How Long Will The Relief Rally Last?

The market is rallying nicely this morning on the heels of the headlines out of the EU summit.  I had been skeptical that anything material would come out of the meeting.  Despite the reaction this morning, I don't think the policies they put in place are really enough to tackle their problems.  But I think many market participants had probably gotten too defensive lately.

The EU leaders did say that bailout funds could be used to recapitalize banks directly, as opposed to having to go through the sovereigns.  This helps at the margin, but the 120 billion euros intended to boost the lending capacity of the EIB doesn't seem all that large.  The debt loads of Italy and Spain are well over a trillion euros.

Despite the above, the markets are breathing a sigh of relief at this latest attempt to kick the can down the road.  We have seen this each time the troika has proposes solutions, but the relief rally has faded each and every time.  So the question this time around isn't if we've found the ultimate solution, but rather how long will the current relief rally last?

Spanish and Italian bond yields are lower today, and the euro is getting a big boost relative to the dollar.  This is also helping commodities.  Gold prices are testing the $1600 level, and copper and silver prices are higher as well.  Oil prices have bounce back to $82.25.

The 10-year yield, which has fallen back below 1.60% yesterday is bouncing higher today as funds rotate out of bonds into stocks.  The yield is currently 1.65%.

As for the volatility index (VIX), it had been holding around the 20 level as support, but today it is down 9% back below 18.

Trading comment: The S&P 500 is bouncing back above its 50-day average currently which was at the 1340 level.  The SPX is currently above 1350, and if it can hold above the 50-day for a couple sessions we could see more upside in the market as we head into Q2 earnings season.  But one of the patterns we have started to see already is that companies that are giving cautions guidance for the back half of the year have seen their stock selloff sharply.  Nike (NKE) is the most recent example.  As such, our recent calls for remaining defensive still seem appropriate as we enter this upcoming earnings season.  At the least, I expect trading to remain choppy while we get through the summer months.

KAM Advisors has long positions in NKE

The BOTTOM IS HERE

I think it's clear by the action in the dollar index this morning and the response by risk assets in general, that the bottom I have been looking for is here. Today will be the first day in a commodity rally that should last roughly 2 years topping in mid-to-late 2014 when the dollar puts in its next three year cycle low.

The next two or three weeks should produce an exceptionally violent rally from extreme oversold conditions followed by a consolidation period as the dollar bounces weakly out of its intermediate bottom and rolls over quickly signaling that the three year cycle has topped.

I must admit this is been an extremely tough bottoming process to hold through but I think I'm about to win a whole lot of burritos :)

A Tax Is a Tax Is a Tax

Of course the stock market dropped about 130 points. Twenty new or higher taxes across-the-board are bad for economic growth, bad for job hiring, bad for investors, and bad for families.

A tax is a tax is a tax, according to Judge Roberts. But he forgot to say that if you tax something more, you get less of it.

Presumably Mitt Romney will make this case in a major way. Hopefully he won’t forget that Obamacare is not just a huge tax hike. It’s also a major new spending entitlement that’s already pegged at $2.5 trillion and will increase the federal debt burden much faster than the GDP expands.

In other words, tax, spend, regulate, borrow. The Obama mantra. Romney must go after it -- time and time and time again.

Bankrupting the economy is not exactly a job-creator.

Waiting on EU Headlines

The market is lower this morning on a pullback following 2 straight days of gains, as well as uncertainty ahead of the EU summit.  Most of the headlines this morning have centered around the Supreme Court decision about Obamacare.  The court upheld the plan, but said the individual mandate could be upheld as a tax not a penalty.  Hospital stocks have rallied while insurance stocks are mostly lower.

While the healthcare industry is the most affected by this ruling, I don't think it has sweeping meaning for the overall market.  It does add to the element of uncertainty going forward, which is never good for the markets.  But the bigger picture right now is still the EU and whether or not Germany acquiesces on its stance and becomes more flexible about shared debt liabilities for the eurozone.

In corporate news, there are rumors that the losses at JPMorgan could be larger than initially estimated.  JPM stock is lower on the news, and weighing on the financial sector. 

In economic news, final estimates for Q1 GDP held steady at 1.9%.  I'll take this as a win for the bulls considering many thought we could get another downward revision to these figures.  Of course, this is still rear-view mirror and the big question is what Q2 GDP will look like and more importantly how much of a slowdown will 2H12 see. 

Asian markets were mixed overnight, while Europe is lower this morning.  The dollar is higher and that is weighing on commodities.  Oil prices are lower to $78.50 and gold prices are down near $1555.

A flight to safety has bid up bond prices again today and pushed the 10-year yield back below that 1.60% support level that has held for most of June.  The 10-yr yield is currently 1.57%.

As for the VIX, it has spiked higher this morning, back above the 20 level to 21 currently.

Trading comment: No change to our near-term cautious stance and call to remain defensive.  The 2-day bounce we saw this week appears to just have been a relief rally aided by window dressing.  Now we have to see if the selling picks up again and how the market reacts to headlines out of the EU summit and the potential for disappointment.  The SPX is still below its 50-day average (which is now downward sloping) which is an intermediate-term indicator that a new uptrend is not yet at hand.  As such, patience is key.  We are still holding many of our defensive, dividend stocks but haven't added to any growth stocks lately.  And asset allocation still favors a larger weighting toward fixed income for the time being.

No Economic Miracle if Obamacare is Overturned

It may well be that the complex tax-and-regulatory mandates embodied in Obamacare have proven to be a deterrent for business job creation. You hear it all the time from men and women in business -- especially smaller businesses, but large companies too.


However, color me skeptical that business will embark on a hiring binge if the Supremes overturn the Obamacare mandate tomorrow. Why? Because the uncertainty premium about future health-care policy is still going to be high, and it won’t be resolved until well after the election. Businesses will have almost no idea what Congress will propose if the Supreme’s strike down Obamacare.

For example, it’s going to take money and high insurance premiums to cover preexisting conditions. There also are the stay-at-home 26 year olds and the so-called health-care market exchanges among the states. There are many other issues to be resolved, but the big question is: How will they be financed?

Will there be a tax? Will there be regulations?
One thing’s for sure. A pure free-market health-care system is not going to happen. Many Republicans talk about a patient-centered consumer-choice system, which would be great. Give consumers tax credits for the same deductions that businesses now have. That also would be great. Include interstate insurance competition. Another winner. Tort reform. Another plus.

But the fiscal reality for health-care insurance and payouts to doctors in hospitals is going to be up in the air for quite some time. It’s a known unknown. And because of that, I think businesses are still going to sit on their hands until they know with greater certainty what the costs of hiring the extra worker is really going to be.

For the foreseeable future, there’s no economic miracle if the Supremes strike down Obamacare (as I believe they will).

China Stimulus Rumors Boost Market

The market got a couple of boosts this morning that have helped push stocks higher for a second day ahead of quarter end.  Overnight, Asian markets rallied on hopes that China would provide more stimulus measures to its economy.  Not sure if there's any validity to the rumors, but our markets were poised to open higher this morning.

Europes's bourses were also higher across the board this morning ahead of the EU summit.  I don't think anyone is expecting earth shattering news to come out of the summit, which does set the market up for some disappointment.  But if no one has their hopes up, you have to wonder how much is priced in.  Remember how worried everyone was about the Greek elections and the markets rallied.

Our markets got an extra boost this morning on the heels of some better than expected economic data.  Durable goods orders rose +1.1% in May, more than double the consensus.  That also reversed last month's decline in durable goods of -0.2%.  Also, pending home sales for May rose +5.9%, far better than the 0.5% expected and another reveral from last months negative figures.

Energy stocks are showing leadership as oil prices bounce back above $80 today.  The MLP stocks are up nicely, which is a group that where I think the selling was overdone, especially since many of them have their production mostly hedged for the next couple years.

Gold prices are lower today to $1571, and silver prices are weaker also.  But copper prices are higher so far.

The 10-year yield is steady at 1.63%, remaining in this month long trading range between 1.60-1.70%.

As for the VIX, it is back below the 20 level today to 19.60 currently.  I don't think it will stay below the 20 level too long, so I am going to start adding back to our VXX hedge.

Trading comment: I thought we would see some window dressing this week ahead of quarter end.  Regardless of the news, the bounce the last 2 days have fit the bill.  Despite the tepid bounce, I still want to remain defensive ahead of the EU summit which I don't think will produce anything to write home about.  Then as we enter July we start Q2 earnings season which I think will have more disappointments than usual in the form of conservative guidance from corporate managements.

KAM Advisors has long positions in VXX

Watching Peripheral Bond Yields

The market is only slightly higher in early trading following yesterday's big selloff.  Investors are awaiting the EU summit later this week and the big question is can the leaders come up with something that will assuage markets.  Today, Spanish bond yields are topping 6.8% and Italian bond yields are on the rise as well.

The Conference Board's consumer confidence index came in below consensus at 62.0 vs. a reading of 64.4 in the prior month.  Economic data seems to have been slowing lately, the news backdrop remains negative, so it is not surprising to see consumer confidence fade.

Homebuilding stocks are higher after the Case-Shiller home price index came in above expectations, but still showed another -1.9% drop.

In corporate news, Harley Davidson (HOG) is trading lower following its earnings report, while APOL is bouncing higher.  I remain concerned that earnings guidance during the upcoming Q2 earnings season is going to be very conservative and met with disappointment.

Asian markets were mixed overnight, while Europe was actually higher this morning by a little bit despite the rise in peripheral bond yields. 

The dollar is higher vs. the euro, which is weighing on commodities.  Gold prices are lower to $1572 and oil prices are down to $79.  Silver and copper prices are also lower.  Ag prices are the only commodity prices that are higher recently, which have boosted stocks like AGU, POT, and CF.

The 10-year yield is flattish near 1.61%.  It has basically been trading in this 1.60-1.70% range most of June.  As for the VIX, it is also flat near the 20.40 level.

Trading comment: I think we have dueling forces here between the quarter end window dressing buying that we usually see, and the cautious tone that participants employing ahead of the EU summit.  The recent price action in the market certainly supports maintaining a more defensive posture.  The S&P 500 needs to find some support, and the 200-day average could be the spot.  It currently sits at 1297.  If you're an investor, as opposed to a trader, I think you need to be patient and await a better buying opportunity.

One-on-One with Marco Rubio

The run-up to the presidential election is really a debate about growth and taxes, Sen. Marco Rubio of Florida told CNBC on Monday.

“Growth helps the debt be more manageable, unemployment, all of these things,” he said in an interview on “The Kudlow Report.”

“Tax increases do not lead to growth,” he said. “The reason why I oppose increases in taxes is not some religious objection, or even an ideological one. It is the knowledge that increasing taxes discourages growth.”

Rubio said that taxes remove money that was going to be spent into the economy. “When the government spends that dollar, they’re going to be a lot less efficient, a lot less stimulative,” he said.

Rubio, who is being considered a vice presidential running mate by presumptive Republican nominee Mitt Romney, also spoke about the debt crisis, health care and Arizona’s controversial immigration law, on which the U.S. Supreme Court ruled Monday.

Asked by Larry Kudlow whether there could be a compromise like the one former Florida Gov. Jeb Bush mentioned in an earlier appearance — $10 of spending cuts for every $1 of revenue increases — Rubio held firm.

“I’ve always believed that was a false choice. The goal is not to give each side what they want,” Rubio said. “The goal is to solve the problem.”

Hours after the nation’s highest court upheld one of the most controversial parts of Arizona’s immigration law — that police can make checks for immigration status — Rubio agreed with the decision. “I’ve always believed the Arizona immigration law was constitutional,” said Rubio, the son of Cuban immigrants, even as he admitted “mixed feelings” about it initially.

Part of the law that was upheld instructs law enforcement officials to verify the immigration status of anyone they detain.

“I understand why Arizona did it. I understand why the people of Arizona are frustrated. I believe they have the 10th Amendment right to pass that law,” he said.

But the federal government, Rubio added, needed to fix the problem with a few steps: “Secure the border, have an electronic verification system in place and modernize our legal immigration so it reflects the 21st century needs of our country.”

Weighing in on health care, Rubio said he would like to see the Obama administration’s Affordable Care Act be replaced with a free-market system in which insurance companies compete for consumers’ dollars.

“I think once there’s more choice, once the consumeris in charge of their health care dollars, the market’s going to meet that demand. Now all of a sudden, companies are going to try to figure out how to make themselves more attractive so that you choose them over somebody else. Right now they don’t have to do that,” he said.

“From the point of view of the marketplace, insurance companies, if they want my business, if I control my health care dollars, and I get to choose from any insurance company I want, I’ll go to you and say, ‘Hey guys, I would love to buy your insurance, but I have a kid who is sick. Will you cover them as well? Because this other guy will cover them, and I’ll go with them if you don’t do the same.’ I think that now the consumer is empowered to make that argument.”

Rubio said that for chronically ill Americans, state governments could create high-risk pools to provide insurance.

“I think that’s the one focused, narrow place where government — state government — can be helpful to folks,” he said.

Rubio was not asked about any possible run for vice president. On NBC’s “Meet the Press” on Sunday, Rubio declined to answer questions about it.

Monday Morning Musings

Mr. Market is not in a good mood this morning as concerns swirl that this week's EU summit will not produce any tangible solutions.  Asian markets were lower across the board overnight, and Europe is under pressure again this morning.

Spain made a formal request for 100 billion euros to recapitalize its banks.  And peripheral yields are on the rise with selling in both Spanish and Italian bonds.  I too am skeptical of a viable solution from this week's summit, but I do hope they can at least come up with something to assuage the markets while they work on these big issues.

Here in the US I have not seen much in the way of meaningful corporate data or market moving economic news.  May new home sales did come in better than expected, but it hasn't mattered much so far.

We were also expecting to hear from the Supreme Court on the healthcare decision, but that looks like it will be delayed until later this week.

Flight to safety buying is benefitting Treasuries this morning, which is pushing yields down to 1.61%.  Gold is also hanging in there, higher on the day near $1571.  But nearly everything else is lower on the day, led by declines in the energy sector.

As for the VIX, I said last week I didn't think it would stay under 20 for long.  Today the VIX is up +12% so far to 20.35.

Trading comment: The S&P 500 has taken out last week's lows at 1325 and it looks like a test of the 1300-1307 level is in the cards.  Of course, a lot depends on the EU summit this week.  Everyone is already pricing in a negative outcome, so there is always the possibility as we have seen lately that the worst case scenario doesn't come to fruition and the market bounces on a relief rally.  We also have quarter end this week which could see some window dressing buying.  That said, we continue to position portfolios conservatively and want to remain defensive as we enter Q2 earnings season.

KAM has long positions in VXX

Looking For Next Support Levels

The markets caught folks asleep at the wheel yesterday and took a good shellacking.  After the FOMC meeting, there was little reaction in the markets on Wednesday, and that may have lulled some investors into a sense of complacency.  But on Thursday the rug got pulled out, and the selling accelerated and pushed the major indexes back below their 50-day averages.

Last night Moody's downgraded several banks, but it looks like the news was well telegraphed and mostly priced in.  To wit, the financials are leading the market this morning with the XLF up +0.70% right now.  Energy and materials stocks are lagging again.

One of the culprits for yesterday's selloffs was the steep drop in commodity prices, which makes a lot of global investors fear a slowdown in economic activity.  But we know that some companies benefit from lower commodity prices, so investors should soon start to differentiate and not paint all stocks with the same brush.

This morning there hasn't been a lot in the way of market moving news.  The bounce back in the major averages feels a bit shaky, and if financials rollover later today I doubt the indexes will hold up.

The 10-year yield is higher to 1.65%.  And the VIX really spiked higher yesterday back above 20.  Today it is down -4.5% to 19.15, but I think it will retake the 20 level again soon.

Trade comment:  Traders will now start looking for the next areas of support in the market.  Right now, SPX 1325 has held, but if that gives way many are looking at 1300-1307 again.  Below that the call yesterday from Goldman Sachs was to expect a correction that would take the S&P down to 1285.  But I wouldn't rule out yesterday's selloff bringing out a lot of bearish sentiment again, which could present another rally attempt into quarter end.  I'm just saying--

KAM Advisors has long positions in VXX

OIL AND THE CRB APPROACHING A FINAL BOTTOM

June has been the month of major bottoms. Stocks and gold have already formed major yearly cycle lows. Now it's the CRB's turn to put in a major three year cycle bottom. This bottom will almost certainly form well above the 2009 low, establishing a pattern of higher lows and setting up for what I believe will be an extreme inflationary scenario over the next two years, culminating in a parabolic spike much higher than the one in 2008.

Sentiment has reached levels similar to the last three year cycle low in 2009.

 Chart courtesy of sentimentrader.com

At this point we are just waiting for the oil cycle to bottom. Today is the 51st day of oils intermediate cycle, which generally runs 50-70 days on average. I think oil is going to bottom in the next 3 to 5 days. The reason being; oil is in a waterfall decline that has just formed a midpoint consolidation. Once the midpoint consolidation gives way the final plunge usually lasts 3-5 days. This should correspond with a dead cat bounce in the dollar index before it rolls over and heads down into an intermediate bottom sometime in the next 4-8 weeks.

During this final plunge it appears gold will move down into a daily cycle low. That low should hold above $1526 as I think gold has already formed its yearly cycle low back in May, slightly ahead of the stock market and the CRB.

Sometime in the next few days investors will get the single best buying opportunity to position in commodity markets for the coming inflationary period. I prefer the precious metals (more specifically mining stocks) as they have already indicated they are going to lead this next leg in the commodity bull, but I think investors will generate tremendous returns in almost any area of the commodity sector. 

One to watch is natural gas. It may be the largest percentage gainer during the next two years as it has gotten beaten up more severely than almost any other commodity.

Will The Fed Announce More QE Today?

The market opened flat this morning after four consecutive up days in a row.  Normally, I would think the setup going into today's FOMC meeting would be a classic buy the rumor, sell the news reaction.  By that I mean the market has run up for the last four days so it is ripe for a pullback.

It is certainly possible that if the Fed announces more QE at today's meeting that the market can rally further.  But it wouldn't surprise me to see it selloff either way.  I mean, if the Fed does announce more QE aren't they acknowledging that the economy has slowed more than previously thought?

In corporate news, both Adobe and Proctor & Gamble lowered profits guidance and both stocks are lower.  We know Europe has slowed, China has also slowed, and if the US is slowing we could see more companies issue cautious guidance during upcoming earnings reports for Q2.

Overnight action in Asia was mostly positive, and Europe is slightly positive this morning.  Spanish yields are down a bit more, which is good.  And the G20 meeting in Cabo has ended without much fanfare or substantial plans.  The IMF was successful in getting countries like Brazil and China to contribute more money to its coffers.  I was in Cabo last week before the meeting, and you should have seen the military presence there.  That place was on lock down.

The dollar is slightly weaker, but commodities are mostly lower.  Oil prices have eased back to $82.60, and gold prices are lower to $1607.  Silver and copper prices are lower as well.

The 10-year yield is higher again to 1.66%, and looks to be putting in a constructive basing pattern.  The VIX is bouncing 2% to 18.82.  I don't think the VIX will stay under 20 for too long in this environment.

Trading comment: It is very constructive that the major indexes have regained their 50-day averages.  If we do get a pullback today after the FOMC announcement, I want to see those 50-day lines act as support to the market.  Leading growth stocks have also been acting better, with more breaking out to new highs and another group building solid bases and retaking their respective 50-days.  This could turn into a positive trend, but things need to calm down in Europe.  CDS prices are still high there, indicating continued angst from investors.  But for the near-term I am growing cautiously optimistic.

The Relief Rally Continues

The market is up again in early trading.  There isn't really any concrete news that would account for the strength we are seeing.  Rather, it seems that investors were too cautious last week as they prepared for the weekend, and that fear trade is being repealed over the last few sessions.

Asian markets eased back overnight, but Europe is higher this morning as Spanish yields come down a little and the euro gets a bid vs. the dollar.  Oil prices are higher to $84.15, while gold prices are flat near $1626.  Silver prices are lower, but copper prices are higher.

In economic news, housing starts were slightly below expectations for May but building permits rose nicely with last month's figures seeing upward revisions.  The debate about whether or not the housing bottom is in continues.  I have no positions in the homebuilding stocks and no desire at the moment.

In earnings news, both FDX and ORCL reported last night and both stocks are higher today.

The S&P 500 is breaking above its 50-day average today.  I had thought it might run into some resistance at this key overhead moving average, but such is not the case today.  Of course, we need to see the SPX hold above this average for more than just one day, so the reaction to tomorrow's FOMC announcement will be interesting.

The 10-year yield is slightly higher to 1.62%; and the VIX is lower again after a really big plunge yesterday.  The VIX is currently -2% lower below the 18 level.  I think this is an overshoot, but somewhat typical of what we see in the summer months.  I still think the VIX will offer a good upside trade in the near-term.

Trading comment: Last Monday the Dow opened higher and faded completely into the close.  It opened Tuesday morning near 12,400 with all the headlines about a potential Greek disaster.  A week later it is 450 points higher.  Famed trader Humphrey Neill said, "When everybody thinks alike, everyone is likely to be wrong."  This quote comes to mind when thinking how everyone likely got defensive ahead of the big weekend and quickly scrambled when they realized that they had gotten too cautious.  I myself am a bit guilty of this.  But as market leaders begin to emerge from their consolidation bases, there should be ample opportunities.

AS EXPECTED

I didn't really feel like doing a full article, but it was time to do a new post so here is a quick recap of the big picture view which is unfolding pretty much as I expected. 

The CRB is now in the process of putting in a three year cycle low (this should correspond with a three year cycle top in the dollar) and stocks have put in an intermediate cycle bottom.

As I expected gold bottomed slightly ahead of the stock market and stocks. The trend is now up for all assets and all we are waiting on is confirmation that oil has bottomed. Once oil and energy stocks join the party the bull will be firing on all cylinders.

The economy will continue to respond to Keynesian economic policies until commodity prices surge into a final parabolic advance and prick the bubble. However that isn't due until sometime in late 2014 when the dollar forms its next three year cycle low, so I think the perma bears are just kidding themselves if they think the US is ready to rollover into a recession right now. 

The recent stock market decline was just a normal intermediate cycle correction in an ongoing bull market. Yes it was rather severe, but this was just a normal regression to the mean event triggered by an extreme stretch above the 200 day moving average that was generated by the European LTRO and Operation Twist.

I expect stocks will continue to grind higher this year and start to stagnate next year as commodity prices began to pressure profit margins. By early 2013 the stock market should begin rolling over into what I expect will be a very drawn out, and volatile bear market as deteriorating fundamentals do battle with ever greater liquidity injections. This is the prescription for multiple violent bear market rallies in what I expect will be a very long agonizing grind lower as commodity prices gradually pick up momentum and move into the final parabolic spike in 2014.

Gold has started a new C-wave advance that should at least test the $1900 level sometime this fall. Don't expect a breakout to new highs until next spring at the earliest though. 

Gold may enter the final bubble phase of the bull market in late 2013 & 2014, although I think a more realistic scenario would be that this just evolves into another garden-variety C-wave, topping around $3500-$4000 in late 2014 or early 2015 followed by a severe correction into the eight year cycle low in 2016 and a vicious rebound and final bubble phase of the gold bull in 2017-2018.

Toward a Perfect Economy, Ancient Economy

I'm at my parents' house in Fruita, Colorado, leaving for Vermont today.

Travels and Such

Since I blogged last in Seattle, Mark and I went to a reading in Olympia, and our last one together in Bellingham.  We then went back to Missoula, Montana where I stayed a couple days.  My friend Katie (who was on the panel discussion with me last time I was in Missoula) wanted a mini-vacation out of Missoula and took me back to Moab.  We camped several days at the "guest cave", and I gave her a tour of most all the caves and camps I've lived at over the years.  Having her company was splendid, hanging out, cooking foraged and dumpstered foods, drinking spring water, and playing guitar together.  I'm feeling very close to her.

I didn't get a chance to see many folks this time back in Moab, but, shortly after Katie left, I thumbed here to Fruita.  I had to be here for a satellite interview with Dylan Ratigan from a TV station in Grand Junction.   It turns out the station's signal was down, so we had to cancel.  But it got rescheduled a couple days ago, and then the signal went down again.  So I ended up interviewing over my parents' phone while Mark Sundeen was there in person:

Okay, for being a moneyless dude, I've not been my usual and been a bit busy these days.
Here are also a couple print articles I've done from the past few weeks:

A short article I wrote for Earth Island Journal:
In the Wild, There Is Such a Thing as a Free Lunch

An interview with Joshua Becker for Becoming Minimalist:
The Man Who Quit Money: An Interview with Daniel Suelo

Tomorrow my friend Leslie is swinging through from LA to whisk me away to Vermont.  No interviews, no book readings... just visiting one of my best friends, Michael, his wife, Sarika, and their new baby girl, Satya.  They're having an ecumenical christening ceremony and asked me to be Satya's godfather! 

Considering A New Economy: the Ancient, Everlasting Economy, the Only Economy Proven to Work

Okay, I thought this was going to be short and I'd stop here.  But I'm just too excited to keep quiet. 

Yeah, I'm recalling an epiphany I had after long philosophical discussions with our host friend, Laura, when Mark and I were in Seattle.  She beautifully challenged my ideas on nature, gift economy, and barter, helping me refine them. 

(I'm hitting the road soon and don't have time to refine and simplify these ideas to a few words.  So bear with me as I spit them out here).

In the above articles I talk about the Pay-It-Forward economy of nature being the only economy that works.  But as Laura questioned me on these things, and shared her ideas, it dawned on me that there is a perfect barter system happening simultaneously with the Pay-It-Forward system.

Barter?

Now this might sound as if I'm back-tracking, since I'm, after all, supposed to shun conscious barter. But I do still shun for myself what we usually define as barter.  The barter we think of is most often is not just, not even, not equal.  But now I'm going to say that all true gift giving is perfect barter!  Yes, giving, expecting nothing back, is the only perfect and just barter!

In gift giving, we think of the giver and receiver being two different things, when, in true nature, the giver is also the receiver and the receiver is also the giver.  How so?

First, ask yourself: are you as able to receive a gift as you are to give a gift?  Think of how you feel if a stranger gives you something.  Can you accept it or do you feel too proud, or do you feel too guilty in taking it? Now think of how you feel when you give a gift to a stranger you think is in need.  Do you feel equal with that person?  Or do you feel frustrated if that person is too proud to accept your gift? 

 If we give a gift out of a sense that we are doing a charity for some poor soul below us, or that we are going to get some praise or reward in heaven for being "good", then our giving is corrupt, not just.  Just means exactly even, level.  To justify means to make level, even, equal.  To not give freely is to not be equal, equitable.  If we are not giving freely, we are living in injustice, inequality, iniquity.  Iniquity is the true meaning of sin.  Sin means debt.  Inequality means one side is in debt to the other.

When somebody gives to you and you receive their gift with joy, then you and the giver are experiencing simultaneous joy, simultaneous benefit.  By accepting freely, you are giving joy  to the giver.  If you are playing guilt or pride games, you are depriving the giver of joy.  The free giver and free receiver are bartering an exactly equal service toward each other.  The giver is the receiver and the receiver is the giver.  "It is more blessed to give than receive," especially when the receiver realizes he or she is also the giver.

Now, think of this.  When you "give" to another person, and you think that person "owes" you, you have  immediately created iniquity, sin, debt.  Conversely, if somebody freely gives you something, and you can't accept it out of a sense of debt, guilt, or pride, you have immediately created inequality, iniquity, sin, debt.  In a "sinless" (debtless) world, then, every single action and interaction must be a completely equal and simultaneous barter in the exact present moment!

Now you might think that is impossible, and we, hence, live in a world of iniquity.  However, "to the pure, all things are pure," which is a quote from both the Buddhist and Christian scriptures!   Is this being naive?  This would mean if our minds are pure, we see all things as pure, sinless.

Re-Examining the Pay-It-Forward Raspberry and Bear Scenario

Now let's go back to that raspberry bush scenario I'm always harping on, which I call an example of the perfect pay-it-forward economy.  A bear eats a raspberry, with zero sense of debt or guilt toward the rasberry bush.  And the bush demands absolutely nothing back from the bear.  It is totally freely given and freely taken.  Then the bear later poops out digested raspberries, providing food for soil organisms.  And, not only that, raspberry seeds in the poop propagate more raspberry bushes.  Both the bear and the raspberry bush are paying it forward, with zero sense of credit and debt.  There is no accountant sitting by the bush tabulating who owes what to whom.  It is precisely  because there is no consciousness of credit and debt that this economy is in perfect balance.  Credit and debt exactly balance out because nobody is controlling it.  As soon as we become conscious of credit and debt, as soon as we take on the knowledge of good and evil, we lose balance. 

Up until now, I have not recognized any barter, but a pay-it-forward system that works perfectly.  Then, it dawned on me that perfect, simultaneous barter happens in the present moment also simultaneously with the pay-it-forward system! 

At the exact moment the bear takes a raspberry, the raspberry bush is receiving an equal and opposite service from the bear!  The bush needs, in that very moment, for the bear to take a berry.  The organisms in the soil need the bear's poop in the very moment the bear needs to poop.  There is absolutely no delay between thing bartered and thing bartered for.

All things are One in the Present Moment.

This is fundamental the law of every particle in the universe: for every action or force there is an equal and opposite reaction or force.  Every single particle in every single moment is bartering simultaneously with another particle.

Every positive barters exactly and simultaneously with negative.
Every sincere male is matched with an equal sincere female.

We have lost faith in this most fundamental law of all the universe!  And this loss of faith, this desire to control positive and negative, yin and yang, is our fall from Grace.

This Economy of Grace Hidden in the World's Religions

Anyone who sincerely practices Tai Chi or any martial art  knows that it is about giving up control.  Focus on the center (Chi), and yin and yang reach automatic equilibrium.

In Summer, 2009, my friend James, teaching me some Tai Chi, quoted Jesus' words to me, to get my body in balance:

"Do not let your left hand know what your right hand is doing."

Jesus says this in reference to good works.  Don't do deeds for credit, to be seen of others, or for reward, but do them in secret.  Do you see it?  It's all one principle!  The more self-conscious you are, the more you stumble, fall from balance!

In the Hindu Baghavad Gita, the fundamental message is to do for the sake of doing, not for the sake of reward.  The Gita says you are deluded if you think you are the doer.  Nature is the doer, if you but sit back and observe.  You are not even your body, but your body is nature, and you are the observer in the body (nature).  It says that all of nature is made up of three modes: Rajas (positive), Temas (Negative), and Satva (Neutral).  As in Buddhism and Judaism, the Gita says if you keep to the middle path, not straying to Positive or Negative, you realize the 3 modes of Positive, Negative, and Neutral automatically do, and you are not the doer.  This is also Tai Chi, fundamental Taoism.

A Jew or Christian who has learned about Moses' Ark of the Covenant in the Torah knows there are two archangels (cherubim) on top of the ark, facing the center invisible throne, where invisible Yahweh dwells (The Hebrew Yahweh literally means Eternal Present).  One archangel is Right and one is Left, the Two Witnesses.  When both have their focus solely on God in the Center, they are in perfect balance, "Do not stray to the right or to the left.".  But when either takes focus off God in the Center and compares self to other, envy and imbalance happen.   Knowledge of good and evil, consciousness of credit and debt, happen.  Left Hand knows what Right Hand is doing.  But balance happens only from the Center.  The Center takes care of Credit and Debt.  ("Vengeance is mine, I will repay, says Yahweh").  'All Credit to Jah' is the meaning of Hallelu-Jah.   All debt, all credit, resolve themselves in the Center, the Middle Way of Buddha.

Later in the Tanach (Old Testament), in the books of Isaiah and Ezekiel, we learn that one of the two  cherubim, Lucifer, is lifted up with pride (self-credit) and falls from Grace, falls from Heaven, and enters the garden as the Serpent of Credit and Debt.  The Perfect Angel becomes the Devil.  And notice how Lucifer, the fallen angel and antichrist, in both the Tanach (Old Testament) and the New Testament, is the Spirit of World Trade, Commerce, destroyer of the earth.

Every pair of brothers, every pair of spouses, every pair of partners, in the Bible, are earthly manifestations of the two cherubim, the two archangels on the ark of the covenant.  Everything in the universe is perpetually a manifestation of Yin and Yang, the Two Witnesses.  Cain and Abel are incarnations of the two cherubim.  Every positive and negative particle in the universe is the two cherubim. 

The Hebrew word for envy and jealousy is Cain, as in Cain and Abel.   This word Cain also means 'purchase'!  After Eve had eaten of the Serpent's fruit, she bore Cain and said, "I have purchased (Cain) a man from Yahweh" (Gen. 4:1), a play on words showing that Cain was the son of Purchase (the Serpent) while Abel was the son of Grace (Gratis, Free).

 

Now, check out the Genesis story: when Cain starts comparing himself with Abel, envying Abel, Cain falls from Grace, outcast from Eden.  He is Purchase, Envy.

Envy is what persecutes and kills the just.

These two witnesses are manifest as Two Sons in Jesus' parable of the Prodigal Son.  One remains good, one is lost, then returns.  This is the great mystery of this whole credit and debt mess we're in.  It's another subject I can discuss later.

Conclusion


For the non-religious, simple observation of ourselves and of nature  teaches us that if we keep our minds on the present moment, staying grounded in the here and now, without worry, se see that credit and debt take care of themselves in perfect balance.  Stay in the present, and Past and Future balance themselves out.  In nature, we see giving without sense of credit and debt.  This is something you don't need to find out through books, but simply by direct experience, self-observation.  Give, expecting nothing in return and receive without sense of debt, and you'll see for yourself.


For the religious, the world's religions teach us to  keep our focus on the Eternal Present, i.e., stay grounded in the Here and Now, without worry.  When we do, credit and debt take care of themselves in justice, as they have for zillions of years. 


What goes around, comes around, in the pay-it-forward economy of all nature.  At the same time, every action of every particle is a perfect barter.  In other words, the fundamental law of the universe is that, for every acton or force, there is an equal and opposite reaction or force.  Trust that law.  


As waves calm on the water, so nature brings to everything to justice (even-ness, equality), automatically.  Trust that law.  

Monday Morning Musings

The relief rallies we are seeing with each new twist in the eurozone saga seem to be getting shorter and shorter.  I made this remark last week when the market rallied on the Spanish bank bailout requests but the early rally completely faded by the end of the day.

So far this latest reaction to the Greek elections has been even shorter.  On Sunday when the news came out I saw that the Dow futures opened up around +150.  When I checked after the US Open the futures had cut those gains in half.  But what really surprised me was when our new puppy began barking at 4:30am this morning and I woke to see the futures had actually turned from +50 last night to -50 this morning.  Talk about fading euphoria.

The positive development out of the Greek elections take a potential negative scenario off the table, but it doesn't do much in the way of proactive solutions to the debt issues.  So the market quickly turns its focus of attention back to Spain, where yields on its 10-year debt spike to 7.16% and its stock market falls -2.0%.  If the market is this worried about Spain, what happens when it turns its attention to Italy (and heaven forbid France)? 

The can they're trying to kick seems to be getting bigger and heavier each time.  Investors will be looking for comments out of the G20 meeting today, but I expect little more than an increase in the size of the IMF bailout funds.

That said, we are seeing some positive action among individual stocks, especially in the tech sector.  AAPL has broken back above its 50-day average, and may be pulling the Nasdaq higher.  Facebook (FB) is also seeing a nice pop back above the $30 level. 

The dollar is up again vs. the euro, which is weighing on commodities.  Oil prices are lower near $83.05 and gold prices are weaker to $1622.  Silver and copper prices are lower as well.

The 10-year yield is a bit weaker at 1.57%; and the VIX is plunging from last week's close, down -6.6% back below the $20 level to 19.70.  I have said I think the VIX will trade between 20-25 in the near-term, so I think we could be getting close to another trade to the upside in the VIX.

Trading comment: I am glad the worst case scenario for Greece has been taken off the table.  I think that staved off a lot of potential downgrades from the ratings agency.  But Spain isn't going away.  This week we have the FOMC meeting, with many probably looking for some comments about further QE policies.  I think that could be setting the market up for some disappointment if the Fed doesn't feel the same sense of urgency to announce any big new initiatives.  I also want to see how the S&P 500 handles its upcoming test of the overhead 50-day average which is just about coming into play today.  So for now, I'll retain our conservative posture.

KAM Advisors has long positions in AAPL, FB

Is It All Priced In??

The markets are up for a rare second day in a row.  I would have expected to see some weakness yesterday but the market closed fairly firm and today is has taken out recent highs at SPX 1335.  It is possible that some of the upside skew yesterday and today is being affected by today's options expiration.

Another possible thesis is that maybe all of the scary potential news this weekend has for the most part been priced in?  Markets are good at telegraphing things that are already well known.  We have been talking about the Greek elections for weeks.  As a result, portfolio managers have had plenty of time to reduce exposure, hedge positions, buy protection, etc.  Even central banks are in the headlines saying they stand ready to add liquidity if needed. 

It sort of reminds me of the Y2K scare, which turned out to be a dud.  Of course, the fact that the market is up for the last 2 days ahead of the weekend does raise the odds for disappointing action on Monday.  But I am growing more skeptical of the potential for a huge selloff regardless of the outcomes of the elections.  That said, I do expect the sovereign debt issues to remain on the front burner as the focus of attention has yet to turn to Italy, but its coming.

There isn't much in the way of corporate news this morning, but there was some economic data.  The Empire Manufacturing survey showed a big decline to 2.3 in June from 17.1 last month.  That's a pretty big plunge.  And the Univ. of Mich. consumer sentiment survey declined to 74.1 for June from 79.3 the prior month. 

In this perverse environment, markets aren't selling off as much as they normally would to downbeat economic data because investors feel that weaker data will give the Fed cover and support for additional quantitative easing. 

Asian markets were higher overnight, and Europe is higher this morning.  The dollar is lower which is helping commodities.  Gold prices are higher near $1630.  Oil prices are up to $84.20.  And silver and copper prices are higher also.

The 10-year yield is lower to 1.56% as investors buy Treasuries for safety.  And despite the early strength in the indexes, the VIX is 2.6% higher still.  Some of this could be related to options expiration, as traders roll their positions out to future months.

Trading comment: As the S&P 500 breaks above that 1335 level that has acted as resistance since mid-May, I wonder if I have been too conservative of late.  But I also see the downward sloping 50-day moving average closing in fast on the SPX and I would expect it to offer stiff resistance.  I know bearish sentiment has been building recently and I acknowledged that a move higher could be in the cards to keep investors on their toes.  But I still don't get the sense that the market is poised for a sustainable run here.  There are not enough growth stocks breaking to new highs, and it would be rare for the market to keep pushing higher while led by defensive stocks like consumer staples and utilities.

Are Investors Anticipating QE3?

The markets are higher in early trading, on little real news.  The is the 7th day in a row of flip-flopping by the market, where we are up one day and down the next.  I also think that speculation is growing that the Fed will embark on another round of quantitative easings.  Though remember that each subsequent round of easing seems to have a less lasting effect on the markets.

Asian markets were lower overnight, and Europe is down this morning.  Moody's downgraded Spain's debt rating last night pushing yields on Spanish debt to record highs near 7.00%.  And the Swiss National Bank said that Credit Suisse should look to raise additional capital. 

With the pressures on Europe mounting, Germany seems to be softening its stance on some sort of Eurobond-like solution.  Of course, treating debt with more debt is no solution, but the market will probably cheer it in the same fashion it has with all of the previous kick-the-can provisions.

In economic news, the core CPI rose 0.2% in May, while overall consumer prices fell -0.3% when food and energy prices are included.

In corporate news, SFD is down after missing earnings; and KR is higher after topping estimates, raising guidance, and upping its stock buyback.

The dollar is down slightly, and commodities are mixed.  Oil prices are up a bit near $83 while gold prices are flattish around $1620.  Copper prices are higher, while silver prices are lower.

The 10-year yield is getting a small bounce to 1.63%;  And the VIX is currently -2% lower to 23.75.  It got close to the 25 level this morning before turning lower.  Yesterday's high VIX was good tell for late day weakness.  Given the 100+ point rally this morning in the Dow, I would think the VIX would be down more than 2%.  This could be another hint that this current market strength fades later today. 

Trading comment: We remain at an interesting juncture for the market.  The S&P 500 is putting in a fairly constructive consolidation pattern.  I admit I would not be surprised to see it break in either direction.  The pressures on Spain and Italy continue to grow, and that is a big red flag.  But in the near term, the G20 meeting this weekend, the possibility of QE3 from the Fed, some sort of eurobonds from the EU-- all of these have the potential to spark some near-term enthusiasm in the market.  It is always difficult when we are in these headline driven periods, but the 52-wk high list is littered with defensive stocks and that tells me it is okay to remain patient.

Still Holding The Recent Range

The market dipped in early trading but is currently attempting to bounce from those levels and get back into positive territory.  Yesterday's trading showed solid price action with good volume.

In economic news, retail sales fell by 0.2% in May, and fell 0.4% when you exclude auto sales.  Also, producer prices declined 1.0% in May, while core producer prices rose 0.2%.  So really the big declines came from food and energy prices.

Overnight action in Asian was generally positive, while Europe's bourses are lower today.  Yields among eurozone countries are mixed, and the euro is getting a bounce relative to the dollar.

Commodities are mixed.  Oil prices are higher near $83.85 and gold prices have bounced to $1623.  Copper prices are lower so far.

Jamie Dimon, the CEO of JPMorgan, is testifying before the Senate Banking Committee this morning about their trading losses.  I find these kind of things somewhat laughable.  Most of the folks on the panel don't understand the banking activities of a large money center bank like JPM.  I would bet that the same types of activities take place in all of the large banks.  I'm not sure Dimon needed to disclose it in the manner in which he did in the first place.  And I'm sure he regrets it now as he has been called to Washington to testify about a trading loss.

So far today, healthcare stocks are leading the action while materials and industrials are lagging.

The 10-year yield is down a touch to 1.64%.  And the VIX is up +5.5% to 23.35.  The VIX seems like it is up quite a bit relative to the flat action in the major indexes.  Normally I would view this as a red flag on the day.  But sometimes in expiration weeks you get a day or two where normal correlations/signals get skewed.

Trading comment: Yesterday's action was generally positive.  It was not quite big enough to qualify as the IBD-style follow through day I have been looking for since last week.  The biggest missing ingredient is the number of fresh breakouts by leading stocks.  Most market leaders are still in the midst of forming corrective bases in their stock action and not yet ready to breakout to new highs.  So I am not yet ready to materially increase our long exposure to stocks.  The SPX has held that 1307 level nicely the last several days, and it wouldn't surprise me to see another push higher in the senior index.  But we also have the 50-day average looming overhead, which is now downward sloping and should offer resistance if and when it comes into play.

KAM Advisors has long positions in JPM

Stocks Bounce Despite Spanish Strains

The markets are higher in early trading.  Yesterday's action was clearly disappointing as the early gains quickly dissipated and the market closed near its lows.  I thought we would see more weakness this morning, but the markets so far have been bouncing despite ongoing strains in Spain.

Spanish yields continue to rise, and Fitch made further ratings cuts to some Spanish banks.  Despite these issues, Europe's stock markets are higher today.  Asian markets were lower overnight after the selloff in the US.

TXN narrowed its earnings outlook last night, but it's stock is up a little.  AGU is also higher on revised earnings guidance.  KORS topped estimates last night and raised guidance and its stock is up 6%.  On the downside, FDS lowered guidance and its stock has gapped lower.

Other than that there is not a whole lot of news or economic reports moving the markets.  Things are still very headline driven, mostly out of Europe. 

The 10-year yield is getting a bounce to 1.63%.  The dollar is down a bit, which is helping lift gold prices near $1610 and oil prices close to $83.50.  Silver and copper prices are higher as well. 

As for the VIX, it is currently down -2.5% as the market bounces, just below the 23 level.

Trading comment: Market action remains choppy.  Yesterday's action was pretty bearish in that there was a real lack of buyers.  On the NYSE, downside volume totalled 91%.  That said, today is the third day that the SPX has held this 1307 level and it is currently trying to bounce.  So maybe the market has another push higher up its sleeve.  That said, I am still inclined to remain defensive as conditions in Europe remain tentative and economic growth appears to be slowing (recent ECRI drops).

KAM Advisors has long positions in KORS

Monday Morning Musings

There is little in the way of corporate news or economic data to move the markets this morning, with the entire focus pretty much on the announcement that Spain has requested a bailout for its ailing banks.

When the news came out over the weekend, enthusiasm spiked that the fresh capital for the banks would bring some stability to Spain, and the futures spiked higher.  Asian markets were up 2% of more overnight, and Europe's markets sported strong gains this morning.

But the enthusiasm seems to be quickly waning as investors ask more questions and contemplate how long this panacea can actually help fiscal problems in the eurozone.  It could also be that the market is still wondering that even if Spain gets some assistance, the one country that has yet to be dealt with is Italy.  That said, the day is still young so let's see how it plays out.

Additionally, this weekend brings the elections in Greece which many investors are still worried about.  The question of whether Greece will adhere to its austerity agreement or decide to take its chances and exit the euro is still up in the air.

One stock that is bucking the early weakness is Apple (AAPL), which is hosting its Worldwide Developers Conference today and is expected to announce some new exciting products.  This will also be the first WWDC hosted by Tim Cook as CEO.

Among the sector ETFs, economically sensitive materials (XLB) are lagging the most, while defensive utilities (XLU) are bucking the weakness and trading at new highs. 

The euro is still higher vs. the dollar, and commodities are mixed.  Oil prices have eased from their earlier highs and are near $83.75.  Gold prices have also faded and are down slightly to $1586.  But copper prices are highly, likely aided by positive sentiment out of China about further stimulus.

Right after the open today, the VIX traded down to its 50-day average below the 20 level but has quickly bounced back up to 21.40.  I have said that in this environment I expect the VIX to oscillate in the 20-25 level for awhile. 

The 10-year yield is down a bit to 1.61%.

Trading comment: I am very surprised the enthusiasm for the Spanish bailout has faded so quickly.  I understand the continued skepticism and all of the unanswered questions that remain, but I still felt that the market would experience a bounce today.  The stock futures were up over 150 points last night when I checked, and Asian markets rallied sharply.  Go figure.  Interestingly, the S&P 500 traded up to 1335 today before running into resistance.  Guess what the May highs were?  Yep - 1335.  So if we give the market time, it's still possible that it is putting in a bottoming formation.  Bottoms are never perfect of smooth, and the upcoming Greek election news will be a wildcard.  So we will maintain our conservative posture for the time being, and await stronger evidence that this market correction which began in early May has run its course.

KAM Advisors has long positions in AAPL, XLU

China Cuts Rates Again

The market is higher in early trading, adding to yesterday's outsized gains.  The S&P 500 got as high as 1329 this morning before running out of steam.  Last week's high was 1335, so we see where near-term resistance is for the time being.

Overnight China cuts its benchmark rate another 25 basis points to 3.25%.  That follows a rate cut yesterday by the Reserve Bank of Australia.  The Bank of England stood pat at its current rate of 0.5%, half that of the ECB's 1.0% level.  I still think the ECB should have cut rates, but maybe they are trying to save some ammo.

Asian markets rallied overnight on the news of the Chinese rate cut and also in response to the rally here in the U.S.  Europe's markets are higher again this morning on continued optimism that Europe's leaders will come up with some solutions to address Spain.

Our markets lost some of their early steam after remarks from Bernanke were released.  He said that our banks have improved their strength, that inflation remains contained, but that the fiscal cliff looms large as a significant threat to the fledgling recovery.  He is now getting grilled by Congress, which is always comical due to their lack of true understanding of complicated monetary policy.

Outside of the above, there is little in the way of market moving economic data or corporate news.  On report of note was LULU's earnings, which were okay but the company reduced guidance which is the kiss of death for a growth stock.  The stock is currently down -9% on big volume and weighing on other growth retailers. 

The dollar is slightly higher this morning as the euro takes a breath after yesterday's spike.  That has commodities mixed.  Gold is easing back to $1609 while oil prices are higher near $86.10.

The 10-year yield has had a nice bounce from last week's lows.  It got back to 1.65% today and is currently just below those levels.  As for the VIX, it plunged yesterday and was down further this morning to 20.75 before bouncing.  It is currently up on the day near 22.43.  I don't see it getting below 20 and staying there on this rally.

Trading comment: I have been talking about how investor sentiment had gotten very bearish and that was likely setting us up for a bounce.  We have certainly seen that bounce with a nearly 5% move in the SPX from Monday's lows to this morning's highs.  That puts the market at an interesting juncture here.  I think if the market can digest this recent bounce without giving too much of it back, it is possible to see another push higher for the major indexes.  But of course, a lot will have to do with the fluid situation in Europe.  Greece's elections are June 17th, and the financials markets and European leaders will be anxiously awaiting those results.  We are still more in defensive mode than aggressive, and we have used this recent strength to add to some of our ETF hedges.

One-on-One with Jeb Bush

Former Florida Governor Jeb Bush on Wednesday hailed the outcome of the Wisconsin recall election, praising Governor Scott Walker for emboldening conservatives in their drive to slash spending on a national level.


“He’s a courageous leader, and he was rewarded for courage,” Bush said on CNBC’s “The Kudlow Report.”

“In a world of dysfunction, it’s really good that a guy like that, who had the courage of his convictions and acted on them, is rewarded with a victory. I don’t even know why we had the recall to begin with, but if there was to be one, better to win by a bigger margin than he won in 2010, with a higher turnout. I think it’s a leading indicator of one thing, which is the intensity of the conservative side of politics is now stronger than the liberal side.”

The prediction might be partly wishful thinking.

In an exit poll of Wisconsin voters by ABC News, a majority — 51 percent to 44 percent — said they would support President Obama over Republican challenger Mitt Romney if the election were held that day.

Voters also picked Obama over Romney, 42 percent to 38 percent, to do a better job handling the economy, as well as by 46 percent to 37 percent on “helping the middle class.”

Bush said the recall election results — which Walker won with 53 percent of the vote to Democrat Tom Barrett’s 46 percent — represented a “spanking” for unions.

“It’s a spanking because they made it that way,” he said. “They raised the stakes, they made this a national campaign. All of the leadership, Debbie Wasserman Schultz of the Democratic Party and the union leaders all said that all roads lead through Madison, basically as it relates to the national campaign. This was a national statement.”

Walker’s victory, Bush said, also meant the Tea Party movement was alive and well.

“They play a huge role in reminding people we’re on an unsustainable course when it comes to spending at every level, and Scott Walker takes the general belief and does something really novel; he acted on it,” he said.

Bush reiterated that the United States government was on an “unsustainable course.”

“The only reason we’ve been allowed to stay on the course is a monetary policy of zero percent interest rates and the fact that Europe has bigger problems than we do, so... we’re slightly larger than the next midget, basically,” he said.

Creating 40 cents of debt for every dollar of federal spending, Bush added, was “not sustainable.”

“Never in anybody’s wildest dreams could anybody say that this is sustainable, so it seems to me that if you could — if you’re in a position of leadership, you have to find creative ways to find common ground, maybe through the tax code, maybe looking at exemptions,” he said.

Bush took a shot at cutting entitlement programs — Medicare and Social Security — though not by name.

“If you could get a cap on entitlement spending in the out years, you are going to save trillions of dollars, not billions of dollars, and in order to bring people along, are you going to have to look at the tax code,” he said. “And so, dealing with exemptions in some way that might satisfy the left to deal with the unsustainable entitlement problems we face. I don’t know what the exact deal would be, but Chris Christie is right about one thing, it requires leadership.”

Bush also criticized Obama for “dividing” instead of finding “common ground,” while defending his brother, former President George W. Bush.

“You’re in the fourth year of your presidency, it becomes unbecoming to constantly be blaming the past for your failures,” he said. “And it’s just not — I don't think politically — helpful to do that. And so, yeah, I mean, I think my brother gets a bum rap, but that’s just the way it is.”

A new post

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Scheduling Conflict

I have a meeting this morning, so look for my market comments after the close of trading today--

Should The ECB Cut Rates?

The market is slightly higher in early trading, but the S&P 500 is still not back above its 200-day average.  The 200-day resides near 1285.  The SPX briefly bumped its head at 1285 this morning before pulling back.  So that's a level bulls would like to see recaptured by the close today.

I'm glad we didn't have a big up open in the market, since that often is just a setup for a failed rally attempt.  I would rather see the markets open flat and then build some strength into the close.  We shall see.  There is a teleconference today between the G-7 finance ministers who will discuss eurozone conditions.  But there is some confusion as to whether the details from the call will be released.

Tomorrow is the latest announcement from the ECB.  Some believe they should cut interest rates, while others think that it won't help.  I still find it odd that the ECB is at 1.00% and our Fed is at basically 0%.  China has cut rates, Australia cut rates today, I think the ECB should cut rates also.  I don't think it will have a huge effect but it could help at the margin.

In economic news, the ISM Services index for May came in better than expected at 53.7, which is higher than last month's reading of 53.5.  In Europe, the eurozone services PMI improved a touch to 46.7 for April.  However, retail sales for the region fell during April by 1.0%.

The dollar is up again today vs. the euro, but it isn't weighing on commodities as much as usual.  Oil prices are a little higher near $84.40 and gold prices are up to $1619.  Copper prices are lower.

Asian markets were generally higher overnight.  The 10-year is bouncing a little more to 1.56%.  And the VIX fell back below the 25.0 level but is currently bouncing back above it.  Bulls are hoping for a VIX close below that 25 level.

Trading comment: Yesterday's action wasn't great, but it wasn't that bad either.  The market was able to erase its intraday losses and close flat.  Today the market is mostly hanging in so far also.  I think a lot of folks are waiting for some sign out of Europe that hints at their next policy response.  Its difficult to see our markets held hostage like this to Europe, but as the old saying goes "you have to trade the market as it is, and not how you wish it to be".  Small and mid-cap stocks are outperforming so far this morning.  And financials are the biggest sector leader so far.  So there is potential for today to shape up positively.

Looking For The Elusive Bounce

The markets are mixed in early trade after opening slightly higher but quickly fading back into negative territory.  The first hour dip was relatively shallow and the indexes are trying to make a stand.  The Nasdaq has moved back into positive territory while the S&P 500 is still a few points shy.

The disappointing non-farm payrolls report on Friday really took the wind out of the sails of this market.  I thought folks would have already be expecting a poor jobs report, but the figures turned out weaker than most expected.

The selloff on Friday probably weighed on Asian when it opened last night, as markets there fell across the board.  China dropped -2.7% after the country's services PMI fell to 55.2 from 56.1 the prior month.

Newsflow in the US is very light today, with no big corporate or economic reports to speak of.  Hopefully that will provide a backdrop for stocks to bottom and try to put in some upside reversal today. 

The dollar is lower today after its big recent rally.  Commodity prices are mixed.  Oil prices are slightly higher near $83.45.  Copper prices are higher as well.  But gold prices are lower to $1618 and silver prices are down as well. 

The 10-year yield is higher today after plunging to breathtaking generational lows last week.  The 10-yr currently sits at 1.50%.  Some folks think yields could drift lower, which is always possible, but I think the TBT trade (short Treasuries) is looking pretty good.

As for the VIX, I would like to see it start moving lower.  It nearly hit 27.75 this morning but is currently back down near flat for the day at 26.70.  The days lows are 25.75.

Trading comment: Friday's plunge took the SPX right down to its 200-day moving average, and even a bit below.  The SPX is currently trading at 1276 vs. the 200-day average that sits near 1284.  So my first wish would be to see the SPX retake that 1284 level and its 200-day.  Sentiment has gotten pretty bearish with the put/call closing at 1.37 on Friday.  So we should be setup for a bounce, even as the macro backdrop remains chock full of negative headlines.  June brings another Fed meeting as well as the Greek elections, but hopefully we won't have to wait all the way until those events occur to see some action.

KAM  Advisors has long positions in TBT

WEEKEND REPORT

The following is a reproduction of the weekend report.
 

Stocks:

With Friday’s employment report a few things began to clear up. The first one is the correct cycle count on the stock market. With the break to new lows it’s now apparent that April 10th formed either a very stretched, or very short daily cycle. I tend to lean towards the very short cycle interpretation based on the the trend line breaks I have illustrated in the chart below.

 

But one could make the case for one very long, extremely stretched, daily cycle driven by LTRO and operation twist. No matter how you interpret the last two daily cycles it’s now apparent with the break to new lows that April 10th did in fact form a daily cycle bottom. That puts the current daily cycle on day 37 and now deep in the timing band for a daily (30-40 days) and intermediate (20-25 weeks) degree low. As the intermediate cycle is now on week 34 it’s apparent just how far LTRO and Operation Twist stretched the stock market cycle.

I suspect sometime next week we are going to see a narrow range day and a large buying on weakness data print on the SPY ETF. Then once a swing forms it should mark the bottom of this intermediate cycle.

 

I have mentioned before how news mysteriously seems to coalesce around intermediate turning points. I suspect this time it’s going to be another round of quantitative easing by the Fed (although it won’t be called QE) or a gigantic LTRO in Europe to bail out Spain and Italy, or a combination of both. Either way it’s now late enough in this daily cycle that we should expect a bottom very soon (probably early next week). The fact that this intermediate cycle has stretched extremely long raises the odds massively that the next daily cycle bottom is also going to be an intermediate and yearly cycle bottom.

Once we have printed the intermediate low we should see stocks rally back to at least test the highs. If the market becomes convinced the next round of money printing is on the way then this could be an explosive rally as traders have now been conditioned to expect QE to drive big market rallies.

In the chart below, the first scenario is the most likely in my opinion and would be what I would expect to happen if more QE is introduced. The second scenario would play out if inflation surges high enough and quickly enough to topple the already weak global economy. In that scenario the stock market would move to marginal new highs, allowing smart money to offload positions to dumb money buying into the breakout. What would follow would almost certainly be a 1 1/2 to 2 1/2 year grinding bear market as the slowly deteriorating fundamentals fight ever larger infusions of liquidity from global central banks. Unfortunately liquidity is exactly what would be driving commodity inflation so central banks would actually be making the problem worse rather than better.


 

That being said stocks, especially tech stocks led the last intermediate cycle. I doubt hot money is going to jump back into that sector again right off the bat. No, I expect the stock market will rally fairly quickly back to the old highs but then run into a brick wall that will require considerable consolidation before any serious breakout.

This intermediate rally is almost certainly going to be led by a different sector. As a matter of fact the new leaders are already starting to show their true colors. (More on that in the gold section of today’s report.)


Dollar:

An intermediate bottom in stocks (and commodities) should also correspond with an intermediate top in the dollar. I suspect the reversal on Fridays employment report is going to mark not only a daily cycle top, but probably an intermediate, and possibly even a three year cycle top on the dollar index.

 

I say this because the CRB is now due to form a major three year cycle low, and I don’t see that cycle low forming until the dollar index has topped. Since this three year cycle has already stretched slightly long it’s unlikely to stretch for another complete intermediate cycle. All that means is that the CRB’s three year cycle should bottom along with the yearly cycle in stocks and gold (which already bottomed slightly early two weeks ago).


 

Once the dollar has topped the CRB will stop falling and begin moving back up, into what I think will be a parabolic spike much bigger than what occurred in 2008. That parabolic top should come sometime in late 2014 as the dollar moves down into its next three year cycle low. Or as was the case with gold in 2011 momentum may carry the parabolic move slightly past the dollars bottom.

 

Since the CRB’s three year cycle is already starting to stretch slightly long I am confident that bottom is going to occur right now as gold and stocks all put in their yearly cycle lows. As long as the CRB, gold, and stocks don’t stretch their yearly cycles any further, and I don’t see why they should, then the dollar’s rally out of the three year cycle low is on its last legs.

As I mentioned last week sentiment in the dollar index has reached levels not seen in the last 12 years. This is exactly what one would expect to see at a major three year cycle top.

 

Chart courtesy of sentimentrader.com

So conditions are now in place for major reversals in stocks, commodities, precious metals (already bottomed), and the dollar.

Gold:

I think it’s safe to say that Friday’s action took the short cycle scenario off the table (as well as the D-Wave continuation). Gold not only broke its intermediate trend line, but it also formed a weekly swing. I think we have all the confirmation we need at this point to conclude that gold’s intermediate cycle bottomed two weeks ago.

 

As I pointed out in the dollar section above, this should also mark a yearly cycle low and a B-wave bottom in the gold market. I’m about 99% positive Friday’s rally was the kickoff of a brand new C-wave advance. That being said I wouldn’t expect gold to rally straight up to new highs this summer. It may test $1900 during this new intermediate cycle but I think gold is still going to have to consolidate for most of this year before it can breakout to new highs. My best guess is probably next spring before any sustained move above $1900.

 

This means I think the bear market in miners has probably ended. As everything starts to rally out of its yearly cycle low (and the CRB out of its three year cycle low) the biggest gains are going to be made in the  sectors hardest hit during this correction. Without a doubt that was mining stocks. At the lows two weeks ago miners had reached levels of undervaluation only seen one other time in history. That was at gold’s eight year cycle low in the fall of 2008.

As you can see in the chart below miners rallied over 300% as everything came out of that major bottom in late 2008 and early 2009. I have little doubt we will see something similar this time as the CRB begins moving up out of its three year cycle low and gold begins its next C-wave advance. Hot money is going to start looking for sectors with the potential for big percentage gains.  No sector has that kind of potential more than the mining stocks. As a matter of fact I expect the gains in this sector to be absolutely mind blowing over the next 2 1/2 years.



For our purposes all we need to know right now is that gold is on week two of a brand-new intermediate cycle. In those two weeks the HUI has already rallied almost 19% from the trough to yesterday’s close. Keep in mind this occurred while the stock market was still going down and gold was moving sideways. The outperformance in mining stocks is a subtle hint for anyone that cares to take notice, of what is going to lead the market out of this major bottom. It’s the same hint that was given in late 2008 right before miners launched into a 300% rally.

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