Dan’s Blog

Laggard Dow Flattening Out

Dan Calandro - Sunday, February 24, 2013

The Dow Jones Industrial Average has been flat for three consecutive weeks while the 15-51 Indicator continues to build lower lows. You may recall that stock market strength flattened out three consecutive weeks in July of last year (see: Strength is Flattening). The 15-51i reached its peak two months later in September, and then swiftly began its current and steady decline. See below.

2-22-13

The Dow Average is sure to follow that trend. 

Gold has been following along in its own way, and dropped more than 5% in just the last two weeks. This is for no good reason. 

The global currency crisis continues to worsen and world financial institutions remain in severe distress. Just this week, five of the largest U.S. banks reported 19 billion dollars in mortgage write-downs. While this kind of loss is easy to incur when the Federal Reserve hands these banks 85 billion dollars of freshly printed new cash every month, this losing action can no way be considered a sign of financial strength or a recovery in housing. 

The U.S. financial system remains under stress and gold should be rising. Investors must acknowledge that stocks are overvalued and gold is misleading.  In fact, a recent Wall Street Journal article highlights how fund managers are forcing gold prices down with record breaking short activity – this at the same time they are puffing up the valuations of major stock market indexes by strategically deploying new cash provided by the Fed.

Never minimize the establishment’s ability to inflict mass-market manipulation to mislead investors so they can benefit from the deception.  

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Across the pond in Europe, banks repaid a much smaller than expected amount of emergency funding provided by their central bank (the European Central Bank) during their financial crisis in 2011. In a nutshell, European banks don’t have the money to repay those debts or they don’t want to part with the money to do so. Neither are signs of international financial strength.

To make matters worse, Europe’s financial stress is compounded by a disagreement in the valuation of the region’s currency (the Euro). Germany, the dominant economic engine in the Zone, believes the currency is fairly valued – while its second largest economy, France, believes the Euro should be weakened to boost growth and remain competitive. This debate prompted one road scholar to assess: "The euro is arguably undervalued for the North, and overvalued for the South."  

This is further proof that monetary unions do not work among cultures that are so very different. In short, fiscal and monetary harmony in Europe is about as close to them as world peace is to everyone else.

Investors should take note.

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The world's third largest economy, Japan, is currently anticipating that their new central bank chief will follow the western world and aggressively seek easy money policies that they hope will produce higher economic output, or in the worst case scenario, maintain subpar monetary performance led by modern American government.

Weak currencies and mass-market devaluation is not a pathway to success and prosperity. America and Europe are currently proving this. Japan is soon to follow.  

Poor them.  

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Monetary problems and financial stresses persist amid greatly weakening Markets all across the world. Just this week, a 2013 recession was predicted by Europe’s Executive Commission – let’s believe them. 

In America, recessionary proof was affirmed by mass-market participant Wal-Mart, who reported flat sales and pointed to the tax increases imposed by the American Taxpayer Relief Act of 2012 as a major threat to the future of its consumers’ spending patterns – a.k.a. Wal-Mart profits. — Remember, the most recent tax Act was advertised as more taxes on the rich and "relief" for everyone else.  

But let me ask: How many rich people do you think shop at Wal-Mart?  

My friends, tax "relief" means tax imposition to Government; and to them the definition of "rich" means you and me.

Once again, the establishment – namely the U.S. government and the Wall Street machine – has bamboozled the American populous into costly false pretenses – especially for Wal-Mart shoppers.

Higher taxes reduce Consumer spending and poor monetary policies depreciate the value of money. These conditions are good for gold and bad for stocks. Don’t be misled.

As an investor, patience and discipline are your greatest attributes right now.  

Stay tuned...  

Leading Indication

Dan Calandro - Saturday, February 16, 2013

The major theme investor’s must take note of this week is one of global recession. Japan’s GDP (Gross Domestic Product) contracted for a third straight quarter and market activity in the Euro-Zone plunged at its fastest rate since the ’08 crash. Germany, the EU’s largest market economy, fell at an annual pace of 2.3% while Europe's second largest market, France, contracted by 1.1% annually. 

This should be no surprise. 

As mentioned in last week’s blog, some economic "experts" were speculating how the narrowing U.S. trade deficit would transform economic contraction into infinitesimal 4th quarter growth. I remain both cynical and skeptical, as the narrowing trade deficit was not created by more exports (an increase of American-made goods sold to foreign consumers) but instead by fewer imports (less American-demand for foreign goods.) In others words, the world’s largest consumer (America) purchased less goods from foreign manufacturers - and foreign economies shrunk because of it.

This stands to reason

Elsewhere in the American Market many other negative investment themes continued to persist this week – Kraft Foods and brewing company Molson Coors reported sharply lower profits (-72% and -65% respectively) amid lower revenues, higher taxes, and shrinking margins. Mass layoffs continued to plague the employment market this week with Thomson Reuters and ING financial group reporting several thousand job cuts. Industrial production dropped fractionally, and retails sales fell in Real terms.  

Yet this news went largely disregarded by the Wall Street establishment and mass media installations who were caught up in the tizzy of mega-mergers and acquisitions; whether it was Warren Buffet’s decision to purchase ketchup maker H.J. Heinz, or the consolidation of U.S. Airways and AMR (American Airlines), or Dell computer’s decision to go private via a management buyout lead by founder Michael Dell – the entire mass-media investment establishment looked more like star-struck teenagers than serious investors.  

For this reason the Dow Jones Industrial Average didn’t budge again this week. The chart below is a new two-year look. Its scaling begins in January 2011, which was the first time the Dow crossed over "fair market value" since the ’08 financial crisis. Check it out.

2-15-13

Like the U.S. economy and other above-average Markets worldwide, the 15-51 strength Indicator continues to indicate recession by building lower-lows. The DJIA, both overvalued and flattening out, continues to mislead investors as to the general welfare of "the market."  

But note that this is not a design flaw, but instead proof that the Wall Street establishment is manipulating valuations of well-known stock market indices. Because the 15-51i is not yet broadly accepted and/or reported – it is less tainted, and thus portrays a truer picture of reality.  

While the stock market is widely believed to be a leading indicator of economic activity, irresponsible monetary policy has skewed its performance terribly, and has promulgated the 15-51i into the leading spot of economic indication.  

Markets are shrinking. Broader stock market averages will soon follow.

Prepare your portfolio now.

And let me know if you need help.

Shield The road to financial independence.™

A Kiss For You

Dan Calandro - Sunday, February 10, 2013

The most important market activity to note came from the commodity market this week. Gasoline prices shot up by a significant 14 cents per gallon in the five-day work week – and with a wintery-bluster wreaking havoc in a frigid northeast, home heating oil is poised to rise. 

Higher energy prices affect almost every required good, such as food, and nothing pinches consumer budgets more than mass market price inflation in these two segments. 

Food and travel are required for life. Price pressures in these areas will add further burden to an already fragile market economy. And even though some "experts" are trying to make Market condition seem stronger than it really is, the facts remain largely to the contrary.  

The U.S. government announced that the trade deficit narrowed by a "surprising" $10 billion in the fourth quarter of 2012; the drop was by a number much greater than what most analysts surveyed had expected. (It really is amazing how often "experts" are so surprised by some many things. Keep this in mind.)  

Some of these analysts went on to speculate that a smaller trade deficit would actually  increase the government’s next estimate of 4th quarter market activity, from a dismal -.1% contraction to a slightly less pathetic advance of +.7%.

Now I don’t know about you, but I don’t see how a $10 billion swing in international trade could translate into such a big percentage move on a $15 trillion market economy.—Call me a cynic.  

Maybe that’s why the Dow Average didn’t move at all this week. The Dow lost an ironic .1% in value this trading week. The 15-51 strength Indictor continued its contrarian ways by adding 2.7% points. Gold remained unchanged.  

Take a look.

2-8-13

Strength kissed the Average on the lips this week, as the investment markets continue to look lost.  

Don’t you be.  

Your questions are always welcome. Until then, 

Stay tuned… 

Check Point: Action Zone 2013

Dan Calandro - Saturday, February 02, 2013

Feb 02, 2013

The Dow Jones Industrial Average leaped over the 14,000 mark on more fluff-and-puff from the Wall Street establishment – and its trusted ally, the mass media propaganda machine. This is exemplified most clearly by CNBC’s Jim Cramer, who said last night (February 1, 2013) on his primetime show, "If your stock portfolio is outperforming the averages consider it a red flag." He went on to say that a portfolio beating the averages is a sign that it wasn’t diversified enough – and that investors need to buy more stuff to lower their performance returns.  

What a load of bull.

It’s this kind of stupid advice that inspired me to write LOSE YOUR BROKER NOT YOUR MONEY. In fact, the easiest way for me to sell a million copies of my book is to put a big clown nose on Jim Cramer’s face and place it on the cover over my right shoulder. My smiling face would remain exactly where it is now. 

LYB-Cover-NEW

Dow 14,000 is an investment check point – caution is advised to all investors – and be extremely careful who you take advice from and what they are trying to sell you.  

The theme of headline news this week was one of unexpected surprise. Total market activity for the fourth quarter 2012 – the holiday season – was reported to have contracted by .1%. It was a shock to some. The unemployment rate also continued to show lackluster action by rising fractionally to a dismal 7.9%. Sure a few other market fundamentals showed slight signs of life. Consider them nothing more than mixed signals.  

A shrinking economy is one in recession, and while conventional wisdom defines "recession" as two consecutive quarters of GDP contraction, common sense dictates that prudent investors consider contraction as it occurs; and uses persistent unemployment as proof in its pudding. 

No doubt, it is easier to see disaster coming when you read the writing on the wall. That’s why I connect this blog to my social network walls and profiles free of charge; this to make good on the chapter 8 guarantee outlined in my book. In it I show how easy it is to stay ahead of "the market" as long as you keep your eye on what’s happening in the Market. That is the purpose of these blogs. 

Alert: the market economy is shrinking, stock market averages are rising, and strength is weakening. These are not normal operating conditions. 

And they're also no big surprise.  

Besides the holiday season, the fourth quarter also included a heated presidential campaign, the expiring Bush tax cuts, and a crisis called the "fiscal cliff" that supposedly was averted on January 1, 2013, with the signing of a massive tax bill called, the American Taxpayer Relief Act of 2012. 

In other words, Congress was paralyzed in the fourth quarter and couldn’t spend what they otherwise could do. As mentioned many times before, any substantial reduction in massive government spending programs will undoubtedly cause recession. (see: The Fiscal Cliff We Need)

But a central government recession is exactly what the American Market desperately needs – and its forthcoming occurrence shouldn’t be a surprise to anyone following along.  

Instead, the surprise this week was that the DJIA once again reached the 14,000 climax. The last time "the market" found itself in this territory was October 2007 – just one short year before the whole financial market collapsed. That was a time when everybody who meant anything was completely surprised and caught off-guard by the massive correction.

Don’t put me in that camp – then or now.  

History has a funny way of repeating itself – especially to those who haven’t read my book and don’t know history.  

Once again this week the Federal Reserve reinforced its open-ended commitment to flood banks with at least $85 billion of fresh new cash every month. As long as the Fed keeps handing freshly printed money to investment banks, those institutions will continue using it to manipulate stock market averages and use it to recklessly lure idle capital off the sidelines from unknowing consumers. Let’s be fair, new money can easily find and inflate the Dow 30 or the twenty-five stocks that make the S&P 500 really move. 

Add to this that the Senate voted this week to delay the deadline for dealing with nation’s fiscal crisis – and what you end up with is another irrationally exuberant "market." 

This is common protocol.  

However, and because the Dow has once again reached the 14,000 apex, investors should know that is another good time to check their portfolios within the context of where investment is in the cycle. With the first release of fiscal year 2012 GDP numbers, it is the traditional time I recalculate the Action Zone for the coming year. 

As mentioned previously, the action zone is a dynamic range. It is affected by ever changing items such as inflation, economic activity, and stock market multiples. It is meant to be a barometer of investment, an average trading range defined by three values, a high, middle, and low valuation. These values are pegged to the Dow Jones Industrial Average, which represents the average of all stocks. The action zones indicate high, low, and "fair" values for all stocks. 

Knowing where stocks are in the cycle of valuation is extremely helpful when making your investment decisions – including, and most importantly, asset allocation.  

Below is a long-term look at the Action Zone in chart form.  A commentary follows.

2-1-13a

This long-term view begins in January 2007 – ten months before the Dow last reached the 14,000 milestone. As explained thoroughly in my book, back then "the market" was greatly outpacing economic activity and Market fundamentals – despite bank failure after bank failure. The economy, back then, was sending "mixed signals" – some numbers were good; others not so much (sound familiar?). Regardless of the confusion, the DJIA was trending above nominal GDP at that time, see above.

This happens during booms. And like all booms, the housing boom went bust and the DJIA fell far below its historical low market average. This once again demonstrates how the stock market overreacts to all conditions, in up markets and down. It happens a lot, in fact.

The Action Zone is a color-coated range showing the DJIA’s historical valuation based upon current market conditions. The red line is a high-top warning; it is the line of exuberance, irrational or otherwise. Be careful around it – and note that the Dow is currently heading towards it.

The Action Zone midpoint, now identified by a yellow line, can be considered "fair valuation" in a "fair market." The Dow, right now, should be trading below it in a fair market. Yes, that is to say that stock prices are extremely over-valued at the present time.  

A major "buy" signal occurs when the Dow falls below the blue line, the Action Zone low mark. Please note that this is not a pricing bottom, as proven in 2008 and 2009, but just an alert to be ready to act. Market conditions and your objectives, of course, should always be the main drivers in your decision making process.

Below is a one-year performance picture of investment within the updated action zone as defined above.

2-1-13b

Indeed, strength bounced back this week but it continues to build lower-lows. The DJIA has at least 2,500 points of inflation in it, and gold continues to look misled.

These are not signs of market strength.  

The 15-51 Indicator continues to shed light on the future course of stock market averages and the market economy.  Prepare your plan, and...

Stay tuned.

ShieldThe road to financial independence.™


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