Tuesday, August 31, 2010

Bloody Wednesday?

Shzzz, the market pressure is palatable. You can feel it. Tomorrow is going to be one interesting day. Technically, tomorrow starts in a few hours with the release of China's PMI. Than you have the ADP employment report tomorrow morning before the market opens. The really big one other than the China PMI is the United States ISM released at 9:00. Anything below 50 on China PMI and below 52 on United States ISM should be a major event.

Technically the market is on a precipice. We have bounced off of the 1040 S&P area countless times and on the upside bounced off of 1070 countless times. We are going to break up or down very very soon. If we break higher I think up we go again to see 1100. I was shorting today though it is far from clear that we break down. Right now if your short you just need strong hands being willing and able to sit through a week or two of rally before once again we come back down to potentially break through the 1040 levels.

While yesterday the volume did not exist, today the volume was the highest in over a week and may have been the busiest day for all of August. It is end of the month so that may be part of it but what is interesting was the heavy volume and the market basically finished flat. Two ways to look at that. The bears used alot of bullets and couldn't get the market to move down or the bulls used alot of defensive maneuvers and couldn't get the market to move higher. Take your pick. I did not like the very end of the day (like last 120 seconds) surge in volume in the e mini futures and push higher. If it wasn't for that I would be alot more comfortable than I am currently.

So we have a few more hours to wait. 1,100 or 1,000? It makes sense the market closed at 1049.33. The market rarely likes to give clues.

Is there any chance a horrific ISM number causes a big bounce. You know, the worse the number the more the government has to intervene type of thing? I don't think so. The big money on Wall St. look at the ISM as one of the most important numbers. If it falls apart (like I said below 52, expectations are around 53 I think) the big money I think will start moving and selling. It is possible there is a lag of 24 hours or something but I think as the knew ISM number gets loaded into models that selling will take hold in a major way.

Monday, August 30, 2010

Hussman Annual Letter

Dr. Hussman of the Hussman funds came out with his annual letter over the weekend. Can be found here. He runs several mutual funds so most of the 52 pages is financials and other information required for regulatory purposes. The first few pages however has some of Dr. Hussman's thoughts which are always worth considering.

Starts with:

I continue to be concerned about credit conditions and the underlying fundamentals of the U.S. economy. In recent months, fresh deterioration in leading economic measures, narrowing compensation for credit risk, and rich stock market valuations have increased the vulnerability of equities and corporate bonds to price weakness. These concerns are reflected in the restrained exposure to risk that the Hussman Funds presently accept.

I continue to be concerned about credit conditions and the underlying fundamentals of the U.S. economy. In recent months, fresh deterioration in leading economic measures, narrowing compensation for credit risk, and rich stock market valuations have increased the vulnerability of equities and corporate bonds to price weakness. These concerns are reflected in the restrained exposure to risk that the Hussman Funds presently accept.

Really incredible the level of silliness that was reached in less than a year from the massive move down in the markets. And this is just amazing even if you previously knew it:

Given that GDP growth over the past year has amounted to $563 billion, while Federal government debt has increased by $1.6 trillion, there appears to be little evidence that the positive economic growth of recent quarters was driven by much else but the deficit spending of government and to a lesser extent, the aggressive purchase of mortgage securities by the Federal Reserve.

Talk about low return on your money.

There is much more related to valuation of the equity markets and additional thoughts on the current economic situation.

UK Home Prices Begin to Fall

Back from a nice vacation. Took until Wednesday before mentally I was able to slow down and enter vacation mode. Was kind of nice to be out of the office last week as I would have been very frustrated with the bleakness of the economic news and the way stocks for the most part shrugged them off. Very very big week for economic data with China PMI, United States ISM, and United States BLS employment numbers. It will be interesting if the market can hold it together through Labor day. Leave Wednesday for a wedding in the Northeast so will be on the road again shortly. Probably post a few things I have read that caught my interest.

Remember all that QE that was supposed to be highly inflationary for England? Well U.K. house prices dropped the most in 16 months according to Hometrack Ltd. From Bloomberg:

U.K. home values dropped in August by the most in 16 months as the housing market endured a “modest re-pricing” that is likely to last as long as a year, Hometrack Ltd. said.

The average cost of a home fell 0.3 percent from the previous month to 158,200 pounds ($246,000), the London-based property researcher said in an e-mailed statement today.


The report adds to mounting evidence that the housing market is weakening, and economists predict data tomorrow may show that banks granted the fewest mortgages in more than a year last month.

England and Australia remain the biggest two residential housing price bubbles. Canada is close by. Jeremy Grantham argues that England home prices are 3 standard deviations overpriced.

Sunday, August 22, 2010

Another Week of Travel

Hey all - going to be out of the country all next week. Yet another trip. I have about 3 more weeks of this before hopefully things calm down.

This week should be very interesting in the markets. In fact it could be the most interesting week since June. Last week I thought was a win for the bulls. Yes the market went down but overall I thought it was very frustrating from a bear perspective. The market could have gone down alot more breaking some major resistance but the bulls were able to hold on one more week.

Coming into Monday I would not be surprised to see strength from the markets as the bounce that started late Friday morning potentially continues. Going into Tuesday though, watch out. Existing home sales could really shock some people. The market is expecting a drop in home sales but maybe not enough. From Bloomberg:

Home sales probably plunged in July, and orders for long-lasting goods climbed for the first time in three months as the U.S. strained to sustain the recovery from the worst recession since the 1930s, economists said before reports this week.

Purchases of new and existing houses dropped 12 percent to a 5.01 million annual pace, the lowest since March 2009, according to the median forecast of 54 economists surveyed by Bloomberg News. Durable-goods bookings climbed 3 percent last month, the survey showed.

Wow, a 12 percent drop. Pretty big fall but hardly a plunge.

Compare this to calculated risk.

Housing economist Tom Lawler's preliminary forecast was 3.95 million SAAR (based on a bottom up analysis).

Many of the regional reports showed sales declines of 20% or more from July 2009 when the NAR reported sales of 5.14 million SAAR. A 20% decline from July 2009 would be in the low 4 millions ...

Now that is a plunge. If that number is anywhere near correct, the market may throw one hissy fit. In general I think you sell any strength on Tuesday. Friday also could be a day the market doesn't like if GDP gets revised much below 1.5%.

Thursday, August 19, 2010

Sticky Equity Prices

I found today to be extremely frustrating. I am usually pretty laid back when it comes to how the market is trading but was agitated all day today. I felt like today should have been death for equities. If I was dreaming the night before I couldn't have thought up worse data. It is scary how fast the economic numbers appear to be falling and the equity market just refuses to budge. They remain sticky up near this 1100 area. Yes the Dow lost 144 points and yes the S&P 500 was down 1.69% but we ended up right back where we were late last Friday. Above resistance. Getting a 5 handle on jobless claims I thought would have sent the market down 2% on its own. Combine that with the Philly Fed index showing manufacturing was contracting and just an across the board slaughterfest and it should have created the volume to get the market back below resistance. Instead we are sitting above resistance going into two days with no economic data and option expiration tomorrow.

I really have no idea where the next two days of trading are going to go. If I had to guess options expiration combined with geopolitical risk going into the weekend (Iran switching the switch on nuclear power) causes stocks to surprise some people on the downside breaking through resistance. Than Monday surprises everyone and reverses going back above resistance. I really have NO IDEA. I remember a similar setup in September 2008 but what you just read should be considered just interesting speculation.

What I think could put a death nail in equities next week is the existing home sales on Tuesday and GDP revision on Friday. If existing home sales come in weak enough that months of supply of housing inventory comes in above 12 months, watch out. Also GDP revisions usually mean absolutely nothing but if it gets revised all the way down from 2.4% to less than 1% (a possibility) again watch out.

It feels like the market knows it is headed lower but it is the dog days of summer with many traders on vacation and like a lazy dog it is waiting for slightly cooler temps before it starts moving.

Jobless Claims - Market Killer?

If this doesn't send the market down I give up. Jobless claims just reported. Hit 500k. The four week moving average was over 482,000. The highest number since December of 2009. This is real time data and shows what I have been saying now for weeks pointing to the leading indicators, the U.S. economy is falling. The market should be down alot but should and will are two different things. We got the bounce I chickened out waiting for but I was shorting more yesterday. Let's see if once again the market can shake off another bad number.

Monday, August 16, 2010


Since the last time I did a blog post the market has changed fairly dramatically as equities have been falling like a hot knife through butter . I came into today expecting some sort of bounce in the early part of this week. We had a gap down at the open and I covered some within the first hour of trading. Well we bounced but it was the most pathetic worthless bounce I may have ever seen. The lightest cumulative NYSE volume day of the year, including holidays. We sold off into the afternoon. Now the S&P future volume wasn't nearly as bad which I tend to thinks drives more of the action. Anyway, by the end of the day, while I think the odds are still for us to move higher, the potential to miss something on the downside I felt was to great so put right back on all the short exposure I took off. Very rarely I trade like that but even if we do a several day pop I do think we are headed lower. Anywhere between 1090 and 1110 is very possible for a bounce. I will be shorting most likely if we do get there.

This week is a light week for economic data which should also add to the bullish bias. Tomorrow has several economic releases but looking back to July and not terribly important. Wednesday has virtually nothing. Than you have Thursday with jobless claims and Friday with another regional manufacturing index in the Philly Fed release. That last Philly Fed release is important because it looks at August data. The jobless claims number is extremely important. We have had two gooseggs in a row. Another goosegoog and move towards 500k jobless claims could start the next move down in a serious way. Anyway, would not be surprised at a sideways action or up action for another day or two but I don't want to be to cute and potentially miss out on that not happening.

The fireworks going on lately hasn't been the equity market but the bond market. Massive gap up in bonds. So massive in fact I wonder if it wasn't some sort of exhaustion gap that you see occasionally in equities. Either way it seems to be screaming a warning to equities which try to play deaf some times.

My bigger question is if the markets can really break down before labor day or if much of Wall St being on vacation will keep the market propped a little longer as people making big money decisions just won't be around to sell if the economic data looks really bad.

Tuesday, August 10, 2010

Quick Take

Well today was definitely frustrating for many. Scenario A started to play out. That burst what many bulls were hoping for, a spike to take some profits. The bears didn't really get to play either. We are left wondering.

The S&P future volume surged. Yesterday we didn't break a million contracts trading hands. Today we broke 2 million. Up 100%. However, the NYSE volume was still a pathetic 980 million shares traded. Up about 25% or so from yesterday bust still did not even clear a billion.

My quick take today was that it was a win for the bears. Unfortunately, instead of being a 4th down conversion, I feel like it was just a 3rd down stop. We still have fourth down ahead of us. The interesting stuff to me was actually not the Fed release but everything going around it. The Euro was very weak early this morning. Some weak data out of Europe and sovereign bond spreads started widening out again. European government bond spreads have very quietly moved to two and three week highs. Copper was weak as was oil.

There is very little economic data tomorrow so the attention shifts to the jobless claims number. It is only significant if we have another big spike. If it stays the same or declines a little, I don't think it will mean much. The decline won't mean much because it will confirm that the spike last week wasn't significant and it is still stuck in this no man's land of 450 to 460k ish number.

So the jobless claims number could be a catalyst for a move lower as could be the June retail number on Friday. Or it could come out of Europe. Watch the Euro and European government debt spreads. Or maybe we go back to no volume, inching our way up until Labor day. Without a break below 1110 (maybe 1100), 1140 is still a very real possibility. Nothing is ever easy is it? I was shorting some today (both pre and post release) as the Fed mess is passed us at least for awhile.

I am traveling again tomorrow so not sure when I will be back blogging.

Buffett Concerned about Inflation? Maybe Not

Good grief. I used to get so frustrated with financial media and would rant on the blog about this piece of poor reporting or how this was taken out of context. I have gotten away from that as I just read less and less financial news from financial media outlets but I couldn't help it this time after reading this Bloomberg article. I actually saw this article about midnight last night and was like, ridiculous, but hoped it would just go away. Instead it became front banner Bloomberg news this morning. Let's start with the title. "Buffett Shortens Bond-Holding Duration After Inflation Warning." I am a Buffett follower and remember no such recent chatter out of Omaha. So I look in the article.

This is the supposed warning:

Buffett, 79, urged Congress last year to guard against inflation as the U.S. economy returned to growth. In an August 2009 op-ed in the New York Times, the Berkshire chief executive officer said government must address the “monetary medicine” that was pumped into the financial system after the 2008 crisis.

Are you kidding me? From a year ago. Opinions on Wall St. have changed drastically from a year ago. Buffett was wrong like everyone else was (well, almost everyone) that inflation was coming. That has no bearing on what Buffett thinks now.

Well what about him shortening duration of his bond portfolio? From the article:

Twenty-one percent of holdings including Treasuries, municipal debt, foreign-government securities and corporate bonds were due in one year or less as of June 30, Omaha, Nebraska-based Berkshire said in a filing Aug. 6. That compares with 18 percent on March 31, and 16 percent at the end of last year’s second quarter.

So he increased his holdings in bonds due in less than one year from 16% of his portfolio to 21%. So an entire article on how Buffett is gearing up for inflation making front page news is based on a warning from a year ago and the fact a 5% increase in the portfolio in bonds due less than one year? Are you kidding me????? I mean the reporter should be fired. Now 5% is not a small move but it isn't gigantic either, but there could be an additional reason for this move THAT IS NOT MENTIONED AT ALL that has nothing to do with inflation. Credit risk!!! Ding ding ding ding. Do we have a winner? This article doesn't mention at all that in June (so only 2 months ago compared to a year ago on his other comments) he warned in front of Congress about the municipal bond market and the possible train wreck it is headed for. Many very savvy investors are also worried about a sovereign debt bubble.

Okay - so if I am worried about credit risk in municipal bonds and potentially in the future on government bonds - I may just shorten the duration of my bond portfolio. That would be logical and has nothing to do with inflation concerns.

Buffett may or may not be really worried about inflation, I would guess not, but there is nothing at all that Buffett has done in the last six months that should generate a headline article on how Buffett is concerned about inflation and we should also. Really really poor reporting.

Monday, August 9, 2010

Stage is Set

Wow, I mentioned last night on how light trading volume was worldwide and than we see a day like today in the U.S. markets. I don't know if I have ever seen a full day like it. We didn't break 1 million contracts in the e mini futures. I don't know if I have ever seen that. The NYSE didn't break 800 million shares. I mean, it was like a holiday.

Well the stage is set for the next fall in the markets. Now the question is if it occurs. I have had tomorrow circled on my calendar for a couple of weeks for when a possible top would be in or very close to in. It may not happen but the market has been buying the rumor that the Fed will save the world so we shall see if A) the market is severly disapointed or B) if it is sell the news. I have been thinking we would get a spike and slam down but that almost seems to easy. Everyone seems to be expecting that - even bulls (though they think it would be just a pause)

Assuming I am right that the market is topping there are several ways for this to play out. The market is always interested in max frustration.

A) Max frustration for the bulls

We are never positive tomorrow. The market opens down and sells off all day never looking back at 1120. The bulls were looking for a spike to take profits and never got that spike. Don't put this as very likely because the bears never have it that easy but who knows.

B) Max frustration for the bears

We get the spike above 1130, maybe even 1140, and start to roll over but the market closes with the market above resistance. Bears are sweating. Wednesday comes and the market opens flat to up or moves up some during the day, the bears give up hope and cover. Thursday another bad jobless claims number comes confirming last week wasn't a fluke and the market tanks.

C) Mix frustration for bears and bulls

Big spike tomorrow with the release causing bulls to get more bullish and bears to start covering. Market doesn't last through the day and sells off hard frustrating everyone. This is what would normally happen and I could be wrong, but it seems to be what most are talking about / expecting. For that reason, what I normally would think would happen I don't think will happen.

Sunday, August 8, 2010

Trading Volume Worldwide Slowing

From Bloomberg:

Stock brokers in the United Arab Emirates are struggling to make ends meet as trading volumes tumble to the lowest in four years, forcing some to close.

The number of brokerages in the country may drop to as low as 55 from 81, according to Shuaa Securities LLC, the brokerage unit of the U.A.E.’s biggest investment bank. Twelve firms, from Abu Dhabi-based Makaseb Islamic Financial Services to Dubai- based IFA Securities LLC, filed requests to the Securities and Commodities Authority to halt operations this year as costs rose and revenue fell. Seven shut or suspended operations last year and three in 2008.


The average daily volume of shares traded in Dubai has slumped to 173 million so far this year from 477 million in the year-earlier period.

I have mentioned many times how volume has just disapeared. Bull markets die in low volume. However, I wonder if there isn't something more going on? If worldwide the interest to invest, to speculate, isn't slowly dying? I have no idea. Just hypothesisizing.

A Weekend Musing

Friday looked like a bear trap and I covered just a little early Friday afternoon. I wanted to have a some room to short some more if we get a market bounce Monday / Tuesday but I am ready to add it back on. Just a portfolio flexibility thing. The thinking was that we have zero economic news on Monday and the only chatter was going to be about the Fed meeting on Tuesday. Looking for a bounce up to 1130/1150 and the market is done. The possible thesis anyway but not married to that idea and we could be done right here and now. The Hewlett Packard news Friday after the bell throws a wrench into everything. Not that it means anything fundamental to anyone besides HP but it is the outside event that can mess with sentiment on the margin. Remember the Goldman SEC suit in late April? Basically marked the top for the market.

Everything in me tells me the market is getting ready to roll over in a major way. A mix of fundamental stuff, technical stuff, and gut instinct watching the market for years. I could be very wrong but I feel like we are on a tipping point where within the next two weeks the next major leg down will begin.

Friday, August 6, 2010

Bear Trap?

I could be wrong but my gut is telling me this is a bear trap. The jobs numbers were awful. Just dreadful. Huge revision to June. Miss on total jobs and private sector jobs...but, the emphasise will move to Tuesday and the Fed meeting. It is the classic bad news is good news for the equity markets. The markets will start looking towards Tuesday for possible easing from the Fed. It looks like currencies are starting to price that in. Euro up strong. Copper is flat not having any follow through from the sell off yesterday. I am not shorting additional here. It smells fishy. I do think you will know in another hour though whether this is a trap or the real thing.

Thursday, August 5, 2010

2Q Letter for Kaspar Investments

Yesterday I sent you my quarterly letter. If you are a regular reader of this blog and are not on my mailing list, put your email address in the comments and I will add you to my distribution list.

Jobless Claims Number - EEEKKK

Don't look now but jobless claims came in at the highest initial claims rate since April - 479,000. Ouch. If we are rolling over like I believe we are - this number should start peculating higher. One caveat though is much fewer people are employed than they were two years ago. A week doesn't make a trend but it will be interesting to watch that number over the next month.

I sort of doubt the market will tank on this number before the non farm payroll report tomorrow morning.

Wednesday, August 4, 2010

Getting Super Bearish

I am starting to get super bearish again. After just sort of ignoring the market for a few weeks as we bounced around in what I think is a meaningless counter trend rally, I think we are getting close to the markets completely falling apart again. In other words 1010 on the S&P would be taken out. Economically, things appear to be hitting the skids. The market seems zeroed in on the Fed meeting on Tuesday which could be a big sell the news event. I still think the market could have another bounce left in it back towards 1140 but tonight I have been feeling like we are down to a few weeks if not a few days before this thing rolls over. The market cannot keep ignoring the economic reality for very long. Right now bad news is being bought because it increases the odds of government action. That is not sustainable.

Tuesday, August 3, 2010

Jim Rogers and Commodities

I was asked to comment on this CNBC piece that quotes Jim Rogers and his bullish thesis on agriculture commodities.

The July rise in wheat prices, the fastest in 51 years, indicates that shortages in agriculture are coming, Jim Rogers, chairman of Rogers Holdings, told CNBC.com Tuesday.


"Anybody who's got potentially good agriculture land and good weather" is likely to emerge a winner out of this situation because prices of nearly all agricultural commodities are set for steep rises, Rogers said.

"Prices aren't high enough and most people don't believe it," he said. "Unless prices are high you're not going to attract people in the business. Eventually people will go into farming again but it's going to take a while."

Shortages in agriculture are likely to add to problems created by governments who printed money to spend their way out of the financial crisis, according to Rogers.

"It's all happening at a time when governments are printing more money… it's a very dangerous situation," he said.

If there was any asset I would like to own over a five year period besides gold, it would probably be agriculture commodities. However, like gold, I do think agriculture prices are not about to skyrocket to all time highs. They could, but I just don't think the probabilities are in their favor. In the intermediate term (six to 18 months) I think gold and agriculture prices will be lower but there is no way I would put money on that bet. In fact, even though I think that, I would want to own gold currently because the possible alternative is gold goes parabolic.

Jim Rogers has been an agriculture bull for at least five years. He has been mostly right though did not see agriculture prices getting killed in late 2008 with all other commodities. I think we are in a similar situation now and it seems we are following a similar playbook to 2008 in the way the commodities are spiking right as the economy seems to be slowing. Oil going above 140 in the summer of 2008 helped add a final bullet to the head of the consumer.

Finally, there is not much money printing occurring. Only reserves being built.

Monday, August 2, 2010

Bears in Hibernation

Hey all - after being out of town for a couple of weeks, I am back. Been absolutely crazy with business related dealings where sleep has been something that has been little and far in between. Flew back from Chicago late last night. First time I have ever really been in Chicago. Absolutely lovely city.

So my thoughts on the markets. Well the last couple of weeks has all been part of this correction move from the July lows. Not surprised at all that it has happened but I have continually been surprised at the ferocity of such moves. My investing "history" is the late 90s and the early part of this last decade and things just don't go up like this with as much violence. Stair step up elevator down is the old idiom. Well it has been elevators up and down the last couple of years. Today's rally was a right hook to the jaw for many bears. Looks like a legitimate breakout and wasn't expected by many bears. There is a bearish spin which is discussed below.

Volume today again was non existent. Becoming a theme I know. It was the lightest 2% up day in the markets in years. It was also the beginning of the month which saw new money get put to work. Actually, beginning of the months usually follow the previous month if it was a violent move in one direction. Beginning of July was a very bearish day as June was very bearish. The reverse happened in the beginning of the month here. It was also seemed to be a sell the rumor buy the news type of day regardless if the news was bad. China PMI data came out over the weekend. The official government PMI number came out at 51.2 down from 52.1 The separate HSBC number fell to 49.4 from 50.4. Anything above 50 is growth and below is contraction. It was the weakest number in over a year for China and was not a good number but the spin is that China has now slowed their economy down and will now ease back on the tightening measures. The U.S. ISM number also came out today declining to 55.5 down from 56.2 but above expectations. The third month this number has declined. Once again it was met with a sense of relief even if it wasn't great.

It will be difficult for the markets to turn on a dime and so today was probably not the high. I have postulated for awhile that 1140 to 1150 was very possible. We are getting close. Looking for catalysts of potential highs is the ISM service number on Wednesday with the ADP number, jobs number on Friday, and FOMC meeting on Tuesday. All possible events that could turn around this market.

I still think the Euro's up move is getting close to being done. I was a little early but correct that a rally coming when everyone thought it was going to parity and I may be early in my thinking that it will start to roll over but anywhere between here up to 1.35 (maybe 1.40) seems prime territory for a turnaround. Inversely the dollar's sell off may be getting close to being done. One trade sentiment index has the percentage of bulls on the dollar fall from 98% (at the June high) down to 7% now. That can extend for awhile but enough of a move to potentially shake some bulls out getting ready to make another move.

The bigger breakout may be commodities with oil and copper up huge. Remember the economy was in recession for over 7 months before commodities, specifically oil made its high around July of 08. In general, oil going any higher is a net drag on the economy.

Finally, the consumer metrics index (CIM) seems to be falling off a cliff. Other blogs mention this from time to time and something I have followed for about six months. Similar to the ECRI in tracking leading indicators. The ECRI, the CIM, and the 10 year Treasury - all say the same thing. A meaningful slowdown is in process for the U.S. economy. The stock market and commodities are saying something very different. Time will tell which is correct. (it is usually not stocks or commodities - remember I just pointed out commodities peaked in July of 2008 well after the slowdown started)

So to sum up, the bulls really are in charge right now. I doubt today was a high (it could be). It seems to go with the theme of a broken market as there is no conviction in buying, it continues to melt up, and moves up or down make little sense. Just have to take side, take the gains/losses and stick with it.