For a minute there I thought I had to get off my couch, when all the while the fact is we don't have to do anything much but keep things afloat for just a few decades more! In fact, we'd best shut up about PO, because if our offspring finds out we knew about it all along, they'll turn and wring our necks come 2036!
Joined: Dec 07, 2005 Posts: 1741 Location: Australia
Posted: Fri May 23, 2008 1:34 am Post subject: Re: Trader's Corner 2008
The longer it goes sideways the stronger the breakout.
Now this can be either up or down.
Normally sideways is a continuation pattern so what ever pattern was in place before the sidways movement is likely to ressume once it breaks out.
Breakout should preferably be with large volume to indicate genuine breakout. Low volume tends to indicate false breakout.
Now this is just normal rule of thumb in TA. _________________ Lets take a ride, and run with the dogs tonight
In suburbia
You cant hide, run with the dogs tonight
In suburbia
- Pet Shop Boys
Posted: Fri May 23, 2008 7:54 am Post subject: Re: Trader's Corner 2008
Thanks for the comments. Sorry, no new insights headed into the weekend. Just digesting the mainly negative news on the inflation (high) and growth side (low). Its like the world is collectively waking up to the consequences of growing global imbalances and a slowing economy all at the same time (although the signs and symptoms have been there for quite some time)!
The S&P Energy Index (GSPE) looks like it has put in a short-term top (depending on the close), but that is largely technical, so it might just be coming out of overbought territory on the back of some profit taking. In any case I would see a pullback or correction and not a fundamental change in trend.
Responding to dmtu (in another thread) this is a pretty good series on infotainment videos:http://www.chrismartenson.com/money_creation
Thanks. I have not seen them all and I have not seen any more than once. I still need to digest all he is saying as I started on chapter 7 and have not reached the end yet. However, many of the points he makes are very salient at this juncture in time.
There is a distinction between wealth creation and profits as well as ongoing economic activity that needs to be separated out from the unlimited growth or limits to growth argument, but that is a theme for another day. A perfectly reasonable argument does not mean that its author cannot reach the wrong conclusions by taking it to its natural conclusion, but ignores feedback loops and changes in behavior either voluntary or otherwise.
Have a nice weekend. Cheers. _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Posted: Tue May 27, 2008 9:32 am Post subject: Re: Trader's Corner 2008
Sorry that I am a bit busy lately, but also nothing earth shattering to report. So rather than drone on about the same factors that were driving the market last year, last month and probably next month I will just continue to post links when and where I find them as well as comments if and when I have them. Although your feedback is always appreciated. Cheers.
Quote:
The new Seven Sisters, as the Financial Times dubbed them last year, are: Saudi Aramco, Russia’s Gazprom, CNPC of China, NIOC of Iran, Venezuela’s PDVSA, Brazil’s Petrobras and Petronas of Malaysia. Notably, all of the new seven are government-owned companies. Collectively, they hold one third of the world's oil and gas production and more than one-third of the world's oil and gas reserves, FT advises. In the grand scheme of today's energy markets, the publicly traded oil companies are bit players by comparison with the new Seven Sisters.
Source: GRILL THE ONE YOU'RE WITH _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Posted: Wed May 28, 2008 2:44 am Post subject: Re: Trader's Corner 2008
Did anyone notice the $8 drop in crude? Probably not? I suppose $8 becomes a rounding error when prices are northwards of $130 a barrel! ; - ))
Quote:
Natural Gas Weekly
Higher oil prices have led us to raise our natural gas price forecasts
Higher oil prices have raised the cost of obtaining LNG in the market. As regions compete for cargoes to bring inventories to full, we expect prices to move higher and are therefore raising our US and UK natural gas price forecasts to $12.10/mmBtu and $12.60/mmBtu in the summer and $13.40/mmBtu and $16.90/mmBtu in the winter, respectively.
US natural gas production seems stronger than expected...
Recent US weather-adjusted inventory builds suggest stronger US natural gas production than what we had previously expected. Consequently, we are raising our US production outlook and we no longer believe that in order to reach full storage US natural gas prices will need to rise to parity with fuel oil prices and generate fuel oil substitution.
...but not strong enough to reduce the need for LNG imports, which is tied to oil prices
However, we continue to believe that, despite higher US production, US prices will need to trade near parity with European prices in order to attract enough LNG to reach full storage. As higher oil prices are lifting the price of natural gas in Asia and Europe, we expect that US prices will need to rise further in the coming months to maintain parity with European and Asian prices. Therefore, we are raising our NYMEX and UK NBP natural gas prices
forecasts to $12.10/mmBtu and $12.60/mmBtu in the summer and $13.40/mmBtu and $16.90/mmBtu in the winter, respectively.
Taking profits on our convergence and winter natural gas trading
recommendations
As we had expected, prompt NYMEX natural gas prices have converged to UK NBP prices, leading us to close our US/UK convergence trade. Further, while modestly below our winter price target, NYMEX natural gas winter contracts have already moved up significantly, and we see this as a good opportunity to take profits.
Source: Goldman Sachs Commodities Research
May 27, 2008
Funding spreads are still wide, but the reduction in Libor has meant that borrowing costs have dropped. Say Libor is 5.25% and the spread is 1.25% then the all in cost to borrow short-term is 6.50%. However, if 3-month Libor drops to 2.65% and the spread is wider at 1.75% then the all in cost of funds is 4.40% p.a. Even at L + 2.00% the cost 4.65% is lower than Libor at 5.25% before this crisis hit financial markets.
Quote:
Michael Chren, senior managing director at Allegiant Asset Management Co. in Palm Beach Gardens, Florida, comments on his outlook for the U.S. equity market. He spoke in an interview.
``We are certainly on edge. We think the summer is going to be rocky for the markets.''
``Earnings estimates have to come down'' as the lagging effect of higher energy costs hit companies over the next six to 12 months. ``It will be very difficult for markets to rally in that environment.''
``It will be about six months or so before we get a sense of what the future looks like. If oil is lower in six months and people get a sense that the valuations are still where they are today, we think the market is in a good position to rally from there.''
Libor is still not functioning properly. Banks are still reluctant to lend to one another. The terms for corporate borrowing have become more restrictive. But banks are still lending to their best clients. We hope to tap the market again in size in June just in case conditions deteriorate this summer once again. And I think they could.
Quote:
Equity strategists at Goldman Sachs Group Inc. advised investors to buy U.S. stocks during May and be prepared to sell shares before Labor Day on Sept. 1.
``The S&P 500 is likely to drift higher during the early summer months,'' strategists including New York-based David J. Kostin wrote in a note to clients today. ``A likely path of the market is a modest rise in the next several months followed by a retreat towards the current level as the weak 2009 outlook becomes clearer.''
The Standard & Poor's 500 Index has clawed back 8 percent from a March 10 low, prior to which it had tumbled 19 percent from a 2007 high on October 9.
Source: May 27 (Bloomberg)
Usually we say, sell in May, go away. But with oil & gas prices so high, and the S&P Energy Index doing so well, there are risks to both sides. A further rally on any geo-political or weather supply disruptions during the summer driving season. Or indeed a sharp pullback on the back of a weaker broader market. I am not buying at these levels, but I will still be concerned about margin calls if the market falls sharply as emerging markets have the past two summers now. No summer vacation for me again this year! ; - ))
Quote:
Prices of U.S. single-family homes plunged a record 14.4 percent in March from a year earlier, while consumer confidence slumped to its lowest in 16 years in May as gasoline prices surged.
The Standard & Poor's/Case Shiller composite index of 20 metropolitan areas released on Tuesday showed prices of previously owned homes fell 2.2 percent in March, deepening their year-on-year decline.
Separately, the Conference Board said its consumer confidence index slumped to 57.2 this month from 62.8 in April as rising gasoline costs and falling home prices made Americans increasingly nervous both about current conditions and the future.
Posted: Wed May 28, 2008 8:16 pm Post subject: Re: Trader's Corner 2008
Quote:
Usually we say, sell in May, go away. But with oil & gas prices so high, and the S&P Energy Index doing so well, there are risks to both sides. A further rally on any geo-political or weather supply disruptions during the summer driving season. Or indeed a sharp pullback on the back of a weaker broader market.
I've just been thumbing through the IEA OMR Report and the supply demand balance does not look good.
Consumption of transportation fuels in China and India has increased by double digits. There are some small declines in consumption in North America but remarkably European consumption is quite flat.
The supply/demand balance is looking increasing desperate with March production barely meeting demand. April production was down 400K barrels.
Although I'm not as certain as Boone Pickens that the world will peak at 85 million barrels (Note that Becky Quick looks very pretty in the interview, CNBC porn for the financial eggheads) I wouldn't discount him either.
Personally I feel that oil supply must exceed demand for a while before for prices to even stabilize much less drop. Note that demand destruction could theoretically do this. I guess the mathematical term would be inflection point.
Note that I don't think its impossible for this to happen but one problem that could prevent this is inflation. If oil prices go up everything in the supply chain could go up, including wages, and this would have further drive up demand.
This is why developing countries could continue to be such strong demand drivers, wage earners in those countries have the ability to negotiate higher wages, unlike the developed world.
However if higher prices creates true inflation in the developed world oil prices could go ALOT higher.
Posted: Thu May 29, 2008 4:15 am Post subject: Re: Trader's Corner 2008
It'sthemoney,stupid!
Quote:
John Taylor, an economist at Stanford University said low world interest rates have contributed to rising energy and commodity prices.
Here made the comments in a speech at the Bank of Japan in Tokyo.
``There is strong evidence that at least part of the increase in energy and commodity prices is related to global inflationary pressures and thereby, in part, to the policy response to the financial crisis in the United States.
``During the past year, as global inflation has risen, globally short-term interest-rate targets set by central banks have not increased on average by as much as inflation.
``Excluding the cuts in the (U.S.) federal funds rate, the global average was effectively unchanged, but in the face of rising inflation this is counter to key monetary principles. There is mounting evidence that inflation is accelerating in many countries. What is the cause of this re-emergence? Since inflation is ultimately a monetary phenomenon, the place to look for an answer is monetary policy.
``A key principle of good monetary policy is that interest rates should increase by more than the increase in inflation, after appropriate smoothing out of clearly temporary price changes.
``This will keep inflation close to target by letting real interest rates rise when inflation rises and letting the real interest rate fall when inflation falls.''
Source: May 28 (Bloomberg)
_________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Posted: Thu May 29, 2008 4:40 am Post subject: Re: Trader's Corner 2008
So if the money supply is going hyperbolic, which feeds into my inflation hypothesis, are we really talking about $1,000+ a barrel crude oil?
If inflation explodes ,I think this is a real possibility , we could see a REAL commodities bubble that could be far significant than anything we have seen so far.
It would be a repeat of Weimar Germany except except it would cover the whole world.
In addition I think real monetary growth in the dollar and euro zones is more like 10-15% y/y.
Posted: Thu May 29, 2008 6:50 am Post subject: Re: Trader's Corner 2008
mefistofeles wrote:
So if the money supply is going hyperbolic, which feeds into my inflation hypothesis, are we really talking about $1,000+ a barrel crude oil?
If inflation explodes ,I think this is a real possibility , we could see a REAL commodities bubble that could be far significant than anything we have seen so far.
It would be a repeat of Weimar Germany except except it would cover the whole world.
In addition I think real monetary growth in the dollar and euro zones is more like 10-15% y/y.
mefistofeles, just to clarify, I was paraphrasing Bill Clinton and not calling you stupid! ; - ))
This is using official statistics from Bloomberg, Reuters, Economist, IMF, etc. If you want to trust shadow statistics then obviously the picture looks much worse. However, yes, if the world continues to print currency in excess of real GDP growth then this is very inflationary in the long run. Possibly parabolic.
By stripping out both the effects of money supply growth and USD weakness though in those various graphs you can see real price increases for food, energy and other commodities that are demand driven and not just the product of money supply growth or its sidekick inflation.
But we also see that inflation in general is rising throughout the OECD that agains points to high money supply growth outside of the US dollar zone as well. Otherwise those currencies would be appreciating against the US dollar and holding down imported inflation. They are not.
This is my favorite graph. Sorry if I have posted it too often. But I believe it shows what is happening now. Food and energy prices are catching-up, while global property and equity prices are dropping. They are reverting to their means or roughly looking at that chart to about where long-term bond index is. That would have profound implications for investors as the market's global portfolio rebalances.
This chart shows that the market's global portfolio of assets has consistantly outperformed the S&P 500 benchmark for equities, but with a higher Sharpe ratio (i.e. less risk for the same reward). That is where you want to be as an investor. However, this trend may accelerate if we see further deleveraging in the financial system and a wholesale switch out of financial assets into hard, physical assets that may represent a better long-term store of value (i.e. hedge against inflation and the devaluation of paper assets).
A longstanding assumption of American energy policy has been that natural gas would be plentiful abroad, and therefore readily available for importation, as production falls off in North America, where many fields are tapped out.
But some experts are starting to question that idea, saying natural gas could be subject to the same explosion in overseas demand that has made oil so expensive.
As it is, the supertankers that were supposed to deliver cargoes of gas from Africa and the Middle East to the United States are taking them to places like Spain and Japan instead, pushing up gas prices and depleting the nation's stockpiles as the hurricane season approaches.
"A few years ago people looked at LNG as a solution to North America's gas needs," said Nikos Tsafos, an analyst with PCF Energy, a consulting firm. "But today we see that there is less LNG around than people expected, and there is more competition for that LNG from markets that are willing to pay more than the United States."
Posted: Thu May 29, 2008 9:30 am Post subject: Re: Trader's Corner 2008
BigTex wrote:
MrBill, what is in that CS Global Market Portfolio?
That chart looks a lot like the Permanent Portfolio (25% gold, equities, cash and long term bonds) performance over the same period.
The fund PRPFX tracks the strategy (more or less) and its chart is an easy way of comparing the strategy to other investments.
The CS Global Market Portfolio must have some precious metals in it.
I pinched it off The Capital Spectator
Quote:
Buying Mr. Market in all his various asset class flavors is easy these days, thanks to the proliferation of ETFs and mutual funds that mine all the major (and increasingly minor) niches in the capital and commodity markets. But what is Mr. Market offering exactly? And what does his track record look like?
That's a crucial question for strategic-minded investors, if only to catch a glimpse of the true global market benchmark, which by definition is diversification in full. Alas, there's no off-the-shelf index for the global portfolio, at least none that we've come across. The vacuum inspired your editor to put one together, and so today we unveil the Capital Spectator Global Market Portfolio Index (GMP), which is an approximation of the global capital and commodity markets and weighted as per Mr. Market's valuation. We'll be using the index in future posts to compare and contrast various trends in the financial markets.
The methodology behind the benchmark in discussed in some detail below, but first let's address the obvious question: how has GMP performed? The quick answer is in the chart below, which shows the relative total return performance of GMP against the S&P 500. As you can see, GMP handily beat the S&P 500, from the end of 2001 through March 31, 2008.
Joined: Aug 03, 2006 Posts: 4063 Location: Graceland
Posted: Thu May 29, 2008 10:13 am Post subject: Re: Trader's Corner 2008
Thanks MrBill. It would be interesting to see the GMP chart juxtaposed with the PRPFX chart over a five and ten year period to see how much they track one another.
If they are as similar as I suspect they are, it would be interesting to speculate on why the four asset classes in the Permanent Portfolio are such an effective proxy for the 10 asset classes in the GMP. One would think that there would be more divergence, given how many sectors are covered in the GMP that are not covered in the PRPFX.
***
Hmm, this is interesting. The PRPFX vs. S&P 500, starting at 12/31/2001 looks almost exactly like the chart above.
However, if you go back into the 1990s, the S&P 500 does much better. Given that the GMP appears to have a similar S&P 500 weighting to the PRPFX, I wonder how the GMP would have performed in the 1990s?
In retrospect, much of the 1990s looks like an equities bubble. _________________
Posted: Fri May 30, 2008 2:39 am Post subject: Re: Trader's Corner 2008
Well, yes, I think that is the point. If you are a market timer, and right, you can put all your eggs in one basket and outperform any index. For us mere mortals we use diversification across asset classes - that we hope are not too highly correlated with one another - to increase our total return with less volatility versus a buy and hold strategy.
Unfortunately, most asset classes have become more highly correlated by two separate, but related phenomena. One is money supply. With excess money supply growth money can flow into all asset classes simultaneously. It is not an either or strategy.
Secondly, related to excess money supply growth, is you have a wall of money seeking-out excess returns. Therefore, any asset class that happens to be performing well at the moment will attract so much investor interest that it is almost guaranteed to become a bubble.
And here we are today. Most if not all assets are over-valued by historical or relative standards. Nothing is cheap, except perhaps cash, and inflation is eating away at its value.
Sure precious metals may be a hedge against the devaluation of paper money, but their absolute value is still and always will be predicated on the buyer's ability to pay, and not demand as so many gold bugs incorrectly believe. Therefore, their value is directly tied to profits being generated in the real economy. A wealthier society can afford to pay more for gold and silver. If society is not generating wealth then the price of all assets has to fall due to the inability to pay. Not lack of demand.
I was thinking this morning about my grandfather who died before I was born. He was a self-taught electrical-engineer. He was never certified and he certainly did not go to university, but he had all the books and practical experience. He was working up north on the DEW line for Norad shortly before he died. The next summer my father went up north to Athabasca to work as an electrician for the summer on the airfield they were building. One of the workers asked my father where he got "Milt's tools from?" My father explained that my grandfather had passed away, and that he had inherited them.
You see back before our throw away society where everything is mass produced in Chindia a man's tools were highly prized and built to last a lifetime. Several lifetimes as it turns out because I have a full set of tools from both grandfathers and from my father. Probably where the saying, 'tools of the trade' and other such sayings come from. Skilled workers with their own tools. Pride in a job well-done and the respect of their peers. Unfortunately, we had a barn fire a number of years ago and I lost some of those hand tools. Some would be close to a hundred years old now and as good as the day they were made.
But regardless the point is that what we are seeing through global excess money supply creation is the devaluation of all paper assets. Cheap, throw away, chrome-plated tools that lose their head at the first twist of a screw. Not the assets that you pass along to your children and grandchildren.
UPDATE: "money, money everywhere, but not a drop of oil" from Rhyme of the Ancient Oilman
Quote:
The world's top oil producers are exporting less petroleum even as prices soar, for reasons that include a boom in demand in Saudi Arabia and the Mideast, the Wall Street Journal said, citing U.S. Department of Energy data.
The biggest exporters shipped 2.5 percent less oil products in 2007 than in 2006, even though prices rose 57 percent, the newspaper said. The trend may be continuing into 2008, the Journal said.
Less oil is available for export, because domestic demand is rising in the Mideast as the Saudis try to build petrochemical, fertilizer and aluminum industries, the newspaper said. Exports have dropped in Mexico and Norway as oil fields run low, and Russian exports are falling due to tax incentives, the Journal said.
The Organization of Petroleum Exporting Countries cut production early last year, and didn't raise exports until last fall, the newspaper said.
Source: World Oil Exports Drop Even as Prices Soar, WSJ Reports
May 29 (Bloomberg) _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Joined: Aug 03, 2006 Posts: 4063 Location: Graceland
Posted: Fri May 30, 2008 11:04 am Post subject: Re: Trader's Corner 2008
MrBill, your comments remind me of a comment Warren Buffet made in one of his recent interviews on CNBC.
He said that finding a place to park a very large amount of money (such as his) is harder than it sounds. He was not speaking about locating superior returns, he was just talking about preserving value. I thought it was interesting how he apparently didn't feel that simply keeping it in U.S. dollars, euros or any other currency offered a lot of purchasing power protection.
He contrasted the difficulty of trying to protect the value billions of dollars in assets with the relative ease of protecting the value of marketable skills, since marketable skills are one of the best hedges against inflation. You don't hear it put that way too often.
The lesson I get from this is that for the average person two of the best things they can do to protect themselves from a world with too much cheap money looking for a place to go is to: (1) invest in skills that will be valuable in a variety of future scenarios and (2) commit a portion of assets available for investment to purchasing consumables at today's prices.
This approach would seem to be a wise use of energy and resources with virtually no downside risk.
It's ironic how a world with too much money in it is worst for those who are very wealthy. That's kind of counterintuitive. _________________
Posted: Fri May 30, 2008 12:35 pm Post subject: Re: Trader's Corner 2008
Mr. Bill I respectfully (that's a change! ) disagree with your analysis for gold. The vanishing purchasing power of the middle class is beside the point. They have never been big purchasers of precious metals and are less likely to buy in the future as they join the poverty class. The real action isn't demand for jewelry, or safe haven purchases by the newly poor, but money driven out of commodity and energy sector by govts. triggered to enact or reenact legislation to deal with excess speculation or hedging in that sector.
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) disagree with your analysis for gold. The vanishing purchasing power of the middle class is beside the point. They have never been big purchasers of precious metals and are less likely to buy in the future as they join the poverty class. The real action isn't demand for jewelry, or safe haven purchases by the newly poor, but money driven out of commodity and energy sector by govts. triggered to enact or reenact legislation to deal with excess speculation or hedging in that sector.