Archive - Aug 2010 - Blog entry

I query, have we entered into a double-dip recession? I’ll answer my own question here, No! The positive GDP prints and “green shoots” were the direct result of government bubble (re)blowing through fiscal and monetary stimulus, culminating in QE v1.5. As the effects wear off, we start to see were the economy really stands - and which economically and consumer sensitive sectors are flying on borrowed time.

If One Product Which Was Responsible for 70% of Your Earnings Was Under Assault by the Biggest Tech Companies In the World Through Potentially Better Products Entering Into an Economic Downturn, Would You Bet the Farm on That Stock at a rich PE?

Retail investors are getting fleeced when playing the agricultural and commodities ETF’s. A harsh lesson about contangos. An entire sub industry of hedge funds has arisen to take advantage of this spread, at the expense of the ETF investor. Morgan Stanley is now chartering more tankers to take delivery of crude than Chevron. Gaming the published “roll dates.”

Crude closes above $80 yesterday for the first time since May. However, a look at some fundamental and macroeconomic signals showed crude oil could be under increasing pressure, thus range-bound, through the rest of this year.

Markets in a Flash

· Asian equity markets continued their rise last night. The Nikkei finished up +1.29%, while the Hang Seng finished up +0.21%.

· European equity markets are slightly down this morning. This is after yesterday strong rise took them to new recent highs.

· Commodities are looking strong today and are pushing to fresh 3 month highs. Oil is trading above the $81.00 level. Wheat prices fell after their recent gains as Russia calmed fears of export problems.

It appears that the Fed is ready to debate what they are going to do about a sinking economy and the specter of continued high unemployment. ZIRP isn't working, yet they are afraid to tighten rates. Will they monetize federal debt as a tool of quantitative easing? All signs point to yes.

Pension funding relief could provide between $19 billion and $63 billion reduction in required contributions over five years. And the Fed is also taking notice of states' pension woes. This means that the reflation trade will continue well into 2011.

In 1970, the financial industry only accounted for 10% of S&P 500 earnings. By 2003, this percentage had swelled to 31%. Put another way, by the turn of the century the financial industry accounted for nearly $1 out of every $3 in corporate profits. Folks, this is the REAL “New Economy” Greenspan touted in the ‘90s: financial speculation. Greenspan and pals never really believed that technology would increase worker productivity. How could they? None of their policies actually benefitted technology firms or induced entrepreneurialism.

It was a silly rumor. At least I thought it was. Now I am not so sure.

What a rally, the RISK is ON – I got two words: SHORT SQUEEZE! As mentioned in previous June analysis that a close above 10288 on Dow will open room for further rally. There is still a 2% to 5% more room for risk to go up, before stopping for a breath and then to reverse.

It appears to be official. Apple’s iPhone is no longer the fastest growing smart phone in the world’s largest and most important smart phone market – the US! Considering the iPhone is 45% of revenues and nearly 70% of profits, Appolytes, should take notice. The Android Now Cometh!

Is the first collapse in history of a bond market in a non-inflationary environment coming? At some point, the world runs out of buyers. If short interest rates double from the current levels, so does America’s debt service, from the current 11% to 22% of the budget, possibly as early as 2014. (TBT), (TMV).

Markets in a Flash

· Asian equity markets closed higher this morning. The Hang Seng Index was higher by +1.82%, while the Japanese Nikkei 225 was higher by +0.35%.

· European equity markets have retraced Fridays losses and all higher. The FTSE 100 is up by +1.89% at lunchtime in London.

· Commodities are pushing higher at the start of the weak as investor look for more risk. Oil has broken above $79.50. Gold is falling as investors avoid its safety, and it is now below $1180.

There is a paradigm shift going on in the treatment of multiple sclerosis (MS). While Big Pharma frets over the new treatment, many MS patients are flying in droves to Poland, India and elsewhere to get treated, and some are reporting drastic improvements. But now that clinical trials are commencing in Canada and the US, MS patients should finally get the answers we're looking for.