(Courtesy excerpt of the past weekend’s Daily Briefing. Video ‘technical corner’ analysis and projections are posted nightly at www.ingerletter.com )
Gene Inger's Daily Briefing . . . for Monday April 12, 2010:
Good evening;
Endless sovereign debt issues . . .being subordinated to nonsensical psychological milestone events (like Dow 11,000 achieved), typifies the blindsided risk assessment that dominates so many who continue to press for higher prices without considering a ‘why’ with respect to assessing valuation metrics. These are becoming exaggerated a as price rises provide superficial relief, but (analytical conclusion for our members).
I have noted for a couple months that (on weekly basis charts such as we look at via tonight’s video) the S&P and Dow remain in new legs up until they don’t; as they will look like that until you get a break. This market has been nurtured to the upside most recently by (technical structure that isn’t justifiable long-run). That occurred prior to a projected mess in 2008; though it doesn’t have to mean the same here. (I will explore in the weekend video what it likely means, and next week where prices in the months ahead are heading; along with reasons generally not-yet embraced by analysts.)
Markets are also ignoring words of warning from the BIS, plus also a former General Counsel of LTCM (Long-Term Capital Management); (redacted). While the gold-bug crowd sees inflation around every turn (of course); at this point the Gold stability is a result of (portion redacted in fairness to members). Also underfunded pension issues have societal implications nobody wants to address; and in some places (like Florida with 20% of all homes 90 days or more delinquent in their payments), as we sadly had to forewarn, there are difficult days straight ahead. One kudo: some weeks ago we commented about one major city that could go broke (balance reserved). It is so interesting when CBS calls this the ‘United States of Debt’, rather than hearing such candid discussion (more). Sure, business networks bring in a bear for balance now and then; but more often than not, there is a tendency to glorify price movements rather than real investigative reporting. (To wit they don’t want to upset the applecart; so you hear lots of it only in terms of hindsight explanation; rather than foresight.)
When the BIS (Bank of International Settlements) talks of US debt hitting over 400% rises over the next 20-30 years (redacted), as that BIS statement excludes bankrupt GSE’s, Social Security or Medicare, you have to wonder about discounting conditions in developed nations; not just the EU; and not just the USA. The ‘rescue’ aside what I thought it had to do with respect to bailing out banks basic functionality, was fatally a flawed and orchestrated misdirection of funds, which increased our exposure not our security. Lip-service to small business; and more hard feelings to the small business and middle classes, who realize that this is not a balanced approach. Perhaps it will take a generation until we have totally new leaders on Wall Street and Washington; as so far nobody wants to really take responsibility for our forecast ‘epic debacle’. If you don’t agree; then ponder why nobody in Government or in major institutions (so often the very same individuals at different times) takes blame or saw it coming just as we specifically noted Citigroup as the beneficiary of the ‘Fed Waiver’ back in the Spring of 2007, allowing ‘shoring up net capital’ by bridging the firewalls given that it was not possible to meet requirements by continuing to use securitized derivatives of course; thus how can these execs today say they didn’t know.
More embarrassing is hearing an economist appear on CNN and tell the world that it is a ‘non-issue’ to have huge deficits and National debt, as we are so powerful (what hangover are such people suffering from; and what is the chance Government really believes such a position?). Further if you don’t embrace the ‘leadership issue’ ponder how both sides of the aisle were persuaded to fund something like ‘cash for clunkers’, when it was evident to anyone with have a brain that was a union pork stimulus of a very temporary nature to stimulus limited sales of a depreciating asset. We forecast it would do nothing but waste taxpayer money as that’s what occurred (as with others). Now we are being asked to face enormous tax consequences due to mis-governance by both parties; so as to underwrite part of the incredible debt for which so little really was accomplished. Not only is this relevant; but will be a part of the next market drop.
Debt is on my mind as I heard an insider from Citigroup refer to top exec’s as ‘aware’, per emails shown Congress; and you’ll recall when we warned of a ‘debacle’ coming in May of 2007; it was based on Fed waivers for transferring money so as to ‘shore up’ net capital between (withheld). As we realized everyone from Bank of America to Wells Fargo was doing essentially the same thing with securitized derivatives being shown as part of their ‘net capital’, we realized an existing forecast from February of 2007 for a liquidity and credit crisis was about to become something truly far more dangerous; as it surely did. So we escalated the call to ‘epic debacle’. Not over yet.
Daily action . . . notes that while we have tried to be a voice of reason during the storms, risk has not been properly offloaded by the banks in a responsible way. We aren’t joining the chorus including some Fed officials who believe this risks sort of a negative convex national bankruptcy, but we are very concerned about the impact on our Treasury Auctions, where durations (reserved analysis for our members), thus do believe that is the key subject for which investigative journalism in this environment (not to mention enlightened brave political moves) must be made to sober politicians.
For now the stock market’s exposure to risk remains essentially as we suggested in the wake of our call last week for the market to temporarily extend the upside after a long Easter weekend. That should result rising (redacted for members). Nevertheless in our intraday trading we strive to catch moves and in fact aren’t totally against the bullish side of the ledger at times; such as Thursday’s more than homerun (about 1200 S&P points) garnered on a single upside S&P long. We’ll explore next week’s prospects a bit more in an accompanying ‘technical corner’ video tonight.
Before that video; just a touch upon the topics we delved into in the week just past.
The world is pushing insolvency . . . as the marketing of the market continues fast paced; even as the very same analysts optimistic in the afternoon were nervous with regard to a ‘reasonable correction say of 5%’ in the morning. Hilarious actually. Once this gets cranking to the downside; let’s see what they say when we overrun 5%, and in the meantime ponder the impact of state and local austerity programs on a totally frustrated (or at least agitated) citizenry, as thin-air buying power hits real turbulence.
The bond market hasn’t called equities ‘bluff’ quite yet; but bond managers are hiding in stocks, because of the risk on their traditional side of the ledger. Intriguing indeed if you view that from the perspective of a desperate effort to diversify, but into extended (reserved comment). Caveat emptor indeed we say as the tune’s gradually trying to shift from simply ‘the band played on’ mode.
An additional question might be what happens if China capitulates to legitimate U.S. demands on their currency; and that leads to (explored more). It’s not inconceivable, and distinct from other geopolitical risks such as Iran today making threats to kill ‘all’ Americans in the Gulf region if there is a fight with us. Actually we’d suspect they’d be the ones incinerated, but now we have a governance which not only thinks they can negotiate with demagogues (typically empowers dictators; a form of appeasement), while encouraging radicals in Iran by denying (comments reserved for members).
Amidst all this, keep a simple eye on the 10 year Treasuries which have been making an interesting higher lows pattern for some time that is ignored by those believing the simplicity of ‘official’ rates having much of anything to do with today’s real markets at this point. Certainly the Fed doesn’t welcome Treasury yields spiking to a breakout in the near future; but the market is the market, and has been suggesting this as we’ve denoted in those videos on the subject last week. It’s not merely psychological as the media says. And our projected overall Dollar lift continues as well; which if combined tends to support our fundamental argument (further assessment).
In a separate area, we suggested certain energy stocks (reserved); as well as special situation issues as in particular Pure Bioscience, might advance concurrently with a market decline. (Before PURE popped on the recent EPA approval for use in ‘food processing and handling’ we’d suggested the pattern was a completed base in the lower one’s; now doubled and holding well. If they can deliver a (reserved portion). In last night’s NBC Nightly News, Brian Williams talked of Triclosan banned in Europe and maybe by the FDA here in the U.S. Of course you know that’s from CIBA/BASF, and that Tinosan SDC, the PURE additive, would be the preferred replacement as is already starting in Europe with Nivea, and that’s (further comment). It’s no longer an exclusive, but that works to Pure’s benefit, according to the firm. This is a speculative stock we were the first and only service to write-up in the upper middle 1’s, and now it has a lot of publicity coming as well as short-term trading types; but if PURE delivers on their long-held promise, the miniscule company certainly retains adequate upside overall. If they make inroads both in Agriculture, Food Processing and Handling, as well as personal hygiene markets (redacted discussion); then quite serious potential.
In my view we love the animal spirits of American growth; but believe lots of that has been throttled by misdirection of funds and special interest support; not citizen help if warranted (meaning not money on a silver platter; but logical small business help that has been mostly lip-service rather than well-directed stimulus). The Fed Chairman is right when he says we’re not out of the woods by a long shot; as I’ve been warning.
Another issue is California (as expanded on) The underfunding of California Public Pensions I have often mentioned; as was quantified today (by the San Jose Mercury) as being around $500 billion at the moment. The California pension systems serve about 2.6 million retirees, and this is not an irrelevant shortfall. Neither are NJ & NY’s situation. Financial media may report higher ‘state tax receipts’; not nearly sufficient for this. Pensions are not constitutionally guaranteed in most states; save New York.
If you see (portion redacted) gasoline at higher levels following Oil, ahead of Summer of course coincidentally, you will again see ‘why’ there is a mixed leadership now. So to those who say the market ‘doesn’t see any of this’; actually the market does. Look at numbers of stocks (also redacted). We thought the market would try one more time after Easter and it has; but this could easily see flailing and faltering rallies quite soon now. Hard to say which issue will be the catalyst, as so many have merits (more).
The 9th round of an ‘epic’ fight . . . is how we’ll describe rising risk into (noted). At the risk of belaboring one of the key points going forward; the debate should not be in the line of looking for buys; but rather the referees of this market should ponder when the U.S. will be forced to embark on deflationary spending cuts, as are pre-inflation in a traditional vein. That means that the stock market is exhausted, struggling higher a bit; but very much like a fatigued boxer that is bouncing off the ropes repeatedly. One time or another (timing referenced), the referee is going to ‘call the fight’ as the bear lands a TKO (that would be a ‘technical knockout’); hence you know what it means.
I have called this a controlled Depression since forecasting well over two years ago that the Fed and Treasury would facilitate systemic stabilization, but not much more. I regret to inform you that we were and continue correct. It dovetails in that businesses and even municipalities (we know of two) who concurred with our specific expectation back then, circled their wagons, harbored their cash, and properly rode-out the storm.
Conclusion: stabilization efforts notwithstanding; overall recession and deleveraging conditions will prevail (not may prevail) through this year, and probably into next year as well. Intervening rallies in markets will occur (some fairly wild), of limited duration. In event other developments unfold that could truly change prospects; we’ll evaluate.
Bottom line: continuing characteristics; include (consolidated) the following bullet points:
· Perceptions of credit crisis as behind, and economic crises ahead discounted; still premature.
Further bullet points provided members; please visit ingerletter.com site for details.
Bits & Bytes . . . provide investors ideas in a few stocks, often special-situations, but also covers primary technology issues (needed for assessment of general factors in tech, or as compelling developments call for) that are key movers in the NDX, SOX or S&P, plus ideas ingerletter.com thinks might merit further reflection. (Individual stock comments generally are provided in video overviews only; occasionally I'll have some thoughts here; however increasingly most all analysis is via video, as it should be.)
One significant long-awaited development in a speculative stock we followed since a first write-up at the 1.85 level over two years ago. Shares of chemical-developer Pure Bioscience (PURE) soared (almost 100%; continuing a pattern that also takes it out of a prior downtrend forecast ending in the lower 1’s), following an awaited key news development that the U.S. Environmental Protection Agency (EPA) has cleared its silver-based disinfectant (SDC) for use in food-contact; packaging and processing settings. No bleach; no odor; residual protection and more. This product, which is considered virtually non-toxic to humans, will be marketed as a sanitizer for food preparation surfaces under the name IV-7 ‘Ultimate Germ Defense’ for Food Contact Surfaces; presumably by Pure and by Richmont (the folks who developed at least a majority of marketing for both Avon and Mary Kay). Pure said the disinfectant can kill a wide variety of microbes, including E. coli, salmonella, listeria and MRSA.
(IV-7 is also marketed for consumer and institutional use by Richmont as of now, and is the first -we think appropriate approach- distribution agreement whereby Pure itself not only bottles/packages the product and ships it, but collects monies and remits to the distributor, rather than selling in-bulk or concentrate and then hoping to be paid. Pure has indicated at the last two ‘conference calls’ that significant interest has been received from poultry as well as other food processors in use of SDC once approved. The extent shall be determined by sales or lack of sales, as time evolves. However given accidents or mishandling of food in the past, it would seem logical to believe company statements with respect to end-user interest. Frustration exists due to previous disappointing expectations for earlier distribution. We have no way to know in-advance how this will be received; but it’s obvious the company’s very optimistic.)
Might also remind everyone this is the first new disinfectant active ingredient additive like this approved for over 30 years; so while revenues are very small so far, we can see why they would be optimistic after waiting so long. Ideally revenues will ramp fast enough to avoid further dilution for the purpose of covering short-term expenditures; but if not the existing shelf-registration may suffice. Either way this should not be the determinant of longer-term results. Later on we’re looking forward to FDA approved uses down the road (hand sanitizer to -redacted- the big one; as well as mouthwash, vaginal cream, antifungal and so on); however (more). In the meantime hard surface disinfectants may finally penetrate huge markets; and (balance reserved).
Meanwhile, heard a German company started marketing an anti-odor (more) foot spray which complements the growing world market for Nivea Silver-Protect for Men (deodorant spray or roll-on), as is marketed in parts of Europe and the U.K. presently; emphasizing 24-hour residual protection against bacteria and odor, as well as not discoloring fabrics. The use as a preservative in cosmetics is a rising business sector too, as ideally will be agriculture (perhaps aided by today’s EPA approval for use in food preparation, which is a giant market at all levels). This stock had been frustrating because approvals were slow in coming as Pure’s management possibly counted on earlier distributors to move more aggressively; plus some very prominent associates looked to for leadership were disappointing. Presumably the new marketing structure suggests they learned that a ‘disruptive product with real promise’ will not necessarily ‘take care of itself’, and that their more transparent and proactive approach was and is necessary. As or if revenues start to ramp accordingly shares (redacted forecast).
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Three years ago I commenced projecting an 'accident waiting to happen'; affirmed historically after long-duration periods of free money (Gilded Age mentality). Now a market struggles with extended rebounds as this economy tries to slowly restructure.
Though enormous efforts have avoided systemic disaster on the banking front; there is no equivalent rescue of the overall economy besides perception; nor restoration of engines for sustainable growth. People are adjusting to lower expectations; which will never be a favored approach to American life. Actually we don’t see it as permanently alternating the future; but we still have major adjustments to work-through (not to just overlook the implication of ever-larger governance overwhelming American tradition). And as I’ve said; there are fairly visible new storm clouds gathering.
Enjoy the weekend!
<h2 style="">Gene</h2>
Gene Inger,
Publisher
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