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05102011 May 10, 2011

Posted by easterntiger in economic history, economy, gold, markets, oil, silver, stocks.
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This is getting old.

You might have noticed that I have gradually reduced the frequency of reporting, due to the ‘sameness’ of the results and the lack of low risk opportunity from month to month.

Here are some numbers on the technical side to ponder just in case you have any doubts about what you might be missing.

U.S. stocks – both upside and downside remain minimal; little day-to-day risk, little week-to-week reward.

(1) The S&P 500 55 day moving average is at 1320.  Two months ago, or about 60 calendar days, this same average was at 1312, or a change of just over 0.5%; not enough of a gain to offset the risk of uncertainty in economic reports, currency stability, social, political or geo-political influences.

(2) The S&P 100 5 week moving average is virtually flat since late March. Over the past year, the average of all of the 3-week changes in this index sits at 1.387 points.  In other words, every three week average change over the past year, 52 of them, amounts to a  whopping 1.387 point change, over THREE WEEK periods back-to-back for  a year.

(3) The New York Stock Exchange Composite Index has pulled back into the same range that it occupied between mid-February and mid-April.

(4) Although the Nasdaq reached highs not seen since 2001, it is well-known that as a cap-weighted average, it is heavily influenced by a small number of high growth elements, such as the recent market cap Goliath, Apple.  Another way of reporting the 10-year high is to say that the Nasdaq has not been very high at all since it’s catastrophic plunge off of it’s all-time high at 5132.5, to the current level of about 300 points above ONE HALF of that record level.   Just over half way………ten years…….

Foreign stocks – London’s FTSE and France’s CAC are no better or worse than any measure already achieved during or since January.  Hong Kong’s Hang Seng is stuck in a range that goes back to last October.  As you might expect, Japan’s Nikkei is still struggling for stability after the impacts of the early April natural catastrophe.  Neither the Brazil Bovespa, Argentinian Merval, Netherlands AEX, Russian MICX or Swiss SMI are anywhere near their earlier highs of the year.

Bonds – Just as I last recorded, the multi-month rise in interest rates has reached and turned away from another climax.  The trend is, once again, returning in the direction toward this continuing downward phase of the 200 year cycle, swinging toward lower rates.  This is the 9th peak and turn downward since 2004. Many of the previous peaks have been near peak market optimism, while, contrastly and understandably, the interest rate bottoms have been near periods of maximum pessimism and market turmoil.

Upside this time around appears to have directly intersected a downward curving 200 day moving average, at least on the benchmark 10-year treasury note.

I have continuously and successfully argued (since it is now historical fact and no longer a theory) that a properly configured variable rate mortgage (ARM) instrument purchased at the proper time will outperform almost any fixed rate mortgage, unless that fixed rate mortgage is converted to a lower rate at some opportune time near a low rate swing.   This has been the case for much of the past 30 years and I expect that this will remain so for another 5 to 10 years, in spite of budget, debt and currency pressures.  (make reference to the long term charts in the January 27th report, of the 30-year and 10-year treasury notes, both downtrending since the peak in 1980, albeit with some upward reversals) Fear doesn’t save you money, but, knowledge does.  The people who suggest to you that you make your decisions based upon fear of higher interest rates are the same people who receive lower payments, and therefore, lower revenues when you lock in lower interest rates.

For our purposes, these peaking and falling interest rates have benefited my heavy allocations to the F fund, particularly since early April, as the current interest rate returns to the middle and lower end of the range established after the crisis of 2008.

Silver – in spite of reaching multi-decade highs just over a week ago, with the commodity sell-off of last week, it shaved off 9 weeks of gains in only 5 days, down 33% in less than a week, it’s biggest weekly drop since 1980.  I have been waiting on a good purchase window for about a year to avoid getting caught in these ‘flush out the weak hands’ sell-offs. Luckily, these recently lower prices are still higher than the prices where I bought last year.  (Manipulation a factor? Of course.  It always is.)

Gold – although the sell-off wasn’t as severe, the current level is now only 5% higher than levels already reached before the end of last year.

Oil – crude oil fell last week by it’s biggest weekly drop ever.

It should be added that these drops aren’t actually in the value of the commodities by themselves, but, also due to adjustments to a rapid, upward turn in the dollar, itself influenced by a large negative move in the Euro, which responded to news last week that Greece was considering a plan to remove itself from the European Union.  This would have an obviously riskier profile to the Euro currency, making the dollar appear to be a safer haven.

I will withhold any further changes in recommendations until some focus or direction emerges from the approaching discussions on the debt ceiling/continuing budget.  Volatile markets are likely as the political parties play another chapter in the game of ‘chicken’ to test each other’s resolve, since each side has a point to prove.  This will put a scare on all those others with true ‘skin in the game’, such as foreign central banks, foreign governments, major foreign investors, foreign and domestic stockholders, foreign and domestic bondholders, state government  officials and their budgets, federal employees, unions, major government contractors, Wall Street capital managers, commodity markets, currency markets, etc.
With so many players involved, a sneeze in one part of the group could turn into a panic elsewhere, at least temporarily.

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