Memorial Day Weekend

Happy Memorial Day Weekend!

In our town of River Forest one of the highlights of our year is the Memorial Day parade which runs right down our street passing in front of Global HQ. We fly two American flags between now and the 4th of July.

The flag you see off to the side of HQ was carried by my brother-in-law who flew Harrier jets for the marines in Afghanistan. We honor his service and all others who are serving or who have served in our armed forces.

Last year for Memorial day we had a monsoon. 

Happy Memorial Day weekend everybody. Hope its sunny!

I will have to be out on Tuesday so our next post here will be on Wednesday.

Diamonds {Dow ETF}

*Long ETFs related to the Dow Jones Industrials in client accounts.  Long ETFs related to the S&P 500 in client and personal accounts.

Chartweek: Banks

Banks have acted horribly.  They are one of the few indicies that are down in 2011.  A financial sector that underperforms is traditionally seen as a headwind for stocks.

*Long KBE in client and personal accounts.  Long certain other financial ETFs in client accounts.

Happy Birthday Mike!

One of our earliest employees turns 21 today!

Happy Birthday Mike!

Chartweek: FXI

*Long FXI in certain client accounts.

Chartweek: SPY

Chart of the SPY.  A few points to note.

-The point on the chart above that shows the trendline and support level intersecting strikes me as important.

-Newsflow right now, especially from Europe isn't good.  Financials in particular act awful.  I think the market is more spooked by the end of QE2 than most pundits think.

-Indicies mask that there has been significant price and money flow damage to many individual stocks.

-Market is nowhere to registering an oversold reading by our work.

-Market is on pace to register one of its few monthly declines since this rally began last September.

-It is possible that we could raise another tranche of cash next week depending on account size, account strategies and individual client risk/reward mandates.

*Long ETFs related to the S&P 500 in client accounts.

Summer Hours.

The weather's warming up and thoughts turn to the great outdoors. We're starting "summer hours" on the blog after today.. We'll still post Monday through Thursday until Labor Day but we'll reserve the weekends for family. Rest assured we'll be first on line if events this summer make it necessary to do so.



See you outside!

Chartweek: Housing

 .

The decline in housing is illustrated above courtesy of Chart of the Day in these two charts:

Here is their comments below.  We'll follow this up with some statistics by Zillow via The Big Picture.

The US real estate market continues to struggle. For some perspective, today's top chart illustrates the US median price (adjusted for inflation) of a single-family home over the past 41 years while today's bottom chart presents the annual percent change in home prices (also adjusted for inflation). Today's chart illustrates that, prior to the financial crisis, the inflation-adjusted median home price rarely declined more than 5% in one year (gray shading). It is also very important to note that due to a large number of distressed properties, a high unemployment rate and stagnant wages, the inflation-adjusted median home price has declined 7.9% over the past year -- an annual decline larger than any that occurred during the 35 years prior to the financial crisis.

Link:  Chart of the Day:  Housing.

Housing: Post Script.

Here's the data from Zillow via The Big Picture.

The economic collapse has put together a stupendous list of 20 startling facts about the US housing market:


1. According to Zillow, 28.4% of all single-family homes with a mortgage in the United States are now underwater.
2. Zillow has announced that the average price of a home in the U.S. is about 8% lower than it was a year ago;
3. U.S. home prices have now fallen a whopping 33% from where they were at during the peak of the housing bubble.
4. During the first quarter of 2011, home values declined at the fastest rate since late 2008.
5. According to Zillow, more than 55% of all single-family homes with a mortgage in Atlanta have negative equity and more than 68% of all single-family homes with a mortgage in Phoenix have negative equity.
6. U.S. home values have fallen an astounding 6.3 trillion dollars since the housing crisis first began.
7. In February, U.S. housing starts experienced their largest decline in 27 years.
8. New home sales in the United States are now down 80% from the peak in July 2005.
9. Historically, the percentage of residential mortgages in foreclosure in the United States has tended to hover between 1 and 1.5 percent. Today, it is up around 4.5 percent.
10. According to RealtyTrac, foreclosure filings in the United States are projected to increase by another 20 percent in 2011.
11. It is estimated that 25% of all mortgages in Miami-Dade County are “in serious distress and headed for either foreclosure or short sale“.
12. Two years ago, the average U.S. homeowner that was being foreclosed upon had not made a mortgage payment in 11 months. Today, the average U.S. homeowner that is being foreclosed upon has not made a mortgage payment in 17 months.
13. Sales of foreclosed homes now represent an all-time record 23.7% of the market.
14. 4.5 million home loans are now either in some stage of foreclosure or are at least 90 days delinquent.
15. According to the Mortgage Bankers Association, at least 8 million Americans are currently at least one month behind on their mortgage payments.
16. In September 2008, 33% of Americans knew someone who had been foreclosed upon or who was facing the threat of foreclosure. Today that number has risen to 48 percent.
17. During the first quarter of 2011, less new homes were sold in the U.S. than in any three month period ever recorded.
18. According to a recent census report, 13% of all homes in the United States are currently sitting empty.
19. In 1996, 89% of Americans believed that it was better to own a home than to rent one. Today that number has fallen to 63 percent.
20. According to Zillow, the United States has been in a “housing recession” for 57 straight months without an end in sight.

Link:  20 Startling Facts About The US Housing Market: Via The Big Picture.
Origional Post:  Housing Economic Collapse

Chartweek: Dollar via UUP

Dollar as represented by the Powershares DB US Dollar Index.  A way to invest if you think the US dollar is ready to appreciate.  Remember we are trying to show you assets or indicies that you can actually invest in via ETFs.

*No positions.

Chartweek: Nasdaq

From Bespoke Investment Group:

With the Nasdaq once again running into headwinds, many investors are getting an uncomfortable sense of deja vu. Since the Nasdaq peaked back in 2000, the index is now making its third attempt to break above 2,900. If the outcome of the last two attempts (declines of more than 50%) is any indication, it is not going to be a pretty Summer for Technology stocks. The bulls, however, are hoping that the third time is the charm.

Link:  Nasdaq

*Long ETFs related to the NASDAQ  in client accounts.

Chartweek: Q's

Have waited to post this chart for some time as the Nasdaq 100 was significantly reweighted regarding Apple in the past month.  The market has shifted in the past few weeks to a more defensive tone.  This can be seen in some of the largest players in this index.  Apple for example is down almost 10% from its high and Google is down high double digits. 

Nasdaq 100 has a high percentage number of technoloyg stocks.  As markets shift to what seems to be a "risk off" cycle, as Europe's debt issues again come to the fore and global growth again being questioned {technology is a big beneficiary of growth cycles} then advancing for this index could be problematic this summer.  We should also remember that seasonally summer is the soft season for technology. 

Chartweek: SPY

Over the next couple of weeks we're going to spend some time looking at different charts.  Today we'll start with the S&P 500 Spyder {SPY}.

We often show this instead of the actual index because it is something that investors can actually buy.

*Long ETFs related to the S&P 500 in client accounts.

an tSionna (05.13.11} Gold

*Long GLD in certain client accounts.

S&P 500 Earnings. One Firm's View

This from a recent Deutsche Bank report.  US Equity Strategy - Binky Chadha, May 10, 2011. 

Outlook For Earnings After A Resilient Q1

Executive Summary with my highlights.

Raising estimates, maintaining price targets

Q1 reports again beat handily at $23.5 (7%), ahead even of our above-consensus estimate. With the market trading at 13.1x  EPS, the sustainability of earnings remains key:

    (i) despite the run up in oil & commodity costs, but in line with our call, margins recovered their Q4 drop which we had argued was seasonal;
   (ii) sales grew robustly (ex-Financials 12% yoy), continuing their run well above GDP that is typical during recoveries;
  (iii) companies raised guidance suggesting growing confidence. {Deutsche Bank} is raising EPS estimates on the view that margins will be well supported and top line growth sustained above GDP for some time:

Deutsche Bank estimates are for S&P 500 $99 in 2011 ($96), $106 in 2012 ($102).

But as earnings rise above normalized evels, {they} maintain price targets: S&P 500 1550 end 2011; 1675 end 2012.

My comment:  Deutsche Bank's year end S&P 500 targets have been some of the highest on the Street.  However consensus earnings estimates have been rising all year.  Estimates hovering around 100 on the S&P 500 makes for the possibility of a 1,400-1,450 year end price target for the S&P 500. 

There are dissenting views of this of course.  Also many prognosticators think we could see a much more significant slowdown in the 2nd half of the year than firms like Deutsche Bank are projecting.  Yet so far numbers seem to be bearing out to support their thesis.  If they are correct then the market is significantly undervalued at these levels.

Long ETFs related to the S&P 500 in client accounts.

Short Notes: Chinese Wages

Good Wall Street Journal article on the coming impact of wage inflation in China.

Link:  Chinese Wage Inflation

Short Notes: Earnings

This was posted by Bespoke Investment Group on Friday.

"Earnings season took somewhat of a backseat to external market events and the big drop in commodities this week, but if the market had been paying more attention to earnings, maybe it would have fallen even farther. As shown below, just 60% of US companies have beaten earnings per share estimates this earnings season. In the early stages of the reporting period, the "beat rate" was much higher, but it has drifted lower and lower to its current level as earnings season has progressed. More than 1,800 companies have already reported their quarterly numbers this season, and with so few companies left to report, it's going to be hard to bring the overall "beat rate" reading up. If earnings season were to end today, it would have the lowest "beat rate" of any quarter during the current bull market."


Link:  Earnings Not Living Up To Expectations.

an tSionna {05.07.11}

*Long ETFs related to the S&P 500 in client accounts.

Another Bearish View

Another bearish view!  This week we direct you to the Hussman Funds website so that you can read John Hussman's latest thoughts on stocks.

Link:  Hussman: Extreme Conditions & Typical Outcomes

Short Notes: Commodities .

Commodities have undergone their worst sell off in a couple of years today.  Partly that has to do with speculators getting out after certain margin requirments were raised in the past several days.  The other part just looks like a gold old fashion correction after such a huge run. 

My take is that markets were looking for an excuse to continue a decline which looks after today like it's gathered a bit more steam.  How far we may go to the downside is hard to say but in every indicator we follow the over bought condition we've recently chronicled is nowhere near to being resolved.  The exception to that is in the shortest time frame we follow things are becoming oversold enough now that a small snapback rally could ensue over the next couple of days.

Oil in Dollars & Euros

Bespoke Investment Group commented the other day on the relationship of oil in dollars and Euros:

"With oil above $110 per barrel as we head into the Summer driving season, the prospect of $4 gasoline has many Americans changing plans to stay closer to home. The last decade has been a painful one for US motorists. Since 2000, the price of oil has increased from $25.25 per barrel to the current level of $112.60 (340%), and all of that increase has made its way to the pump.

In Europe, however, oil's rise has been considerably less painful. In Euro terms, the price of oil has increased from 24.94 to today's level of 77.55 (211%). However, before we all begin to envy drivers in Europe because the strong Euro has partially insulated the region from the rise in oil prices, remember that government taxes are higher in that region. As of last month, the average price of gasoline in Europe was nearly $8 per gallon, which is about twice the level Americans are paying today."

Comment:  $8.00 a gallon would probably bring riots in the streets.  $5.00 per is a significant problem for President Obama's reelection chances.

Link:  Oil in Dollars & Euros.



an tSionna Falling Greenback

Annotated chart illustrates the decline of the US Dollar since 1985.  One of the reasons everything you buy continues to go up in price.

Link Singer-Markets US Dollar  via The Big Picture.

Short Notes: Some Sales Today.

In keeping with our reasoning posted last month we made another round of sales in risk appropriate accounts today. {You can use this link as a portal for a series of posts on some of our market thoughts back then.}  This brings our cash in portfolios on average up to between 15 and 20% depending on investment style and client's risk/return profile.  We are still keeping a Net Market Negative rating.  You can click here  if you want a definition of what that term means.

an tSionna Gasoline

From Chart of the Day.  Their comments are listed below.

"As a result of ongoing geopolitical tensions as well and increasing global demand, the price of crude oil continues to trend higher. Over the past eight months, the cost of one barrel of crude oil has increased by over $40. With oil prices trending higher, it is not all that surprising to find that gasoline prices are following suit. Since the financial crisis lows at the end of 2008, the average US price for a gallon of unleaded has risen $2.18 per gallon. The only time when gasoline prices were higher than today was during a brief three-month period in mid-2007, just prior to the Great Recession."

an tSionna {4.30.11}

Market is giving the impression that it wants to break out from its roughly three month trading range.  Its action at the end of last week has taken it solidly above its previous high reached back in February.  Stocks as measured in the S&P 500 are up nearly 30% since this latest bull rally started back around Labor Day.  During that time there has never been anything near a 10% correction.  The closest we came to that was the market's 7% decline mid-February to mid-March.

The horizontal line measured in black on the above chart now is a new resistance level that we must mark.  We'll see how stocks respond to it in the coming days.  A market that at some point tests this resistance and bounces off of it would indicate that stocks could move higher in the coming months.  Likewise a market that retreats through that and is then unable to break back decisively above its levels could be indicative of a market that has more work to do in its digestive phase of the previous seven months gains.

One other thing to watch for that doesn't show up on these charts. I keep track of two moving average statistics, percentage of stocks above their 200 day moving averages and the percentage of stocks above their 40 day moving averages.  Both of these statistics are very elevated right now and have both reached levels from which stocks have traditionally corrected.  We will have to watch these carefully in the coming days as well.

*Long ETFs related to the S&P 500 in client accounts.