Tuesday, May 28, 2013

Ben Bernanke’s Latest Casualty: The Pension Plan

from Zero Hedge

With every passing day, the destructive consequences of Ben Bernanke’s ruinous monetary policy on the broader economy become more and more apparent.
Nowhere is this more evident than the observation of a record high stock market – benefiting just a tiny portion of the population – correlating directly with the record number of Americans on food stamps – the wealth effect “trickle down”, or lack thereof, for everyone else (not to mention an economic growth rate four years after the “end of the recessionthat is the worst recovery in recorded history).
Less hyperbolically, this can be seen empirically in the anti-correlation between the US economy and corporate profits. Through his “central” scheming, Bernanke has turned the discounting paradigm on its face, leading to a world in which the market no longer “discounts” or anticipates any information or fundamentals, but merely cares about how big the next latest and greatest liquidity hit will be, and in which there is an inverse correlation between profitability and general economic well-being.
Continue Reading at ZeroHedge.com…
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Greece Considering Labor Camp for Those Who Can’t Pay Their Taxes

from Economic Policy Journal
A friend emails:
I read this in a local Belgian newspaper:
in Dutch:
English via Google Translate:
Apparently the Greek government is planning to use an old army base as a forced labor camp for those unable to pay their taxes.
Continue Reading at EconomicPolicyJournal.com…
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This Moving Average Strategy Beats Buy and Hold by Nearly 3-to-1

Moving averages (MAs) are one of the most popular trading tools. Their popularity may be due to their simplicity. Before there were calculators or computers, a 10-day simple moving average could be found by adding up the last 10 closing prices and moving the decimal point one space to the left. I've talked to old floor traders who told me that was the reason the 10-day moving average become popular.
Now, MAs of any length are easy to calculate and widely used. We also have variations of the simple calculation. Rather than just adding up numbers and dividing by the total number, there are at least four other possible ways to find a moving average:
1. Exponential Moving Average: Assigns a greater weight to the more recent market action in an effort to be more responsive to changes in the trend.
2. Weighted Moving Average: Allows users to decide which data should be overweighted and allows for the weighting values to be changed.
3. Triangular Moving Average: Weights the middle of the data more heavily.
4. Adaptive Moving Average: Uses smoothing factors to adjust the number of days used in the calculations to current market conditions.
Each method has its proponents and each of the four methods adds a level of complexity to what was originally a simple indicator. Complexity, at least in my mind, is only OK if it adds value. Visually, it looks like the different moving averages move in the same general direction.
The chart below is a weekly chart of the SPDR S&P 500 ETF (NYSE: SPY) with the prices hidden so all we see are the moving averages. This eliminates the clutter on the chart and makes it possible to see that the moving averages rise and fall at the same time.
SPY Moving Averages Chart
The adaptive moving average, the thin red line, stands out as consistently lagging the simple MA, shown as the thick blue line. At the bottom in 2009, the exponential MA, the brown line, was the last to signal a buy. That signal came after SPY had gained more than 35%. The other MAs signaled a buy after a gain of 25%. Large delays at bottoms are one of the most significant drawbacks of trading with a moving average. The other significant drawback is that there are a large number of small trades in a sideways market.
Based on the visual comparison, we can say that the averages are all close to each other. More detailed quantitative testing of the various MAs is required to develop a stronger opinion as to which one is best. The results are summarized in the table below. All results are for a 26-week MA and the system is always in the market, long when the price is above the MA and short when the price is below the MA.
Moving Averages Table 1
Each MA delivered a low number of winning trades and none beat the market. Digging deeper, we learn that the performance problems are due to large losses on the short side.
Looking at the results for a long-only MA system, moving to cash when the price falls below the MA, we see much better performance.
Moving Averages Table 2
Although the number of winning trades is still low, the adaptive MA beats buy and hold by a significant amount, nearly 3-to-1. This indicator will not call the top of the market. In fact, because it is calculated with historical data, it is impossible for any MA to signal at the exact top or bottom.
At the time of this writing, SPY is well above its adaptive MA, and based on this indicator alone, a bull market would be intact as long as SPY remains above $141.36. Of course, the precise value of the MA changes daily, and will likely be higher when the next bear market does begin.
SPY Adaptive Moving Average Chart
There is no way to fully eliminate the problems associated with moving averages. But in my experience, the best way to use them is to apply an adaptive MA as a long-only signal. No matter what type of MA is used, when the prices are below the MA, the chances of profitable buys are low. Personally, I'd consider selling any stock or ETF when the price moves below the 26-week moving average.
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Precious Metals & Miners Start Bottoming Process

Precious metals and their related mining stocks continue to underperform the broad market. This year's heavy volume breakdown below key support has many investors and trader's spooked creating to a steady stream of selling pressure for gold and silver bullion and mining stocks.
While the technical charts are telling me prices are trying to bottom we must be willing to wait for price to provide low risk entry points before getting involved. Precious metals are like any other investment in respect to trading and investing in them. There are times when you should be long, times to be in cash and times to be short (benefit from falling prices). Right now and for the last twelve months when looking at precious metals cash has been king.
Since 2011 when gold and silver started to correct the best position has been to move to cash or to sell/write options until the next trend resumes. This is something I have been doing with my trading partner who focuses solely on Options Trading who closed three winning positions last week for big gains.
In 2008 we had a similar breakdown in price washing the market clean of investors who were long precious metals. If you compare the last two breakdowns they look very similar. If price holds true then we will see higher prices unfold at the end of 2013.
The key here is for the price to move and hold above the major resistance line. A breakout would trigger a rally in gold to $2600 - $3500 per ounce. With that being said gold and silver may be starting a bear market. Depending what the price does when the major resistance zone is touched, my outlook may change from bullish to bearish. Remember, no one can predict the market with 100% accuracy and each day, week and month that passes changes the outlook going forward.
The chart below is on I drew up on May 3rd.  I was going to get a fresh chart and put my analysis on it but to be honest my price forecast/analysis has been spot on thus far and there is no need to update.

Gold Daily Technical Chart Showing Bottoming Process:

Major technical damage has been done to the chart of gold. Gold is trying to put in a bottom but still needs more time. I feel gold will make a new low in the coming month then bottom as drawn on the chart below.

Silver Daily Technical Chart Showing Bottoming Process:

Silver is in a similar as gold. The major difference between gold and silver is that silver dropped 10% early one morning this month which had very light volume. The fact that silver hit my $20 per ounce level and it was on light volume has me thinking silver has now bottomed.
But, silver may flounder at these prices or near the recent lows until its big sister (gold) puts in a bottom.

Gold Mining Stocks Monthly Investing Zone Chart:

Gold mining stocks broke down a couple months ago and continue to sell off on strong volume. If precious metals continue to move lower then mining stocks will continue their journey lower.
This updated chart which I originally drew in February warning of a breakdown below the green support trend lines would signal a collapse in stock prices, which is exactly what has/is taking place. While I do not try to pick bottoms (catch falling knives) I do like to watch for them so I am prepared for new positions when the time and chart turn bullish or provide a low risk probing entry point.
While I focus more on analysis, forecasts and ETF trading another one of my trading partners who focuses on Trading Stocks and 3x Leveraged ETF's has been cleaning up with gold miners.

Gold, Silver and Mining Stocks Conclusion:

Precious metals continue to be trending down and while they look to be trying to bottom it is important to remember that some of the biggest percent moves take place in the last 10% of a trend. So we may be close to a bottom on the time scale but there could be sharply lower prices yet.
The time will come when another major signal forms and when it does we will be getting involved. The exciting this is that it could be just around the corner.
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Peter Lynch Would Love This 'Boring' Stock (Which Could Reward Traders With 18% Returns)

In his investment classic, One Up On Wall Street, Peter Lynch expounds on how he seeks out boring stocks with dull names for superior returns. "A company that does boring things is almost as good as a company that has a boring name, and both together is terrific." His reasoning: The lack of glamour repels momentum chasers, so the acute trader can buy at a discount.
Insurance provider Chubb Corporation (NYSE: CB) seems to fit Lynch's bill. It offers property and casualty insurance to individuals and businesses throughout the Americas and Asia -- not nearly as exciting as something like cloud computing. Chubb also passes one more Lynch criteria: It has excellent fundamentals.
Recently, the company reported a 30% increase in first-quarter profit, due to increased rates in the U.S. Chubb also announced record quarterly earnings of $2.14 per share, well ahead of the $1.74 per share analysts expected.According to Chubb 's Chairman, President and CEO, John Finnegan, "higher rates, strong underlying underwriting performance and low catastrophe losses" all contributed to the solid results.
The insurer -- which targets affluent individuals with enough disposable income to buy and insure luxury items like yachts -- saw first-quarter 2013 policy sales increase 4% from the year-ago period to $3.1 billion.
Over the remainder of the 2013 year, management anticipates strong renewal rate increases across business units will drive further growth.
To combat low interest rates -- which have negatively weighed on the company's investment portfolio -- Chubb will also likely increase premiums.
From a technical perspective, the stock is strong.
Forming a major uptrend line off the August 2011 $53.54 low, shares have risen 68% in less than two years.
In early 2013, the stock began an accelerated uptrend which is still intact.
Between mid-February and early March, the shares encountered resistance around $86, but were able to break through. The $86 range now acts as support.
For much of the spring, the stock has attempted to break round number resistance at $90. This round number is an important level psychological resistance and represents an all-time high level for the stock.
If shares can definitively break $90 resistance, they will bullishly complete a small ascending triangle, marked by the intersection of the accelerated uptrend line and $90 resistance.
According to the measuring principle for a triangle, calculated by adding the height of the pattern to the breakout level, the stock should then reach a minimum target of $106.38 ($90-$73.62=$16.38; $16.38+$90=$106.38). At current levels, this target represents an 18% return.
The bullish technical outlook is supported by strong fundamentals.
For the upcoming second quarter, scheduled to be reported on July 22, analysts expect increased rates will help push revenue up 3% to $3.2 billion from $3.1 billion in the comparable year-earlier period.
For the full 2013 year, analysts project revenue will rise 3.2% to $12.3 billion from $11.9 billion last year.
The earnings outlook is similar.Due to increased premiums, analysts estimate second-quarter earnings will rise 19% to $1.63 per share from $1.37 per share in the comparable year-ago quarter.
For the full 2013 year, analysts suspect continued underwriting strength will cause earnings to surge about 36% to $7.12 from $5.23 last year.
In addition to an upbeat fundamental outlook, Chubb currently offers a forward annual dividend yield of about 2%, or $1.76 per share. This dividend is likely to rise in the future. Chubb is a Dividend Aristocrat; the company has rewarded shareholders with 31 consecutive years of annual dividend increases.
Risks to consider: In its most recent first quarter, Chubb reported that low interest rates caused the company's net investment income to fall 8% to $351 million. If interest rates continue to stay low, Chubb's investment income could continue to falter. However, to offset the low interest rate environment, management has stated it will push to raise premiums. Doing so should ensure Chubb's growth.
Recommended Trade Setup:
-- Buy CB at $90.19, above $90 round-number resistance
-- Set stop-loss at $85.89, slightly below current support at $86
-- Set initial price target at $106.38 for a potential 18% gain by the end of 2013
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Nikkei Was A Shot Across The Bow

Japan’s Nikkei dropped 7% on Wednesday night that was then followed by another significant fall.  In the end it was a 2,000 point rout that was a “shot across the bow” for world markets.  However on a weekly chart it was barely a blimp, the Nikkei has rallied 7,000 points in just 5 months and it highlights how far world markets have moved in such a short period.  For the S&P though, the move lower already began on Wednesday with Bernanke’s testimony to congress.  That day was marked by push into all-time highs that was followed by a reversal of over 1%.
Wednesday’s reversal came on Day 25 of a Cycle that was already up a massive 150 points.  The entire Investor Cycle has added a stunning 330 points and this 4th Daily Cycle has been the biggest gainer of the 4 Daily Cycles.  To have the 4th Daily Cycle as the best performing just illustrates the parabolic like behavior of this Investor Cycle.
So after 3 declining sessions we now have our first closing Daily Swing High, along with a close below the 10dma.  The drop hasn’t been severe, but because the rise was so steep this drop has broken below the Daily Cycle trend-line.  Normally when these conditions are present at this stage of a Daily Cycle it’s pretty good odds that the Cycle as topped.  In addition we see the oscillators have turned lower, so therefore it’s my expectation that the Cycle has topped and we should spend the next 12 days moving to a DCL.

We know that markets can remain elevated for extended periods of time and this has clearly been one of those times.  Newsletter positioning is again at the highest levels of this bull market.  We know it’s not a timing tool, but it does line up well with the Daily and Investor Cycles being very deep in their respective Cycles.

Yes another record was set this month with margin debt up into all-time highs.  Investors now have $384 billion in margin debt and have exceeded the record set in 2007.  The growth in margin debt has been very steep of late and this additional liquidity is just one reason that explains why the Dow index has gone 101 trading days without a three-day decline.  That streak is a record; it’s the longest streak in history!
Forget the talking heads telling you this is all a normal bull market rally because it’s not.  With a near parabolic rise over 6 months, I can assure you that we are very close to a significant multi-month decline.  The Investor Cycle is now extremely stretched and overbought, so it’s well overdue to begin its long decline back to an ICL.  The Cycle was extended by a full Daily Cycle which is why we’re seeing a top in week 27, a point where most Cycles have already completed.
If the Daily Cycle has topped, then this is also evident on the weekly chart as the slower oscillators have begun to turn lower.   They’re not flashing a sell signal just yet, but a week of weakness will be enough to confirm that the Investor Cycle has likely topped.  I know it feels almost impossible to call a top in the equity markets, but after a 27 week surge of 330 points there just comes a point where every run must come to an end.
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Dutch Defined Benefit Pension Plans, Second Largest in Europe, Face Forced Cuts

Things are getting rather interesting in the Netherlands as low interest rates have increased pension deficit liabilities. Unlike the US and other parts of Europe where deficits are ignored, Dutch law requires 105% funding and the plans fell from 152% funded in 2007 to 102% funded today.
This has forced pension plans to cut benefits by as much as 7% for some trades. As might be expected, this has given rise to a 50 Plus Party, which won election to the Dutch parliament for the first time last year on promises to defend the interests of pensioners.
Please consider Yawning deficits force Dutch pension funds to cut payouts.
 A combination of record low rates, sluggish economic growth and lives that last far longer than anyone imagined even a decade ago have resulted in yawning deficits. At the end of 2012, the funds were €30bn short of what is needed to cover promised benefits.
For the Dutch, the cutbacks are the first ever in a nation which has the second largest “defined benefit” system in Europe. But defined benefit provision, under which pensioners are guaranteed a portion of their salary for as long as they live, is unraveling under the pressure of the financial crisis and ensuing recession.
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