Market Analysis: May 31, 2015

General Analysis

The general indices have continued their choppy action that has been exhibited in the markets for a very extended period of time now. It is difficult to find stock candidates in this environment that have good potential to trend for any length of time. Until the market starts trending, one needs to be very careful in having too much exposure in a relatively expensive market that is not underpinned by good economic fundamentals. I will try to continue to point out opportunities as I see them. The only thing that I see that could drive this market significantly higher is the announcement of QE4 i.e. something that has the potential to seriously devalue the U.S. dollar. If the U.S. dollar started to significantly decline, like the other major currencies have already, then you would probably see a price re-adjustment of assets such as commodity/resources, U.S. stock market, gold & silver, and land (particularly farm land). I am hesitant to include residential real estate, especially in a general way, because high end residential real estate (which has already significantly appreciated over the last few years) is really a market of its own as distinguished from more moderately priced real estate, which has had a much more bumpy ride since shortly before the 2008 market crash. Also, there are more complications associated with holding real estate such as whether you own it outright, where you own it, what kind of market there is for your real estate, maintenance, taxes, and your own financial condition, especially if you do not own the real estate outright. That said, there may be opportunities in owning rental real estate, as less people are buying their own homes. If you own your home outright and intend to live there for the foreseeable future you should be fine and will probably see good price appreciation in the event of a serious currency devaluation.

In the event of a serious U.S. dollar devaluation, as one possible future scenario, I think the run-up in stock prices would probably be relatively short-lived. I think the devaluation of the dollar would happen very quickly due to a few current factors. Many parts of the world are already far along in their preparations to use other currencies than the U.S. dollar for their international commercial transactions. So the dumping of the unnecessary dollars, no longer needed as reserves by these countries, onto the market in response to further currency debasement by the Federal Reserve, would be swift. The currency debasement is directly a result of the exorbitant debt load that the USA government and its central bank have created (out of thin air, thanks to their being the primary world’s reserve currency) and continues to increase at exponential rates. The foreign holders of these credit obligations (U.S. Treasuries) have begun to realize over the last several years that there is no way in hell that the U.S. government can pay back the amounts owed as represented by the Treasuries with anything but debased, next to worthless pieces of paper. This is because the amount of debt that the U.S. government has created is far in excess of any amount that can be produced by the U.S. economy. This debt has been created by the biggest money printing machine (that is what central banks do – they do not fight inflation, deflation, unemployment, income disparity, price instability, or anything else) in the world and without any real wealth generating capacity behind it (thanks to this oligarchical, fascist system destroying the last vestiges of a once dynamic, vibrant economy). The primary entity backing the U.S. dollar these days is the U.S. military and other clandestine government agencies that will create mayhem and havoc in your country if you attempt to use something other than the U.S. dollar as your currency. This is because the U.S. government is fully aware of the power that is given to the holder of the world’s primary reserve currency – the ability to print almost endless amounts of currency to pay your bills, buy off the citizens with nice sounding social programs, buy off other countries with foreign aid, build up existing and new government agencies of power, fund wars, fund favored industries (such as military-industrial complex, Solyndra), and bail out corporate partners (big banks, GM, AIG, Chrysler, etc.; 2008 was not the first big bank bailout).

To get back to the possible scenario that a serious U.S. dollar devaluation is possible and if it were to occur that it would probably happen very quickly. So the run-up in the U.S. stock market would be relatively short-lived under those circumstances. Under this scenario, you would probably see interest rates rise significantly due the mass dumping of U.S. Treasuries that would only be partially offset by the printing of additional dollars out of thin air by the Federal Reserve to buy the Treasuries. The Federal Reserve would be the only buyer of these worthless, toxic pieces of paper backed by nothing of real value.

A slight addendum to this last point, is I have been thinking for some time, since I have seen reports of Russia and China selling many of their Treasury holdings over the last year or more, that the Fed has been executing an unannounced QE or money printing to buy these Treasuries to prevent interest rates from rising in the United States.   Since as I said, no one in their right mind would want these worthless pieces of paper, the only buyer could be the Federal Reserve, who would be obligated to buy back U.S. government debt instruments.   Jim Willie, editor of the Hatrick Letter and Chris Hamilton, Hambone blog writer, have explained how the FED executed this using puppet central bank proxies in other countries to buy back Treasuries being sold by other foreign entities without the Federal Reserve having to directly do it.

This additional printing of dollars by the Fed would also hasten the further devaluation of the dollar. When foreign entities dump their Treasuries, they would be receiving U.S. dollars or another fiat currency for most of them. In the event of a steeply declining currency devaluation phase, the sellers would get what they can for them but as the devaluation progresses, the dollar or any other fiat currency becomes worth less and less.

Under these circumstances, the U.S. economy as well as its currency, bonds, and the stock market would end up collapsing at some point due to the widespread destruction of U.S. economic power which is largely based on the U.S. dollar being the world’s primary reserve currency.

VIX

The VIX has exhibited a steady declining trend since its high in 10/08. Along with the declining value of the VIX, it has shown a narrowing in the range it moves from one extreme to the other over that same time period. This tightening in the range of values as well as the overall decline in the VIX portends a significant rise in the volatility of the S&P 500 at some point. After 6.5 years of this action, it would not be farfetched to think that a sudden rise in volatility could happen in the not too distant future. Whether the cause of a rise in the VIX will be due to a rapid move up or down in the market is unknown. But the continual compressing of a spring at some point will lead to a sharp move when the mechanism responsible for the compression is circumvented and the spring suddenly uncoils. I would not be surprised to see the market quickly move in one direction for a short period and then reverse course revealing its primary trend.

Market Analysis: May 28, 2015

General Analysis and Comments

The U.S. stock market indices moved strongly higher today with the Nasdaq reaching a new all-time high led by tech stocks. This type of action especially the day after a big down day bodes well for a continuation higher in the near term. But as I keep looking for stocks that look ready to move up and are at reasonable valuations, I find it very hard to find such stocks. That makes me very cautious in this environment even if the market continues to move higher. It is clear by now that we do not have strong fundamental economic drivers moving this market higher. If it was not for the central banks of the world printing huge amounts of currency, then this market would have tanked long ago. That said I have identified a few pockets of potential opportunity which I have identified in previous posts and in the Current Recommendations page. The only driver for this market to go higher other than the central banks printing money (which I think is having less and less effect as the global economies continue to slow down and the world governments continue increase their already huge debts) that I can see is a general revaluation of U.S. stock prices due to the U.S. dollar sharply falling and following the steep declines of the other major fiat currencies. All assets should be re-priced higher including the stock market in that case. Although I think a paper asset such as U.S. stocks may at some point be vulnerable to systemic risk and ultimate failure of the system due to the trillions of dollars of derivatives held by many of the major banks of world. Add to that the huge debts these countries/regions have created practically as fast as they could print money out of thin air, then I think you have a systemic time bomb waiting to go off and I believe the fuse is burning quickly at this point. The U.S. will be as badly affected by this economic collapse as anywhere else due to several factors but primarily to the serious devaluation of the U.S. dollar, its major banks are terminally infected with these toxic derivative instruments, and the probable loss of the U.S. dollar as the world’s primary reserve currency. I understand that bad financial news does not really sell well but I would like for my readers to be forewarned and prepared rather than just blow sunshine in their face. At this juncture in the current market environment, I think it would be prudent for investors and traders to have at least 20% in precious metals held outside the major banking system. An allocation of 50% or even more to owning real gold and silver (not ETFs), I believe will pay you back handsomely as well as preserve your wealth over the next few years. That said, I think commodity and resource based stocks including gold/silver miners will do very well over the next couple of years but with stocks you always have a third party risk unless you own the shares of your companies in your name and in your possession.

I hope some of my readers benefited from the big move (+$10.21) in Broadcom (BRCM) yesterday due to buyout talks with Avago Technologies. This was a recent recommendation in a post last week that I updated on the Current Recommendations page over the weekend. I do not expect much more to be gained from here so I would recommend selling BRCM at this point as a stock typically moves to the value of the expected buyout offer within the first day. And if the buyout offer fails to be completed for some reason, then you will lose this sudden gain by continuing to hold the stock.

Which Major Fiat Currency is going to Explode First?

Most of the major fiat currencies have declined greatly over the last two or three years including the Australian dollar, Yen, Canadian dollar, Euro, and British Pound. I have seen articles and interviews suggesting that the Yen would be the first currency to explode due the overwhelming Japanese debt (the largest of all the major economies for a long time). I believe the first currency to blow up will be the Euro, due to its extreme complexity. Complex entities tend to be unstable due to their complexity which means in simple terms that they have a lot of moving parts and variables that can go wrong and often do. This greatly reduces the reliability of complex entities and makes them much more vulnerable to failure. The Euro is the currency for the Eurozone that comprises 19 of the 28 member states of the European Union as well as for a few other European countries. These 19 states, in most cases, have significant differences from one another including language, industries, overall economic strength, cultures, geography, and mindsets. The Euro, in many ways, represents an attempt to govern these sovereign countries, in a one size fits all political and economic umbrella. These sovereign countries already have their own respective governments, elected by their citizenry, with their own set of concomitant laws and regulations. Trying to add another layer of bureaucrats and technocrats, in many case unelected, and who are often either unaware or ignorant of local conditions, is a recipe for disaster. This discussion could go on in all the gory detail of this bureaucratic monstrosity but I will leave it at that. One thing I will add, is that we are already seeing serious tears at the seams of the Eurozone as the countries that have accumulated huge debt loads as well as large social problems that go along with a badly performing economy are vigorously looking for solutions, even ones that include leaving the Eurozone.

Chinese Stock Market Bubble and its Meaning

Chinese stocks have been on a tear over the last few months sparked by China’s citizens opening individual accounts and loading up on stocks with a large measure of margin. It has reminded me of the typical blow-off tops that historically U.S. stock market bull runs ended with. I do not believe you will see the U.S. stock market end that way for a couple of reasons. For one, the typical U.S. consumer is broke and does not have the money to spare on the stock market. And two, the average middle class stock market participant has been burned too many times in the past by the stock market such as in 2000 and again in 2008. They do not trust the stock market as a vehicle for long term capital appreciation. Not to mention, that the U.S. middle class has been largely wiped out in the U.S. except for those who work in the government and those folks do their stock market investing primarily through their pensions, if at all, because of the previous stock market busts. Margin debt is at an extremely high level and I think that is one of the prime indicator’s for today’s U.S. stock market showing that we are already in bubble territory. These circumstances are also evidenced by the low volume that has been prevalent throughout this six year bull run. I think the same type of circumstances are affecting Europe as well. This bull market is being fueled, more than ever, by central banks because the economic conditions in the U.S. or globally for the last few years do not support the length or rise of the current U.S. stock market.

The reason why I think you are seeing this prototypical blow-off top in the Chinese stock market is because China is now the World’s number one economy by many measures. Therefore, they have more people with the assets to put into the stock market that in the past were seen in previous U.S. stock market bubbles during the 20th century. The U.S. economy has been gutted over the last few decades of its manufacturing and small businesses as well as an increasingly heavy regulatory and tax burden. As government has gotten bigger, the size, strength, and diversity of the U.S. economy has gotten smaller and narrower. The U.S. economy is a shell of its former self, propped up by the central bank’s ability to print more paper money than anyone else and big government and their cronies spending that paper money. I meant to focus more on how much the Chinese economy has contributed to the global economy over the last several years but once I got going on the demise of the U.S. economy it was difficult to stop.

In an article on ZeroHedge from a couple of days ago, China accounted for 85% of all global growth in 2012, 54% in 2013, 30% in 2014 and likely will fall to 24% this year. This shows both how dependent global growth has been to the Chinese economy and the steep decline in economic output in China in recent years. As the world’s major economies are all tied together to a large degree, China’s slowdown is reflecting the slowdown seen in the other major regions of the world. The article also cites that the amount of debt that China can throw at its economy, just like every other major economy has been doing, is reaching its limits in contributing to further growth.

To get back to my original point, I think the typical blow-off top is being seen in the Chinese stock market and will be very muted in the U.S. compared to earlier stock market bubbles in the 20th century.   I believe the Chinese stock market is the current day proxy for what stock market bubbles have looked like in the past in other regions.

Market Analysis: May 26, 2015

General Analysis

I would not be surprised to see the general market pull back for a few days this week as the SPX, NYA, and COMP have basically been trading in a range for the last four days with the COMP having a slight upward bias near their previous highs. The indices look close to making a run soon though.

Dow Theory Revisited

In my May 21 Analysis, I discussed one of the major tenets of the Dow Theory, that is that the Dow Jones Industrial (DJI) Average and the Dow Jones Transportation (DJT) Average should pretty much move in tandem with one another. When either the DJI or DJT make a new high in price, then the other average should confirm that high and make its own new price high within a reasonable period of time. Today, I would like to discuss another tenet of the venerable Dow Theory and place the current market environment within that framework. This tenet is that the market has three movements: 1) The main or primary movement that may last from less than one year to several years, 2) The secondary reaction or medium swing that may last from ten days to a few months and generally retraces 33% to 66% of the previous medium swing or the start of the primary movement, 3) the minor movement which may last from hours to a month or depending on opinion. Two or more of these movements may be occurring concurrently, depending on market conditions and the market observer’s perspective. The Dow Theory was originally developed by Charles Dow, who died in 1902, before the age of central banks. I believe for the Dow Theory to have even more relevance to today’s markets that are largely affected and even distorted by the actions of central banks, you need to modify the timelines and expectations of the market movements as first described by Mr. Dow, specifically movements 2) and 3).

I believe the secondary reaction or medium swing timeline could be lengthened to a period of up to about 1.5 years. This is somewhat subjective and you might make the argument that the bull market has not been one primary movement of approximately six years but two primary movements interrupted by a 21% down movement in the SPX in 2011. To get back to my point on the secondary movement is that the RUT and NYA have been trading in a range since 12/1/13 and 6/1/14, respectively. The SPX has been relatively range bound since 11/17/14 and exhibited very choppy behavior for the preceding 21 weeks. The COMP and QQQ have had two lengthy periods of range bound behavior within the past six months, the current one of 13 weeks in duration and the previous one of 11 weeks with these two periods separated by a short up move of two weeks in duration. I think the extensive length of this range bound activity as well as the relatively shallowness and brevity of anything that could called a reaction to the main trend over this time period could be classified as the secondary reaction that was not allowed to occur by the central bank.

This is because the government narrative of the economy is doing well and the government has everything under control could not be jeopardized by a serious market correction if not an outright crash. So in the current market environment that is being fueled largely by central bank funny money and where we obviously do not have free markets, the government agenda and narrative takes precedence over true market and economic fundamentals in determining the price levels of the market. A bad stock market correction or even a crash could very well cause a serious loss of confidence in the overall system which the government cannot afford, especially at this time with government debt and unfunded liabilities at extreme levels. The government debt and liabilities cannot be paid or funded based on current or even by optimistic forecasts of future levels of economic activity. The central banks in all major economic regions are basically in the same predicament and so the central banks will keep on printing their paper money till the system(s)(these systems are all basically same with having a central bank as the fundamental cornerstone and it will ultimately lead to very sad consequences for the populations at large) says no more. So without central banks and their excessive money printing, I think Charles Dow’s original descriptions and definitions of the three movements within a market would still be pretty close to the mark as written. The addition of central banks, I believe, has lengthened the recent secondary movement as well as prevented a more natural and deeper market correction at these high price levels.

So to put the current market environment in Dow-like terms, I think the primary trend is in the process of rolling over with large levels of stock distribution evidenced by the long trading range at high price levels. The intermediate or secondary trend (which could last for a few months) looks like it is getting ready to turn up. The minor trend which has been basically up over the last two weeks and looks like it could turn down for a few days before turning back up (see I ended on a happy note- I’m not all gloom and doom).

Another piece of evidence that this market is being fueled largely by central banks is from my previous analysis on May 21 when we looked at the Dow Theory tenet of the DJI and DJT averages confirming the direction of the trend by making new highs or lows together. As I said then, the DJT just made a new 29 week low on heavy volume as it decisively broke through its 200 day moving average (key support). In the last couple of trading days since then, it has not attempted to bounce back with any conviction. In contrast, the major stock indices have all made new highs within the last several weeks but on lower volume when compared to their recent down days of volume. The DJT average being a major economic indicator in its own right, supports my thesis that the economic fundamentals are not the primary drivers of these markets making new highs but it is only with central bank funny money that this is possible.

Chinese Stocks: May 22, 2015

Here are a couple of small cap Chinese stocks listed on USA exchanges that look good technically: DANG and STV.  I have not had time to look at their fundamentals in any depth but this is for those looking for more exposure to China that has recently been doing very well.  Would recommend you use a two week stop as a rule thumb for these as they can be volatile.

Market Analysis: May 22, 2015

General Market Analysis

The market has continued to show strength after its big move last Thursday, which bodes well for the current trend to continue. The financials, semiconductors, and other selected technology stocks are exhibiting promising setups with solid fundamentals and of course in most cases, stock buybacks backing them. The Chinese stocks, as represented by FXI, went on a tear in March and April and are now consolidating. My recommendation in that area, BABA, has started to act well after an initial pop up on a well-received EPS report on 5/ 7/15. I was looking to recommend YOKU after it went on a tear in April and early May, but it never stopped and consolidated its initial move. Instead, it just kept ripping higher, moving from $11.85 on 3/31/15 to $30.93 today. Additional current recommendations include EMC, A, BRCM, and buying 6 month puts on GLD. I will try to add background info on these in the Current Recommendations page over the weekend. My VALE recommendation from 5/6/15 has acted very poorly since then, although in the longer term, I think it will do okay. I will try to add some background info to VALE in the Current Recommendations page over the weekend too. I just started this newsletter and built this website a little over two weeks ago, so initially, I was dividing my time between the two. I still have some refinement and cleanup to do on the website construction but by and large I am now devoting most of my time on following and commenting on the markets in the newsletter.

US Dollar

I am not an expert on the historical behavior of currencies other than paper fiat (by decree) currencies, in general, have hugely depreciated over the last 95 years or so, greatly reducing the purchasing power of the holder of the respective currency. The cause of these huge currency depreciations is that the one thing governments know how to do well is spend on anything and everything that helps them gain power, retain power, and expand their power. That is why governments use paper currency rather than real money such as gold or silver. The amount of gold and silver is limited by the amount that is mined, purchased on the open market, or saved (heaven knows that governments do not know anything about saving). With paper money, governments can just print more currency for this or that as they perceive the need arises, whether it is to buy votes with some nice sounding program for the subjects (I mean citizenry), to bail out and save some favored industry sector or business(es), to expand military might (either for domestic or international control and domination), or to build up the government and their respective agencies of power.

To get back to the U.S. dollar, I mentioned in one of my previous posts the U.S. dollar appeared to be at a critical turning pointing as it had dropped for five straight weeks. Well, this week the dollar has strongly reversed on higher volume. No one knows if this is a temporary pause before turning lower again or a longer term stopping point. I would be very surprised if the dollar started back up and continued to go up way beyond its previous recent high at 100.785. But it could continue trading in a range between that high its recent five week low. I heard an interview yesterday with Richard Maybury, long-time author of the Early Warning Report newsletter, and his hypothesis is that the U.S. dollar being the primary World’s Reserve currency will survive the longest of the major paper currencies such as the Yen, Euro, and other western currencies. For background, most of the so-called western currencies (I include the Yen in this as they are a U.S. puppet state) are backed by heavily indebted entities (EU) or countries that have severely devalued their currencies over the last couple of years. These regions or countries are on the verge of bankruptcy and total destruction of their currencies in many cases including the USA. To get back to Mr. Maybury’s hypothesis, that the U.S. dollar will last longer than the other major paper currency before its self-destruction, seems to be a reasonable assertion. Looking at the facts which seem to support that hypothesis, are one the fact that the USA can continue to print its currency in basically unlimited amounts since it is the primary World Reserve currency and , thus, paper over its economic problems for just a little bit longer the rest of the bankrupt nations. Secondly, the USA is still perceived by many in the world to have the strongest economy in the world (this is like saying eating a raw fish that has been dead and unrefrigerated for 3 days is better than one that has been dead and unrefrigerated for 5 days) which contributes to the strength of the dollar. Also, another long-time financial writer and investor, Martin Armstrong, has said based on his knowledge of history that the primary reserve currency of the world is always the last one to fall and self-destruct when all the debased currencies of the world are in a race to the bottom as we now observe. Based on what I have observed in the market over the last two years and now the recent action in the U.S. dollar, I cannot disagree with that assertion. The hyper printing of currency does have economic consequences in that it introduces inflation commensurate with the increase in money supply. Often it introduces asset inflation including the stock market and housing market, especially high end real estate, before inflation is then seen in the typical consumer areas. Another consequence often seen by excessive currency printing is it increases income inequality within the general population, as those closely connected with the financial industry as well as other major industry leaders have greater access to the increasing money supply.

In summary, I think commodity and resource price re-adjustment due to currency inflation, while early signs have been detected (particularly in non-U.S. currencies), are still at a couple of months off in the future, before those prices start to reflect serious inflationary pressures. This also includes my view on precious metals, as I have said before in previous analysis posts.

Market Analysis: May, 21, 2015

Dow Theory and Current Market

One of the major tenets of the age-old Dow Theory is that when the Dow Jones Industrials (DJI) make a new high then the Dow Jones Transportation (DJT) average should also make a new high around the same time to confirm that the major trend is still up. That is not currently happening as the DJT made a new 29 week low yesterday and decisively broke through its 200 day exponential moving average on high volume, after several recent attempts to do so. Meanwhile, the DJI made an all-time high two days ago, although on below average volume. This occurrence is another divergence on top of the divergence between the generally declining U.S. economic figures (I know housing starts were up on its last report and I will discuss that in another analysis post later) being released in the last couple of months, and the generally, high, rising stock market indices. To extrapolate the Dow Theory into modern day where we have several major stock market indices such as the S&P 500 (SPX), Nasdaq 100 (NDX), Nasdaq Composite (COMP), New York Stock Exchange (NYA), and the Russell Two Thousand (RUT) in addition to the Dow Jones averages, all of these indices have made new highs within the last several weeks in the current major trend except the DJT. The DJT is a good economic indicator for the U.S. economy as well as globally since the companies listed in the DJT either have international exposure or ship goods within the USA that have arrived from outside the USA. As I have said in a recent post, I think, for the time being, the market will continue to rise, but my point here is to not get too comfortable because we are much closer to the end of this bull market than we are to the start of it. That said, I think there will be sectors of the market that will outperform in the future, even if the overall indices drop significantly or even severely. I have already highlighted some of these in previous posts and in the Current Recommendations page of this site, and they are basically in the hard asset realm of the market and will benefit if the U.S. dollar continues to fall.

General Market Analysis

Over the last couple of weeks, the financial sector has shown strength and that is a good sign that the current uptrend may continue. As I said Sunday night, this is options expirations week and so I do expect some choppiness. But so far the market has held on to its gains from last Thursday’s big move and even added to it a little bit in most cases. The RUT, especially, had a big move on Monday after a good move last Thursday, and is another good sign for the trend to continue as people are willing to risk taking positions in the small cap companies as well as the larger companies. Another factor that may add to the choppiness of the market this week is we have a 3 day weekend coming up and many shorter term players in the market may not want to hold their positions over a long weekend.

Market Analysis: May 17, 2015

I would not be surprised if we see more digestion and choppiness this week after the big move up last Thursday and with this being options expiration week which often brings with it the before-mentioned choppiness.  I do not see many reasons to go into deep fundamental analysis of any of the various individual recommendations I have put forth.  The financials markets are being driven by the major central banks and until they run out of ammo, the game continues.    The big banks have begun stock buyback programs, cyber security stocks are in an area that is certainly getting a lot of attention and rightfully so with NSA on the prowl,  commodity/resource stocks/countries are starting to do well with the falling dollar, other hard assets should do well too with the falling dollar, the falling dollar also favors the stock market as the market should re-adjust upwards as the dollars falls,  alternative energy stocks have been moving up as the oil price rises making solar power a more cost efficient option, and selected technology stocks that can show good earnings and/or prospects with a stock buyback plan in progress to boot (these days the two often go hand in hand with each other) are good candidates.

In an earlier post, I mentioned that I thought precious metals (gold and silver) would go lower over the next few months and I still think that.  While the stock market indices have been trading in a range over the last several months (and for that matter so have the precious metals markets), I think we are on the verge of a stock market breakout with the dollar falling sharply and various asset classes beginning to re-adjust their price levels accordingly .   We still have a benign interest rate environment, so benign and low in fact that savers have nowhere else to go except into the stock market in an effort to seek returns.  As long as the stock market goes up, there is not any reason to place funds in the precious metals market and the major central banks are working overtime to make sure that happens.   The slogan of the big governments of the major economic regions of the world should be, “In Debt We Trust”.  These governments and their central banks will continue creating fiat money, in a vain effort to maintain their power and quell the impending financial crisis that is on the verge of igniting (thanks to these same big governments and central banks),  until their houses of cards topple.

Market Analysis: May 16, 2015

I really do not know where to begin because there are so many things happening in the financial markets, many of them hidden from public view as is so often the case.  Let’s start with the U.S. dollar since that is something that is in everybody’s wallet, at least until they make holding cash a crime, as it seems that is the direction government and big banks want to move in.  The dollar has been falling like a rock for the last five weeks, even faster than its recent parabolic rise, which is the way most markets work when they turn.  Markets typically go down much faster than they go up when they reach critical turning points.  Some of the effects of the dollar falling are the oil price typically moves in the opposite direction, which we are seeing.  Most other commodities and resources do the same as the dollar rapidly falling is a sign of inflation, an increase in money supply that is usually accompanied by an inflation in various asset prices.  The U.S. has had a combination of inflation and deflation over the last few years depending on what sectors of consumer products and services as well as what asset classes you look at.  The inflated U.S. stock market has been one beneficiary (as well as the government and big banks) of the QE operations (“printing” more currency).  It has kept interest rates low, provided government with additional deficit spending capacity, help big banks rid themselves of toxic assets of questionable value while helping them to boost their reserves of cash,  and forced savers (pension funds) as well as the big banks and some of their clients (Hedge Funds) to put that money to work in the stock market in an effort to seek reasonable returns.  I think you will see the stock market continue to benefit from this easy money central bank policy for awhile longer.  But with the U.S. dollar falling like a rock over the last five weeks and interest rate volatility greatly increasing, I am starting to suspect that the Federal Reserve is increasing the money supply more than they are publicly announcing.  The reason I am suspecting this is that there have been many reports over the last year of China and Russia, large holders of U.S. debt, selling significant portions of their U.S. debt holdings.   The only logical buyer (as well as the only possible buyer) of these worthless pieces of garbage is the Federal Reserve.  No one else in their right mind would try to hold on to the sovereign bonds of a bankrupt nation for any length of time.  The only reason the U.S. continues to get away with this is because they still have the primary world reserve currency and can basically print currency at will to cover their debts and expenses. But this is changing, as other nations of the world have been preparing over the last few years to start using their own currencies for commercial transactions rather than the U.S. dollar.  They are also ridding themselves of U.S. debt at a measured pace and using the proceeds to buy hard assets, make investments, and buy other instruments that show a much better risk to reward outlook.  The alternative platform for using other currencies than the U.S. dollar in commercial transactions looks to be up and running this fall (2015).  Also, this fall it looks like the Chinese Renminbi will be considered and approved as one the worlds reserve currencies (kudos to True Wealth newsletter for turning this light bulb on for me).  But to get back to my point that I suspect the Fed is “printing” more dollars than they are talking about is that the Fed cannot allow interest rates to rise substantially.  A significant rise in interest rates will further torpedo an already seriously weakening economy and greatly increase the interest expense on the rapidly increasing government debt.  Now some of this is speculation on my part as to the reasons we are seeing the fast decline of the dollar but it is speculation based on published news reports.  What is not speculation is the recent fast decline of the dollar, signs of inflationary pressures starting to be seen in some commodities and resources, and a seriously weakening U.S. economy in a world of generally weak economies (the Baltic Dry Index is at extremely low levels and has been for the last 4 years).  But one thing still favoring the U.S. stock market, is all the major central banks of the world are printing money in an effort to keep their economies functioning and their citizens from hanging the politicians and a significant part of that money is going into the major stock markets of the world.  There was an article on ZeroHedge from May 7, 2015 that the Swiss National Bank holds approximately 18% of its assets in U.S. equities (BTW none of the top 20 listed stock holdings were banks) and that was a significant increase in U.S. stock holdings from the prior recorded period.

In summary, I think the U.S. stock market will continue to move higher over the spring and summer because of all the  money printing by the major central banks of the world and the prevalence of low yields which leaves investors nowhere else to go for the chance of reasonable returns.  Also, low interest rate environments are typically good for the stock market.  But the difference here this time is that interest rates are not low because we have vibrant, flourishing economies where money is being lent out to businesses and individuals to take advantage of new or developing opportunities.  But because the major governments of the world are so heavily indebted and their respective economies so weak that they cannot afford high rates.  Corporations are not taking on loans to increase the size or footprint of their businesses because they do not see any opportunities to warrant the risk of taking on more debt for, even at these historically low interest rates.  Corporations are taking on debt for share buyback programs because they see that as the only way to increase their earnings and stock prices.   This increasing divergence between the state of the economy and a high, rising stock market will end badly, but just not yet.

Market Analysis: May 15,2015

I have modified my market view today from my previous posts.  In brief, I did that after listening to a free presentation from Dr. Sjuggerud, author of the True Wealth newsletter, and part of the Stansberry Research & Associates Investment Research.  After listening to the presentation and being impressed with the quality and information presented, I signed up for a subscription.  A quick perusal of the products I subscribed to made me glad of my decision to do so.  Listening to the presentation and reading some of the other products I then subscribed to, helped me immensely in connecting the dots that I have observed in the markets and other information that I had gathered in my own research.  Anyway, it is a high quality product that provides much value.

I think the stock market (SPX, QQQ, COMP, RUT) will continue to go up throughout the summer.  Some interesting ideas that I see in the market now include AKAM, FAS, XLF, GS, AIG, BABA(had 3 big insider buys in May-2 for over $2M each; chart had recent weekly reversal on good volume), and RHT in addition to the resource and commodity driven sectors and countries that I have mentioned in previous posts.  In my next posts, when I have more time I will try to give a more complete picture of what I see including central banks operations and government fiscal predicaments that I think will heavily affect the market in the future as well as currently.

 

Market Analysis: May 13, 2015

The markets, in general, have been trading in a range since late last year(COMP, SPX, QQQ), or mid-year of last year (NYA), or early last year (RUT).  This range trading tendency for such a long period is evidence of high level distribution of stocks into weaker hands.  Economic data over that period of time has progressively worsened where even the generally rosy government provided economic stats cannot mask growing weakness.  After a bull run already over six years old, only a consummate and eternal optimist can believe the stock market is just basing in preparation for a further strong move up.  That said, I do not believe the market is going to crash over the next few weeks.  The current short term decline appears close to over and I think you will see certain parts of the market work higher.  Along with that I think you could see the VIX work its way down to below 10.  If and when the VIX dips under 10, I would abandon ship in all high priced sectors of the market.  At that point, I think you will see the stock market quickly preparing to reverse into a very big bear market.  High priced sectors or stocks can be a matter of perspective depending on your valuation tools and perspective but as the old saying goes, “When they raid the whorehouse, they take the piano player too”.

For instance, widely held AAPL has a relatively benign 15.6 PE and just reported great growth in China for its Iphone during its last EPS conference call.  But ZeroHedge just recently had an article on the rapid maturity of China’s smartphone market and the recent numbers showing a very large slowdown in smartphone purchases, in general.  This combined with the large overall slowdown of China’s economy over the last year does not portend well for future prospects there.  Similar economic woes are already present in most other major markets and this will affect all companies whether they have a domestic or global footprint.  Looking at AAPL’s chart, it has been trading in a range since the week of 2/16/2015 and the four highest weeks of volume during that time has been on down weeks.  Two of the down weeks with relatively high volume (both weeks above the 50 week average of volume) have been since it reported earnings on 4/27/15, not exactly a positive response to the earnings beat.  Going back further, the stock is trading only slightly more than 6 points higher than the highest it traded during the week of 11/24/2014.  AAPL stock has had a huge run-up during this bull market, starting from about 12 (3/2009) to the current 125.86 including a huge price correction (about -$45) during the 2013-2014 timeframe.  With current economic prospects worsening both domestically and globally,  the sustainable price appreciation potential from here for those still holding the stock is based more on hope and wishes than reality.