Monday, July 20, 2015

Rant and Ramble

My. Look how time flies. I better post something. I hope my attitude is not too obvious.


Here is a rambling rant. Or maybe it is a ranting ramble. Whatever.


Financially, the world has become lopsided. There has been an historic concentration of wealth, as it is commonly defined financially, in relatively few hands. This has occurred because of the creation of debt. I do not believe it a simple correlation that the rise in debt mirrors the rise in wealth accumulation. I believe there is an argument to be made for causation. The debt has been issued, in one way another, by those that have accumulated wealth as it is (again) commonly defined. The problem that is occurring and looming at some point in time is due to where the accumulated wealth is stored. The money that represents wealth has been "stored" in stocks and bonds. Therefore a crisis or decline in any of these broad investment classes will be a decline in money. A decline in the value of "savings". Financial instruments are where people save. And I could really care less if the value of the 1%’s savings decline, but mine will too, and I need that money at some point in the not too distant future. And I am not alone. If there is a definable middle class in this country, that middle class saves the same way that I do. Think about what this does to a culture when the savings of all the people are tied to the profits of the corporations whose share prices define the value of the employees retirement savings. This is the definition of "company town". One of the ways this affects common belief, and culture in general is that people will have financial incentive to lean politically to the right, defined as more sympathetic to business and financial capitalism. They will tend to vote and demand that the economy remain in an expansion mode, that is ultimately needed, to pay off the debts accumulated in a consumer and service oriented society. The economy MUST remain in expansion to pay interest on the debts that fuel the economy. Any slow down in the economy threatens this house of cards that has been built.

Another thing that threatens this scheme of wealth creation is any fracture in the belief system that enables the scheme. If the public begins to question the need for credit and debt as needed for survival, then the flows will reverse, and credit, and therefore wealth, will be withdrawn or destroyed. A belief in the advantages of socialism, a socialism without government debt, is one way to provide, through common effort, an alternative to the provision of services (now paid for by debt, a fungible item). It is a crippling idea, if commonly adopted, for the definition of wealth. So the people, leaning to the right for very practical reasons will tend to believe in only those solutions that do not disrupt the status quo. This, as the status quo inexorably moves toward the wall of the physical boundaries of the earth. And then "growth" must stop. It must. There are other ways to slow down and coast to a stop before the wall. The wall is imaginary, of course. Unless people SEE the imaginary wall. Then it is real and can be managed. Are you able to get a glimmer of the wall?

Thursday, July 9, 2015

Chinese Currency Crisis?



The stock market in China has taken a terrible nosedive over the last couple of months and was down 30% the last I hear. The Chinese government is determined, if one can believe the reporting, to get the stock market going up again. It appears they have encouraged their citizens to invest in stocks and many are looking to retire on the stock gains. (Sound familiar?)
If the stock market, any market, is artificially inflated then the currency used to value the securities is deflated. That was the first thought.
Second thought. The Chinese have a cultural affinity for gold. And even priced in US dollars increased demand would benefit the gold producers.
Enough said. I've been wrong on that one for quite awhile....

control risk,
gh

Monday, June 29, 2015

Announcement Pending?

Short post. I'll just throw this out. Watching the trading on this Greek debt day....Puerto Rico in the news as well.
But, is an announcement pending. Seems something at this point in the day is cooking... the way things are trading...

Just for the record. Might be a sharp rally.

gh

Friday, June 26, 2015

Materials and Mines

I just feels like it is about time for THE bottom in prices of the basic metals and thus of the miners and suppliers of miners.

Every day for the last months, it seems, the talking heads on the business channels are talking about the TOP in the markets. Every day the question is, "Is this the top?", or "The stock market is approaching bubble territory". But the market keeps grinding up. Not zooming up, grinding up.

And in the next segment they will talk about weakness in China or the effect of rising interest rates on the economy and/or the stocks. If there is one thing I have learned over the years it is to not give much credence to what the talking heads are warning of if the prices of the securities affected by the predicted calamity are not collapsing or giving signs of selling. In fact lately the buying comes on the dips. It is not the type of selling that is typical of a general market top.

To go further, my impression of the economy is influenced by what I see around myself. I live in a tiny backwater of America, far from the economic centers. A pickup in the economy in our little backwater shows that strength in the economy has the pressure, to use an analogy, of blood being pushed through the smallest capillaries in a body. The road that I live on is busy. Much more so than in the last few years. The log trucks are running again, and the delivery vans are busy. And the attitude of people is optimistic despite some lingering unease left over from the last financial crash. If things are picking up and people are still cautious, then we have a long ways to go.
And last I heard we are still making more people in the world. And they still have connectivity to the world so they still want things.

It feels like a bottom in the demand thing.


Time will tell,

gh

Oh! I just post this and Josh Brown comes on talking about the breakout in Deere (DE). I had took my eyes off of that one!  Confirmation?
gh

Tuesday, June 23, 2015

Silver Standard Strength

Why is Silver Standard Resources going up as silver goes down......?



Whenever I see a stock that acts strong as others are weak, or as the underlying fundamental would suggest weakness, I pay attention.

gh

Thursday, June 11, 2015

Dianna

DSX


gh

Paradoxical Effects

Sometimes there are unexpected effects from changes that otherwise are interpreted to cause a particular change.

One of these may be the effect of a rise in interest rates on shale oil and gas producers. It is my understanding that the boom in shale and in fracturing technology over the last few years has been in great part a product of low interest rates. If rates start to rise, and in particular if they rise too rapidly as they have of late, those oil and gas producers with high borrowing costs and high debt levels may be impacted enough to destroy supply in this sector. This would be an example of a paradoxical effect. Normally rising interest rates are thought to constrain demand. But producers going broke would cause a supply constraint. Come to think of it, low interest rates and the general "supply side" emphasis over the last decades seems to have resulted in the commoditization of everything, with low prices worldwide. Not discounting the effect of cheap labor. A double whammy, perhaps? And deflation prompts lower interest rates. (See Soros on "reflexivity") If this phenomenon reverses there could be hell to pay. Someday......

I am making no predictions about these companies, the charts are just a couple of those that I watch, but are two that have had trouble keeping up despite the rising price of oil lately, and to a lesser extent do not seem to be well correlated with any small bounces in the price of natural gas.



just thinking,
gh

Monday, June 1, 2015

Where is the Exit?

It seems like the long bond market is coming around to the reality that interest rates WILL rise at some point and that point is getting closer every day now. Economic numbers out this morning show an U.S. economy that is picking up steam.
It has been a 30 plus year bond bull market. At some point the idea will start to spread that it may be time to shift from long bonds to a shorter duration bond, at the least. And given the length of time that bonds have been in an uptrend there are surely some lopsided positions out there in the aggregate.

It does seem that the bond market may be setting up for a rout of sorts...

Although I don't know what the reasonable alternative might be.

Can money just vanish? I guess we know the answer to that. The financial markets are THE saving vehicle in these times and there is no real backing to any of it. Except the liquidity in markets that set prices. And there are rumors of a lack of liquidity in the bond markets.


The bond FUNDs may lead the way facilitated by the interconnectedness of modern "investors". Are there any real buyers left?

control risk,
gh

Friday, May 22, 2015

Reading GLD

I watch charts closely and in real time. Yesterday GLD went below the low of the 2nd and 5th previous days and there was NOT a sharp move down. This is unusual for gold and GLD. And it indicates, so far, that there is not much nervousness in this market and perhaps that there is accumulation by stronger hands. Time will tell and things change. Let's watch.

Read the chart:

 
 
 
A lower open this morning and the volume is subdued.
 
Control risk by keeping your eyes open.
gh

Wednesday, May 13, 2015

Japan Debt

As interest rates look set to rise in the U.S. and in Europe as these economies seem to be picking up steam it may be wise to wonder what effect higher interest rates in the world will have on Japan. The search for yield makes the money flow, in general, to those places paying the best return while taking risk into account.

Japan depends on debt to keep their government running. In fact they have one of, if not THE highest debt to GDP ratios in the world. This has been so for some time. Usually when a country reaches the 90-100% debt to GDP level alarm bells start to go off for lenders to that country. This happened in the U.S. a few years ago, and the bells rang loudly, particularly in the political circles. The U.S. debt, as a percentage of GDP has improved. Of course this is a ratio, and is dependent on the level of debt as well as the level of economic activity. (GDP)

Investors are always on the lookout for the next BIG thing that may derail a recovery or cause turmoil in financial markets. Japan may be a big deal in the future with the level of debt they are in and if interest rates rise around the world. Japan has been the source of lending from Japanese banks at the same time their government has propped up those banks with borrowed money. This has been going on for decades now, since the 1990's real estate bubble burst in Japan. (the US has repeated the pattern remarkably so far) Japan's government does hold a high level of domestic debt, meaning they have borrowed from their own citizens to a great extent. How much more they can save and lend to their government is an open question, particularly if exports take a hit due to decreased competitiveness caused by currency or energy.

Here is a list of world countries and statistics of debt. Pay attention to the debt/GDP numbers.

World Debt Levels

And the chart of the Japanese Yen as represented by the FXY ETF.

The chart says look out for a rise in the value of the Yen. A rising Yen makes repayment of debt more difficult and usually is the result of a rise in interest rates in a country, but is actually a valuation RELATIVE to the world. Any rise will crimp a country with a high level of debt. And there is a good chance of a financial dislocation with any sudden moves. ( google "Reflexivity") A rising currency makes exports less competitive and Japan depends on exports.




Safe havens like gold usually do well in these scenarios.

Just thinking,

gh