Friday Roundup: Commodities, Emerging Markets

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ETF Digest subscriber and occasional commentator David Hurwitz sent me this interesting analysis and comment today. He’s a thoughtful man and my exercising hero. He’s 72 years old and bicycles a gazillion miles a week.

Recently a number of TV economic commentators have referred to recessions in Asian countries that began in 2008 that reportedly had a material adverse impact on that area’s economic vitality.

I believe that this view is basically in error and found the proof in the below table from the Asian Development Bank issued in 2009 in which I computed the annual percentage GDP % change from 2003 thru 2008. Major economies are shown in boldface.

Only two countries experienced negative GDP performance in 2008 including Kazakhstan and Samoa. Perhaps some countries experienced quarterly recessions based on the U.S. National Bureau of Economic Research’s usual benchmark that a recession is two consecutive quarters of negative GDP (although additional factors are considered for that determination). And, that quarterly viewpoint isn’t reflected in the below annual data table.

The message to draw from this is that Asia did not suffer a recession for the whole year of 2008 and thus this area has much less spare capacity and unemployment than the US and selected European economies. I think this helps to explain partly the upside price pressure on commodities in general and support a generally bullish posture toward this asset class.

(Click chart to enlarge.)

This is it for me today as we have much work to do. Amid all this we’ll have our new website ready soon and I’m excited about it. Follow us on twitter.

Have a great weekend!

Disclosure: Among other issues the ETF Digest maintains positions in: XLF, TLT, UDN, GLD, DBC, EFA, EEM and EDC.

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

[doubleguns:]

Dave, as always thanks for the info and your time.

Good luck with the boxes, aggghhh I hate moving. My wife has to throw away half my stuff and none of hers.

Oct 09 10:57 PM

[Seekingalph...:]

Thanks Dave... and doubleguns, better get a storage unit! lol


On Oct 09 10:57 PM doubleguns wrote:

> Dave, as always thanks for the info and your time.
>
> Good luck with the boxes, aggghhh I hate moving. My wife has to throw
> away half my stuff and none of hers.

Oct 09 11:24 PM

[Dr. O:]

Dave, congrats on the many positive and support emails after you got out the market. However, that is how Seeking Alpha readers tend to respond. It's a very bearish crowd.

You publish an article about the imminent next crash, and you pick up all sorts of followers and kudos. Talk about gold, oil, or being short, you're a king.

Merely mention that you're following the short and intermediate trends higher--you're a mindless boob! A drone! A ninny!

Out of the market last week? Missed 4% percent. That's as much money as you'd earn in a CD in 2 years!

What the bears often forget is that a sell off in a time of free money requires a catalyst. Otherwise, all that cash earning 0% is finding its way into stocks, commodities, and bonds.

I myself am way too skittish and skeptical and missed all the crash of 2007-2008 and most of the rebound. But I've been in and out on the long side, and doing ok.

Currently, long GLD, SLV, EWH, and FXI.

Thinking very seriously of QQQQ or QLD as I anticipate a big pop through earnings, then a pull back. Unless we get selling into earnings. But I'm will to wager a bit that earnings propel the market a bit higher, given the continued strong upward bias.

I'd like to be more bearish, but bearish fundamentals may not really play out for months or years, and I trade daily and weekly.

Oct 10 08:26 AM

[David Fry:]

I would strongly recommend listening to Don Coxe's webcast via the link below:
events.startcast.com/e...

Strangely, I can only get it to play via "explorer" but not Firefox and safari.

Oh, and Dr. O.......you spoke of conditions and investor behavior well.

Oct 10 08:55 AM

[Macro_Man:]

I agree with you...I can understand being long in April, May, June, July and August. I can understand not shorting right now. But, why get long now, given the risk/reward. No one knows how the correction may take place or what triggers it. What happens if the market drops 3 or 4% and then continues to go lower. Sure, you get out but you have lost your recent gains. What happens if the market gaps lower. Then your losses could be high single digits or low double digits

On Oct 10 08:26 AM Dr. O wrote:

> Dave, congrats on the many positive and support emails after you
> got out the market. However, that is how Seeking Alpha readers tend
> to respond. It's a very bearish crowd.
>
> You publish an article about the imminent next crash, and you pick
> up all sorts of followers and kudos. Talk about gold, oil, or being
> short, you're a king.
>
> Merely mention that you're following the short and intermediate trends
> higher--you're a mindless boob! A drone! A ninny!
>
> Out of the market last week? Missed 4% percent. That's as much money
> as you'd earn in a CD in 2 years!
>
> What the bears often forget is that a sell off in a time of free
> money requires a catalyst. Otherwise, all that cash earning 0% is
> finding its way into stocks, commodities, and bonds.
>
> I myself am way too skittish and skeptical and missed all the crash
> of 2007-2008 and most of the rebound. But I've been in and out on
> the long side, and doing ok.
>
> Currently, long GLD, SLV, EWH, and FXI.
>
> Thinking very seriously of QQQQ or QLD as I anticipate a big pop
> through earnings, then a pull back. Unless we get selling into earnings.
> But I'm will to wager a bit that earnings propel the market a bit
> higher, given the continued strong upward bias.
>
> I'd like to be more bearish, but bearish fundamentals may not really
> play out for months or years, and I trade daily and weekly.

Oct 10 09:37 AM

[David Van K...:]

Dr. O, Why would you "like to be more bearish"? That sounds like an emotional pull, and trading should be rules-driven and emotionless.

Oct 10 10:18 AM

[AndrewBaker:]

Being long stocks now is not good unless you really are convinced that it is a long term hold and cannot do badly in any circumstances: even the best stocks go down in a big reversal, and can then be picked up cheaper afterwards. Some commodities are worth holding long now, such as gold and silver, natural gas (yes), wheat, sugar, and coffee as examples. Shorts on industrial metals can be good now too. Shorting the S&P 500 and specifically financials will pay off soon, although stops need to be set and attention paid to them. What cash is left may not be earning much interest, but neither will it be at risk of losses greater than 4%, and will be there to buy stocks when the market is at a more realistic value level.

Oct 10 10:22 AM

[Bull Run:]

To make a further comment on David Hurwitz's analysis, America often see's itself as the centre of the Universe, and if America is in a recession, the whole world is in a recession. If America's Banks are failing the whole world's banks are failing. This is just the concentric view America has of the world. In Canada there was NO housing collapse, No bankings collapse, in fact the Canadian economy is now adding jobs. The Auzy economy is similar. The problem the world is facing is the US dollar, or lack of US dollar to be more correct. The world see's itself as paying for America's greed, and lack of restraints. The US continues to print US dollars, which the world has to buy to pay their trade accounts. The shock will be to America when the world decides to end it's continued support of the world's largest welfare case. This will be when the US dollar loses it's world currency status, and America will then be forced to live within it's own means. Have a good weekend

Oct 10 10:36 AM

[Dr. O:]

>>Oh, and Dr. O.......you spoke of conditions and investor behavior well.<

Thanks Dave!

>>No one knows how the correction may take place or what triggers it. What happens if the market drops 3 or 4% and then continues to go lower. Sure, you get out but you have lost your recent gains. What happens if the market gaps lower. Then your losses could be high single digits or low double digits<<

That's true at all times. In fact, once off the 2003 bottom, I don't think the market pulled back more than 5% for a number of years....That's what cheap money buys you, lots of bids under the market!

>>Dr. O, Why would you "like to be more bearish"? That sounds like an emotional pull, and trading should be rules-driven and emotionless.<<

I'm sure you're correct. Mr. Spock, a Vulcan, I am not. I'd like to be more bearish because our economy is in a shambles. It feels wrong to be bullish on stocks. Yet, you look at the charts, and you'd think the economy was booming. Not merely recovering from cardiac arrest and stabilizing (maybe) at lower levels.

>>What cash is left may not be earning much interest, but neither will it be at risk of losses greater than 4%, and will be there to buy stocks when the market is at a more realistic value level<<

Maybe, maybe not. S&P 700s may have been an opportune time to get back in. US cash is losing value relative to commodities and other currencies at an alarming rate. So one has to do something with one's money just to maintain value.

Oct 10 03:36 PM

[corey mendel:]

Well said

Dr. O "I'd like to be more bearish because our economy is in a shambles. It feels wrong to be bullish on stocks. Yet, you look at the charts, and you'd think the economy was booming."

Oct 10 04:24 PM

[Philip Davis:]

We're bearish too but it sure isn't getting us anywhere this week.

Dave, I'm curious, what do you make of the materials acting like AA has opened the floodgates to higher levels when AA itself fizzled out? Shades of things to come for the sector perhaps?

Oct 10 04:51 PM

[luv2makemonies:]

It's a traders market out there not bull or bear... how can you explain the way most stocks goes up a few days and down next day. Buy and hold is dead as the only way to make monies is to day trade.

Oct 10 05:01 PM

[Spartacuss:]

We are in a don't fight the Fed mentality and it would seem that as long as they are handing out free money, much of it has to go into the equities market, as if not, then where? Obviously there is now froth, but with out a downside catalyst, I posit the markets will bumble along.

So where then would be the down side catalyst? It would appear that deleveraging forces are going to increase as commercial and housing stuff is going to throw an enormous monkey wrench along with the "boomers" retiring with not much and looking for government and retirement goodies. Then comes the jobs monster where although a lagging indicator it certainly is a nagging indicator.

More job losses to come and Joe six-pac can't spend and this says companies are not going to be hiring soon. These fundamentals just cannot be ignored and what is worse is the Fed and government tampering is going to creat a false start...it already has, and now we thoroughly confused investors stand to get another big kick in the pants and I think it is going to come from the financial sector despite the big banks borrowing at zero and lending the money back to the Fed at gain. There is just too much toxic paper out there and much more to come.

I don't beleive the Fed in cahoots with congress can bail it out, it is just too big and most certainly not transparent. In other words we have all the ingredients to bake the biggest deppresion cake there ever was. We'll see.

Oct 10 07:25 PM

[David Fry:]

Phil, The same is true for XME as steel stocks get upgrades from the street.

We just got flat materials (XLB) on Monday and missed this last leg. But it's a yo-yo market with much liquidity, peer performance pressure and low risk free returns on cash.

Just the way of things seems lame but true.


On Oct 10 04:51 PM Philip Davis wrote:

> We're bearish too but it sure isn't getting us anywhere this week.
>
>
> Dave, I'm curious, what do you make of the materials acting like
> AA has opened the floodgates to higher levels when AA itself fizzled
> out? Shades of things to come for the sector perhaps?

Oct 11 08:39 AM

[JD of OZ:]

INTC traded 6.6M shares at close (downtick) on Friday. Is it nerves or does someone know something? Perhaps INTC missing big or revenue drop will be the catalyst but there will surely be one. This market is wound tighter than a piano string.


On Oct 10 08:26 AM Dr. O wrote:

> Dave, congrats on the many positive and support emails after you
> got out the market. However, that is how Seeking Alpha readers tend
> to respond. It's a very bearish crowd.
>
> You publish an article about the imminent next crash, and you pick
> up all sorts of followers and kudos. Talk about gold, oil, or being
> short, you're a king.
>
> Merely mention that you're following the short and intermediate trends
> higher--you're a mindless boob! A drone! A ninny!
>
> Out of the market last week? Missed 4% percent. That's as much money
> as you'd earn in a CD in 2 years!
>
> What the bears often forget is that a sell off in a time of free
> money requires a catalyst. Otherwise, all that cash earning 0% is
> finding its way into stocks, commodities, and bonds.
>
> I myself am way too skittish and skeptical and missed all the crash
> of 2007-2008 and most of the rebound. But I've been in and out on
> the long side, and doing ok.
>
> Currently, long GLD, SLV, EWH, and FXI.
>
> Thinking very seriously of QQQQ or QLD as I anticipate a big pop
> through earnings, then a pull back. Unless we get selling into earnings.
> But I'm will to wager a bit that earnings propel the market a bit
> higher, given the continued strong upward bias.
>
> I'd like to be more bearish, but bearish fundamentals may not really
> play out for months or years, and I trade daily and weekly.

Oct 12 02:13 AM