Friday, December 19, 2014

How the markets are like Kohl's Stores...

When I first started hearing about Kohl's stores from our retail analyst it was in the late 1990's and they were still primarily a midwest retail chain.

I vividly remember the first description of the stores as something along the lines of "it's like Macy's but without name brands".  I remember thinking that was a strange concept, but whatever, to each his own.

Yesterday I was discussing the Kohl's concept with my better half and admitted that it is just one of those successes that I have to admit I'll never understand.  There is always a steady flow of customers marching through their doors to buy a $12 shirt that was marked up to $90, so they could put it on the 70% OFF rack (now $27) and you can use your extra 30% off coupon to yield a final price of $18.90.
In the end, you end up paying 50% more than what the shirt is worth, but they tell you "You SAVED $71,10 on this shirt!!!" and for some reason this strategy continues to work. 

So what does this have to do with the markets?

I think we're seeing the last glimmers of human influence over the markets vaporize in front of us.  In 15 or 20 years, we may look back on this time and wonder why we didn't change the markets when we had a chance.

Yesterday, all I heard during the day was "well, oil has stabilized and that has caused a massive stock market rally." The only problem was oil was falling throughout the afternoon and set new 5 1/2 year lows by the close.

It doesn't matter, though.  Once the computers take hold of the market they no longer needed a "reason" to buy, simply having stocks be higher was reason to buy more.  At the end of the day a crazy buy program bought everything in sight and took stocks back to within a whisper of all-time highs.  This won't cause any Congressional inquiries when stocks are going up, but these program trades can work in the opposite direction as well.  Yesterday's panic buying was so rapid and lacked any rational explanation so it left all of the humans standing on the sideline.  When the markets finally unravel, the declines will be so rapid that no one will have a chance to react.

So, after dealing with the markets for nearly 20 years I think I've come to the realization that these are no longer markets.  They are like Kohl's - maybe I'll just never understand them :)

Cheers!

** Oil has bounced again this morning, so if the pattern holds, this means higher stocks (maybe all-time highs again?) and a late day sell-off in oil that no one will notice.  However, today is an option expiration day which means it can be very volatile.

Wednesday, December 17, 2014

The markets are like a Rube Goldberg machine



Yes, the markets are not reacting well to falling oil prices, but it's important to note that they are only off about 4% from the record highs they were setting 10 days ago.

So, the question everyone (even my kid in the car this morning) is asking - why?

We know that gas falling $0.75-$1.00/gallon is putting more money in the hands of consumers.  Admittedly, it is a small sum, but it's better than nothing.  However, as the picture above represents the global financial system is incredibly complicated and very interwoven.

* Russia's collapsing Ruble is having major implications around the globe and banks with large exposure are starting to shake just a bit.

* A number of global economic indicators that I follow are flashing "worst since 2008".  Well, we all remember what happened right after that, right (Lehman/Bear Sterns and the Great Recession).

* At this point, I'm most concerned about several European banks being the catalyst for something significant.

* I've said it a hundred times, but it's worth repeating - technical analysis of charts is equivalent to horoscope reading in my book, but the computers don't care.  High frequency trading dominates the market now (see yesterday's wild swings) and we are only about 1% above major support for all of the US markets.  IF (and it's a big if), we break through those levels the downside is probably another 5-10% very quickly.  However, markets historically struggle to move much in December as people are locking in gains/losses for the year.  I think I could predict the way this market might have moved in 2003, but the rise of electronic trading makes the end of this month a wild card.

Despite all of the talk of "Record highs for stocks" did you know that as of today the Dow is up 3% for the year (Nasdaq is up a more respectable 9% and the S&P is up 5%)?

Since stocks have fallen 5% in the past 10 days, I think it's worth watching the action over the next few days because a major pullback could lead to more selling as managers try to hold onto a positive performance for 2014.

Things to have on your radar this week - Russia, Venezuela, FOMC meeting, the FedEx earnings (they missed despite lower fuel costs - sign of a slowing economy?).  At this moment (Wed morning) - oil is down again and Europe is off close to 1%, but US stocks are looking up a bit on the back of a strong dollar.  We'll see if it holds today.

Cheers!

UPDATE: The markets showed early gains thanks to stabilization of oil prices which led to massive rallies in Oil stocks and frankly, anything remotely tied to the energy industry.

This oil/gas rally was further "ignited" by the Fed's comments at 2pm.  The ironic thing is that by the end of the day oil was back where it started but by that point the stocks had created their own momentum and the program trades ignored the catalysts and focused on the event.  Net/net stocks jump the most in almost 2 years and no one knows why.  The Fed went out of their way to tell us that they weren't really saying anything new, but the program trading pools can't interpret nuance.  When "Janet Yellen says....." hits the bloomberg terminals the computers just buy 'em all.

We are now back above those technical levels I mentioned earlier in the day so let's see if this is a one day wonder of if it has some staying power.  For most of the last two months the cycle has been:

* US stocks are up because X, Y or Z.

* Asian stocks are up because US stocks are up.

* European stocks are up because Asian stocks are up.

* US stocks open up because European stocks are up.....

You get the idea......

Cheers pt2!

Monday, December 08, 2014

An Oily Black Swan?

A "Black Swan" in economic terms is an outlier event that is large and unexpected enough to shake the markets.

In June if I told you oil would be under $65/barrel by December you would have laughed, yet here we are.  The impact of this move is starting to spread as I hinted last night.  The increased amount of leverage and use of exotic financial instruments in the commodity markets means that we are setting the stage for some rough days in the oil patch.

* Venezuela is the third largest exporter to the US of crude oil and 9th largest overall and Venezuela could be the first domino of this black swan event.  This is a chart showing the cost of insurance on Venezuelan 5 year debt.  Note that the last time insurance was this expensive was when Lehman collapsed and oil plunged to $30/barrel.  If you were a holder of Venezuelan debt you might buy this insurance in case you felt there was a risk they could not repay you.  It seems like a lot of people are questioning their ability to meet their obligations.




* I read today that the slide in oil prices has caused Canadian Energy companies to lose a combined  $100 Billion in market capitalization.  That's a lot of Timbits.

* Finally, the good old Baltic Dry Index (loosely defined as an index measuring the cost to ship things around the world) is back to its lowest level since.... yep, you guessed it, Lehman in 2008.

This is unrelated to the topic oil but it speaks to the issue of the recovery in the US and how it has been largely a stock market and corporate recovery.  The sarcastic tone in the chart was not inserted by me but the original poster (@rudyhavenstein).  This chart shows the number of individuals enrolled in food stamps in the US.  With 316 million people in the US and close to 45 million on food stamps I think it is clear that the recovery has not been widespread.



Cheers!


Sunday, December 07, 2014

Did you ever think you'd be thrilled with $3.00/gal gas?

There are so many things to talk about it's hard to chose a subject --

* Stocks surging to more record highs despite global economic contraction

* The Bank of Int'l Settlements comments over the weekend that basically confirm that markets have become so addicted to Central Bank movements that they are no longer functioning normally.

* A Barron's cover comes right out and says "This time it is different" which almost certainly means that this time will not be different.

* A $40 billion valuation for a startup taxi app that most people outside of major cities have never heard of, let alone used.

* Gas prices finally retreating

I'll start with an interesting map that shows just how much it hurts to drive in Upstate NY.


I know we tax gasoline heavily in NYS ($0.68/gallon vs a national average of $0.50/gallon) but it pays for all of those sweet, pothole-free 10 lane superhighwa........ oh, yeah, wait, what do we get for those taxes?  That will have to be a story for another day I guess.

The good: On the margin with the average US driver logging 14,000 miles per year and average car getting 25 mpg means the "average" driver (using very broad generalities) burns about 560 gallons/year.  With gas prices down $0.70/gallon on average around the country that's an extra $400/year in your pocket (or roughly $8/week - don't spend it all on one Mocha Latte).

The bad: The US economy is no longer just impacted on the consumption side of the oil equation.  As a major producer of crude our economy is negatively impacted by falling oil.  This will likely be the first real test of our economy as a major oil producer.

The known unknowns: The oil industry has become one of the most heavily influenced by financial products since the housing boom of 2006-07.  Not only have major producers leveraged themselves to the gills, but every tiny producer with a pulse has worked with two assumptions when building forecasts and borrowing money --- interest rates will never rise and oil will always be over $100/barrel.  Well, at some point in the next 2-3 months the rate of bankruptcies in the oil fields of North America could be staggering.  Most of these companies are private so the extent of this risk is "unknown" but the risk is "known".

Cheers.



Tuesday, November 18, 2014

Time Lapse from Buffalo Lake Effect

This is an embedded video so if you subscribe via email you may have to go to www.grindstonefinancial.com to see the clip (it's only 6 seconds long) but it really highlights how crazy lake effect can be (50+ inches today in some areas outside of Buffalo, while the airport only got 3").

The US Consumer to the Save the World.

I sort of hinted at this theme last week and it's becoming a common thread in many mainstream publications this week.

If the big 4 engines of global growth are the US, Emerging Mkts, Europe and Japan, well, Houston we have a problem.

The US consumer keeps getting dinged at every turn, but stocks continue to crank out record highs every day (more on that in a moment).  Grade B.

Emerging markets are really falling off the rails starting with China's credit crunch but I'd give them a grade of B-.

Europe is about one major issue away from a real return to recession.  When France and Greece are your economic strong points you know have a problem.  Grade C-.

Japan.  Oh, Japan.  Things seems to be going from bad to worse and it's clear the policy makers have little clue as to what approach might change the tide.  They've now entered their third recession since 2008.  Grade D-.

So, it's all about how many $200 TVs we buy from Best Buy next Friday.  If you don't do your civic duty and "rain blows upon thy neighbor for the last doll in the store" (obscure Festivus reference) next week the whole global economy might collapse.  Go forth and charge (please understand that is sarcasm.  Thx).

***********************************************************************
This is the world that is driving stocks to more all time highs daily.....

"Japanese recession triggers hopes for more BOJ easing".

Now replace Japanese recession with Eurozone, Asian, US, Chinese and replace BOJ easing with BOE, ECB, Fed, etc., and you have a recipe for headlines for the next 2 months at Bloomberg.  Every day there is more signs of economic weakness met with more pleas for central bank management.  The fundamentals have left the building.  We are in unchartered waters my friends.

Cheers!

Monday, November 17, 2014

I'm not a weatherman, but I play one on the interweb

This is a very local story but if you live north of I-90 and near I-81 you know that we're in for some snow tomorrow.

Despite the fact that 74% of on air time is dedicated to talking about the weather on the local news, they don't bother to actually tell you where it might snow.

I made this chart up in 3 minutes on the National Weather Service site.  As you can see, where you are makes a huge difference in snow total projections.  Pass this around to anyone you think might not have accurate info re: the storm totals.

Tonight Tuesday  Tuesday Night Total
Clayton Little to none 1-2" 1/2" 1-2.5"
Depauville 1/2"  4-6" 1/2"  5-7"
Dexter 1-3" 13-19" 1-2" 15-24"
Lyme 1" 7-11" 1" 9-13"
Brownville 2-4" 15-21" 1-2" 18-27"
Watertown 3-5" 14-20" 2-4" 19-29"
Sackets Harbor 2-4" 13-18" 1-3" 16-25"
Belleville 4-6" 7-11" 7-11" 18-28"
Adams 4-7" 9-13" 8-12" 22-32"

We'll now return to our regularly scheduled market commentary. :)

Like News? Hate reading the same headlines for 6 hours a day?

Linkfest websites like The Drudge Report, Business Insider, Buzzfeed, Vice, etc, have changed the way we consume news for better or worse.

Locally, there is the ubiquitous Newzjunky which pulls the vast majority of their news from Drudge, the Daily Mirror, the NY Post, and local sites like the Watertown Daily Times, WWNY and Syracuse.com

There are three problems with this model:

1) You are being served their version of the news with their editorial biases.

2) The news remains fairly static. Once it's updated in the AM it doesn't change very much.

3) Finally, there is the overabundance of ads that you are served because you keep clicking refresh.

To counter this I mocked up a new way of consuming news last week and you can check it out at www.hotchatr.com

A) I'm no coder, so please accept the bare bones look.
B) I modeled it after the original 1998 Google website that was ad-free and uncluttered.
C) It takes a couple of minutes to get used to the format (it's a twitter timeline) but if you are a true news junkie you'll get high quality news as it happens from around the globe.

Understand, that it's not a tabloid like Daily Mirror/NYPost, so there won't be a lot of "Woman robs Walmart for 3 boxes of Twinkies while in a bikini" headlines.  But if you really miss that kind of stuff, click the "celebrity" or "tabloid" tab.  I've been using it for awhile and it's becoming my go to website for general news.

If you're unfamiliar with how twitter works just click the link and scroll through the news.  As you're reading you'll see things like "View 3 new tweets" show up in blue at the top of the page.  Hit refresh or click the words "View 3 new tweets" and you'll see the newest stories.  You don't need a twitter account to use this tool which is one of the perks.

I suspect twitter is working on something like this internally, but I can't confirm it.  Until then enjoy an ad-free source of real-time news at hotchatr.

If you like it share the link on Facebook or bookmark it.  If you have suggestions to make it better let me know (I know there may be a problem view it on mobile devices - I'm looking into that).

Try it out for a day and see if you find it to be a useful tool for providing up-to-the-minute news.

Cheers!

Sunday, November 16, 2014

Japan - Would you like sprinkles with your triple dip (recession)?


The consensus forecast for was for the latest Japanese GDP to come in around 2-2.5%.  Instead they posted a NEGATIVE 1.6% and marks the third time since 2008 that the Japanese economy has entered a technical recession.

When you combine this with the fact that Germany just barely avoided slipping into recession (0.1% growth) and China's credit crunch, you have the makings of something brewing.

It's too early to say what this means but if the tapped out US consumer is what the entire world is relying to save the day,.... well, let me tell you a story about a time way, way back in 2008......... :)

Cheers!


Thankfully, the US GDP isn't dependent on the snowbelt of NYS



This is the latest forecast out of Buffalo and it's subject to change based on wind direction.  While totals are substantial - 2 ft + over 60 hrs isn't really unheard of for these areas at this time of year.

You'll see a lot of this map in coming days.