Archive for October, 2011

Different Kind of Bull Market

October 30, 2011 Leave a comment

Different Kind of Bull Market

During the price advance from the 2009 low I have asked myself more than once, “What the heck is going on?” That kind of question more or less comes with the territory, but since 2009 the market has been extra confusing — to me, at least.

Since the market top in 2000, many believe that we have been in a secular bear market, somewhat similar to the secular bear in the 1960s and 1970s, which moved in a broad trading range consisting of smaller cyclical bull and bear markets. This current secular bear has been composed of a cyclical bear (2000-2002), a cyclical bull (2002-2007) and another cyclical bear (2007-2009). Very clear and straight forward.

Since the 2009 price low we have been in a cyclical bull market, but it has been a very different bull market in that it has been punctuated, so far, by two mini-bear markets rather than the normal price corrections we normally experience. I have circled thsoe bear market lows on the chart below.

The problem has been that for each of these corrections/bear markets (2010 and 2011) my expectations were for a normal extended bear market outcome. Instead prices reversed upward and another leg of the bull market was tacked onto the price structure. Okay, that actually hasn’t happened yet as far as the October lows are concerned, but I am pretty confident that is where we are headed. When the 2011 highs are exceeded, the rising trend from the 2009 low will be officially reengaged.

Bottom Line: Perhaps I have been alone in my confusion, and perhaps my expectation of new highs will be proven wrong, but my purpose here has been to clarify the context within which I think the market is and has been operating. Specifically, since 2009 we have been in a bull market that has been interrupted by two unusually severe corrections. While we have not yet reached new highs, we have discussed in our member blog why we think that the August/October double bottom was an important low. And it will probably prove to be the base for another up leg in the bull market. The most obvious price target is the top of the long-term trading range, about 1550, but I think where ever the next important top is made the “bull market” will finally be over.

Categories: Economic Update

Senior Services – Home – Youngstown, OH

October 30, 2011 Leave a comment

How to contact us. Our Services\

via Senior Services – Home – Youngstown, OH.

Categories: Economic Update

The Market Rallied 14% and You Lost Money – Welcome to the “New Normal”

October 30, 2011 Leave a comment

The Market Rallied 14% and You Lost Money – Welcome to the “New Normal”

 October 29, 2011

Welcome to a market driven by huge amounts of liquidity and an ever changing regulatory landscape. While the talking heads of the financial stations cheer the latest rise in the markets they fail to see much of the bigger consequences of the liquidity fueled rally. Below is a chart S&P since October 1st.

The Market Rallied 14% and You Lost Money – Welcome to the “New Normal”

Some rough math and we are up nearly 14% since the start of October, which is just crazy because it is based on no outstanding financial news nor stellar economic outlooks. The problems in Europe are far from fixed but the faux “solution” of the EFSF has juiced the markets for the moment.

Source Future Source

Now, look at the price of oil. If this does not throw the brakes on the US and world economies then what will? Oil has gone from $76-$93 a barrel and Brent Crude is trading at $110, that is not bullish for the economy.

The price of oil in the consumer based economy has a huge effect on discretionary spending. The rule of thumb is that every 1 cent increase in the price of gasoline, takes away approximately $1 billion dollars from consumer discretionary spending. Sorry for being a “Debbie Downer” but gas was up 19 cents yesterday in the futures markets.

Before everyone starts sipping a “market is fixed” celebratory glass of champagne, here is some cold water facts to sober up with. First, your 401(k) is up 14% this month, but the money in that 401(k) and the pay check that was brought home is worth approximately 8% less. Second, the life blood of the economy, oil is up nearly that same 14%. Lastly, the euro-zone issue was supposedly fixed by somehow creating a 1.4 trillion dollar fund that had an entire nation default or restructure its debt while not triggering a credit event. In the mean time killing the entire sovereign CDS industry overnight and taking away any entities ability to hedge sovereign debt risk. Solving a debt crisis with more leverage and debt has always been sound economic policy.

Categories: Economic Update

“Bear Market may last 17 years.”

October 18, 2011 Leave a comment

‘The End of Progress’: Expect Decades of

Slow Growth, Author Graeme Maxton Says


By Stacy Curtin | Daily Ticker / Yahoo Finance  – 19 hours ago – 10/18/11

From retail sales to initial jobless claims and monthly payrolls, a recent spate of better-than-expected economic data has many wondering whether the fears of a double dip recession are overblown.

Even the markets seem to have looked passed the previous bearish sentiment. Both the Dow Jones Industrial Average and the S&P 500 are up more than 5 percent since the beginning of Oct. — despite the unprecedented volatility since the debt-ceiling debate in Aug.

So is the economy on the upswing and not as bad as feared?

The Daily Ticker’s Aaron Task asked that of economist Graeme Maxton and author of The End of Progress: How Modern Economics Has Failed Us. As you can gather from the title of his book, Graeme is not all that optimistic.

“Everybody wants to see some good news. We want to come out of this seemingly endless slow period of growth,” he says. “But, I am sorry to say it is not going to happen. It can’t happen.”

His reasoning: Debt, debt and more debt. Over the last 30 years all growth — from Asia to the U.S. to Europe — has been fueled by large amounts of consumer debt, bank debt and government debt.

Fast forward to today. The world’s debt problem is not getting better, only worse.

It may feel like ages ago already, but it was just two months ago the U.S. Congress grappled with how to raise the country’s $14 trillion debt ceiling. And across the pond, a deal over Greece’s solvency has been two years in the making and fears of a contagion abound.

On the consumers front here at home, Americans increased credit card debt in September by 1%, according to a new survey by Credit Karma. Last month the average consumer with an account had:

  • $174,137 in home mortgage loans – up 1 percent quarter-over-quarter
  • $47,361 in home equity debt – down 0.4 percent quarter-over-quarter
  • $29,939 in student loans – stable quarter-over-quarter

So then how long will it be before a recovery takes hold?

“We are destined for a correction…that will last at least 10 years and we haven’t actually seen that correction yet. We’ve seen part of it,” Graeme says. “[Consumers] have to start paying back what they borrowed, banks have to get themselves back into some sort of healthy state” as do governments around the world, most notably Greece right now.

Until the debt dissipates, you can forget a recovery. The world will chug along at a very slow pace, he says.

Categories: Economic Update

“Darkest Days” for the Economy: Behind Us, or Just Ahead?

October 15, 2011 Leave a comment

Economic skies forecast: slowly clearing, heavy rain returning, or cyclone?

Many people still talk about a “recovery,” or at worst only see a possible double-dip recession. But what if the mistake was to think the economy was only in a recession in the first place? It can’t “double-dip” when it never truly recovered:

“The respite following the 2009 stock market low is not a new expansion. It has failed to improve housing sales, barely caused employment to budge, and hasn’t managed—despite the unprecedented manufacture of new Fed money—to get the total supply of credit back above its 2008 high.”
Elliott Wave Theorist, Sept. 2011
Indeed, the Federal Reserve’s quantitative easing measures have failed.
The Fed’s latest policy plan to stimulate the economy has been dubbed “Operation Twist,” which involves selling short-term Treasuries and buying longer-term bonds. The aim is to lower long-term interest rates and stimulate borrowing.
Yet rates have already been extremely low even as the economy remains sluggish. Moreover, businesses are cautious and consumers fearful of assuming more debt. As Bloomberg reports (Oct. 7)
“Consumer credit in the U.S. unexpectedly dropped in August by the most in over a year.”
Households that do want to borrow don’t qualify because of tighter lending standards.
Fed Chairman Bernanke was on Capitol Hill on October 4, urging Congress to do more to boost the economy. But hasn’t Congress already thrown tons of money at the economy?
Imagine if the newspapers reported that Bernanke appeared before Congress and said this:
“‘This is the most serious financial crisis we’ve seen, at least since the 1930s, if not ever.'”
Bernanke did not say that, but his counterpart in Britain did. As reported by The Telegraph (Oct. 6), the comment came from Sir Mervyn King, the Governor of the Bank of England.
Categories: Economic Update

Thanks alot Greece!

October 13, 2011 Leave a comment
So Much For That RMB Revaluation.

Thanks A Lot, Greece!

Economy,International Trade,U.S.-China Relations

The pain of the European debt crisis is spreading, with the plummeting euro making Chinese companies less competitive in Europe, their largest market, and complicating any move to break the Chinese currency�s peg to the dollar.

Another excellent article by Keith Bradsher at the New York Times.

The RMB revaluation journey has been a long and strange one over the past seven years or so. Most of the attention has been on the U.S.-China bilateral relationship, the bilateral trade deficit, and the employment effects of related policy on both sides.

The U.S. call for RMB revaluation has been fairly steady, although louder pleas occur around election time and when the U.S. economy runs into problems. The most recent spike has been the result of the Great Recession and persistent U.S. unemployment. The usual suspects in Congress (e.g. Senators Schumer and Graham) have been up to their old tricks sponsoring punitive legislation.

In conjunction with recent negotiations on the Iran nuclear program and international economic sanctions, most people seemed convinced that some sort of revaluation was in the cards, either a modest one-off bump upwards or a gradual relaxation of the trading band that would allow the RMB to float upward over time.

Enter the Greek debt crisis.

Chinese policy makers reached a consensus last month about dropping the dollar peg. But allowing the renminbi, the Chinese currency that is also known as the yuan, to rise against the dollar now would mean a further increase in the renminbi�s level against the euro, creating even more problems for Chinese exporters to Europe.

The thing to remember about international monetary policy is that it’s, well, international. Just because one country, like China, pegs its currency to that of another country, the U.S., that doesn’t mean that other nations are not affected by changes in that money’s value.

In the case of Greece and the Euro, the reverse is true, and events in Europe are having a direct effect on China’s monetary position. What’s happening out there? Greece was on the verge of bankruptcy and the situation is still dire. The discussion over Greek debt has included debates on whether it should stay in the Eurozone at all, and even whether the EU, or Eurozone, itself is a deeply flawed institution. More recently, EU Member States have agreed upon a bailout package.

Well, you can imagine that such talk, not to mention underlying financial realities, have pushed down the value of the Euro. Who wants Euros, and who wants to do business in Europe, under these circumstances?

So the Eurodollar rate has gone down the toilet. A picture is worth a thousand words, though, so feast your eyes on the carnage:

Euro-Dollar Rate (last six months)
Nasty stuff. More important, though, keep in mind that whole “international” thing. This does not just affect the U.S. and Euroland. The RMB is pegged to the dollar, so whatever the dollar experiences against other currencies is also mirrored by the RMB. (To be more precise, the RMB’s value against the dollar is kept within a narrow trading band, not a fixed peg.)

As the above chart shows, the Euro has taken a beating against the dollar, meaning that the dollar is stronger now than it was before. This means that dollar assets are worth more in Euros; Americans that still have jobs are once again considering European vacations.

Euro-Yuan Rate (last six months)
To close the loop, remember that whatever the dollar experiences against the Euro (i.e. it’s a lot stronger now) is mirrored by the RMB.

So now the RMB is stronger against the Euro than it was a few months ago.

The euro has plunged against the renminbi in recent weeks, at one point Monday reaching its lowest level since late 2002 before turning higher.

�The yuan has risen about 14.5 percent against the euro during the past four months, which will increase cost pressure for Chinese exporters and also have a negative impact on China�s exports to European countries,� the [Commerce] ministry official, Yao Jian, said at a news conference in Beijing, according to news service reports.

What’s the connection to exports? A basic trading illustration would look a bit different depending on the currency of the deal, so let’s assume that a Chinese factory is selling shipments of widgets to a European distributor, and each shipment has a price of 50,000 Euros.

At the end of November, 50,000 Euros was equal to about 515,000 RMB. Fast forward to now, and the Greek crisis, and that same shipment priced in Euros is now worth 420,000 RMB.

It’s a little more complicated than that, but essentially what it all means is the Chinese factory is either getting less money for his widgets or he is selling fewer widgets. To the Chinese government, that means less money coming in to the export sector, which is just now bouncing back from 2008/2009 when the bottom temporarily dropped out of global trade, and ultimately less jobs.

Going back to the U.S.-China debate over the value of the RMB, which looked to be heading in the right direction, the situation has now changed. If China relents to pressure from Washington, the result is a strengthening of the value of the RMB. This means Chinese goods to the U.S. become more expensive — basically the same dynamic I illustrated above with the widget purchase.

China’s export sector is already unhappy about its position due to the Euro, but to take a contemporaneous hit on the trade front with respect to the U.S. market? That’s a bitter pill that Beijing is unlikely to swallow anytime soon or, to further the analogy, at least not in a large dosage (i.e. a sizable revaluation).

Categories: Economic Update

Unemployment going up-Recession Here.

“It’s Going to Get a Lot Worse”: ECRI’s Achuthan Says

New Recession Unavoidable

October 1, 2011

Weakness in leading economic indicators has become so pervasive the Economic Cycle Research Institute now predicts a new recession is unavoidable.

“The vicious cycle is starting where lower sales, lower production, lower employment and lower income [leads] back to lower sales,”  Lakshman Achuthan declares in the accompanying video.

Whereas Achuthan said the jury is still out in late August, the weakness in leading economic indicators — and ECRI uses a dozen for the U.S. alone, he notes — has become a “contagion” that is spreading like “wildfire.”

Although the recovery has been “subpar” by nearly every measure, Achuthan refutes the idea the economy never got out of recession in the first place. “Just because it looks and feels a certain way doesn’t mean it’s a recession,” he says. “You haven’t seen anything yet. It’s going to get a lot worse.”

It’s too soon to predict just how bad it’s going to get, but he expects another spike in unemployment and further expansion of the federal government’s $1 trillion deficit. This forecast has huge ramifications for the 2012 election and the already struggling U.S. consumer and Achuthan says a “mild” recession is the best-case scenario.

By now you may be wondering what separates ECRI’s recession call from the myriad other recession calls out there. First, ECRI’s primary raison d’etre is predicting recession and recovery calls. Second, and more importantly, The Economist reports ECRI has never issued a “false alarm” on a recession call, meaning many of the Chicken Littles currently declaring “the sky is falling” might actually be right this time around.

Categories: Economic Update