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Surrounded By Inflation.

ChuckButler — Thu, 03 Feb 2011 14:40:37 GMT

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In This Issue.

* ECB meets today.

* Euro awaits ECB decision.

* CRB & CCI at pre-crisis levels.

* Pound rallies on rate hike forecast.

And, Now, Today's Pfennig For Your Thoughts!

Surrounded By Inflation.

Good day... And a Tub Thumpin' Thursday to you! It's Tub Thumpin' to me, because the snow & ice is out of here! No, it's still all over the ground, but the storm system is gone. Good riddance! It didn't turn out to be the "Epic Storm" that it was supposed to be, but that's just fine with me! The protests in Egypt are turning ugly, and violent. And with every rock that's thrown, or every sword that swung, the price of Oil goes higher. UGH!

Well. the profit taking in the currencies ended yesterday, but there's been no "real rebound". yet. The mother of all cyclones hit Australia yesterday, and ripped apart homes, and destroyed anything in its path. But, the Aussie dollar (A$) was unaffected. That's really strange, don't you think? But, as I said yesterday, I think it was, there are two drivers right now for the currencies. rate differential, and a renewed enthusiasm for risk assets. And when the risk asset has a nice yield differential, well, they get a double bounce. And so it was with the A$ yesterday and overnight. Two of the commodities that is being affected by the Cyclone, is sugar, and bananas, both of which saw their prices surge yesterday.

Gold & Silver are not participating in this renewed enthusiasm for risk assets, which is pretty strange, given the rest of the commodities are kicking tail and taking names later right now. I see where Copper prices hit $10,000-per ton for the first time yesterday. and Copper isn't the only commodity on a run like this. As I've been telling you for some time now, inflation in the U.S. is already moving higher, (except in Housing & wages) and commodities are really reflecting higher inflation. Take for instance the CRB. The CRB is the Commodities Research Bureau, and is monitored by: Reuters/ Jefferies in an index that tracks commodity prices. Well, normally when people talk about commodities in general, they talk about the CRB, or the Rogers International Commodity Index. Well, there's a newer index that works pretty well, as it has an equal weighting of the commodities in the index. It's called the CCI Index (Continuous Commodities Futures Price Index) .

Well, folks, the CRB and CCI indexes are showing commodity prices are rising, and have been rising for about 7 months now. Or. about the time that the CABAL began talking about QE2. And all of them are reflecting index prices that are now higher than they were before the financial crisis! WOW!

Let me take you back to pre-financial meltdown, spring and summer 2008. The price of Oil $145 per barrel, and inflation pressures were all around us. The dollar was hanging by a thread, and Gold & Silver were at "then record highs". Then it all came crashing down. First we had the deleveraging, then the collapse of Lehman Bros. And then 144 banks fail, and so on. I guess what I'm attempting to get at, is the scenario where we pick up where we left off in August of 2008. We all know, the Gov't doesn't, and the CABAL doesn't, but we all know that inflation pressures are all around us, and commodities are soaring again. Looks to me like we're picking up where we left off in August of 2008, how about you?

Remember a couple of weeks ago, I told you about the dollar index, and how the index had fallen to a level I do believe it was 78.85 that it had bounced off of three previous times. I said then that. well, wait a minute, I can go to the archives and show you what I said on January 18th. "Well... folks, we could be at a crossroads, and the dollar may be sinking down... the dollar index has fallen to this level of 78.85 3 times since then end of November... could this be the time it continues through this level, and brings a ton of markets people that want to sell the dollar, but are waiting for a sign of real conviction, into the arena to sell? Could be, folks... or... it could bounce off this level like it has 3 previous times... The thing you have to do, is make a decision, and stick with it... The choice is up to you, but we're here at the crossroads... what are you going to do?"

Yes. that was from January 18th. The Pfennig's episode that day was: The Dollar Hears A Hu. I actually thought that was one of the most ingenious episode titles I've ever come up with. But anyway. the point here is that the dollar index today is: 77.21. So, the idea I brought forward to you on Jan. 18, came to fruition. Not that I'm blowing my own horn here, but shoot Rudy, I don't write this letter for my own amusement, although that's how it feels sometime. I write it for you dear reader! In hopes that you can take the information I give you, and then form your own opinion, and prosper from it!

OK. The European Central Bank (ECB) is meeting this morning. I don't expect them to address the rising inflation with a rate hike, just yet.. But I do expect them to announce that they are removing stimulus measures, like bond buying.. And that should be taken in by the markets as good for the euro. We'll have to wait-n-see, eh? I would bet a dollar to a Krispy Kreme that ECB President, Trichet, is going to love the day, that he gets to step down from the ECB Presidency, and let someone else deal with this dilemma of rising inflation, while the periphery countries suffer.

You know. I've quoted Nassim Taleb before. he's the author of the book, "The Black Swan". Sounds like he's been reading the Pfennig, or my paid for newsletter, The Currency Capitalist, because he is ripping on U.S. Treasuries, and the dollar. Taleb said that the "first thing investors should avoid is U.S. Treasuries, and the second is the dollar." He went on to say that he would rather hold euros than dollars. "Euros have Germany, the dollar has nothing. As skeptical as I am about Europe, I prefer it to the U.S. The U.S. is just like Greece, only without the IMF to enforce discipline. The only thing that can happen in the U.S. is a bond riot, as this would force some discipline into the Treasury market."

WOW! I've talked about all of these things in the past. Just recently I talked about the Bond Vigilantes, and so on. It's nice to see that I'm not out here on the limb by myself!

Yesterday, I told you about the rally in pound sterling. Well, the rally continues, with the pound rising to the 1.62 handle overnight. The Bank of England (BOE) meets next Thursday. and overnight, we saw U.K. service companies return to growth in January. So, add this to the growing list of things pushing inflation higher, and the BOE back to the rate hike table. Recall, that at the last meeting, on Jan. 13, I told you that 2 members voted for a rate hike. It will be interesting to see if more BOE members move over to the rate hike camp. Judging from the recent price action in pound sterling, the markets are beginning to price in a rate hike. Why else would the pound have a reason to rally like this?

In New Zealand last night, their jobs data was not good. The New Zealand unemployment rate rose to 6.8% from 6.4% in January, and that data knocked the stuffing right out of kiwi late yesterday. Kiwi lost 3/4's of a cent (.75) in a New York Minute after the data printed, and hasn't recovered. The other thing weighing on kiwi right now, is the recent speech by the Reserve Bank of New Zealand (RBNZ) Gov. Bollard, who believes that the Gov't's plans to shrink the country's deficit, will negate the need to raise rates further. Hmmm. I think he's wrong on two counts there. 1. The Gov't will not have the political will to cut make meaningful cuts in the deficit, and 2. Therefore he will need to raise rates further!

I'm going to be interviewed by the Street.com today. I do believe, we are going to talk about China. I have been doing some research on the side, reading at home, etc. and believe that I have more info China's plans to gain a wider distribution of their currency the renminbi. Think about all the Gold they've been buying. are the planning on tying their currency to Gold? Wouldn't that make it very attractive? Think about that, I'll have more for the interviewer today, and then when I research it more, I'll come back to you with it!

Yesterday, I told you about The Fed (I prefer to call them the CABAL), now owning more Treasuries than China. there was more in the FT that another reader sent me (Thanks Peter!). And then Peter, makes has his own view.. When taken together, the message I get is that America's credit quality is slipping to the point that foreigners are losing interest and the Fed has become the purchaser of last resort and is, in effect, propping up a market that would otherwise look a lot sicker. When I have to buy your stuff, and you have to buy my stuff, because "arm's reach" third parties are no longer interested, then one has to worry."

Couldn't have said it better myself! Another reader asked me, if I thought the CABAL could decide to buy back all Treasuries. and just print the money to do so. YIKES! That can't happen! Let's hope the CABAL knows that, and doesn't try it!

Then there was this. sent to me by a reader from Forbes titled: How Inflation Is Turning Breakfast Into A Luxury Item. Yesterday, one of our young Jedi analysts at Hedgeye, Kevin Kaiser, sent me a highlight from The Grocer (an industry trade rag) that inflating food prices are making ordinary breakfast items like orange and apple juice a "luxury."

Here are the 6-month price percentage moves in some of the things people need to live with:

. Cotton = +125.7%

. Sugar = +82.6%

. Corn = +59.0%

. Coffee = +41.4%

. Rice = +40.5%

. Oats = +36.6%

. Copper = +36.1%

. Lumber = +33.8%

. Oil = +25.1%

Chuck again. well. I have to wonder if Big Ben is ready to acknowledge inflation is already all around us?

To recap. The profit taking in the currencies that we saw yesterday morning ended, but the rebound in most currencies hasn't happened. yet. The Pound Sterling is one of the rallying currencies this morning. The markets are pricing in a rate hike for the pound. The BOE meets next week, will we see a rate hike? The ECB meets today, ECB President, Trichet, is between a rock and a. rock. Commodity indexes are above pre-financial crisis levels, are they telling us something? Of course they are! That inflation is all around us!

That's it for today. Well. this has been one long week! And we still have today and tomorrow to go! Is it just me, or does it seem like the hype for the Super Bowl this year is toned down? Or maybe I think that because I'm not watching ESPN all night long! HA! Actually, I've been spending more and more time at night, on my computer, researching, and reading. I had a big chuckle from Conan O'Brien, who joked about the Egyptian Gov't turning off the internet. He said, "if you want to keep people off the street, turn the internet back on". HA! I record Conan each night, and then watch the previous night's show when I get home. He cracks me up! One of my all-time fave Led Zeppelin songs is playing as I get ready to sign off. The Rain Song, from Houses of the Holy. a great song to put on, and zone out! And on that thought, I'll get out of your hair today. Now go out and make it a Tub Thumpin' Thursday!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Weekly Monday Overview

RichardSchwartz — Mon, 06 Apr 2009 13:17:00 GMT

Richard Schwartz's

PRINCIPLES OF THE STOCK MARKET

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Monday, April 6^th, 2009: It’s Master’s week so I’m pumped up. It’s golf’s 1^st major of the year, tradition packed, for you non-golfers. Should be great with Tiger back, Phil Mickelson saying he’s playing the best golf of his life, Paddy Harrington going for his 3^rd major in a row and lots of up & comers. All I can say is wow! Even just watching this old southern flower nursery turned into a golf course in the spring, lavished with money for decades, may be worth the watching for any non-golfers out there. For me, it’s just heaven.

THE KEY QUESTION

Instead of discussing The Big Picture today, let’s focus on The Key Question. Since that’s what I keep pondering. Plus it has to be on every investor’s mind as well. “Could this rally be the start of a new bull market?” To intelligently answer -- as during every bear market rally -- necessitates rehashing all the available evidence. I can make a solid case for a cyclical bull market having just started and I can make an even more solid case that this is just a normal bounce in a Papa Bear market. Consider:

MINI BULL MARKET HAS STARTED

·        The economic stimulus is now starting to kick in which will stabilize and bounce the economy.

·        The monetary stimulus, lower interest rates, is also now kicking in and housing sales are increasing.

·        Inventories have been drawn down and need to be restocked which will pump up GDP growth near term.

·        The US and other governments have done everything possible to mitigate this downturn.

·        We now have more coordinated and get along global leadership than in many years.

·        The US economy has proven itself wonderfully resilient to shocks in recent decades.

·        Markets can counter-swing at any time for long periods, posting mini bull markets, versus primary trends.

·        Almost two years has passed since the beginning of the credit implosion back in July 2007.

·        Many independent market gurus think the March 2009 lows will last for a good while, months or longer.

·        The latest government bailout plan has more enthusiasts and support for it than previous plans.

·        Oil stopped falling back in December and is now on the rise possibility indicating growth rebounding.

·        We have recently had a number of better economic data reports from both retail and housing.

JUST A BEAR MARKET BOUNCE

·        The bear market hasn’t lasted long enough to discount all the problems that have come to light.

·        More problems, coming as bearish ripple effects and because of long lag times, are due to show up.

·        The bear market hasn’t fallen deeply enough to factor in the sudden massive shock to the global economy.

·        There hasn’t been enough overall selling or liquidation for a solid bottom. Stock and mutual fund liquidation haven’t reached previous classic big bear market bottom levels.

·        No solid bottom appears on the charts. We need a climatic sell off or a long low volume erosion to bottom.

·        Interest rates have to go up at some point, soon – either with and because of an economic rebound or from panic selling -- which normally depresses stock prices because of this new competitiveness from bonds.

·        The American consumer has suddenly stopped spending. This has slowed down business all over the world and finally exposed the global imbalances problems. Too much manufacturing in China and Asia and too much spending coming from America. Now those imbalances are being forced to readjust. Takes time.

·        The stock market is ignoring soaring unemployment. Yes, employment is a lagging indicator but continuing jobless claims isn’t. A new report just out says that in coming weeks and months, hundreds of thousands of jobless Americans will exhaust their unemployment benefits. Finally, 600,000 new job losses each month is going to add to weaker consumer spending, problems for local communities and cause negative ripple effects.

SCHWARTZ CONCLUSION: In review, we started this big bad bear market back in the year 2000. That was the peak of the last big bull market and thus the beginning of this big bear market. This is evidenced by the benchmark S&P 500 Double Topping in March 2000 and October 2007 and then subsequently and decisively breaking below October 2002’s previous decade-long lows by over 10% in March 2009. Showing that since 2000 and the ending of the Internet boom we’ve really been living on lower interest rates and big tax cuts, a false, “pump me up,” house of cards. Really not any wealth building going on, just paper shuffling to make things look great fueled by easy money credit creation. But now reality has set in. Thus, looking around, we see we’re almost nine years into a bear market which has been interspersed with one bull market, running for five years. So stocks were down almost two & a half years, up five years, now down about another one & a half years, sort of repeating The Visit of the Three Bears. In that infamous and extended bear market run of nine years, netting a -50% loss, there were two cyclical bull markets sprinkled in and surrounded and book-ended by the three bears, Baby, Mama and Papa.

My conclusion remains that this bear market is not over. But that the form and shape of it may get tricky going forward. Because the market has a history of posting cyclical or short term or mini bull markets on the way down when the bear gets ahead of itself. Which is why the stock market remains so fascinating!

THE ECONOMY

Well, the BUZZ has died down about how the economy is slowing its prior quick rate of descent. Guess because we’ve started seeing more bad economic data pop up or because the conversation has moved on. But some investors have decided an end to the economic collapse is out there, just over the horizon, so they are shifting into cyclical stocks now as a result. One can see this money rotating out of defensive sectors such as medical care, consumer staples and even gold. You know the concept, buying in advance of a recession’s end since history shows stocks rise roughly six months before the economy turns up. But if we indeed are stuck with a very mild even “anemic” economic recovery, as many figure, then stocks could also soon level off to mirror that trend as well. That is if the economic and earnings data don’t start sinking fast once again showing the economy is still sinking. For example, last Friday it was reported that the ISM Non-Manufacturing Index which now measures almost 90% of America’s economy - America now being a service oriented economy instead of a manufacturing economy - fell faster in March than in February somewhat debunking the idea that the economy has stabilized. Schwartz View: Yes, there is the possibility that economy-wise we are going to V- back up because sharp moves, in whatever areas of endeavor, are generally followed by responding sharp moves back up. We’re seeing that now in the stock market but after this bounce is over, I agree with the camp forecasting an anemic slow economic recovery.

THE STOCK MARKET

The stock market extended its rally to four straight weeks last week. We did see the first crack in this rally a week ago when the market fell sharply for two days. But then we quickly rebounded to new rally highs. That’s normal, the first crack being overcome but it does show this rally may be starting to struggle. We are getting closer to my minimum upside targets of Dow 8303 and S&P 1627, closing Friday at Dow 8017 and S&P 1621. And one can note trading volume has been slowing some, another sign of sluggishness. Or maybe cautiousness. Makes sense as we’re now moving into another corporate earnings reporting season starting tomorrow, the 1^st quarter January-March 2009 report kicking off after the close with Alcoa (AA), traditionally the first of the 30 Dow stocks to report. With the fall-off-the-cliff economy occurring early in last year’s fourth quarter, it only stands to reason that investors have to be wary of forthcoming earnings and thus wary of this rally as well. Schwartz View: It looks like the stock market has some more strength left in it so with stocks already having rallied beyond the 50% retracement level from their latest leg down, the early January peak, the teeter-totter phenomenon comes into play. Getting halfway up means it’s very likely to go all the way back up. Thus we kick off this week at roughly another key Fibonacci 61.8% price in both the Dow and S&P 500. That’s about 8088 and 838 respectively. If we break through those levels, then the next target is those January highs, Dow 9088 & S&P 944. Not guaranteed but increasingly likely.

PORTFOLIO STRATEGY

2009 may indeed prove to be the year to trade. If stocks fluctuate but go nowhere net, up or down, for many months ahead then it’s going to prove very frustrating for investors. In these times and they do happen, more often than the uninformed investor may realize, the best way to make profits is to: (1) trade individual stocks and (2) discipline yourself to continuously fade the market, buying on dips and selling on strength. Toward that end I’ve started incorporating the Commodity Channel Index (CCI) technical indicator into my work. Comes on most charting services like Bloomberg. Basically it shows deviations from the moving average, when stocks get too far overbought or oversold. Naturally you buy when a stock or index gets oversold. For more on the CCI I suggest getting Oliver Perez’s Swing Trading Tactics DVD or Alexander Elder’s book TRADING FOR A LIVING. Over the last month of rally for instance certain stocks have far outperformed the averages. And numerous tradable asset classes or market sectors like the US dollar and oil have been both up and down offering trading profits but no net profits for buy & holders.

Otherwise than scalping profits what should we do? For now favor the long side and the cyclicals. I like technology, renewable energy and natural resources. Move up a notch in your market exposure to about 30% if you haven’t already but continue to hedge your bets and don’t get out on a limb by going too long. Just subdue your ego, don’t think you know more than Mr. Market does and just go with the flow, modestly. Bottom line take what the market gives you, right now there are some trading opportunities but don’t get carried away. There’s lots more trouble to come but the path ahead is likely to get more tricky as well. So don’t fall into the camp that says “fool me once, shame on you, fool me twice shame on me.”

Have a good week!

Go Tiger Go!