Thursday, December 8, 2011
For generations the market for copper has been one of the best bellwethers of the direction of the global economy. More recently other indicators, such as silicon chip sales have become popular, but copper remains important. It presages construction plans, auto manufacturing expectations and capital equipment demand. Lately Mr. Copper has been looking a little tired. In fact more contracts are being bought in anticipation of a decline in copper pricing than rising.
For all the babble over massaged retail sales figures on Black Friday and the firehose liquidity injections to European Banks the 30,000 ft view is flashing warning. Forewarned is forearmed.
Friday, December 2, 2011
There has been no post on the blog for more than a year and as I reflect on 2011 it almost looks like I didn't miss a thing. 2011 opened with the S&P index at 1257. As I write this the S&P index, approaching the end of the year is at.....1257. Rip Van Winkle wouldn't have missed a thing but had lots of crazy dreams in the interim. A lot like the investment year in equities has been.
Of course if you didn't sleep through it you didn't miss the breathless voices on CNBC alternating between orgasmic glee and catatonic despondency. In other words much of the year could have been spent in an alcohol induced coma both in celebratory cork popping and bleary eyed single malt sipping.
It has been a traders year with breathtaking volatility and profits for the quick opportunist. For the fundamental long term position a plodding marathon. When the headline news is set against a back of reality it makes me despair of the disingenuous nature of investment market reporting. Seemingly everyday the banner headline is one not merely of hope but of gleeful cheerleading. Without an awareness of both underlying expectation and the details behind the news the reportage is less than worthless.
Today is no exception. Jobless Rate Falls to 8.6% reads the headline. The lowest level in two and a half years, spouts the Labor Department. A lower jobless rate is good, right? 120,000 jobs created. What's not to like?
The labor force participation rate is falling at an unprecedented rate. For those who pine for the good old days when June Cleaver had perfect hair, a martini waiting for her dutiful husband and a roast in the oven, be patient. We're getting there. Statistics show that it is increasingly likely it won't be June fixing dinner and waiting for the breadwinner to come home, but husband, Ward
The participation rate began a long advance following the 1970's when women entered the work force in substantial numbers. The social changes of those years meant that women who were burning their bras were also beginning to collect a paycheck.
Behind the headline number of 120,000 new jobs is another number. 315,000 people stopped looking for work or otherwise fell off the labor force rolls. If you actually work the numbers reported backwards, it looks like about 3 million people have statistically disappeared.
The graphic below charts the average period of unemployment for those in the labor force and looking for work. Clearly there is a striking structural change. For the first time since the 1930's the U.S. labor picture is of significant long term, even permanent unemployment. Left unchanged the social implications are major both in terms of average standard of living and social polarization.
Our client portfolios remain decidedly cautious and hedged which means experiencing contrarian emotions. Earlier this week when every central bank in the world announced it was opening the spigots of liquidity to banks still wider I was not a happy camper. But in a market driven by headlines there will always be times when fundamentals will be overwhelmed by fleeting events. Surfing the tsunami is not for the meek; or even for those who hang on every word that comes across the wires. So much information, so little wisdom.
Wednesday, April 28, 2010
When confronted by a hungry bear you don’t need to be faster than the bear, just faster than kid that ate all the Twinkies. Increasingly the global economy is looking similar with Europe being the bloated glutton. For all the problems in the United States the friends across the pond are looking more and more like bear food.
The problems in Greece, which in the recent past I wrote were not going to go gently into the night, rose up this week with a massive downgrade of their sovereign debt by S&P to junk status. There was political posturing to try to hold down the panic as a large piece of Greek debt was due to be rolled forward in May. It looks like that posture is unlikely to be upright as two-year interest rates on Greek bonds moved to 15% this week. The PIGS (Portugal, Ireland, Greece and Spain) are looking like crispy bacon.
In Club Med, Barclay’s analysts believe Greece needs 90 Billion Euros to get through the current crisis, Portugal, 40 Billion and Spain 350 Billion. The IMF runs dry at 200 Billion which would mean heating up the printing presses. If the other rating agencies follow S&P’s lead, the European Central Bank will not be able to hold Greek debt on its balance sheet. Or they will destroy the sanctity of the ECB, much as the Fed has done.
The crisis in Greece puts a stake in the heart of discussions of the Euro supplanting the dollar as the world’s reserve currency. The lack of a cohesive national government in time of crisis has been shown to be the weak underbelly of the European monetary union. The inability to enact independent monetary policy because of treaty obligations and mandates may well be the emperor has no clothes moment for the Euro.
If this lit fuse reaches Spain where there is serious German and British investment fireworks could ensue. The expectation of an imminent Fed rate hike is deflating by the day. If one looks back to 1997 a crisis in Thailand started the Asian crisis and quickly derailed plans for interest rate hikes.
Monday, April 19, 2010
Wednesday, April 14, 2010
As a manager of clients whose primary focus is on long term gains and security, I have focused on risk before growth. In the past year, that was an uncomfortable focus as the stock market went on an almost unparalleled tear. Looking at historical precedent and market valuations has been off the mark this time.
Looking back to the pre-depression 1920's and analyzing markets shows just how unusual this past year has been. Using rolling time periods of just over a year, there have been 4,237 different outcomes in the market. The current gain places this period ahead of ALL market performance periods except during the Great Depression. This fact does not imply that the next period will be either positive or negative but a regression to the mean will certainly occur. Trees don't grow to heaven.
(click on image to enlarge)
This market rally was exceeded only in periods during 1933, 1934 and 1936.