Wednesday, April 15, 2015

Social Events Drive Economics

Demonstrators demand a raise




Economic trends are social phenomenon. At present in the U.S. there is pressure building to raise wages for low income workers. Hardly a week goes by that I don’t see a demonstrators somewhere demanding a rise in the minimum wage. This time to $15. Nearly double what it is now. It is about time that labor woke up. I guess all it took is the stock markets going up for five years and zero interest rates for the same time.

So, it looks like low interest rates will cause inflation, and not just in the asset prices. The social public is not unaware of the rises in stocks and assets in general, and the greater divide between the rich, those who benefit from low interest rates, and the poor who watch the goings on and become increasingly angry. Angry enough to demand a share of the largesse.

Economics is a social phenomenon.

Look for wages to rise over the next couple years. Look for prices of goods to rise moderately as the increased buying power of the lower working classes pushes the cost of basic goods higher. They won’t be buying Tesla cars, they will buy Fords and Hyundai cars, and new cell phones.

Business may see a shrinking of the profit margin, but volumes will increase and this will be the carrot in front of investors who will hope to rein in the labor costs or increase productivity in order to regain the lead in money accumulation.

This is a recipe for inflation. The central banks will be reluctant to kill this golden goose after decades of deflation terror. The Fed will lag the inflation and therefore encourage prices to rise and the Dollar to decline. All the while "keeping their eyes on the data".

Now is the time to look long term at energy, metals and even the banks who will lend as the velocity of money increases with the wealth infusion at the bottom of the pyramid. There will be extra money in the hands of those without debt. They will want to catch up fast.

The next few years may make the 70's look tame.
The trend will change!

gh

Short Covering Rally

Here is an example of what to look for in "bottom picking" and trying to catch a rally caused by the shorts covering.
Oil and energy is firming up.
Cliffs Natural Resources is in the coal bidness.
After a long decline with the opportunity for many short positions to be built up it may be time to reverse. (For awhile)

CLF broke to a new low not long ago, but now the price is bumping up against that ceiling. If price goes higher from here it may be a signal to shorts watching to cover their positions (rightly so, as I expect energy to continually grow stronger from here as the WORLD regains mo).






Buy the breakout, add on strength for a 20-30% gain.
Maybe.
Control risk,
gh

Friday, April 10, 2015

RWH

Enjoy your weekend.

This is where I'm at.

gh

Watch Japan

In recent years there has been much angst in markets over debt. Politics in this country, (USA) has been keen on debt worries, particularly as a populist message to unseat a Democrat president. I think the politicians miss the main point most of the time.

Japan has huge amounts of debt and for years the warnings have been sounded about what could or will happen if interest rates and therefore borrowing costs rise in Japan, or there is a loss of confidence in the Yen around the world.

Shinzo Abe took unprecedented action in the last couple years as he, the prime minister of Japan, as well as the governing body in Japan went on a concerted effort to devalue the Japanese Yen. So far it is working. The Yen is weak, and presumably Japanese exports are competing with the rest of Asia.

I watch charts. If something significant is happening to prices, or the correlations between markets change, I don't expect to hear about it on the news. Eventually it will become news, but the time to take note is as the changes are happening, and I never know for sure what the cause of the changes may be until later.
For years there has been a correlation between strength in the Japanese Yen and strength in the gold market. It is marked in the intraday charts. This morning, again, the Yen opened up strong and gold opened up strong. It is almost like there is a fear for a strong Yen that prompts the gold buying. There may be other reasons of a macro financial reason that I am unaware, and to my way of thinking they don't really matter. I make my decisions on what the price is doing.
I do listen to chatter of professionals. Some are right, most are right eventually. The timing is the key, as always.
John Mauldin, who is a fine writer and student of macro-events has been warning for years that Japan is living on borrowed time.
Mauldin here

I am making no predictions regarding timing here, this post is a reminder to myself and any reader to keep an eye on the Yen and how it acts and how it affects the price of gold. There does seem to be some worry in the markets about Japan. And the big events are usually not in the news until they are the news. A catastrophe in Japan would be hugely disruptive to the world of finance.


Control risk,
gh

Thursday, April 9, 2015

BABA Buy?

Alibaba

went public last fall and the price ran up and then has declined in a controlled fashion.

Now may be a bottom in the price of this stock.

I present this chart as an example of how to look for a bottom in a stock. This may or may not be a trend change, but the price does give some defined parameters for limiting risk and evaluating for a change in trend.


Control risk,
gh

Monday, April 6, 2015

Surefire Way To Make Money!

Originally a post on FaceBook by yers truly.

So the way to buy a stock is to buy it as it goes up. And the only way to know that it is going up is because it has gone up. This sounds like the reverse of the time honored advice to buy low and sell high, but this is the only way to buy if you are a trend follower, and the “trend is your friend’ is the best advice anyone can ever give regarding how to make money investing or trading in financial markets. If you think a stock is going to go up, one way to do it is just buy as much as you can and wait for it to pour money in your pockets. But it usually doesn’t work this way if you have been buying what you thought was the bottom. It usually isn’t the bottom and the trend grinds on. But if you do get lucky and the stock rises you will have a hard time believing your good fortune because the dozen losing trades just like this one have jaundiced your eye, so you sell it for a relatively small gain as soon as it looks like it is going to turn down again. And these poor trades grind down your account and your confidence.
Bottom picking must be done with care or the picker will tend to have smelly fingers and a small account. And there is rarely a sharp long term bottom in any stock although some short covering rallies are certainly worth the effort to catch. Most bottoms take time to form and buying the low price of the movement is rare and often after several months of see-saw action the buyer has remorse as the money has been parked in a range bound stock. But if one can be patient and wait for a long bottom to form and then buy the high price as the price moves up and out, as the trend looks to change, sometimes a good trade can be started. At least the price is moving in the right direction to make money. But don’t buy too much. There are still a lot of stock owners who bought early and are sitting on a loss and will tend to sell if the stock looks set to resume a downtrend. Overhead resistance, to use the parlance. But give it some time, watch how it acts at the obvious resistance areas. They are usually previous highs where selling in the past had proved the right decision and where many found the nerve to buy in the first place.
But if your stock can weather some selling and move back up and then press on higher, well, buy some more. It IS moving in the right direction and now you have a bigger position on in a stock that is in an uptrend.
As you do this watching and waiting you are taking the pulse of this stock. After awhile you kind of get to know how the stock acts and all stocks do tend to have a personality in the way the price moves. This is called “reading the tape”, and it is a good skill to have.
So your stock acts all hunky dory and you have built up a pretty large position as you average in on higher prices. This does mean that your average price is somewhere below where the stock is trading, so if you are watching and showing some restraint about your purchases it is hard to lose money on the trade after awhile. But one day the stock opens up strong or breaks out above a trading range and the selling comes in strong and pushes it back in the range and then down out of the range. So you sell.
And that is trading. And if you keep in mind that this principle of buying and selling works in many timeframes you can see how it can be made to fit the personality of most anyone who wants to try their “luck” at the stock market. Maybe you only hold a stock for a month as it moves up, adding as it goes, and you get out and look for another trade. You will be feeling how the stock acts and picking those trades that fit your comfort zone. But if you don’t have time to watch a stock from minute to minute all day and just want to glance at a price chart in the evening for a few minutes. The same principle of buying new highs will work. The price swings will be greater as the timeframe is greater, but the possibility of much larger percentage wins grows as well, so your position size as a percentage of your account will not be so large.
The point of all of this is predicated on the trader or investor having the sense to sell those purchases that don’t work out. Don’t let any trade cost more than a percent or two of your capital. Period. No matter what your feelings are about the prospects for the company. If the price is not going up, but down, sell it. If the company is a winner the price will go up when the world comes to see it, not before. If they do. Perhaps those sellers know something that you don’t. Be smart enough to not hold losers for long. Survival of the fittest, so to speak. At the very least your timing is wrong.
So there you go. If a stock is working for you, buy more. If it is costing you money, sell it. If you can do this in a dispassionate manner you can not help to make money in any active market. If you can do this totally dispassionately you are not a human being. Your mind will be your own worst enemy in trading. So get practicing.
And these principles work great in life as well. Add to the winners and cut the losers short.
 
 
And that is why I always sign off with,
 
Control your risk,
 
gh
 

Friday, April 3, 2015

Which Inning Are We In?

Preseason baseball is on from Scottsdale, Az.

We watch the SF Giants in this household.

Stock and Bond markets closed today for Good Friday. (the celebration of the death of Jesus, WTF?)

But the govt. carries on. The monthly employment report out this morning. It seemed the market, to judge by the clowns on CNBC, expected some small slowing, the consensus on the pre-release show was in the neighborhood of 200,000 of new job creation. The actual number came in at 120,000. A dramatic weakness.

The markets are dependent on low interest rates and any suspicion that interest rates will be raised to accommodate a strong U.S. economy, or raised to at least gain some wiggle room for future interest rate manipulation, or at very least to gain a modicum of credibility for Chair Yellen seem to have been allayed this morning.

The Fed has moved from looking to get people back to work, to depending on some inflation to indicate the economy is chugging along, to thinking about the strength of the U.S. dollar and how that may be a headwind, and back to the employment rate again. Have we come full circle.

We may be a few innings earlier in this post crash ballgame than we thought. After all this is the world free market economy that is subject to blatant mercantilist manipulation by the central banks of the world to weaken their respective currencies and thereby drum up some export business in this world that is awash in excess labor.

We may be in a new world, economically speaking, as long as people are content to put up with the churn of living in a world that has no winners and only ephemeral losers.

What are the central banks of the world afraid of that a country can not put up with a long period of subpar "growth" and even declining prices. Is it fear of debt? It must be. That is all that really makes sense. But whose debt? Government debt would not be a problem with low interest rates and low inflation. Is it the demographic aging problem? Perhaps.

 But they sure seem afraid of something, or afraid of nothing. Perhaps there is no real problem with dreaded deflation. No one seems to have a problem with outright inflation. Not the western countries at least and China seems intent on further devaluation of the yuan, as well as lowering reserve requirements for their banks.

There has been a continuous string of devaluation plays over the last couple of years.
And the U.S. Dollar has been the strong currency on the prospect of a rise in interest rates here due to a strong economy.  Now, not so much?

Next week may be exciting. Stocks should go up, as the dollar goes down, as oil holds or goes up, probably on Middle East turmoil (there was no decline on the good Iran news). PM's may go up with the equities as new hopes/fears of inflation resurge. It WILL happen sometime.

control your risk,
gh

Wednesday, April 1, 2015

Tide Changing?

EEM up strong this morning.
SPY down on big volume.
So far today. But confirming the impression I have had for several weeks now.

The tide may be changing. The U.S. economy may be slowing and the rest of the world is easing and/or improving.

The money will flow to the best return.

Gold and silver up, dollar down. Energy up.

Today seems like an important shift in investor behavior.



So far.
Control risk,

gh

Tuesday, March 31, 2015

Waiting For Godot?

My posts have been sparse lately due to the complete lack of energy in the markets.

But perhaps something is brewing. Someone seems to think so. There was very unusual volume in the I-shares energy ETF yesterday. (IYE)

A small rising triangle has formed and may signal a trend change in energy if broken on the upside.

The stock markets in general seem to be treading water. Waiting for something. Perhaps nothing will happen.  Waiting.....



Oil inventories tomorrow, but I doubt that is the trigger.
Perhaps Iran.
Or the middle east troubles more generally.
There is probably a risk of short covering as well.

gh

Thursday, March 26, 2015

Bacon Out of the Fire?

A few headlines from the Middle East:

Saudi's Bomb Rebels


Iran objects to the intervention


U.S. Aids Shia in Iraq


There seems to be an intensification of the conflicts in the oil patch.

The U.S. is reluctant to go back into the middle east in force.

The U.S. does not depend on oil imports like we did in decades past. If we import oil/energy it is from Canada and Mexico. We are not dependent on the middle east for oil.

The U.S. oil and gas producers are having a hard time being profitable with world and U.S. oil prices at the low levels of recent months. A disruption of Saudi supply would help U.S. producers if world prices rise. Some Canadian and Mexican oil could be diverted and raise U.S. prices.

The increasing tension between Iran/Shia and Saudi Arabia/Sunni may be increasing. And recent reports are of these nations buying large amounts of weapons.

Arms purchases

Regional Buildup

"The recent upgrades to military infrastructure and equipment, however, may not relate solely to Israel or Iran, both of whom have been quite stable in recent years, but may relate to a significantly decreased presence of the US Fifth Fleet in the region."


I am surprised that there is not more buying of the U.S. oil and gas producers. We may get our bacon pulled out of the fire by our producing rivals. It costs money to wage war. If one country attacks another, and those countries primary sources of revenue is oil, an attack on a rivals production will crimp their income as well as raise the price of surviving production.

The timeline may be months or years, but I the U.S. does not have the interest in the region that we did in times past and that will surely influence our desire for interventions.

gh