Commodities, Global Markets

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Our podcast/video interview with the EMM (Emerging Markets Monitor) should be posted sometime this evening or early tomorrow morning for your listening pleasure. These are smart folks and have done a good job in providing thoughtful analysis regarding global markets. You should listen despite some inferior sound quality.

Two articles caught my attention these past few days. The first describes how FNM and FRE are starting to provide 125% mortgage loans. Isn’t this type of activity what got us in trouble in the first place? The next is an amusing expose from the WSJ (subscription required) outlining the inner workings of our friends at the Federal Reserve. You can see clearly from it who’s running the show there and on Wall Street.

We’ve kept a large cash reserve (70% more or less) for some time now. It’s a defensive posture clearly and reflects our lack of confidence in the mixed signals markets are presenting technically. When this is the situation sometimes it’s best to stand aside until things become clear.

For those of you long the markets in general, Mr. Market didn’t give us a happy send off to our country’s birthday. But, let’s see what happens next.


Disclaimer: Among other issues the ETF Digest maintains positions in: MDY, IWM, QQQQ, DBC, USL, XLE, DBB, EWZ and FXI.


The charts and comments are only the author’s view of market activity and aren’t recommendations to buy or sell any security. Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period. Chart annotations aren’t predictive of any future market action rather they only demonstrate the author’s opinion as to a range of possibilities going forward. More detailed information, including actionable alerts, are available to subscribers at www.etfdigest.com.

Comments

[manya05:]

Great summation, thank you ! I think we are at a crossroads. If earnings can be manipulated or bad numbers can be spun (and both are possibilities), then we are for a summer of back-and-forth. If the situation is so dismal that even a crooked accountant cannot fix it, then I think we will get a big air pocket ahead, no green shoots will cushion this one. Lots of cash sounds like good advise (and maybe stocking a few inverse ETFs, they are at attractive entry points now).

Jul 03 06:59 AM

[JGL:]

Thanks for the few comments on EM. Regarding China, it is not clear what the conclusion fo comment is: Buy; sell; hold??

Jul 03 08:30 AM

[AndrewBaker:]

Yes, David, definitely a turning point here: which may be held up for a while longer if the powers that be can still find ways to rally the markets. But I think the signs are that realism is creeping in.

I expect the VIX to go back over 30, particularly when people have digested the (un)employment statistics, which I believe are going to go to over 10%, and stay there for a long time.

Small domestic companies often lead a stock market recovery, and I can't see any evidence of that yet. XLF, which I suggested a while back was a favourite to go from 12.5 down to 10, is looking like doing that now; and if it breaks down below 10, then what?

And I'm still holding my FAZ ...

Jul 03 08:51 AM

[dcb:]

great article , thanks. my buy on tbt is at 49. I see lots of heads and shoulders. are the big boys just palying games and going to stick save monday.

this is the problem when you allow this crap to happen. there is no reason for anyone to be in a market that follows the whims of one company. Does anyone on the NYSE realize they are destroying the confidence of the american public in its markets and this will end up being a long term problem!!!

Jul 03 08:54 AM

[David Fry:]

dcb: Confidence with the investing public has been damaged without question. Traveling about and speaking with friends a lot of damage has been done.

It's a generational thing with periods of despair shortened only by greed and fear. The powers that be and their marketing apparatus can overcome much especially short-memories.

Since I started in the business in the early-mid 70s a lot of "end of the world" situations have come and gone. I was a muni bond salesman in the mid-70s and got to deal with NYC going broke much like California today. Then, all states proximate to NYC were tarred by their problems. Ford bailed them out as did Carter. What followed? Runaway inflation.

There are other players in the game from Asia and elsewhere. They can change outcomes but as things currently stand there isn't any decoupling.

Given our July 4th holiday period, the Founding Fathers are rolling over in their graves. I'm very sad for my country and angry with the scoundrels running it whether from DC or Wall Street.

Jul 03 09:17 AM

[John Olagues:]

I fail to see how any of the charts can be helpful in predicting future market prices. The charts merely show what happened in the past.

The only thing that can be predicted is that markets will be manipulated by those who control them. So unless you are on the inside, you're merely guessing and essentially hoping that you're going the way of the manipulators.

John

Jul 03 09:24 AM

[cynewulf:]

The size of the debt overhang and about to overhang our country, is amazing. The amount of unfunded liabilities in the future from demagraphics is also considerable. The smaller proportion of workers coming on line , will be competing more and more against foriegn competition. Hello inflation.

Jul 03 09:36 AM

[learnmoney:]

Your Fannie May and Freddie Mac comments is interesting. This was the Northern Rock mortgage business plan that caused this UK institution to go bust and start the banking crisis in the United Kingdom.
I am sure all the pictures of people lining up outside their shops went round the world as they waited to draw their savings!
If this model has started in the US again then what the hell is going on?

Jul 03 10:23 AM

[sacking:]

It was a bloody Thursday, but as you said, on very light volume. Will be interesting to see how next week goes. Being defensive makes sense. I've been adding to my ILF positions since it was in the mid-20's. But may pause for awhile.
I'm in HYG and saw the comment they made about allocation, but don't understand the consequences. How does it compare with JNK?
Thanks for your insights. I for one always find them useful, compared to some.

Jul 03 11:17 AM

[Macro_Man:]

I am a WSJ subscriber and was looking for the Fed article, couldnt find it

Jul 03 12:21 PM

[Supersuperman:]

Great summary and thanks for the charts. I think we are going to crash with the high unemployemtn rate and the subsequent round of housing crashes:

www.wealthalchemist.co.../

Jul 03 12:25 PM

[unfaire:]

To quote from "How I made money during the great market crash of 2008" by Jamin Chen (www.lulu.com/content/p...):

"There is no guarantee that the past will repeat itself. But, sometimes, the past is a good indication of what is to come. The past is the only information we have and it may provide us with a glimpse into the future."

Jul 03 12:37 PM

[Katzlou:]

John: I think you should read Dave's disclaimer which is posted. This might be helpful in making a more educated post next time.

"...the charts and comments are only the author’s view of market activity and aren’t recommendations to buy or sell any security. Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period. Chart annotations aren’t predictive of any future market action rather they only demonstrate the author’s opinion as to a range of possibilities going forward.


On Jul 03 09:24 AM John Olagues wrote:

> I fail to see how any of the charts can be helpful in predicting
> future market prices. The charts merely show what happened in the
> past.
>
> The only thing that can be predicted is that markets will be manipulated
> by those who control them. So unless you are on the inside, you're
> merely guessing and essentially hoping that you're going the way
> of the manipulators.
>
> John

Jul 03 12:55 PM

[Katzlou:]

Macro_Man:
online.wsj.com/article...


On Jul 03 12:21 PM Macro_Man wrote:

> I am a WSJ subscriber and was looking for the Fed article, couldnt
> find it

Jul 03 12:58 PM

[Maxe Paul:]

C'mon Dave, we had a good down day in Australia, don't bail out on us now that the Chinese ships full of mining dollars have sailed off over the horizon!

Jul 03 11:47 PM

[Robert J C:]

Hi David - I always enjoy your articles. I am not skilled in TA and am much intrigued by the 22 period MA which you keep referring to. Have played around with it and I believe it has great value. I wanted to ask you how to apply it for long-term trend followers. Would it be "good strategy" to enter on a weekly move above the 22 week MA and use a weekly or monthly close below the lower of the 22 week or 22 month MA to sell ? Thanks - a follower in Singapore.

Jul 04 04:31 AM

[David Fry:]

Our podcast/video regarding Emerging Markets with Business Monitor International (London) is now posted on our public page without registration at: etfdigest.com

As to the 22 period MA on weekly charts? It works reasonably well in markets that are "trending". Sideways markets defeat most indicators from all views.

Jul 04 09:04 AM

[ed233:]

Great analysis! It seems to me that the world is waiting helplessly for the next shoe to drop. Will it be positive or will it be negative? For sure most earnings going forward will be less but I'm thinking this has already been priced into the market. What scares me most is when you listen to somebody like Ms. C. Romer a representative mouth piece for Mr. Obama. She seems to represent the good old mom approach. It's bad but remember what the unemployment figures looked like just a few months ago. Quasi- governmental auto workers and bankers will not bring this economy off its knees. A short period of pain might be preferrable to a long drawn out experiment of printing massive doses of more money(I owe you's) to drag the matter over at least a decade? Sometimes a social revolution cures many greedy mouths. LOL Looking after your money.

Jul 04 10:32 AM

[Adam855:]

I think the 15 year chart for the S&P demonstrates clearly that we're still in the clutches of a powerful US equity bear that started in 2000, created by the excesses of the massive bull of the 80's and 90's (including lack of development of commodities supply, an inelastic market). We're looking at a similar great bear for US equities, with a sideways nominal movement (therefore negative from inflation) that will likely run until somewhere around 2016-2020. Any rallies are bear "sucker" rallies and should be treated with caution.

Jul 04 12:49 PM

[sheeple123jump:]

......very helpful combination of charts...and a most useful one,that 15 year s+p........just from a simple tech analysis view...imagine that chart was for say a 5 minute chart...the super steep run up from 1995 to 2000...would be screaming for a sharp correction....and then the whole picture strikes me as ,yes, Bearish,but the next big move down...in my vision,ought to be from a failure around 1100....in the coming months...(just after a horrible christmas market,maybe?)...somet... Gerald Celente is predicting.... ....it would be my guess, that any sizeable down wave now, would only be a minor correction,to the support.....as a blast off point for the big push to 1100.... one last dance on the titanic.

Jul 04 07:40 PM

[DavidTheThi...:]

excellent observation
driving looking through the rearview mirror
hindsight


On Jul 03 09:24 AM John Olagues wrote:

> I fail to see how any of the charts can be helpful in predicting
> future market prices. The charts merely show what happened in the
> past.
>
> The only thing that can be predicted is that markets will be manipulated
> by those who control them. So unless you are on the inside, you're
> merely guessing and essentially hoping that you're going the way
> of the manipulators.
>
> John

Jul 05 01:35 PM

[I.H.:]

Well done.

Jul 05 05:52 PM

[DumbAss:]

For stocks that can't be disengaged from the indices, fundamentals and emerging patterns will remain my contrarian indicators for at least the next couple of days.

Jul 05 07:17 PM

[White Shield:]

Thank you David, for all of the work. What a great "one-source review" this is.

About "copper" - is it possible that the "growth" shown in perspecitve futures is no longer tied to literal growth, but more of a response to unstable global (fiat) currencies? What if the drive behind this upswing is more of a flight to commodoties - metals (as in "run from fiat bonds/currencies")? What is the possibility that a surge in copper is possibly associated with coin production speculation? Or just holding "metals" in general?

Call me crazy...but I'm just asking here, is it possible or likely?

Jul 05 11:31 PM

[Peter Cooper:]

Shorting the S&P looks the obvious trade coming up soon - or I suppose buying bonds, see:
arabianmoney.net/2009/.../

Jul 06 09:00 AM

[mr clark:]

great job, im hearing from some 820 tgt on SPY but that seems a bit low and definitely panic zone...

Jul 06 01:34 PM

[RiskAverseA...:]

Equity is DEAD MONEY. Stocks don't need volume to decline. They can fall of their own weight. And with a mountain of debt needing servicing ... and the physical economic capacity for doing so collapsing ... fall of their own weight they will.

The stock market is nowhere even close to bottom. Yet to sweep over the lower Manhattan casino is ... capitulation. This is the big picture in a nutshell.

Returning to Thursday's throttling ... the best those holders of bloated, over-priced inventory could do was cease offering their shares for sale. No one was buying. A disaster in waiting is all this revealed. It may take some days/weeks for truth to sink in. Yet when it does, we're likely to see an avalanche rushing toward the exits...

Jul 06 01:44 PM

[bob will:]

Momentum is key. The March 6th bear rally rage died by May l5th. We took profits--expecting a sharp drop until Labor Day--when we will get back in for another bear rally to 10,000 DJIA by Christmas 2009. After Christmas, we will again take profits--expecting a crash down to 5,000 DJIA. Then jump back in for another bear rally surge to 7,000 DJIA--take profits, expecting a plunge to 4,000 DJIA---down, down, down eventually to only ONE THOUSAND DJIA.

CONCLUSION: A nightmare for investors--but paradise for traders.

Jul 07 04:54 PM