Gold: Bursting Bubble?

Following an impressive 20% gain in just 2 months, gold has dropped $100/oz in the past two weeks. I've seen a number of pundits come out recently stating that gold prices are much too high, gold is a bubble, and/or a significant decline is coming. Some of these comments are coming from the very individuals who've tried calling the top in gold a number of times over the last 5 years, during which time gold has appreciated 200%. Compare that return to the stock or bond markets.



Looking below at the 10-year chart of gold you see price action typical of a long-term secular bull market. Sharp climbs are followed by some retracement and consolidation. This 9-year (so far) bull market has experienced a number of year-long periods of stagnation or decline. The fact that we're experiencing some profit taking after the recent run shouldn't surprise anyone. This is normal and healthy.



So is the current decline a temporary shake-out of weak hands, the beginning of a more significant decline, or the beginning of a period of extended consolidation? Only time will tell, but it's unlikely that the secular bull market in gold has just seen its peak. We've been using the current pullback as an opportunity to once again boost our exposure.

Until the trend of global monetary and political mismanagement is convincingly reversed, there is little reason to sell our precious metals position. Annual gold production has been in decline this decade, central banks will soon be net buyers, the opportunity cost to owning gold is nil, gold is terribly under-owned, the metal is very cheap relative to the monetary base, and the public is just beginning to wake up to the merits of owning gold.

I find gold as attractive today as I did in 2003, although the investment case has changed somewhat. My contrarian nature struggles somewhat with the tremendous performance gold and gold stocks have already posted and the fact that gold is no longer hated and undiscovered. Nevertheless, the investment case remains strong, and there is a very decent chance that a mania phase still lies ahead. I suspect the time to sell will be when virtually everyone can quote you the price of gold.





link to video

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Unemployment Insurance Follow-Up

Here's the latest example of the insight one can gain from watching CNBC. The relevant part of the video begins about 2:30 into the clip. Note that Steve Liesman is CNBC's Senior Economics Reporter. Remember that. Senior. Economics. Reporter.

link to video


CNBC's Senior Economics Reporter is completely unaware of the existence of the Emergency Unemployment Compensation (EUC) program. I can understand not being able to rattle off the latest EUC figures from memory, but he doesn't even know the program exists. Perhaps Obama's jobs program could include fact checkers for CNBC.

Here is the link to the latest weekly report. Look at the last row of the table. Granted, the number isn't emphasized in the report, but it is mentioned near the bottom of the text and in the table. I suppose it's unreasonable to expect a Senior Economics Reporter to read beyond the first paragraph.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Quote Of The Day: Unemployment Claims

Despite the improving trend of initial unemployment claims (still at very high levels), little attention has been paid to the escalating number of people who are exhausting their benefit and falling into the Emergency Compensation category. Although the government is likely to indefinitely extend these Emergency benefits, recipients aren't likely to be buying plasma TVs, new homes, cars, iPhones (just kidding - they'll still buy their iPhone), name-brand canned goods, teeth whitener, etc.


From ZeroHedge:

The number you won't hear mentioned anywhere in the Mainstream Media: 327,729. That is how many people shifted to Emergency Unemployment Compensation programs in the last week alone, hitting an all time record high of 4.2 million! So as everyone is focused on the benign picture of initial claims in the last week which was "only" 474,000, the number of people rolling off continuing benefits has exploded and is now a stunning 592,579 only in the last two week.

link to full post

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Quote Of The Day: David Stockton

I found today's QOTD in the latest copy of my undergraduate alumni magazine. The magazine ran an article on alumnus David Stockton who is the director of the Federal Reserve's Division of Research and Statistics. Before getting to the key quote, let's look at the article's description of David's responsibilities.

..Stockton oversees one of the world's largest economic research teams -- approximately 290 economists, financial analysts, computer scientists, research assistants and other personnel. Stockton and his staff sort through and interpret information streaming from the country's financial markets each day. One of Stockton's primary responsibilities is presenting periodic economic forecasts to the Federal Open Market Committee (FOMC) on job losses, housing wealth and business spending.

You won't find many people with greater access to economic and financial data than Stockton. The article quotes Bernanke as saying that "David's wise counsel, keen insight and deep knowledge of the economy have proved invaluable to me and the other members of the FOMC through the years, but most especially during the recent time of financial turmoil."

Now to the QOTD from Mr. Stockton:

What economists don't know about how the economy operates dwarfs what we do know. Our research program is intended to chip away at the margins of our ignorance.

I had a mixed reaction when I read this. On the one hand, it's very refreshing to have one of our leading economists so clearly state how little the Fed really knows about how the economy works. On the other hand, it's very disturbing to have one of our leading economists essentially admit that the Fed has no sound basis for its monetary policy.

If economists and the Fed don't really understand how the economy operates, how can they possible presume to know where short-term interest rates should be set?

The Fed's track record this past decade is abysmal. Artificially low rates helped fuel the internet bubble and the housing/credit bubble. Now, the Fed is again keeping rates absurdly low and is again fueling the next crisis. All of this is being done within "the margins of our ignorance."

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

SNL: Obama's China Visit

It looks like SNL's writers have a much better command of economics than our policy makers.

America's middle class also deserves a wet kiss, an expensive dinner, and a double feature.





link to video

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

No Inflation? Student in the UC System May Disagree

Of course, any one data point is irrelevant, and saying that California has the finances of a third-world country is insulting to many third-world countries. Still, a 32% hike in tuition? Consumer inflation is supposedly nil yet tuition is going up by 32%? I hope those kids don't need to eat or drive to class.

From the San Francisco Chronicle:

The UC regents are expected to put the final seal today on a hefty 32 percent tuition increase as students resume the protests that shut down their board meeting three times Wednesday and required campus police in riot gear to maintain calm.

full article

link to video

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Pop-Up Book of Phobias

Maybe I need to get out more, but I found this very interesting and creative. The only thing missing was a fear of being left behind in the market.

The Pop-up Book of Phobias from donvanone on Vimeo.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

China: Government Planning At Its Worst

Nice work from Al Jazeera highlighting the lengths China has gone to in order to sustain its economic growth. China may have a very bright future, but investors ignore China's expensive stock market, urban real estate bubble, and manufactured economic statistics at their own peril.

The advantage to centralized decision-making is the speed with which decisions can be made. The downside is clear in the following video.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

IEA Whistleblower Buoys Peak Oil Theory

There's a terrific piece in the Guardian today entitled "Key oil figures were distorted by US pressure, says whistleblower." The gist of the story is that the IEA has been intentionally overstating future oil supply estimates in order to prevent a panic. Some key passages:

"The IEA in 2005 was predicting oil supplies could rise as high as 120m barrels a day by 2030 although it was forced to reduce this gradually to 116m and then 105m last year," said the IEA source, who was unwilling to be identified for fear of reprisals inside the industry. "The 120m figure always was nonsense but even today's number is much higher than can be justified and the IEA knows this.

"Many inside the organisation believe that maintaining oil supplies at even 90m to 95m barrels a day would be impossible but there are fears that panic could spread on the financial markets if the figures were brought down further. And the Americans fear the end of oil supremacy because it would threaten their power over access to oil resources," he added.

A second senior IEA source, who has now left but was also unwilling to give his name, said a key rule at the organisation was that it was "imperative not to anger the Americans" but the fact was that there was not as much oil in the world as had been admitted. "We have [already] entered the 'peak oil' zone. I think that the situation is really bad," he added.

This is huge news as many of the Peak Oil doubters had depended on IEA data to bolster their case. It also speaks to the unreliability of official statistics. If non-OPEC data is being so severely manipulated, just imagine how absurd OPEC numbers must be.

The days of inexpensive and easily accessible oil are over. There is still plenty of oil buried very deep offshore West Africa, Brazil, and in the Gulf of Mexico. Other deep plays are sure to be discovered as well, and the Arctic region holds great promise. The tar sands also hold a great quantity of oil. None of these plays, however, are inexpensive. High oil prices will be required to justify the investment needed to explore and develop these reserves.

These high oil prices will also be the incentive the market needs to develop alternative energy sources. The higher the price of oil goes, the more competitive the alternatives become. Still, this shift will take decades. In the meantime, higher oil prices will be a boon to much of the traditional energy sector.

We are long a number of E&P and energy service stocks. There will be bumps along the way, but energy should be a winner in the coming decade.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Quote Of The Day: Michael Milken

Michael Milken on the usefulness of credit rating agencies:

So if you are relying on rating, then I am not sure why, as a money manager, you should be paid a fee because there isn’t too much value-added you are providing. Besides, people who provide ratings are just human beings. Maybe if they are the most talented in the world, you would have already hired them.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Dr. Doom vs. The Investment Biker

Roubini versus Rogers. Let's recap the match to date. First, Nouriel Roubini gets in the ring by himself and starts shadow boxing. He warns that a "wall of liquidity" and "the mother of all carry trades" (via the dollar) are sparking asset bubbles and could lead to another financial crisis.

Next, for some reason Jim Rogers decides to step into the ring, takes offense that Roubini is swinging, throws a quick jab that lands squarely on Mr. Roubini's feelings. More specifically, Rogers said that "Mr. Roubini hasn't done his homework." Rogers claims that there is no bubble in gold, equities, or commodities. Instead, Rogers asserts that they've all simply had a very good year. He then goes on to say that gold could reach $2,000 per ounce in the next decade.

Not to be outdone, Roubini throws a powerful hook intended to knock out Jim's gold fillings. He states that Jim's claim that gold will reach $2,000 is "utter nonsense."

And that brings us to the end of round three. Ultimately, these two publicity hounds both win from this spat given all of the...well...publicity. If their publicists are worth their salt, Rogers will next come out and claim that Roubini's accent is fake. Roubini then fires back that the only bike Jim could ride is a senior scooter. Someone leaks a sex tape...

Let's ignore the personal jabs for a moment and look at the content of what they're both saying. They both make some valid points. Equity markets and many commodities have indeed had very good years so far. Are they cheap? Not many. Are they in bubble territory today? There are a handful of asset classes in select countries that I would argue are in a bubble, but for the most part, most assets are simply overvalued. Jim is right that we don't have bubbles (for the most part) yet, but Roubini is right in warning that the excess liquidity and dollar carry trade will ultimately create bubbles and another financial crisis. See how easy that was.

As for gold, I have more sympathy for Rogers. I'd be curious to know what Roubini has been saying about gold since it bottomed near $260 per ounce in 2001. I may be wrong, but I doubt that he ever expected it to reach $1,080, a four-fold increase in 8 years. Rogers stated that he expected gold to double to $2,000 in the next decade. 7% per year for 10 years will get you there. Whether it happens or not, it strikes me as somewhat naive to call that "utter nonsense," particularly in light of the currency debasement and massive deficits we're experiencing. Actually, when I put it that way, $2,000 gold in the next decade seems practically assured unless Washington suddenly finds religion when it comes to fiscal restraint (no sign of it today with the extension of the ridiculous home-buying credit).

Bottom line: Whether or not we're yet in bubble territory and regardless of whether gold reaches $2,000 in the next decade, this little spat is probably pushing the speaking fees for Rogers and Roubini squarely into bubble territory.


Disclosure: Aspera Financial, LLC has been and remains overweight gold and gold equities.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Chart Of The Day: VIX

The VIX index (a measure of implied volatility) put in an amazing performance on Friday, rocketing 24% higher on the session. The index had been trending lower since peaking just north of 80 in late December of last year. On October 21st, it reached its lowest level since September of 2008. Not coincidentally, that was also the day of the stock market's most recent peak. The volatility of volatility was pretty dramatic in October.

Disclosure: Things had become a little too calm for our liking. We initiated a long volatility position on October 19th to increase our hedge position.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

FDIC: The Lady Doth Protest Too Much

Investment rule: The more they tell us not to worry, the more there is to worry about.





link to video

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Quote Of The Day: Qin Xiao and Chinese Bubbles

This quote comes from a Financial Times story entitled, "Top China banker warns on asset bubbles." What I most appreciate is that I can't imagine a top U.S. banker saying this. From the article:

China needs an “urgent” tightening of monetary policy to prevent the huge stimulus measures introduced this year from inflating stock and property bubbles, one of the country’s leading bankers has warned.

Qin Xiao – chairman of China Merchants Bank, the country’s sixth-biggest – says in Thursday’s Financial Times that the government should not be afraid of a “moderate slowdown” in the economy.

“Monetary policy must not neglect asset-price movements,” he writes. “Therefore it is urgent that China shifts from a loose monetary policy stance to a neutral one.”

Of course, this doesn't mean that the authorities will be immediately changing policy (though they should). However, if they continue their loose monetary policy, their stock and real estate bubbles will get out of hand. The higher they run, the harder they'll fall. It'll be interesting to see how the authorities walk the fine line between encouraging employment growth and asset bubbles and intentionally (and responsibly) slowing economic activity. Regardless, the fact that a private sector leader can so freely, frankly, and intelligently speak his mind is refreshing, even if it's coming from half-way around the world.


Disclosure: We recently sold our China equity exposure.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Video: The Button

I like to think of the cast as follows:

• Mr. Mathison is Goldman Sachs
• "Someone somewhere in the world..." is the American taxpayer
• The button is Congress
• The million dollars is the bailout

The Button - watch more funny videos

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Chart Of The Day: Dow Breaks Through...7500?

My clients often hear me harp about inflation and the importance of looking at returns and performance on a real basis (taking out the impact of inflation). Today's Chart Of The Day comes compliments of the folks at Zero Hedge. While everyone was celebrating yesterday's close above 10,000 for the 12th time (by my rough count) in the last decade, let's not lose sight of the fact that the Dow is down 25% over the last 10 years when adjusted for the value of the dollar.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

A Saudi Oil Subsidy?

Saudi Arabia is proposing that the developed world compensate the kingdom for any global warming-related decline in the demand for crude oil. You have to love the thinking: We expect to be paid a lot of money for our oil one way or another. Either demand outstrips supply and prices stay high, or demand falls short and you make up the difference. Heads I win. I said heads I win.

Maybe we should just subsidize everyone anytime demand for their product falls. Perhaps we should have been paying off the buggy whip manufacturers these past 100 years since they were unfairly disadvantaged by the automobile firms. Should we all compensate Canada if we ever stop building houses out of lumber? Or bail out the French if people stop drinking wine? Or compensate the U.S. if... Bad example. The only thing we're good at manufacturing these days are loans and dollar bills.

Of course, the Saudis can't really be serious. They'd still be a fourth world backwater sand lot if it weren't for oil. They've had decades to put that wealth to work in diversifying their economy rather than paying off all of their princes. I think their latest census showed one out of every three people was a prince. The other two either worked for a prince or were a king.

The Saudis know that this proposal will never fly, but this is how you negotiate. You never come to the table with what you reasonably expect. If I want a new set of golf clubs, I don't ask my wife for a new set of golf clubs. I tell my wife that we should sell the house and buy a newer more expensive home right on the golf course. Voila. I get a new set of golf clubs.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Quote Of The Day: Elephant Cheeks

This speaks for itself.

Many people attempt to be analysts or economists, yet they speak without having real experience, and they fail to see that they are really nothing more than a fly on the ass of a big elephant. They do not realize they are even sitting on an elephant and worse still, they do not understand what is an elephant.

Martin Armstrong

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Quote Of The Day: Frankly Stupid

Courtesy of Calculated Risk:


“I don’t think it’s a bad thing that the bad loans occurred. It was an effort to keep prices from falling too fast. That’s a policy.”

Barney Frank, chairman of the House Financial Services Committee on recent FHA lending.


I wonder if, as the words came out of his mouth, Mr. Frank thought, "I can't believe I'm saying this." So, bad loans are fine so long as they're made in an attempt to manipulate the market for the benefit of the U.S. taxpayer...who will be saddled with repaying those debts once they blow up. Apparently, we shouldn't concern ourselves with the wisdom of government action so long as they mean well.

Here are some other policies.

• Barney Frank, Congress, and the FHA do not know the "right" level for home prices, so they should stop trying to manipulate the housing market.
  
• Do unto others before they wise up and vote you out of office.
• Don't rob Peter to loan the money to Paul for a new home. Paul is broke. He needs to move back in with Mom and rebuild his savings.
• Speak softly and...actually just stop speaking.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Who Is Worse? Cramer or a $500 Per Hour Psychic?

I seldom struggle for words. Fortunately, this video clip from Jim Cramer's TheStreet.con (not a typo) speaks for itself. At least we now have a better idea where Jim's investment ideas come from.

There are many potential anecdotal signals of an impending secular bull market. One would be for CNBC to be taken off the air. Another would be for Cramer and TheStreet.con to simply disappear. My crystal ball tells me this will eventually happen. That prediction was free.

link to video

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Dilbert: Plunge Protection Team

Clear signs of a manufactured rally:

• stocks rise on low volume
  
• the market is dependent on a global liquidity bubble
  
• the private sector is flat-lining
  
• cartoon dogs have a better grasp of reality than most portfolio managers

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Today Only! New-Car Sales Report Out! Hurry! Don't Miss It!

I wrote a brief piece a few days ago about the cash-for-clunkers program and how it would simply pull sales forward rather than stimulating any sustained demand. The first piece of evidence came out today with the release of new-car sales.

From the New York Times:

After two frenzied months during the government’s cash-for-clunkers program, new-vehicle sales in the United States fell in September back to the levels seen earlier this year, automakers said Thursday.

General Motors said it sales declined 45 percent, and Chrysler reported a 42 percent drop from September a year ago.

Sales were down 20 percent at Honda, 13 percent at Toyota and 7 percent at Nissan.

Total industry sales are expected to be 23 percent less than a year ago, according to a forecast by the Web site Edmunds.com.

Those are big declines, but they shouldn't have surprised anyone. Free money is a powerful incentive, even if you had to go further into debt for that new car.

The clunkers program also cleared out inventories at many dealerships, leading G.M., Ford, and other automakers to increase production at some plants and call back thousands of laid-off workers to their assembly lines. Without a large selection for customers to choose from, many dealerships had more difficulty making sales in September than they would have otherwise.

Right. Sales were weak because there just wasn't enough inventory on hand. Ok. Sure. They can float that excuse for a month or two as they're busy ramping production to replenish inventory to meet this supposed burgeoning unmet demand. However, I suspect they'll soon be sitting on too much inventory, offering the latest excuse for weak car sales while aggressively lobbying Congress for Revenge of Cash-for-Clunkers. Here are a few potential excuses for next month's new-car sales report:

• Customers are eager to buy but are just dazed and confused by our huge inventory selection.
• Consumers were too busy cashing out their 401Ks to buy food, but they'll be back soon.
• With more people losing their homes we expect car sales to rocket any day now as folks are forced to live out of their cars.
• We just didn't have the right mix of inventory to meet the huge demand.
• We think we just didn't have enough balloons in the showroom to spur sales.
• It would have been a great month if our commission-based salesmen could have made more money selling cars than collecting unemployment insurance. But just wait til their insurance runs out!
  
• Coming soon! Zero down, $10,000 cash back, 1 year no-risk trial period, we'll babysit your kids every other weekend!
  
• Americans were too distracted trying to find American Samoa on a map.

We are very unlikely to see a sustained and strong improvement in new car sales, absent continuous government incentive welfare programs. Consumer debt is too high, unemployment is too high and rising, and job loss fears remain elevated. More and more people are discovering that you really don't need a new car every few years.

If only the car manufacturers had stuck to their earlier strategy of manufacturing a bad product that didn't last very long...

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Dilbert on Retirement Planning

As much as I like outside-the-box thinking, I don't expect to see this on the next CFP exam.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Quote Of The Day: German Car Industry

Every frat boy (U.S. government) loves a kegger (cash for clunkers), but the resulting hangover (fewer future sales) is another story. Cash for clunkers has come and gone. As expected, auto sales jumped. I personally finally benefited from the government's recent generosity (your tax dollars) and traded in my dear old '96 Ford F-150 for more of a family car. Would I have bought a new car without the incentive? Yes.

All of these government incentive programs are simply shifting sales/demand forward and arbitrarily rewarding some consumers at the expense of others, often for decisions they would have made anyways. They are clearly boondoggles and a waste of taxpayer money, and we're likely to see more of them since "free" money is a difficult drug to kick. We're not even close to a real recovery given that we haven't even completed Step 1 - admitting we have a problem.

The following comes from the latest piece by Evans-Pritchard:

The risk for Germany is that the economy tips into a double-dip recession as emergency stimulus subsides. Its cash-for-clunkers scheme expired earlier this month after a rush of sales over the summer. The Centre for Automotive Research says sales will fall by a million next year in "the largest downturn ever suffered by the German car industry".

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Chart Of The Day: Baltic Dry Index Revisited

Despite pervasive optimism that the global economy has left the recession behind and is poised for solid future growth, the Baltic Dry Index (BDI) continues to trend lower. Recall, the BDI is a price index which tracks the cost to ship dry commodities.

Iron ore and coal have been the two large swing commodities in recent years. These are the main products carried by the Capesize ships (the largest ships which are too big to pass through the Suez or Panama canal and must therefore go around the Cape of Good Hope or Cape Horn), represented by the blue line in the chart above.

The stockpiling of iron ore by the Chinese in the first half of 2009 led to a very nice rebound in Capesize rates (following a 96% collapse), but virtually all of the gain since the beginning of the year has now been given back. Capesize rates are now nearly identical to rates for the smaller Panamax and Supramax vessels. This seems to confirm the anecdotal evidence we've seen of pig farmers stockpiling copper as well as recently declining steel prices in China.

This weakness in the BDI does not support a resurgent global economy thesis, but it's just one variable. New ship deliveries, the rate of mothballing, and product stockpiling will all impact shipping rates along with demand. So, we must be careful not to read too much into it. Still, it would be foolish to ignore this real-time indicator of economic activity which has now been steadily falling for nearly 4 months.

The stock market is now pricing in a vibrant recovery and strong earnings growth. If this rally is to continue or if the gains are to be held, it's now "show me" time. Indicators such as the BDI which rely on more than just government stimulus to move their needle will need to start registering some impressive gains to substantiate the stock market rally. I suspect that investors will soon be forced to recognize that a deleveraging private sector won't be contributing much to economic growth any time soon. The question then turns to how long the government will be willing or able to sustain its immense stimulus measures.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Quote Of The Day: Robert Reich

This isn't new news, but it still makes the blood boil.

Goldman won't repay taxpayers the $13 billion it never would have collected from AIG had we not kept AIG alive. (In one of the most blatant conflicts of interest in all of American history, Goldman CEO Lloyd Blankfein attended the closed-door meeting last fall where then Treasury Secretary Hank Paulson, who was formerly Goldman's CEO, and Tim Geithner, then at the New York Fed, made the decision to bail out AIG.) Meanwhile, Goldman is still depending on $28 billion in outstanding debt issued cheaply with the backing of the Federal Deposit Insurance Corporation. Which means you and I are still indirectly funding Goldman's high-risk operations.

The rewriting of history is well under way. The near global financial collapse really wasn't that bad. It all could have been prevented if only Lehman had been bailed out. Bernanke saved the world. The banks didn't really need taxpayer dollars. Goldman employees are still geniuses...

The seeds are once again being sown.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Poking The Chinese Dragon

It is very widely agreed upon that the trade wars that began with the Smoot-Hawley Act of 1930 were a significant contributor to the severity of the Great Depression. Obama's advisers are well aware of this, but this didn't stop the President from deciding to impose punitive tariffs on tires imported from China, increasing the tax from 4% to 35%.

Considering the desire of virtually every U.S. business to sell to the Chinese, the likelihood that China will be a substantial positive contributor to global GDP in the coming decades, the fact that the Chinese hold a significant amount of U.S. Treasury securities, and the notion that Chinese funding of our future deficits would certainly be helpful, it is clear that this move is being done simply to appease Obama's union support.

It's hard to imagine the Chinese will be pleased by this move. We're bound to see some form of retaliation from them before long. Of course, our politicians will be outraged by any Chinese retaliation. Let's hope this gets nipped in the bud quickly and doesn't escalate.

Evidence that this is simply a political ploy rather than a sound economic decision made with the best interest of the country in mind comes from a New York Times piece on this subject.

The Tire Industry Association has opposed the tariffs, arguing that they will not preserve American jobs but will instead cause manufacturers to relocate plants to other countries where they can produce tires cheaply.

Also,

The decision signals the first time that the United States has invoked a special safeguard provision that was part of its agreement to support China’s entry into the World Trade Organization in 2001.

Under that safeguard provision, American companies or workers harmed by imports from China can ask the government for protection simply by demonstrating that American producers have suffered a “market disruption” or a “surge” in imports from China.

Unlike more traditional anti-dumping cases, the government does not need to determine that a country is competing unfairly or selling its products at less than their true cost.

So, we're not upset that the Chinese are dumping their product at less than cost to steal market share. Apparently, we're just upset that the Chinese are selling a competitive product at a price Americans find attractive. If that's the threshold for tariffs, why aren't we slapping tariffs on every product China makes?

In the short-term, Obama may have won points with his union supporters, but at what cost? We're likely accelerating the loss of these manufacturing jobs. We're risking a trade war with the next super power. And, despite falling income and soaring unemployment, every American will now have the patriotic opportunity to pay more for their tires. The treadwear on the American taxpayer continues to increase.

This post was put aside for a day. As I was getting ready to send this out, I saw the following story from Bloomberg:

China to Probe Alleged ‘Dumping’ of U.S. Products

Sept. 14 (Bloomberg) -- China announced a probe into the alleged dumping of American auto and chicken products, two days after U.S. President Barack Obama imposed tariffs on imports of tires from the Asian nation.

Chinese industries have complained that they’re being hurt by “unfair trade practices,” the nation’s Ministry of Commerce said on its Web site yesterday. The Beijing-based ministry is also looking into subsidies for the products, it said. It didn’t specify the imports’ value.

link to full story

It's hard to blame the Chinese for retaliating. We'd certainly do the same had they acted first. The Chinese are most likely to target a value of American imports fairly equal to the value of Chinese tires being impacted. If we know what's best, we'll leave it at that and go back to squabbling over North Korea.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Chart Of The Day: Cantarell

Last year, I wrote about the likely peaking and production decline of some of the world's largest oil fields. The best example remains the once-giant Mexican Cantarell field. The following graph of production from Cantarell is simply stunning. Production from this one field has fallen one million barrels per day in just the last few years.



Much has been made lately of some recent exploration successes offshore Brazil and in the Gulf of Mexico. Many are claiming that these successes prove that the threat of Peak Oil is false. When it comes to the Peak Oil theory, however, the key point to remember is that it refers to easily recoverable oil. Higher oil prices will be necessary to support the very costly exploration and development efforts necessary in the deepwater and (eventually) Arctic frontier plays. The future production decline from the world's aging major oilfields will need to be replaced, and the most likely source will be much higher-cost less-traditional sources.



Disclosure: Aspera Financial, LLC is long a number of energy-related stocks and natural gas.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Quote Of The Day: Jim Rogers

From a Financial Times piece:

The idea that a problem of too much debt and too much consumption can be solved by more gigantic debt and consumption is ludicrous. Would that governments stop interfering with fundamental principles and let the market clean out mistakes! Marx is singing in his grave there in London as the US government now controls the auto, mortgage, insurance, banking, et al industries and he has not fired a shot. Letting Lehman fail was perhaps the only thing governments have done right during this whole drama.

Unfortunately, too few people share this view. In fact, one of the key lessons learned by our experts seems to be that Lehman should have been bailed out. We've missed a wonderful opportunity to get this country back on a solid economic footing. Instead, we're simply laying the foundation for the next crisis as government debt takes the place of private sector debt.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Zambian Monkey Urine

This was too good not to pass along. Perhaps we could offer to house these chaps at CNBC World Headquarters.

From Bloomberg:
Zambian Monkeys Banned After President Urinated On, BBC Reports

Sept. 1 (Bloomberg) -- About 200 monkeys are being moved from the grounds of Zambia’s presidency to a botanical garden after one of the primates urinated on President Rupiah Banda during a press briefing, the British Broadcasting Corp. said.

About 61 monkeys have already been moved to the Munda Wanga Botanical Gardens in the capital, Lusaka, the broadcaster said, citing an unidentified official.

Banda suggested that being urinated on by the monkey may bring him good luck, the BBC said, without elaborating.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Welcome To September: Could Be Interesting

Insiders are hardly infallible, but when their activity starts hitting extremes, it's worth paying attention to. It's telling that so few insiders find their own stock attractive.




Link To Video

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Chart Of The Day: Bear Market Rallies

Today's chart of the day comes from "Chart of the Day." This clearly shows just how impressive the current rally has been. It is the longest duration bear market rally since 1929 and is close in magnitude to the huge 1929-1930 rally. History doesn't necessarily have to repeat itself, but this should give the bulls some pause. A strong knee-jerk rally following large bear markets is very much the norm, as is a further significant decline. With few ingredients in place for a new secular bull market, things are unlikely to be "different this time."

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Financial Innovation At Its Worst

Ah! Financial "innovation" lives on.

From a TimesOnline article:

Britain’s taxpayer-owned banks are selling repossessed property assets to their own subsidiaries to avoid billions of pounds of losses that would be incurred by selling them in the open market.

Royal Bank of Scotland (RBS), which is part-owned by the Government, has set up West Register to buy properties taken over by RBS after borrowers had fallen into default.

So, what will West Register do when it comes time to mark these "assets" down? Sell them back to RBS, of course!

The strategy of our leaders (here and abroad) is clear. The problem is to be kicked down the road as far as possible. They have unfortunately chosen to gradually recognize losses (and hope for a rebound) over many years rather than dealing with the problem of nonperforming loans in one fell swoop. This is one of many headwinds we will face over the next few years. We clearly learned nothing from the Japanese experience of the last 20 years.

Furthermore, this specific activity is clearly not a sale. I would go so far as to call it fraud. This type of activity should result in firings for some while others should be made bunkmates of Madoff.

The same company executives who drove their firms to technical insolvency are still in charge. The same regulators who couldn't foresee or detect the credit crisis are still in charge. The same Washington elite that continues to waste taxpayer money, pick the winners, destroy the dollar, inflate the money supply, and exponentially boost our debt are still in charge. Nothing constructive seems to have been learned from this crisis. We will not adopt prudent financial policy until it is inevitably forced upon us.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Dogbert The Portfolio Manager

As usual, it's funny because it's true. This is similar to the advice on how to start an investment newsletter. Buy a large mailing list. Send a free sample newsletter to half of the list screaming that the market will go lower next week. Your free newsletter for the other half pounds the table that the market is going higher. At the end of the week, send 2 new missives out only to those who received the "accurate" first newsletter. Tell half that the market is going up and the other half that it's going down. Wash, rinse, and repeat a half dozen times, and you end up with a subset of that initial mailing list who think you're a genius and may be ready to pay big bucks for your infallible advice.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Cell Phone Margin Pressure

I'm far from constructive on the stocks of the cell/smart phone manufacturers at current valuation levels. It's certainly true that they operate in a growing market, but I expect competitive pressure to increasingly depress margins in the future. With every manufacturer expecting to gain share, something will have to give, and that something is bound to be price (RIMM just released a $49 phone that will be sold at WalMart). This should provide a strong headwind to strong and sustainable profit growth for the industry.

RIMM will struggle to maintain share and profitability, and PALM will likely find it difficult to make serious inroads without resorting to price cutting. NOK and MOT are unlikely to sit still. Even Apple will have to fight hard to maintain its lead, and we've already seen them bring their price down significantly. Pricing pressure (greater than the norm in the tech space) is unlikely to abate for this industry any time soon, so the pressure is on to innovate while cutting costs.

It doesn't help when new competitors can set up shop on a shoestring budget and get a product on the market in just a few months. From the "Fabless and Fearless" article in the Economist:

MediaTek’s technology has revolutionised the manufacture of mobile phones in mainland China. A handset firm there used to need 20m yuan ($2.9m), 100 engineers and at least nine months to bring a product to market. Now 500,000 yuan, ten engineers and three months will do. As a result, Chinese handset-makers now number in the hundreds. Many churn out shanzhai (or “bandit”) phones: knock-offs of established brands, labelled “Nckia” or “Sumsung”. Others are true innovators, making handsets with big speakers or with two slots for SIM cards, so that one handset can be called on two different numbers.

Disclosure: Aspera Financial, LLC is short PALM and RIMM.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Quote Of The Day: Geithner And The Debt Ceiling

It should come as no surprise that the Treasury is once again asking Congress to boost the debt ceiling as we're fast approaching the current $12.1 trillion limit. Of course, we can expect Congress to again open the retractable roof of this ceiling and comply with Geithner's "request." I was particularly amused by the following quote.

From a letter to Senate Majority Leader Harry Reid:

"It is critically important that Congress act before the limit is reached so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations" - Tim Geithner

So, if I've maxed out my credit card it only makes sense that my credit card company further boost my credit limit so that my other creditors can remain confident in my debt-paying ability. Right.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

TED Video: Charter Cities

Very interesting and thought-provoking speech by Paul Romer on how to boost development in the third world.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Chart Of The Day: Massive Head Fakes

The current rally may feel good, but let's keep in mind the following chart from David Rosenberg at Gluskin Sheff:

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Quote Of The Day: Paul Tudor Jones

Though our ranks are thinning, it seems I still have some company. The following is from Tudor's recent client letter. Paul resides squarely in the "non-idiot" camp.

“Impressive counter-trend rallies are a feature, not an oddity, of secular bear markets. We are not inclined to aggressively chase the market here. Many doubts remain about the sustainability of this recovery, most prominently the weakness of household income growth.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Chart Of The Day: Baltic Dry Index

While the market is busy rallying on backward-looking news, few seem to have noticed that the Baltic Dry Index (BDI) appears to again be rolling over. The BDI measures shipping prices of various dry bulk cargoes and is a solid indicator of what is actually and currently happening in the global economy.

The index had benefited recently from a rebound in commodity purchases (particularly iron ore) by China. However, it is likely that Chinese fiscal stimulus may have led to a stockpiling of ore which will need to be worked down. The recent weakness in the BDI may be corroborating this view. This is one to watch.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Quote Of The Day: Human Learning

I found this quote from Douglas Adams to be rather appropriate given our policy response to this balance sheet recession and the re-emergence of bubble dynamics.

"Human beings, who are almost unique in having the ability to learn from the experience of others, are also remarkable for their apparent disinclination to do so."

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Table Of The Day: CEO Pessimism

Despite analyst and market enthusiasm for better-than-expected earnings results, CEOs have become less confident more recently. Perhaps, they realize that cost cutting is getting more difficult while revenue continues to fall -- an ugly recipe. Their outlook also does not bode well for employment. The market had better hope that the CEOs (Chief Executive Optimists) are wrong.

Table from Chief Executive article:

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Chart Of The Day: Non-Business Bankruptcies

Hat tip to Calculated Risk.




Full CR article

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Quote Of The Day: Hot Waitress Indicator

Well, it seems at least as reliable as anything coming from the government. From Hugo Lindgren in a New York magazine article:

"The indicator I prefer is the Hot Waitress Index: The hotter the waitresses, the weaker the economy. In flush times, there is a robust market for hotness. Selling everything from condos to premium vodka is enhanced by proximity to pretty young people (of both sexes) who get paid for providing this service. That leaves more-punishing work, like waiting tables, to those with less striking genetic gifts. But not anymore."

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Elaine Morgan On Our Aquatic Ancestry

This is a wonderful and fascinating TED discussion by Elaine Morgan. Her theory of our evolutionary past is certainly interesting and thought-provoking. I imagine Elaine would have made a wonderful professional investor given her independence and strong instincts to question the herd.





click here if video does not appear

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

You See What You Want To See

Hat tip to Financial Armageddon and Immobilienblasen for this little bit of comic relief. Actually, it perfectly sums up the current wave of optimism in which good news is good news, bad news is good news, no news is good news, and insightful financial news is nonexistent.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

With Leaders Like These...

Another wonderful example of the brain trust leading our country to financial ruin. Is it any wonder that Stark represents the great and bankrupted state of California? Stark must be thrilled with the massive "wealth" increase we've experienced this last year.





link to video

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

High Frequency Trading

Two hours is the new long-term holding period. 2% of traders are responsible for 70% of the activity. It makes me pine for the days of Pong and Atari. Nevertheless, you should know what you're up against.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

Earnings Season Progress: Perception vs. Reality

The lunatics are back in charge. First we had Meredith Whitney upgrade Goldman Sachs. She was rather cautious on the fundamental prospects of the banking sector, but did anyone care? No.

Next, we learned that Meredith has a pretty good contact at Goldman as they reported a blowout quarter. Of course, they're benefiting from the "unfortunate" demise of a few of their key competitors which has resulted in widening spreads and terrific near-term trading profits. How many other large "banks" will benefit from this? A couple. Commercial and residential loans continue to deteriorate. Does anyone care? Not really.

Intel followed. Nice quarter. Revenue was better than expected which helped boost gross margin. Of course, Intel is at the back end of the supply chain and not the best company to listen to when it comes to tech industry guidance (I'd happily wager that they guide down revenue before their next report). We also just learned that AMD posted a fairly poor quarter, so Intel clearly benefited at the expense of a key competitor. That's a different story than a general tech rebound. Does anyone care? Doesn't look like it.

Apple was next to release. Not surprisingly (they always guide low), the company posted a strong quarter with particular strength coming from iPhones. Despite the recession, this is clearly the hottest consumer gadget on the market. Does this have any bearing on technology consumption in general? Not much. In fact, it could easily be argued that the money that cash-strapped consumers are spending on iPhones and monthly calling plans is money not being spent on other products. Does anyone care? Not much.

Plenty of companies have already reported. In general, we're seeing continued weakness on the top line (revenue) with pretty good cost cutting. With analysts having low-balled estimates (at times without company guidance), we're seeing plenty of headlines heralding a slew of earnings beats. With each beat from a high-profile company, the market charges higher.

The bulls contend that corporate America will be nice and lean when the imminent rebound occurs thanks to aggressive cost cutting. Margins will rebound strongly as will earnings. We've also seen a few of the quieter bulls pop up in the media recently. Bill Miller and Mario Gabelli have just sounded the all-clear. In addition, plenty of analysts have been upgrading stocks to "Buy" on the heels of these "wondrous" earnings. Interestingly, these folks were awfully quiet earlier this year. Now that the market has jumped 35% and many stocks have more than doubled, they're telling us that it's safe to wade back in. Different business cycle, same self-serving lemming behavior.

Yes. A few large well-known companies have reported decent earnings, but these companies are not at all indicative of the earnings prospect of the S&P 500. There are unique and one-time explanations for these results, and the weaker reports of many lesser-known companies confirm this. Even the almighty Google reported nearly flat revenue growth. Where was the concern? The market barely budged.

For those of us with a less sanguine view of our economic prospects in the next few years, the continued weakness in revenue is a serious concern. Costs can only be cut so far before margins are impacted.

We've been steadily reducing our exposure to equities during this rally. We were getting paid well to incur risk back in February and March. That's no longer the case.

Does anyone care? Not at the moment. At some point, they will. Sentiment can drive the market in the near-term, but the fundamentals will eventually reassert themselves. Until then, be wary of the lunatics.

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.

New Yorker: Goldman Parody

From the New Yorker:

Internal Memorandum No. 8121b

ATTN: Employees of Goldman Sachs

We did it. Bottom of the ninth, down by three, bases loaded, and we cranked another grand slam to the moon. They may have shot Lennon, but nothing can kill the Beatles.

I admit things looked bleak for a minute there. We had to convert to a bank holding company and were forced to accept a taxpayer bailout. It felt un-American. Terribly unbanksmanly. But we accepted the money, knowing that we could magically weave it into a much larger mountain of money.

We had a few hard months there, didn’t we? They regulated our corporate jet so that we could no longer use it to fly from hole to hole on the green. Dave had to drain his money pool to half capacity. I stopped injecting gold into my blood. They don’t call it a recession for nothing. One day, we’ll look back on the year we received only five-figure bonuses and laugh.

Wanting to celebrate our renewed success is natural, but it’s important that we don’t go crazy here. Remember, ten per cent of the non-bank country is unemployed, and even those who are working have “real” jobs, where payment is proportional to the creation of a “product” or a “service.” Those poor bastards. So I ask that, in celebrating our raping of the stock market, we show restraint in the following ways:

• Please limit high-fives and chest bumps to a dozen a day.
• Don’t wear your crowns, except around the office.
• Stop paying for things in Monopoly money—I understand it is the same as real money to us, but there have been some complaints.
• For now, let’s take down the giant scoreboard that reads “Main Street: zero. Wall Street: a billion gazillion bajillion.”

Furthermore, to avoid drawing criticism from the press, this year the bonuses, expected to be comically large, will be distributed in blood diamonds, which can be easily concealed in a briefcase so it looks like we’re working.

I’d like to thank everyone who made this possible—for a second time. Respect to President Obama for keeping us in the green. Thanks to the big guy upstairs (me). And let’s not forget all the ordinary Americans, who, for some unfathomable reason, have refused to put us behind bars. We are literally taking money out of their wallets. Seriously, with these returns we are making Madoff look like a little kid with his hand caught in the cookie jar. Amateur!

Yours in money,

Lloyd Blankfein, C.E.O., Goldman Sachs

link to article

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The Market Rubbernecker is affiliated with Aspera Financial, LLC, a registered investment advisor. Please read the disclaimer on the home page of the Market Rubbernecker site.