Tower Private Advisors
- Get out the smelling salts for commodities
- Fearless forecast for gasoline
- Torn edge effect!
Capital Markets Recap
Commodities aren’t exactly scrambling up off the mat, as can be seen in the chart below. Silver is the only one that is attempting to reverse a downtrend. Apparently, China’s open interest in silver futures skyrocketed–as in 2800%–in the “poor man’s gold” parabolic move this year. We picked that up in a phone conversation with Stifel Nicolaus’s chief strategist Barry Bannister, a sharp chap, who said the Chinese, “have had a love affair with silver,” and that spikes in it have tended to mark the end of precious metal cycles.
As you know, this blog is about what’s important–what you need to know, but this first one might cause you to drop your laptop in the tub. “1000s of Dead Walleye Being Found in Lake Erie.” This is serious stuff, as Lake Erie is the world’s greatest Walleye fishery. According to the story, researchers think it might be a result of, “the stresses off spawning combined with all of the cold, stormy weather this spring.” I guess we can cross off global warming–oops, make that Climate Change; there, we’re back on track.
Delicious stuff here…
- Goldman’s O’Neill Says ‘Black Swan’ Concern Overblown, Stocks Set to Rally - the black swan notion refers to an event that is unpredictable in terms of its likelihood; i.e. traditional statistical methods would put the odds at 1 in a lot, for example. This has been a theme recurrent in option markets, where inefficiently priced way out-of-the-money (they’re way out of the money because, theoreticaly, they represent black-swan events) protective index options are bought as a cheap way to profit tremendously on a so-called BS (fitting?) event. Black Swan events are so called because, in the 1800s, scientists assumed that since they’d never seen a black swan there weren’t such things…until one was sighted.
- Donald Trump Failing with Investors in Global Poll Showing 68% Unfavorable. Let’s hope; I mean, if nothing else, his hair has got to go. Look, Don, if Nixon lost the debate to Kennedy because of a tan, you don’t stand a chance.
- Run from this one: Citigroup’s Pandit Says China Asset Inflation Inevitable (my emphasis.) Things that are inevitable in markets tend not to happen. On the other hand, he appears to have mastered the dismal science better than the dismal scientists, giving a forecast with no date.
- Bernanke Says Debt Limit Shouldn’t Be ‘Bargaining Chip’ but it always is, Ben. Here’s how it works. Republican White House, Democrats scream and howl; Democrat White House, Republicans throw tantrum.
- Rajaratnan Guilty on All Accounts in U.S. Insider-Trading Case. Apparently, the jury took 15 seconds to deliberate before returning the guilty-on-14-counts verdict related to insider trading by the Galleon hedge fund. I jest on the time it took to come back with a guilty verdict, of course.
- Cisco Forecasts Revenue, Earnings That May Miss Estimates. ‘Want to know when Cisco’s about to plummet? Check to see when it announces earnings next. August 9, 2011. Perhaps one of these times the Cisco team will realize that their forecasts are too optimistic and begin to low-ball them. Until then, wash, rinse, repeat.
- The big merger & acquisition news of the week, of course, was that yet another technology company would buy another that hadn’t made any money. This time, Microsoft said it would buy Skype for $8 billion. Last time I checked Skype had yet to figure out how to make money. Following the Google (ala YouTube) model, they will then spend the next eternity trying to figure out how to monetize the asset. The only one who got monetized was private equity firm, Silver Lake Capital, which is said to have tripled its money on deal. Turns out ebay didn’t do badly, since it owns 35% of Skype. Mr. Softie (down 3% since the announcement) was one of those companies cited as “having a lot of cash,” and that, naturally, is yet another reason why stocks should be bought. So, let me see how this works–oh, wait, I get it: don’t buy stocks of companies that have gobs of money; buy the companies they’re going to buy. Got that.
- Greek Debt Rating Cut to B by S&P on Restructuring Concerns. I don’t know enough about this to comment on it, but why should that stop me. I don’t know, this just seems like it’s important. Can’t put my finger on why…
- Speaking of YouTube, according to Bloomberg (as are all of these headlines, and they’re lifted verbatim–there you are, Mrs. Buzzard, I cited them all; no plagiarism), Google’s YouTube Adding 3,000 Rentals, Challenging Netflix.
- Fearless forecast of the week: we’re going to be seeing lower gas prices shortly. That’s a forecast and almost a date. I base that on the $0.33/gallon drop in gasoline futures–and that considers the refinery shutdowns and other carnage related to the Mississippi river back-up. (I also consulted a technical analysis medium, which is to say I refrained from showing you the other tea leaves I considered.) Soon we switch to summer gas formulations, and that might be the catalyst. So, hold off on filling up your tank–wait, no–go ahead. This is probably a phenomenon that plays out over several weeks. Wanna invest around the idea? Buy airlines and . . . –you’re never going to guess–regional banks. Those two groups have shown the most dramatic inverse senstivity to gas price changes. Go figure out the second one and report back.
There wasn’t a lot that caught my attention this week. Initial Jobless Claims rose more than expected (again), although the figure (434,000) was considerably less than last week (474,000), giving some credence to the idea that temporary/transitional/seasonal (TTS) factors were to blame. Surprisingly, while economists weren’t able to capture the TTS that decimated their forecasts over the last couple of weeks–even though the apologists insisted they came from factors that would have been easily discerned–this week they nearly nailed the figure, forecasting a drop of 44,000 instead of 40,000.
Both the Consumer and the Producer Price Indexes were released this week. Both showed considerable jumps in year-over-year headline inflation, the former rising from 2.7% to 3.2%, the latter, from 5.8% to 6.8%. John Williams (blog link at right) maintains a website where he tracks economic indicators as they used to be tracked. In other words, he strips out the government shenanigans and–not surprisingly–usually paints a bleaker picture. His view of inflation is no different, as the chart below shows–which, I might point out, sports a bit of aesthetic flare, what with the “torn edge” effect. The current incarnation of CPI is shown in red, while his CPI calculation using the 1980 methodology shows a considerably higher rate of inflation, as in four times higher.
On could argue that this (10%) is hyperinflation, and if you’d like to you can download John’s special publication titled, “Hyperfinflation Update 2011.” by clicking the image below. It will undoubtedly be just what some of you are looking for. It is not, however, a view we share. Finally, we wrapped up the week in economics with a better-than expected-University of Michigan Consumer Confidence report. We’re still 20% below the average of the 20 years ended September 2008. Yawn.
Key indicators to watch
- Industrial Production (Tuesday) – April
- Capacity Utilization (Tuesday) – April
- Initial Jobless Claims (Thursday) – weekly
- Leading [and Lagging and Coincident] Economic Indicators (Thursday) – April
- NAHB Housing Market Index (Monday) – May
- Housing Starts (Tuesday) – April
- Building Permits (Tuesday) – April
- Existing Home Sales (Thursday) – April
- Empire State Manufacturing index (Monday) – May
- Philadelphia (Philly) Fed (Thursday) – May
Graig Stettner, CFA, CMT
Vice President & Portfolio Manager
Tower Private Advisors
with offices in Hong Kong, Lisbon, and Craigville
Powers that be: if our institution’s image hasn’t been tarnished by now, you can rest easy: you have reached the end of this week’s dispatch.