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January 2013

When the Gold Bugs Start Selling Look Out!

January 31, 2013 by EconMatters   Comments (0)

By EconMatters

 

Where are all the Gold Bugs?
The decline in GDP saw gold and silver spike yesterday with the thought that the fed will still be around a little while longer. But before that report traders have been selling into any Gold & Silver rally with the thought that the economy is getting better, risk appetite is gaining, funds are unwinding the safe haven trades, and ultimately interest rates are going to start rising. 


Gold Selling into Rallies the new sport?
This is the reason that prior to yesterday Gold and Silver have not been participating in the Risk On rallies in markets. Sure they spike a little at the beginning of the year, or week, etc. but soon are sold into rather heavily. 
Now granted gold and silver haven`t been putting in new lows, but are sort of just stuck in trading ranges. However, it is to be noted that they are underperforming other asset classes right now. All of which brings me to the question of whether Gold should be sold into on any spike upwards? 
Have we seen the Near-Term Top in Gold?
Have we seen the near-term top for Gold and Silver markets for two, three, five years? I think it is too soon to tell as Spain and Greece`s troubles I expect need to be dealt with sometime this year, and then we will start to have fund flows back into bonds and Gold and Silver on European Solvency issues. However, I have serious doubts that Gold will put in a new high for 2013.
The Gold Thesis still Valid
I understand the underlying arguments concerning currency debasement by central banks around the world. I understand that mining costs are rising long term as well. But this has been the case for the last 200 years as well. 
Price Action different from Fundamental Thesis
All this can still be true, and for a myriad of reasons Gold still goes down from here. Arriving at “fair value’ for any commodity is tricky, but from a trading standpoint Gold acts very weak. 
If bonds start to break through 2.25 & 2.50 for the 10-year in yield, Gold could break to the downside through the $1500 an ounce level as traders anticipate a change in fed policy in the latter half of this year. 
Inflation Rises: Where does that leave Gold?
If the CPI and PPI numbers start to rise the next couple of months I anticipate further weakness in the Gold and Silver Markets. Could we see $1000 Gold before $2000? Actions speak louder than words, and if Peter Schiff is selling gold, then maybe you should too!

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Higher Gas Prices & Lower Take Home Pay will Kill Rally

January 30, 2013 by EconMatters   Comments (0)

By EconMatters  

Gas Prices Pegged to Risk On Trade
As long as gas prices are pegged to the market rally in equities and the currencies in the Risk On Trade then this rally is nearing its end. Gas prices are up 35 cents and climbing, oil is up $13 and climbing and because of congress consumers are being taxed more in 2013, and as a result have less take home pay to apply towards discretionary spending. That combination makes for a healthy economy?


Decoupling Needed for Ultimate Recovery
Until gasoline and oil finally decouple from the Risk On Trade we are going to continually have this stop and start economy every time the market goes up on the correlated asset trade. At this pace I give the rally two more weeks at most, unless the aforementioned assets decouple. Gold and silver have decoupled, but oil is moving right up with the euro and yen funding currency crosses. 
Since When is a Higher Euro Good for a European Recovery
Not only is the Risk On trade going to kill the market rally in the US as consumers pull back as portrayed by the slide in consumer sentiment yesterday. But a stronger Euro is going to cause a very fragile Europe to contract more making their struggles even more pronounced with uncompetitive exports. This will cause the European market rally to falter, which in turn will cause a selloff in risk assets, and we are right back to where we started begging the central banks for more stimulus to support the markets once again.
The Unintended Consequences
Until markets get this correct, the economy is never going to recover. Essential commodities have to decouple from the risk on trade, especially when supplies are ample in the market. This just taxes consumers more, and they have to pull back discretionary spending to pay for higher fuel costs. Now once Europe and the US pull back, China`s end markets are weaker, and they pull back once again in their manufacturing based economy. 
The Fed Giveth & the Fed Taketh Away
This endless loop is so frustrating because it is easily remedied with some minor tweaks to markets which we have discussed elsewhere. On the policy front the Fed actually got it right with the concentration on mortgages, and QE3 initially didn`t cause oil and gas prices to spike. However, this buying of treasuries once again, just backfires in the long run because any economic gains in the stock market as a result of the extra treasury purchases juicing up stocks also juices up oil prices. Ergo, once oil prices are inflated, this also inflates gasoline prices as we have seen during this run in all Risk On Assets. 
The interconnectedness of markets between the Euro/Dollar cross and the Dollar/Yen cross, equities, oil & gasoline means that the Risk On Trade seals its own demise in the end by being contractionary in nature. 
It is similar to a cocaine addict in the end because the initial increased energy of higher stock prices is overtaken by the negative side effects of higher gas prices and a weakened overall condition after a longer duration of time.
The Einstein Definition of Insanity
So the benefits of higher stock prices are soon negated by higher gasoline prices, which hurts consumers, consumer sentiment, and the economy and this causes the market to sell off, and we are right back to where we started relying on more fed inspired QE programs to stimulate the economy once again. 
It is the dumbest and most self-defeating economic cycle in modern fed theory. The policy has been proven a failure by the very need to be continually “artificially propping up the economy”.

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The Market Rally Tells Us Nothing about the Economy

January 30, 2013 by EconMatters   Comments (0)

By EconMatters
 

Just four months ago…
Markets have had a good run from the third quarter earning`s selloff, the inevitable Santa Claus rally, and the first quarter new money being put to work. But all this talk about some Super Cycle turn in the economy is putting the proverbial cart ahead of the horse. 


How quickly things can turn. The economy was reacting so poorly at Jackson Hole that Ben Bernanke needed to implement another round of stimulus in QE3, this stimulus measure failed to boost asset prices substantially, so Ben Bernanke tweaked QE3 to try and juice up markets with additional treasury injections. 
The economy is so bad in Japan that they needed to replace another prime minister, employ additional stimulus measures, and weaken their currency.
Auto sales are so bad in Europe that major downsizing has occurred. Britain is currently in a recession, and China has been on a two year downtrend in growth.
Just to provide a little historical context to put this recent market rally in perspective. It is a good idea to separate results oriented thinking, i.e., higher markets from the actual global economic conditions. 
Same ole pattern so far
Most of the earnings results have been tepid at best, these are numbers that are targeted as easy beats by corporations, and they are barely meeting these targets via share buyback programs. Not exactly the kind of profits necessary for 500,000 jobs being created every month reflective of a healthy cyclical turn in the economy. 
I have seen nothing so far that differs from the same pattern that has taken place for the past three years. The pattern is a run-up of asset prices and markets for the first four months of the new year, then a substantial summer selloff, culminating with the need for additional QE programs, and a year-end rally in markets. 
No summer selling allowed
So we will not know anything about the economy until this pattern is broken. So asset prices continue to climb higher over the summer, the fed doesn`t need another QE program, and the market continues to finish the year strong.
The three things I will be watching
The three things that I will be looking at to verify a healthy turn in the economy would be once the fed stops the QE stimulus, do assets continue to climb? So can the private sector take over where the fed leaves off? And I am not even talking about raising interest rates. Just the removal of QE stimulus programs of buying treasuries and mortgages. 
The second component of a healthier economy would be raising wages due to corporations fighting over talent, the job pool getting larger as the underemployed start to become employed to their potential, and job creation numbers every month averaging 500,000. 
Where corporations feel they better start hiring, even as projects are 6 months to a year down the line, just to ensure that they can get the people they need due to a tight job market. 
The third element of an economy finally starting to recover would be a couple of 5.5% and 6% GDP quarters thrown in the mix, as given the pent up demand of a five year 2% growth trudge fest, a genuine recovery or turn in the economy should have some explosive growth quarters. 
The kind of quarters where retailers can raise prices, and consumers can actually afford these higher prices, and not wait for sales to dictate discretionary spending. Therefore, higher margins in the retail sector would point to a stronger economy. 
Why the rise in the transports can be misleading this time around is that with the revival in US oil production, the railroads are skewing the numbers due to a major increase in rail shipments of oil cargo. 
Wake me up in May
It is easy to throw around slogans like the beginning of a new Super Growth Cycle when assets are ramping during what has traditionally been a strong period for assets during the last 3 years even with a 2% growth trajectory. 
However, wake me up in May when the bulls have started locking in profits for the year, and all the sudden Europe is in trouble again, debt to GDP ratios actually matter, and no more fed purchases are running every month, and see if all the bullish euphoria still remains. 
Because at this rate, if we truly are in a new super cycle growth era, by May the pundits will be talking about a “Once in a Generation Super-Super Growth Cycle!

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Blatant Price Manipulation Takes Place Every Day in Oil Markets

January 29, 2013 by EconMatters   Comments (0)

By EconMatters

License to steal
Every single day the oil market is manipulated, it is easy to see, right out in the open, and nobody does anything about it. It literally is like having a license to rob banks right in front of everybody, including the armed security guards.


Large Fake Order Strategy
Here is a technique that is used by large players to manipulate price in either direction, and it needs to be banned, it is outright cheating. So a trading Dom is an order entry price ladder which shows a collection of bids on one side, a typical default setting would be 10 levels deep. On the other side of the price ladder is 10 levels of asks, going from nearest to farthest away from the current, or last traded price in oil.
For example, if oil is trading at $96.00, there will be asks going from 96.01, 96.02…96.10 and conversely there will be bids going from 95.99, 95.98…95.90. The cheating technique is as follows: Let`s say oil is trading at $96.00, and the bids and asks size on both sides of the ladder are relatively all the same size, let`s say 30 contracts. 
Who are the Culprits?
Well, large institutions, Hedge Funds anybody with a large capital base will all the sudden at strategic points when they want to move price in a certain direction, flash a 115 contract size order right beneath the current price in the direction they want to move price. Say 115 contracts now bid at the $95.98 price level. 
Of course, these large flashing orders relative to other orders stand out, and that is the purpose, to stand out in the market! Which in and of itself would not be a problem if these were “legitimate” orders with the actual intent to buy 115 oil contracts at $95.98 per this example. However, even a casual observer can see that these are fake orders!
The Large Fake Orders will disappear before touched
They have no intent on buying with these 115 contracts, as they could just hit the bid or ask with their order. And if they really wanted to buy at a good price they would do so with a hidden order or break up their order so as not to move the market. 
The sole purpose of these flashing large sized orders in relation to all the other price bids and asks at the various levels is to influence price, i.e., scare anybody from selling into their order, and invite others to front run their fake order. In short, to move the market!
Needless to say the same firm who flashes the oversized 115 contracts is already positioned in the direction that they want to influence price to go with these “fake orders”, these are not real orders, and will be pulled the instant someone hits their order. 
Move Price in Firm`s previously positioned Direction
So the intention is never there to buy or sell these 115 contracts, it is merely for show to “help” move price in a given direction. This is the reason for the huge size relative to all other orders on the price ladder, to scare the market in the direction that the firm is already positioned. 
Strategy Works: That`s why it is consistently used to move markets!
Moreover, it does work or else the firms wouldn`t continue to use this type of flashing large fake orders strategy. It can also be interpreted by other traders; this serves as a form of open collusion, signaling to the entire market to go this way.  
Maybe the CFTC needs a new leader!
This is blatant cheating, and it happens right out in the open every single trading day. Where is the CFTC or the government for that matter? All they have to do is monitor the oil markets for a week and they can find hundreds of examples of this cheating technique used to move the markets through artificial means.
It is about time some of these blatant cheating, and pure market manipulation techniques used in the oil market are identified and cleaned up by the regulatory bodies that have been asleep at the wheel. The abuses that go on every day in the oil markets are a real failure on behalf of the CFTC and the government to properly regulate these markets from price manipulation. It is about time for Washington to investigate why the CFTC fails to properly regulate the oil market.

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Yen, Apple, Netflix and VIX

January 25, 2013 by EconMatters   Comments (0)

By EconMatters

Pullbacks Are Nice

Let`s start with the Yen Carry trade, where do you think the juice came from for that S&P ride above 1500? Gee, somebody was sure waiting for a pullback to get in on that trade. Frankly, it was a rather tepid reaction to the major disappointment by the BOJ, but traders really want to move assets up, and the Yen is their best friend.

Ergo, the next level to watch is 95 in the cross, once the Yen breaks above 91 with strength. We haven`t had a legitimate selloff yet, so let us see how this cross reacts at the first sign of selling in the market. A lot of stops could get hit on the unwind of this trade on any major market sell-off of 4 days in length with a couple of 100 point Dow down days thrown in the mix. 
Volatility Bounced Off The Bottom

This brings me to Vol, which was bought up prior to the European close mid-day selloff, watch for Thursdays, after a nice morning ramp up in assets, always be wary of the 10:30 CST, market sell-off.

Traders were buying Vol discreetly on the run-up to 1500 in the S&P, and then it was on, on the equities selloff to support levels, some shorts covered the 4-week downslide in the Vol trade, and this caused quite a nice move in the Vix off the bottom. 
The Vix is really going to pop at the first Risk off event of 2013 as there are so many traders short Vol right now.
We ended back near the lows as the “Mid-Day V-Trade” in markets nearly completed with equities finishing with a higher close. Have to keep the trend alive for the close!
Further Reading - http://www.econmatters.com/2013/01/seaway-pipeline-no-panacea-for-cushings.html" target="_blank">Seaway Pipeline No Panacea for Cushing's Oil Glut 

Netflix & Ouch!


This brings me to Netflix, which had a 40% plus pop today, yes you read that correctly. I didn`t check what the options were pricing in, but rest assured it wasn`t for a 40% earning`s move! There is no question with the skepticism over Netflix`s financial balance sheet, that with a substantial short interest in the stock, that a lot of shorts got squeezed today. 
I haven`t seen this with a big, well-known name in a while. I imagine some hedge funds had significant losses today. Just ouch! Not Porsche-VW ouch, but still that had to hurt!
I subscribe to Netflix, but their content sucks. It is just that other outlets like television and basic cable programing sucks more! What has happened to quality programming these days?
It is too early to tell what would be a good level to short Netflix if at all, but definitely something to keep on the ole radar. Anything that can move 40% in a day can`t be all bad!
Apple – No Bottom Pickers Yet

Speaking of bad, we come to Apple, which had a 13% correction today on an up market. You never can tell with markets, when I went to bed last night I was half expecting a significant rebound in pre-market with some “Re-Analysis of Earnings”. Hey, if Amazon can do it, why not Apple?
It obviously wasn`t in the cards, and it is obvious that those who count are making quite the fortune on this slide in Apple. As nothing on Wall Street moves unless somebody is usually positioned ahead of time, and wants the asset to move! I have seen earning`s misses, and a stock barely budges.
I might add, that was interesting price action right at the Earning’s release with a great head fake to the $527 area before the takedown to support at $483, and the guidance issues doing the rest of the damage.
For a trade where is the next level of support? The $420 level has been thrown around, but who knows as today was an up market! I guess just watch how things shake out and go from there, as apple will bounce at some point on a short covering rally.
Another question, are all the forced liquidations over? Maybe at this level, but if Apple takes the next leg down it could get ugly. This is where longs might want to look for a trade, after a nasty capitulation, forced liquidation selloff. The point where longs cry uncle, and apple is too cheap to go that low, and viola, their pain can provide for a nice short-term Long entry.
The Trend Still Intact

All in all the market took apple`s takedown rather well, which is probably bullish! But sometimes at first, markets just quietly put in lower highs, and lower lows, and then boom, the selloff happens! As of now the trend is still intact, and equities will try to close the week out higher.
It should be a rather slow day in markets as the econ data is relatively light, and nobody is really interested in selling the market at this point. I wouldn`t expect Friday to be the catalyst with markets pretty dead after noon.   

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Microsoft, HP & Amazon: Next Tech Firms to be Taken to Woodshed!

January 24, 2013 by EconMatters   Comments (0)

By EconMatters

Apple welcome to the world of “Commoditized Products”

The luster is finally falling off of Apple, and in the end they were just a hardware provider, who provided products which will easily be commoditized as we noted previously. Every spike in Apple will be heavily shorted into as margins compress for the next 4 years plus, i.e., eternity. RIMM says welcome to my world Apple, your hell is just beginning.

If apple couldn`t blow out numbers with their signature product, in their holiday quarter with an imploding stock price, forget about it, all downhill from here for one of the most overvalued stocks of all time.


Tech Graveyard: Where Supposed Growth Stocks go to Die

Now this sets the stage for a couple of other stocks that are about to face the music as the earning`s season picks up speed. It was a nice strategy to buy HP after the tax selling season finished, and push it up with all the other dog stocks of 2012 in DELL, RIMM and many others.
A nice strategy when everything else has been pushed up to extreme valuation levels, and much harder to push up near as fast. Wall Street must have all gone to the same investing conference again, as there was coordinated buying of a bunch of loser, barely alive firms that nobody in their right mind would own for the long haul and ran them up 10, 15, and 20%.
HP: The entire company needs to be written down

This brings me to HP, who fits in this category nicely, just a complete abomination of a company. HP is in danger of going bankrupt at the pace they are descending into the mismanagement spiral known as buying a bunch of dead technology firms, and actually make these acquired firms technology even more obscure and obsolete.
I have seen all I need to see with HP, there is no chance Meg Whitman turns this company around. She will be gone in a year at most, one way or another. At any rate, I could go on forever with a litany of issues regarding what`s wrong at HP; this company is going to get crucified in earnings after the run-up in the stock since the beginning of the year. HP is no value stock, it falsely masqueraded as a growth stock under Mark Hurd due to the illusion of acquisitions which HP overpaid for, and has become a bloated wasteland of dinosaur technology. At least a 6% Butt kicking after earning`s release!
Microsoft & Windows 8

Next up another dead tech company in MSFT, need I say more Windows 8, really? This is the most mismanaged company given its resources in the S&P 500. As long as the most incompetent CEO, in the history of CEO`s, again given the resources available, in Steve Ballmer is at the helm of this firm the stock will be a serial under achiever.
Good thing you went to Harvard Steve, as you have to be the only CEO who could manage to do so little with so much, and still keep a job, even as you let competitor after competitor pass you by in every new technologically innovative business.
It isn`t even worth my time discussing this company any more, needless to say, this is where growth goes to die, and where Apple is headed right next to DELL, in the land of dead tech companies whose best business idea going forward will be determining the size of the dividend for shareholders to keep them interested in these stocks before they become completely obsolete.
Amazon is the next Apple to fall from grace

Now my favorite overpriced, oh excuse me Jeff Bezos, misunderstood over-valued tech company is Amazon, ticker symbol AMZN. I think this “misunderstood” company has consistently missed earning`s expectations for the last two years without fail.
It must be nice to be given a free pass on performance for the past two years, but this earning`s report will be different as Amazon is priced for perfection, and if there is one thing Amazon isn`t, it is perfection.
Yes, I know the investment thesis, but this is just all marketing crap. The same principle of Amazon coopting BestBuy`s customers applies to Amazon as well with the world wide web. Margins will be coming down for any commodity provider on the web.
I understand this company quite well, and given the run-up in the stock, expect a nice 8% ass kicking come earning`s report in a few days’ time.
Technology: Shrinking Margins & Increased Competition

Ergo, these are three tech firms that are going to be taken to the woodshed this earning`s season now that the run to 1500 for the S&P 500 is over, results matter, and these three tech companies are either complete no growth dogs, or over-priced retailers!
Frankly, I wasn`t impressed with Google or IBM`s earnings, one missed and the other was in line, but I guess we just had to make a run at 1500 now didn`t we? But one thing is for sure, there are no cheap stocks right now! Moreover, there are a lot of companies that will be seeing their fair share of “profit-taking” over the next couple of weeks of earning`s season as performance is measured against the run up in the stock price!
There are a bunch of over-valued companies masquerading as growth companies due to ridiculous valuations that just don`t match the underlying fundamentals of their respective business models or the economy at large. 


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The Unintended Consequence of Green Cars

January 23, 2013 by EconMatters   Comments (0)

By EconMatters

Energy and environment conservation has been high on every nation’s agenda probably even before the oil crisis in the 1970s.  Green cars such as hybrids and electric cars have been gaining popularity as well as auto market share in the U.S. driven in part by high oil and fuel prices, as well as government policies, and subsidies in some cases, pushing for higher fuel efficiency. 

Most people think “eco-driving” or even carpooling is a win-win-- saving gas money and the environment at the same time.  But it looks like what may be good for the environment, is actually bad news for the government.  

You see, for each gallon of gasoline or diesel we gas up in our cars, there’s a portion of tax that goes to the state government to fund the building and maintenance of roads and bridges.  So unfortunately, more fuel efficiency and less driving even by carpooling means less tax revenue for the government, and the green car is also to blame.


For example, in Vermont, revenue collection of the state’s transportation fund has been shy of their target for seven straight years.  According to AP, 25% of Vermont’s expected $232-million transportation fund in the current fiscal year is supposed to come from the gasoline tax of about 20 cents a gallon.   

In order to make up for the shortfall in the fuel tax revenue, instead of coming up with ways to cut costs, Vermont and Oregon reportedly are mapping out a possible new scheme of taxing drivers not based on how much fuel is burned but how far each vehicle travels as AP reports.

Although Europe has a longer history and higher adoption rate of fuel efficient cars, what’s taking place in the U.S. right now is actually the conclusion of a U.K. study published back in 2011:  

“The drive to promote greener, more efficient motoring will blow a £13bn hole in the public finances as revenue from fuel and road taxes dries up." 

“Drivers may end up being taxed more, even as the industry adapts to meet environmental targets….[government will be] forced to look at ways of clawing back the money motorists think they will be saving."   

Now the U.S. is projected to have high growth in green car sales.  Market research firm Mintel saysthat U.S. sales of hybrid, plug-in hybrid, and electric cars should reach 440,000 units in 2012 -- a 73% improvement over 2011, reaching  850,000 in unit sales by 2017, or 5% of the U.S. auto market.  

Separately, a 2011 study by the J.D. Power and Associates projectsmajor growth, as much as 10%, of vehicles with fuel-efficient technologies by 2016, which would represent a four-fold increase in the sales numbers for green cars compared to 2010.

If these are realistic forecasts, then don’t be surprised to see a Big Brother GPS inside every vehicle in the country as Vermont Transportation Secretary Brian Searles indicated,

“….. calculating how much of a VMT tax is owed would be done through the global positioning system devices that are expected to be standard equipment [capable of tracking location, time] in cars later this decade.”   

I personally can’t even begin to count the possible number of privacy concerns having a government GPS inside my car, not to mention the additional resource tracking and collecting this new mileage tax would require, and I thought the U.S. Federal and state government has had enough funding problems already?    

I guess the moral of the story is that it’s all about money, and whatever "savings" coming out from one end will eventually need something else (e.g. new taxes) to replenish, at least as far as “government budget” is concerned. Ultimately, taxpayers still end up footing all bills and more--in this case, you get hit with a new mileage tax before even seeing an ROI from your Prius.
  
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The Smart Money will be Selling into Tuesday`s Rally

January 23, 2013 by EconMatters   Comments (0)

By EconMatters

Not a Bear in Sight


Everybody and their uncle is long this market right now, and equities have had a nice run with no pullbacks. The smart money will be selling into the rally to maximize profits by getting out when there is plenty of buying volume to eat up the sizable positions. It is the best time to sell because fund managers can liquidate large positions much easier without having to worry as much about creating complex Algos to maintain an overall high average price for the exiting position.

Bag-Holders


The S&P will be up around 5% just in January alone, not to mention the run-up from about this time last earning`s cycle when the benchmarks all sold off during the second half of earning for the third quarter. Tomorrow is close enough as good as it gets for a while, and traders will try to push up the S&P to 1500 if they can, but the smart money has such large positions that they will start selling into any rally tomorrow, watch for redistribution going on in your favorite stock. The smart money will be handing off to the bag holders looking to get in at the last moment. The smart money never chases, they always wait for a pullback to get into a trending market.
Getting a Good Price

The reason why the large funds don`t wait until an exact top is put in is because once everybody realizes the gig is over, and the selling commences, everybody runs for the exits at the same time trying to protect profits, and buying puts to protect portfolios, which just makes the selloff worse because the VIX spikes even more, and forget about getting a good price for your exit. This is why you sell into rallies to maximize profits on the exit.
Buying Exhaustion & Market Timing

And when everyone is this bullish, and most of wall street cannot beat the S&P 500, the sheep get slaughtered when the buying reaches an exhaustion phase, i.e., there is no one “dumber investor” than you who buys after you, thus enabling you to have a nice profit. Making money on Wall Street is all about market timing, what do you think the market is going to have a 12x5% for a 60% annual return in 2013? This is why the smart money and those fund managers who outperform the S&P 500, perfect the art of timing the market, and selling into bullish rallies to maximize gains.
Always enter Trending Markets on a Pullback

They will be back after we have our first pullback in 2013, but they will be market timing the entire year with strategic buys and sells, this is how you beat the S&P 500, and attract higher assets under management. So be smart like the pros, and sell into the rally tomorrow, so that you aren`t waiting for a huge announcement like the rest of the sheep on Wall Street that it is time to sell. As when everybody realizes it is time to sell it is too late to maximize gains, equities will gap down 30 S&P handles, and your entire holdings gap down as well before the market opens.
Be Dumb like Apple Investors – Wait for an engraved invitation to sell

The other option of course is just to stay invested like Apple investors did at $700 a share, remember how bullish all the talking heads were on all the shows. There wasn`t one analyst that said it is time to sell after apple reached a larger market cap than 3 top 10 fortune blue chip powerhouses of industry. Not one pundit, critic, trader on Fast Money, everyone was so bullish when Apple was at $700 a share; it was guaranteed to go to $800, $900 and a $1,000. Just a thought to remember, when everybody else is so bullish, who is left to buy from you?
Most Wall Street pundits just follow the crowd, so when markets are up, everyone talks bullish. But after three days of selling, these same pundits will be telling you it is the end of the world, and the top is in for the year, and all the same bearish clichés. Always look for good entry and exit points, never chase, and believe in market timing. It is one of the best ways to become a smart investor. So watch tomorrow for distribution going on in your favorite equities, as many will be taking profits by selling into the rally as discreetly as possible, and so should you!


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Inflationary Targets Will Fail – World Stuck In Deflationary Super-Cycle

January 22, 2013 by EconMatters   Comments (0)

By EconMatters

True Wealth Pie Decreasing
Japan came out with their long awaited 2% inflation target, and currency devaluation scheme, but it is doomed to fail. It will fail like all these government and central planning currency devaluation schemes because the one point that nobody gets right now is that the entire world is in the middle of a twenty-five year Super-deflationary cycle because there is a depreciating pile of total wealth in the world. In short everybody is broke!

Mature Governments all in Debt

Most governments are heavily in debt, they are ultimately going to be forced to cut back spending through austerity programs. Most governments are going to have to raise taxes for the next 25 years, taking more money from both businesses and citizens. This all results in less disposable income to purchase products, and much lower margins for all companies for the next 25 years as competitive pressures fight over a smaller overall pie of disposable income.
50 Years of Leveraging Cycle
Most analysts expect a Super Inflationary Cycle due to the massive amount of currency devaluation and money printing schemes around the world. But ultimately, the reason everyone is trying to devalue their currencies is because everyone is broke, and the entire world has lived well beyond its means for 50 years. 
Simply devaluing the currencies is not going to change the wealth pie in the world which is shrinking because it was built to such an artificial level for 50 years, the contraction phase of not having anything backing this inflated wealth will take 25 years of contracting to get back to sustainable levels.
Contraction Pressures Stronger than Temporal Artificial Currency Measures
Central banks can artificially try to create inflation, and may even have slight upticks in inflation, but ultimately we will still be in a contraction phase because the contraction pressures are greater than the central banks can devalue the currencies over the long haul. 
And you start to see the lessening effect of each round of QE Infinity. It ought to be a tell-tale sign when central banks are conducting all these loose monetary policies globally and this is all the inflation they can create! 
When the Fed stops their program at the end of the year because they basically are running out of competent bullets, the contracting will start all over again. 
Japan will be contracting for another 20 years
The same thing will happen in Japan as well. They may get a slight uptick in inflation for 6 to 12 months, but these artificial means in a cyclical deflationary environment in the country means that the BOJ is simply swimming against the tide, and eventually the swimmer tires, and the stronger force prevails. 
Japan simply is non-competitive, has poor demographics, their time has passed, and they are broke. All these contractionary forces ultimately prevail and the artificial measures simply cannot overcome poor fundamentals for their economy, and the global economy at large.
Somebody has to Pay!
So at times it will seem that there are bouts of inflation in the economy, but because the global economy is broke in overall wealth, i.e., everybody needs more money, somebody has to pay and margins just come down as what gives is the amount of “Actual/Real” money that consumers and businesses have to procure goods in the overall global wealth economy. 
The World Cannot Afford Inflation
Another way to say this is the world cannot afford inflation, and governments can try to print their way to prosperity, and in the process artificially raise prices, but consumers cannot afford higher prices, the global economies contract, and this results in slower growth. And the entire deflationary loop just continues down the contracting process of a 25 year Super Cycle that feeds into itself.  
All the mature economies are still trying to put off deleveraging through various means, and the emerging economies haven`t even started to deleverage yet? But the underlying fundamentals are such that deleveraging is the only way that the economy can get back to the sustainable levels needed for the economics of growth to match the underlying financial wealth/health of the world.  

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Chinese Electricity Conclusions Reexamined

January 20, 2013 by EconMatters   Comments (0)

By EconMatters
  
China`s 4th Quarter

China`s economy grew 7.9% for the fourth quarter of 2012, signaling to some that China might be rebounding from a two-year downtrend in economic growth. When it comes to Chinese data though, transparency issues always rear their ugly head.  

As a result, many analysts look to Electricity usage to confirm the economic numbers. Many times the electricity numbers are at odds with the stronger economic numbers coming out of China, and analysts believe that during this downturn, the actual growth numbers were much lower than those published officially.
They pointed to lower electricity numbers that have dropped off substantially more than the economic drop-off on a percentage basis. The conclusion is that China is inflating the real growth numbers to paint a more flattering picture of their economy.
Is this the right Conclusion?
When the latest economic numbers came out, analyst compared these numbers with the electricity numbers, and they came to the conclusion that the electricity numbers confirmed an uptick in economic growth in China. So their conclusion is that the Chinese GDP numbers are correct.
Productive Growth vs. Artificial Growth
I have my doubts regarding the Chinese growth numbers. But I even have a bigger gripe with what I call productive growth. As in, not building ghost cities for the sake of artificially pushing up economic activity, if the finished assets are artificial, and will provide no productive long-tern use to society.
For example, there are no ghost businesses in Silicon Valley that are not trying to push the innovative envelope forward with greater technology advancement which spurs legitimate economic growth for our society. But this is another argument for another time.
Record Cold Spell in China
My focus is the takeaway from the Chinese electricity usage, and the conclusions drawn from said usage. I don`t think we can draw the same conclusion from the electricity numbers as analysts have done in the past for the following reasons.
It was unusually cold for the fourth quarter in China, one of the coldest on record according to meteorologists. Not just unusually cold, but record breaking cold. The kind of cold that people cannot plan for ahead of time.
I would expect that much more energy had to be used, and that much more electricity would be required just to keep regular business operations going, and keep the Chinese people from freezing to death.
Yes, it was that freaking cold in China! The numbers made me want to move to San Diego, and I live in a pretty mild climate during the winter.
Coal, Heating Oil, Electricity should all Surge in 4th Quarter
I think given the numbers, that electricity usage should have set records just to account for the record breaking cold spell that made up a significant portion of the fourth quarter.
In fact, I attribute much of the increased smog to the extra running of coal fired power plants to help buffer the effects of these long cold fronts in China.

Therefore, any uptick in coal, electricity, heating oil in China needs to be taken in the context of one of the coldest spells on record in that country, and we should not draw the conclusion that these commodities increase in usage is a sign of an uptick in economic growth for the country.
Too soon to tell if China has truly bottomed
China may very well be improving, but I would expect better growth numbers from the fourth quarter anyway, even if their economy is still trending down.  I think it is too soon to tell if China has actually bottomed from their two-year downturn in economic activity.
We will have to wait and see how 2013 plays out.  But given the extreme cold period of the last quarter, I think looking for electricity usage to confirm Chinese GDP data is problematic this time around. Things aren`t always as they appear.

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