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Article On Asset Bubbles

Tuesday, March 9th, 2010

On January 25 Fortune had an article on asset bubbles titled “Beware the 4 new asset bubbles.”

The four purported bubbles mentioned in the article are Gold, oil, the stock market, and Treasuries.  I have discussed each of these markets, with the exception of oil, in previous posts.

I found the logic and discussion in the article interesting, although I did not agree with various aspects of the article.  I especially disagree with the logic about housing, for reasons I have recently written about.

It is very important for investors to understand whether the markets they are investing in are indeed experiencing bubbles.   My previously written posts are found under the “Bubbles” Category.

Of course, the existence and prevalence of bubbles also has massive ramifications for the economy, especially when viewed from the standpoint of Sustainable Prosperity.

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SPX at 1137.15 as this post is written

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Another Ponzi Scheme

Sunday, March 7th, 2010

I have been intermittently commenting upon the growing number of investment frauds being uncovered.   Those posts can be found under the “investment frauds” tag.

Here is yet another alleged Ponzi scheme as seen in Thursday’s Wall Street Journal article titled “SEC Charges Couple in Florida Ponzi Scheme.”

As seen in the article, this alleged scheme is stated at $135 million.

It is difficult to say how widespread investment frauds are and how much investment fraud is yet to be uncovered.

However, based upon a variety of factors I would say that there is much investment fraud still “out there” (i.e. yet to be uncovered) and the true figure will likely prove to be eye-popping.

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SPX at 1138.70 as this post is written

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The US Dollar And Asset Prices

Wednesday, February 17th, 2010

Over the last few years, there has been an inverse correlation between price movements of the US Dollar and many asset classes.  This inverse correlation appears to be strengthening over time.

This inverse correlation can be seen in the chart below.  For the sake of simplicity, I am only comparing the USD to the S&P500 – but as aforementioned this inverse correlation can be seen among a diverse group of assets.

Here is the 10-year daily chart.  As one can see, the inverse correlation appears to have started roughly during 2003, and has persisted to the present:

chart courtesy of StockCharts.com

While this inverse correlation has been frequently commented upon in the media, there are two aspects of this relationship that I have not heard discussed.  First, what is causing this inverse correlation?  Second, shouldn’t the existence of this relationship cause some unease?

The answer to both of these questions is likely complex.  However, I do believe they are very important issues.

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SPX at 1094.87 as this post is written

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Gold And Gold Stocks

Friday, February 12th, 2010

I have made various comments about Gold over the last few months.

One aspect during Gold’s price increase that I have noted as disconcerting is the relative lagging performance of the Gold stocks.  I use the HUI index as a proxy for Gold stocks.

As one can see on the daily chart below, the Gold price is reflected in the top of the chart, followed by the HUI:Gold ratio and then HUI in green:

chart courtesy of StockCharts.com

The HUI index has lagged since approximately the beginning of 2008.  Perhaps the main question is if/when might it start performing better?  One potentially bullish sign is a potential Cup and Handle formation with the two peaks above 500 and current upswing serving as the “lid” and “handle” of the Cup and Handle formation, respectively.

Of course, this Cup and Handle formation is very tentative at this time.  It is simply something to monitor.  However, should this C&H formation “play out” with the HUI strongly advancing above the prior peaks above 500, one could reasonably expect the gold price to react positively if not very much so.  Should it not play out, i.e. the HUI price falters or declines from here, would likely be a bearish omen for Gold.

As I have pointed out in previous posts, Gold’s price can have very important implications from many financial and economic perspectives.  However, due to the complexity of the factors that determine Gold’s price, it can be very difficult to predict its price movements.

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SPX at 1066.43 as this post is written

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Two Other Views Of The Gold Price

Wednesday, February 3rd, 2010

I find a periodic review of Gold’s price relative to the Dow Jones Industrials’ and to Crude Oil’s interesting.

Below is a long-term monthly chart of the Dow Jones Industrial Average price relative to that of Gold’s.  As one can see, Gold has been outperforming since roughly 2001, after underperforming from roughly 1981-2000:

chart courtesy of StockCharts.com

Below is a long-term monthly chart of the Crude Oil price relative to that of Gold’s.  As one can see, the Gold price has been bouncing around in a range since 1990, and is now at a slightly subdued level:

chart courtesy of StockCharts.com

One can infer many different things from these two charts.  With regard to the first chart, one way to view this is to see how “hard assets” are performing relative to “paper assets.”  With regard to the above chart, one can see how Gold is performing to another commodity, crude oil.  From this crude oil to Gold price comparison, one may interpret Gold’s unique “safe haven” value.  If one chooses to view the chart in this manner, one could draw the conclusion that from a “safe haven” standpoint, Gold’s price is not reflecting much of a “safe haven” value.  This view is consistent with previous comments I have made with regard to Gold.

I strongly believe that the strongest driver of Gold’s price (especially relative to other assets) will be if/when it is viewed as the ultimate “safe haven” asset.  This condition would likely occur concomitant to a repudiation of “paper” assets.

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SPX at 1098.76 as this post is written

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4Q Corporate Revenues

Friday, January 29th, 2010

I have been looking at the revenue figures posted for a variety of diversified manufacturers and distributors.  These are well-respected, S&P500 firms.

One would expect these firms to be posting decent revenue gains, especially as compared to the very weak year-ago period (4Q2008).  Additionally, these firms stand to benefit from the prevailing economic climate due to their size, global sales, high accessibility to credit at favorable terms, access to stimulus business, etc.  In essence, whatever general economic strength is existent, and then some, should certainly be reflected in their revenues.

Instead of strong or at least a decent 4Q 2009 revenue results, most of these companies are reporting continued percentage sales declines when compared to year-ago results.  These declines have ranged in value but are significantly negative, with some being double-digit declines.

This result is not significantly better than the similar comparisons that I have previously  commented upon for 3Q2009 results.

This lack of revenue growth is very notable and has many implications.  It seems to at least partially belie claims of economic recovery.  As well, it would explain why (net) hiring is rather nonexistent.

Of course, there are other implications as well.  Among these implications is that the lack of revenue growth weakens any fundamental valuation one may choose to assign to the stocks of these companies.

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SPX at 1091.38 as this post is written

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The US Dollar – A Few Comments

Wednesday, January 13th, 2010

On December 17, I commented on the US Dollar, especially in the context of the US Dollar carry trade. 

Today, I would like to make a few overall comments about the US Dollar.  Here is a weekly chart of the US Dollar from 2000, with the MACD and CCI indicators shown above the price plot:

Chart courtesy of Stockcharts.com

I have also included a few trendlines shown in blue and red.  As one can see, at the present price of 77.02, the USD is near the bottom of the price range of the last 10 years.

Many people, especially those of the “hard money” and “Austrian” philosophies, have long held that many of the actions we (as a nation) have been taking to combat our current period of economic weakness would unduly pressure the dollar.  These actions have included very low interest rates, truly outsized interventions (including “money printing”) and deficit spending.

So far, as can be seen on the chart, the US Dollar has “held in there”, most likely for a variety of reasons.

It should be very interesting to watch the US Dollar from here.  Although there appears to be few, if any, signs that a severe US Dollar decline is impending, as stated above many of the actions we have been taking (and will most likely continue to take) are certainly cause for concern when viewed in context of US Dollar strength.

The strength of the US Dollar is of paramount importance, because (of course) perhaps the fastest and most assured way of getting into severe economic trouble is to have rapid currency depreciation.

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SPX at 1136.22 as this post is written

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Ponzi Schemes

Tuesday, January 5th, 2010

Occasionally I have written about investment frauds.  My last post on this topic was on November 27 and is found here:

http://www.economicgreenfield.com/2009/11/27/investment-frauds/

Here is a story from December 28 titled “Ponzi collapses nearly quadrupled in ‘09″:

http://finance.yahoo.com/news/AP-Ponzi-collapses-nearly-apf-898755198.html?x=0&sec=topStories&pos=4&asset=&ccode

While I find this article’s statistics to be of interest, I do not necessarily agree with some of its commentary.

Of course, there are many types and permutations of investment frauds, of which Ponzi schemes are just one type.

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SPX at 1132.99 as this post is written

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2010 S&P500 Earnings Projections

Sunday, December 20th, 2009

Tommorrow’s Barron’s cover story has forecasts provided by 12 strategists and investment managers.   I would like to highlight their S&P500 earnings forecasts for 2010. 

As seen on page 28, the average of the 12 stated forecasts is $75.75.

From what I have seen, this $75 level is very common among forecasters, and as such seems like the predominant forecast for “operating earnings.”

 

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SPX at 1102.47 as this post is written

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US Dollar and S&P500 Comments

Thursday, December 17th, 2009

Here are two charts that I find notable.

The first is the daily chart of the US Dollar.  I have added the 50-day moving average.  As one can see, the trend seems to be “up.”  This increase, if sustained, will pressure the US Dollar carry trade and that would likely have an outsized negative impact on various markets:

EconomicGreenfield USD Daily 12-16-09

chart courtesy of StockCharts.com

 

The second daily chart is of the S&P500.  The trading range from roughly mid-November until now has created a lessening of the Bollinger Bands, as shown on the chart.  The width of these Bollinger Bands is seen below.  As those familiar with Technical Analysis are aware, this lessening can often signal that a large directional move lies ahead in the price of the security:

EconomicGreenfield SPX Daily BB 12-16-09

chart courtesy of StockCharts.com

 

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SPX at 1098.94 as this post is written

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