Monday, January 24, 2011

"Buy A Gun" Google Queries Hit All Time High, And Other Off The Grid Economic Indicators

In lieu of a credible macroeconomic data reporting infrastructure in America, increasingly more people are forced to resort to secondary trend indicators, most of which have zero economic "credibility" within the mainstream, yet which provide just as good a perspective of what may be happening behind the scenes in this once great country. A good example was a recent Gallup poll, which contrary to all expectations based on a now completley irrelvant and thoroughly discredited ADP number, which led some br(j)okers such as the Barclays Insane Predictions Team to speculate a 580,000 NFP number was in the books, indicated that the jobless situation barely improved in December. Sure enough, this was promptly confirmed by the January 7 NFP number. And so, in looking for a variety of other "off the grid" economic indicators we read a recent report by Nicholas Colas, which proves to us that we are not the only 'nerdy' entity out there increasingly searching for metrics that have some rooting in reality, and not in the FASB-BLS-Census Bureau joint ventured never-never land. And while we recreate the key points from the report, the one item that should be highlighted is that, as we have suspected for a while, the social undertow of fear, skepticism and anger is coming to a boil, as Google queries of the "Buy A Gun" search querry have just hit an all time high. How much of this is due to the recent events from Tucson, AZ is unclear. What is clear is that the trend is most certainly not your friend (unless you are of course the CEO of Smith and Wesson).

We'll leave the interpretation of this chart to our very erudite politicians.

As for other must read observations on the topic of derivative economic indicators, we present Nicholas Colas' must read latest: "Off The Grid” Economic Indicators – Q410 Edition (more)

Are You Ready For A 60% Surge In Volatility?

December's bull talk that 2011 would be great for investors is running out of steam a few weeks into January.

So far, earnings results are mostly falling short of the sell-side hype. J.P. Morgan's Tom Lee, the equity strategist, told clients Friday that earnings-per-share reports that beat estimates are coming in at 68%, below the past four-quarter average of 74%.

These are the early days of earnings season, but it is hard to ignore what is happening in the financial sector. That would be the sector that, just a few weeks ago, investment-bank bulls said was poised to carry the stock market higher, due to improving consumer spending, fewer credit defaults and all sorts of other data that analysts monitor.

Yet Citigroup (ticker: C) reported crummy results. Everyone in the options market was betting that the stinky stock's earnings would push it permanently past $5. Instead the earnings data dunked the stock below that mark, making it untouchable to many major investors whose investment charters prohibit them from owning stocks below $5. (more)

Tech Stock Smackdown

Uncertainty creeps into the tech world on soft cat's paws. Last week was full of surprises: Eric, Steve, some guy at AMD, half the HP board, gone. Apple has tremendous momentum and had blow-out earnings, but maybe it is all priced in? Google still beat, but a close look suggests it barely made it, and largely on currency hedging, not core business. AMD beat and the stock gets hammered the next day on chip pricing weakness. And maybe it is over for the PC-centic Intel Architecture? The sharp reaction suggests the stock was priced to perfection.

Perhaps next week will be a general tech stock smackdown, as the whole market is priced to perfection.

Small caps have taken a dive (see chart).


The major indicies didn't fare much better, other than the Dow, driven up by GE and strong earnings, plus a hint of crony capitalism. We have a clear divergence which will resolve one or the other:


Tech is where the action is. First AAPL. Casey Research had done a bearish number on them last June, but reconsidered this weekend as the iPad has blown past all expectations. AAPL is poised to be the WinTel of the tablet era; it might garner the combo value of Intel+Microsoft as of the 2000 peak. They find the current stock price in line with expected earnings. And add this: (more)

8 Worst Stocks the Cool Kids Want to Own: BIDU, CMG, FSLR, HOG, LULU, NFLX, OPEN, PFE, CRM

Don’t Drink the ‘Cool-Aid’
Cult Stocks

7 Money-Doublers for the 1st Quarter Surge

When we were teenagers, it was all about fitting in. We needed the right clothes, the right hair, the right car. We looked up to the popular kids and would have done just about anything to get in their exclusive club. Now that we’re all grown up, it always amazes me when investors blindly follow the “popular” stocks, i.e., cult stocks, regardless of their fundamentals. And just like high school, while the ride may be fun for a while, eventually it will come to an end.

The stocks on this list have been immensely popular with investors, and while I’m not saying they couldn’t go any higher, the upside potential in each is very limited, whereas the downside risk is substantial. I used simple, back-of-the-envelope methods to calculate upside and downside targets for these cult stocks. First, I looked at the upside using the current trendline and past highs, and then looked at analyst estimates for real-world growth in the company. For the downside, I estimated the price based on a return of the valuation of the company to segment and market norms. Yes, admittedly, this contains a lot of speculation and opinion, but any of these overpriced cult stocks could blow up on bad news. If I were you, I wouldn’t drink the “Cool-Aid.” (more)

Vallejo Plan Would Give Unsecured Creditors 5 to 20 Cents on the Dollar

Unsecured creditors will receive 5 cents to 20 cents on the dollar for their claims under a reorganization plan Vallejo, Calif., filed Tuesday in federal court.

The plan to exit bankruptcy outlines the reorganization of debt the city owes its largest creditors, Union Bank and National Public Finance Guarantee. It also sets aside a pool of $6 million to pay unsecured creditors about 5% to 20% of their claims over two years, according to court documents filed in U.S. Bankruptcy Court for the Eastern District in Sacramento.

“The city regrets that it cannot pay a higher percentage,” Vallejo officials said in the court filings. “The city lacks the revenues to do so while maintaining an adequate level of municipal services, such as the provision of fire and police protection and the repairing of the city’s streets.”

The city has also settled with NPFG over fees that backed insured certificates of participation, according to court documents.

The formal legal plan is based on a five-year road map City Council members approved at the end of November, tackling $195 million in unfunded city pension obligations, cutting payments for retiree health care, reducing pension benefits for new employees, raising pension contributions for current workers, and creating a rainy-day fund. (more)

Hugh Hendry On The "Near Certainty" Of European Interest Rate Rises

The euro project has not gone according to plan. It reminds me of the story of the James Bond character Q, based on the British intelligence officer Charles Fraser-Smith. It was he who invented a compass for spies hidden in a button that unscrewed clockwise. The contraption was based on the simple yet brilliant theory that the unswerving logic of the German mind would never guess that something might unscrew the wrong way. This is really what happened with the euro. New member states were supposed to take lower German interest rates and invest their resources wisely to improve and deepen their productive capacity. Instead, they used the advantage to finance speculative asset bubbles. The peripheral nations of Europe turned the wrong way. The Germans are unhappy.

But, desperate to cling to monetary union, the other European sovereigns have opted to default on their spending promises to voters rather than impose a haircut on their financial creditors. In the 1920s the pay-off structure had been very different. The first world war took an intolerable toll on the typical household both in terms of the loss of life and financial well-being; everyone had become poorer. Accordingly, there was little willingness on the part of the ruling political class to force austerity measures to redress the fiscal imbalances. The people had suffered long enough. Consequently, there was much procrastination and fiscal deficits persisted way beyond the end of the war, making capital markets reluctant to accept the waning security of government paper and forcing the sovereign to rely on the central bank’s printing press.

This time around, however, the political class has concluded that the Greeks (especially the Greeks!) and the other peripheral states have done so well off the back of the euro project that it is their turn to shoulder the burden. They calculate that the social pain would be less severe than the financial costs of a debt default and/or a euro exit. Of course, this is to neglect the financial consequences of bailing out the financial sector in 2008 and its ensuing impact on the ordinary household. Can an analogy be drawn between the first world war and the banking bail-out? Certainly both events had a disastrous impact on the sovereign fiscal balance. Consequently the social mood has darkened considerably. Emotions run high and the term speculator has even become pejorative. Today’s non-financial media are clearly of the opinion that the people have suffered enough.

Ireland is indicative of the social pain. Nominal incomes have already fallen substantially and the working population has endured severe job losses and wage cuts. Their reward is a second austerity package. The average household is now being asked to pay additional taxes, minimum wages are to be cut further and more job losses are a virtual certainty. The country itself is only held together by the premise that the economy will grow by 2.75 per cent a year for the next four years. Dream on. (more)

Food Investment Theme DF Dean Foods NYSE – David Tepper Video Interview

Great follow up video interview with David Tepper on CNBC. If you haven’t seen it, here is David Tepper’s former video appearance. In his latest video he talks about how the US economy has improved, how QE2 worked, why he sees Gold and Silver struggling, Spain and about his new portfolio position DF – Dean Foods the largest processor and distributor of dairy products in the US. He likes the prospects of soy milk, one of Dean Foods specialty products. He also mentions MU – Micron Technology in the semiconductor realm and STD – Banco Santander as an example for a financial stock he owns. Enjoy the video!

Review: The 10 Commandments of Money

I’ve been a big fan of Liz Weston’s writing, particularly her columns over at MSN Money. I’ve also communicated with her many times in the past. So, when I saw that she had a new book out, it was an immediate addition to my reading list.

This book, The 10 Commandments of Money, features a subtitle, Survive and Thrive in the New Economy, that left me wondering about the purpose of the book. It seemed a bit out of Weston’s wheelhouse to write a “buy gold and land” type of book – a particular subtype of personal finance I avoid.

Rather, this book is more about positioning yourself for success down the road as the economy rebounds from the downturn and opportunities come your way. That’s a solid perspective for anyone who is planning for a brighter future to have.

Unsurprisingly for a book of this nature, it’s divided into a series of chapters that each focus on one of the ten commandments, so let’s walk through them.

I: Create a Budget That Works in the Real World
What does Weston mean by a “budget that works in the real world”? Weston subscribes to the 50-30-20 model of budgeting. 50% of your take-home income should be spent on stuff you need, such as your bills. If your actual bills take up less than 50%, good job, but many people are over that 50% mark. If you’re over the 50% mark, the remainder comes out of the 30% slice – the money spent on stuff you want, such as entertainment and the like. The other 20% goes to savings of various kinds, like an emergency fund or retirement, depending on your needs. (more)

Technically Precious with Merv

Well, the weakening momentum of the gold move that I had been warning about seems to be
doing its job. Gold is in a little bit of a down draft. For how long and for how far is anyone’s
guess? For now the $1320 mark is the price to watch based upon a P&F chart. Once there
we’ll see what next.
We’re still waiting for the $1320 level to be breached for the P&F chart to go bearish long term
(however, the real break below the P&F up trend line may be at the $1305 level). It’s a weak
market but not yet a long term bear from the P&F perspective.
The long term indicators are still nowhere near a collapse. The gold price just might reach the
up trending moving average line next week but I doubt that the line will turn negative on such
move. The momentum indicator is still well inside the positive zone and here I don’t see a
break into the negative at least for a couple of weeks. The indicator is below all recent levels
and heading towards its previous low at the July level. It is also below its negative trigger line
so although it still is in its positive zone it is showing a great deal of weakness. The volume
indicator is basically tracking a lateral path but is sitting almost right on top of its positive
sloping trigger line. Putting all this together we still have a BULLISH long term rating but
getting weaker each week.
The rating here was bearish last week and remains so this week. The gold price is moving
farther below its negative sloping moving average line. The momentum indicator has now
entered its negative zone and is below its negative sloping trigger line. Although in its negative
zone it is still not quite at the negative level that it reached in late July prior to its low and start
of the latest rally. The volume indicator is now below its negative sloping trigger line for
confirmation of the recent price moves. As mentioned, the intermediate term rating is
BEARISH. This is now confirmed by the short term moving average line dropping below the
intermediate term line. (more)

Analyst Recommendation "Strong Buy" Rated Stocks (Jan 23, 2011)

Below are the Analyst Recommendation "Strong Buy" Rated Stocks (10b-200b) average rating by Wall Street analysts. Each analyst rating is assigned a number ranging from 1 to 5, with 1 being the highest rating (STRONG BUY) and 5 being the lowest rating (STRONG SELL).Also more stock to watch for today.

Ticker Company Sector Country Analyst Recommendation
RUK Reed Elsevier plc Services United Kingdom 1
IX ORIX Corp. Conglomerates Japan 1
KUB Kubota Corporation Industrial Goods Japan 1
LUX Luxottica Group SpA Services Italy 1
NJ Nidec Corp. Industrial Goods Japan 1
TTM Tata Motors Ltd. Consumer Goods India 1
KEP Korea Electric Power Corp. Utilities South Korea 1
KB KB Financial Group, Inc. Financial South Korea 1
KYO Kyocera Corp. Technology Japan 1
SHG Shinhan Financial Group Co. Ltd. Financial South Korea 1
HDB HDFC Bank Ltd. Financial India 1
IBN ICICI Bank Ltd. Financial India 1
PUK Prudential plc Financial United Kingdom 1
PC Panasonic Corporation Consumer Goods Japan 1
MITSY Mitsui & Co. Ltd. Conglomerates Japan 1
MFG Mizuho Financial Group, Inc. Financial Japan 1
ING ING Groep NV Financial Netherlands 1
BCS Barclays PLC Financial United Kingdom 1
NTT Nippon Telegraph & Telephone Corp. Technology Japan 1
CAJ Canon Inc. Consumer Goods Japan 1
LYG Lloyds Banking Group plc Financial United Kingdom 1
MTU Mitsubishi UFJ Financial Group, Inc. Financial Japan 1
STD Banco Santander, S.A. Financial Spain 1

US Economic Calendar for the Week

DateTime (ET)StatisticForActualBriefing ForecastMarket ExpectsPriorRevised From
Jan 259:00 AMCase-Shiller 20-city IndexNov--1.0%-1.3%-0.80%-
Jan 2510:00 AMConsumer ConfidenceJan-53.553.552.5-
Jan 2510:00 AMFHFA Housing Price IndexNov-NANA0.7%-
Jan 267:00 AMMBA Mortgage Purchase Index01/21-NANA+5%-
Jan 2610:00 AMNew Home SalesDec-280K300K290K-
Jan 2610:30 AMCrude Inventories01/22-NANA2.62M-
Jan 262:15 PMFOMC Rate DecisionJan-0.25%0.25%0.25%-
Jan 278:30 AMInitial Claims01/22-400K408K404K-
Jan 278:30 AMContinuing Claims01/22-3800K3835K3861K-
Jan 278:30 AMDurable OrdersDec-1.5%1.5%-0.3%-1.3%
Jan 278:30 AMDurable Orders ex TransportationDec-1.0%0.6%3.6%2.4%
Jan 2710:00 AMPending Home SalesNov--2.0%-0.5%3.5%-
Jan 288:30 AMGDP-Adv.Q4-3.4%3.8%2.6%-
Jan 288:30 AMChain Deflator-Adv.Q4-2.0%1.6%2.1%-
Jan 288:30 AMEmployment Cost IndexQ4-0.4%0.4%0.4%-
Jan 289:55 AMMichigan Sentiment - FinalJan-73.573.272.7-