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Since Don is on vacation in Aruba this week (first once since 1987) the weekly briefing will have to wait for his return. Unfortunately that won't keep me from putting in my 2 cents.
Inflation Strikes Once Again!
The market took off and hasn't yet taken a breath. The shorter term cycles have only caused the price to take short consolidations rather than causing any meaningful pull backs. What could be causing this? The first thing that comes to mind is fear of inflation.
Many people have the wrong definition of inflation. They think inflation is the cost, or value, of goods going up. In reality it is the value of the currency being used to purchase the goods, DECREASING in value. What causes the decrease in value? If there were only one dollar in the economy today, and another dollar was printed tomorrow, would todays dollar be worth as much? No.
The U.S. cleverly disguises their money printing. Instead of calling it such, they instead called it QE and QE2 (Quantitative Easing). Most money that is "printed" is really "created". Most money is electronic today. The advent of debit cards and online transactions have decreased the need for good ol' cash. None the less, there is much more money in the economy after the program than there was prior (chart below). The Europeans have decided to use the U.S. approach as well. Much to Germany's ire, they are "creating" lots and lots of new money to float their way out of their mess. Instead of devaluing the bad loans on all the bank's books NOW, they are getting 1% loans from the European Central Bank that don't need to be paid back for three years. The hope is they can loan that money out to others, with leverage, to make enough to make up for the bad debt on their books. When they write off the bad debt later, hopefully they will have enough other reserves to stay in business. Europe isn't calling it QE or QE2 though, instead they are calling it LTRO. The bottom line is they have created over 850 BILLION euros of new money in the last couple months. Helicopter Ben (Bernanke) hit the headlines in the Wall Street Journal today by stating he "sees temporary inflation pressure". Genius!! Maybe HE finally took a trip to the grocery store or filled up his own car with gas. Look at the money supply chart below (from the Fed themselves) and tell me if you can tell why we might be running into some inflation pressures.  Very good!! Yes, money supply is dramatically increased due to QE1 and QE2. We once again printed our way out of a recession (grey areas). The same is now going on in Europe. This is why, I believe, the market is acting with reckless abandon. It knows it will have to keep up with inflation and is trying to get a head start. The good news is it WILL take a meaningful break, have a good pullback and give us a wholesale opportunity to get involved.
Have a great day!!
John Norquay CEO PivotPoint Advisors |
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Wednesday, February 29, 2012
Over Extended
Wednesday, February 22, 2012
93% Chance Of Double Digit Returns This Year?
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The briefing was updated Monday and can be found in The Briefing Room.
Our objective is to keep your portfolio from ever looking like the man above.
This week will be a change up. Instead of talking about what is happening in the world's economy, I'm going to touch base on technical analysis. I've been following an interesting newsletter from a gentleman named Wayne Whaley. He has been studying seasons and their ability to predict the market. I don't mean to say he is studying whether winter can tell you if the market is going to go up or down, since winter can't talk. What I mean to say, for example, is if during the three weeks surrounding the Christmas and New Year season the market goes up, what are the chances the market will go up next year too? Technical analysis assumes that people continually do the same things again and again. Lets say a person walks into Kwik Trip every morning at 6:30 and buys a cup of coffee and a donut. If he he comes in on Monday and does the same, what are the chances he will be in Tuesday as well? If he DOESN'T come in on Monday, how does that affect his chances of being there on Tuesday? If he were an investment and there were an 80% chance he would be there on Tuesday based on his Monday appearance, we might invest in him. If there was only a 20% chance he would show up because he wasn't there on Monday, we would probably skip the opportunity. Wayne has studied the market seasons going back to 1950. He has determined that 28 times over the Christmas and New Year Holidays since 1950, the market has increased over 2%. 26 of the 28 times this occurred, the market the rest of the year averaged a 14.54% return. Since this last Holiday season was over 2%, this says the rest of the year has a 93% chance of giving us double digit returns. This would seem to agree with Don's analysis in the briefing room last week that the long term cycle appears to have turned up. Auto pilot in jumbo jets help the pilot, but are not a substitute for the pilot. This is how we look at market predictors like Wayne's. Its a tool and provides confirmation to our thoughts, but is no substitute to watching the market every day and making decisions regularly based off high probability risk vs reward. We want that double digit return, but we don't want the potential 20% drop that might occur between here and there. Smooth rides are always the most comfortable ones! We sold our MA positions when the market hit $13,000 on Tuesday. Since then it has pulled back about 1% without us in it. Read this week's briefing and see what we are watching for in order to take new positions again. Have a great day!! John Norquay CEO PivotPoint Advisors |
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Tuesday, February 14, 2012
Presidential Races and Recessions
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"It must be an election year"
The economy is extremely important to the current President and his party when it comes to re-election. Never has a President or his party won the election when the election year was recessionary. Do you think the President and his election staff know this fact? Of course they do! An article by the washington times addressed this issue. This article refers to the trend of the unemployment rate as a significant factor to Presidential election results. It doesn't seem to matter if unemployment is high or low, but is the current administration making them better or worse? Think back to my article last week regarding authenticity of the decline in employment numbers. They don't match up with the reality of withholding taxes from paychecks. You can see why the current administration is motivated to get these historically high numbers on a downward trend! I was doing some seminars in 2008 and part of the seminar addressed historic recessions and their effect on elections. My comment at the time was that either Hillary or Obama would be the next President. Why? Because even though the NBER (National Bureau of Economic Research) hadn't told us we were in a recession yet, we really did know it. In fact we weren't officially informed that the recession began until (how ironically) November of 2008. In case you were wondering, the official begin date was December of 2007. Yes, we were in a recession the entire election year, but weren't told about it until just before the election. I'm sure they wouldn't have told us then if they didn't have to. Unfortunately for the republican party, it was a deep recession thus causing a loss by landslide. This tells us how important it is to pick the right republican candidate, since the economy doesn't feel much better now than it did in 2008. Some say it is worse, but we will see as it unfolds. My favorite mutual fund star, Bill Gross, let the world know his preferences on CNBC. Bill heads PIMCO, the largest bond company in the world. I like Bill because he is always outside the box. I'm pretty sure President Obama hates his guts because he has actually shorted US bonds. Bill knows our economy is in trouble and believes Ron Paul is the only guy who will put things on a proper track. You can see the video here. Please visit the briefing room for our take on the current market conditions and our portfolio plans regarding them. Have a great day!! John Norquay CEO PivotPoint Advisors |
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Monday, February 6, 2012
Employment Numbers: Real or Unreal?
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 The pendulum swings. . . Thank goodness my generation falls right in the middle and we wear our pants in the correct position.GREECE As of this writing (Monday morning) Greece still hasn't made an agreement with their private creditors. They have met the last three days, but it seems the leaders of the political parties can't agree amongst themselves as to how much more torture they can take in the recession category. They've already been in recession 3 or 4 years and it seems this deal will only make matters worse. On the flip side of the coin, how much worse will it get if they DON'T put a deal together? The dilemma is that a laborer in Germany gets paid about 30% less than a laborer in Greece. If a laborer in WI gets paid 30% MORE than a laborer in IL, where will the manufacturer put his next plant? It is a catch 22. In Greece, 40% of the age group that would have their pants hanging around their knees (15 - 24) are unemployed. The next group older have 22% unemployment. I wouldn't want to be the one to tell these people things are only going to get worse before they get better. We in WI have had major problems with the governor taking away benefits. Think how bad it would be if he wanted to take 1/3 of our paychecks away also!! Makes it a little easier to see how anarchy take take hold. The dirty little secret is that even if this agreement gets made, the country is still bankrupt with their debt to income still about 125% of their GDP. The deal simply allows them to live another day. They will be able to make their march payments. Big deal. At this point we will begin reading about the next debt payment that needs to be made and their inability to make that as well. When will it stop? Probably when they leave or get kicked out of the union. Over The Top Employment Numbers Last Week Last week I spoke of the Baltic Dry Index because it provides real data outside the government's manipulation and endless revisions. This week I would like to mention the ability to track federal withholding taxes. It is only common sense that if more people are employed, then there will be more taxes being withheld, right? A group called TrimTabs follow these withholding taxes on a regular basis. They report that the government figures in the last few months paint a different picture from what the withholding taxes do. They said the last time there was such a large difference was during the last recession. As it turns out, the government numbers were wrong and had to be revised back to figures in line with the TrimTabs expectations. And yes, the government's employment report is off on the high side. Its as they say, figures can't lie but liars can figure! Time will tell who was correct. I have a feeling I already know. Could the government be serving up numbers to simply make themselves look better in an election year? Never has an incumbant administration or their party been re-elected when the election year was recessionary. Bush the 2nd was the last to affirm this in 2008. Long time readers know that what we are doing with our portfolios doesn't go hand in hand with what I write in this letter. I am writing about my thoughts of the overall economy. The market is a barometer of the economy. It moves BECAUSE of the economy in general, but its nature is to predict what is going to happen in the economy and move before the economy actually does. Since these predictions aren't always correct, large mood swings occur. Have a great day!! John Norquay CEO PivotPoint Advisors |
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