Recently, we've been covering a most off-the-run indicator called the Hindenburg Omen (HO). For some background, click here http://markostake.blogspot.com/2010/07/hindenburg-omen-confirmed-or-was-it.html. For the indicator to be confirmed, it must occur in clusters within an approximate 5 or 6 week window. Number 3 just occurred in this morning's trading.
The news gets worse. Last evening, Cisco Systems' (CSCO) John Chambers, always the optimist, gave a somewhat pessimisstic outlook for the economy on the conference call following the release of Cisco's earnings.
Revenue for the latest quarter fell short of analyst expectations at Cisco Systems Inc., and Chambers said customers were expecting a slowdown in the economic recovery. Chambers goes on "In terms of the economy, it's mixed signals. ... The majority of my customers believe the economy is going to continue just going slowly going up, but very slowly. Not what they would have said even just three to four months ago in terms of their expectations."
For Chambers, this is tantamount to calling for a Double-Dip Hyperinflationary Depression. He must be a closet reader of "Marko's Take".
So, while corporate earnings for the 2nd quarter came in at pretty decent levels, they are irrelevant. What's important is the outlook, which is mixed at best.
What's also mixed is the situation with Gold and precious metals stocks. On the one hand, Gold is holding up remarkably well and should continue to do so. Even in the oncoming deflationary freight train, Gold may continue to get a major crisis bid as it did at times in the meltdown of 2008-2009. On the other hand, it is a very liquid and salable asset. If hedge funds and other investors get margin calls, it is the easiest way to raise liquidity. Ultimately, as hyper-inflation rules the day, Gold will absolutely sky-rocket.
I continue to be short-term neutral on the precious metals sector. There ought to be a better entry point, but that is far from guaranteed. If missiles fly in the Middle East, Gold could jump by $100 per ounce overnight. If the stock market meltsdown, as we expect, Gold could fall by $100 per ounce overnight. It could do both on consecutive days. I would still recommend maintaining some position, just in case, but would be cautious about betting the farm...yet.
The best play, in my mind continues to be certain inverse ETFs. These are highly volatile, not for the feint of heart, but a great way to hedge, at the very least. Again, I would NOT recommend betting the farm on these, either.
If you don't like inverse ETFs, fine. Stay in cash, and be thankful you have some. Lot's of folks are about to be wiped out. Please don't let yourself be one of them.
Stay tuned.
Marko's Take
On Sunday, August 22nd, the California Wildlife Center will have it's annual fundraiser called "The Wild Brunch: Fawntasia". If you're in the Southern California area, and wish to come down and support this fabulous cause, tickets can be purchased by clicking here: http://cwcthewildbrunch12.eventbrite.com/.
Thursday, August 12, 2010
Wednesday, August 11, 2010
Unusual Uncertainty Meets QE2
Ya gotta love them boys at the Federal Reserve (FED). Alan Greenspan gave us asset bubbles while warning about "irrational exuberance". Now, "Helicopter Ben" Bernanke gives us "unusual uncertainty" and "quantitative easing" (QE).
If you missed your class on QE, here's a crash course. It refers to a series of extraordinary measures that the FED is prepared to undertake to stimulate the economy. Bernanke earned his nickname by saying that the FED was prepared to throw money out of helicopters if that's what it took.
If the FED has been trying to inject liquidity into the system, they've done one helluva lousy job. The broadest measures of money supply, known as M2 and M3, are plunging at record rates. In fact, they are at Great Depression levels of reduction. Bernanke is an academic and a student of the Great Depression. Specifically, his interest has been to attempt to understand what went wrong. So, the helicopter plan was borne out of this knowledge, although clearly he was being figurative and not literal.
The dropping money supply, however, is probably not entirely Bernanke or the FED's fault. An uncontrollable variable, called "velocity", is providing a stiff headwind against the FED's efforts. Velocity is a measure of the rate at which money circulates. If everyone were to put their savings under the mattress, for example, velocity would be zero. On the other hand, if folks were to be engaging in a lot of transactions and borrowing to finance growth, velocity would be high.
Velocity is hard to control, since it's the result of trillions of personal decisions. It is a function of consumer and business confidence. Low confidence equals high risk aversion and no willingness to expand, therefore, low velocity.
It is believed that the FED will monetize its mortgage portfolio and use the proceeds to purchase long term U.S. Treasury Bonds. That will do absolutely NOTHING to increase velocity. In fact, interest rates are at generational lows already, and may go lower if the economic downturn intensifies as we expect. Japan, a decent analog, has sub 1% long term rates.
Using FED funds to purchase Treasury Bonds is nothing more than a monetization of the U.S. budget deficit, now running at $1.5 trillion per year.
Unfortunately, the FED is powerless. Yes, you read that right. The FED is virtually powerless. They can't reduce rates which are already near zero. Any policy moves like changing reserve requirements or Open Market Operations will have absolutely no effect in the current business climate. To be effective, the budget needs to be brought under control, jobs need to be created and confidence needs to be restored. However, none of those can happen as long as the FED is powerless to stimulate the economy. The very definition of a vicious cycle if I ever heard one.
We are facing an impending economic death sentence. The only remaining question is whether we die by lethal injection, electrocution or hanging.
Marko's Take
On Sunday August 22nd, I would like to invite any Southern California readers to join me for an event sponored by the California Wildlife Center, called "The "Wild Brunch: Fawntasia". For more information on this organization and to purchase tickets for the event, click here http://cwcthewildbrunch12.eventbrite.com/.
If you missed your class on QE, here's a crash course. It refers to a series of extraordinary measures that the FED is prepared to undertake to stimulate the economy. Bernanke earned his nickname by saying that the FED was prepared to throw money out of helicopters if that's what it took.
If the FED has been trying to inject liquidity into the system, they've done one helluva lousy job. The broadest measures of money supply, known as M2 and M3, are plunging at record rates. In fact, they are at Great Depression levels of reduction. Bernanke is an academic and a student of the Great Depression. Specifically, his interest has been to attempt to understand what went wrong. So, the helicopter plan was borne out of this knowledge, although clearly he was being figurative and not literal.
The dropping money supply, however, is probably not entirely Bernanke or the FED's fault. An uncontrollable variable, called "velocity", is providing a stiff headwind against the FED's efforts. Velocity is a measure of the rate at which money circulates. If everyone were to put their savings under the mattress, for example, velocity would be zero. On the other hand, if folks were to be engaging in a lot of transactions and borrowing to finance growth, velocity would be high.
Velocity is hard to control, since it's the result of trillions of personal decisions. It is a function of consumer and business confidence. Low confidence equals high risk aversion and no willingness to expand, therefore, low velocity.
It is believed that the FED will monetize its mortgage portfolio and use the proceeds to purchase long term U.S. Treasury Bonds. That will do absolutely NOTHING to increase velocity. In fact, interest rates are at generational lows already, and may go lower if the economic downturn intensifies as we expect. Japan, a decent analog, has sub 1% long term rates.
Using FED funds to purchase Treasury Bonds is nothing more than a monetization of the U.S. budget deficit, now running at $1.5 trillion per year.
Unfortunately, the FED is powerless. Yes, you read that right. The FED is virtually powerless. They can't reduce rates which are already near zero. Any policy moves like changing reserve requirements or Open Market Operations will have absolutely no effect in the current business climate. To be effective, the budget needs to be brought under control, jobs need to be created and confidence needs to be restored. However, none of those can happen as long as the FED is powerless to stimulate the economy. The very definition of a vicious cycle if I ever heard one.
We are facing an impending economic death sentence. The only remaining question is whether we die by lethal injection, electrocution or hanging.
Marko's Take
On Sunday August 22nd, I would like to invite any Southern California readers to join me for an event sponored by the California Wildlife Center, called "The "Wild Brunch: Fawntasia". For more information on this organization and to purchase tickets for the event, click here http://cwcthewildbrunch12.eventbrite.com/.
Monday, August 9, 2010
Peak Oil Loses Matt Simmons
Matt Simmons, the chief advocate of Peak Oil, died of an apparent heart attack last night. The original theory was developed by M. Hubbert King. Has the theory held up?
For some background on Peak Oil, it can be reviewed by clicking this recent piece: http://markostake.blogspot.com/2010/05/peak-oil-update.html.
Recent statistics from the International Energy Agency (IEA) bear out Hubbert's predictions. Growth in worldwide oil demand has slowed but continues to grow. Currently, the planet uses approximately 86 million barrels per day (mbd). This is projected to grow to 88 mbd by late 2011. Of course, an intensifying downturn in the global economy is likely to ensure that this forecast will not be met.
Peak Oil, however, refers to the production side. It anticipates a growing shortage as existing oil fields commence an inevitable and accelerating decline, while the alternatives are still very slow in being developed. According to the IEA, world production averaged 86.6 mbd in 2008 and fell to 85 mbd in 2009. It has rebounded in 2010, but has fallen in the 2nd quarter.
OPEC, which produces just less than 40% of global supply, averaged 28.9 mbd in June, down by 65 kbd from May. A lull in OPEC crude capacity expansion is expected between now and year-end 2011. Non-OPEC supply is expected to rise by a modest 0.4 mbd in 2011 to 52.8 mbd, following a 0.8 mbd growth in 2010. Increases from Brazil, global biofuels, Azerbaijan, Colombia, Ghana and Oman are expected to offset declines from Mexico and the North Sea during 2011.
The imminent "Double Dip" will undoubtedly have a major bearing on future production, especially if prices decline to possibly much lower levels in the intermediate term.
Peak Oil is significant for a variety of reasons. For one, it undoubtedly was a major factor in the invasion of Iraq. It has a bearing on future potential military actions against Iran. Was there a connection to British Petroleum and the infamous oil spill and U.S. policy on offshore drilling? They don't call it "Black Gold" for nothing.
Another "Windfall Profits Tax" seems a virtual certainty in light of the out-of-control budget deficit. Our roads are paid for by Gasoline taxes. Virtually every industry is affected by oil prices. The automobile industry, the transportation industry, the mining industry and the military are all affected by oil. So is foreign policy. Global Warming? Cap and Trade? Yeah, I'd say "Peak Oil" is important.
Unfortunately, profiting from a knowledge of "Peak Oil" is most difficult. The chief beneficiaries, shareholders of ExxonMobil, Chevron, British Petroleum and Conoco-Phillips will not be allowed to enjoy the profits which are politically unpopular. So, the only way to invest is in alternatives, or to own royalty trusts whose cash flows rise and fall with oil prices. That is, assuming they will be exempted from future legislation.
The most viable response for the average American is conservation. If one can afford a hybrid or install solar panels, great. But, most people can't. All most of us can do is turn down our thermostats and burn wood in the fireplace. I hope I never see another line at the gasoline pump again. But, unfortunately, I suspect that vestige of the 1970's will return.
Marko's Take
For some background on Peak Oil, it can be reviewed by clicking this recent piece: http://markostake.blogspot.com/2010/05/peak-oil-update.html.
Recent statistics from the International Energy Agency (IEA) bear out Hubbert's predictions. Growth in worldwide oil demand has slowed but continues to grow. Currently, the planet uses approximately 86 million barrels per day (mbd). This is projected to grow to 88 mbd by late 2011. Of course, an intensifying downturn in the global economy is likely to ensure that this forecast will not be met.
Peak Oil, however, refers to the production side. It anticipates a growing shortage as existing oil fields commence an inevitable and accelerating decline, while the alternatives are still very slow in being developed. According to the IEA, world production averaged 86.6 mbd in 2008 and fell to 85 mbd in 2009. It has rebounded in 2010, but has fallen in the 2nd quarter.
OPEC, which produces just less than 40% of global supply, averaged 28.9 mbd in June, down by 65 kbd from May. A lull in OPEC crude capacity expansion is expected between now and year-end 2011. Non-OPEC supply is expected to rise by a modest 0.4 mbd in 2011 to 52.8 mbd, following a 0.8 mbd growth in 2010. Increases from Brazil, global biofuels, Azerbaijan, Colombia, Ghana and Oman are expected to offset declines from Mexico and the North Sea during 2011.
The imminent "Double Dip" will undoubtedly have a major bearing on future production, especially if prices decline to possibly much lower levels in the intermediate term.
Peak Oil is significant for a variety of reasons. For one, it undoubtedly was a major factor in the invasion of Iraq. It has a bearing on future potential military actions against Iran. Was there a connection to British Petroleum and the infamous oil spill and U.S. policy on offshore drilling? They don't call it "Black Gold" for nothing.
Another "Windfall Profits Tax" seems a virtual certainty in light of the out-of-control budget deficit. Our roads are paid for by Gasoline taxes. Virtually every industry is affected by oil prices. The automobile industry, the transportation industry, the mining industry and the military are all affected by oil. So is foreign policy. Global Warming? Cap and Trade? Yeah, I'd say "Peak Oil" is important.
Unfortunately, profiting from a knowledge of "Peak Oil" is most difficult. The chief beneficiaries, shareholders of ExxonMobil, Chevron, British Petroleum and Conoco-Phillips will not be allowed to enjoy the profits which are politically unpopular. So, the only way to invest is in alternatives, or to own royalty trusts whose cash flows rise and fall with oil prices. That is, assuming they will be exempted from future legislation.
The most viable response for the average American is conservation. If one can afford a hybrid or install solar panels, great. But, most people can't. All most of us can do is turn down our thermostats and burn wood in the fireplace. I hope I never see another line at the gasoline pump again. But, unfortunately, I suspect that vestige of the 1970's will return.
Marko's Take
Friday, August 6, 2010
Clowns To The Left Of Me, Jokers To The Right
Recently, a rather sizable number of high profile mega-billionaires announced an intention to donate most of their net worths to charity. Very commendable. Or was it?
More than 30 U.S billionaires have pledged to give at least half of their fortunes to charity as part of a campaign spearheaded by Warren Buffett, the investor, and Bill Gates, the Microsoft founder.
The list of those signing up, posted on The Giving Pledge’s website, includes such notables as Michael Bloomberg, New York’s mayor, Ted Turner, the media mogul, Barry Diller, the chief executive of IAC, and David Rockefeller.
The financial sector is well represented, with former Citigroup chairman Sandy Weill and his wife Joan, David Rubenstein, the co-founder of the Carlyle Group, Pete Peterson, the co-founder of the Blackstone Group, Ron Perelman, the investor, and Julian Robertson, the hedge fund manager, on the list.
Ok, so what could my beef with this, oh so generous act, possibly be? Well, many of these folks are politically active and have tended to be supporters of higher taxes and bigger government. Mr. Buffett supported Hillary Clinton in 2008. Moderate Republican Michael Bloomberg is viewed as a possible future Presidential candidate. George Soros and Ted Turner are ardent Democrats.
Now, if they love Uncle Sam so much, why don't they pledge their assets to help lower the budget deficit? After all, charities and the Federal Government are BOTH involved in wealth distribution. So, why would they prefer a PRIVATE solution? Mr. Buffett just LOVES higher taxes for everyone but himself. So does Mr. Soros.
But the rich do gooders have so many ways to entertain us. Take John Kerry, married to the heiress of the Heinz ketchup fortune. Massachusetts Senator John Kerry is docking his family's new $7 million yacht in neighboring Rhode Island, allowing him to avoid paying roughly $500,000 in taxes to the cash-strapped Bay State.
If the "Isabel" were kept at the 2004 Democratic presidential nominee's summer vacation home on Nantucket, or in Boston Harbor near his city residence, he would be liable for $437,500 in one-time sales tax. He would also have to pay $70,000 in annual excise taxes. Now that Mr. Kerry has been exposed, he has had to cough up the half million.
And, what rundown of political hypocrisy would be complete without mentioning Al Gore. Mr. Global Warming. For more on how idiotic this theory is, click here: http://markostake.blogspot.com/2010/08/very-inconvenient-truth.html.
Since "An Inconvenient Truth" won an academy award, we can assume that he lives a completely green lifestyle, correct? Uh, not exactly.
The average household in America consumes 10,656 kilowatt-hours (kWh) per year, according to the Department of Energy. In 2006, Gore devoured nearly 221,000 kWh, more than 20 times the national average!
Last August alone, Gore burned through 22,619 kWh, or more than twice the electricity in one month than an average American family uses in an entire year. As a result of his energy consumption, Gore’s average monthly electric bill topped $1,359.
Since the release of his documentary, Gore’s energy consumption has increased from an average of 16,200 kWh per month in 2005, to 18,400 kWh per month in 2006.
Gore’s extravagant energy use does not stop at his electric bill. Natural gas bills for Gore’s mansion and guest house averaged $1,080 per month last year. Very convenient, indeed, Mr. Gore.
How about House Ways And Means chairman Charles Rangel being caught for evading income taxes? And, of course Treasury Secretary Timothy Geithner have tax evasion issues of his own?
Sarah Palin, while governor of Alaska, passed a windfall profits tax. Hello????
Now, before we depart without recognizing more of our friends on the Republican side of the aisle, let's compliment the "family values" of folks like Newt Gingrich and Tom Delay, and lots of others. Yeah, hypocrisy is very bi-partisan.
Here I am, stuck in the middle with you.
Marko's Take
More than 30 U.S billionaires have pledged to give at least half of their fortunes to charity as part of a campaign spearheaded by Warren Buffett, the investor, and Bill Gates, the Microsoft founder.
The list of those signing up, posted on The Giving Pledge’s website, includes such notables as Michael Bloomberg, New York’s mayor, Ted Turner, the media mogul, Barry Diller, the chief executive of IAC, and David Rockefeller.
The financial sector is well represented, with former Citigroup chairman Sandy Weill and his wife Joan, David Rubenstein, the co-founder of the Carlyle Group, Pete Peterson, the co-founder of the Blackstone Group, Ron Perelman, the investor, and Julian Robertson, the hedge fund manager, on the list.
Ok, so what could my beef with this, oh so generous act, possibly be? Well, many of these folks are politically active and have tended to be supporters of higher taxes and bigger government. Mr. Buffett supported Hillary Clinton in 2008. Moderate Republican Michael Bloomberg is viewed as a possible future Presidential candidate. George Soros and Ted Turner are ardent Democrats.
Now, if they love Uncle Sam so much, why don't they pledge their assets to help lower the budget deficit? After all, charities and the Federal Government are BOTH involved in wealth distribution. So, why would they prefer a PRIVATE solution? Mr. Buffett just LOVES higher taxes for everyone but himself. So does Mr. Soros.
But the rich do gooders have so many ways to entertain us. Take John Kerry, married to the heiress of the Heinz ketchup fortune. Massachusetts Senator John Kerry is docking his family's new $7 million yacht in neighboring Rhode Island, allowing him to avoid paying roughly $500,000 in taxes to the cash-strapped Bay State.
If the "Isabel" were kept at the 2004 Democratic presidential nominee's summer vacation home on Nantucket, or in Boston Harbor near his city residence, he would be liable for $437,500 in one-time sales tax. He would also have to pay $70,000 in annual excise taxes. Now that Mr. Kerry has been exposed, he has had to cough up the half million.
And, what rundown of political hypocrisy would be complete without mentioning Al Gore. Mr. Global Warming. For more on how idiotic this theory is, click here: http://markostake.blogspot.com/2010/08/very-inconvenient-truth.html.
Since "An Inconvenient Truth" won an academy award, we can assume that he lives a completely green lifestyle, correct? Uh, not exactly.
The average household in America consumes 10,656 kilowatt-hours (kWh) per year, according to the Department of Energy. In 2006, Gore devoured nearly 221,000 kWh, more than 20 times the national average!
Last August alone, Gore burned through 22,619 kWh, or more than twice the electricity in one month than an average American family uses in an entire year. As a result of his energy consumption, Gore’s average monthly electric bill topped $1,359.
Since the release of his documentary, Gore’s energy consumption has increased from an average of 16,200 kWh per month in 2005, to 18,400 kWh per month in 2006.
Gore’s extravagant energy use does not stop at his electric bill. Natural gas bills for Gore’s mansion and guest house averaged $1,080 per month last year. Very convenient, indeed, Mr. Gore.
How about House Ways And Means chairman Charles Rangel being caught for evading income taxes? And, of course Treasury Secretary Timothy Geithner have tax evasion issues of his own?
Sarah Palin, while governor of Alaska, passed a windfall profits tax. Hello????
Now, before we depart without recognizing more of our friends on the Republican side of the aisle, let's compliment the "family values" of folks like Newt Gingrich and Tom Delay, and lots of others. Yeah, hypocrisy is very bi-partisan.
Here I am, stuck in the middle with you.
Marko's Take
Another Hindenburg Omen
The horrible jobs report just released this morning showed what we've been saying all along. There is NO recovery. Interesting that economic adviser Christine Romer announced her resignation last night. Could she be a regular reader of "Marko's Take"? Could she have known that the jobs report was going to be so damn bad?
More important to investors is the very, very likely occurrence of another Hindenburg Omen in today's trading. For more information on the significance of this, click here: http://markostake.blogspot.com/2010/07/hindenburg-omen-foretells-coming-market.html.
Another relevant item is the calendar. The 3 major NYSE crashes occurred within a 6 week window of the equinox, which is typically September 22. That would suggest that after August 10th, the market will be within this time frame. Tuesday is August 10th. It may occur anytime thereafter. Crashes also occur WELL below the level of the preceeding market peak. In general, the largest down days in history followed a rapid drop of 20-25% off the peak. If history repeats, the coming crash should commence from BELOW Dow 9000!
If one goes back just to the crashes in the NYSE, we had the meltdowns of 2008, 1987 and 1929 as examples. All were late summer, early fall events. Don't ask me why. I'm still trying to understand what solar eclipses and full moons have to do with anything financial.
During the lead-in period to a crash, the market experiences what technicians refer to as "90%" days. These refer to a preponderance of trading volume to either advancing or declining issues. During the sizzling advance of the last 3 weeks, we experienced several of these days. And, during the decline that just preceeded it, we had a number of 90% downside days. This schizophrenia is what the Hindenburg Omen measures: an emotional dis-jointedness that is conducive to a sudden shift from euphoria to panic.
A key question for investors is what they should do now. If, as I believe, we are in another deflation scare, the only safe places are likely to be ultra-high quality bonds, and probably the U.S. Dollar.
What about Gold? In the near term, it's hard to be definitive. On the one hand, it will undoubtedly benefit from a "flight-to-safety" bid. On the other hand, the temporary deflation scare will put pressure on all hard assets. Under just about any forseeable scenario, Gold ought to hold up better than virtually any other asset. However, there MAY be a better entry point. I'd prefer to wait and see on this one.
In the intermediate to longer term, Gold remains in a very powerful bull market. With the inevitability of the introduction of "Quantitative Easing 2", and more stimulus spending in the offing, the seeds of hyper-inflation are being sown. Once we succeed in completely debasing the currency, where can investors protect their wealth except by owning Gold? In addition, the long underperforming junior miners should finally see those magnificent parabolic advances that have been long anticipated. Again, there should be better entry points.
This is no time to put your head in the sand.
Marko's Take
More important to investors is the very, very likely occurrence of another Hindenburg Omen in today's trading. For more information on the significance of this, click here: http://markostake.blogspot.com/2010/07/hindenburg-omen-foretells-coming-market.html.
Another relevant item is the calendar. The 3 major NYSE crashes occurred within a 6 week window of the equinox, which is typically September 22. That would suggest that after August 10th, the market will be within this time frame. Tuesday is August 10th. It may occur anytime thereafter. Crashes also occur WELL below the level of the preceeding market peak. In general, the largest down days in history followed a rapid drop of 20-25% off the peak. If history repeats, the coming crash should commence from BELOW Dow 9000!
If one goes back just to the crashes in the NYSE, we had the meltdowns of 2008, 1987 and 1929 as examples. All were late summer, early fall events. Don't ask me why. I'm still trying to understand what solar eclipses and full moons have to do with anything financial.
During the lead-in period to a crash, the market experiences what technicians refer to as "90%" days. These refer to a preponderance of trading volume to either advancing or declining issues. During the sizzling advance of the last 3 weeks, we experienced several of these days. And, during the decline that just preceeded it, we had a number of 90% downside days. This schizophrenia is what the Hindenburg Omen measures: an emotional dis-jointedness that is conducive to a sudden shift from euphoria to panic.
A key question for investors is what they should do now. If, as I believe, we are in another deflation scare, the only safe places are likely to be ultra-high quality bonds, and probably the U.S. Dollar.
What about Gold? In the near term, it's hard to be definitive. On the one hand, it will undoubtedly benefit from a "flight-to-safety" bid. On the other hand, the temporary deflation scare will put pressure on all hard assets. Under just about any forseeable scenario, Gold ought to hold up better than virtually any other asset. However, there MAY be a better entry point. I'd prefer to wait and see on this one.
In the intermediate to longer term, Gold remains in a very powerful bull market. With the inevitability of the introduction of "Quantitative Easing 2", and more stimulus spending in the offing, the seeds of hyper-inflation are being sown. Once we succeed in completely debasing the currency, where can investors protect their wealth except by owning Gold? In addition, the long underperforming junior miners should finally see those magnificent parabolic advances that have been long anticipated. Again, there should be better entry points.
This is no time to put your head in the sand.
Marko's Take
Wednesday, August 4, 2010
Arranging Deck Chairs On The Titanic
It never ceases to amazes me how investors, who are in the business of pricing reality, can completely ignore the obvious. This became especially true during the internet bubble, as anything with a dot com on the end suddenly became worth billions. Remember K-Tel? Dr. Koop? I think you get the picture.
The same phenomenon is taking place today. While economic statistics continue to demonstrate a rapidly deteriorating economy, investors are all too willing to ignore everything and extrapolate a very unrealistic view into the valuation of equities.
The second quarter Gross Domestic Product (GDP) figures are a perfect case in point. The headline number of 2.4% was already signficantly below estimates made just weeks earlier. And, if we examine the data more closely, it is apparent that the quarter was even weaker than the estimate would suggest.
Inventories have had a major impact on growth over the past few quarters, and the change was estimated to have added more than one percentage point to the 2.4% annual rate of GDP growth reported by the Commerce Department Friday. But factory-order data for June shows that the estimate used to calculate the preliminary number was way off.
The report noted a 1.7% drop in nondurable goods inventories in June following a 2.5% drop in May. The Commerce Department had assumed a 0.5% rise for last month.
According to Shadow Stats, GDP revisions back to first-quarter 2007 confirmed that the economic downturn was more severe than previously reported. Rising inventories and slowing growth have set the stage for renewed quarterly GDP contraction in third-quarter 2010.
The upside revision to first-quarter 2010 growth from 2.74% to 3.73% was also largely the result of inventory growth, which accounted for 71% of the first-quarter’s total gain. Revised real growth was 1.09% for first-quarter final sales, or GDP net of inventory changes. Inventory gains also accounted for 44% of the 2.39% total growth in the second-quarter, with real final sales growth of 1.34%.
Even price inflation quietly was much worse than expected. The GDP implicit price deflator showed an annualized pace of inflation in second-quarter 2010 of 1.83%, up from a revised 1.05% in the first-quarter.
In an unusual divergence, annualized inflation for the Consumer Price Index in the second-quarter was a contraction of 0.72% versus a positive 1.53% in the first-quarter. The higher the inflation rate used in deflating the GDP, the weaker the inflation-adjusted number and vice versa.
While most economic data is backwards looking and has little to no predictive value, it's clear that the "recovery" has been nothing but a phantom. And, with money supply figures contracting at unprecedented rates, the economy and stock market are destined to follow.
Marko's Take
The same phenomenon is taking place today. While economic statistics continue to demonstrate a rapidly deteriorating economy, investors are all too willing to ignore everything and extrapolate a very unrealistic view into the valuation of equities.
The second quarter Gross Domestic Product (GDP) figures are a perfect case in point. The headline number of 2.4% was already signficantly below estimates made just weeks earlier. And, if we examine the data more closely, it is apparent that the quarter was even weaker than the estimate would suggest.
Inventories have had a major impact on growth over the past few quarters, and the change was estimated to have added more than one percentage point to the 2.4% annual rate of GDP growth reported by the Commerce Department Friday. But factory-order data for June shows that the estimate used to calculate the preliminary number was way off.
The report noted a 1.7% drop in nondurable goods inventories in June following a 2.5% drop in May. The Commerce Department had assumed a 0.5% rise for last month.
According to Shadow Stats, GDP revisions back to first-quarter 2007 confirmed that the economic downturn was more severe than previously reported. Rising inventories and slowing growth have set the stage for renewed quarterly GDP contraction in third-quarter 2010.
The upside revision to first-quarter 2010 growth from 2.74% to 3.73% was also largely the result of inventory growth, which accounted for 71% of the first-quarter’s total gain. Revised real growth was 1.09% for first-quarter final sales, or GDP net of inventory changes. Inventory gains also accounted for 44% of the 2.39% total growth in the second-quarter, with real final sales growth of 1.34%.
Even price inflation quietly was much worse than expected. The GDP implicit price deflator showed an annualized pace of inflation in second-quarter 2010 of 1.83%, up from a revised 1.05% in the first-quarter.
In an unusual divergence, annualized inflation for the Consumer Price Index in the second-quarter was a contraction of 0.72% versus a positive 1.53% in the first-quarter. The higher the inflation rate used in deflating the GDP, the weaker the inflation-adjusted number and vice versa.
While most economic data is backwards looking and has little to no predictive value, it's clear that the "recovery" has been nothing but a phantom. And, with money supply figures contracting at unprecedented rates, the economy and stock market are destined to follow.
Marko's Take
Sunday, August 1, 2010
A Very Inconvenient Truth
Al Gore sure did lay out a compelling case. Glaciers are receeding, ocean levels are rising and rainforests are disappearing. All those SUV's we selfish Americans drive, putting tons of carbon monoxide and carbon dioxide into our, oh so fragile, atmosphere. We've put holes in the ozone layer and now we're all at risk for skin cancer. So, the solution is to shut down the economy and go back to an agrarian life. Oh wait, we can't do that, either. Livestock flatulence is also a huge danger. My, oh my.
Mr. Gore obviously lost a step since his invention of the internet. We can only expect so much from this humble Tennessee man, whose bid for the Presidency was stolen by George Bush. Never mind that all those disenfranchised Florida voters couldn't tell the difference between GORE and NADER. And only Republicans cheat at elections and voter registration. Just ask Acorn. But I digress.
The fact is that the global average temperature (GAT) has risen for the last 140 years. From 1920 to 1940, average global temperature increased by about 0.4 degrees. From 1940 to 1980, it declined. From 1980 to 2000, it advanced by approximately 0.6 degrees. Are you seeing the problem here? GAT rose before there was a huge industrial base and autos. Then it declined as the country went to war and became heavily industrialized and during the period in which the automobile became a consumer staple. Then it rose again, but only AFTER 1980.
Still not convinced? How about the Martian Polar Ice Caps. Both Earth's and Mars' ice caps are shrinking! I don't know about you, but I have yet to drive an SUV on Mars. Didn't see any sheep up there, either.
This suggests that the warming is not only natural but astronomical in nature. All it takes is for our solar system to enter a place in the Galaxy when there exists less space dust to reflect the heat and sunlight back. We had an ice age once, remember? Our planet does NOT have constant temperatures. Temperature change is not only natural, but part of the cycle of life.
So, why the hysteria? Hmmm, could it have something to do with money? Nah. Not our angelic environmenal friends, who certainly do NOT have an agenda. And, of course, the press has no agenda. Shoving idiotic legislation like cap and trade down our throats is a boon to all of our trading partners. So, as you can see, the "global warming" lemmings might just have some conflicts of interest here.
Even if global warming were completely scientifically supportable and could be shown to result from fossil fuels and pollution, has anyone asked why a warmer planet is bad? For every loser, there is a winner. If your climate is cold, a few degrees warmer would be welcome. Some plants and crops will do better. Some won't. Some animals will fare better, some won't. Some industries will benefit, some won't. Some real estate will benefit. Some won't.
The only beneficiaries of global warming are the hysterical doom-sayers who have aligned themselves with this preposterous cause. The rest of us are expected to give up our SUVs and lose our jobs. Sounds like a terrific deal to me. All this makes me hot under the collar.
Marko's Take
Mr. Gore obviously lost a step since his invention of the internet. We can only expect so much from this humble Tennessee man, whose bid for the Presidency was stolen by George Bush. Never mind that all those disenfranchised Florida voters couldn't tell the difference between GORE and NADER. And only Republicans cheat at elections and voter registration. Just ask Acorn. But I digress.
The fact is that the global average temperature (GAT) has risen for the last 140 years. From 1920 to 1940, average global temperature increased by about 0.4 degrees. From 1940 to 1980, it declined. From 1980 to 2000, it advanced by approximately 0.6 degrees. Are you seeing the problem here? GAT rose before there was a huge industrial base and autos. Then it declined as the country went to war and became heavily industrialized and during the period in which the automobile became a consumer staple. Then it rose again, but only AFTER 1980.
Still not convinced? How about the Martian Polar Ice Caps. Both Earth's and Mars' ice caps are shrinking! I don't know about you, but I have yet to drive an SUV on Mars. Didn't see any sheep up there, either.
This suggests that the warming is not only natural but astronomical in nature. All it takes is for our solar system to enter a place in the Galaxy when there exists less space dust to reflect the heat and sunlight back. We had an ice age once, remember? Our planet does NOT have constant temperatures. Temperature change is not only natural, but part of the cycle of life.
So, why the hysteria? Hmmm, could it have something to do with money? Nah. Not our angelic environmenal friends, who certainly do NOT have an agenda. And, of course, the press has no agenda. Shoving idiotic legislation like cap and trade down our throats is a boon to all of our trading partners. So, as you can see, the "global warming" lemmings might just have some conflicts of interest here.
Even if global warming were completely scientifically supportable and could be shown to result from fossil fuels and pollution, has anyone asked why a warmer planet is bad? For every loser, there is a winner. If your climate is cold, a few degrees warmer would be welcome. Some plants and crops will do better. Some won't. Some animals will fare better, some won't. Some industries will benefit, some won't. Some real estate will benefit. Some won't.
The only beneficiaries of global warming are the hysterical doom-sayers who have aligned themselves with this preposterous cause. The rest of us are expected to give up our SUVs and lose our jobs. Sounds like a terrific deal to me. All this makes me hot under the collar.
Marko's Take
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