Wednesday, March 19, 2014

Bounce Continues As Things Get Worse

Call me a skeptic or call me a realist. Give me a hot market and I can rev it up with the best of them. But when I see things that in the past have marked dangerous territory, I always err on the side of caution. I'm not some portfolio manager looking to just beat the market or offer nice conservative returns. I am looking for killer years while at the same time not looking to lose money. That gives me the flexibility to sit on cash do some day trading and answer to no one.  I may be outperformed for awhile and I may even jump on a rally or two. But I know when something is wrong.  





The stock market bounced for the second day in a row today. Other than MSFT making a new 14 year - but not all time - high and Stocks like GOOG and BIIB nearing their old highs. this market is not offering much to bite at. Of course that could change and the market can pop with slews of stocks setting off my price alerts at new highs. But the odds of that happening right now may be a bit difficult. Janet Yellin and Vlad the "Peacemaker" -choke - may have something to do with that in the short run,

MSFT was the only major stock to break out today. I played the breakout which was based upon the leak that MSFT Office would be announced for AAPL's I-Pad. I get the idea of MSFT getting its act together in the mobile world. But is this news that big a deal? Anyway, I sold the stock as a day trade. tomorrow is another day.




Consider the following:

1 - Technical Indicators Are Deteriorating as the market rises. 

- For instance, Technical Analyst Helene Meisler says that the Put Call Ratio at around .70 "is getting jiggy." It is on the verge of flat out complacency showing a giddiness in the markets at the wrong time.

- Volume is declining as the market bounces.

-  The differential between low small caps and large caps is the highest in years



- Other Sentiment Indicators Are Still Not Scared. For example, the $VIX is still very low.

 

- I could go on and on, but underneath the surface of the indexes is a lack of decent looking stocks. And many indicators which indicate that there are too many trained to buy the dips bulls.  Having been burned too many times, the bears have thrown in the towel.


2 - In My Opinion The Worldwide QE Mess Will Not Unwind Smoothly.

- The pathetic USA recovery is built upon a fragile QE that has lost power with each round and is now going through an unwinding process who's timing has to traverse an unknown economic background. Is the economy strong enough to stand on its own or is the worn rug being pulled out from under it at just the wrong time? What will Grandma Janet say today?

http://www.youtube.com/watch?v=o2uvtl-1V70





- Is the European QE unwinding even more fragile than that of the USA's tapering?

- It is becoming more obvious each day that China's QE has dwarfed all others by a magnitude that is relatively greater by a factor of several times. Hence, the unwinding of China's QE will be the hardest to orchestrate. China is now letting institutions fail for the first time without the safety net of a government that has gone too far. We know that China's GDP must grow at some outrageous sounding rate of 9% or so just to stay afloat. We also know that China is not growing at that rate. Official government statistics put their growth rate at 7%, but those numbers are not to be trusted. Many economic insiders believe that real growth is below 4%. That sounds large, but it is a recession no matter how one views it. 


3 - The World Is Becoming More Dangerous as The USA Cedes Its Leadership Role

This is a long term problem that can erupt at any time. The sword of Damocles is hanging over our heads. And it is not getting any better.

President Obama is sadly in way over his naive head when it comes to foreign policy. He does not understand that there is a huge difference between not fighting foreign wars and being strong enough to prevent them. We over reacted after 911 by getting involved in too many costly wars in terms of life and treasure. But just because we fought unpopular wars does not mean that we have to lurch the opposite way and become isolationists or not keep our promises. The end result of not being trustworthy and having an erratic weak foreign policy is to embolden bad people to fill the void left behind by the USA.

We are stuck with a non strategic thinking President for three more dangerous years in which the following situations are evolving. In and of themselves, each situation is dangerous. But the cumulative affect of them all, plus the interaction through treaties or territorial interests makes the situation all the more dangerous. World War One occurred when defense treaty after defense treaty caused many nations to join into wars in order to defend their treaty partners:

 - Iran has been given a green light by Obama during the recent sham negotiations. Putin is now going to dig in and support Iran's nuclear program. My question is when will Israel strike and what will the USA do to support Israel? The negotiating period ends in June. That is Israel's deadline to go for it in my view. 

 - Russia Putin is going to try to annex other former Russian satellite states. Further more, despite the weak Russian economy, he will play the pipeline card. By backing Iran and Syria he has committed to oppose the USA in those areas and more. Also, Obama's gutting of NASA has left us vulnerable to Russia being our only means of getting men into space until Space-X and others get their acts together. 

 - China is biding its time, but now has the incentive to go after the disputed islands and will selectively pick its fights and alliances. One quasi alliance is North Korea. How will China react to the USA finally getting tough with Kim Jon Rodman? 

 - North Korea is becoming more belligerent as the USA falters. Hidden by the Ukraine headlines were more missile firings and threatening posturing towards South Korea.

 - World Terrorism is not done despite Obama's cynical pre-election spin last year. It is getting worse.

 - Israel and the Entire Middle East Mess is a tinderbox ready to explode. Iran is the catalyst and the world isolating Israel over the Palestinians and Syria

4 - Worldwide Trading Entanglements Coupled With Financial Warfare Is A New And Dangerous Mixture.

This is a new battleground. If used too much it is going to effectively become the new Smoot Hawley Tariff IMO. The fact that nations are so tied up is in many ways a counter argument to the basic economic tenet that it pays to trade. An unintended consequence this tenet is that trading partners can be held hostage by their counterparts. To wit, the Russian blackmail o f Eastern Europe (Germany) with the gas pipeline. Or China and Russia starting to call in their loans to the USA.  

And as per Zerohedge, how the hell did Belgium absorb all their debt? Who is the Wizard of OZ behind Belgium's ability to become our third largest creditor. Something rotten is going on and Belgium is the front. Paging Janet Yellin and Obama to tell us what is going on, because this debt accounting slight of hand is going to be exposed and unravel.  

In sum, Markets don't typically turn on a dime, but the above gauntlet is no wall of worry to climb. I hope that I can play some real rallies, but the caution light is on. The only question is when will the Bull Market end? I will let events play out to tell me that.


BIG Capital Advisors and Seaview Partners are not responsible for your investment decisions. We believe very strongly in our opinions, but you must perform your own due diligence in making your investment decisions.
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