Friday, January 3, 2014

Volume Off the High- Jan. 2 Trading Day Edition

Strangely enough, there was not many names coming off their highs despite the overall market weakness and increased supply. Although the names below reach the criteria I set for 'volume off the high names' none of them appear particularly interesting to me. That said, CDI is reorganizing its business and laying people to 'align the business'. This could be a euphemism for investors to watch earnings carefully in the next few quarters and could be one to watch.

Four Observations From 2013

By Simon Black

1) Politicians believe there are no consequences for destroying our liberty...

Stimulus and response. That's the easiest way of summing this up. When politicians steal, and there are no consequences, they're going to keep stealing.

Cyprus proved this point handily. The government froze bank accounts for everyone in the country (of course, the big bosses got their money out in time). And yet, there was no violent revolution in the streets. People just accepted it.

Poland nationalized pensions. Argentina imposed severe capital controls. The French are taxing everything under the sun. The US government was caught red-handed spying on... everyone.

And yet, there have been ZERO consequences. Citizens have been trained like caged animals to simply roll over and acquiesce. I imagine the politicians are thinking, "Holy Cow! I can't believe we just got away with that..."

It only reinforces their behavior. With each destructive act, they become more bold, more brazen in dismantling our liberties, confident that they can continue to act with total impunity.

2) ...Central bankers and economists believe there are no consequences to printing money...

The Fed expanded its balance sheet by $1.1 TRILLION in 2013, a whopping 38.5%. Nobody seems to mind. The stock market surged to all-time highs, the bond market remained stable, and everyone pronounced the 'recovery' was in.

I attended a dinner a few months ago where Ben Bernanke himself touted how much his quantitative easing had helped US economic conditions.

They really believe in what they are doing. They really believe that conjuring endless quantities of money out of thin air is the path to prosperity.

Not to mention, our modern society awards its most esteemed prizes for intellectual achievement to the likes of idiot savants like Paul Krugman who tell us that the Fed should be printing even MORE money. And people listen to him.

So we can only expect Ben "I can raise interest rates in 15 minutes" Bernanke, and his heir apparent Janet Yellen, to give us more of the same.

3) ...Investors think there are no consequences to deficits, or debasement...

In 2013, headlines like "the US deficit is only $700 billion" were actually considered good news.

And markets have given all of these fiascos a pass-- from the government shutdown to record-shattering debt levels to downgrades by the rating agencies. AA became the new AAA in 2013.

Nobody cares that the US government 'borrowed' a record amount of money from the Social Security Trust Fund. Or that they spent a record amount just to pay interest on the debt at a time when interest rates are at all-time lows.

Rather, they just keep investing... without a single thought to the possible risks. The fear of missing the big boom is greater than the fear of losing money. But then again, it's not their money at risk. It's yours.

4)  ...But Joe Six-Pack knows this is all crap.

In 2013, the collective net worth of the 300 richest people in the world grew to $3.7 trillion, 16.5% higher than 2012. Corporate profits were also at record levels.

Fortune 500s, the super-rich, rich, and even upper middle class have largely been beneficiaries of the central bank induced asset bubble.

But everyone else is getting hammered by inflation... watching their savings and livelihoods melt away before their very eyes.

A report from the US Census Bureau this year showed that median household income has declined for five straight years. And those living in poverty, using food stamps, or receiving unemployment benefits remained at record high levels in 2013.

Meanwhile, the wealth gap has grown to its largest since 1929-- the year of that fateful financial collapse.

It's time for a reality check: something is wrong with this picture.

We've become desensitized to everything. "Unprecedented" monetary policy. Record debts. Massive wealth gap. Government surveillance. Theft. Deceit. Inflation.

We've become so accustomed to getting screwed, it's just par for the course now. We sit quietly and wait for the next round of beatings, shrugging it all off as the new normal.

This isn't normal. This is not how a free society is supposed to function.

A free society does not spy on its own people, threaten them with drone assassination, and award an unelected banking elite with supreme authority to rob purchasing power from the masses in favor of a bubbly stock market.

And despite the conventional wisdom, this is not a consequence-free environment.

History is full of examples of entire nations that reached their breaking points... shouting from the rooftops "I'm mad as hell! And I'm not going to take it anymore!"

2013 already saw violent unrest in some of the most stable countries in the world like Singapore and Sweden, all underpinned by absolute disgust for the status quo.

Whether today or tomorrow, this year or next, there will be a reckoning. The system is far too broken to repair, it must be reset.

It's simply absurd to look at the situation objectively and presume this status quo can continue indefinitely... that this time is different... that we're somehow special and immune to universal principles.

This is not some prediction for doom and gloom. Far from it.

It's actually a message of optimism. For the sooner these crackpot criminal politicians and their central banking ilk are stricken from power, the better off we'll all be.

Unfortunately there's going to be quite a bit of turmoil to get there.

Here's to 2014. It's going to be a hell of a year.

Record Number Of Companies Issueing Negative Guidance

The below is from Factset research. I am probably wrong in the following assertion, but the combination of the negative price bias and that the downtrodden tone to earnings is already know by the market may suggest price gains come earnings season. That is unless guidance and numbers come out even more negative than is assumed.

For Q4 2013, 94 companies have issued negative EPS guidance and 13 companies have issued positive EPS guidance. If these are the final numbers for the quarter, it will mark the highest number of companies issuing negative EPS guidance and tie the mark for the lowest number of companies issuing positive EPS guidance since FactSet began tracking the data in 2006. The percentage of companies issuing negative EPS guidance is 88% (94 out of 107). If this is the final percentage for the quarter, it will mark the highest percentage of companies issuing negative EPS guidance for a quarter. However, companies are guiding EPS estimates down by a lower margin than average. For Q4 2013, companies have issued EPS guidance that has been 5.7% below the mean EPS estimate on average. This percentage decline is smaller than the five-year average of -11.1%.

S&P 500: # of S&P 500 Companies Issuing Positive/Negative EPS Guidance vs. 5-Yr. Avg.

It is interesting to note that stock prices have come down on average not only for companies issuing negative EPS guidance, but also for companies issuing positive EPS guidance. The average price change (2 days before issuing guidance through 2 days after issuing guidance) for the 94 companies that issued negative EPS guidance for the fourth quarter was -1.5%, which is nearly double the average decrease over the past five years of -0.8%. However, the market reaction on average to the performance of the few companies that have issued positive EPS guidance has also been negative. For the 13 companies that have issued positive EPS guidance for Q4 2013, the average price change (2 days before the guidance was issued through 2 days after the guidance was issued) was -0.1%. This percentage is well below the average over the past five years of +3.0%, and marks the first time the average price change for companies issuing positive EPS guidance has been negative since Q4 2008 (-0.2%).

Gold Biased To The Upside But...

But buying appears to be more of a reallocation trade over renewed demand.

High Volume High- Jan 2 Trading Day Edition

A couple names for your review. First, ANN caught an upgrade by one of the investment houses and the shares reacted positively. Second, it appears that the CSIQ shares got caught up in the increased bids in the solar investment complex. The increased bids were enough to push shares to new highs on volume.

Gold To Test Bottom and Turn Early in 2014- Kitco

via Kitco News. My opinion, we still have not seen the volume strength yet. 

As January Goes, So Goes the Year- S&P 500 Price/Volume Heat Map Jan 2

As January goes, so goes the rest of the year. Or so adage goes. I have never tested this hypothesis nor do I remember any other tests (I am sure they exist), but if yesterday's trading action is any indication it will be a tough year for the bulls if the weakness persists. That all said, I believe in none of that hocus-pocus and will continue to watch the price and volume levels to discern the overall supply/demand balance in the market. Yesterday, without a doubt, was a distribution day, with the market losing about 90 basis points of value of declines across all sectors.

Supply ruled the day in yesterday's trading and no nascent sign of demand was present. That said, overall volume levels were relatively tame and price spread was nonexistent. The sell-off may indicate something more, but without corroborating information, I have to chalk it up to noise for the moment. 

The Usefulness of Austrian Economics

via the Mises Academy

Thursday, January 2, 2014

The Long and The Short of Gold Investing

By Peter Schiff

There are two types of gold investors: those trying to make money on short-term market timing and those looking for long-term asset preservation. It was the fear-driven trading of the former that helped gold break $1900 in 2011, and for good reason - stormy markets steer investors to safe havens.

But gold's fortune has shifted in the past two years, and finishing 2013 down 28% seems to have sealed its fate - at least in the eyes of the short-term speculators. In reality, the same forces that are stabilizing stocks and suppressing gold are also the fundamental reasons long-term investors have been buying gold since the turn of the new millennium. The so-called recovery we're now experiencing is just a lull in a storm that hasn't yet abated.

Losing Touch With Reality

From the fiscal cliff at the beginning of the year to the budget stalemate and government shutdown in the fall, the US was not exactly a model of financial stability in 2013. Yet with each of these stories, the markets shrugged off any large dips and went on to reach record high after record high. The stock market exceeded most expectations - the S&P and Dow rallied 29.6% and 26.5% respectively, with the volatility index staying remarkably low.

The official explanation for this market behavior is that the economy really is improving. A growing GDP and improving jobless rate are the leading economic indicators that support this conclusion.

However, the real reason behind 2013's stability in spite of mixed economic news was the extremely accommodating Federal Reserve policy. Markets have become hyper-aware of this Bernanke Put over the course of the year.

Compare the markets' taper tantrums earlier in the year to their reaction to the Fed's December announcement of "taper-lite."

In both June and August, with the mere talk of tapering, the S&P and Dow tumbled. The assumption was that when the Fed started tapering their Quantitative Easing (QE) program, interest rates would also start to rise. Overvalued stocks plunged in preparation for a higher interest rate environment.

However, this December, when the Fed set an official January date for tapering, these indices did not drop as they had before, but immediately jumped to new highs. Why the different reaction to essentially the same news?

Because the Fed's December announcement was not the same.

Normal No Longer Means Healthy

The key element of Bernanke's "taper-lite" was not the $10 billion-per-month cut to QE, but the explicit commitment to maintain low interest rates for the foreseeable future. Bernanke basically guaranteed the fed funds rate would remain near 0% for at least a couple more years.

This commitment to artificially suppressed interest rates ruins the charade that the economy is getting healthier. Why on earth does a healthy economy need the support of free money?

The short-term data may appear good on its face, but people are waking up to the bigger picture of this so-called recovery - namely that it isn't a recovery at all.

It's well-recognized now that most new jobs are low-wage, low-skilled placements. Often these are part-time or temporary retail or restaurant positions. This may be why both median income and the percentage of the population employed remain well below pre-crisis levels. The jobless rate has only improved because people have simply given up trying to find employment.

Meanwhile, the latest data from the Bureau of Economic Analysis shows that in the last months of 2013, personal spending rose more than personal income, while the savings rate dropped. In other words, we're back to digging the hole that caused the Panic of '08.

This is one of the longest and slowest recoveries the US has ever experienced, but the mantra of Wall Street maintains that all is well because the stock market is up. We're supposedly returning to normal.

The truth is that "normal" no longer means "healthy" when it comes to the economic stability of the United States. It really means that we are back to where we were prior to the Panic of '08.

Selective Memory

Only a short-term mindset could ignore the parallels between our economy today and ten years ago. Heading into 2004, the headlines sounded almost identical to today's, with talk of an improving economy that still suffered from less-than-optimal employment numbers.

More importantly, it was in 2003 that Alan Greenspan cut the fed funds rate to 1% - the lowest it had been for more than 40 years.

We all know how that story ended. Most economists agree that the interest rate policy of Greenspan's Fed spurred the irresponsible lending practices and speculation that drove the US into a housing crash and then a financial meltdown.

Yet here we are again, with the fed funds rate at record low levels. Nothing has changed in ten years - the supposed recovery we're experiencing now is simply a product of this endless cheap money.

A Sober Analysis

In times like these, long-term gold investors feel like the designated drivers in the corner of a frat party. It might seem like we're missing the fun, but we must remember that we're playing a different game than the short-term speculators.

Our drunken friends have had some cheap thrills in 2013, but this stock market growth rests on an unstable foundation of artificial stimulus and cheap money. We are more interested in waking up without a hangover, a wrecked car, or worse. The longer interest rates remain suppressed, the crazier markets will behave when rates rise. And if Greenspan's one year at 1% rates helped trigger the crash we saw in '08, imagine imagine what three years and counting of Bernanke's/Yellen's 0% rates portends for the next crash.

Too Early Too Call A Sign of Gold Stength

I have noted for you a few times that what was missing from a full buy signal in gold/precious metal related investments was either a turn in the risk measure (go see the 'All That Glitters posts for details on this) and/or a sign a strength on a price/volume basis. Today, gold prices have jumped almost 2 percentage points while the price of the precious metal equities (the Phily Gold/Silver Miner Index, the Market Vectors Gold Miner Index, or the the Market Vectors Junior Gold Miner Index... take your pick) have gained by more than 4 percentage points intraday. Just look at the chart for the Gold Miner Index or the GDX.

In of itself, the wide price spread and the 4% leap in equity prices would suggest a sign a strength. Missing however, is a lack of accelerated volume. A linear extrapolation of the trading volume today suggests total turnover of about 37+ million shares, short of the average volume level and most high level trading days. And yes, a linear extrapolation is not representative of the smile curve of trading volume seen in most trading days. However, it can serve as imperfect model to help share our thinking. If anything, the trading action and volume (at least at this point) looks like traders are testing the Dec. 11 trading levels. Without a late day volume surge and a subsequent increase in prices, we have just not seen a sign of strength. Stay tuned.

The Great Fed Debate- Grant vs. Sylla

I have to say, Sylla's first argument smacks me as the argument for socialism and communism- i.e. it just has not been done correctly yet. How about it the Federal Reserve (and all central planning) just does not work.

And in a more stunning omission (at least for the uninitiated)-  both Grant and Sylla agreed the Fed was in the business of pushing the stock market higher. Considering the focus on the stock market, I wonder if anyone has done a velocity of money calculation incorporation market capitalization?

Volume Off the High- Dec. 31 Trading Day Edition

Just one lonely name here in the last trading session of the year. Strangely, there is no news on this small-cap.

High Volume High- Dec. 31 Trading Day Edition

In the last trading day of the year, shares of HTZ jumped more than 10% after the company adopted a poison pill. It probably can be safe to assume that someone is looking at the company as a target and management is worried about their jobs.

The Fed Taper A Disaster- Rogers

From a recent BBC interview....

Ending With A Wimper- S&P 500 Price/Volume Heat Map Dec. 31

The market ended the 2013 trading up by more than 25%, but ended the last trading day of year on whimper. On the basis of value, the S&P 500 gained roughly 40 basis points, largely on the gains in the more cyclical sectors such as financials, tech, or discretionary.

However, the overall supply and demand balance showed practically nothing of any interest. Strangely enough though, telecom shares showed a divergence on the basis of price and price/volume dynamics.

Jim Rogers Keys To Success

From Jim Roger's new book, "A Gift To My Children"

1. Do not let others do your thinking for you

2. Focus on what you like

3. Good habits for life & investing

4. Common sense? Not so common

5. Attention to details is what separates success from failure

6. Let the world be a part of your perspective

7. Learn philosophy & learn to think

8. Learn history

9. Learn languages (make sure Mandarin is one of them)

10. Understand your weaknesses & acknowledge your mistakes

11. Recognize change & embrace it

12. Look to the future

13. “Lady Luck smiles on those who continue their efforts”

14. Remember that nothing is really new

15. Know when not to do anything

16. Pay attention to what everybody else neglects

17. If anybody laughs at your idea view it as a sign of potential success

Tuesday, December 31, 2013

Gold's Double Bottom On the Last Trading Day of the Year- Kitco's Hug

Does this mean we start to go higher..... we shall see.

Must Be All Those Green Initiatives

I have not talked about the recent (and apparent) surge in economic growth, but my and others (Rickards, Zero Hedge, 24/7 Wall Street, Political Calculations off the top of my head) reading of the data suggest that the 4.1% growth in Q3 GDP was an aberration and unlikely to repeat. More so, I continue to question the veracity of economic growth in general, as dividends continue to be cut and employment growth continue to wane. We can add another objective measure to the list of data suggesting that economic growth is a lot weaker than otherwise assumed.

Te below chart shows the year-on-year change in GDP versus the 6-month rolling average in the year-over-year change in electricity use by commercial, industrial, and residential users in the US.

Although electricity demand has a lower beta, electricity use and economic growth generally move in tandem, as higher (lower) economic growth precludes growth in businesses, production, and an overall increase in energy use. Looking at the above chart, you should see the relationship between electricity usage and economic growth. Since mid-2012, electricity usage has remained largely negative. More so, usage has shown a renewed downturn. On question, how can economic growth be accelerating while energy use has been falling. Must be all those green initiatives right?

Observations On Gold, QE, and the Tapering- Rickards

The following is an interview with Jim Rickards with the Swiss-based Physical Gold Fund


An Austrian Critique of Mainstream Economics- Block

From the Mises Institute

All That Glitters Remains Risky

In the last few weeks, the timing models I employ and talk to you about have seen relatively little change. This is as the price of gold equities have trended sideways for most of December and gold prices have trended back toward the lows of the year. In conjunction with these price moves, money supply growth has apparently accelerated over a rolling 3 month time span. All in, this has pushed the timing models deeper into a buy zone. Just see the below.

6-Month Model, -1.8 currently versus -2 last week and last month.

1-year Model, -1.5 versus -1.6 and -1.5

Long-term Model, -1.9 versus -2 and -2

Although the timing models remain in the buy zone across the board, the risk model remains weighted towards higher risk with a measure below -1.

Risk Model

As long as the risk model remains below -1, the risk for gold equities remains weighted towards the downside. Before committing anything but long-term capital to the group, I would wait for a significant sign of strength in the gold equity complex on a price/volume basis and/or an improvement in the risk model to a level above -1.

The Fed Knows It Is a Bubble- Schiff

S&P 500 Price/Volume Heat Map Dec. 30

In still light trading yesterday, the market essentially flat. As you could imagine, overall volume levels remain light and price performance across the sectors were mixed.

Not much can be discerned from the price/volume heat map. Energy shares gave up some of the demand seen in last week's trading.

High Volume High- Dec 30 Trading Day Edition

Just one lonely name here. Strangely, there was no apparent news on the company, but volume far outpaced anything in the last year.

Volume Off the High- Christmas Eve Through Dec. 27 Edition

An abbreviated list of names coming off the highs with volume during the light trading week.

S&P Price/Volume Heat Map For Dec. 27 Trading Day and Week

And yet one more Price/Volume heat map post with little comment, with lite overall holiday trading.

Outside of energy, can't say much was going on here on the long or short side.

Week ending Dec. 27

For the week however, demand and price gains were more robust.

S&P 500 Price/Volume Heat Map For Dec. 26

Again, presented for continuity and with little comment.

Sans utilities, supply and demand was weighted to the positive side, more or less.

High Volume High- Christmas Eve to December 27 Edition

A list of some names making new highs over the holiday trading week between Christmas Eve and December 27.

S&P 500 Price/Volume Heat Map for Dec. 24

Presented with little comment considering the holiday trading, but posted for continuity.

The supply/demand balance was generally mixed.