(Weekend ingerletter.com excerpt; with technical analysis primarily via videos only.)
Gene Inger's Daily Briefing . . . for Monday June 21, 2010:
Good weekend!
The market’s shuffle into Expiration . . . went much as expected; with greater tests coming now that the Quarter’s end approaches, and the ECB intervention supporting the Euro diminishes a bit; allowing investors to realize too much money printing still is ongoing; as none of these monetary actions do much to address a global debt crisis. (China’s move to revalue the Yuan will only help matters in a transitory manner now.)
Significant weakness exists across enough G20 economies to be very disconcerting; but that’s not the analytical focus we hear much about (because it requires tightening belts which is so difficult to do in the midst of an effort to climb-out from deep decline) from the politicians; although most monetary authorities obliquely address the issues. (There are no pleasant near-term answers to challenges spending cuts vs. austerity.)
Private sector demand remains weak as the stock market again runs ahead of reality; as the matrix they are using for PE’s and the like has no relevance to what’s really at this point probable, or even possible. Concurrently, we have a technical picture that is one of the tougher ones (as denoted to our members now); but it might well be valid.
Daily action . . . also cannot avoid confronting the lack of private initiative stimulation through tax cuts (the normal way; but good luck with the current crowd); geopolitical issues that could be significant (the USS Truman Battle Group isn’t in the Med for just a summer cruise; though now it transits through the Suez into Indian Ocean); plus the exogenous or little-controllable events also need be kept-in-mind (the volcano; the oil disaster and implications it holds for everything from water supplies to our agriculture; beyond maritime issues, under certain circumstances, not to mention a big failure of Government to concurrently focus on producing the discovery wells, even as they for sure must deal with limiting damage as best able to). Also it’s not a time year as well (redacted liquidity comment for members) stock market, which I said all along could rally from late June into early-mid July ‘if’ certain conditions prevail as explored via all our day-to-day ingerletter.com comments.
I’ll explore the prospects for the next week via the accompanying videos that follow a brief summary of some key points we’ve brought up during the week just past:
The ‘world is shifting’ . . . on an ill-defined axis; but the new alignment increasingly is becoming visible. That will be among the topics of the first of 2 videos (last) night. In the abstract, American reticence (reserved); but there’s a bigger picture: if the U.S. cannot provide (or afford) what for now appears to be a policing role in several parts of the world, opportunists try taking advantage of that; as a newly developing ‘power vacuum’ becomes more apparent. If one ponders sympathies of some in Washington to a diminished American role in parts abroad, they’ll discover it doesn’t mitigate risks to peace, but heightens risks.
A ‘White Swan’ event . . . is the first thing that comes to my mind when I look at the negativity among traders; among advisors; and among the public at large. However, there is a complication: there are many problems that defy easy resolution; so taking an approach of ‘contrary’ opinion beyond the short-term Expiration rebound we have regularly acknowledged was a distinct possibility, seems to be naively optimistic from an analytical basis. (So there is no ‘white swan’ or blessed event; but pending ‘black swans’ that we mostly know about, to which you can add exogenous event risks too.)
Our thinking was that we just moved above the 200-day moving average; repel from the ‘lateral’ supports (the Feb., May and June lows); and get the ‘edge’ off the (then) oversold condition; by having (technical analysis balance for members); as a ‘set-up’ for the next phase of action. At the same time I indicated there was no ‘requirement’ for the market to immediately then-penetrate those supports as indentified (the lateral lows of this year); as well as no need for perfectly constructed ‘head & shoulders’ patterns either (interpretation for members only) as this evolves. And then there’s the failure of the President to focus on ‘opportunity’, rather than liability and complexity of the oil clean-up (though those are legitimate issues as exist anyway; so I simply say why not give people ‘hope’ of at least an economic or discovery benefit at least, not merely misery of coping with the BP disaster all alone; with no revenue upside).
(Macro) action. . thus believes the next ‘meaningful’ wave in the market will be (as is outlined). Rather if we do get another ‘black swan’ event (redacted); or if we don’t the market struggles in alternating shuffles because there really is optimism only among those that look superficially at situations involving the monetary realism, or earnings prospects in a Deflationary environment.
Few are focused on geopolitical issues; or even the risk that 40% or so of the Gulf is now inundated (subsurface) by oily water (or submerged oil lakes, not just plumes) that can have untoward longer-term effects. Again that’s why it’s really more bearish that they’re not taking the high road to give some hope of financial benefit (jobs and prosperity as typically follow large oil field discoveries, even offshore) and help to the Federal debt. Instead you have Government talking of moratoriums and diminished future drilling; in a lose-lose scenario (the damage to the Gulf is already greatly done) that has financial risk of imperiling this Nation in an even bigger mess. I really haven’t any political intent by this comment; just observing there should be far greater focus on both sides of the equation; dealing with the disaster as well as the opportunity that sees discovery (along with others to come) as contributing to energy independence.
As for the immediate stock market action; it continues being dominated by Oil moves, and by the Dollar (ie: Euro movements indirectly less impacted by ECB intervention it seems this week contrasted to a few days ago); and less so by conventional outlooks for recovery or earnings (which by the way are likely to be ‘shaved’ as 2010 evolves.)
Catastrophic opportunity . . . might actually more accurately describe the disaster in the Gulf, than all of the labels of ‘spill, leak or even calls for moratoriums and new focuses on alternative energies’. In reality, as noted last week, this is likely the largest new oil ‘field’ discovery perhaps in American history; and dwarfs any in Saudi Arabia.
(And as I said last week, there are comparisons with the ‘dustbowl’ of the 1930’s in a way; although in terms of lives, this is not the greatest disaster in American history. It also might be considered that millions of Americans migrated during the ‘dustbowl’ to northern and western cities, and it was not solely because of the pre-war industrial or other preparations; actually was mostly in-advance of that phenomenon..this may be a hint as to what is to come if Government doesn’t back-off on current moratoriums. Of the 5 major offshore operators, most have considered BP the most mediocre for a long time, and we said that way back when it was just the acquired AMOCO team.)
The implications are to greatly overshadow not the tragic mess as was created by an awfully-managed exploratory drilling regimen, but to denote what’s really overlooked: the Administration’s entire energy policy initiatives would have to be scuttled or seen as far less urgent, in-event it was understood America can now be energy sufficient; and on oil to-boot. Producing the field aggressively would drive the price of oil down notably, and decimate the domination of OPEC, as the U.S.A. never endorses cartels of course. Further, the influence (perceived) by the likes of Venezuela’s Chavez also would evaporate, because the U.S.A. could become a net-exporter of crude oil.
Enough about Oil; though as massive as the catastrophe is (and we said for weeks it was a ‘gusher’ not a leak or a spill), or as slow as the response has been in several ways; the state of the disaster is what it is, and as usual it’s preservation of policies in ways that emphasize retroactive damage control (balance of remarks for members).
In any event; I’d continue exercising caution in trading S&P’s here; and I’d view stock market advances from here skeptically, rather than enthusiastically (unless as noted). So far I think they tend to continue omnipotent governance intervention in everything, and aside obvious need for control and an intense recovery (balance abbreviated).
Two items little discussed (at least that I noticed) in the financial news today but merit attention: 1) the President’s weekend request for $50 billion more to ‘bailout’ states in the traditional accompanied scare tactics of ‘preserving fire and police protection’ with not a word about responsible governance or budgetary constraints; and 2) an unlikely but interesting scenario that could be a financial debacle under-the-radar but likely to of course be bailed-out similarly (and especially) because it’s the Illinois Teachers Retirement System, which is down several billion dollars during the recent advance.
Of course as I heard this story, it struck me that the Illinois teachers pool is unlikely the only such fund in the United States with an all-in go-for-broke attitude to fill what are a slew of underfunded pension pools in the U.S. At least Florida (as an example) finally passed a law prohibiting teachers from ‘double dipping’ without a long respite from collecting the first pension. Has every state in the Union enacted similar laws?
Technically . . . none of this changes our defensive view or suspicion this past week that an upside move could indeed occur which ‘briefly’ ran-in shorts above resistance and then takes the market down through the bottom of an ongoing trading range. The reticence to be too bearish in June (mentioned all along) after our forecast May crash of sorts, continues. However, the tendency to look for a rally into early-mid-July from a June low, is tempered by realization that there are too many fundamental variables to contend with to rigidly stick with that perspective. Hence (strategy is outlined here).
With that said, just keep in mind there are a number of market-impacting or potential issues of the sort, that we have to keep an eye on; and that the odds of problems in the near future exceed those of resolutions and a peaceful world. Unfortunately that’s what makes for a hot summertime; but a volatile market in which I look forward to lots of great trades; not because we want to see these miserable issues, but because these tend to cause more than seasonal concerns with reflect to market prospects.
Debt impairment . . . is the concern; not earnings and recovery optimism as prevails, at least among the delusions of those who see a sustainable economic recovery with no contractions to test the mettle of the turnaround efforts domestically or worldwide.
I have called this a controlled Depression since forecasting it over three 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. (Balance redacted for now.)
Conclusion: stabilization efforts notwithstanding; overall recovery and deleveraging conditions will prevail (not may prevail) through this year, and probably into next year as well. Intervening market rallies do occur (some fairly wild), but of limited duration, at this point. If other developments unfold that could change prospects we’ll evaluate.
Bottom line: continuing characteristics; include (consolidated) the following bullet points:
· Financial & bank-capital impairment -even now- remain the crux of ongoing economic crises.
Further bullet points provided members; please visit ingerletter.com site for details.
MarketCast (intraday analysis & embedded Daily Briefing audio-video). . . remarks forecast substantive failures by markets; particularly as 2010 evolves (whether just as a correction of a worse case remains to be assessed). Remember back in early 2007 we denied the 'liquidity' momentum as a canard; believing housing only the first asset bubble to deflate. We then outlined structured investment vehicle failures; banking issues, the confluence of asset deflations, and more; continuing with interruptions per projecting long ago: 'a perfect storm'. New sets of storm clouds quietly are gathered.
As the debt bubbles continue to deflate, alternating tradable moves continue from a trading perspective. Against that backdrop retaining a macro (adjusted) Sept. S&P 1600 +/- short irrespective of interim oscillations. Technical analysis via video follows.
Rather than increasing complacency (which it did), the risk quotient is increasing; the opposite of finding comfort in extended prices and failing upside momentum for some
Daily Briefing Technical-Corner MarketCast Videos
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.)
Pure Bioscience (PURE) .. little time to delve into this much; but know Clorox made their first-ever Patent filing to use SDC (Pure’s additive; and the first formal indication of Clorox specific involvement with Pure’s additive) in a potential variety of products for multiple cleaning as well as disinfecting purposes, as was submitted to the United States Patent Office on June 10th. This clearly seems not an effort to circumvent but to incorporate Pure’s disruptive technology, and may be a result of recent marketing efforts which increase awareness of Pure’s basic functionality among consumers in an overall way. Combining Pure’s SDC with surfactants and/or alcohol is another way to accomplish multiple tasks in single mixtures as may well be what Clorox intends; as well as to protect their ability to do so before name brand competitors’ chime-in.
With the Richmont marketing group (background of Mary Kay and Avon) expanding awareness of Pure’s SDC product; it seems to me that Clorox (a CIBA/BASF client, which represents Pure) is not taking them on per se; but rather buttressing itself as relates to their own traditional name-brand competitors. Furthermore importantly note a statement by Clorox in the filing in that they compared formulations both with and without Pure’s SDC, but in the final analysis found that all combinations without SDC were not as effective against bacteria, as with Pure’s SDC. That is a testimony from a 3rd party as to the efficacy of the SDC molecule itself. Apparently for the purpose of the Patent filing they acknowledge having tried different formulations including silver, but once again none were as effective in the tests as those using Pure’s unique SDC.
I’m unaware if anyone picked-up on this (stock doesn’t act like it), but see it as quite an important development, and if for no other reason than this is Clorox saying more or less deduced to simple terms: Pure’s molecule works, and works better than other combinations they tested. To me that seems like a significant statement; bordering in a sense on an endorsement, though not intended as such for the Patent Office. Once more: why did they choose now to show their cards? Ahead of competition perhaps. I see it all as potentially favorable (balance and other projections for members only).
In summary . . events continue reminding us of risks Allied fighting forces face, given continued attacks on free peoples, by elements including organized terrorist forces in various countries and the world’s oceans. Addressing terror threats continues, while domestic issues absorb us more while we must focus on U.S. economic stabilization.
Over 3 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 finished struggling with over-extended rebounds as our economy restructures.
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. That’s the reason I warned about chasing rallies; not to mention major ‘commercial’ adjustments as are ongoing. And as I’ve said; fairly visible new storm clouds were clustering.
Enjoy the weekend!
<h2 style="">Gene</h2>
Gene Inger,
Publisher
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