About Me

Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Friday, November 30, 2012

Stock Market -- Monthly

I have stayed away from the long side of the stock market since the spring of this year.
I have found it far easier to profitably trade oil and commodities. Based on my trading
disciplines, I have no good reason to play in the stock market presently. I am a trader
now, but if I was a longer term player I would be careful in here. This is not a garden
variety cyclical bull market and we have seen some mean quirks. The environment in
the shorter run is a dicey one on the fundamentals even holding the fiscal cliff aside.

By my lights, monetary policy still remains at best wanly positive. The Fed is adding
liquidity to the system at only a modest rate and Fed Bank Credit, adjusted for inflation,
is down for the past 12 months. That is a recipe for recession unless private sector credit
driven liquidity growth is robust, which it is not. Presently, neither Fed QE or bank funding
is growing rapidly enough to have confidence the economy will not stumble.

I have a baseline case for decent economic and profits growth for 2013, but funding for the
economy needs to pick up very soon if the baseline is to work out. The Boyz in Wash. DC
are still meandering toward the fiscal cliff. How much damage They will do to the economy
is still largely an unknown, but I would note that neither side has continuation of the payroll
tax cut as an item to be maintained. If US consumers lose that cut in 2013, it will punish
real incomes and will weaken the base case I have.

Business top line sales growth has decelerated sharply since 2011 and profit margins are
under mild pressure on operating slack even though the price / cost profit margin measure I
use is holding up. Since Hurricane Sandy likely negatively affected business in Nov., we may
actually have to wait well into Jan.'13 before we can see whether the deterioration in sales
and profits momentum is likely to continue or reverse positively. This bit of due diligence
will be required regardless of the outcome of the fiscal cliff.

SPX Monthly Chart
Check out the monthly SPX  The chart shows the SPX remains in a cyclical uptrend on a
monthly basis. It is not overbought against its rising 10 month m/a, and the MACD reading
continues positive although extended. The momentum measure is positive. It has grown more
subdued recently but is still not far below overbought levels. Lastly, the stochastic measure
shows a negative violation  in price momentum which deserves attention as it could be
forshadowing a downward turn in the market.

Tuesday, November 27, 2012

Capital Goods / Industrial

This broad sector has underperformed the stock market since the spring of 2011. From
then, the momentum of the growth of industrial production and business sales has slowed
markedly, with the now rather important book of export sales curbed by slower economic
growth offshore US and a stronger dollar. Industrial output in the US has flattened out in
2012, and factory operating rates have fallen. Business has responded very quickly, with
new orders for capital goods (excluding aircraft & defense) having tumbled this year until
just recently. New Order

The chart shows data through 9/12, but there was another and significant increase in orders
for Oct. Note as well that the chart shows excessively rapid growth of new orders from the
1992 - 2000 period, driven by the broad tech sector, the internet and "dot.com" booms and the
very large build out of wireless telecom. With execess capacity on hand since 2000, capital
goods orders have been range bound, and it is quite something to see how fast orders tanked
this year as operating rates softened.

This recent improvement in orders reflects the positive reaction of business to the early
expectation / follow through of the Fed's QE 3 program. The capital goods / heavy industry
 sectors are interesting long term because with so little growth of capacity since 2000, plant
and equipment is aging and is due for substantial overhaul. The sector could well experience
better economic and stock market performance over the year ahead if the resolution of the
fiscal cliff issues in the near term is not onerous.

S&P XLI Spyder price and Relative Strength Chart

Sunday, November 25, 2012

SP 500 Weekly Chart

The way I read the weekly chart, I should probably wait up to a couple of weeks before
taking a significant long position in the market even though the indicators are inching
toward positive. SPX Weekly

Saturday, November 24, 2012

Stock Market Comments

Reflecting the global trend, US business sales growth has steadily lost momentum over the
past 18 months reflecting a deceleration of volume growth and a loss of pricing power. Profit
margins have ebbed modestly on a deterioration of the selling price / cost ratio  for business.
More recently, the US operating rate for business has also ebbed modestly, which further
curbs efficiency. Recession in Europe and sharply slowing growth in main Asian economies
have significantly curtailed US export sales momentum.

It has been my argument that by shrinking the prime base of monetary liquidity since mid -
2011, the Federal Reserve was gambling with the US economic recovery. Fortunately, since
the basic money supply in the US financial system did not suffer a loss of growth momentum
below danger levels while private sector credit growth began to expand modestly, the system
has not sustained the kind of liquidity privation that assures a full blown recession. There has
been damage, but so far, luck has been a lady for the Fed.

Monetary policy regarding liquidity has reversed from negative to positive. When there is a
deep downturn and low business and consumer confidence, a QE program can take up to a
year to foster recovery, but, when there has been only an economic slowdown with no large
loss of confidence, QE can bring support far, far more rapidly. Still, the Fed should speed up
Its program as it is behind schedule.

Ongoing QE and grinding improvement in private sector credit demand set a more positive base
case for the US economy in 2013. There may well be a hit to growth next year from resolution
of the fiscal cliff issue, but it is still too early to tell how large a penalty there will be. The
sensible course is for official Washington to strike a deal which both sides can crow about but
which does minimal economic damage to the real economy through mid - 2014. We'll see.

My core fundametals signal a positive environment for stocks next year provided the Fed does
not welch on its QE commitment. Stock market volatility should increase between now and
early Jan. as the President and  the Congress work their wills with the fiscal cliff.

When I look at cash reserves in the system, I think funds are already heavily deployed. Thus,
for the stock market to have a strong year, money is going to have to come out of the bond
market which has been a huge beneficiary of the deep recession / slow, painful recovery we
have witnessed over the past 5 years.

The market has been in sharp recovery mode over the past week. The tradable price
momentum oversold has been wiped out. The market has also been in a saw tooth down
pattern which should be tested this coming week on heavier volume. The price bounce is still
too young to have turned my indicators. I note however, that contrary to longer term history,
the market has been able to rally off the sharp down spikes in price over much of the current
cyclical bull advance as changes in trader sentiment have appeared to happen very rapidly. I
would love to see a retest of the recent low, but traders have been far less cautious during this
market. SPX Daily Chart

Tuesday, November 20, 2012

Call Me Old Fashioned...

Today was a dud following yesterday's big advance. Big one day upmoves without positive
follow - through the next few days are off-putting. Sometimes a big one day move during
a downturn reflects fast short covering by traders caught flatfooted by a positive news item
and sometimes it reflects positive interest but with a lack of conviction. It is like a band
wagon that only goes for a couple yards before encountering challenges. At any rate, if you
are freshly long, watch carefully for some decent follow-through in the days ahead.

Oil Price
My plan has been to go long oil near year's end or in early 2013. The oil market is in its
weakest seasonal period of the year and I was hoping that with global economic activity
still very sluggish, I could take a long position and pick up oil with WTIC down in the
75 - 80 area over the next month or two with an eye toward holding it through 9/13, as I
think US attention will re-focus on Iran and its nuclear program now that the election is over.
I am assuming Iran is providing financial encouragement to Hamas now to message the West
that It can make trouble and create some war fatigue in Israel. But, I think the US will
return to the Iran nuke issue next year anyway.

The oil price is having a counter - seasonal rally here as traders play with Israel vs Hamas
and the newly positive vibe on settling the fiscal cliff issue here in the US. I do not want to
be piggy and wait for $80 bl. or lower, but I'll probably sit on my hands for a spot longer.

WTIC Chart

Saturday, November 17, 2012

Stock Market -- Daily Chart

I am now seeing a rash of "ok now to buy the correction" strategy pieces. It is true that we
have witnessed a "garden variety" type price correction. Moreover, I have been looking to see
what traders might do if the SPX fell 5% below its declining 25 day m/a. It did so this week
and there was a minor bounce. Finally, on Fri. just passed, House Speaker Boehner (R-OH)
indicated that revenues were on the table re: the fiscal cliff issue. That comment served to
cool fears that the US would head pell mell right over the cliff into deep austerity. So, since
the market has hit a more respectable oversold, there may be some positive carry into the
coming week, so long as nothing else of material consequence intervenes ( Gaza, bad vibe
on the Sunday talk shows etc.). I note as well that the Fed moved in late in its reporting period
last week to buy a large slug of MBS as well as some Treasuries. That probably did not go
unnoticed by traders (and was also overdue).

However, the SPX did experience a fast breakaway down move in recent weeks and it is
often the case that the market can bounce after the quick break down only to move back for a
retest of the low to verify support is really there. Keep that in mind.

I have linked to the daily SPX chart and you will note the top panel features the relative
strength of the SP 500 against the long Treasury. I would be watching this carefully as well
since the economy is sluggish enough to keep my weekly and monthly fundamental indicators
for the long T price in positive territory. How sluggish are things? Plenty. When the US economy
is humming along at a moderate pace my coincident economic indicator should be running
around +3.0% yr/yr. The reading for Oct. was +1.2% -- low and sloppy.

SPX Daily Chart

Wednesday, November 14, 2012

Stock Market Quickie

A tough Obama line on the fiscal cliff, ugliness in the streets in some southern EZ capitals
and, not to be outdone, Israel bombs Hamas and launches tank fire down into Syria from
the Golan. The US stock market is now in breakaway down mode, and the road map on
breakaways is unfortunately sketchy. The SPX is approaching a decently tradable 5%
discount to its 25 day m/a. The action in recent days shows failure to hold positive moves
early in the day, but with a deeper oversold now at hand, a stronger test of intent is ahead.
SPX Daily

Tuesday, November 13, 2012

Eurozone Status Check

Critically needed monetary liquidity growth is wavering after a modest advance.
The broader money supply remains negative in real terms as EZ private sector credit
continues to decline. The EZ recession-- still mild --  has been slowly deepening and
broadening. The Euro and the stock market remain well off lows based on the
promise of sizable securities purchases from the ECB (If only the needy would ask
for it).

Euro stocks as a group outperformed the US market in the recent rally from early Jun.
even though the Euro weakened against the US$ and fundamentals fared worse compared
to the US. The recent strong comparitive equities performance in the EZ is far too
sophisticated a move for a guy like me who sits a wide ocean apart from Euroland.

IEV and $XEU chart

Sunday, November 11, 2012

Stock Market -- Weekly

In summary, the shorter term fundamentals suggest a flat / slightly weak market which
could turn positive at the drop of a hat. The weekly cyclical fundamental indicator has
edged down moderately from early Oct. It has not lost much ground in the last couple of
weeks, and, looking across the values, there is a little more stability. The Fed has been
missing in action on QE 3 in recent weeks. With the election out of the way, perhaps the
Fed will find a postive groove in the weeks ahead. With the holidays coming, the Fed
will need to add liquidity to the system for seasonal reasons even if They are having
second thoughts on the QE 3 program. Resumption of QE will be supportive of stocks.
Right now, the Wash. DC official players are speeding toward the fiscal cliff, but matters
can always change quickly and positively if a deal is struck which metes out the economic
damage in a gradual fashion. Expect a sky clouded by trial balloons from Wash. and a
multitude of of suggestions from our many wizardy pundits.

My weekly SPX chart still has us in a down market that is still significantly above the
kind of deep oversold which would signal that a strong rally may be close at hand. Again,
we also see a market which has fallen below the longer term cyclical trend (This also
happened in early Jun. '12, but we had a quick "down and back"). Weekly SPX

I have also linked to the NYSE advance - decline chart. It is a weekly chart and notice
that a 6 wk m/a of -1000 has yielded nice buy signals. Notice as well that market
advances have proceeded without the 6 wk m/a having to hit -1000 (Apply your own
parameters). Weekly $NYAD with weekly $NYA

Friday, November 09, 2012

Time For Obama To Kick Some Ass

Most traders and invesment people think official Washington will find a few ways to
circumvent the upcoming fiscal cliff. I do not share that view. Instead, I see a wider
political battle over who governs -- the House of Representitives or the White House --
that could end with a fiscal cliff dive. Today, House Speaker Boehner (R - OH) not
only drew a hard line in the sand on maintaining the full income tax rate structure but
linked a prospective bargain to an upcoming vote on the US debt ceiling which could
come in Feb. 2013. Obama's line in the sand is a bit more squiggly, but top Democrats in
the Senate are drawing a firmer line on tax rates as are WH spokesmen. But Boehner
threw down the gauntlet by threatening to use the debt ceiling issue as a blackmail

The easy thing to advise here is to figure there will be deals that settle the matter for
a goodly period but that the markets could be volatile until the deals are clear. However,
since I believe the House wishes to govern the country rather than the President, I
think Obama will have to confront them head on not only because the presidency is being
challenged but also because he will lose the support of his party and most of the country
if he fails to stand up to this unenlightened group of House conservatives and Tea Party
zealots. His academic specialty was constitutional law, and surely he must recognize when
the presidency is being challeneged. So, I see him vetoing any deal if he does not get what
he wants. In this regard, he has already made clear his willingness to agree to a range of
spending cuts.

When 2013 opens, there is a good possibility the US will go over the cliff unless the House
caves in on taxes and agrees to slim down the future defense budget. Moreover, not only
must Obama take his case to the country but he must also make clear to House members he
will use the levers of the executive branch to punish their districts if they will not budge on
raising high earner tax rates.

You know, in the US, race is never far below the surface socially and politically. The wealthy
white folks who run the GOP have their political views to which they are entitled, but to me,
there is the clear undercurrent of heavy aversion to taking leadership from a man of color and
especially from a guy who is clearly brighter and more articulate than they are. This racial
element and paranoia it engenders greatly increases the obstinacy of the House GOP. Not
only that, but the white guys know Obama does not want to appear "uppity" and "ornery" lest
he be seen as a bad ass dude who needs to be corraled. Obama has avoided this sort of
confrontation so far, but it may well be unavoidable now if Boehner and his guys decide the
public will ultimately support the white folks in a showdown. How Obama has maintained
his poise with these guys is quite something.

Unless the GOP caves on increasing tax revenues, it will be high time for Obama to kick some

Wednesday, November 07, 2012

Stock Market Comment

In the immediate aftermath of the election, official Washington is abuzz about restoring
fiscal integrity and resolving the cliff (1/1/13 expiration of tax cuts and mandated spending
cuts). Business leaders are clamoring for a budget deficit reduction accord so they can
run their business plans more effectively. However, any fix worthy of the name will do
damage to the real economy.

Monthly new order rates through Oct. in the US are trending up but suggest modest growth.
The global situation is more precarious, with nominal growth indicated but butttressed by
the US. My weekly forward looking economic indicators rose from Jun. - early Oct. but
have now eased down and may well continue under modest pressure over the next few
weeks. No hint yet of a more serious erosion in the outlook.

From a pragmatic political point of view, now is a good time to secure some revenue
increases and cut fiscal spending in selected areas since there will not be another election
until Nov. 2014, two years hence.

With Washington now newly reverential toward reaching a budget deal in a fragile global
economy, one can easily understand an extension of the correction in the stock market. And,
to add worry to woe, the EZ is showing economic slippage again (Germany) while here at
home, the Federal Reserve has yet to move on QE 3 with any brio or consistency.

The Fed needs to get moving on QE 3. Obama and the Congress need to signal fast that any
budget accord will kick in proressively with only mild penalties for growth next year to
avoid damaging consumer and business fundamentals and confidence. The EZ? Well, I
will return to that later in the week.

I include the daily SPX chart with the post. SPX The downtrend is clear and confirmed by
the indicators. The market is not substantially oversold, but is at a level that may prove
tempting to a range of short term traders.

Monday, November 05, 2012


Hurricane Sandy was everything they said it was going to be. In our town, we had a nearly
100% power blackout. Prior to the storm, I had arranged to have a fine young man come and
install a 7000 watt generator over Thanksgiving. Bad timing. Instead, I had to quickly
refurbish two, old, large kerosene heaters and zip around and under fallen trees and power
lines to pick up kerosene cannisters. They worked fine at keeping the home reasonably
warm, but the house smells like a refinery. There is another big nor 'easter bearing down on
us with the promise of some snow. I call our utility SC & D Co. (Silence, Cold and Darkness).
Since they are not the most reliable guys around, let me squeeze in a post between storms.

The stock market is still technically in correction mode, although the SPX has found support
a bit above 1400. My weekly cyclical fundamental indicator has been running flat in recent
weeks and the Fed has been conning us about QE 3, as total Fed Bank Credit has also turned
flat and is well below mid - 2011 levels at the end of QE 2.

The presidential election is tomorrow and we hope for a clean result sans an army of rival
litigators and trips to the courts. I am voting for Obama but I would not wager on a victory for
him. If Mitt The Bullshitter wins, there will be new layers of uncertainty to work through
regarding both fiscal and monetary policy and the market may turn volatile as players hustle
to try and handicap the new environment.

The oncoming nor 'easter is going to be nasty, but I am inclined to think the power in our
area will hold up, and plan some catch up posts.

To finish up with a note on the hurricane. I grew up in a lovely community down along the
bay on Long Island. The family contended with some serious hurricanes with torrential
rainfall which caused some mild flooding. With Sandy, the old homestead wound up under
five feet of water, and the flood continued for another mile inland. The roads are still