Wednesday Outlook: Commodities, Emerging Markets

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Guns and butter? It’s the absence of the former and perceived burden of the latter that is driving Americans to their friendly local gun shops. It is disturbing since emotions are running high and many are plenty ticked-off. Booze sales should be good, as should gambling. Based on our emails and checking in on some web sites, most gambling is heavy in day-trading leveraged products.

The most interesting market remains gold. It’s a rumor driven market and conspiracy buffs are plying their trade. Whether there is heavy government intervention through intermediaries is something we can’t know. Perhaps commercials are reengaging in some forward selling. It wouldn’t surprise me.

The other interesting piece of news was a Reuters story illuminating and dissecting JP Morgan’s (JPM) $5 billion earned from trading derivatives. For them, it’s a no lose game—they trade trillions in products and if they win they keep it and if they lose, you pay. Sounds par for the course nowadays.

Yesterday it was Professor Siegel providing entertainment and today Professor Shiller. They should stay on the campus.

The week and month are young. There’s a lot more to come.

Let’s see what happens.

Disclaimer: Among other issues the ETF Digest maintains positions in IEF, TLT, DRR and GLD.

Comments

[ozcutty:]

small bounce today, DJIA up 80 points?

Mar 04 05:38 AM

[Owen:]

> One company doing really well since the election is SWHC with the stock up 38%. Hmm, I wonder why?

Indeed, why? Buffalo Wild Wings is up 92% since November. So what? If there's something you want to say, say it. Enough with the innuendo.

> and come up with this novel approach this morning

"Novel"? Shiller has always been using the ten-year trailing earnings formula. Look up his original historical paper, and get over your paranoias already.

Mar 04 05:42 AM

[fakir:]

Are you short and trying to jawbone the market down? Maybe an audit of your taxes are in order too. SWHC is up because of the paranoia of a change in gun laws, those that wanted to buy probably have and the future is probably not as bright. So instead of innuendo and two pages of charts put some terse comments down.

Mar 04 06:09 AM

[Daniel Herkes:]

Gun, liquor, Fast food, and tobacco. If it is bad for people invest in it. Not that I do.

Mar 04 06:30 AM

[prudentinve...:]

"In another twist that creates new ways to describe stocks as cheap....."

If all these folks had been as creative to describe them as expensive, when they truly were, millions of gullible innocents would have been better off. I'd go farther and suggest that the market would not have bubbled as high, and the economy would have been much better today.

The reality is that stock are just back in the general vcinity of their historic long-term trend curve. It is fascinating that Alan Greenspan observed the "irrational exuberance" that had taken hold in the mid-90's, but then proceeded to inflate history's largest bubbles. Each of history's previous bubbles was followed by a respectable period of contrition and atonement to the "gods of the market", but this time Dr. Greenspan managed the remarkable feat of history's only consecutive back-to-back bubbles, without the usual intervening period of sobriety!

Mar 04 07:27 AM

[The Hammer:]

P/e on the total market is misleading. There are great blue chips trading at near 10 times earnings. Sure most banks are a basketcase, but if you look around and disgard this trash things are very well priced even on reduced earnings.
Look even at some of the drillers like ne do or esv. most have enormous cash and you cut earnings in half still earn about 10 times earnings.

Also when the markets tank real quickly , I consider 20%+ drop in about 2 months a fast drop it usually inidicates the end of a move.
We are definately due for a huge rally and I believe it will be a major rally in a bear market too.
If one thinks gdp will act like it did in the early 1930's drop -43% then 5000 is probably a bottom, but if gdp can hold above -10% gdp contraction then we are near major support in the mid 6000's imo.

Mar 04 08:55 AM

[WPS:]

You are exactly right, "professors should be banned from the investing business"--just as tax-avoiding former presidents of the Federal Reserve Bank of New York should be banned from being Treasury Secretary.

Mar 04 08:56 AM

[raytayzmd:]

..."Professors should be banned from the investing business."...AMEN!!!..... loathe economists whenever they step out of their ivory towers with some "sage" proclamation regarding the course of the economy or what should be done...economists are great at analyzing PAST events but know nothing about managing REAL businesses or implementing REAL policy...you don't go to a medical historian when you're sick, you go to a doctor...why -- because he has daily, practical experience managing illness...and any economist whose crystal ball clear enough to be able to predict the future no doubt would NOT be working as an economist!...

Mar 04 09:40 AM

[Alex Biggs:]

Fakir and Owen: Not sure if you're old enough to have historical perspective based on your comments.

I believe Mr. Fry is alluding to LBJ's guns and butter and the spending reforms programs of The Great Society.

Obama's proposal for a sweeping new government activism in the economy is a return to a traditional tax-and-spend philosophy, a step back to the era of Lyndon B. Johnson.


President Lyndon B. Johnson's policy of Great Society spending and Vietnam War is credited with the rising American inflation that persisted until checked by President Reagan's supply-side policy.

In Johnson's time the American economy and the US dollar were strong, and there was no current account deficit. Yet, LBJ's policy of guns and butter did long-term harm.

Craig Paul Roberts writes:

The Bush/Obama 21st century policy of guns and butter makes LBJ look like a piker. The 2009 and 2010 federal budget deficits will be monstrous even without guns. But Obama is exiting (apparently) the Iraq War in order to start two, possibly three, more wars.

Obama has announced a doubling of US troops in Afghanistan. Widening that war will require the US to occupy, or attempt to occupy, parts of Pakistan. The disrespect for Pakistan’s sovereignty will further radicalize that large, nuclear-armed country and bring Pakistan, or at least parts of it, into armed conflict with the US.


www.vdare.com/roberts/...

Here's an interesting article in the NY Times:

www.nytimes.com/2009/0...

Mar 04 10:05 AM

[Owen:]

Alex,

When Lyndon B. Johnson was in office, I was on the other side of the ocean, fighting wars of our own.

The US military buys most of its light firearms from Colt and a few specialty manufacturers. I don't see how Smith and Wesson would benefit from additional wars, unless they are fought on the streets of Los Angeles. A fear of imminent tightening in gun control laws is the most likely explanation for the rise in stock price, although I'd be surprised if their next quarterly report will actually show a dramatic increase in sales.

The author's comment about Shiller and the "novel approach" is pure demagoguery. Shiller has been using the same method for his calculation all along, something the author knows or should have known before making such an accusation.

This author has a tendency to see conspiracies and sinister plots in the most trivial events. I'd be happy to listen to them if he had any shred of proof to support them. Alas, he prefers to hide behind veiled suggestions and obscure innuendo.


On Mar 04 10:05 AM Alex Biggs wrote:

> Fakir and Owen: Not sure if you're old enough to have historical
> perspective based on your comments.

Mar 04 10:09 PM