April 30, 2011 Linkfest

Cerro Casale: Capex increase, what capex increase?


Soros-backed Gavilon Buying Up U.S. Grain Elevators , Growing too fast to remain a secret

How Goldman Sachs Created the Food Crisis vs Gasoline Rises to 33-Month High as Supplies Drop for Tenth Week

Gold Luring Central Banks Buyers May Extend Record Rally

Yuan Breaks Through 6.5 Per Dollar for First Time Since 1993

Pork that ‘glows,’ beans with cancer chems among China’s latest poison foods

Think Again: Dictators

Soros: Why I agree with (some of) Friedrich Hayek. A discussion of Hayek, Popper, and reflexivity.

Friday Potpouri - Royal Wedding Free Zone

Terrible news from the south with impending floods:

Mississippi River Flooding 2011

"NEW ORLEANS -- A surge of water not seen since the Great Mississippi Flood of 1927 is forecast in coming days to test the enormous levees lining the Mississippi River on its course through the Deep South, adding another element of danger to a region already raked by deadly tornadoes and thunderstorms."

I was riding my bicycle either on the Mississippi levee or beside it when I rode the Great River Road last spring and I was shocked how close to the river entire towns or historic plantation houses were situated. Many times, the levee towered over the homes just a few hundred feet below and I could not understand how those people could sleep at night knowing how close that river was to their homes. And the levee is only as strong as it's weakest section.

If those levees don't hold it will be a disaster of epic proportions.

I did my weekly sector analysis to see how different sectors and indexes were faring at the new post-recovery highs for the S&P.

New all time highs

HMO - HMO's
XLP - Consumer Staples
GLD - Gold
SLV - Silver
XRT - Retailers
IYT - Transports
IBB - Biotech
IJR - Small Caps
MDY - Mid Caps

New post-recovery highs

COMPQX - highest since 2001
DJIA
NYSE
SP-500
EEM - Emerging Markets
ICF - Real Estate
IYR - Real Estate
VNQ - Real Estate
PPH - Pharma
SMH - Semi Conductors
XLI - Industrials
XLU - Utilities
XLV - Health Care

Muni's are also coming back from the dead.

So do we listen to the conventional wisdom that real estate is collapsing, when ICF, IYR and VNQ are at new recovery highs?

Or that interest rates are going up when XLU is at a new recovery high and the dollar is at a new recovery low?

Do we believe that the states are going bankrupt when munis are moving up sharply?

Do we believe that the consumer is tapped out when the retailers are at new recovery highs?

How can the Transports be at all time highs when energy costs are so high?

And if all of these things are are new highs or new post recovery highs, why is gold and silver going crazy?

And can we have any true recovery without the participation of the financials and the homebuilders? (Obviously, yes we can)

David Rosenberg on Muni's January 17, 2011

ROSENBERG: FADE MEREDITH WHITNEY’S MUNI CALL

“There is a clear buyers’ strike in the market for state and local government debt that is largely based on fear and misperception. The mass selling of muni’s, which represent the bedrock of the U.S. economy, is incredible ― nine consecutive weeks of net redemptions totalling $16.5 billion ($1.5 billion in the January 15 week). Talk about fertile ground for a huge long-term buying opportunity.

First, even if you buy into the default talk, look at the yield protection you get now. There are some long-term muni’s trading north of eight percent ― even higher than junk bonds (a premium of over 100bps!). Long-term AAA-rated muni’s are now trading well north of five percent or 116% vis-a-vis Treasury bonds (typically, muni bond yields are equivalent to 82% of Treasury yields given their tax advantage). California off-the-run 30-year 6% bonds are now being quoted at a yield premium to dollar-denominated debts offered by the likes of Mexico and Columbia.

Give me a giant break.

Even in California, only teachers come in front of bond holders. In other states, the debt holders are the first to get paid. It’s amazing how few people know that.

Is China investing way too much in its infrastructure?

Picking up on the China theme from yesterday, I thought I would share this story with the group. I thought it was very informative as I have not seen this reported on in the MSM too much yet, but have often wondered how long China was going to build new things as a way to prop up their economy.

Is China investing way too much in its infrastructure?

China's economy is overheating now, but, over time, its current overinvestment will prove deflationary both domestically and globally. Once increasing fixed investment becomes impossible—most likely after 2013—China is poised for a sharp slowdown. Instead of focusing on securing a soft landing today, Chinese policymakers should be worrying about the brick wall that economic growth may hit in the second half of the quinquennium.

China has grown for the last few decades on the back of export-led industrialization and a weak currency, which have resulted in high corporate and household savings rates and reliance on net exports and fixed investment (infrastructure, real estate, and industrial capacity for import-competing and export sectors). When net exports collapsed in 2008-09 from 11 percent of GDP to 5 percent, China's leader reacted by further increasing the fixed-investment share of GDP from 42 percent to 47 percent.

The problem, of course, is that no country can be productive enough to reinvest 50 percent of GDP in new capital stock without eventually facing immense overcapacity and a staggering nonperforming loan problem. China is rife with overinvestment in physical capital, infrastructure, and property. To a visitor, this is evident in sleek but empty airports and bullet trains (which will reduce the need for the 45 planned airports), highways to nowhere, thousands of colossal new central and provincial government buildings, ghost towns, and brand-new aluminum smelters kept closed to prevent global prices from plunging.

Rock's Checklist

First, pick a few stocks per sector to trade. Study these stocks and learn their action. Learn their fundamentals. Fundamentals only tell you why to buy not when to buy. Technicals tell you when. And remember, never trust any work that starts with FU. Do your analysis before the market opens or after it closes. Always check for increasing quarterly profit margins and free cash flow (you can get from www.finance.yahoo.com). Check revenues and look for quarterly increasing revenues.

Draw lines where you believe support and resistance are. Draw the stock’s current trend channel, and determine that you are at the bottom of a down or up channel and beginning to turn, or have just turned inside the down channel. I use TDAmeritrade’s StrategyDesk channel drawing tool, it’s easy and pretty accurate. Identify your business plan based on the support and resistance points. Understand your possible gains and losses before you start. Do not wait until you are in the trade, and you are surprised. That lets in emotion.

When the market opens lose your opinions so you don't loose your money. Lose all hope and enthusiasm. Lose all depression. Go in cold. And hard. Determined. If your choices are high in volatility, take Demerol or darvon. Remember the market is like the Queen Mary. It takes a long time to turn or stop.

Going Long Checklist
1. Market trend positive (Positive slope of the SPY channel). Or weekly chart SPY Moving Average positive. The number of stocks trading above their 50 day moving averages must be increasing (stockcharts.com ticker $SPXA50)
2. Sector trend is starting to turn positive (I use Sector ETFs, I posted the list on the excel spread sheet)
3. The target’s daily stochastics at or below 20%. Ideally starting to turn up, with the %D starting to cross over the %K.
4. 15 minute Stochastics at or below 20% and starting to rise
5. 3 minute Stochastics rising
6. MACD Crossing over the signal, or rising.
7. 5-day relative strength at the lows, and starting to turn up. I posted the formula for rel strength before, but if you can’t find it, I’ll post again)
8. Enter the position. Pick your stop-loss. Use 1.5x the 15 minute bar point range, or identify the turning point and set the stop there. Set the stop loss. Be cold and hard. Set the stop loss. Set the stop loss.
9. Identify the W formation with the right hand low higher than the left
10. Look for volume confirmation. When the volume is rising, the price action is being confirmed. If the volume is falling, the price action is not defensible, and tighten your stop.
11. Adjust your stop. Use trailing stops on successful trades that are 1.5 times the 15 minute bar point range for tight stops, and 3 times the 15 minute bar point range for looser reign.
12. Check the SPY buy action at the end of the day. If there is positive buy action, and your stock is up, add. If there is sell action on your stock or on the SPY, then decide to get out. If you choose to stay in and risk everything for an overnight, then don’t sleep, toss and turn, and when you get up in the morning kick the dog.
13. Resist re-entering a position after you’re stopped out. Wait for the next setup, the next opportunity. Remember opportunities are like girlfriends (boyfriends), another will be along in 10 minutes.

Enter the position with 25 shares (depending on your budget, never more than 100 shares). The most money is made on measured moves, not on instant turns and quick hits. When you see a higher High on the W formation, that identifies the position may be increased. Do not add at the higher high point, wait for the 15 minute Stochastics to return to the 20% level, and if the low at that time is a higher low, then add at that turn-around point.

Going Short checklist:
1. Remember everyone is against you. Everyone hates you. Everyone will try to take your money and make shorting as painful as possible. You are fighting the Fed. You are evil. You’re as bad as GS “market makers”.
2. Do all the research you would do for going long. Just look for the opposite: decreasing quarterly revenues, negative free cash flow, etc. Never short strength.
3. The SPY trend must be flat or negative. Do not fight the market trend with a short.
4. In your FUndamental analysis make sure you understand the cash position of the company. With a lot of cash, they can buy their own stock and your caught up in your own shorts.
5. Sector is starting to turn negative.
6. Daily Stochastics are at 80% and have started to turn downward.
7. 15 minute Stochastics at 80% and have started to turn downward.
8. 3 minute Stochastics are falling
9. MACD crossing over or headed down
10. 5 day relative strength at the highs, and beginning to turn down.
11. Enter the position. Pick your buy-back point. Set the buy-back point with a stop-market order.
14. Identify the M formation with the right hand high lower than the left. You may add at this point.
12. Look at the “going long” checklist above, and decide whether or not you will be kicking the dog.

You should develop your own checklist. When you violate a checklist item, you should have a reason for ignoring it, so write down the reason. If there's a failure, then in your failure analysis, you can read your reasoning.

Remember to review successful trades. Look for points where your checklist matches up, and look for position maintenance successes. Keep a notebook and write them down. Review the notebook on sunday afternoon while you're making up to the dog for kicking him.

The paint is almost dry

Well, we are close to a definition moment by Friday-Tuesday.
The stocks that I'm following in case that the market drops are
COH
APKT
VRSN
DECK
TXRH
ACTG
I'm just following them in order to have a plan B in place, but of course there are names there who had an impressive performance and want to check their price action for a few days before any commitment in case of a drop.

The plan A is of course that this fails to brake downwards in the next 6 trading days, in that case the challenge to the upside move is going to become noticeably weaker and a strong up move should occur.

Even though I'm just waiting to see if this timeframe works or not, personally I think that is too strong to not jolt the market out of the past 10 week range.

Next week I'll bring some stocks to the upside and I'll start discussing about timeframes.

I was patiently following the correctionless correction past weeks but I strongly believe that between Monday-Tuesday an important movement is going to start taking shape.Will see.
Dan

Manny Mondays - To QE or Not to QE? That is the Question

Morning all! Despite spending the weekend totally tuned from the news, this article - Stimulus by Fed Is Disappointing, Economists Say - caught my attention. It basically concludes the following: (1) surprise, surprise, the Fed's efforts at "easing" hasn't really helped the real economy as much as had been previously forecasted by many economists, and (2) although the Fed's tools have been deemed effective at stopping the fall, they are very limited in terms of driving the real economy. Shock of shocks indeed. Certainly nobody (or a bunch of "nobodies") saw that coming, right?

Here are a few key excerpts:

As the Fed’s policy-making board prepares to meet Tuesday and Wednesday — after which the Fed chairman, Ben S. Bernanke, will hold a news conference for the first time to explain its decisions to the public — a broad range of economists say that the disappointing results show the limits of the central bank’s ability to lift the nation from its economic malaise.

“It’s good for stopping the fall, but for actually turning things around and driving the recovery, I just don’t think monetary policy has that power,” said Mark Thoma, a professor of economics at the University of Oregon, referring specifically to the bond-buying program.

Mr. Bernanke and his supporters say that the purchases have improved economic conditions, all but erasing fears of deflation, a pattern of falling prices that can delay purchases and stall growth. Inflation, which is beneficial in moderation, has climbed closer to healthy levels since the Fed started buying bonds.

The article then goes on to discuss some of the options the Fed has at this point in terms of continuing with QE or ending it. Many contributors on the blogosphere have theorized that Ben is basically in a box now with no good options in that if he continues with more QE he risks stoking inflation, as well as the continued debasement of the dollar, which could serve as a drag on the real economy, but if he ends QE, he puts the stock market and other asset prices at significant risk of falling. So what does he decide to do at this point? Some contributors on the blogosphere have mentioned the prospects of some sort of "stealth easing" that serves to do something similar to QE, but one that's not overtly labeled as such. Might this be an option at this point? What does everyone think Ben's next move will be and the resulting effects on the market, commodities, inflation (deflation?) and real economy?

April 23, 2011 Linkfest

60 Minutes on Greg Mortenson, “Three Cups of Tea” and the Stories We Tell. Ugh, can we please leave already?

The Irony of Poverty. Warning: long dialogue about behavioural economics.

Dead Suit Walking

An homage to Munehisa Homma

Friday Potpouri - Good Friday Edition

Interesting things about the 60 minute SP-500 chart.

1. 50% Fib retracement at the 1295.00 level
2. Three pushes down marked the end of the retracement
3. Bull flag from Wednesday resolved itself to the upside
4. Internal statistics are not confirming the upside of Thursday

As we approach the recent highs and the February highs what are the chances that we break out to fresh highs for 2011?

Many of my indicators are mixed (neither positive or negative) but a few are sounding the caution bell.

1. Tick highs have been declining into this rally. Just before the February and April declines tick highs contracted significantly. Today the NYSE tick high has only been 801 despite the higher prices.

Negative for stocks.

2. Advancing Issues, made a new short term high Wednesday at 2527, the most since November 24, 2010 which also had 2527 advances.

Positive for stocks.

3. Cumulative Tick is also showing weakness as the market has rallied back.

Negative for Stocks

4. New Highs are also lagging.

S&P 4/1/11 1332.41 new highs 383
S&P 4/21/11 1334.09 new highs 226

157 fewer issues made new highs when the S&P surpassed the highs of 4/1/11.

Negative for stocks.

5. Up volume ratio has been steadily declining. Negative for stocks.

6. MoMo stocks have been doing well i.e., LULU, TZOO, WYNN, BBBY, VMW, BIDU, DECK, PCLN, SINA to name a few. Both positive and negative as MoMo stocks by definition are frothy but it illustrates that they are still being bought.

The Nasdaq has more positive internals I would call them mixed as well.

The ability of the market to snap back after bad news events also is an important tell. Two years ago the same S&P news might have tanked the market 500 points.

Despite the weaker internal statistics I think that the market has a good chance of making new highs for 2011.

Thorsday Open Thread

With a song . . .  A dedication of sorts. Can you guess for who?

You Wrote This Post

I have a trading checklist, in writing, but as with any document, needs living updates. So, I’ve been researching the comments, to revise that document. In my laziness, I decided to let all the contributors to this blog construct this post. I intend to use this information to modify my checklist. Taking comments out of context is dangerous. I tried to do the best I could. I was not able to get before March 9, and there was a bunch of stuff I remember but haven't reread yet.

I wanted to lead off with Wolfstreet whose first comment sets the tone:

WolfStreet:
I think this blog has been one of the most important contributors to my trading progesses.

I find it hard to imagine a trading system that would enable you to trade in a context isolated from the global markets. At least not one that will consistently isolate you from all market setups. I have messed up trades in nearly any possible ways: selling my long near a short term bottom, covering my short near a top, getting out just before the break I was targeting started BIG time, or missing the entry by a few points. I'm okay with taking losses, as long as it's in tune with my risk management "plan". ie several small losses, for a (possibly smaller) number of big wins = profits. I try to monitor my ratios losses/wins and remain aware of when things may start to go wrong.

The 1312 line is the one I'm eyeing with interest. That line being taken back, plus having at least one down day on big volume, would certainly awake the wild sleeping bear in me.

…..But, as always with fundamentals, hard to time the impact on stocks. When trading individual stocks, I always include my predictions for the markets (mostly the SP500) as part of my trading system.

There's this particular trade you've opened, in which you place high hopes of success since your trading system shows all lights greens. Then comes a big move in the global markets, generally in the opposite direction from that trade, and your stock follows in their steps, and at some point you're out. But hey, in the end, it simply means you were wrong to begin with, doesn't it ?:p

Anonymous (ICan):
I did look at Su.nyse chart at Finviz.com and saw that it hadn't broken the major moving averages like 50dma. I like finviz better than stockcharts.

Bernanke = Greenspan. And now there are trying to spread the debt disease to Ems. Live life to the fullest and then default - is the name of the game.

Dastro:
I'm trying to optimize the use of time (work constrains) that I get, to study the markets as a whole first and then re-engage in my silly accuracy rate predictions in individual stocks. When I'll be able to pick stocks successfully without paying attention to the general market...well, that would be the moment that I can say to myself after years and years of efforts you did it dude, but I'm not there. In the meantime I need to get help from the general market and/or improved synaptic activity.

My original view back in September was that will move up at a good pace till April and then an important correction [Rock: dead on, just a little late….I wonder how he did it back in Sept?]

If I know the stocks (meaning a lot of time studying them)I become familiar with them and my prediction performance in this case hit around 70% right- 30% wrong. Narcissism it only clouds our judgement making us believe that we have something when in reality we got nothing but only hope.

Dss:
The primary problem of trading short term stock type things and not futures is that the market moves more overnight sometimes than it does during the day, so even if you have a stop you can get creamed. Sometimes I put on a little test position as it keeps me uber focused then on how it does. Even if I lose a little bit of money, it is giving me good information.

I am strictly a technician, fundamental analysis to me is a waste of time, and is often wildly inaccurate due to lies, fraud and mismanagement. I just don't spend a lot of time trying to figure out the "why" of something. I take note of sectors that are over or under performing, drill down to see if the whole sector is doing well or just a few large stocks, and extrapolate from there. Divergences from the overall trend give me information to form an opinion and then I use other technical indicators to confirm that opinion.

Tops are very hard to predict as there usually is a process going on that takes months, if not a year (2007-2008) to unfold. No one rings a bell at the top and no one rings a bell at the bottom. Things always look best at the top and worst at the bottom. Markets go further in both directions than anyone could have predicted. Let history and internals be your guide, rather than hysterical blog coverage and misleading media coverage.

The important indicators that I follow such as the McClellan Summation Index have been diverging since last November, which put in their third lower high, while prices have powered forward.

With regard to gaps up/down in the SPY the odds are that they will fill if they are less than 1.00, 132.10 minus 131.10, but if they are more than 1 point then the odds are they will not fill.

I keep a 7 day ma on the range of the S&P futures and it went from a high of 29.93 to a low yesterday of 10.29. Great example of the expansion/contraction principle. The last time the range contracted to this level was on 2/18/11. The concept of expansion and contraction that I follow is from Toby Crabel which is also where the NR4 and NR7 concepts come from: http://www.mypivots.com

I-man:
Focus on what you stand to lose, before you even think about what you may win. If you're on the right side of the tape, the gains will come. Small gains over time with good risk management will make ya rich. Being able to take small losses is one of the most important things you can learn. Its when folks cant admit they are wrong that problems arise.

"I'd rather be out wishing I was in, than in wishing I was out." I apply this same philosophy to taking gains in winning trades. I always protect gains with stops. I'd rather get clipped out with a profit, and look for a reentry with gains in hand, then sit and watch my gains retrace to evaporation.

When I pay all my debts, and start stacking a nest egg, it will all be in CDs. Or 90 day T-Bills...


Mannwich:
The Mannwich top is in folks. Lol. (April 12, 2011)

Remember, the economy isn't the market and vice versa.

I've previously been a fundamentals guy but that hasn't done me any favors, so I'm trying to use more of a combination approach and leaning more on technicals than I used to

Rock:
I love pullbacks. It's the only way we can identify the strongest stocks when the market trend is up. The time to invest is when the weekly, daily, and hourly stochastics of the SPX are at the 20% level. That's the time in your career that you will make the most money.

The S&P is constructed to advance when commodities go up in price. 17% of the S&P directly benefits: The Materials and Energy sectors. 48% is neutral to commodity prices: techs, financials, healthcare, and telecom. So about 2/3 of the S&P will advance (part by beta, part by direct benefit) if the commodity prices go up. Yes, we can continue the recovery, all we have to do is have inflation, where commodities go up up and away.

When I see a W on the chart, the stochs have to return to oversold, but here on SU we got just a little dip below overbought. If the stock is going up, and I want to momentum trade, I will wait until the stock is on the lower line of the upchannel, then go to a 15 minute chart, and look for a W with the right side higher, that must still be within the daily channel boundaries. If the daily channel is wide, I will take shares off at or near the top, then add them back when it returns to the bottom. I will never never short a stock in an upchannel. Don't short strength.

Volumes are extremely light, so the plunger team can be very effective right now, the window is still at 0%, and you can buy a lotta stock at 0% interest. The problem is the Fed's balance sheets are becoming more transparent, so the plungers gotta be careful.

The technicals look like a lower high. However, the fundamentals, the structurals, and the psychologicals just don't add up. Fundies: everything is up up and away. Profits never better. Structurals: the Fed's still buying. Bonds are in low-dom. Psychologicals: we're shrugging off everything: Lybia and middle east, ivory coast, Portugal and Ireland. So 3 of 4, up up and away. do you believe technicals? All by themsleves?

Thor:
Man look at gold, now that's one investment I made that turned out. I bought in at $850. That purchase was to diversify my investments FYI, wasn't trying to make a ton of money with it. I console myself by remembering that on the other side of that 230% profit is a pretty big loss. I'm definitely happier with 2 or 5% when it comes to my risk appetite! Two years on educating myself on the markets and investments and I still have the vast majority of my holdings in bonds and CD's!

I wonder if anyone has thought about doing some serious auditing work on the ratings companies. Who stands to benefit from a downgrade like [Portugal’s]? The big banks who will not only get more interest, but could this also force yet another bailout with favorable terms to the banks? Also wonder if TBTB are in the fight of their life here - it's one thing to have a small country no one ever talks about (Iceland) tell them banks to f*** off, it's another thing to have an EU country like Ireland or Portugal do the same thing. Would that maybe cause a domino affect? More and more countries deciding to follow in their footsteps? That would definitely NOT be to the banks benefit. One thing I do believe in, whatever the mechanism, is that this increased liquidity is finding it's way into the stock market. 1.7 trillion in QE in two Years is nothing to ignore .

We've talked about turning points - I'm learning quite a bit about my own biases lately. Watching so many of you turn bearish, some more so than other (cough, Manny, cough ;-). I'm struck by just how SLOW I am to change my outlook! I'm still clinging to "this correction is almost over". I don't know whether that's a good thing or a bad thing. One the one hand, I'm not quick to change my mind, on the other hand, that slowness could cost me if I'm not careful!

those tools will influence you to make bad decisions. I think this is key - too many people thinking the one or two systems they are wedded to are infallible. Best to get as much confirmation and as many different inputs into a trading decision as you can. Relying on one chart, or one system, I think, too often leads people to miss the forest for the trees

Rock:
I put Mutt last. Somebody had to be last, so I chose Mutt Mutt, the last shall be first.

Mutt:
But no matter what system is used, do you trust the numbers? Is our unemployed rate really falling, or are people being pushed out of the system, only to be left worse off then before, but no one cares because they no longer count as unemployed? As the dollar weakens and comodities spike can we really be having an economic upturn and if so how long can it last? Can the Toil Index give us a better number then GDP, Probably, but how long will it be before those numbers are manipulated?

I do not trust this market. Oh I do believe it will go up some more, but there is nothing to keep it up, how long it takes is any bodies guess. I think the market will continue higher only because it is being pumped with cheap dollars. But some day those cheap dollars will fail to make a difference and people will start to pull them out of the market, then the wheels to Ben's economic "plan" will start to truly come off.

I FINALLY have a fairly good handle on placing stops, of course it took loosing money to get the grasp of it, but like you have said several times, there is no reason to loose money and there is always another opportunity around the corner and well placed stops help both of those. I am not an “emotional” guy, I try and make decisions based on the facts, but being emotionally tied to the market has been my biggest downfall and perhaps one of the harder lessons to learn.

It seems a good trader also needs to be dynamic and able to change and even make choices they other wise would find distasteful.

Yes, Bernanke is my hero. Maybe the market insiders have itchy trigger fingers, because they know at a certain point they are on their own.

Carried away

Hello everybody,

Weeks ago I started getting some ideas on top of my normal drip and start practicing and gradually got um...carried away? is still way too soon but one hint is the comment that I made past week about what should we expect until around the end of the month.

I mentioned a down slope with a hump in the middle. and what got me really big, is the fact that is not a normal prediction: up, down or sideways- but is a complex form, which means 5 predictions together.

First a slant down
Second a reversal
Third a drop steep enough to get back or close to the original slope
Fourth Decelerate the pitch and get back to the downtrend of step one, but some more drop
Fifth bottoming process

And in that order and that order only.
I watch the fucking chart and swear to God I see the first three steps, don't know how far is it going to get but damn I'm thrilled just with three.

Not writing or having this stuff in the computer, is due to, besides my paranoia, a way to force myself not to get mentally lazy.I have to connect dots and having a whole picture in my head first before acquiring some kind of 'mastery" so to speak.

I remember Eric Clapton in one interview when he laughed at the idea that he play guitar like that because of talent. Of course he has talent but his laughing caught my attention because meant that the talent thing is not the "beef" of the story.

When he laughed he dismissed the concept of exceptionalism in a tacit way.
That you have or have not, and there's nothing that could be done to excell because is not inside our genes.

Usually happens the laughing when the "truth" is something entirely different to what a casual observer assumes.And the person involved finds amusing how people explain it to themselves.So I payed attention to what he said after the laugh and he mentioned that he drove his family...completely...crazy...practicing...guitar. Yes that's all.

So for an observer is a genetic talent what made him acquire mastery at playing guitar but it was revealing to me that his enphasis was in practicing his stuff. I always remember that interview.

So that's the main reason to not write down parts of anything, I need to get the thing as a whole in my head first is the only way to get some kind of mastery and not just a bunch of papers or documents spreaded around.

And the carried away part is because anticipating a complex form at least in it's first three steps maybe means that I start getting the melody.So maybe the whole thing is just keep practicing until the three steps become five in a row and looking almost effortlessly for a casual observer.But this is just the beggining not the end.

So will see what happen with the remaining 2 steps towards the end of the month and there I can start focusing back on the stock list again, I hope with a clearer idea about the trend.

Thank you
Dan

Manny Mondays - Whither or Long Live Manny's Top?

Morning all! Admittedly, this market has had me a bit confused lately. I had a quick look at the S&P chart today and am trying to figure out where we go from here. After nearly a 7% drop from the previous highs of 1,343 on 2/18, which got settled at about 1,256 at the close on 3/16, the market has slowly marched its way close to those previous highs, and settled at 1,325 this past Friday. A very resilient market indeed.

Given this recent rise off of that pullback over the past month, it would seem that we're at a very critical point in the market. At first glance, it would seem that a double top and/or lower high may be forming, which would seem to tell me that a correction or some type of significant pullback may once again be looming, but the longer we hang around at these levels has me wondering if this thing doesn't continue its march upwards with it ultimately testing and even breaching the prior "Manny top".

Take a peek at the chart. What does everyone think this morning? Which way do we go now? S&P 500

April 16, 2011 Linkfest

How Debris from the Earthquake and Tsunami Will Spread Across the Ocean

Maps Of U.S. Population Change, 2000-2010

When fund-raising is a crime

2011 BRICS summit. Indonesia should be pissed. South Africa over them? Really?

How Do You Cut Prison Populations And Costs? By Focusing On Parole And Probation

Why 60 Percent of Young People Support Torture. Not sure if this should be viewed as the decline of the American soft power or teenager naivety. Probably both...

Why do firms exist?

Friday Potpouri

I had my topic all set to go, but the link that explained everything so nicely disappeared.

Then Barry beat me to posting my second and third links, bastard.

Then I got too tired to try and find some new material and put together a few paragraphs.

So, I am going to post a few pictures and call it a day.




This coyote was carousing in the vacant lot next door to my house a few years ago. Naturally, we can't let our little dog out in the yard at night anymore. My little dog would come up to it's knees.

Insanity

I came across a couple of articles this week though I thought I'd share with the group.

The first is a story about Ikea, everyone's favorite cheap furniture maker. I'd had a positive opinion of the company until I read this story and did a little digging. Here's why.

Owned By The World’s Largest ‘Charity’ Organization To Dodge Taxes, IKEA Thwarts Union Organizing

Workers at the Danville IKEA plant say they are forced to work at a frantic pace, participate in mandatory overtime — possibly facing disciplinary action for not showing up — and raises have been eliminated. Six African American employees have filed discrimination complaints, claiming that they were assigned to the least-wanted third shift and forced to work in the lowest-paying departments. Moreover, while making a profit of $2.2 billion in 2009 and a 7 percent sales increase in 2010, the hourly wage in the Virginia IKEA packing department was slashed from $9.75 to $8.00. Attempts at forming a union have also been thwarted by IKEA, as some of the 335 IKEA workers in Virginia signed cards expressing interest in forming a union with the International Association of Machinists and Aerospace Workers. But, in response, IKEA hired the law firm Jackson Lewis — known for keeping unions out of companies — and workers were required to attend meetings where the management highly discouraged union membership.

But some IKEA employees work for even lower wages and have no benefits, as IKEA draws one-third of its workers from temporary-staffing agencies. These conditions have caused Bill Street, who tried to organize IKEA workers with the machinists union, to say that it’s “ironic that Ikea looks on the U.S. and Danville the way that most people in the U.S. look at Mexico.”

The second story touches on one of my favorite topics, rank hypocrisy in the "moral majority"

Federal aid story prompted Falwell to block Lynchburg paper

News & Advance reporter Liz Barry wrote today that Jerry Falwell Jr.‘s Liberty University blocked access to N&A’s website for at least one day last week, and that “Falwell did not elaborate on the reason.” I asked the reporter via e-mail if she had any idea what prompted Falwell’s move. Barry never responded, but I’ve since learned that it was her earlier story that got the paper blocked.

"Liberty University students received approximately $445 million in federal financial aid money last fiscal year, according to U.S. Department of Education data, making LU the top recipient in Virginia."

Salon.com linked to Barry’s story and pointed out the conservative college got more government cash than NPR last year. Romenesko is told that the Lynchburg paper’s aid story gave Liberty “a lot of headaches, to the extent they enlisted their DC public relations firm.”

End of Day Volume Analysis

This post is the first of a series on volumes. This example uses the SPY which is lightly traded in the afterhours, so anyone with a big pocketbook and perhaps access to 0% interest can move the market then. Let’s see what happened last Thursday night/Friday morning.

I posted a comment that I thought there would be a pop on Friday morning. Here’s why: First, the chart



We should know that the trend was up from around 14:35. Remember the trend is your friend. Second, on the chart, we see some heavy volume at around 15:48 continuing into the close (Thursday afternoon). You can see the volume approaches 0 during the after hours. The biggest number I see in the aftermarket trading is around 8000 per 3 minute bar timeframe. So small, you can’t see it on the “volume” part of the chart. I put the cursor at the last tick of the evening, and you can see the volume there is 100 shares, in the grey window next to “volume”.

So at the 8:00 AM open, you see the gap. The extended hours opening 3-minute volume is 255854 shares, and it’s that small green bump you see on the volume line next to the red vertical (cursor) line. How did the price go from 133.30 at 18:27 to 133.93 at 8:00 AM the next day with no one around? Remember the buyers are typically below the current price, and the sellers are typically above. This price gap means that there were 255854 sellers that decided to move their price upwards from the 133.30 range to the 133.90 range. The buyers were committed to move in the same direction.

It may also be that the sellers didn’t move, but that the volume below the 133.90 range was quickly exhausted. But we can see by the shape of the price bar that that did not happen. Because the price bar closed lower than it opened (it’s red), that means that sellers had to move downwards after the open. Because the price bar range is below the close, that’s the volume that was bought/sold after the open. The open price was 133.93, and that’s where the first transaction of the day started.

Therefore, all sellers moved their price above 133.93, except for the one block that was sold at that value. So, sellers retreated, and buyers advanced their prices before 8:00.

Where did those buyers’ 200K shares come from? It didn’t seem to be there during the after hours trading the evening before, so it was probably new blocks. Notice the trading around 4:30 on Thursday. Lots of volume. I believe the new stock came from this volume, and from these trades come the 200K shares that appeared for the 8:00 AM open. (this is significant for what comes later).

Now, look at the 9:30 candle. During the first 3 minutes, the range was 133.99 to 133.82. You’ve read about the “opening range”, so looking at these trades, these 3 million shares that sellers moved down to sell, and buyers moved up to buy, define the “opening range”. The next 3 minutes, you see that the close was lower than the open, but the volume was cut in half. The price range during that time was within the opening 3 minutes’ range. The next 3 minutes, the close was equal to the open, and again the volume was about ½ the open volume. But the next price candle, the open was just below the high. But look at the volume, the volume went up to almost 3 million. The price closed below the opening range, so this is an opening range breakdown. Or ORB. If you see ORB in print, you have to check if it’s a “breakdown” or “breakout”. Both can be ORB.

Adding up the volume at the end of the day on Thursday, for the last 18 minutes of trading, somebody exchanged around 15 million shares. And the average for that time period looks like around 6.7 million. So somebody ended up with an extra 7 million shares, at or around 133.40. These people may have adusted their buy/sell orders for only 3.5 million shares (defining the opening range). They may have supplied their own shares to buy them back, defining the range, then started dumping. You can see the price capitulation happen after the 9:39 candle, and the high volume continued until the price returned to the 133.40 value which was Thursday evening’s close.

The effect? Somebody bought low, popped the stock using their own shares, dumped at a higher price, and gave up selling or had sold them all when the price returned to their entry point. How can this be done now? Well, the volume in the market is extremely low, so a ½ Billion$ can move mountains.

So, in conclusion, look at the volume plays at the end of the day. If there’s heavy volume and the trend is up, and then light volume in the aftermarket (usual case), look for a gap up at the early market open, and if there’s light enough volume, or the owners of the heavy volume buy at the end of the day sacrifice enough stock, you’ll see the pop at the open.

The strategy is to sell into the gaps, usually gaps fill. This volume analysis shows you why, and how the people with the big pocketbooks can make the big bucks on creating their own opening snapper.

Crossroads

Hello everybody.

When I mentioned early in September what the market could do I made April-May the first important challenge that the equity market could or could not face, and we are here.

I'm trying to optimize the use of time (work constrains)that I get, to study the markets as a whole first and then re-engage in my silly accuracy rate predictions in individual stocks, (they are coming anyway).

But I need to get a clear idea of what the market can do because in a huge drop 80-90% of individual stocks get dragged in the general movement. When I'll be able to pick stocks successfully withouth paying attention to the general market...well, that would be the moment that I can say to myself after years and years of efforts you did it dude, but I'm not there.In the meantime I need to get help from the general market and/or improved synaptic activity.

And the general market is in a crossroad after 7 months and something. Meaning that what happens set the trend for several months or even more.

The market looks weak even though it didn't loose it's mojo.It sits around 1% from the top for more than a week after the Feb correction.Now started coming down a little without impulsiveness.

This behaviour could be seen as a plateau because of exhaustion but doesn't square too much with the fact that easily and rapidly erased the Feb correction.At that point did have lots of energy and then what? just to sit there looking pretty.

That doesn't look too weak, when push came to shove it recovered and now is playing with the idea of a doble top for everyone to see and begun dropping in slow motion, to give the impression to bearish players that they are lucky to jump in, because of the slow motion. That makes me suspicious.

My original view back in September was that will move up at a good pace till April May and then an important correction but the good pace stopped in Feb it's almost two months going nowhere but sitting at the very top without breaking it.
And we got already the doble top and what I'm struggling with is the fact that timewise is too early.

Had the double top come by the end of April early May I wouldn't have too many objections to the idea of a big down straight movement.

Now I'm more of expecting a drop that starts accelerating, stops reverse somewhat but not reaching the top; then drop but lower than from the point where it started rebounding, and drops some more.After that stalls at the bottom of the drop, test the area a few times and two weeks had passed and we are at the end of the month. :)

If it happens that way (a downhill movement with a hump in the middle) we have more bull to come.

The less favoured view being a distant second is that April 7 is the last top but for that being the case it cannot stop the drop for a nice rebound at least until the 28th or 29th of April; then a desperate attemp to reach the top again that fails, making a lower high, and a drop from there about 12-15%. This should be really simple to follow but I doubt that could play like that, we will need some panic and I'm not too convinced that people can be caught by surprise that easy today, the environment is not rosy.

And regarding where we are sitting by the end of the month we can see important chances of a big reversal to what we experience this two weeks.

All in all the end of April early May is still my line in the sand for something important.Will see what happens.

Dan

What do you think?

It occurred to me Friday that maybe we should think about encouraging an evening (or after the market closes) post if someone wants to post a chart, or has some extra thoughts that can't wait for their posting day.

Rock wanted to show ICan a chart and he posted it after the market closed.

This extra post would be, of course, voluntary, unassigned, and might occur infrequently, unlike having an assigned evening post like we used to have.

Also, having it post only after either the market closes, or an assigned time like 6:00 pm we will not step on the toes of the poster of the day.

It could also be used for guest authors who have something to say but do not want to post on a regular basis.

What does everyone think?

Manny Mondays - Let the Good Times Roll Edition...in the Executive Suite

Morning all! After a busy weekend and being mostly unplugged from the news, I had to scramble a bit to find a worthy topic for Manny Mondays. Lo and behold, after a brief cursory search, it wasn't that difficult to find one that is near and dear to my heart: executive pay. As the New York Times revealed this past weekend, after a period of big-time sacrifice during our market and economic crash to put this country's economy and citizens on solid footing again (um, wait, that never happened, you say? Never mind then), the good times are rolling yet again in the corporate executive suite, even if they aren't exactly rolling for the rank and file worker.

But unfortunately far too many of the same rank and file citizenry whose wages have stagnated at best have bought into the misguided mantra that we must NEVER, EVER raise taxes on any of such "productive" corporate execs citizenry in this country and ask any sacrifice whatsoever for the greater good out of any of these people. Real sacrifice (like taxes) is for the "little people", it seems, or means for folks who are clearly "different from you and I", as Matt Taibbi pointed out in a brilliant article last week, "raking one's own leaves".

But I digress. Here are some key excerpts for the article - The Drought Is Over (at Least for C.E.O.’s):

So far, this recovery has not trickled down. After two relatively lean years, C.E.O.’s in finance, technology, energy and beyond are pulling down multimillion-dollar paychecks. What many of these executives aren’t doing, however, is hiring. Unemployment, although down from its peak, stood at 8.8 percent in March. And few economists predict the jobless rate will drop substantially anytime soon.

For the average C.E.O., however, the good times have returned. The median pay for top executives at 200 major companies was $9.6 million last year. That was a 12 percent increase over 2009, according to a study conducted for The New York Times by Equilar, a compensation consulting firm based in Redwood City, Calif. Many if not most of the corporations run by these executives are doing better than they were in the downturn. Many businesses were hit so hard by the recession that even small improvements in sales and profits look good by comparison. But C.E.O. pay is also on the rise again at companies like Capital One and Goldman Sachs, which survived the economic storm with the help of all those taxpayer-financed bailouts.

But wait, there's more:

On this year’s list, the highest-paid C.E.O. was Philippe P. Dauman of Viacom, who made $84.5 million in just nine months. (Viacom changed its fiscal year-end to September from December.)

Viacom has said that the compensation was inflated by one-time stock awards linked to a long-term contract signed last year.

Also at the top was Ray R. Irani, the C.E.O. of Occidental Petroleum, who took home $76.1 million last year, up 142 percent from the previous one. Last year, the board awarded Mr. Irani a $33 million cash bonus plus $40.3 million in stock awards, more than double what he received in 2009.

But alas, there are also the usual hoots and howls from the other "little people" also known as "shareholders" who are starting push back on these pay packages, likely to no avail in the end, I'm guessing:

Shareholder frustration was probably most evident in recent weeks in the unusually bitter public spat at Hewlett-Packard. H.P.’s board has already been heavily criticized for its handling of the ouster last year of its former chief, Mark V. Hurd, after an H.P. investigation uncovered business conduct violations related to a personal relationship with a contractor.

Two of the most powerful shareholder advisory groups issued highly critical public reports recommending that investors this year vote against H.P.’s executive pay plans and current board members, saying that the company highly overpaid its executives.

But, hey, in our current political environment where Congress is basically the handmaiden of the uber-rich, for the uber-rich, and by the uber-rich, we must never EVER raise taxes on this group under ANY circumstance, and all is good with taxing these folks at the same rate as a small business entrepreneur that makes around $750-$1MM/year, right? These beacons of our communities must never be asked to give more and therefore "sacrifice" for the greater good. After all, we should be worshipping the ground that they walk on every day and thanking them for being so great.

In all seriousness, can someone please tell me why these people can't ever be taxed at a higher rate than people who aren't even close to this income and wealth stratosphere, especially when the country is in clear times of duress, such as now?

Given these vast wealth disparities today, don't we need a vastly more progressive tax code which allows us to "go where the money is" if we hope to truly address some of these longer term budget issues? Or is the continual plan merely more and more "sacrifice" and "austerity" for the Sheeple until we are all sucked dry so that the uber-wealthy never have to give back, while those who have all the money continue to make out like the new robber barons of the 21st century? It's all really nauseating if you ask me, but then again, what do I know? After all, it is Monday morning, and I may just be a little on the cranky side today.

April 9, 2011 Linkfest

Portugal Pressed for Pre-Election Cuts to Win Aid Package

Russian Gas Beckons for Germany as Merkel Turns From Nuclear

NY Fed Says Swaps Industry Failed to Meet Clearing Promises

Fighting to Shut Out the Real India

Unpaid Interns, Complicit Colleges

The traveling German carpenters

SU for ICan

@ICan: The SU relative strength is the average 5 day. When I see a W on the chart, the stochs have to return to oversold, but here on SU we got just a little dip below overbought.

If the stock is going up, and I want to momentum trade, I will wait until the stock is on the lower line of the upchannel, then go to a 15 minute chart, and look for a W with the right side higher, that must still be within the daily channel boundaries.

If the daily channel is wide, I will take shares off at or near the top, then add them back when it returns to the bottom. I will never never short a stock in an upchannel. Don't short strength.

Friday Potpouri

Analysis of 2008 Collapse Shows Economy Networked for Failure

A new study of the 2008 collapse has joined economics and network theory in a graphic depiction of inevitable failure...

Bar-Yam’s team traces the financial sector’s collapse-inducing economic centrality to the dissolution of Depression-era economic reforms, especially the 1999 repeal of the Glass-Steagall Act. Glass-Steagall had separated deposit banks, where most people keep their savings, and which handled mortgages, from investment banks.

Thus freed and enlarged, the financial sector became the prime source of capital for major parts of the U.S. economy. When the housing market collapsed, the rest followed. Even if housing stayed healthy, it was probably only a matter of time before something else crashed the system, said Bar-Yam

Ribs Without Smoke

CONVENTIONAL wisdom holds that pork ribs taste best when cooked outdoors on a grill or smoker. Conventional wisdom hasn’t experienced the sweet-sour balsamic-glazed St. Louis-cut spare ribs at Animal in Los Angeles. The restaurant’s chefs, Jon Shook and Vinny Dotolo, prepare them in a way that most barbecue purists would never order, much less eat: baked in the oven.

Government Shut Down Will Screw You Out Of Better GPS

Here’s how the shutdown will screw you out of your upgraded GPS.

The Pentagon’s ability to buy and test stuff is all screwed up by the shutdown. It’s not totally catastrophic: the Defense Department will have to dip into its acquisition budget from fiscal 2010, the last time a budget was passed, in order to continue work on its experimental projects.

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And in more Boulder real estate news, realtors are still calling to see if we want to make an offer, ANY OFFER, for properties we had seen.

The Master Swing Trader: Adam and Eve

I have to apologize for the double post today. I just wanted to get Farley’s Adam and Eve pattern out there, so we can see it and a couple of examples. Some of us are worried that the S&P may be starting a topping process, so here’s another example.

Farley describes Adam as having the um, pointed appendage, and Eve having the, um, rounded bottom. Last week we looked at the double-top and traded TEX on that one. Looking at the chart for TEX, it fell for awhile, with it’s relative strength below the S&P, but it’s climbing back up. Set stops.

Today, I want to show POT and ANF as examples of Adam and Eve. First, POT



And today, POT is in fact off by .39% in a flat market.

Now, here’s ANF



And today, ANF is up, what??!! 11%?????!!!! How can that have happened? It just completed a proven topping pattern!!!

Well, you don’t suppose that ANF finance people noticed this topping pattern, do you? According to Yahoo’s earnings schedule, ANF is due to report May 16. Not yesterday. And you don’t think that they scheduled this middle-of-the term conference call because they just wanted to, do you? They most certainly wanted to provide guidance so their topping pattern isn’t traded by the algos.

Set stops, ladies & gents. Maybe, even, don’t stay in overnight.

Budget Cuts? Who cares!

@Mannwich:

Your 10:34 from yesterday: "I can't imagine these cuts, if they are passed, will be a stimulus to the economy..."

I got to thinking about this.

See http://jsmineset.com/2011/03/12/sp-500-versus-the-feds-balance-sheet/ which establishes a direct relationship between equity price and QE investment.

The Bernank has indicated that he feels the equities price rise will cause the economy to improve, and the government-supplied numbers are up, validating this.

I think this is inaccurate, and short-sighted. The numbers may be up, but the numbers have to go up a whole lot more to have any effect at all. And here’s why:

Let’s work this backwards. There’s about 313 Million people in the US, extrapolating the numbers from the US Census bureau. There’s about 2.59 persons/household, which makes about 121 million households. There are 43 million households receiving foodstamps. That’s about 1/3 of the household economy that doesn’t make enough money to afford food, and get out of poverty. That’s 1/3 of the household economy that can’t buy stuff to make the economy improve.

Let’s work the numbers backwards a little more. According to census.gov, there are about 37% of 313 million under 18 and over 65, probably at a very low employment rate, That leaves around 197 million employable. According to BLS, the number of working people in the US is 168.7 million. That means there are

197 – 168.7 = 28.3 million unemployed. At least.

The government (BLS) says there are 13.5 million unemployed. Somebody’s lying, by 100% (or 50%). Is it the Census bureau, or is it the BLS? I’ll tell you this, if somebody who worked for me was off by 100%, he’d have his hat in his hand in a hurry. But,

Lets go backwards a little further. Let’s assume that the over 65 and under 18 are uniformly distributed over the number of households. That means 116 Million over 121 million households, or about 1 person per household, more or less. That leaves about 1.5 people/household, of which 28.3 million are unemployed. That would mean:

28.3 / 1.5 = 19 million households unemployed
43 – 19 = 24 million households underemployed, assuming the balance of the 43 million foodstamp recipient households are in the underemployed category.

Assuming it takes around 70000 per year to run a household, and assuming the underemployed are at a 50% of the amount necessary to run a household, that means we’re short around 2.1T of GDP.

So this year, assuming a 2% GDP growth, our shortfall is
2.1T – ( .02 * 2.1T) = 1.8T

We the people have to come up with an extra 1.8T in taxes. Not too bad, right? I think US tax revenue is around 2.1T. So just about doubling our tax should cover it. Not gonna happen, you say?

Next year, we have to add that 1.8T shortfall into the equation, because we have to borrow it, we don’t have the GDP to pay for it. So the next year, the equation looks like:

This years shortfall – GDP growth + last year’s shortfall + last years shortfall * interest rate
Or (assuming a 3% bond interest rate, and keeping the same 2% GDP growth rate,)

2.1T – (14.72T * .02) + 1.8T + (.03 * 1.8T) =
2.1T - .2944 + 1.8 + .054T = 3.659T

The following year, this number is
2.1T- ((14.72 + .2944) * .02) +3,659T + (.03 * 3.659T) = 5.56T

So I programmed this into an excel spreadsheet. In 8 years, the debt load is greater than GDP. In 40 years, we have a debt load of 132 Trillion, only about 4* GDP. We don’t pay it off in 100 years.

There is no out for us. We simply have to kill 43 million households.

Not finished yet

Hello everybody,
I'm still working on the new batch of companies that I mentioned past week but unfortunately I haven't finished them yet.My idea is as you know try to pinpoint timing as knowing for example when to enter and when to get out.

It is important to keep in mind the influence that the stock market as a whole has over individual issues, so still in the making I'm planning to get some to the downside and other group to the upside paying special attention to the ones that contradict the general market and see if they perform as expected because isolating and determining direction of a stock regardless of the big trend will be kind of like heaven to me.Will see, lots of work and testing if that idea has serious chances of being pursued.

I'm thinking this approach only for a third case scenario.What will happen if the market don't go up, but don't go down either.(I meant no movement in a substantial way, not saying that the market can look "flatlined" for a long time).


We are already in April the market recovered the 7% correction in the S&P almost completely (but not fully yet).

So not sure now because the up move that I mentioned could start two weeks ago looks impulsive, yes but it's not impressive lately. So I'm debating now between my original idea that this keeps going up until the end of April or the other option; April just extends it's choppiness to give the impression that finally finally we reach what seems like the infamous "permanent high plateau in prices".With people hugging on the streets because we make it! we make it to the other side of the tunnel! Yes you all know what comes then.

But still not really convinced because you can tell that people are very traumatized and trigger happy to get out (I'm referring to institutional players and insiders not 401K investors) and withouth that silly overconfidence not too much could happen because the positions get reversed easily and what's overbought changes in a matter of days dramatically.

This is not Astrology just my personal observation, so maybe a 15-20% correction is not possible yet because we need more optimism.Will see.

Dan

Manny Monday's - Is the "Toil Index" a Better Measure of Economic Health than GDP?

Morning all! I'm back to reality here in the North Pole, and we're inching towards spring (and I mean INCHING but it was upper 50's today!). One article that caught my eye over the weekend appeared in the NY Times, written by Robert Frank.

In the article, Frank asserts that per capita GDP is not the best way to measure the true economic health of the country from the standpoint of the middle class. He proposes what he believes is a better measure of economic health or real "pain of the middle class" by using something he calls the "Toil Index":

It measures the number of hours that median earners must toil each month to be able to rent a house in a school district of at least average quality. (Could the median earner aspire to any less?) Unlike per capita G.D.P., which, apart from brief recessions, grew at a strong and steady rate from the end of World War II until the recent downturn, the toil index has been much more volatile. Its movements suggest that recent increases in income inequality have imposed substantial economic costs on middle-income families.

Frank notes that from 1950 - 1970, incomes for families at all levels grew quite rapidly together, at about 3%, but around 1970, that began to dramatically change, with lion's share of the country's productivity gains going to the top 1%. He argues that rising inequality over the past 40+ years have "shifted the frame of reference" for those who merely try to keep up largely by working longer hours, hence the term "toil index":

The index rejects the standard economic assumption that well-being depends primarily on absolute consumption. Instead, it assumes that the context of that consumption is often far more important. Context matters because the brain requires a frame of reference to make any evaluative judgment.

For example, is a particular family’s house adequate? The answer invariably depends on the quality and size of other houses in the surrounding area.

Rising inequality has shifted the context that governs housing choices. Higher incomes at the top have led the wealthy to build bigger mansions, shifting the frame of reference that shapes demands for those with slightly smaller incomes, who travel in overlapping social circles. The near-rich respond by building bigger houses as well, shifting the frame of reference for others just below them, and so on, all the way down the income ladder.

Go read the whole article here - Gauging the Pain of the Middle Class. It is truly a must-read.

April 2, 2011 Linkfest

Spain Caja Merger Collapse May Scare Potential Investors

Bank of China Cuts Rate as Yuan Deposits in Hong Kong Surge

Sands’ China Unit Is Investigated by Hong Kong Regulators

Li Turns 3G Unit to Profit After 7-Year, $20 Billion Loss. Somehow related: Vodafone's potential US$2bn+ claim against Hutch, Vodafone pays $5bn to buy out Essar

In Singapore, a Failure to Fail

Do Not Anger the Alpha Android

Republicans for Environmental Progress: An Endangered Species

Friday Potpouri - Boulder Edition

Greetings from sunny and warm Boulder, Colorado. As many of you know, we are previewing the Boulder and surrounding area real estate market in anticipation of buying here in the next year or so. All we have to do is sell our house, no small feat in today's markets.

These photos were taken today at the end of the street where we are staying, so it is a view of the foot hills and walking trails behind us.





Our search began with all price ranges as we wanted to see what was available at both ends of our budget and see what we features we will have to compromise on, i.e., location, size of lot, age of the home and how much work would have to be done on the homes to bring them up to par. We are lucky that our friends/hosts are also realtors so they are helping us with our search.

There is a lot of inventory at all price levels but there is an amazing amount of houses that have deal breaker defects even at the high end. Housing prices are all over the map and it is difficult to determine good value because of several factors. Many home owners are obviously still in denial about price. Another tactic that masks the deterioration in prices is that houses are withdrawn from the market after not selling, and then relisted with a lower price which makes it appear that the price had never been reduced. The effect is that it appears that the housing market is much more stable than it actually may be.

Our realtor friends feel that there also is a great deal of shadow inventory, homes that either had been withdrawn from the market for lack of bids or those who want to sell but cannot take the hit. They are able to pull up all past history for the homes we are interested in and there are many who are obviously underwater as their mortgage exceeds the current value of the house plus the price and listing history are also readily available. Very shocking to see a house that was originally listed for 3 million in 2007, just sold for 1.5 million and there are other homes that have taken huge hits.

We feel as if we are on our own private version of "House Hunters" where we are critiquing the homes; house one, older home that needs updating, with a large yard but not enough bathrooms, house two, backs up to a road, needs total updating, but has the best floor plan, and house three, small mid-century home with incredible mountain views but needs gutting. The theme that runs through most of the homes in our price range was "needs updating" and I am not just talking about paint and new appliances. Most homes we saw needed major updating; the few that didn't were 90's econoboxes that totally lacked character, usable yard or the neighborhoods were too densely built.

This was a good exercise for us as we now have a good feel for the neighborhoods that we would like to concentrate our search in, but also was somewhat depressing due to price and condition of the houses in our price bracket. We feel that there are a lot of desperate sellers as the listing agents were calling back with "we will do what ever it takes to make a deal", "make an offer any offer!", so it appears to us that there is a dearth of buyers in this market which suggests to us that the prices are going lower.

We do feel confident that we will find an acceptable house in our price bracket, eventually. Now all we have to do is sell our house!