk gained 4.4 percent, clawing back most of last week’s losses, on expectations that sales of its modern insulins will benefit from concerns over the safety of Sanofi-Aventis’s rival product Lantus. Sanofi rose more than 1 percent, levelling out after plunging last week on concerns about imminent new research findings on Lantus and cancer.

    UBS fell 1.7 percent. The bank is to pay 3 billion to 5 billion Swiss francs ($2.77-$4.62 billion) in the next two weeks to settle a U.S. tax probe into the bank, Swiss newspaper Sonntag reported.

    Other banks were broadly higher. Barclays, Lloyds, Royal Bank of Scotland and Societe Generale were up 0.3-3.2 percent.

    Energy stocks were among top gainers on the index as they tracked firmer crude oil prices. BP, Royal Dutch Shell, BG Group, Repsol, Total and StatoilHydro added 0.6-1.7 percent.

    Miners got strength from a 1.2 percent rise in copper prices and a 1.3 percent increase in nickel prices. BHP Billiton, Antofagasta, Rio Tinto, Xstrata and Eurasian Natural Resources rose 0.3-2.2 percent.

    Anglo American was up 0.4 percent. The Sunday Telegraph reported that the miner was building its defenses against a 41 billion pound ($67.74 billion) merger approach from Xstrata by plotting talks about a major Chinese investment.

    Around Europe:

    FTSE     4,250.21      9.20     0.22%
    DAX    4,803.33     26.86     0.56%
    CAC     3,160.91     31.18     1.00%
    SMI    5,402.95     26.96     0.50%


  8. Oil Holds Above $69 on Nigerian Attack Report

    Oil steadied above $69 a barrel on Monday after Nigeria’s main militant group said it attacked a Royal Dutch Shell oil platform, outweighing a fairly bearish report from the International Energy Agency (IEA).

    The Movement for the Emancipation of the Niger Delta (MEND) said in an emailed statement it had struck the Shell Forcados platform in the Delta state at about 3:30 pm London time. 

    The reports followed an announcement on Friday by four Nigeria militant factions to accept in principle an amnesty offer from President Umaru Yar’Adua, raising hopes Africa’s top oil producer would halt a battle with rebels.

    U.S. light, sweet crude [69.26    0.10  (+0.14%)] futures for August delivery were flat.
    London Brent crude [ 69.05    0.13  (+0.19%)] was little changed.

    The IEA, adviser to 28 industrialized countries, cut sharply its medium-term forecast for oil demand, saying there was a chance of an extended contraction, but added the threat of a supply crunch had only receded, not gone away. Based on a higher economic growth scenario, the IEA predicted product demand would grow by 0.6 percent, or 540,000 bpd on average, between 2008 and 2014, taking demand from 85.8 million bpd to 89 million bpd.

    Algerian Energy and Mines Minister Chakib Khelil said on Monday oil demand was still weak due to the weakness of the U.S. and European economies and world oil stocks remained high. Khelil said an increase in OPEC oil production was hard to envisage, despite rising crude prices.

    Dollar Recovers, Supported by Low Risk Demand

    The dollar inched up on Monday, recovering some losses suffered last week as struggling global shares kept intact safe-haven demand for the U.S. currency, which was also supported by comments by China about its foreign reserves. Currencies perceived to be higher risk, like the Australian and New Zealand dollars, came under some selling pressure as U.S. stock futures were unable to make any headway even as European shares eked out gains in early trade.

    At a gathering of central bankers in Basel at the weekend, China said its policy for currency reserves — which comprises massive amounts of U.S. Treasurys — was stable and consistent, with no sudden changes.

    The dollar index was up 0.2 percent at 80.045.

    The euro [1.4039    -0.0016  (-0.11%)   ] slipped against the dollar, having touched the day’s low around $1.3984 earlier in the day.

    The Australian dollar [  0.8045    -0.0033  (-0.41%)    ] slipped versus the greenback, while the New Zealand dollar [  0.6473    0.0023  (+0.36%)    ] was little changed on the day, having spent much of the session in negative territory.

    The dollar [ 95.39    0.23  (+0.24%)   ] was up versus the yen, but slight risk aversion boosted the Japanese currency against the euro [  133.96    0.18  (+0.13%)   ] and the Australian dollar [ 76.75    -0.14  (-0.18%)   ] .

    Despite the doubts building about the dollar’s reserve status, foreign central bank holdings of U.S. Treasurys have soared by $115 billion in the past eight weeks, a near record pace of demand and showing persistent buying.

    Gold inches down to $935

    Gold was at $936.45 per ounce at 0525 GMT (1:25 a.m. EDT), down 0.2 percent from the notional close of $938.05 in New York.

    Reflecting that gold may have lost some of its appeal to investors, the world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust, said its holdings remained at 1,125.74 tonnes as of June 26, when it fell 0.5 percent. It is currently down 0.7 percent from a record volume of 1,134.03 tonnes, marked on June 1.

    In other precious metals markets, silver fell by as much as 1.4 percent to $13.86 per ounce, down from the notional New York close of $14.06 and heading toward a roughly two-month low.


  9. Good morning!

    Looks like they jammed the Dollar right back to the usual position (95.4 Yen, $1.404 to the Euro and $1.564 to the Pound) just in time for our open, down about 1% since Asia opened.  That added $1.50 to oil, back to $70 now so the shenanigans continue into the last two days of the quarter….


  10. Gold man Responds to thje Rolling Stone Article:
     
    Link: http://www.jrdeputyaccountant.com/2009/06/goldman-manipulation-rats-respond.html


  11. The S+P has now been lifted over $1 since the overnite lows. Reading Phils Favourites over the weekend you’d be excused a "bearish bent" – yet things keep going up. Where the optimism is coming from I dont know.


  12. Phil,
      I’ve got a lot of FAZ and SKF. They were good hedges to my long financials but now they’re working against me. I’ve been bracing for a correction in the financials which doesn’t look like it’s coming. What do you suggest I do? VIX not high enough to make selling calls worthwhile at this time (at least in my opinion). Thanks.