(Courtesy excerpts of the current Daily Briefing, published nightly at ingerletter.com; all primary forward technical analysis projections are provided by embedded videos.)
Gene Inger's Daily Briefing . . . for Monday January 4, 2009:
Happy New Year!
Double-top equals double trouble . . . historically with respect to the S&P. Thus for all the variables that still lie ahead (and we’ve persistently explored and continue to) it is notable that those who say ‘nothing’ was gained from the past decade vastly are of course oversimplifying matters. In one of tonight’s 2 videos, I’ll explore that a bit more in this abbreviated report, so that we may join everyone in celebrating the New Year.
My thanks for your encouragement which does sustain my work during these choppy markets, which in my view, while superficially so recently irresolute; actually were real distribution patterns, as we contended, with the evidence increasingly supporting our perspective. While our ‘core’ call for the ‘secular’ top to occur in 2000; and a ‘cyclical’ low in 2002-early ’03 was important; as well as our ‘four years of bullishness’ leading to our reversing to bearishness in early 2007 warning that a top was forthcoming later than year of ‘epic debacle’ proportions; and the forecast of 2009’s best rally starting in late February / early March; what is churning now, while neither a major juncture or that definitive, is nevertheless tricky and also key to what unfolds in the New Year.
You know my view of where this is heading, and why fundamentally; not just a mere ‘opinion’ of matters. We look forward to continued good trades, whether the primary S&P trend is up or down; or merely correcting upward waves. It’s been an honor to compete our 40th year of service, starting with introducing the Nation’s first hourly and daily technical analysis projections on the Nation’s first regular financial show via Los Angeles television in 1969, and about the same for ‘The Inger Letter’, premiering in California early in January of 1970. Here’s to 40 more; and to successful trading or even investing for the year upcoming and beyond. I wish you the best of good buys, and good sells; with no ingrained agenda and with flexibility as market trends require.
Early in the new week; I’ll share some ideas of stocks that may actually be attractive irrespective of the market’s extended current nature; and we’ll do this before I fly to Las Vegas for the annual Consumer Electronics Show. I’ve already discussed what I expect to be the key story from CES, and why and how it will affect retailing in 2010.
As to the geopolitical situation, we remain on the verge of expanded tensions noted in last night’s report; and I’ll summarize a bit of that before we go to the 2 new videos.
A ‘revolutionary’ New Year . . . may be rung-in; or at least events are marching well in that direction. And if successful; a boon for mankind, not just the normal people as have become fed-up with a demagogue-led regime, masquerading as retro-theology, running Iran. Sure; it’s not the Berlin Wall; and Teheran is not assured a civilized or relatively orderly transition to modernity. However, as I noted earlier this week; once they started the religious-zealot approach of segregating men and women (they had not dared because of women’s role in the Islamic Revolutionary struggle for years), it became proof that they weren’t (apparently ever) an equalitarian society for their own people (which Iran under the Shah had progressively become, with general tolerance if not embrace, for both sexes and other religions, which is why a majority of Iranians who fled, primarily to Los Angeles, were Jewish as well as Christian.. in fact I sold a once-adored condo on Doheny to the former Ferrari of Teheran dealer; who realized that theology-fanatic Mullahs didn’t endorse interest in high performance sports cars).
Seriously; this is a dangerous situation. Politically; socially for the people there; and it seems for our own ‘limited’ Forces as deployed in the region (and likely going on alert in the hours and days ahead). I speculated some weeks back that if push-came-to-a-shove over there; the fanatics (Imadingbat and his cronies) would first sacrifice their own people, or try a diversion elsewhere (perhaps they intended an assault on Israel by Hezbollah, which could explain why the ship that was seized in the Mediterranean had for the first time a sophisticated set of Russian antiaircraft missiles never seen in the region previously); or perhaps they actually plan (speculation of what’s ahead).
In such a pickle; we can only hope that the people can topple the military machine in Iran, without the outcome such as the Hungarians and Czechs found, that subjected them to further years of essentially ‘house arrest’ in their own countries when they’d initially tried to overthrow the yoke of Soviet tyranny in 1956 (yes, I do remember it; and the U.S. was shameful in not being sufficiently supportive then as so far now; at a time when the U.S. was busy embracing Russia’s defiance of the attempted raid to liberate the Suez Canal from occupation by Soviet and [then Egypt’s dictator] Nasser forces by an Anglo-French alliance). If freedom-fighters are successful the Oil (more).
By the way it’s said that the religious leader (now saying protestors are fighting ‘*******’ so that is a signal for them to flee the country, succeed, or risk being jailed or killed) has a jet on standby to fly him to Russia (we heard France); but recall months ago I noted in these pages that Mr. and Mrs. Imadingbat had purchased a condo in Dubai, where Iran is principle investor in most of the (now delinquent) properties and banks (largest outside Dubai World or the UAE, and this little financial detail is barely if at all known) .. so presumably they could watch their burst property bubble there..however as a former President and despot; he could be subject to war crimes arrest for what he, in the name of law, has done to his citizens, and the (now reported) detention of his opponents (in itself a horrible crime, for which he can’t really back down). In fact it is this latter event that causes us to believe that a fight to the finish is now really on.
If the forces of modernity however do not prevail; today’s glass-half-full bulls will just say that an ‘exogenous event’ precluded the otherwise never-ending run from going forward. The reality is as we have said: the rally internally ended weeks ago; these are moves dominated by a handful of stocks, and in no single session has there been persistent upward momentum recently. That’s also a sign of distribution into strength.
Meanwhile, as we pray for peace in the Persian Gulf and the world, we mourn a loss of apparently a number of CIA operatives killed by a terrorist bomb at an Afghan base and hope the Administration does not consider that a mere criminal act, as they first tried to treat the failed terror attack on Delta Flight 253. By the way they tried also to cover part of that story with ‘spin’ about another passenger getting ill the next day on the very same flight number. That did occur; however what was obscured was the arrest of another passenger on the original flight in a business suit (age about 30) as well as the observed videotaping (balance discussed in our full report).
If anything, the wildest story of the session came from Russia, where they are talking about sending a spacecraft to divert an asteroid that may hit the Earth in 2037. That NASA would be invited, along with the European Space Agency, to participate might be just the ticket to (also explored a bit more in the full report).
Aside all of this business is reasonably healthy in some retail; but don’t hold out hope for that to prevail far into the New Year, for various reasons; even as it seems like all who criticize the pace of recovery are too negative. Maybe; but maybe not. Time will tell of course; but the facts facing us (including credit limitations) are a given for next year; and that’s part of why I believe the market will [perform as we outlined to our members] over the weeks ahead).
A few words from earlier in the week and then a special annual chart video comment. Our best wishes to all for very happy New Year’s, and a fantastic 2010 ahead!
Covert monetization . . . as so many believe the Treasury and Fed are involved with notwithstanding; there is plenty to worry about in these markets. Hyperinflation is not one of the near-term concerns; although the reasons for that (contrary to Gold bug or similar pitches) are a little bit more distressing, with respect to what may yet occur.
Of course the concern is Deflation that deepens; reversing collapsing yield spreads in normal times a healthy sign; not to mention the unanimity of opinion about strength in the first half of 2010 before any correction risk (balance of contingencies, prospects in 2010 and more reserved for ingerletter.com members; we invite you to join us).
The plot thickens in Yemen
Rather (after discussing basics) the alliance of Sunni (al Qaeda is Sunni) and radical Shiites (typical whack jobs tend to be concentrated in their segment) risks reigniting what we just got done fighting and separating in Iraq; the Sunni insurgency and Shiite radicals mostly supported by Iran. The situation deepens when you realize bin Laden was in fact born in Yemen; that his crowd opposes Saudi’s monarchy, which is surely despotic in its own right; but does business with the family that cast him asunder. We have no desire to become immersed in their neighborhood; but does the U.S. realize that there are issues with support for a monarchy, which is only slightly differentiated from those seeking a return to 7th Century philosophies. Actually Shiite Iran, because their ‘revolution’ was inclusive of women; only now is trying to separate men and the fairer sex; essentially undoing the progress that had been made even during years of the Shah. The arrest of the sister of a Nobel prize winner (human rights) in Teheran a few hours ago, is reported; but not the connection with the crackdown on women in that country. Ideally that alone should turn millions against the regime (if fortunate to be able to have the support of their husbands and males in the households). Really it seems the peace of the region, and perhaps the world, depends at the moment more on the resurgence of the ‘velvet revolution’ and an overthrow of Iran’s despots, who of course are too mired in theology to realize they are an affront to their own people. (Note the foregoing was written last week before the latest increased uprising there.)
Radicals lust for power and control, along with willingness to sacrifice their own says more to the world than all the worries over nuclear ambitions; with only a very indirect connection there (perhaps more direct if you live in Iran and simply don’t want to be bombed due to policies of a dictatorial regime few with a brain want to stay in power).
Macro action . . .looks at the same market environment; whereas (last week) the key story was not the attack on the U.S. (didn’t succeed; but have no illusions, we were attacked; and while we praised the President yesterday we say shame today that he refers to the terrorist as ‘extremist’ and never identifies who the enemy is..other than violent extremists… does he have trouble saying ‘Islamic terrorist’, as that’s what of course these misguided or fanatical fools are; and why is the President talking of all of them as if they were isolated instances in a criminal sense; versus a military attack on the United States by terror forces, which is what it is… this is not something that should be treated like a robbery of a 7/11 down the block; and by being so politically correct, it may actually weaken the resolve of law enforcement to do their jobs well.. in essence you need leadership to say ‘annihilate the enemy’; not pursue and disrupt; and you need a Homeland Security leadership that realizes we are in a war situation, not a series of crimes to be treated one by one…) …(since then they got more real).
Well, yesterday the key story in our thinking was the Fannie Mae matter; slipped-in a bit on a holiday weekend, and mildly reported. Correct approach would be to suggest nobody else willing to buy mortgage-backed securities, and that not to underpin FNM and Freddie Mac, would be to contemplate an ‘asset collapse’. This continues to be a Federal intervention to slow the deterioration, rather than actual remedial approaches it seems; and that suggests that absent better trade policies and growth engines (that can only come mostly from private sources and we’re not there yet unfortunately) the pain is just prolonged, under a guise of interventions that are..’stable disequilibrium’.
Stable disequilibrium . . . fairly well describes the market’s current condition. Usual suspects abound (year-end tax selling meets window dressing and short-covering); at the same time as exogenous event risk rises to the surface just a bit (no surprise for us; having mentioned the terror toehold in Yemen several times in the past month in advance of all the current talk, ‘as if’ it was a surprise’; including the still unreported U.S. support of Saudi Arabia’s incursion to repel terrorists who infiltrated their country too close to oil support facilities… this week the Saudi’s moved in a Moroccan (U.S. trained) commando unit to facilitate their counterattacks; also generally unreported in the world’s media). As to Iran we must suggest that the idea that Mousavi’s Nephew was shot in the heart purely coincidentally during the demonstrations is another poor explanation. What we hear is that Iran’s storm troopers raided Mousavi’s office and detained 7 of his employees…when they found that one was his Nephew they simply murdered him in cold blood on the spot. For once President Obama squirreled up just a bit more ‘outrage’ at this dangerous regime, which is threatened not by anyone but its own citizens, who rightfully want freedom, no nukes, and not a war with the West. (Since then that awful regime has arrested Mousavi’s wife and many others…awful.)
I emphasize that regardless of speculation about ‘average’ movements of the S&P (forward analysis); what you really have is a controlled (or manipulated) overwrought market that has been correcting internally for some time. You also have Oil at a level capable of being an inflection that starts to impact other markets; while analysts that focus on limited demand for petroleum, are myopic and thinking in domestic terms. In much of the rest of the world demand is rising faster than supply; and that counts, as while traded in Dollars primarily; Oil is more sensitive to foreign than domestic sales.
Macro action . . remains in this rangebound area, grinding out slightly higher levels it seems for the Averages, while Transports are down, and Advances trail Declines (the negative divergence present most of the day again). Most of the Street is on holiday it seems; so you don’t get much reaction as might be expected from the attack; nor for that matter do you hear the (would seem like yellow journalism except it’s likely truth, with respect to terrorists being trained for deployment to Europe and to attack us, as we’ve heard this was coming for months now) British papers being quoted, where the MI-5 and Scotland Yard folks are scurrying around (mostly expensive condos) trying to determine whether there is a further organized an imminent plot underway. Public awareness in the U.S. does not accept bland reassurances that all is well, or reports (they tried that again) that ‘it’s a lone gunman or terrorist’. In fact, there’s already an established connection (via the hopefully dead Iman in Yemen) between the Nigerian terrorist and the traitor Army Major of Fort Hood infamy (not to mention rumors that in FBI investigation they believe there were two other shooters at Ft. Hood; hopefully it’s not the case). Point is: markets and media, combined, are calmed about the world at large, more than the world is. Kudo’s for one guy on NBC who asked if the U.S. was being ‘too politically correct’ about how we handle this. (A rare moment of candor?)
Absent exogenous events of that type; there is a continuing slugfest at best. We are of course aware of the ‘estimates’ and projections of further strong advances from at least the most well-known firms on ‘the Street’. They never mention mutual fund cash levels; they never mention the credit constrains on the consumer; they never mention the American people’s fascination discovering responsible savings and reawakening important priorities (like educating their kids on American founding principles that are hardly visible in some early levels of our school systems, or some of them, recently); and they certainly never mention how they turned a blind-eye to the warning early in 2007. If we knew what their net capital and reserve mess was; they certainly had to.
Too many Americans are still trying to get jobs; too many can’t put quality food on the table; much less embrace the tough-out nonsense of pundits who say ‘this is America we can’t have this’, when they see (like our chart last night) how normal families are it seems at their wits-end to stay above water with their house and credit payments and so on. Well we do have these issues; and for a pundit to blame only the citizens for a responsibility issue is flat-out unfair; given how (notes on rules and legislation).
One point: we’re not taking our guard down; as complacency and ‘resignation’ has a way of causing a capitulation into the market ‘by default’, just before it does what has an historical record of some magnitude and importance; and that is a growing risk.
Reduced overseas Dollar supplies . . . could ironically have something to do with a growing concern about China’s inability to continue buying US Treasuries ‘in size’. If so (and I’ll explore this a bit more tomorrow), this shrinking current-account gap has a side that while temporarily encouraging to markets; fails considering the implications.
I have called this a controlled Depression since forecasting almost 3 years ago that the Fed and Treasury would facilitate systemic stabilization, but not do 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.
Most of what we have (unfortunately correctly argued) is a very slow climb-out story for the U.S. and incidentally for much of the rest of the world, which is not in position to assist us further, despite naïve politicians who think the borrowing spigot stays on, indefinitely. It does not; and we interpreted it thusly when Obama left China recently.
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.
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Bits & Bytes . . . provide investors ideas in a few stocks, often special-situations, but also covers an assortment of technology issues (needed for assessment of general factors in tech overall, 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 the video overviews only; once in awhile I'll have some thoughts here, where something's particularly emphasized or of technical nature necessitating some discussion. Increasingly most all is via video.)
Thirty-four months 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 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. That’s the reason we warn about chasing rallies; not to mention major ‘commercial’ adjustments as are ongoing. And as I’ve said; there are fairly visible new storm clouds gathering.
Happy New Year!
Gene
Gene Inger,
Publisher
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