Dan’s Blog

Mixed Messages

Dan Calandro - Sunday, July 28, 2013

Earnings season is upon us and stocks haven’t moved. Even so, the average is still inflated, strength is around fair value, and gold remains dormant. 

The Federal Reserve made news this week, again, about clarifying its public message regarding the termination of QE. More and more this Federal Reserve looks scared and uneasy about the Market condition it has created. Yields remain elevated and poised to move higher because of it. Below is a year-to-date-chart.

7-26-13a

Scuttlebutt surfaced this week about who will replace Ben Bernanke as chairman of the Federal Reserve when his term ends in January 2014. It appears that President Obama’s decision has been narrowed down to two monetary doves: former Obama administration executive Lawrence Summers and Federal Reserve Governor Janet Yellen. Neither are good strong dollar choices, as neither advocates fiscal responsibility and monetary restraint. 

These conditions benefit the future value of gold.  

When central government gets too big it fails too many parts of the market economy, and ultimately, their widespread mismanagement causes some kind of collapse – be it economic or political, or both. This can be seen in almost every facet of the global marketplace. 

The Affordable Car Act (ACA) – a.k.a. ObamaCare – has proven to be the disaster we all expected it to be. Many of the main pay provisions (mandates, fees, and penalties) have been delayed for one year and are now planned to go into effect on January 1, 2015. If the ACA is so good then why the persistent implementation delay? It’s a cowardice act to say the least, as it’s easy to give away things when the next administration will be the one responsible to pay for them.

Poor politics continues to corrupt future Markets.

The government’s new healthcare program, while not much in effect, continues to affect the current labor market. Reported employment gains, while not good by any measure, are being skewed by the large number of people taking part-time jobs because they can’t find full-time work. The growth in half-jobs is a direct effect of the healthcare law, as companies are sidestepping coverage mandates by minimizing hours to employees (see: WSJ on-line article, July 14, 2013: Restaurant Shift: Sorry, Just Part-Time). 

This is not a sign of growth, strength, or prosperity. Instead it’s a sign of austerity and diminishing returns.  

Government regulation is shrinking the market, and while this is mostly bad, it’s not all bad. Amid more accusations of market manipulation and corruption in commodities like energy and gold, JP Morgan is the latest big bank to pursue removing itself from the commodity market. Under pressure from Federal regulators, Goldman Sachs and Morgan Stanley are also looking for buyers for their commodity businesses. Good. Any limitation in their market scope can be nothing but welcomed in the "too big to fail" condition. 

But for all the regulation (i.e. Dodd-Frank) and all the monetary tricks (i.e. QE) implemented by federal governors looking to "protect" us, We the People get more corruption, waste, and Market distortion than anything else.  

While little market benefit is being realized, rays of sunlight continue to sprinkle in. Besides robust earnings by most large U.S. banks, Well Fargo recently replaced the Industrial & Commercial Bank of China as the world’s top bank. Though any American market leadership is good news, it quickly gets dampened when news breaks that Congress remains baffled about their ownership and divesture of Fannie Mae and Freddie Mac. Like with so many other issues, central government appears not to know what to do and how to maneuver through the forest of regulations that they created (see: WSJ on-line, July 23, 2013, Fannie-Freddie Fight Goes Beyond Politics). 

A confused central government is not good for economic vitality. 

Indeed, there have been some positive reports in this earnings cycle: besides the banks, Boeing put forth a very strong quarter in the face of multiple Dreamliner disappointments, and Ford posted solid numbers. Scattered in, again, are some disappointments: AT&T profits fell 2% and Apple largely disappointed amid stiffening global competition that is eroding their once dominant innovative edge. Apple needs something new to take the market by storm or it is bound to become the next Microsoft.  

The overseas story hasn’t changed much either. The Euro Zone held off a recent bailout payment to Greece until the country showed more fiscal restraint – there’s still a lot of trouble over there. China, in a signal that its fiscal position isn’t as strong as the world thinks, has recently issued an emergency audit of its government debt load. Add to this serious and escalating pollution problem that is affecting their ability to feed their 1.4 billion citizens, China is proving not to be the panacea propaganda has lead some to believe it is.  

The civil war in Syria continues to threaten Middle East stability and clashes in Egypt are adding more fuel to the regional fire. While Iran’s new moderate leader is looking to throttle back hostile rhetoric towards the West and their destructive nuclear ambition, one must question: Is it too little too late in a vast sea of despotism, hatred, and violent objective – or can Iran lead the cause in dousing the flame of international jihad? I hope for the latter.

Mixed messages are certainly plentiful in this market – and that causes uncertainty. That said, valuation becomes a key investment question: What is the status of markets, stocks, and gold?

7-26-13

Markets remain extremely manipulated; stocks are over-valued, and gold is fair.

Stay tuned…

ShieldThe road to financial independence.™

An Addiction Gone Bad, and You

Dan Calandro - Sunday, July 14, 2013

Stocks overreacted to bank earnings this week and reversed their downward trend. Both stock market strength and the averages rose 2% for the week. Gold gained 6%. See below. 

7-12-13a

There was a time when big banks were solid indicators of Market condition. But that day is gone. Banks like JP Morgan Chase and Wells Fargo are now hedge funds fueled by the Federal Reserve’s money printing efforts – not economic growth. For instance, trading activity for JP Morgan accounted for almost half of their overall profits. Loan demand remained "soft" in the quarter, and both big banks see future challenges ahead in the lending and interest rate environment. 

Truth be told – banks really don’t want to lend money right now. There’s simply not enough money in it (rates are too low). And as the Wall Street Journal puts it, "banks are still struggling to overcome lackluster loan demand, a weak economy and a slew of new regulations." (See: WSJ on-line: J.P. Morgan’s Profit Rises 31%, July 12, 2013.) Add to this that lawmakers in Washington DC have recently gathered to consider new legislation to "rebuild the wall" between commercial and investment banking that came crumbling down in the ’08 market crash.  

First of all, even when there was a "wall" between commercial and investment banking it was easy to leap over. As long as they are connected legal entities they remain one in the same, and therefore, "too big to fail." The only solution is to De-Institutionalize

Second, when news like this comes to light I often find myself wondering: Exactly what did Dodd-Frank actually do to solve the "too big to fail" problem? 

American governance can’t keep adding more and more regulations on top of poorly conceived and ineffective laws like Sarbanes-Oxley and Dodd-Frank. It’s choking the system. Loan supply to small businesses is already vacant, and with the specter of more regulations and a Federal Reserve looking to exit the QE program, reason can only expect lending to shrivel even more with time. 

That’s problematic for long term economic growth.  

Perhaps one of the most disturbing traits of this stock market is how the establishment constantly shrugs off poor economic news. Here’s a sample of news headlines that went overlooked by Wall Streeters this week (from WSJ on-line):

  • China Posts Surprise Drop in Exports
  • IMF Cuts Global Growth Outlook
  • Emerging Markets Hit by IMF Forecast
  • Portugal Resignation Rocks European Markets
  • Fitch Ratings Downgrades France

In a global recession, global consumers purchase fewer goods from dominate manufacturers like China. That’s basic Market dynamics. It also stands to reason that smaller and less developed economies (a.k.a. emerging markets) will suffer more from negative condition than powerhouse economies like the U.S. And if you thought that financial problems in the Euro Zone went away – think again: France and Portugal have just sent reminders of fragility.

Wall Street is famous for getting blindsided by major stock market corrections because they overlook factual trends in favor of momentary pomp and circumstance. Currently they are drunk on Fed stimulus, and thus, unwilling and unable to face reality.    

But sooner or later the Fed will lose control over the habit. When Ben Bernanke spoke last time and suggested QE could begin ending as early as September 2013 he sent yields soaring. They remain elevated today, and poised to go higher. See below.

7-12-13b

Indeed, the yield on the 10 Year T-Note is just 2.6%, and low by any standard. A tapering of QE will only send yields higher and stocks lower. Inflation, caused by the Ponzi scheme that QE is, seems to be the only thing holding up "the market" and keeping yields low.  

This puts the Fed in a difficult position. They see the asset bubbles they are creating. In fact, that’s what they’re looking to do with QE – to re-inflate the housing market by creating more demand for mortgage debt through new money printings. Yet in the most recent earning’s reports by the biggest banks, Chase and Wells Fargo said mortgage demand is weak and dwindling.  

More and more proof that QE isn’t working appears everyday.

The Fed can’t figure out how to end the QE program because every time they talk about terminating it yields spike and the stock market sell-offs. They know what high interest rates will do to the global economy, the Euro, and emerging markets. They also know what it will do to the U.S. market and the investment values of hard working Americans. 

And none of it is good.

QE was a fun binge for a while. Then, for a time, it looked like a livable condition. But now it looks like a cocaine habit gone bad. The Fed knows what kind of economic hell looms if they continue abusing money – but they just can’t seem to peel themselves away from another QE fix. 

The Fed is addicted to QE and is in bed with their pushers (the Wall Street establishment.) It's a bad situation destined for a train wreck followed by some harsh medicine. And that’s why the Fed can’t figure a plausible way out of it. 

Those who see the wreck coming can sidestep disaster. 

Those who don’t will get clobbered, again.

Stay tuned...

ShieldThe road to financial independence.™

Priceless

Dan Calandro - Thursday, July 04, 2013

It has been two years since the 15-51 strength Indicator was made public via LOSE YOUR BROKER NOT YOUR MONEY. In that time the Indicator had a crazy run that peaked in September of last year; it then corrected some 25% down before closing the period with a respectable 26% gain. The Dow Jones Industrial Average, still yet to correct, added 19% in the same time. See below.

7-3-13

As we know the goal of investing is to make money – to sell something higher than what was paid for it. When the 15-51 Indicator peaked in September of last year I knew it. That’s because I know how the portfolio is built, its design and component allocations (revealed in their entirety at the end of chapter 5 in my book.) This familiarity makes it easy to profit from. That’s a great benefit of my method.    

Another benefit, and perhaps more importantly, is 15-51’s superior long term track record. Those who have read my book know that the 15-51 Indicator portfolio was created in 1996. As I write this blog the Indicator has produced a stunning 1,007% gain compared to the Dow’s 190% advance (a current comparison can be seen here.). That’s about five times better than the Dow over a very long time span. At its peak in September 2012 the 15-51 Indicator had produced an amazing 1,320% return on investment.  

Superior performance and easy identification of highs and lows makes making money easier – and with less risk. And because making more money from your investment capital never goes out of style, the Lose Your Broker method is a timeless approach to profit.

And that’s priceless.

ShieldThe road to financial independence.™

HAPPY 4TH of JULY!!!


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