Yesterday's Global Banker's Conference in Basel, Switzerland yielded a mixed bag of news:
* Global growth is strong, putting all CBs on inflation watch.
* Housing prices are dropping worldwide.
* Inflation is generally under control but, bankers believe, only because of their intervention.
* China's economy is growing by 10% a year and there is no way to stop it.
Like any good tea leaves, the meeting can be interpreted in several ways but I was heartened by the tone of the conference and the attitude that the bankers need to rethink this war on inflation as it may no longer be the appropriate policy for individual countries.
So I would have to put the CB meeting in the plus column of the four things we need to turn the market. So far funds are not putting money in, but they may be the last to move. Today we turn our attention to to consumer confidence which must be over 100 and really needs to top 103 to get funds off the fence.
Asia was flat to down, Europe is flat to down, we should be flat to down but the danger is still there for a big downturn.
I don't see the follow through I was hoping for yesterday and we need to keep our eye on that Nasdaq mark as any downward movement could spell significant trouble ahead. There are many people out there who will tell you that this index looks good and that one looks bad but that is BS! The indices generally move in tandem and anything outside of that is an aberration so the Nasdaq will absolutely drag the entire market down with it if it goes.
The S&P is the one to watch today as it is sitting right at 1,250, where it has been having trouble for the past week. Failure to break over this mark soon will make the 200 dma of 1,262 (it's been creeping up) unobtainable in the near future.
The NYSE broke their 200 dma of 7,930 yesterday, closing at 7,966 - a pullback below the average today would be tragic.
We are, of course, waiting on the Fed today so we should get sideways action into tomorrow's meeting but with oil creeping back over $72 and notes moving over 5.25% I don't see much to get excited about.
Gold is firming up nicely and I am almost ready to get back in that pool. BVN, ABX and AU are behind the pack but GG has suffered the biggest pullback. NAK just keeps on keeping on, now at $8.88, up 35% since our April 15 pick at $6.50 as the best long-term play in gold. Gold is being held back on fear of DEflation, something I think is way overrated.
With the quarter winding down I will continue to sit on the sidelines for the most part but I have decided to win a Maserati for myself since I missed the CNBC challenge, so I will be starting a portfolio next week with the goal of making enough real money to buy one.
It's only fun if it's a challenge so we will start with a few thousand dollars with the goal of having enough money to lease a brand new '07 model in September! I figure this will be a fun way to get through a boring market and figure out some parameters by the weekend.
I am sorry to be such a downer lately but that's what the market is doing - as a fundamentals guy, I see a very strong global economy backed by record corporate profits with over 2 million people joining the global middle class every single week. In the short run, the consumers may suffer but in the long run, we can expect wages to increase bringing in a nice uncontrollable run of inflation that will rebalance some of the wealth gap.
How does inflation help us? Just like the government, we have debts. Our debts are generally fixed, like our homes (never take a variable), student loans, cars, old balances... We take on debt with the expectation that one day we will make more money and they will be a smaller part of our monthly expenses but the Fed has been so good at fighting inflation of late, that there has been no reason for us to get raises of any significance!
In the 70s, when my parents bought a home for $65,000 my dad was making $20,000 a year and it was a significant investment. 10 years later, that home was worth $250,000 and my dad was making $45,000 and it was almost silly to have a $40,000 mortgage so we had plenty of money for huge 25" TVs, $1,000 Betamax units and our $3,500 PC Jr. Sure the VW Beetle I had planned on buying for $1,995 when I was 12 wasn't there anymore but I bought a cool Barracuda used for the same $2,000. Was inflation bad? For the bankers who lent you the money only to get paid back in deflated dollars - VERY. For the consumers - not so bad....
So when bankers pound the desk and tell you how we must make sacrifices to fight inflation, remember why it is so important to them - you have their uninflated money! Don't think the Fed has done such a good job fighting inflation, all they have done is shift the price gains from wages and consumables to commodities and housing. Your home gaining value against a low inflation environment only serves to lower the bank's risk profile so don't think that they are doing it for you!
We have become conditioned to believe that it is somehow unamerican to raise prices. While restaurants and small store owners struggle to tow the line big businesses shave the margins of all their suppliers to "maximize profits without raising prices." All the while the ruling class of doctors, lawyers, corporate management... continue to increase their fees, widening the wealth gap to what is now an unsustainable level.
So stop worrying about inflation, you've been sold a bill of goods that costs the same as it did last year!
Despite my worries about the technicals, I do believe we will get a pop this week, if only for window dressing as the quarter closes so I will be making a few buys unless the S&P and the NYSE give me reason not to.
ABX is in my sweet spot, just crossing over the 200 dma and low enough for the Aug $30s to be a reasonable .75. Watch GOLD for a leading indicator but if yesterday's Bank meeting doesn't send people scrambling for gold, nothing will!
AU is fascinating to me as it is right on the verge of a "death cross" like the above Nasdaq but here we may see how a stock can pull out of it. The fact that it looks like death has made the Aug $50s seem unobtainable at $1.10 but a little implied volatility can go a long way to boosting that price.
MRB, my favorite little miner has already made a spectacular recovery from $2.50 but at $3.10 I still like it for another leg up. I have trouble buying at this price since I owned it last year at $1.65 but got out at $2.25 just before it rocketed to $3.
The GBuy story is old news for EBay and I think now that people get a look at it we may get a relief rally so I like the $30s for $1.35 but only if the Nasdaq is positive.
I think $1.10 (up 95%) is enough for the Aug JNJ $60 puts so I'm taking that off the table.
I say come to poppa on GM as it heads back to $29. They have saved $5Bn a year which should put the bankruptcy off by another 45 days. I have to play the $27.50 puts if they fall below .75 but I will wait to see if the stock can push past $29 before jumping in.
On the positive side of cost cutting, INTC has snipped off another small division to MRVL for $600M. This gets all the breakup calculations spinning at the Hedgies and the price of Intel can only climb. The $17.50s have just a .30 premium at $1.05.
KO was a winner for us last month and I'm going back to the well with the $42.50s at .80. It is sitting right on the 50 dma so any downward movement is a get out/don't buy sign.
I'm content with yesterday's XOMs but I'm looking to get out today as we may have another disappointing inventory tomorrow and whatever happened to Iran anyway?