Poll still open --->

The Markets are Never Wrong

Saw this quote on CNBC.com today. The names are withheld to protect the speaker - because the market will punish him/her enough.

Analyst X of Y-based financial advisory firm ZZZ says markets have "got it wrong" in the last few months by incorrectly factoring in a Greek default, a U.S. recession and hard landing in China.

Perhaps. But unless you are trading economy futures on Intrade you don't have a clue about why you are in business. The idea is to buy and sell securities, commodities and other tradables to make money. The market can go up for a year "and be wrong" but if you were short then you got creamed.  Who care what the inputs to tangential analysis do?

The market's job is not to forecast anything. The market's job is to be a place where buyers and sellers do their business. It does not care who you are and what you think. It does care what the masses do. If the masses feel spunky and want to buy more aggressively it will go up to attempt to keep supply and demand in equilibrium.

Guess what? The market does not have a mind. It does not want to do something. It just is. Our jobs as analysts is to read the signs the market gives us and formulate an opinion on just how spunky people are.

OK, I have calmed down now. And yes, I do write "the market wants to go up" or "the market feels toppy." Perhaps I think the market is my kid brother and when someone disses him I get angry.

It is a fine line between personifying the market to make torpid analysis a little more palatable and actually believing it is alive and capable of making mistakes.  

New Poll

October was hot, hot, hot (but don't tell that to us here in the Northeast where it is snowing).  Was it a bear market rally, the start of something bigger or just more noise in a range that began in the summertime?  Take the poll --->

Snail Mail

In a change of pace from the financial markets I was thinking about the postal service. First, I like my mail carrier and just about everyone in the two local post offices is rather helpful and nice (I said almost all). I even use mailing supplies available there when I ship products.

But in this new age, the budget problems in the postal service may be telling us that it is time to change. Think about the mail you now get delivered each day. How many pieces are items you wanted? And now think about how many items are bills, advertisements and statements?   I'd say that at least 90% of the items that the post office delivers to me is in the latter category.

Who writes letters anymore? Email is dominant. It is fast. It can come with delivery confirmation. It can deliver photos, documents, music, videos and everything else that is not a physical thing - such as a puppy or popcorn maker. 

I do just about all my bills online. I get just about all my statements online. Admittedly, I still get some paper statements delivered as a punitive act towards companies I just do not like. Save a tree? That is not why they want me to switch. They want to save costs. But I digress.

And the rest is junk mail. How much energy and resource is dedicated to direct mail marketing? How much of that goes from the mailbox to the garbage can without even stopping on the counter to rest? At least we can set up spam filters to cut down on rogue email.

For-profit delivery services are everywhere and while they cost more than a first class postage stamp to deliver anything they are not that bad thanks to competition (hint - free market).

There are two drawbacks to eliminating the postal service. The first is the work force, of course. There are a lot of solid workers there, along with the occasional machine gun toter, that would be out of jobs. But wouldn't FedEx and UPS need more workers to pick up the slack left by the post office? Well, some. I also can imagine a deal where the for-profit services actually take over some the physical post office buildings to keep it convenient for me to "step out of my office for a moment" to ship something. Aren't the UPS Store and FedEx/Kinko's just that? I would not mind having a few more around town.

The second drawback would be service to rural and other areas that might be overlooked by for-profit services. The post office delivers everywhere and that is good - but at what cost? Perhaps there is some deal to be made with the government picking up a portion of the tab to these places but that is a slippery slope. Perhaps the free market will figure it out - perhaps offering less frequent service to these places but service nonetheless.

I am not a logistics expert. Let the real experts have a go at it.

The pony express gave way to a better system. And I am afraid it is time for the government to get out of the delivery business.

Split Personality

With today's thrashing of 3M on earnings the split personality of the market continues. On one hand, the breakout from the summer trading range could not be any clearer. It even satisfied my requirement that it pause at resistance before breaking out, too.

But on the other hand, the way it treats earnings winners and losers is unstable pre-selloff behavior. I invoked the Hindenburg Omen in my column last week saying that it was not too dissimilar. The HO looks for lots of new highs and new lows at the same time. The earnings thing has stocks beating their numbers jumping up huge and stocks missing them getting killed.

Usually, an up market treats winners nice and shrugs off the losers by not doing much to them. Conversely, a down market punishes losers and shrugs off winners. This market is doing both.

With Europe's woes coming back to the fore tomorrow with a French-German announcement (postponed from Monday) risk is the magic word of the day.

MoKhad is no more

With the former Libyan leader now captured and rumored dead, let's take a look at how capitalism in the region has fared since Egyptians first threw out Hosni and crew.

This is the Gulf States ETF and it is back down to post-Egypt revolution lows. EGPT (Egypt ETF) moved straight down from its 2010 highs without the recovery bounce seen here.

I am steering clear of anything political but the chart shows that local markets are not pleased. Of course, there are technical levels (support at shown lows and trendline from the Jan peak) in play. 

In Quick Takes Pro this morning we had a chart of the BRIC ETF and it, too, was not happy. Where to put your money? Good question. Everything looks nasty.

Energy follow-up to Monday's column

Sometimes the charts work, eh? 

Energy

Lots of energy sector news today - from BP and Anadarko settling their beef to a takeover in pipelines (KMI buys EP). Here is a chart of the oil ETF that did not make it into today's column on this very topic.

As you can see, it has a tentative upside breakout. Considering what has been going on in the world, this is not too shabby.

Anyway, the point was that oil is firmer and big integrated oil stocks have some interesting fundamentals. I profess no expertise in fundamentals but single digit P/E ratios with dividend yields that are double the 10-year Treasury got my interest. I cannot tell you if the P/E for energy stocks should be that low. I cannot tell you if they are paying out a lot of earnings to assuage Occupy Wall Street protestors.  But to me, these two seem worthy of further investigation, not for the fundamentals but to see if the technicals tell a good story, too.

They do. Or at least it is a better story than most of the rest of the stock market. Apple does not count.

The bottom line is that big energy stocks have a lot going for them, even if the market goes down as I think it will. They may lose some value but with dividends, relative performance, on-balance volume, underlying commodity strength and few other things they should reduce the pain for those who simply must be in stocks.

Bad News

It is a good thing that as a chartist I get to ignore the news. Forget the hope and mirrors coming out of Europe. We all know Greece is going under and they really can't rescue the banks.

I don't know if you follow my Facebook page but I put up two rather depressing charts today. The first was a survey of small business optimism. Or lack thereof. Or dismal-ism.

The second was a survey of Americans who have trouble putting food on the table. The trend there is not good by any spin. We have heard that the level of Americans living in poverty has gone way up. This gets down to what that really means. Forget cell phones and flat screens that seem to be in the homes of the poor. This is food.

Imagine what will happen when (not if) food prices start to climb as inflation finally arrives.

Check out the Facebook page for the charts. And while you are there, do me a favor and hit the "like" button.

LIBOR rising

While the LIBOR rate is still a far cry from its panicky 2008 levels, it has been on the move since the summer.

As you can see in the chart, it is still well below its 2010 peak but I am more interested in its change since the summer. LIBOR started to rally just when stocks started to fall. But unlike stocks, which bottomed in early August, LIBOR kept on going higher. It has increased EVERY DAY in August, September and so far in October except for two.

Just stuff that makes you think that while we, the public, is fooled by all the hope and mirrors coming out of the EU, perhaps the banks themselves know better.

Noise

Bloggers are supposed to write about stuff that either excite them or bugs them. Politics, religion, sex, technology, bureaucracy, health, food, you name it. Here, I am supposed to write about stuff that impacts your money.

Here is a secret - it is getting very difficult to get excited about anything. All markets are going nowhere in a Brownian dance of futility. For all you who took Shakespeare in college, Brownian motion is the random movement of atoms or particles as forces act on them from all directions. Net net is that they go nowhere.

And you thought there was a Bush/FEMA joke hiding in there. That would have been one heckuva joke, but I digress.

Today, the media reported the market were nervous ahead of Slovakia's vote on further EU bailouts or whatever for Greece.  Funny - after the market closed and Slovakia grew a pair with a thumbs down vote, the markets did not budge. Not stocks, not bonds, not gold, not the dollar. The euro did move a little lower but not much.

So much for the morning "reasons" why the market was doing what it was doing.

The bottom line is everything these days is noise.  If you want to cope, you had better dust off your weekly charts and take a bigger picture view.

Will banks survive as is?

I am not going to chime in with my view of the Occupy Wall Street protests although it does amuse me to listen to talking heads show their biases. But if this is a legitimate protest movement and one that can cause some changes to happen I do wonder if banks will exist as is in a few years.

Was it the government that created the mess? Was it government that created the need for Bank of America to charge a monthly debit card fee by restricting other fee generating business? I am not going to speculate here and will not be sucked into such an argument.

But let's just think about it for a minute. I have a Bank of America account set up for my college-aged son. He uses the debit card all the time to buy food, toothpaste, laundry detergent and other normal purchases made by college students out on their own. He won't be using it for long and we have not yet decided whether we are going to keep his account at all.

I mentioned here that I left Chase for the local credit union due to their constant fees. They even charged a 30-dollar fee to fax a statement to my new bank. I hope the poor rep I had on the phone did indeed put my reason for leaving into some customer feedback file that will actually get read by management. Of course, I doubt the latter part of that.

Banks have not wanted to serve the little guy for years yet we all continue to flock to them. But can you blame them? How much money do they really make servicing small accounts? My guess is they lose money so again, who can blame them?

But if all us little guys leave then what? As a group there has to be some clout. And no, I am not suggesting a power to the people movement here. I am just thinking about what might happen as we wake up, one by one, and choose alternate methods to fund our daily lives.

The bottom line is that policy is pushing banks to do things that actually hurt customers, not help them. And customers will revolt as I have.

Now, how can we change our investment activities to adapt to this new trend I see coming?  That is, after all, what this blog is about. 

Banks should have failed. From fire comes new growth.

Staying the course

No, not what your broker told you as stocks imploded in 2008. Perhaps instead of writing "staying the course" I should have written "staying with the big picture." And my big picture says that we are in a cyclical bear market within an ongoing secular bear market.

I was definitely a rough week as stocks came roaring back on yet another round of hope that Greece will be saved. This time, European officials said they had the backs of banks in Europe that were on the hook.  Who thinks that next year we will see a solvent Greece in the EU?  Uh, nobody.

Technically, all the talk that the markets had "entered bear market territory" was the contrary signal needed to spark a short-covering free for all.  Entered bear market territory? The market enters a bear market right after it peaks.  It had a bear market when it loses 20%. Monday saw dangerous financial reporting, indeed.

I am not going to predict the course over the next week or so but if the S&P gets back to 1225 you can bet the exact opposite of Monday's rally will happen.

Look at this chart and you tell me the trend.

Just Sayin'

This is the marine shipping stock index and it is still nasty weak.

The Unintentional Treasury Ponzi Scheme

A ponzi scheme is the use of new investor money to pay old investors. As soon as new money stops coming in, everyone loses - well, except for the guy who made a commish selling the fund manager his beluga,  Dom Perignon and Maserati.

As I watch stocks crater on global economic fears I wonder just who in their right mind thinks loaning Uncle Sam more money is a good idea? True, as long as there are suckers to buy up each auction, money will flow in and old investors, including government workers, the army and social security, get paid. Everybody is happy! Whoo hoo!

Am I alone in getting a bad feeling about this? Yes, I know treasuries give you at least a tiny yield instead of losses in stocks and commodities. But at what cost?  If we consider risk and reward, I think the risk is getting way out of hand.

Default risk? The US is not going to default but never before has there even been a chance. Now there is.

Interest rate risk? Maybe not right now but do you really want to lock up you money for 10 years at 1.7%? And that is before taxes, you evil rich people.

I'd rather take the money and invest it in a small business. The risk may be higher but the reward is exponentially higher.

So for now, treasuries are the only game in town. But Congress has not passed a law requiring citizens to buy them - although you never know.

Industrials Telling a Bad Tale

Here is a paraphrased headline about industrial stock Ingersoll-Rand from the weekend:

And “so far, companies are being punished for pre-announcements.” Ingersoll-Rand Co. shares hit a two-year low Friday after the company cut its third-quarter profit outlook.

MSN Money said it was trading back down at its Friday low in Sunday evening action. That is an 18% thrashing since Thursday's close.

Yeah, it has a trailing P/E of 10 and change. That will change after they report. This is one sick puppy and the while litter is trash, too.