Friday, February 11, 2011

Why Food Prices Have Skyrocketed

Daily Gold Chart With Commentary

Snapshot of an Apple flash crash: AAPL

What triggered the sell-off that knocked $10 billion off the company's market cap?

Something happened to Apple's (AAPL) share price Thursday afternoon that has investors still scratching their heads.

The stock, which had been sailing along near its all-time high of $360 a share, started to drop at about 1 p.m. Then, at 1:39, it collapsed, falling from $355 to $349 in the space of four minutes.

In all, $10 billion got shaved off Apple's market capitalization before the stock began to recover.

Except for the surprisingly short iPhone lines at Verizon stores Thursday, there didn't seem to be any news behind the sell off.

"The selling is not normal just for negative news," wrote Bullish Cross' Andy Zaky in an e-mail. "There was a huge spike where dollars were being skipped in the selling. I saw Apple tick from $351.70 to $349.00 within seconds. There's something else. The selling was not normal. That's for sure. It wasn't orderly. Take a look for yourself."

The chart, Zaky suggests, bears a strikingly resemblance to the flash crash of May 6, 2010. But that event shook the entire market. This one belonged to Apple.

UPDATE: Stock Tic Toc is attributing the flash crash to rumors that Steve Jobs is back in the hospital. Funny, he was reportedly sighted on the Apple campus last week with a big smile and a spring in his step. And just yesterday, two different people tweeted that he was eating lunch near them at an Indian restaurant in Mountain View. See here and here.


That”s what strategists at Nomura are saying. Nomura says that commodity markets are now mis-priced with risk skewed to the downside. Despite emerging market equity weakness and tightening, inflation fears have dominated and resulted in this skew. Nomura says it’s time for an adjustment (via Hedge Analyst):

“Nonetheless, commodity prices too have begun to look stretched relative to other growth assets. Figure 2 looks at the normalised pricing error between each of our growth-related assets and the overall measure of growth implied by the basket, both today and at the launch of QE2 in early November. A few things are clear. First, a lot of the mispricing gaps have started to close since the beginning of the New Year, as G10 rates sold-off and G4 equities caught up with positive growth surprises in the developed economies. Second, in EM equity markets have corrected quite sharply as countries have started to face challenging inflationary winds and tighter monetary policies. Commodities, however, stand out.

Despite the fact that they were already too optimistic with respect to growth in early November, they appear to be even more so in the first months of 2011, with the CRB index making new highs. Clearly, risks in commodities seem to be skewed on the downside, as they are the only asset class that has not reflected the tighter EM policy/ weaker growth backdrop at all. In an attempt to capture those risks we recommend short positions in copper, expecting commodity prices to revert to the recent path lower of commodity currencies.”

WTI-Brent price divergence hits record $16

The price difference between the world’s top oil benchmarks reached an intraday record of more than $16 a barrel, doubling in three weeks, as West Texas Intermediate oil disconnects from top global oil references Brent and Dubai. The spread fell back to just above $14.

The divergence, which is wreaking havoc among energy investors and traders, prompted Saudi Arabia two years ago to drop WTI as its benchmark for pricing oil to US customers.

Dispatches from the US embassy in Riyadh, obtained by the whistle-blowing website WikiLeaks, quoted Prince Abdulaziz, Saudi’s deputy oil minister, as describing the WTI market as “too much like gambling”. According to the cables, Saudi officials explained to US diplomats that the shift to a new benchmark would leave the kingdom “less subject to speculative price swings”.

In the past, Saudi officials have highlighted technical problems with WTI, rather than the influence of speculative price swings, as the reason to drop the benchmark.

The WTI-Brent price divergence meant that companies hedging their exposure to rising energy prices through WTI contracts were left exposed to losses, analysts said.

WTI is the backbone of the New York Mercantile Ex­change’s flagship oil contract, the world’s most liquid oil futures contract, which is often cited as the “real” price of oil.

But a surge in oil inventories in Cushing, Oklahoma, where WTI is delivered into America’s pipeline system, has depressed the value of the benchmark against other yardsticks. The International Energy Agency said on Thursday that with “few relief valves” to cut the stock overhang in Cushing, the price dislocation “may persist for months [or years] to come”.

CME Group, which owns Nymex, has strongly defended the WTI contract, saying the price difference between its benchmark and Brent is a “cyclical phenomenon”.

The Most Undervalued Commodity Play in the World : CELG / CMI / DCTH / LVS / MOTR / PCAR / RIO / TIF / VALE

Stocks discussed on the Lightning Round segment of Jim Cramer's Mad Money TV Program, Monday February 7.

Bullish Calls:

Rio Tinto (RIO), Vale (VALE): "I really like it. I talked to John Roche (technical analyst). He thinks this commodity move is still big. He likes Rio Tinto more...I feel strongly that Vale is the most undervalued commodity play in the world. I reiterate my buy, buy, buy call on Vale."

Tiffany (TIF): "What is there to be bearish about? Everybody loves diamonds these days...I think Tiffany, even right here, is a buy. I think the stock can go higher."

Motricity (MOTR): "This is a wild trader...I think MOTR is going to have a good quarter...I think it it can go up 4 or 5 is a good stock...I've been behind is part of the internet tsunami."

Las Vegas Sands (LVS): "Everybody is abandoning LVS's ship...come on, use the weakness to buy, buy, buy...Vegas is turning around."

Delcath (DCTH), Celgene (CELG): "This is in the sweet spot. These are the kind of companies that are being bought every single day...they've got something really good against melanoma...Celgene is down on its luck, just the stock, not the company is doing well...I'm going to say I like your stock too."

Cummins (CMI): "You gotta get out of that one (Paccar) and get into Cummins...Cummins is so much better than Paccar."

Bearish Calls:

Paccar (PCAR): "They didn't do a good job on that quarter. They wrecked the whole truck bull market for a couple gotta get out of that one and get into Cummins...Cummins is so much better than Paccar. I am just amazed at how bad Paccar is."

Charts Show Blue Chip GE Poised to Make Traders More Green

General Electric (NYSE: GE)This bluest of the blue-chip conglomerates sells products ranging from aircraft engines to consumer appliances, railroad locomotives, and medical equipment.

On January 25 at $20 the Trade of the Day noted that for the first time in two years GE broke above $20 after announcing quarterly earnings that were better than expected by 4 cents per share.

As a result, Standard & Poor’s increased their 12-month target from $20 to $24 with a 4-Star Buy rating.

GE pays an annual dividend of $0.56 providing a dividend yield of 2.8%, but talk persists of a pending dividend increase this year.

As I noted on January 25, technically, the stock has broken from a double-top on a breakaway gap signaling that a major move is under way.

ge technical analysis

The short-term trading objective is revised to $25 in GE, up from $23 a few weeks ago, due to the pickup in volume and recent favorable comments from GE officials on their outlook for 2011.

Is China a Bubble?

In any major trend, you’ll have intelligent people argue both sides. Nowhere is this tendency more apparent than in the debate over the rise of China. I believe China, and to a lesser extent Asia, is still the big story for the next couple of decades. This is a long-term cyclical shift in power from West to East. China turned inward in the 15th century and became complacent at the same time the Western world was driven to improve their lives. These roles that have persisted for centuries have now reversed.

In forecasting the future, I try to focus on things I can’t be wrong about, which is why I focus so much on demographics. The demographic situation is generally bullish for Asia and the Middle East and bearish for the Western world. Not only are favorable demographics supportive of the future workforce in absolute terms, but the youth of the world are better equipped to utilize the internet and new technologies. Even in a relatively poor nation like Egypt, we are seeing how new technologies are being integrated into everyday life. I still think we are at the tip of the iceberg of where technology can take us. When you look at the growth curve of things like processing power and bandwith, it is exponential. This is a future I am not sure the Western world is ready for.

But before I make a couple of arguments for China, I urge you to watch the embedded interview with Jim Chanos, who I consider a very skilled hedge fund manager. He is bearish on China in general and the Chinese property market in particular. His argument basically centers around the outsized portion of GDP that housing occupies.

Chanos makes good quantitative comparisons between the Chinese property market today and the bubble U.S. housing market. However, China’s middle class is still growing, not contracting. Let’s estimate that China has a middle class of about 150 million. By some estimates, the middle class in China is poised to reach 700 million by 2020. In effect, the middle class is projected to grow by more than the current population of the United States in the next decade. The middle class in China will grow about 5x in the next decade. I can tell you this was not the outlook for the U.S. from 2000-2010. China needs houses. Not only that, but I can say with a high degree of certainty that capital investment will flood to China once they open up their markets more. Immigration trends will likely shift towards Asia. People follow the money.


The infrastructure in America is pretty dated. In a crude way, our prior innovation and quality in construction is now weighing us down. For example, the subway system in New York City is serviceable, but what we need is a complete makeover. Ironically, it would have been better if construction was a little shoddier so we could move on. This is a clear advantage Asia has over us- they can build infrastructure according to the most modern advancements in engineering and technology. This is why China has high speed rail and we have…Amtrak.

Since Asia is building modern infrastructure, their growth curves are going to benefit. Their young populations will drive innovation. As for the U.S., we will have to rebuild our infrastructure at the same time we have a debt crisis and an aging population. While the Chinese are buying gold no doubt in preparation for a new currency arrangement, the U.S. is buying its own Treasuries and paying the interest to the Chinese. Tell me, whose future should I be more bullish on? If I were a betting man, I would bet on China. Huge corrections are probably coming in China, but this is a growth story that is far from over.

Gold Miners Index May Be Warning Us…

The past cou­ple weeks I have been keep­ing a close eye the price of gold and the gold min­ers index. I check to see if its point­ing to higher or lower prices in the near future using inter-market analy­sis, price and vol­ume, along with tech­ni­cal analy­sis. At this time the charts are still point­ing to lower prices in the com­ing days or weeks.

Tak­ing a look at the daily chart of Gold
As you can see it has formed a bear flag with declin­ing vol­ume and the price has drifted up into a resis­tance level. This com­bi­na­tion typ­i­cally leads to lower prices.

With inter­na­tional fears float­ing around and the fact that infla­tion has started does make me a lit­tle weary of short­ing gold but one thing I have learned over the years is that trad­ing on fun­da­men­tals and news clips seen on TV is not a rea­son to pass on a setup if one forms in the com­ing days. The only thing that pays in the stock mar­ket is when the price action goes in your favor. This is why I focus on price, vol­ume and momen­tum while avoid­ing what oth­ers are say­ing else­where. Trad­ing is a num­bers game and I put my money on the table when the odds are clearly favor­ing one direc­tion. Unfor­tu­nately I am trad­ing trades against what the masses think and feel is the right thing to do.

Gold Miner stocks are form­ing much of the same pat­tern as gold bul­lion but today (Wednes­day) the chart actu­ally put in a pos­si­ble rever­sal can­dle. If this is cor­rect then we should see gold and most likely sil­ver fol­low suit tomor­row by mov­ing lower and pos­si­bly even start a correction.

Gold Swing Trad­ing Con­clu­sion:
In short, gold stocks sold off strong today while both gold and sil­ver closed only slightly lower. When this hap­pens near a resis­tance zone, with a bear­ish price and vol­ume pat­terns I start to look for a short­ing oppor­tu­nity. It has yet to hap­pen and I’m not going to jump the gun, but I am wait­ing for the right oppor­tu­nity to take advan­tage of these trad­ing instruments.

Ron Paul Says Next US Crash Will Be Comparable To That Of Soviet Union

Ron Paul has just stepped up his war of rhetoric with his nemesis the Archchairsatan Rudolf Vissarionovich von Bernankestein (because never before have we had a genocidal central planner hell bent on printing the world's fate out of a deflationary collapse), and in an interview with Larry Kudlow said what everyone who is watching the day after day melt up (and wondering what comes next) openly thinks: that when all is said and done, and there is no incremental vapor and no incremental HFT levitation effect, that the US collapse will be comparable only to that of the Soviet Union. Needless to say, we are confident he is optimistic. Some economic observations from Paul: "We have so much unemployment, it is so undercounted. The free market economists report that there is probably 22% of unemployment. They pumped in $4 trillion, they should have added a lot of jobs, but how much did it cost us, and that of course is the price inflation that will come. We are moving into another 30 year period where we are going to see a reversal of interest rates, and we are going to see a crashing of the bonds like we saw 30 years ago and it's going to last a long, long time. The Fed deserves the blame for the inflation, and for the unemployment." On the amount of damage done by the Fed: "I think it's unimaginable, it could be so devastating, and could bring a strong, worldwide run on the dollar. We are in uncharted territories. I think we will see changes in our economy and our country almost equivalent to the change that occurred in the Soviet system. I think it will bring down our empire, we won't be able to afford our welfare state, and we won't be able to afford taking care of the world." And as Zero Hedge suggested previously, Ron Paul believes that the Fed's policies will actually lead to a spike in unemployment when all is said and done. Lastly, on Ron Paul view of Bernanke's central planning:"One time when Greenspan was before the committee, I told him if you can make this fiat system work as if it is the market system working, you have repealed economic law. It is positively baffling that we as a country have accepted that one individual can control the economy... I'd like to get the monopoly power away from this cartel that pretends that they know how to run the entire economy."

Full clip:

And just in case the message was not heard loud and clear, Paul followed up earlier with some more thoughts: (more)