Saturday, 28 September 2013

Sept 28 2013 Weekend Market Comment

Sept 28 2013 – As I mentioned last week, despite other good market news, the party killer would be this week when the US government is bracing for a possible shutdown, as Republicans and Democrats in Congress remain deadlocked on a budget to continue its funding. Agencies have begun making contingency plans ahead of the 1 October deadline to pass a new funding resolution. The Senate has passed a bill to fund the government until 15 November. But House Republicans have said they refuse to approve the bill without a provision to strip funding from President Barack Obama's health law.

Now think about the market open this Monday, Asia has been opening weak for
sometime now, next on comes Europe still digesting the new mess in Italy. The party of Italy's former Prime Minister Silvio Berlusconi says all five of its ministers are resigning from the shaky coalition government. The development follows weeks of worsening relations between his party and Prime Minister Enrico Letta's centre-left grouping. Mr Berlusconi had already threatened to withdraw his ministers if he is expelled from the Senate for tax fraud.

So as Money managers wake up in New York, they should see world markets down and this just happens to be quarter end. This is the last chance for many mangers to get things right before the last critical quarter of the year, as well as the traditional process of “window dressing” where firms dump their biggest losers so they do not appear in the quarterly report. Add to that we are in the three most dangerous weeks of the year with us making it through the end of September but now comes the early October. In other words there are a lot more reasons to sell on Monday than buy.

It is all in the Charts
I mentioned before the weakness is showing up in the charts long before it made the headlines. Here is the famous Green arrows graph and the NYSE above 50-day average graph, both in areas that could be on the edge of a sell-off.

Also the YP Primary Sell indicator has given up hope

I am still overall long but I have really pulled in my horns and raised cash.


Although automakers are doing very well in Canada, many of the financial press are saying that Canadian’s are turning in gas-guzzlers for more fuel economic vehicles but that is not true. In fact subcompact sales for cars like the Ford fusion are down this year. What is changed, Canadians are buying more trucks. Trucks were only 8% of the personal vehicles in Canada in the 1990's now trucks are over 20% of the market of new personal vehicles purchased.

Strong demand for trucks drove auto sales higher in June, even as sales of passenger cars hit the brakes compared with a year ago, according to data compiled by DesRosiers Automotive Consultants on Wednesday.

Canadian sales of light vehicles hit 171,608 last month, up 1.3 per cent compared with the 169,459 vehicles sold in June 2012.    While light truck sales climbed 6.7 per cent to 96,587, passenger car sales fell by 4.9 per cent to 75,021.

It is a mystery with fuel price rising and consumption dropping why large trucks sell so well. One possible theory for the truck mania is due to pollutants entering the water system. Endocrine, or hormone, disruptors are chemicals that affect the hormone and other functions in animals and humans. Exposure has been linked to birth defects, development disorders, tumours and cysts, body deformation, learning disabilities, ADD, cognitive impairment, and more. While exposure might not necessarily always affect a pregnant woman in significant or obvious ways, it often affects the developing fetus.

A common hormone disruptor is Bisphenol A (BPA) found in many hard plastics and in the lining of tin cans. It has been shown to have effects similar to those above but also in feminizing males when the bodytreats the BPA as estrogen.

A recent study from the Cardiff University Otter Project and Chemicals Health and
Environment Department in Wales, has found a potential link between the size of the Otter penis and the amount of contamination and chemicals present in the water where they bathe, swim and eat from. Besides the hormonal changes affecting the otters' "manhood" (otterhood?), and potentially their ability to reproduce, there is also concern that the contamination is affecting other animals in similar or unique ways.

So it might be as simple as penis size shrinks -- the need to compensate with a big truck increases?

Another concern I have about this trend to larger vehicles, regards the nature of mammal brains and highway saftey. The Human brain is many times larger than the brain of dog and considerably smaller than the size of an Elephant brain. Yet brain size has no direct effect on the intelligence of the species.

The following equation was developed in the late 19th century by Snell: E=CS^r, where E is the weight of the brain, S the body weight, C is a constant "cephalization factor", and r an epirically determined exponential constant. Kuhlenbeck suggests this value to be around 0.56 for mammals. Macphail asserts that this exponent would be approximately 0.66 for most mammals.

Once an acceptable value of r is determined, then we see that brain weight is determined by two other factors, S, the body weight and C, the cephalization factor. This equation, then, gives us a way of establishing the relative capacity of brains of different species with different body weights. When we enter values for the weights of brains and bodies of two species, then a value of C can be determined for each species. We can then find the encephalization quotient (EQ) which is the ratio of C over the average mammalian value. For example, if a certain species has an EQ of 2.0, this means that the species has a value of C twice as high as that expected in a mammal of comparable weight with average encephalization. Or if a species has an EQ of 0.5, then this species has a level of encephalization half that of an "average" mammal". Let us look at the following table of encephalization quotients (using Macphail's 0.66 as the constant r value):

Rhesus Monkey
(Macphail, 243)

Now here is the interesting part, if you strap yourself into a vehicle are you not effectively creating a larger “animal” and so under the formula do you need to change the value of S for a man in a truck and therefore lower the human intelligence of all drivers but more so for larger vehicles? I have (of course) a YouTube video to demonstrate this but it was hard to pick from the long list, but this guy is a very fine example: click here to play  just Google pickup truck idiot - I got 1.7 million results. 


Saturday, 21 September 2013

Sept 21 2013 Weekend Market Comment

Sept 21 2013 – The  Federal Reserve had a wonderful opportunity to taper bond buying and start to take off the training wheels, the street was ready for it, the world expected it but nope nothing. If you followed me in to MVV you were elated if you followed me into you got nailed. In my case my bet on HGD was small and stopped out almost instantly.

Yes Pandora was the place to be I hope you backed up the truck like I did up over 5% in a week! Trim your positions here. 

But the truth is nothing has changed, we had a nasty pull back on Friday that made us all nervous. Trading volume was heavier than usual as Friday marked the event known as "quadruple witching," when stock index futures, stock index options, stock options and single stock futures all expire on the same day. Trading increases as investors replace or repurchase existing contracts.

In addition to the quadruple witching, all three major U.S. stock indexes, as well as the FTSE and U.S. index trackers, rebalanced their portfolios to match revisions to index weights. This happened at the close of trading, and helped push trading volume higher as transactions jump at the exact close.

If you wanted to play wait and see you would be wise, cash is a position too. However it appears that over all, gold is likely to be in a long term down trend and stocks look like they have no reason not to climb. That said - like I said last week, this is the most dangerous time of the year.


Terrorists stormed an affluent Nairobi shopping mall on Saturday, throwing grenades and firing machine guns, in a brutal attack that killed at least 22 people. The gunmen were not immediately identified, but the Somali militant group al Shabaab had previously threatened to strike the Westgate mall in retaliation for Kenyan attacks against al Qaeda.

Kenya now says it will be in Somalia for as long as it takes to obliterate the jihadists, years, if necessary, say the senior Kenyan brass. Things will escalate further if Kenyans launch their promised assault on Kismayo and the Shabab respond by using weapons allegedly flown in by Eritrea and with threatened major terrorist strikes in Nairobi and beyond.

Kenya has slipped from a showplace for Africa to a disaster mostly due to its fractured neighbour to the North. Unfortunately there looks to be little hope, the US is weary of Muslim interventions, Kenya has no oil and unlike Serbia this is not a European blood bath -- this is Africa.  This week's Economist magazine even has a feature on how the white house is specifically staying out of these conflicts.  

Saturday, 14 September 2013

Sept 14 2013 Weekend Market Comment

Sept 14 2013 – Everything that was true last week is truer this week. Markets are gaining momentum and from a technical analysis stand we look in great shape. The Dow in the past week was up 3 percent, to 15,376, its second best week of the year. The S&P 500 was up 2 percent at 1687, its best week since July, and the Nasdaq was up 1.7 percent at 3722, despite a 6-percent decline in Apple. The stock market is trading as if Goldilocks is in charge, and the few bears left may be headed home soon.  In fact on September 11th I even put out a special posting announcing we have a “Green Arrow”!
(as always click on graphic to enlarge)

I put out a Green Arrow on this graph when it appears we are in a confirmed upswing. This is 8 out of 10 times a great time to put new money to work and to move to risky assets like juiced ETF and volatile “high Beta” equities. Of course 2 out of 10 times you get your butt handed to you. I took off some conservative dividend ETF and traded them for MVV the juiced Midcap 400 fund. Juiced ETF funds are dangerous and over the long term a bad idea -- but for a quick run up they are liquid and diversified -- perfect for a quick grab.

Of course as fears quell and markets rise the VIX index reflect the optimism. 

The NASDAQ summation index continues to hold up as the market rebounds. 

On Balance Volume (OBV) measures buying and selling pressure as a cumulative indicator that adds volume on up days and subtracts volume on down days. OBV was developed by Joe Granville and introduced in his 1963 book, Granville's New Key to Stock Market Profits. It was one of the first indicators to measure positive and negative volume flow. We can look for divergences between OBV and price to predict price movements or use OBV to confirm price trends.

Of course we have a very positive divergence here as the red line OBV races ahead of the market. Indicating a strong demand for equities. 

Here is what the Markets are happy about:

Syria – It looks like the Russians have given the U.S. a way out of having to bomb another Arab state. This is good because with no-boots-on-the-ground stance and the US uninterested in a lengthy no-fly-zone policy, whatever they were going to do would be limited and could emboldened Syria when they see how painless it was. Also it would certainly involve leveling a few chemical weapons stores, which is problematic in that it will release the gas they don't want released and some of the weapons in part will be hidden in new locations - proving the strikes ineffective. Under this new deal, America looks like it is apposed to chemical weapons, well OK apposed to chemical weapons for everybody but the super powers. Plus they can step around the mess of responsibility for toppling another government only to replace it with some scary Muslim clerics issuing Fatwas for death to the infidels (that us baby) and enforcing Sharia law. As you know Sharia law is a brutal, backward and oppressive system of religious control. Still it is sad that Assad will not be at a war crimes trial anytime soon for the brutal killing of his own people. 

Taper Shmayper – The Federal Reserve is expected to announce its first move to taper its $85 billion in monthly bond buying when its two-day meeting ends Wednesday. While the Fed is seen curbing bond purchases by an initial $10 to $15 billion — a relative baby step compared to the massive amount of stimulus applied — it sends an important message that the Fed is moving toward a normalization of rates and expecting a more normal economy.

Traders believe much of the market moves around this first step in unwinding policy may have already taken place. On CNBC Peter Boockvar, chief market analyst at the Lindsay Group said the success of the Treasury's 10-year and 30-year bond auctions this past week shows the bond market has priced in the tapering. The fact that everyone expects the taper and the markets hit new highs is proof enough, the market expects the taper and even is starting to welcome it.

World Markets - There are three reasons to feel more hopeful about the world economy. The economic bleeding that had dogged the euro zone economy appears to be slowing which is a particularly welcome development for Europe, the global economy and financial markets. The European Union is still the largest economic entity in the world, accounting for just under a quarter of global GDP. If the euro zone can in fact start registering economic growth from about now, it could help the world economy to a solid growth outlook in 2014. Europe’s politicians have shown themselves determined to save the single currency. A second reason for cheer comes from central banks’ activism. In September the European Central Bank promised unlimited bond-buying to keep the euro together. Germany continues to shine and in this week’s Economist Magazine Chancellor Merkel is held out as the saviour of Europe, with powerful German able to keep afloat Greece, Spain and Italy. One thing is for sure the Europeans stemmed their financial crisis with words but without buying a ton of debt like the US did.

It's time to play China's cyclical rebound, Goldman Sachs said, suggesting a general tilt toward North Asia and away from South Asia following "unambiguously positive" data from the mainland in August.

"This offers the clearest way to gain exposure to the dominant theme of improving global growth," while limiting exposure to the monetary policy risks that are pressuring markets such as India, Indonesia and Thailand, Goldman said in a report Wednesday.

Goldman's call follows encouraging Chinese economic data, which suggests that the world's second-largest economy is on track for a recovery. Industrial production rose 10.4 percent on year in August to reach a 17-month high, while exports rose 7.2 percent on year, beating Reuters' forecast for a 6 percent rise.

One sign this time the recovery in Asia is real and not wishful party thinking is the Baltic Dry Bulk Index of shipping. The Baltic Dry Index (BDI) is a number issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index provides an assessment of the price of moving the major raw materials by sea. Taking in 23 shipping routes measured on a time-charter basis, the index covers Handysize, Supramax, Panamax, and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain. The Graph below shows many years of results, as you can see the recent upturn in volume is very  impressive.

One way to play the upturn is to buy Dry Ships (DRYS). DryShips Inc. is an owner of drybulk carriers and tankers that operate worldwide. What a pop! This stock is up 30% in September alone.

A brighter economic outlook has already helped lift Chinese shares, with the benchmark Shanghai Composite stock index hitting a three-month high on Wednesday.

The 10-year Treasury was yielding 2.89 percent late Friday, and traders are watching whether it will hit the psychological 3-percent level in the coming week. There are experts who have some compelling arguments for a 3% ceiling on rates, but no one can say where this will go. Certainly as the fed stops buying treasury the rates can go higher. Ben Bernanke himself said he felt that 4% was a more normal rate. So long as the market is risk on and the fed is tapering there is good hope for our TBT trade.

The World economy is clearly out of the Intensive Care Unit, American markets hitting new highs and as the US accepts the idea of the end of quantitative easing, as treasuries rise and the vix falls, the world is clearly returning to normal after the financial crises. It is hard to make a bull case for hiding gold under your mattress any more. (Unless you live in China).

Gold has maintained its value for centuries. It returns approximately nothing, after inflation. But that’s all it does. That’s all it should do. So when the price of gold rises well above its historic real (inflation-adjusted) price, you should expect a correction. We've already had one — gold is down about 30 percent since late 2011 — but you can make a strong case that there’s more decline to come.

I agree with Société Générale strategists who told clients earlier this week that the bounce in gold is over, and advised them to sell the metal with a $1200 price target. The number of $1,200 is what the gold industry say is the cost of production. However that cost number is based on some bad acquisitions, reopening old marginal mines, a lot of overtime pay and a sell off in mining equities value. The true cost of production is more like $400. So we may bounce at $1,200 this time, but the day will come when that resistance will not hold.   I purchase a mid size position in HDG in Canadian dollars as a hedge against the sell off. Yes a gambling man would have bet the farm on DUST this week, but I am not taking chance that big with my money.

The Nemesis of September
Of course if you want to worry about something, worry about the calendar. We all know that the worst crashes in the market have been in the 30-day zone after Sept 18, and that historically late September results in a sell off as money managers reposition for the last quarter.

The YP Primary Indicator  is still positive but is has picked up some put buying and a drop in calls. Probably no reason for alarm but worth watching. 

I hate to see bulls on the cover of magazines, it is the sign of a market top but at least it is in Barrons I get really worried if it was on the cover of USA today.

U.S Budget
The one looming problem that did not get better this week is the impending US debt ceiling. House Speaker Boehner is really a weary general right now in Washington, d.c. he's trying to corral his troops away from using a government shutdown to try to defund obama care and push them towards the debt limit. He believes that's a better way to wring concessions out of the white house. Boehner wants to have a limit at the same sequester levels, but democrats in the senate want to get rid of the sequester and would probably rather raise taxes instead. So what are they going to do here? They don't have much time with a Nov 1 deadline to keep the U.S. government funded. Boehner is not going to probably be able to buckle on the sequester levels. He knows the conservatives if his conference, they like those spending cuts. Some on the armed services committee, some of the republicans may want to replace those defence cuts, but broadly speaking within the republican conference Boehner does not have a lot of wiggle room to negotiate. They are still short 45 votes. The debt ceiling is even harder nut to crack. The question is to keep the government open; can they get the 45 votes?

Post Lehman
This past week marks an ugly anniversary. Lehman Brothers became the face of the financial crisis when it collapsed on Sept. 15, 2008, but the underlying ugliness was the near-implosion of the multitrillion-dollar money market industry.

But have we learned our lesson. Risk is coming back in to the financial markets. For starters the market for collateralized loan obligations, or CLOs, is on track to double in 2013 from last year, with $51.2 billion having been sold so far this year. These securities package pools of loans into bonds that are sliced up and sold to investors.

The precise size and number of middle-market credit funds is difficult to estimate, but many such funds have launched lately, or are raising money. Since the financial crisis, 232 hedge funds that perform direct lending have launched - 3.5 times as many as had ever launched before then, according to the research firm Preqin. Firms including Blackstone(ticker BX), Cerberus and Avenue Capital, have all raised or are in the process of raising sizeable middle-market loan funds. Business development companies, which make loans to small companies and have to pay little corporate tax, have also grown at a rapid clip since the financial crisis. Prospect Capital Corp, which makes $5 million to $100 million loans to middle-market companies, for example, had grown its assets to nearly $4.5 billion in June 2013 from about $500 million in June 2008, representing an annualized growth rate of over 50 percent.

What Works Now
OK so it is time to buy what looks good:. 

Safe Global Diversifcation:
iShares MSCI Emerging Markets ETF (EEM)
Germany (EWG)
Global Dividend (DVYE)

Rising Market Stars:
Celgene (CELG)

Growing retail cosmetics chain ULTA

Disney (DIS)
Pandora (P_)
GNC Holdings (GNC_)

As crude keeps climbing look at some Oil companies
Gibson Energy (GEI.TO)

Canadian Helicopters (HNZ) don't forget this graph does not show the 5% dividend:

Hope you followed me in to previously recommended Methanex (MX)

Equifax (EFX) has a lock on the Credit Bureau Business, it is like a toll on the highway that leads to every loan. This baby got tossed out with the bathwater when the big credit rating agencies Moody's and S&P were in trouble with the regulators. Expect this to be the bottom. 


Major Spill in Hawaii 
If you are worried about the idea of oil pipelines polluting the west coast perhaps you should look twice at what the food industry is doing. Thousands of fish — gasping desperately, then floating lifelessly — surfaced in Honolulu Harbor this week, suffering from oxygen deprivation caused by a massive molasses spill.  

The spill started Monday, when a faulty pipe that was supposed to deliver the molasses to a California-bound container ship owned by shipping company Matson instead discharged the stuff into the sea.

Read More at the Atlantic and see the TV NEWS in Hawaii

Wednesday, 11 September 2013

Sept 11 2013 Market Comment

Sept 11 2013 - Well we got a Green arrow today, and I backed the truck up to buy some fine stocks and the MVV index

Saturday, 7 September 2013

Sept 7 2013 Weekend Market Comment

Sept 7 2013 – Well last week I pulled out all my basic broad market indicators and showed you that we were near a bottom and it looks like a bounce is coming but it is too soon to go “hog wild” . Well all of that advice is true this week too. There is not much point showing those graphs again, it’s the same story only a little better. However you might, like my little friend here, start to nibble a bit here.

So for this week I thought we would look at some “secondary” signs to see if this impending upturn is for real. Well the first thing you can do is compare conservative and speculative parts of the market. Both Real Estate RIETS and Utilities are under-performing in the current market. On the flip-side highly speculative areas like consumer discretionary and Semiconductors (computer chips), are doing very well. In fact the NASDAQ is leading the market and that has not been true for a while.

(as always, click any image to enlarge)

Chinese Fire Drill
Speaking of chips, for many years memory chip manufacturing has been a place for money to die, there are only three manufactures left in the game, Samsung in Korea, Hynix in China and Micron Technology in the USA. Now supply is getting really tight due to a major fire at Hynix. A panel of spokesmen for Hynix, including Vice President Li Ying Ting and  Production manager Sum Ting Wong said the fire raged for more than an hour. After an initial assessment, the world's No. 2 maker of dynamic random access memory (DRAM) chips said it found no "material" damage to fabrication gear in its clean room at the plant, which produces around 12 to 15 percent of global computer memory chips. “No Material Damage” is how Chinese PR people say, OK we lost the whole stinking plant, the sprinklers were not connected, the staff has no emergency training so ran away shrieking like scared school girls and the fire department got lost on the two hour drive to here.  Demand for 2-gigabyte Dynamic Random Access Memory (DRAM) up 19% to a three-year high. Chip prices rising? Amazing!  Micron (ticker MU) has almost tripled in value in 2013.

ISM data for both Manufacturing and service sector is doing very well. For example just look a Ford, imagine how huge this firm is and their stock price has almost doubled in 2013.

This week I took some open positions in Bank of New York Mellon (ticker BK)

Added SDY the ETF that tracks conservative dividend stocks. Why this ETF? Well I plan to play some more aggressive ETF plays if we get a green arrow, But I want to participate in the turn and not get burned to bad if it fizzles, so this is short term holding if it tanks I will stop out, if it does well I will trade it for a more aggressive position soon.  

I took a new position this week in COMPANHIA ENERGETICA DE MINAS (ticker CIG on the NYSE) I have been watching the disintegration of Brazil for some time, waiting for this stock to become too appealing to ignore. I am no fan of Brazil; I still think they are headed for financial ruin. But this firm is a well-run power company and of course even 12 people stuffed in a tiny Rio apartment still watch TV and need to keep the refrigerator running. At current valuation the dividend is running 17%. That is a sexy investment or as they say in Portuguese; és sensual.

Of course my biggest position now and for months now is in TBT. As the ten year treasury broke 3% this week the traders panicked and covered, and for me well lets just say OMG what a great week to own TBT. If you followed me in on this trade you are up over 15% on a bond play and yeah you’re welcome!  

The US dollar is rising and gold looks like it has peaked, but I am still saying away for now.

On the Canadian front Methanex (ticker MX)  is a Vancouver-based, publicly traded company and is the world's largest supplier of methanol to major international markets. Earning growth and strong demand has put this stock on a steady path up.

If you really want to take a flyer, consider Trip Adviser (ticker TRIP) I think as the consumer get stronger, people will travel more, dine out more and get more advice from their smart phones, all through Trip Adviser. Plus the new business AirBnB is very exciting. If you look at most major hotel chains like Hilton, Marriott or Best Western the money is in the call center that takes the reservation and “sells” it to the franchised hotel. AirBnB will allow Trip Adviser to get a fee on every night of Bed and Breakfast accommodation in the world, with almost none of the costs a hotel franchise call center has. Sweet!  

Bottom Line: So this turn looks viable. As we head toward the magic green arrows you can nibble conservatively here. 

Heck of an Interview
In case you have not seen this yet this is the big hit on You Tube this week. A prank of epic proportion to sell a big screen TV.

I am Here About the ``Job``
Speaking of Interviews, the disappointing level of American job creation in August may have had an unlikely source: Porn.

Friday's report from the U.S. Bureau of Labor Statistics showed the economy added a net 169,000 positions, about 11,000 short of the consensus estimate.

While it's difficult to point one specific reason why job creation missed expectations, speculation in some corners immediately turned to the $97 billion adult film industry. According to the BLS, the business sector it identified as "the motion picture and sound recording industry" lost 22,000 jobs in the month—enough to account for the shortfall and then some.

So folks get out there and buy a DVD or sign up on a web site and show these hard working young people that their is a still a bright future if you have determination and talent.

Here are a few new titles with a good story-line and high production values:

  • Driving Into Miss Daisy
  • Sorest Rump 
  • Gangbangs of New York
  • When Harry Ate Sally 
  • How Stella Got Her Tube Packed
  • In Diana Jones and the Temple Poon
  • American Booty
  • Pulp Friction
  • Swallow Hal 
  • Buffy The Vampire Layer
  • and the classic but still touching; On Golden Blonde 

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