Monday, December 22, 2014

Observations pt 2

I came across this summary the other day when reading the "smartest twitter feeds" on

I think it was a great set of guidelines for success in life in the late 1980's and I think many of them still ring true, however, I worry that as a society we are losing the ability to collectively value these ideas.  My thoughts are in italics....

1) “Treat your vocabulary the way you would your checking account.” Expression often lags behind experience, and one should learn to articulate what would otherwise get pent up psychologically. Learn to express yourself. Get a dictionary.

In today's era of tweets, hashtags, and emojii the ability to articulate a thought is becoming increasingly rare.  Strike one.

2) Be generous with your family. Even if your convictions clash with theirs, don’t reject them—your skepticism of your infallibility can only benefit you. It will also save you a good deal of grief when they are gone.

Despite concerns about the failing American family, the divorce rate appears to be falling for those married in the 1990's and 2000's (however, you could argue that the number of people getting married is also falling, but I digress), so I think this is one area where we're doing okay as a society.

3) “You ought to rely on your own home cooking.” Do not expect society to arrange itself to your benefit—there are too many people whose desires conflict for that to happen. Learn to rely on yourself, and help those who cannot.

I believe the author was speaking metaphorically here - basically, saying take care of yourself.  This is one area where we are really off the rails - 6 years into the great recovery and EBT participation is at record levels, worker's compensation claims are soaring, etc.  Strike two.

4) “Try to not to stand out.” Do not covet money or fame for their own sake. It is best to be modest.

Every new "innovation" coming out of silicon valley seems to be at the other end of this statement.  Facebook, Twitter, Instagram, Youtube, etc are creating a "look at me" culture that is neither healthy nor sustainable. However, I am hopeful that some youth see the folly of this existence and are already abandoning these platforms. Foul Tip!!

5) Do not indulge in victimhood. By blaming others, you undermine your determination to change your circumstances. When life confronts you with hardships, remember that they are no less an intrinsic part of existence. If you must struggle, do so with dignity.
Scroll through the evening news or social media on any given day and you'll see the degree to which victimhood has overtaken our society.  Strike Three!!

Now seriously GET OFF MY LAWN!


Observations pt 1

Okay, I'm going to turn into the grumpy old man yelling at kids to get off his lawn today.

This chart lists the most frequently occurring song lyrics by decade in popular songs.

The shift in the past 50-60 years really demonstrates some kind of lost innocence in the US.

From the 1950's when Christmas was the most popular phrase to the current decade where 40% of the most frequently used lyrics are traditional curse words.  #SMH at you 'murica.

And what was the obsession with "Old Uncle Casey" songs back in the 1890's ?  :)
Chart and backstory at proofreader

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 :)


** 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.


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.


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".