Saturday, 26 October 2013

Oct 25 2013 Weekend Market Comment

Oct 25 2013 – It almost Halloween so lets see if there will be tricks or treats this week. Japan's stock market is in the process of getting destroyed, and U.S. investors are treating it like an entertainment that is only partly scary and mostly funny, like a Godzilla movie with rubbery monsters and bad dubbing.

This is either a rational response or a clueless response to what's happening. If investors are being rational, then the Nikkei stock index's 20 percent collapse since May 23 is nothing much to worry about. If they are being clueless, then the Nikkei's bear market is a warning sign that the rubbery monsters are going to cross the Pacific and start stomping on U.S. markets, too. Not so funny then!


(as always click any graphic to enlarge) 
Here's the case for not worrying so much about Japan: The Nikkei's collapse is happening mainly because investors are starting to wonder whether Prime Minister Shinzo Abe is going to be able to effectively work his plan to ply Japan's lousy economy. High hopes for Abenomics had fuelled a wave of optimism about Japan's economic prospects in recent months, but that confidence has wavered recently.

But its not just Japan treading water -- Australia’s S&P/ASX 200 Index slipped 0.9 percent, while New Zealand’s NZX 50 Index lost 0.4 percent. Hong Kong’s Hang Seng Index and China’s Shanghai Composite Index both fell 0.3 percent. South Korea’s Kospi index declined 0.1 percent. Taiwan’s Taiex Index dropped 1.1 percent. Singapore’s Straits Times Index declined 1 percent.

The Philippine Stock Exchange Index sank 3.8 percent, the second-biggest decline among Asia-Pacific benchmarks, as concern valuations are excessive overshadowed data showing the economy grew in the first quarter at the fastest pace in three years.

But in the West we are partying like its 2006 again. All Western markets are up in the last 25 days, All of Europe, Canada, the USA and even Mexico are enjoying 52-week highs and stable markets. Of course what kicked this off is a double dose of good news for speculators, first the US did not default and passed a last minute raise the debt ceiling bill and a jobs report that was a little short of expectations but still up – virtually guaranteeing quantitative easing for the quite some time to come. Meantime the big funds were buying hot and heavy because they regretted missing the move up so far. So what are money mangers so jealous of . .  . Well Carl Icahn for one.

Carl Icahn didn’t become one of the world’s richest men by not knowing how to take profits off the table. The billionaire money manager sold a sizable slug of his Netflix NFLX -0.94% shares Tuesday after quarterly earnings sent the already lofty share price to fresh heights. Icahn disclosed that his stake in the streaming video company is now 4.5%, down from 9.4% at the end of June, the last time he publicly disclosed his holdings. Icahn first revealed a position in Netflix just under a year ago and has enjoyed a gain of some 457%. The largest portion was the 2.4 million shares he sold Tuesday at $341.44, for more than $819 million. Icahn has a cost basis of $58 per share, the release says, which means he made an $825 million profit on the 2.989 million shares he sold over the last two weeks.

This rally has been strong in large part because we have past that the dangerous October period, and entered the point in the year large money mangers take their final quartile positions. Last chance to be a big winner. But what they are buying is very selective.

Federal Express has had monster move and transportation stocks doing well is a great sign for the rest of the market.


Technology on first glance is doing well just look at Goggle and Amazon





But did a little deep and perhaps not so great after all, semiconductors are flat, networking shares have fizzled, F5 Networks is looking awful


  
Many Consumer discretionary stocks like Michael Kors Holdings, Decker’s Outdoors and my personal favourite ULTA cosmetics are having a merry Christmas run up.






While other areas are really not doing well at all. The US Banks and Financials are not keeping pace.


Traditional retailer Macy's is doing very well with solid growth, and clearly pulling share from dying retailer JC Penny, but no one is buying the stock, they only want new economy stocks. 

However in the big picture the market is again at 52 week highs. I hope you held your DVY recommended here two weeks ago now, up 3.5% in two weeks.

Overall this look very much like institutional buyers trying to be where the action is, looking for a high-tech Christmas with lots of online sales, but the overall economy is just not that strong and with no participation from US Home builders, financials or Asia, this probably is near the top of this run up. It could go up to three more weeks but not at this pace. 

You can see form the 50 day Overbought graph that we are up in the the higher atmosphere. 



Same with the YP Primary Sell, but don't forget it is not a true sell until it passes zero, but it is flaccid to say the least. 

Same is true of the Green Arrow graph. Party not over but coming soon. 


A Look at Canada
Its a bit odd that Brazil and China are on their butts but Canada is up. Up until a few weeks ago Canadian markets were up only 4.5% in the same time the USA was up 22%. In what looks like a revision to the mean trade Canadian markets have perked up all all western markets.

I hope you held steady freddy -- Methanex  Corp now hitting a fresh 52 week high again.

Pipelines are perking up on News on further optimism that they will be getting the green light to expand. Here is Enbridge:


and IPL:

Even traditional Canadian plays are doing very well, like Teck Cominco, Power Financial and Banks like BNS

BNS:


The current low cost of Canadian oil combined with strong prices at the pump has help big dividend payer Parkland Fuel. With a dividend yield of 4.5% and good growth in Western Canada.  These good folks own the gas station chain Fast Gas and are also a small time refiner and thing have been going great for them.



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Bicycle sales outpaced new-car sales last year in all of the 27 member countries of the European Union, except Belgium and Luxembourg, NPR reported on Oct. 24. One reason is that car sales have slumped in the midst of the euro-zone crisis, NPR points out. But there are signs that this slump isn’t temporary. It’s a reflection, perhaps, of a larger change in how people are traveling.

In developed economies, the numbers of cars owned and miles traveled have increased most years since the 1950s. Even before the financial crisis, that started to change. In the US, total miles traveled per person plateaued in 2000 and started falling in 2004. (Measured in miles per vehicle, that rate flattened in 2004 and started declining in 2007.) Today, young Americans are less interested in getting their licenses as early as possible or even at all. Meanwhile, global bicycle production has been growing faster than car production since the late 1970s:


World car and bicycle production
There are a couple of reasons for the shift. The cost of fuel and insurance in many countries has gone up. And perhaps more importantly, cars have become less of a badge of prestige or money—at least in developed markets.

In Europe, predictably, countries hit by the economic slowdown have been the first to jump on their bikes. In Italy, in both 2011 and 2012, more bikes were sold than cars. In Spain, last year marked the first time the two-wheeled vehicles had ever outpaced cars since the country started compiling the related data. Just look what they are doing in the Netherlands.

So is this a health craze or are we going backwards to a slower pace?








Saturday, 19 October 2013

Oct 19 2013 Weekend Market Comment

B.O. I love you man
Oct 19 2013 - The S&P 500 closed Friday at 1,744.50, an all-time high, making it safe to say the bulls are in control on Wall Street. Neither the four-month rise in benchmark Treasuries yields that topped in September nor the government shutdown and near-technical default on U.S. debt earlier this week could derail the rally. In retrospect everyone knew a deal had to be done because you cannot be the world’s reserve currency and pull shenanigans like Russia did in 1998 and still be an economic safe haven. But more concerning is that investors calmly stayed long through the whole thing, because that means there is both complacency and a clear message to the politicians, that these kind of games are not damaging but clearly they are.

It looks like clear sailing up to S & P 500 level of about 1800. At 14.6, the S&P's forward price-to-earnings ratio is near its highest in four years and slightly under the long-term mean of 14.9. The P/E multiple has risen throughout the year as earnings growth has remained stagnant, and forecasts are likely to fall in coming months. Without improved growth, that P/E will start to look expensive. Since we are at the high end of the PE scale and that means that stocks are price for perfection at that level and the earnings reports have got to be solid. Chances are they are not. 

As for the coming week expect these graphs to complete their typical rise and as we get to 1800 expect the typical soft pull back down.

The YP Primary sell looks like there is room to run.



But the 50 day overbought and the Green Arrows graph both say -- you are late to the party of you are buying now.




I hope you all followed me into DVY last week. You are up about 2% on the week if you did. Yes a more aggressive play like MVV would have been more profitable but this week’s action has been violent and MVV would have been no fun if the debt deal blew up, I am happy with my 2% in a week and glad I played safe.




Google 1000
Not that I owned any , but I did say in this blog that Google would hit 1000, and it did. Google’s shares soared more than 13 per cent on Friday to top $1,000 for the first time as investors reacted to the latest signs that the internet search group is eating up market share across the online advertising market.

The jump followed a strong earnings report late on Thursday that pointed to broad strength in the company’s newer advertising businesses, including video, display, product listings and mobile. Several analysts raised their earnings estimates and share price targets for the company on Friday in anticipation of a strong end to the year. The hopes were boosted by signs that a new format for product listing adverts was starting to prove effective, raising expectations of strong demand from online merchants during the holiday shopping season.


Canada Inks Trade Deal
The European Union and Canada agreed a multibillion-dollar trade pact on Friday that will integrate two of the world's largest economies and pave the way for Europe to clinch an even bigger deal with the United States.

The deal will make Canada the only G8 country to have preferential access to the world's two largest markets, the EU and the United States, home to a total of 800 million people. "This is the biggest deal our country has ever made," Canadian Prime Minister Stephen Harper said in Brussels, adding that it outstripped the North American Free Trade Agreement between Canada, the United States and Mexico.

Talks between the two sides launched in May 2009 but stalled for months over quotas for Canadian beef and EU cheese. Harper and European Commission President Jose Manuel Barroso met in Brussels to resolve outstanding issues and seal the deal.

In a cheeky touch, chefs served Italian gorgonzola and Greek feta cheese at a four-course lunch laid on for the two leaders to celebrate the deal, which EU trade chief Karel De Gucht called a "template" for negotiations with the United States.

In any case anything that can get me a deal on bordeaux wine is welcome. Perhaps they will buy some of our highly subsidised products like agriculture, trains or airplanes and vise versa. Ah "free trade".


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There was some buzz this week about a new incentive plan at the Goldman Sachs' cafeteria. The cafeteria has a set of timed discounts. If you show up in the cafeteria before 11:30 or after 1:30, you get a 25 percent discount on your food. Goldman incentivizes employees to avoid the rush hour.

Goldman didn't like the idea of its people waiting on long lines to get their lunch. People are capital to Goldman. It wants to use its capital efficiently. Standing on line waiting for dumplings or salad or a burger is not an efficient use of Goldman's capital.

In Greg Smith's tell all book “Why I Left Goldman Sachs” we hear how a man with not much more going for him that height and good looks in three years is sucked into the big machine of Goldman and along with over 400 others finds himself in middle management at a salary of $450,000 a year -- that he carps about how little that is because New York is expensive -- cabs alone set him back a few thousand dollars a year -- he whines. Meanwhile, Smith's request to his managers to more than double his pay from $450,000 per year to more than $1 million, was rebuffed. He also failed to get promoted to the position of managing director before resigning, according to Dealbook.



So message from earth to Goldman Sachs -- I think you have other places to cut cost than your cafeteria.  For starters I am available for $300,000 a year just call me. . .














Saturday, 12 October 2013

Oct 12 2013 Weekend Market Comment

Oct 12 2013 – OK Last week I was showing you how our indicators were heading down and it looked like we were completing another predictable cycle. As the U.S. government shut down loomed investors ran for the sidelines.  Well this week we were handed another lesson in “Fundamentals Trump Technicals” as the market rudely rallied while I was mostly in cash. 

The snap back has been very strong. But perhaps that is what is concerning. Look at this simple graph of the S & P 500 and how quick the market was to run back up, in a couple of days we have recovered most to the dip.


 (as always, click any graphic to enlarge)




Of course our indicators all look a lot better.


On the one hand you could say, hey with the government shut down out of the way for now there is little to hold the market back. Global economics are strengthening and there is little bad news. For the very short term I would agree, but with the US government facing the music on it spending craze and 2% growth predicted for the US economy there still is not a whole lot to cheer about. 


As you can see above, things look better but we don't have a green arrow yet AND look back about mid February you can see a similar bounce that fell apart. So if you get in here don't go nuts. Play conservative until the green arrow. 

Next I plotted this very long-term view of the markets, so this is RSP the equal weight version of SPY. I use RSP in place of SPY because Apple whips SPY around to much.  I would click and enlarge this graph to get a good look. Look on the bottom of the graph -- that is 200 day average slope. If you don't have/use slope MACD makes a fair substitute.  I took out my crayons and "painted" the up slope as green the down slope on the positive side yellow and the down slop in the negative grow zone as red. Notice this fall we are in a yellow zone – it is possible to make money in the yellow zone but harder and of course if yellow becomes red, there are few money making opportunities.  


So we don't have a green arrow yet and this quick run up could be a snap back head fake, I think on Monday I will buy some nice stable stuff like Canadian pipelines and DVY but I don't want to go to all in when we just had a rapid run up in a softening market. 

Gold Weak this Week
The price of gold appears to be on a path of starting a new down leg.  The SPDR Gold Trust ETF (GLD – 122.60) was down 3% on the week and the CBOE Gold ETF Volatility Index (GVZ – 25.83) jumped over 4%.  That move in GVZ is of interest, but the October future was up 5.5% which leads me to think that some traders think a gold drop is coming sooner rather than later.  This October future is basically at parity with the index with only two days remaining until expiration.


Bond Inversions
Think about bonds for a minute. Typically, the longer the time period of the bond, the more interest earned. After all, if you're lending and risking the money over a longer period of time, you want a bigger return, right?

But a sudden problem, like our recent congressional shenanigans, can get folks worrying about the immediate future. As a result the market wants higher rates for shorter duration bonds. This changes the typical curve of interest rates over time. Instead of starting low and going high, the curve inverts, with shorter-term rates going higher than longer-term ones.

Here's the key takeaway: An inverting yield curve is known to be a signal that a recession is ahead. So when one-month Treasury bill yields went higher than bills in the three- to six-month range, Wall Street got concerned.

I think this sets up well for a bounce in TBT that has been off a bit lately



So Bottom Line:
Have you ever met one of those guys that torments the family dog by pretending to throw a stick and then laughing when the dog runs off to find nothing? My real concern is the powers that be are going to go play fetch the stick with my money just in time for the party to end. I am always cautious in October. 

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There was an interesting article in the Washington Post this week. Lust, power and corruption can make for an explosive mix. An unlikely whistle-blower for President Xi Jinping's much publicised crackdown on official corruption has emerged - the scorned mistress.

In recent weeks their public accounts have offered a rare glimpse of the extravagant lifestyles of the Communist Party elite, enraging the Chinese public.

The most high-profile case is that of Ji Yingnan - a mistress who shamed her former lover in the full glare of China's hundreds of millions of microblog users.

Sensationally, the 26-year-old identified him as Fan Yue, a deputy director at the State Administration of Archives.

This summer Ms Ji posted videos and pictures of the couple on the internet. There were pictures of the couple enjoying shopping sprees, splashing about in a private swimming pool, and at a party where the official asked his mistress to marry him.

According to Ms Ji's account, she exposed her boyfriend after discovering he was married with a teenage son.

"I had no idea he was such a liar," Ms Ji, the TV presenter, told the Global Times, a Chinese newspaper.

But what shocked the public were the staggering sums of cash involved. According to the mistress, her lover gave her more than a $1,000 (£600) a day in pocket money, a luxury car and promises of an apartment.

She told the Global Times that she initially reported Mr Fan to the authorities, believing he was involved in corruption. But she said she never received a reply and then decided to post her allegations online.

The details of her lavish lifestyle raised the obvious question: how could her lover afford all this on a modest government salary?

According to the state-run news agency, Xinhua, Mr Fan was sacked from his job in June and is now being investigated over the corruption allegations. The BBC could not reach Mr Fan for comment.

One of the main sites that posted the revelations is run by Zhu Ruifeng, an anti-corruption blogger. He shot to prominence last year after posting an explosive sex tape starring a government official, Lei Zhengfu, which triggered a corruption investigation, ultimately landing the official in jail.

With the growing power of the internet, details that would have once remained private are now leaking into the public domain.

Sex scandals, of course, happen in all countries. But the difference in China, says Mr Zhu, is that government officials are using public money to pay for their love lives.

"In China nothing is clear," he says, "The public don't know what officials are up to. But mistresses live with government officials, they spend their money, they know about everything that goes on.

"When a mistress stands up, the truth comes out."


A powerful energy official, Liu Tienan, was sacked from his post in May after his former mistress told a journalist that her lover had helped defraud banks of $200 million.

Mistresses have become the ultimate symbol of corruption in China. According to a government report in 2007, an astonishing 90% of top officials brought down by corruption scandals had kept a mistress - and in many cases they had more than one.

Former Railways Minister Liu Zhijun, jailed for corruption earlier this year, reportedly kept 18 mistresses.

Beibei district, who was involved in a sex tape scandal An explosive sex tape got Lei Zhengfu, centre, into trouble One lady age 26-year-old told the press she was once a mistress. The story said with her long, black hair and designer clothes, she looked like she had just stepped off a catwalk. She did not want to be identified, but told me her lover was a top company executive. She says that she witnessed corruption.

Mistresses are nothing new in China. Emperors were renowned for keeping concubines. But China's top sexologist, Li Yinghe, believes that many Chinese men believe they are still living in imperial times.

"I think many Chinese men have an emperor's complex," she says. "Being an emperor means you can have many women. This is something they are proud of. They see women as trophies of their success."

Little wonder then that the ruling Communist Party is now trying to stop its pillow talk becoming public.