GIS, UTX, DD, CSX all warned this week. S&P500 and Dow earnings estimates for 2014 have been coming down for weeks. At the recent high (S&P500) of 1884, the market cap of US stocks were approx 126% of GDP the 2nd highest (2000=140+%) of all-time. Yet earnings estimates growth is coming down. Just what are people buying? Its all momentum.
Expect that mind set to be crushed in the coming days. A retest of the late Jan/early Feb lows of 1740s is in the cards. In my view, that is still way over-valued. We will see what the "news" is around that time. I will still be looking for an "event" that will set up a panic sell off and a grab for liquidity.
RR car loadings of coal, for the latest reporting week end 3/8, were down 3% y/y. If one wants to assume that RR car loading are a good measure for coal substitution vs NG, the data would suggest that coal is not making much of an inroad. Net/net bullish for NG as car loadings have been negative y/y for just about every week YTD.
Conclusion from the prior two posts. More easing is coming, from the ECB and PBOC, but we are going to have to endure soft macro-econ news and stock sell offs first.
UTX warns! Warnings are coming in hot and heavy in recent days. Also, some other very interesting developments:
1)Draghi, worried about the strong Euro (hit another 2.5 Yr high today) talked it down with comments the ECB is ready to take non-conventional easing measures
2)Chinese banks are reducing their loans to steel, cement, alum, flat-glass and ship building industries by up to 20% this year vs 2013. Mechanism is by lowering the amount on Letters of Credit. Expect further soft macro-econ news out of China
3)Powell of the FED, said the FED is considering funding surcharges on the largest banks to solve the "problem" of too big to fail.
My analysis, this is a stupid idea, increasing the cost basis of the largest US banks. Reminds me of the comments made by Dan Rostenckowski, congressmen from Ill, saying that he was going to propose a law (1987) that eliminated interest deduction on corporate income statements-at the time United Airlines was being pursued by LBO entities-UA's HQ was in Chicago. "Rosti's" comments were one of the catalysts for the 1987 crash.
Draw this past reporting week end 3/7 at 195-more than double the 5 year average of 95 draw. Inventories are now 46% less than the 5-yr average. NG prices(spot) continue to back up, now in the high $4.30s to low $4.40s. I have put in orders for UPL just above $24.00.
It is still my view that futures prices have to get above $5.00 for 2015 before drillers will increase capX to increase production enough to normalize inventories for 2015. 2014 inventories, the die is cast, will be in shortage all year-it is just a matter of degree.
Beware the talking Heads. Today, at least on CNBC, comments were made that retail sales were good as they rebounded .3% for Feb. Well, if you look understand that, at the same time, Dec was revised down from down .1% to down .3% and Jan was revised down from down .4% to down .6%, then Feb's "increase" is off a lower base. Feb retail sales were soft and up only 1.5% y/y, or at about inflation-if you takes the government's numbers on inflation which by private measures understates inflation.
Also, business inventory to sales ratio (inventories were up and sales were down) came in at 1.32 months. That is the highest since Oct 2009.
Bottom line, sales are soft and inventories are growing and at troublesome levels. Earnings warnings continue to come in at a consistent level: NWL, NTAP, DG to name a few of the latest.
Gold breaking out today in the mid $1360s as I write on increased volume. With the Crimea vote on Sunday, the US conducting naval operations with other countries off the coast of Crimea, I am expecting stocks to trend lower the rest of the week and gold higher.
Overnight, the PBOC injected liquidity into Chinese financial markets as measured by the 7-day repo rate-which hit 2.22% at 22 month low. All I can say now is there are "cracks of confidence" in China's financial markets as another solar company is set to default, copper and 4 year lows, the Yuan falling vs the $, and the PBOC "forced" in inject liquidity.
I have been expecting a "valley of doubt" to show up for some time now with more recent predictions of some sort of "deflationary event" to occur in the 2nd Q. Between China, Ukraine, ongoing fiscal and bank troubles in the Euro-zone (Euro over $1.39), soft macro-econ data in the US-the probabilities are increasing.
Glad to hold gold till it gets closer to $1435-hopefully by no later than Friday afternoon and not a buyer of anything.
Selling is much harder to do than buying, but you are up on all your inventory-well done!
CSX warned today along with other retailers. Copper at a 4-yr low, D-Ram prices have been falling for weeks, earnings estimates for the S&P500 and Dow 30 have been coming down for weeks. Still, "buy the dip" works until it doesn't. We are getting very close to "doesn't".
On Oct 18,2013 I bought a small position of BLDP at $1.40. On the way up I sold a 1/3 at $5.20. Yesterday it reached a 52-week high of $8.38. I was ready to pull the trigger on selling another 1/3 at $8.20 when a phone call took me offline and I had to leave for a Dr. appt. I come home at night to see the stock closed at $5.10
Consistent with my, "4 strikes and you are out theme"
ECB non action, that was 1, jobs number was above the soft area I was looking for, but if you measure the jobs number in terms of total hours worked 99 million vs 99.2 in Jan and 99.1 in Dec, that lower total hours worked actually translates into a loss of 200,000 jobs-so that is trike number 2.
Today we had AEO, URBN and DD warn for the upcoming Q, so warnings are picking up. The FED will taper next week (strike 3), so if warnings continue (strike 4), I am predicting the market makes a top no later than the 3rd to 4th weeks of March.
Alot of cross currents, so I took profits on EGO, with the thought that I have other gold miner positions that will participate if gold breaks through $1355-$1360. Also, there just could be some positive (warmer) macro-econ news in the coming weeks-sending stocks higher and gold lower.
Seems to me the "solution" is easy. The Ukraine should forget about Crimea-let the Russians have it and close off the border. New Ukraine leadership should immediately seek increased economic ties with the EU and ask for a pledge from the West for a Marshall like plan to rebuild the economy based on free markets, elections and the rule of law with the goal of joining the Euro-zone in 2-4 years.
Those Russian nationals that don't like it can move to Russian or the Crimea. In 5-10 years, the Russians will have to open up the border to Crimea because, outside those on the military bases, will want to get into the Ukraine because of its much higher standard of living. Once that happens, the Crimea will become part of the Ukraine again with the Russian's having an agreement to keep their naval base.
Russia is doing Ukraine a favor by 'forcing" the wavering Ukrainians into the arms of the EU and the West-accelerating their economic progress. The question now is one of leadership. When will EU and US leaders figure this out and then work out the details of a Marshall like plan?
I have avoided most of the Marcellas plays as they were too expensive for my tastes. Hover today, I bought some COG under $35.00 as a play on increased takeaway out of the Marcellas region by late 2015/early 2016. COG has sold off, as they have been getting a discount for their NG because of not enough takeaway. This is a small position so far as I think, if NG gets closer to $4.00-$.25, COG could go down to $25, but term I still think NA NG price will triple to approach world prices.
After hitting $1355 last Monday, gold has come under some profit taking. $1355 was an important number as it was also a high last Nov. Should gold break above $1355-$1360, then there should be some "open field running" to $1435-the high last August.
China's weak macro-data introduces an increasing probability that the PBOC will have to be stimulative to:
1)Increase GDP growth
2)Reduce the risks that WMP and other debt defaults won't start a negative reinforcing loop
I think the PBOC has already started easing as evidenced by the fall of the Yuan and lower 7-day repo interest rates.
Just about all gold miners would participate if gold were to run from $1360 to $1435-GFI continues to be one of my favorites.
The ECB is feeling increasing pressure to ease as well.
I'm glad you are up on ECA. As I am bullish on NG, I expect ECA to grind to $25 as futures prices, over the course of 2014, move to $5.00+. On the other hand, I'm a buyer of more if it gets back below $19.00-assuming it trades there because spot NG prices have weakened. Obviously just one man's opinion, but I would own "trading" shares and "core" shares of ECA. Trading shares to take advantage of short-term swings in optimism/pessimism and core shares to hold for years as I expect NA NG prices to move up to world prices $12+ over the next 3-4 years. That should take ECA to $40+ and a couple dividend increases along the way.
I have a 10% profit on ECA in the last few weeks thanks to you and I'm considering selling it all in hopes of buying back lower.
I have been writing about a theme for several months now that sometime in the 2nd Q a financial event or other black swan event will catch the market overextended leading to a grab for liquidity as the carry trade out of Japan and other leveraged positions will become forced sellers. At that point in time, everything will be sold off, with many bargains available after a few weeks to a couple months of "scary" action.
To the rescue will be central banks, the FED will taper their taper or increase QE, the ECB will start QE and the PBOC will also be a buyer of bonds and other assets in China. The "trick" will be timing as to what to buy when as asset classes won't all bottom at the same time. For now, my favorite and only themes are NG and gold/silver stocks. Depending on what else gets sold off, enough, I'll be a buyer of more traditional businesses.
Otherwise, if/when NG spot prices get around $4.25 and ECA and/or UPL back up 5-8% or so from current levels, then I will be a buyer of them.