Wednesday, July 19, 2017

Revisit Dow Theory Today

The first great technician in the stock market in the US has to be Charles Dow. He realized that man acted in similar fashion throughout history and the gyrations in stock prices just mirrored man's internal thinking. This concept settled on the two forces of greed and fear.
He formulated a theory that took into effect the two most important aspects of the market. In the Dow Index(became immortalized) he listed the main corporations that produced product. Yes, at one time we were a producing nation. The other index he named after its purpose: Transportation. This included mainly railroads at the time, but like his other index, companies come and go. In fact, GE is the only surviving company in the original formula.
* His first point stated that the Market discounted the future. Today, this isn't true. When Trump won the election, the Dow's futures rallied as did the market. Prices climbed 2,000 points to the Dow Index. The movement was based on favorable market policies. I wonder what Charlie would have said about that? I feel our illusion and greed has taken control of our minds over substance or earnings within the market.
*His next point stated that there are four conditions or phases in the market. Today, we use the term cycles to describe the same aspect.
His basic premise is that the market goes up.
It reaches a top.
Then, it moves downward.
Until it reaches a bottom. This leads to rising prices and the cycle begins a new.
* These cycles soon become part of a bigger picture or direction. Today, we call this a trend.
He concluded that the Primary trend is a result of fundamental aspects. This is the longer direction of the market.
*There is also a Secondary trend which could go against the primary trend or in conjunction with it. This is shorter in duration.
The action of investors causes the cycles to move within their patterns. The Bulls find reason to buy. They cause prices to rise. Other investors want to gain in the profits, and they buy too. This causes excess from the original information which caused the Bulls to buy in the first place. Today, we call this irrational exuberance. This leads to the top and the ultimate decline. It is just like they say on the old detective show, "The names have been changed(to protect the innocent), but the facts remain the same." Companies that didn't exist 100 years ago have replaced the departed, but human actions remain the same. When people buy on illusion and greed, the top has been reached. I'm seeing that in the action of the market.
With my opinion being what it is, the present market still is in sync with Dow Theory. The main point of continuing rising prices is centered upon the two indexes moving up together. At the moment both indexes are climbing to new highs, however I still say, Caveat Emptor! 
With that said, look for this great other technical tool. If prices decline, follow the MACD. This oscillator index has a slow moving and fast moving price line by time duration. If the fast line crosses the slow line in a downward manner, the climb in prices is over. This is called, "The Death Cross."

Wednesday, July 12, 2017

Consumerism and State Psychology

The culture to satisfy present wants over future needs is pushed by US government leaders who can get reelected on the pseudo premise that things are better under so-and-so's leadership and our standard of living is rising. The media never shows the lifestyles of foreign nations because if they revealed the truth, our standard of living has been declining for decades. DECADES! This is not a misprint. We are not only not in the top ten, but not even in the top twenty. Our government does not include items like the quality of life with clean air, safe water, good schools and crime free environment. Why would they? Because citizens would realize that their formula's for wealth does not consider those abstract points that benefit citizens. Come on! Their formula considers credit which is debt, a positive. It is why we have a Flint, Michigan, Chesapeake Bay, Louisiana salt-water intrusions and many, many other violations of our environment. The news bytes that we receive never have follow up unless it is a murder or some other ugly sensationalist news item. It is no wonder then, when municipal workers go on strike, these same leaders would promise anything to end the disturbance, least they suffer a failed reelection like the Mayor of New York, John Lindsay, who failed to remove snow in a influential borough. The psychology to spend now and let somebody else worry about it, is the mainstay for reelection. The consumerism of politics. However, this policy is not only bad for individuals and unsustainable because that someday will come. It is now on hand for our states.
Many state budgets came due for July first and like I have been saying for the longest time, bond holders cross their fingers at the end of each month. Now, the meme is spreading to municipal workers. Eleven states failed to develop their budget on time and since they have to balance their budgets by law, phony accounting comes into play. The main point of contention in almost every state is pension funds. There are four states, Connecticut, New Jersey, Kentucky and Illinois who are seriously deficient in funding. They were in the news last week and they will be in the news many, many more times. The problem is contagious and like I predicted in my yearly forecast, six states raised their taxes on gasoline. Unlike cities and territories, states cannot move to bankruptcy court. If they can get their fellow corrupt leaders in Congress to change the law, municipal workers can forget their pension, period. As it stands, they still can default. The last state to default was Arkansas back in the Great Depression.  
The new poster boy whose rooster is calling is Illinois. Things have gotten so bad in the land of Lincoln that they had to suspend their lottery sales in Mega Millions and Powerball due to a lack of funding. This is unbelievable since the state makes $90 million profit on lottery sales. There are $15 billion in unpaid bills and with late fees and interest, you can add another $800 million.
What's their solution?
Debt! They issued $25B worth of new debt, raised taxes and corporate levies. This is what you do when you spend $6B more than you take in. At the moment the rating services have threatened to downgrade their status to JUNK! This would be a first. The market says there is no panic, but you can't see their hands behind their back with fingers crossed.
Many states develop "creative" ideas to cover their liabilities. California is borrowing form their investment fund to cover bills. New Jersey is thinking of directly transferring lottery sales to fund their pension plan. Let's hope people keep buying their dream with lottery tickets and maybe, the state will open the beaches again. Then again, if debt and taxes are the only solution, people can move and their goes your tax revenue and lottery buyers. Is it too late to remind these clueless fools what my mother use to say, "Save for a rainy day?"

Tuesday, July 4, 2017

A Fool and His Money

"... That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, ..."

- The Declaration of Independence, July 4, 1776

Our so-called leaders are definitely the fools, but sadly, they are wasting our money. In our specialized society, which means that if you are not specialized in a field, they can exclude you. This my friends is pure BS! But hey, we can talk about these so-called experts = free speech.
The best example in the best of the worst is the US military. They like to lay claim to being the best in the world, a superpower and all the media that they can buy. History tells a different tale.
Civil War
How many general did Lincoln go through to find Grant? More than the denomination of his currency.
After the "Great War" Billy Mitchell gave the Navy the idea for an aircraft carrier. "We would be the strongest navy," he said. They told him to take a hike and behind his back, called him an idiot.
After ten years of fighting the VC, the military still did not know that Charley was hiding underground in a tunnel complex the whole time. So much for the intelligence of our intelligence and our experts in the military. Let's bomb Laos! Remember that?
We take Iraq only to give it to ISIS. How long have we been in Afghanistan?
I rest my case.
The problem is these exclusive institutions are really bureaucracies. They are only in it for themselves. Dear reader, if we get pushed into a war by these war mongers, they will draft everyone and the sad part is that these people will be in command. Consider just last week, the Navy pushed the USS Gerald R. Ford into the water. It is neither ready nor finished. It needs more work (read money) to its already $2.4 billion over budget. The Navy don't care. They will just increase the budget like we breathed air. It gets worse and when you spend $12.9 B and not done that is saying something.
The aircraft carrier won't meet structural tests which means more money down the drain and the best the navy can hope for is deployment by 2019, possibly later.
Just one mistake, you say. The list could fill a book. The Navy is pushing for another carrier and I hate that JFK gets his name tagged to it. They are pushing the carrier ahead of schedule for 2019. however this carrier calls for gadgets that are not even invented yet. This implies change in design which backs up the schedule and raises the cost. But hey, I'm not a specialist.
The only voice of reason has been the GAO (General Accounting Office). They warned the Navy back in 2007 of the problems with the Ford carrier in design and cost overruns. In another report in 2015 the GAO told the Navy that nuclear carriers have a disconnect between design and "wishful" features. I say there is a disconnect between reality and the Navy.
Aircraft Carriers
are obsolete! What worked 70 years ago, is out of date. Its time has passed!
With today's tracking devices, smart bombs, drones and tactical missiles, a small PT size boat filled with uranium tipped torpedoes could sink a carrier on the cheap. They will be floating graves with 5.000 sailors, hundreds of jet fliers and planes, and all those resources built into it and one smart bomb to sink it. The only ships the Navy should be building is submarines, but I'm not a specialist.
How about the Littoral Combat Ship? Again, insufficient design with cost overruns and yet, the Navy pushes ahead with orders for 12 more of these frigates by 2019.
It is not just the Navy, but the alpha spender itself, the Pentagon. It orders F-35s and pilots pass out and crash them due to a lack of oxygen, The cost? Hidden and what we do know is through the roof. As for Lockheed, Boeing and all the others, their shares continue to climb. They hire more retired officers who use to put those same jet fighters to tests to determine their reliability. Its an inside game like with the Fed and Treasury. The treasury sells and the Fed buys. The officers pass the planes and they get rewarded with easy desk jobs with big paychecks. Where is the responsibility to the people?
The GAO says there are many deficiencies which will drive up the cost another 38% to its already over budget costs. Superpower? No: Just a big, wasteful super-spender, and a destroyer not the boat, but of lives and resources. A nation is only as strong as its people. Today we celebrate our independence, but with one in four in poverty, our people are in disharmony. Our nation is composed of a government that is a plutocracy of rich people in disguised of a democracy. It is an elitist by money not ability government that does very little for its citizens.

Wednesday, June 28, 2017

Banking Crisis: How It Happens...and It Will

I don't make amendments, but this is HUGE!
"...another financial crisis not likely in our lifetime."
- Janet Yellen (06/27/2017)
Now, I predict that we will get one and possibly in one year or less.

- And the men who spurred us on
  Sit in judgment of all wrong
  They decide and the shotgun sings the song

 ...Meet the new boss
 ...Same as the old boss

 ...Then, I'll get on my knees and pray
 ...We don't get fooled again.

- The Who

The Who say it more clearly, although Pink Floyd had the beat in Another Brick in the Wall. Where I'm going is the dangerous path that our so-called leaders are directing our banking system and economy. Of course, banking lobbyists did whisper in their ears.
How Does a Banking Crisis Begin?
After it happens, all the pundits say, "I told you so," but these are the same dudes who now tell you that this will help both banking and the economy.
The first brick is the dismantling of Dodd-Frank. Not that Dodd-Frank was any model for banking stability. It is just the good stuff that banks want to eliminate like the Volcker Rule.
The next brick is the so-called stress tests for banks. In the past week all 34 large institutions passed the test, but so the public will be fooled, the Fed says, "Now, there is a second part." This is the point that the lobbyist wanted all along. When the banks pass this part of the stress, they will be allowed to pay or hike their dividends and also to buy back shares, giving their retirement options more wealth.
The third brick is being set by President Trump. He wants to "free-up" $2 trillion for the banks, so they can make more loans to stimulate the economy. It sounds good except the technique is to lower banks capital reserves which puts them in a dangerous position between greed and responsibility. They always choose greed. When you consider the state of retail(brick and mortar) and all their debt and you add the oil industry with all their billions in debt, weakening capital reserves is asking for trouble. Oh, I almost forgot. The rising delinquencies of auto loans to which many were purchased with student loans. The more one thinks about our banking industry, the more worries come to mind.
The next brick is already passed by the House Republicans. It awaits action in the Senate. It is called, Choice Finance. In it, a provision (orderly liquidation authority) allows banks to stop them from being dismantled if they do not have sufficient funds to met their obligations. The banks want to utilize the "bail-in." This means that they can seize our deposits to use as their funds to keep operating. This is corruption!
Of course, it doesn't matter if Choice Finance passes because Papa Fed always has the banks back. I guess it is not whether we get fooled again because we do know. It is just that our so-called democracy doesn't give us a say, to which gives me an idea for a song, "When Will They Do What's Right?"

Wednesday, June 21, 2017

New Obstacle for Banking

It is easy to criticize our banks. They constantly seek ways to get a piece of our piggy bank dollars that they hold in their vaults. We forget that they have many costs in providing branch outlets that are close to our homes. My personal beliefs is that banks should be regulated like utilities and that could help in protecting them from being themselves. Wherever you stand with your feelings about our banking industry, the bottom line is that they are needed.
They have survived and they generally oppose all types of regulation. For example, they originally opposed the FDIC. Now, they realize what a great economic addition this was for our society and the health of their industry. We no longer have runs on our banks. I should add a disclaimer to that because some people can't leave well enough alone. I will get to that in a moment.
If one would check the stock prices of publically traded bank shares since the economic crisis of 2008, one would see that the banking industry as a whole is doing fine and dandy. Again, CEOs of individual banks will complain, but they make money hand over fist.
As stated, they have survived the recession of 2008, co-existed with Dodd-Frank and managed in this low interest rate environment, but now, a new obstacle is appearing on the horizon in a report from the Financial Times by Ben McLannahan.
Tech Loans 
The leader in this new competition for loans is none other than Amazon. They started quietly, but they now hold a portfolio of $3 billion in loans. They are not alone. Pay Pal and Square are also making loans. The first question one would ask is can they do this? They are not chartered like banks, but they found a loophole. They are not creating money which banks do and use for such purposes. They are using their own money like a personal loan that you make with your cousin or uncle.
Now, the total amount of money is very small, but keep this aspect in mind.
Once Upon A Time... 
retail laughed at the $18 stock of a startup named Amazon that entered retail with books online. Can you see where this is going? Some tech companies have more money sitting offshore than GDP of countries. This could be a serious obstacle for the banking industry in the future and I did not even mention the competition from online banks like Soft Bank. There is also another danger for the banking industry and this one is also seriously dangerous for you and me. Republicans, I told you before, you can never trust them, are seeking to pass a new banking rule and law called Choice Finance.
The bill would do away with OLA (orderly liquidation authority) which is the dissolving of a bank that has insufficient funds to operate by the FDIC agency. This is BAD, very BAD. This is how you start runs on banks because not only is there no mechanism to dissolve the bank, but another feature would allow banks to seize your money to recapitalize itself and stay in business. The bill has passed the House, but hopefully, won't pass the Senate. In another sad state of affairs, the bill would override an executive order from President Trump who now says that he will sign the bill if passed...And the Beat Goes On.

Wednesday, June 14, 2017

Future Shock Calmed by Words To Live By.

- You can't always get what you want...
But if you try sometimes, well you just might find
You get what you need,

- Rolling Stones

Dear reader, songs and words are scrambling around in my head. The world is ganging up on Trump over the Paris Climate Accord. It is much ado about nothing. China signs the paper, but pollutes the earth as well as many others. The real problem is that so many are completely wrong with our problem on the issue of warming climate. Yes, the planet is heating, but no, it is not in a danger zone. World temperatures sway within 2C for centuries. The reason has not fully been answered by science and therefore, for the scientist who cry today, they could be all wrong. The sun is the central answer to our problem. It effects the earth's inclination of its axis's along with our destruction of forests that produce oxygen.
First off, CO2 is needed by our world. Plants eat it and give us oxygen in return. This is our air. The problem with CO2 is when it gets consecrated into small areas, there is not enough plant life in that region to accommodate the increased carbon dioxide. If one looks back into the Industrial Revolution and locations in Britain, Germany and the US, the air was dirty, foul and unfit until quality changes took place. The air today is clean in all of those locations. The world didn't collapse. It won't today if the climate accord dies. We just need to implement safe changes like scrubbers on exit points, utilize coal to liquid for cleaner energy and more electric cars. With that said the world will still be facing much more serious problems in the future. The next wars won't be ideological like democracy versus other, Islam versus us infidels, but RESOURCES
I mentioned the destruction of trees. It is cleared for farming, used in building homes and other uses, but the real problem is population growth. Thomas Malthus first wrote of the problem back during our Revolutionary War. He noted that a greater food abundance provided a higher standard of living. However, he wanted to limit population growth to maintain the higher standard of living. He was just too early in his fears. Agricultural technology has enabled world population to grow to our present seven billion, but unless new technology can add millions of new grains, people will starve, especially in Asia and the Middle East. The Muslims had better start sowing more love because when there isn't enough to go around, the West will remember all the grief that they caused under jihad. The topic is too big for a blog, but at present, the trend line favors abundance in food, oil and other commodities. It won't last. The problem will start in ten years and it will grow and grow like population that increases every year. My favorite cowboy is The Good, The Bad, And The Ugly. It has deep meanings to the truth of life. The story has three guys who learn of buried treasure in a graveyard. In a unique dual among the three, the Bad is eliminated. When the Ugly digs by hand at the grave site, the Good hands him a shovel with one hand while holding a gun in the other, as he says this universal truth, "The world has two types of people, those with guns and those who dig." In the future when oil becomes scare again, when food scarcity is not a bad neighborhood problem, but a world problem, those with guns will force the rest of us to dig. Fret not. It is a long way off and you can help by cultivating positive words and actions in your little region of this big planet. Here are some to live by:

"Have patience with all things, but first of all, with yourself."
- Saint Francis de Sales
"He who sows courtesy reaps friendship, and he who plants kindness gathers love."
- St. Basil
"Peace is not made at the council tables, or by treaties, but in the hearts of men."
- Herbert  Hoover
"Don't expect to build up the weak by pulling down the strong."
- Calvin Coolidge
"When angry count to ten before speaking, when really angry, a hundred."
- Thomas Jefferson
"What you risk reveals what you value."
- Jeanette Winterson
"You may be disappointed if you fail but you are doomed if you don't try."
- Beverly Sills
"A friend is someone you can do nothing with and enjoy it.
- Unknown
"The whole art of life is knowing the right time to say things."
- Maeve Binchy
"Every man paddles his own canoe."
- Frederick Marrayat
"Every day can't be gold, but it is all good."
- John Liparelli

Wednesday, June 7, 2017

Currency Recalculations Coming

In this low rate environment something is happening behind the scenes. The Federal Reserve keeps implying that they will raise interest rates. This action should be like steroids for the dollar, but the dollar has failed repeatedly to climb to new highs. In reality, it keeps testing new lows and with contract volume. One gets confirmation from the 10-Year note. No matter what the Fed does, it keeps pointing lower and it could break 2%, again. It is like Ripley's, Believe It or Not.
Gold has overcome a variety of obstacles to climb this year like the antagonism of fiat oppression and the Bitcoin. One would think that the Euro would sink with Brexit, and indebted nations like Greece, Italy and Spain dragging it down. It did. The Euro has declined considerably and it began 2017 at a decade low of 103 and change. Many say that it will die over time. I would agree, but now, I see it getting stronger which adds more confusion to the currency situation. Finally, we have the Yen. The central bank of Japan wants to devalue to stimulate their export economy. They lowered its value beyond 120, but again, strange things are happening to world currencies. It is getting stronger. The big question is
There are too many reasons, but one stands out in my mind. When Clinton achieved an economy with a surplus, the weakening dollar was central. The Federal Reserve masked inflation and with no wars, military spending dropped. With high employment no one complained until everyone realized that wages didn't grow enough to cover inflation and we were all poorer. Digging deeper, it was worse. Globalization ravaged our manufacturing sector. The weak dollar didn't help and when gas prices climbed, the cries came out and Bush got in:Out from the fire and into the pan.
Trump wants a weaker dollar to stimulate the economy just like Clinton. Maybe there is a collusion among the central bankers to drive down the dollar, again, just like in the past under Clinton.
What I See
In the near-term I see the dollar falling to around 91. It is getting set to nail 95. At that point a closer look at contract volume will determine a consolidation, a bounce or further fall. I see the Euro getting its current bounce to 114, and again, a look at the volume to determine the next level. The Yen will test its low of 101 with the same understanding as it approaches that value. With all these recalculations happening, gold will benefit, especially when the parabolic move of the Bitcoin fails. People will realize that if this digital nothing can rise over $2,000 per coin, how much more is gold worth? If that doesn't sway them, the negative interest rates that banks will charge them should open their eyes to the failure of fiat debasement of their money. Until that epiphany, gold will climb the wall of worry to $1296 and $1324 is within reach.
These currency moves will cause a problem for some while others will benefit. It is like Paul Simon's song, "One man's ceiling, is another man's floor."