Bear or Bull Spring 2013

7/30/2019 Bear or Bull Spring 2013

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BEAR HAT OR BULL HAT Spring

Bear

Hat orBull Hat

Spring 2013

IN THIS ISSUE

The markets have beenclimbing to new highs on a weeklybasis. There is almost no sign of any pull

back! The markets do not care if it isgood news or bad news.

It seems any news is a reasonfor the markets to jump. To me itsstarting to feel much like 2007, for a fewreasons: savings rates are at all-timelows, debt is climbing on short termbased loans, and large cap companiesearnings are starting to peak. It feelslike we are at a great party that no onethinks will end. All that could changeand the market could just keep

climbing, more booze (Q.E.) couldshow up and the party will keep onrocking. One thing I have learned frommy love/hate relationship with themarket is one has to adapt. The marketis pretty much a living substance andwill change periodically. One has tolearn to accept that and move with thetrend and no matter what have trailingstops in on all your market positions. Itis no different than wearing a seat belt

or a helmet. Only do this if you careabout locking in profits.

The current market has been aBulls best friend thanks to our goodfriends at the Federal Reserve. It hasbeen an all-out hunting season on theBears, and Ben Bernanke has beensupplying the Bulls with ammo. Nowthere are a lot of strong Bullish chartsout there and we will cover them,however I just do not see how this stockmarket party can keep this up. Themarkets could keep rallying for a fewmore months or even another year. Andthe flip side is if the real economy starts

to gain traction, WATCH OUT BEARS.Dow 16,000 would just be the firstmilestone, but there is a lot that has tohappen for the Bullish case to play out .There is also a Bearish case which we willlook at as well.

Do we have a Glass Bull rally oran Iron Bull rally? Look at the charts andmakeup your own mind.

Charts

We will take a look at charts from all overglobe. These will range from demograph

stocks, big picture on Small Business,

unemployment.

Page

Coming Trend in China?With the coming change in demographics

China, can we look and see what took pla

when other countries experienced the sam

shift in demographics?

Page

Glass Bull or Iron Bull?


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BEAR HAT OR BULL HAT | Spring 2013

Charts are always fun and interesting tolook at. It can help take the emotion outof investing. Here we will be looking atmany different charts from all over theglobe. Below is a list of charts that willbe covered:

Small business outlook in theU.S. (Study done by NFIBResearch Foundation)

U.S. Economic Activity andthe Federal Reserve

Overview of Gold, the DowJones and Student Loans Unemployment in the

Eurozone

Charts

Small business

Small businesses are one of the most important aspect of any strong recovery. Many forget that small business the key element for a stronger and healthier economy. The pulse of the small business community can either confior question how strong a recovery is. Here are some truly amazing facts about the small business commun(Research done by Business Insider)

Small businesses employ 57% of the countrys private workforce

Small businesses create 13x more patents per employee than large patenting companies

One third of small business rely on credit for financing

60 to 80 percent of all new jobs come from small businesses Small businesses pay 44% of U.S. payroll

If a small business cannot resume operations within 10 days following a natural disaster, it probably w

not survive

Small business seem to be just more than the back bone of the U.S. They are very important to the economy, howethey are very fragile in hard times. Lets take a look at how small business are feeling in the U.S. (Study doneNFIB Research Foundation)


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Now the chart above titled Outlook for Business Expansion does not paint the best picture moving forwardIt shows us that small businesses are not looking to expand. Why could this be? The chart below titled Nota Good Time to Expand helps us understand why the outlook is poor. The political environment is thereason why!


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Expansion does not look to be doing so hot at the moment. A large amount of that is due to Washington, Thereare two other key major components to Small Businesses we must look at. Sales andborrowing provide a goodinsight on if, or when, Small Businesses will be looking to hire more employees. If sales are doing well that meansthe real economy is also doing well. Remember that 70% of the U.S. GDP is based on the consumer. If sales aregoing up, borrowing is likely to increase for expansion. Expansion means more employees which would be adirect effect for a stronger and healthier economy.

From the look of the chart above Single Most Important Small Business Problem sales have started to headlower once again. The chart below Regular Borrowing Activity also does not paint the best forward lookingpicture for Small Businesses in the U.S.


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BEAR HAT OR BULL HAT Spring

Sadly from the study done by the NIFBResearch Foundation does giveinvestors a reason to be concernedabout the overall economy. However,it seems the stock market does not careat this time. Sooner or later reality will

catch up but, which reality? Currentlythere are two realities. On one handyou have the stock market which isbooming and on the other, SmallBusinesses are having major red flagsacross the board. Remember smallbusinesses do not do well in hardtimes. They tend to quickly go under.Hopefully we start to see a turnaroundin charts above. Now lets move onand get a bigger picture of the U.S.economic activity.

U.S. Economic Activity

To get a good read we will be looking at the big picture or as some call it the 30,000 foot view of the economThis way we can see if a new trend is taking place or if it is just a small blip on the radar. After our look at economy we will see what our good friend Ben Bernanke and the Federal Reserve have been up to. If one recallslooked too see if the Federal Reserve would keep up with Quantitative Easing (Q.E.) and the probability of tmarket hitting new highs was only a matter of time. The question is will they keep it up now that we are at all-ti

highs? To get a read on economic activity we will cover: Employment

All 3 manufacturing indexes

Durable Goods

Rail road traffic

Internet coupons


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Small

business

The chart above presented by Streettalklive.com shows us that employment moves in cycles. This does not meour current employment cycle has peaked. This is just something to watch because from the 30,000 foot view itstarting to look like a new down trend could be taking place. The chart below shows that us the economic activican be directly correlated with Q.E. and due to Q.E. 3 activity has been upward. However it seems Q.E. can onpump up activity for a short time before the market needs another shot from the Federal Reserve. Now it can bargued that this is not a healthy sustainable solution but if an investor wants to make money they are being forcto play by the rules of the Federal Reserve and leave logic aside.


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The second chart from Streettalklive.com points to caution. It shows that trends of the past are starting reappear. One thing this chart does not show is in the past two recessions we did not have the Federal Reserwatching the markets back. The chart below shows us Weekly Intermodal Rail Traffic. Rail traffic gave investoa red flag back in 2008 before the big fall, which is why I watch it very closely. Currently rail traffic is startingslow but this is not a sign of a trend at the moment. If rail traffic does start to contract for consecutive weeks, ththat would be a major red flag like we saw in 2008. It is something to watch closely.


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Now why do I look at the Internet Coupon Index? Due to the U.S. GDP being driven by the consumer, it seevery logical to watch how the consumer is doing. The chart below shows us the offers for coupons and the demafor coupons. If this was a stock investors would be jumping up and down, however we see demand on both sidgoing through the roof! When a company offers coupons they usually do this when sales are weak and need increase demand. Consumers usually look for coupons when times are hard and they are trying to stretch thbudget. Or companies are just being nice and offering bargains and more consumers are moving to couponi

That is something for you to decide.

Federal Reserve

The Federal Reserve has had the markets back ever since it started with Q.E. the first time around. Back

then the Fed was buying U.S. bonds to lower interest rates to help home owners and increas borrowing. Today

the Federal Reserve is buying 40 BILLION DOLLARS a month in the overall market. It is just not buying U.S.

bonds anymore. They are also buying securities in the stock market. Now this may sound all well and good but

it clouds the vision of investors across the board. It brings the question to mind are we in a true recovery or

another bubble brought to us by the Federal Reserve? Lets take a look at a chart that brings that question to

the forefront.


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The chart above makes me feel as if it is truly a Fed driven rally. As their balance sheet increases the markcontinues to rally. We can see this trend very clearly with the Feds balance sheet on top of the S&P 500. Thworks great for the Bulls as long as the Fed keep buying bonds and securities here in the U.S. The only concernwhat happens when they stop buying up assets? Most likely they will not stop their Q.E. anytime soon, but whthey do it will be very interesting to see what this multi-trillion dollar experiment brings.

Overview of Gold, Dow Jones and Student Loans

Here we will use the Andrews Pitchfork method to give investors some guidelines on the Gold market alo

with the Dow Jones. We will also take a look at a few charts from the past that were able to give investors warn

signs that the market was topping out. But take those with a grain of salt. In my last letter, we looked at the bub

forming in the student loan department. There will be a few charts to give us an update on how they are doing.


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One of the most popular ways to trade gold is through the ETF (GLD). The chart above shows the GLD is inBearish fork. Any break above 150 for the GLD would be short term Bullish. Any break below 125 on the GLwould be very Bearish. The chart below looks at the Dow Jones 30. It is currently in a strong Bullish fork. Abreak below the 14,500 level would be short term bearish. A major break below 13,500 would be very bearish!


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The chart above relates to the cover of BARRONS financial newsletter. It seems every time BARRONS gets supbullish the market takes a mean turn the other way. With their new Dow 16,000 cover will the market take anothturn the other way? We will know soon, but the last two times the market did not have the Fed pumping in billion dollars a month. So we will see in time. Remember this is more of a fun chart you should take with a graof salt. The chart below is more concerning. Student loans are becoming the biggest type of loans starting to beserious delinquency. If you recall in the last letter I showed that the student loan bubble is far bigger than tsubprime bubble we saw in 2008. Lets just hope the job market starts to pick up and grad students can sta

paying back those loans, or we are in trouble!


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Chart A

Unem lo ment in the Eurozone

Below are two very important charts when it comes to the Eurozone. ChartA shows us that the Under 25

Unemployment rate is sky rocketing across the board. This is very key in the matter of riots and crime. When

young adults do not work there is a much greater chance that they will get into trouble. When we saw the rate

pass 50% in Greece in 2010 we saw many more riots and more trouble for the Eurozone. In Chart B below it

shows that even now the European Central Bank (ECB) is buying up bonds to help bring interest rates lower.

It is not effecting unemployment at this time. I would keep an eye on the Eurozone because as we saw in 2008,

every country is connected due to the global market. If the Eurozone starts to fall again, we will feel it here in

the U.S.

Chart B


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Coming Trend to China?China is a growing giant and the worlds factory.

Lately we have seen China in the news for its large andvast ghost cities. Some are calling it the biggest realestate bubble ever. That is a major concern but there isanother reason China could be a ticking time bomb.Most surprisingly many do not see it coming. It isdemographics that could be the Achilles heel for China.In the past we saw demographics change in areas likeJapan and Korea. We will have to see what happened tothe growth that took place. We will look at the chartsand you can make up your own mind.

Chart Presented by Morgan Stanle


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Looking at the chart presented on the previous page titled China: Demographic Trend Is Turning it is veclear that change is coming in the land of China. The key to this chart is to look at Chinas dependency ratio. one can see that level is starting to fall and will continue to fall far into the future. What does this all mean? If ylook at the chart below titled Japan and Korea one can see that as soon as the age dependency moves down so wGDP. Now this is a very concerning trend that looks to be taking place in China right now. Keep in mind, this

demographics. Not a stock market bubble or a housing bubble. A change in demographics is something no CentBank can hold off or change. The future for Japan, Korea, and China looks pretty worrisome, demographicaspeaking. There could be a way out this dark hole but none have been presented at this time. From the charpresented by Morgan Stanley, Caution is a word I would use when investing in these areas. Trying to figdemographics is like trying to say winter will not come, it is a losing battle and one should not try to be a hero.

Chart Presented by Morgan Sta


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When interest rates are at all-time lows, safer investments like bonds and treasuries pay almost no yield.Due to the fact the baby boomer generation (about 79 million of them) are retiring more and more every day are

looking for safer investments and being moved to fixed income. Fixed income needs a higher yield. This cannotbe found in the bond or treasury markets because interest rates are at all-time lows. Therefore investors who seeka higher yield are being forced into riskier investments like stocks. You also add the Fed buying 40 billion a monthacross the board in the market you can see why stocks are going up. There is a high demand for yield due to fixedincome. This is all wonderful as LONG AS THE FED IS THERE. It could be very ugly when the Fed stops buyingthe market. There is a small chance they will do it before the end of the year but most likely they will continue.Every time they have stopped with Q.E. in the past the markets have dipped. The Fed can keep the market goingas long as nothing overseas takes place. Asia and the Eurozone are starting to look concerning once again and Ido not know if the Fed can keep the U.S. market going. It could be far too much. If we start to see the economicdata in the U.S. turn around, then a true Bull market could be under way and we would have an iron bull market.On the flip side if the Fed stops their buying program and there is no real recovery in the economy, then we would

have a glass bull market and it would shatter into pieces. I do not see Ben Bernanke exiting anytime soon, but histerm is up at the end of the year, and we do not know who will replace him.

There are still a lot of caution signs in the market but investors have to move with the trend in the stockmarket and currently that trend is bullish. Investors need to respect that or get trampled by the bull. That trendcould change, remember our 14,500 line in the Dow. A break below there would start to be worrisome, but as longas the stock market holds that line who knows where it will go. Keep stops in place on your investments becauseone day the bear will be back will with a vengeance, but who knows when that day will come. Now on thefollowing page I leave you with a chart. All investments follow this chart and I will leave it up to the reader tochoose where they think we are.

Best wishes and safe investing

Summing It All UpWe have seen a large amount of data and it can be

mind numbing and confusing. From the data we have

looked at that took place in the U.S. it seems theeconomy, small businesses and the consumer are notseeing the recovery the stock market believes ishappening. But then why are stocks going up and up ifthe economy is truly not in a recovery? It comes down toan unintended consequence from the Federal Reserve.Remember when the Fed pushes interest rates lower bybuying U.S. treasuries they are killing the yield on safeinvestments.


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This is an interesting chart that is also great to put in your investment folder. It is a reminder that trendschange. Investments will have Paradigm rises, but they always return to the mean. Do not let yourself get stuckthe Bull trap.

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Bear or Bull Spring 2013