Morning Musings From Art Cashin - Thoughts On Iran Shipment

Via UBS Financial Services

Stop Stalling! It’s Time To Get Going – The bulls remained stuck on the bear’s goal line for the second straight day. In fact, early in the session, the bulls lost some yardage. Then, in the final 90 minutes, stocks moved sharply upward, albeit in light volume.

Some of the conspiracy theorists assumed it was a “manufactured rally”, caused by something like the fantasy “plunge protection team”.

I have written over the years that people need structure and reason to explain events, especially unexpected events. Human nature abhors randomness. As Voltaire said, “If God did not exist, man would have to invent him.”

Conspiracy theorists tend to go the other way. Instead of chalking random or surprise events to “Gods will”, they see it as the result of some secret government cabal. It is no different than the bettor whose horse did not win claiming the race must have been “fixed”.

We tend to think we err, not because we were wrong, but because others played unfairly. It’s very convenient but incorrect. There is no plunge protection team. Being an amalgam of many humans, the markets can morph from behaving like a crowd and start behaving like a mob - sudden irrational mood shifts. The fault, dear Brutus……

Anyway, back to Monday’s action – or maybe inaction, since the volume decreased and the trading was dull.

The late levitation returned the S&P to the level of its Friday close. As we used to say, it was the waste of carfare and a clean shirt. We’ll see if they can move the ball today.

What’s That Noise In The Basement – The markets and Wall Street analysts seem to have adopted a distinct posture on incoming economic data.

If the news is bad, it is probably the result of the snowstorms. If the news is good, it’s just good news.

We are tempted, however, by some non-weather related data.

The ECRI, a noted leading indicator, has turned down markedly. It has a good record so the seeming rollover puts me on alert.

In addition, another newer indicator is also flashing warning signals. Several financial blogs have picked it up. Here’s how the savvy Barry Ritholtz began a discussion of the indicator in his Big Picture blog:

Consumer Metrics Institute is a (relatively) new econometric data and research firm.

What makes them so interesting to me is that they are not economists — they are simply number geeks trying to analyze U.S. consumer data in real-time. The goal is to uncover macro-economic trends by using different data then everyone else.

Rick Davis runs the place. He is a physicist enamored with what numbers say — and he is less than impressed with what the economics profession does:

My real gripes with the established economists are their lack of innovation. The lags and revisions in their data drive me crazy. There are enormous amounts of real-time data available that hardly anyone knows how to analyze. Our current problem is that we are so far ahead of the traditional data sources that hardly anyone takes us seriously.

The thing that caught the attention of Ritholtz and several other bloggers was a chart of the Consumer Metric Institutes “Daily Growth Index” (DGI) against the quarterly GDP. The chart only goes back four years but appears to show the DGI correctly leading the GDP by several months. The chart shows the DGI has turned down sharply which may bode ill for the GDP and the economy in the coming quarters.

Is It A Bluff Or Is It Battle Preparation? – Several blogs have picked up on reports that the U.S. may be transferring “bunker-buster bombs” to a base in the Indian Ocean. Here’s a part of a story in the Sunday Herald of Scotland:
Hundreds of powerful US “bunker-buster” bombs are being shipped from California to the British island of Diego Garcia in the Indian Ocean in preparation for a possible attack on Iran.

The Sunday Herald can reveal that the US government signed a contract in January to transport 10 ammunition containers to the island. According to a cargo manifest from the US navy, this included 387 “Blu” bombs used for blasting hardened or underground structures.

Experts say that they are being put in place for an assault on Iran’s controversial nuclear facilities. There has long been speculation that the US military is preparing for such an attack, should diplomacy fail to persuade Iran not to make nuclear weapons.

Although Diego Garcia is part of the British Indian Ocean Territory, it is used by the US as a military base under an agreement made in 1971. The agreement led to 2,000 native islanders being forcibly evicted to the Seychelles and Mauritius.

We still think the U.S. would have a tough time “going it alone”. Forces in nearby Iraq and Afghanistan would be suddenly vulnerable. The U.S. could not prevent a blockage of the Straits of Hormuz, cutting off huge supplies of oil. Nevertheless, we’ll try to vet this story further.

Cocktail Napkin Charting – Resistance in S&P likely 1156/1160. The napkins suggest support at 1138/1142.

Consensus – Form chart says they probably churn till the FOMC at 2:15. We’ll watch reaction. Stay very nimble.

Trivia Corner

Answer - The average bus speed would be 18 mph. If you assume the busses ran at regular intervals, the deciding factor is the speed of the walker (2 mph), which allows him to meet 10 more busses than pass him. The solution can be found by algebra or common sense. The common sense might take up 12 pages, so here is the algebra: 50 (X-2) = 40 (X+2) which results in 18 as the value of "x" and thus the average speed of the bus.

Today’s Question - What did you say? - Fill in the blanks with one word to make the sentence make sense in plain English - "Esrever is _____________ in _____________."

History Trivia

On this day (-2) in 1794, a patent was awarded to a resident of Mulberry Grove, Georgia. It was for a device that would revolutionize post-revolutionary America and start it on its way to world power.

The principle of the device was simple. It was a rotating drum with spikes on it. The spikes grabbed the valuable part of a plant, pulled it away from the stem and, as the wheel turned, further cleared the valuable part from the seed. The inventor's name was of course Eli Whitney and the invention was the cotton gin (some think gin is short for engine but a good bet is from the old English word for snare or trap...gin...since it trapped the seeds).

Anyway, the gin immediately turned cotton into a key crop and within a decade many millions of dollars were flowing into the cotton industry. So you would think Whitney got rich. Well you would be wrong. The device was so simple that within days of getting the patent, Whitney found himself surrounded by cheap knockoffs or clones. And, when he asked the Washington crowd to enforce his patent, they acted like they had cotton in their ears. (Cynics think money played a part in the government ignoring Whitney. How silly can they influencing some folks in Washington? Come on now!)

Having failed to make money with his Cotton Gin he toyed with the idea of a cotton vodka but instead invented the concept of interchangeable parts - leading eventually to mass production, the assembly line and later Japan and ultimately China.

The market could have used a little mass production Monday. In fact, it could have used any kind of production at all.