Tuesday Outlook: Commodities, Global Markets

<< Return to page 1 - Worse Than Headline Numbers Appear

Well that was no fun today. The headline numbers won’t seem like much of a problem but beneath the tourist figures for the DJIA, things weren’t good. There’s been a lot of talk about decoupling and it’s really not happening. It probably won’t happen but leadership will change and that’s about it.

We looked at “monthly” views today primarily which is our custom at the end of each month. We head into September which is historically a rough month for investors. We’ve come a long way from the March lows and many pundits are predicting terrible things ahead. But you never know what Mr. Market has up his sleeve and that’s why they play the game.

This is a real “newsy” week with economic data tomorrow (ISM and Home Sales) and lots of employment news towards the week’s end. Then, guess what, we’ll have another bout of earnings coming at us.

Let’s see what happens.

Disclaimer: Among other issues the ETF Digest maintains positions in: SPY, RSP, VTI, MDY, IWM, QQQQ, SMH, XLB, XLY, XLF, XLI, IYR, XHB, UDN, GLD, DBC, USL, XLE, DBB, XME, MOO, EFA, EEM, EWA, EWC, EWJ, EWY, EWZ, RSX, IFN 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

[Daniel Herkes:]

Thanks for the charts and analysis. This a very tense time for many investors. The dissonance between the DJIA and the real time data is a bit unnerving.

There are so many people out of work right now that I just cannot see a consumer recovery. The bailout monies are too slow to do much good for the man on the street. What's worse, the mindset has hardened into "I do not believe the mainstream media" for many people - especially those who still read deeply into blogs.

Sep 01 06:37 AM

[Dr. O:]

The monthly views highlight the similarities and the differences between the recovery off the 2003 lows. For the US market averages, 2003-2004 looks nearly identical to this years rally off the bottom. However, the economy, the financial system, and the political environment seem far more impaired now than then.

September greets us with the futures down 1%, as if on cue, and its clearly time to be all in cash as stocks and commodities correct, the dollar gains in a contra-trend way, and bond yields continue to fall. It's awfully tempting to go short.

From a conspiracy-minded perspective, given the administration's recent beating in the polls and back lash if not outright rebellion against their agenda, they may send out the word to let the stock market tank to engender fear in the masses and reduce resistance to their agenda, sold as a means to "fix" things. Call me a kook. I'm just a Libertarian.

Sep 01 07:17 AM

[doubleguns:]

Daniel in my opinion you have portrayed the general feelings in America perfectly.

01 06:37 AM Daniel Herkes wrote:

> Thanks for the charts and analysis. This a very tense time for many
> investors. The dissonance between the DJIA and the real time data
> is a bit unnerving.
>
> There are so many people out of work right now that I just cannot
> see a consumer recovery. The bailout monies are too slow to do much
> good for the man on the street. What's worse, the mindset has hardened
> into "I do not believe the mainstream media" for many people - especially
> those who still read deeply into blogs.

Sep 01 08:04 AM

[Seeking Advice:]

Thanks for the charts, Dave. As always, the most informative blog on seeking alpha.
@ Dr. O. -- Your commentary almost always veers very political and I often find I disagree with your poltical points though not the economic ones, necessarily.
"...the administration's recent beating in the polls..."? Whether you agree or disagree with their approach, the poll numbers are hardly reflecting any 'beating' as they're approval numbers remain above 50% which is higher than many previous administrations at this point in their term. Perhaps it's wishful thinking on your part. And I've seen no "outright rebellion" of current policies as you describe it, just highly energized partisan fighting that I've seen when any administration tries to redirect policy.

That being said, one can't help but think that the big banks and the government are trying desperately to prop up the markets as we saw during the latter stages of the previous administration (these manipulations are good for whichever party is in power, after all). The temptation is probably too great. For the banks, they're benefitting from trading profits and from having their stock prices rise, while the government benefits from the rise in consumer confidence that results from 401k investments coming back somewhat.

Makes it hard to invest though when fundamentals appear not to matter much.

Sep 01 08:06 AM

[Macro_Man:]

Well, XLY top components are good names like MCD, DIS etc. I am not sure about Goldilocks. After the big spike reversal day in early August it has struggled to hold above 165. The headline news is bad...and that cannot be good. If I am big institution why would I not offload some of my holdings and buy some other financials. With all the scrutiny, they are going to be somewhat more careful and not sure reporting record profits again is going to get the pressure off them

Sep 01 08:26 AM

[LaughingTrader:]

On Sep 01 07:17 AM Dr. O wrote:

> 2003-2004 looks nearly identical to this years rally off the bottom.
> However, the economy, the financial system, and the political environment
> seem far more impaired now than then.

You've got that right. In 2003 we were on the cusp of benefiting from a real stimulus package ... tax cuts "for the rich". Today we are being subjected to exactly the opposite "remedy" ... huge increases in government spending, followed soon after by massive tax increases. I for one am not optimistic.

Sep 01 08:54 AM

[David Fry:]

Remember something about "big institutions" like endowments and pension plans. All have their consultants to pass the responsibility buck to. They behave little different from many retail investors chasing the latest hot sector.

The "consultancy craze" has outsourced wisdom to third parties to cover their asses leaving most plans clueless and under water.

It has been an annoying trend where the chickens have come home to roost.

Sep 01 08:58 AM

[Speakeasy:]

Seeking Advice, in my community town hall meetings have been packed by individuals who were previously politically inactive. I for one am a registered Independent whose family fled communism many years ago. The tactics and policies of this administration bring back far too many memories of the old country. No "partisan stimulant" here - this runs deep and for once many in this country are waking up to the fact that the mainstream media's role has been to keep the masses sedated!

Sep 01 09:33 AM

[Victor84:]

This is funny. I remember the last "mild" recession in America. People were blaming the government back then for all their troubles looking for conspiracy theories under every nook and crany; the 2008-? edition is just 10x worse in economic severity and blogger sensationalism.


On Sep 01 09:33 AM Speakeasy wrote:

> Seeking Advice, in my community town hall meetings have been packed
> by individuals who were previously politically inactive. I for one
> am a registered Independent whose family fled communism many years
> ago. The tactics and policies of this administration bring back
> far too many memories of the old country. No "partisan stimulant"
> here - this runs deep and for once many in this country are waking
> up to the fact that the mainstream media's role has been to keep
> the masses sedated!

Sep 01 10:05 AM

[Speakeasy:]

William Ayers - birds of a feather flock together!

Sep 01 10:38 AM

[Dr. O:]

>>@ Dr. O. -- Your commentary almost always veers very political and I often find I disagree with your poltical points though not the economic ones, necessarily. <<

As I watched the stock market collapse between September 2008 and March 2009 there seemed to be a number of important contibutors: one was obviously the implosion of the financial system.

But the other was the election of President Obama, a completely unknown entity with liberal Democratic beliefs (tax and spend). These types of policies are highly market unfriendly, and, in my opinion, contributed to large institutions dumping stocks prior to higher corporate and capital gains tax rates.

In addition, there was a general lack of confidence in the Law Professor/Community Organizer President who lacked any experience in running anything. Seemingly not the right guy for the job as the country seem headed into a depression. I think that's what the market was thinking.

Some have speculated that only to the extent that President Obama will be impeded from implementing Health Care Reform, Cap and Trade, Immigration Reform, enhanced Unionization, and Higher Taxes, will the stock market rally. Some have pointed out that the fall in Obama's poll numbers directly correlates to the rise in the stock market.

I'm just repeating what others have said....I am least comfortable with the current President and Congress than I have ever been in my lifetime. They want to change things in a big way and in a hurry. And the market hates uncertainty.

Sep 01 11:34 AM

[knoc:]

"But the other was the election of President Obama, a completely unknown entity with liberal Democratic beliefs (tax and spend)."

- as distinct from recent Republican presidents such as Bush who were simply spend. Let's not forget the importance of the Bush tax cuts during war time, a historic first, in landing us in the debt-ridden mire we are in now.

"Some have pointed out that the fall in Obama's poll numbers directly correlates to the rise in the stock market. "

-- there is no doubt a 'correlation' there. There is also a correlation with his poll numbers and the incidence of people wearing shorts and tank tops

"I am least comfortable with the current President and Congress than I have ever been in my lifetime."

-- I am not crazy about Obama, but Bush & Cheney were a disastor.

Sep 01 12:06 PM

[me3tv:]

While the president can be a big factor in the economic direction and policies - I think it is the dynamic between the president and mix of party loyalties in congress that is the prime determinant of policy or economic success. Bush had a weak R margin much of his term (ending with a totally lost margin) and was a poor communicator of the fiscal or social philosophies of his party either to his party or to the opposition. Massive increases in tax revenue because of tax cuts were never credited to Bush as they should have been. Obama (the harbinger of tax increases - who is losing tax revenue to the government at a rapid rate) on the other hand is -- when talking to his base -- a superb communicator --- but only to his base. The uncertainty in the markets seems to reflect lack of trust from the fiscally conservative public who are not comforted by Obama's message and euphoria from those who who see him as "the answer". I think the euphoria is wearing off a little and the recent runup in the markets is on a fragile ledge. I am thinking cash or treasuries is the place to be for a month or more. These charts are a great help.

Sep 01 04:47 PM

[grh1212:]

I appreciate your remarks that are mostly historically correct but the correct analogy to the "tax and spend" ways of the Democrats would be the "borrow and spend" ways of the Republicans. Of course the Republicans only took on this destructive habit with the election of St Ronnie but they've held fast to it ever since.


On Sep 01 12:06 PM knoc wrote:

> "But the other was the election of President Obama, a completely
> unknown entity with liberal Democratic beliefs (tax and spend)."
>
> - as distinct from recent Republican presidents such as Bush who
> were simply spend. ...

Sep 01 05:45 PM

[Bacon:]

Actually, St. Ronnie, with the help of Volker, managed to pull us out of one of the more depressing economic periods in the past 50 years. Ironically, during the presidential campaigns of 87 and 91, the Republicans kept whinning that Slick Willie was out Republicaning the Republicans. No more big government, no military adventurism to promote democracy, NAFTA, deregulation of the financial system, etc. Willie was a stealth-Republican. Next, we get the worst Republican candidate in generations and the Dems couldn't field a candidate who could beat him. A repeat in 2004. In the meantime, the Republicans became Democrats--free drugs for everybody over 65, let's do some nation building, let's export our notion of democracy and human rights throughout the world, and let's pay for all of it with debt. We are in the twilight zone. Liberals have become conservatives and conservatives have become liberals. We need Reagan or Willie as President, we need BO as Secretary of State, we need Volker at the Fed, and we need to have Congress go on vacation for the next year. That would remove more than a little uncertainty.


On Sep 01 05:45 PM grh1212 wrote:

> I appreciate your remarks that are mostly historically correct but
> the correct analogy to the "tax and spend" ways of the Democrats
> would be the "borrow and spend" ways of the Republicans. Of course
> the Republicans only took on this destructive habit with the election
> of St Ronnie but they've held fast to it ever since.

Sep 01 09:13 PM

[BullnBear:]

The dollar move aka “the flight to safety” will be an interesting watch in relation to commodity prices over the next few sessions, should provide some great clues on direction.

Sep 01 11:28 PM

[whidbey:]

Great as usual.

You did not mention that the debt forecast of the Obama administration is probably low and the capacity to stimulate consumption is about gone, so stocks are not the place to be. The flight to gold today suggests that it is time to run for cover. I like treasuries, and gold and cash until proven otherwise.

Sep 02 05:42 PM

[JR Ewing:]

Can anyone tell me why the TBT is getting crushed? It went down when market was going up and down. I can't find a cause except that the the S&P must be way out of bounds and will crash hard in the next few weeks and the TBT is the tell.

Sep 02 11:41 PM