?If I relied on my customers to tell me what they wanted, they?d ask for faster horses,? said Henry Ford, the founder of Ford Motors.
If you feel like this market has sucked you down a rabbit hole, you have plenty of company.
I have never seen such a profusion of contrary cross market indicators. Traders are running up shares prices while companies are cutting earnings forecasts. Economists are raising GDP forecasts as rising energy prices are taking them the opposite direction. Natural gas is crashing as oil spikes up.
The bond market has gone catatonic, with billions pouring into bond mutual funds to keep them on life support. Dr. Copper, that great leading indicator of global economic activity, has gone to sleep, with investors pouring money into the entire spectrum of risk assets. An increasing share of the buying in equity markets is focusing on a single stock, Apple (AAPL), the world?s largest company.
They say the market climbs a wall of worry. This one is climbing the Great Wall of China. You have to assume that the people buying stocks here are doing so only for the very long term, Warren Buffet style, and are willing to look past any declines we may see this summer. They don?t care if the market drops 5%, 20% (my pick), or 50%.
In my new year Annual Asset Class Review I thought that markets might peak in January. I lied. Thanks to a global quantitative easing program, it is increasingly looking like 2012 will be another ?sell in May and go away? year, the fourth in a row. You might as well book that Mediterranean super yacht, the beach house in the Hamptons, or the bucolic chalet in Switzerland now to beat the rush.
Another ?looking glass? element this year is the extent that last year?s dogs became this year?s divas. Just look no further than Bank of America (BAC), which did a 67% swan dive in 2011, but has soared a blistering 51% this year. This is a stock with a PE multiple of 812 and more investigations underway than Al Capone every saw.
It goes without saying then that those who did terrible in 2011 are looking like stars today. Look no further than hedge fund titan John Paulson, whose flagship fund was down 50% at the low last year, thanks to a big bet on financials. This year it appears his super star status is restored. Other funds that made big bets last year on European stocks and sovereign bonds have been similarly revived. If MF Global had only lasted two more months, John Corzine would be looking like a genius today, instead of a goat.
When I realized that this could be a ?dogs of the Dow? year with a turbocharger, I quickly reviewed by own money losing trades in 2011. That prompted be to rush out but puts on the Japanese yen, which doubled in short order, and haven?t looked back since. Now you really have to ask the question, will my other 2011 losers perform similar turnarounds? What?s at the top of the list? The (TBT), my bet that long term Treasury bonds would go down, which inflicted my biggest hickey last year.
By the way, I?m kind of liking the volatility ETF (VXX) here. If the markets keep going up forever you might lose 10%. If they don?t, you will make a quick 30%, and 100% if volatilities return to the highs seen in October. The cost of carry is modest, there is no time decay as with options, and there is no contango. In fact, near month volatility is trading at half the levels of long term volatility. That is the kind of risk/reward ratio that I am constantly looking for.
When I visited the local Safeway over the weekend, I was snared by some uniformed pre-teens, backed by beaming mothers behind a card table selling Girl Scout cookies. I was a pushover. I walked away with a bag of Thin Mints, Lemon Chalet Creams, Do-Si-Dos, and Tagalongs.
I have to confess a lifetime addiction to Girl Scout cookies. During the early eighties, one of the managing directors at Morgan Stanley's equity trading desk had a daughter in this ubiquitous youth organization. One day, she pitched to all 200 traders on the floor, going from desk to desk with sheets of paper taking orders. I used to buy two of everything she offered, as some clients preferred a few boxes of these delectable treats over lunch at the Four Seasons any day. Other's ordered hundreds. I later heard that the girl was the top performing scout in the greater New York area two years running.
But this year, when I got home and opened the boxes I was shocked. While the price was the same, the number of cookies had shrunk considerably. I knew it was not my waist line the scouts were concerned about. I was seeing the dastardly hand of 'stealth inflation' at work. In this deflationary environment, companies loathe to raise prices. Food companies are especially hard hit, with many commodities like wheat, corn, sugar, soybeans, and coffee up 50%-300% in a year. Any attempt to pass these costs on to consumers is punished severely. So companies cut costs, quantity, and quality, instead, by shrinking the size.
I think you are seeing stealth inflation breaking out everywhere. It is not just in food. Many products seem to be undergoing a miniaturization process while prices remain unchanged. It also extends to services, where a dollar buys you less and less. This is how the consumer prices index is staying in low single digits, despite anecdotal evidence everywhere to the contrary.
Meet the Ugly Face of Stealth Inflation
When I left the Treasury Department, 92% of the American public were against the TARP, but only 60% were against torture. That gives you some idea how much Americans are against bailouts,? said for Treasury Secretary, Hank Paulson.
As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. Read more
As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. Read more
Wednesday will be all about the Euro. That is the day that the European Central Bank announces the result of the next tranche of its quantitative easing program, the LTRO, or Long Term Financial Reorganization policy.
This is the program that allows European banks to borrow unlimited funds at 1% with no questions asked. This is very important for all asset prices worldwide, since the cash pouring out of the continent has been the primary driver of asset prices skyward since December.
It is safe to say that ?500 billion is in the price. That is what the beleaguered currency?s rally from $1.26 to $1.35 has been all about. The unwind of Euro shorts in the sterling and yen crosses have also been a factor. If the ECB delivers ?1 trillion instead, the Euro will pop to $1.37 and risk assets everywhere will rally. If they don?t, expect a low volume bleed off in prices, and the long awaited correction to begin. It is a coin toss which way it will go, so I shall watch from the sidelines.
Anticipation of more sugar infusions from the government has sparked the monster rally in the sovereign debt markets that I predicted last month. Spanish ten year bonds have fallen from 5.8% to 5.5%, while similar Italian yields have made it all the way down from 6.0% to 5.4%. That is quite a long way from the 8.0% peak we saw as recently as December.
Oil has been another new assist juicing the Euro. If the Euro falls, then the local cost of fuel in Europe would rise sharply, as oil is prices in dollars. This would exacerbate the recession already in progress on the continent. These concerns could prompt ECB president Mario Draghi to delay further interest rates cuts, generating more Euro strength.
If we do get the move to $1.37, that should clean out a big chunk of the remaining shorts, which have dropped recently, but are still huge. Since January 24, total shorts have fallen to 142,000 contracts, down from the all-time high of 171,000 contracts. That works out to $17 billion of underlying remaining on the short side.
Get the Euro back up to $1.37 and it might become an attractive short again. It?s just a matter of time before the market refocuses on Europe?s underlying fundamentals, and those are dramatically worsening by the day.
There is no limit to how far president Obama is willing to go to stimulate the economy and reassure his election. So I had to be amused when a friend sent me a link to his latest proposal. Warning: the source is a college humor website, so I would take it with so many grains of salt. For a good laugh, click here. Fellow writers should be prepared for the worst. The economy will not be the only thing stimulated.
As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. Read more
Elon Musk certainly came up with a winner with his unveiling of Tesla?s Model X on February 9. When I first heard the specifications of Tesla?s new Model X, I was floored. The all- electric vehicle offers four wheel drive. It has spacious seating for seven. It accelerates from zero to 60 miles per hour in 4.4 seconds, a faster jackrabbit sprint than you?ll find in a Porsche Carrera. It is in effect an all-weather SUV- minivan-high performance sports car hybrid.
The electric drive achieves a generational leap in capabilities. The 85 kWh lithium ion battery back boasts a 300 mile range, with a cheaper 60 kWh version available with a 230 miles range. The all aluminium body saves enough weight to give you this fantastic reach.
The only competitor this close will be BYD Motors (BYDDF) model E-6 with a 186 mile range due in the US by the end of the year. This compares to my existing electric Nissan Leaf (NSANY) which takes seven hours to charge and can make it only 80 miles before pooping out.
Don?t bother looking for the motor because you?ll never find it. There is one mounted under each axel. Lift the hood and you?ll just find more storage space.
If you buy both the high powered wall connector and the twin charger for a combined $2,700, you can charge up from empty in only 4.5 hours. Of course, you?ll have to rewire your home to take an extra 100 amp circuit.
Tesla is departing from the all-electric convention by not using the standard J-1772 plug. Instead, it will go for the NEMA 14-30 plug. But this can be attached to J-1172 power sources with an adapter.
A great selling point of electric cars, which the companies don?t mention, is that there is no maintenance. Just bring your car in for a tire rotation every 7,500 miles. Instead of tune ups, you get software upgrades. Even the brake pads last 100,000 miles, as the regenerative braking system does most of the heavy lifting on stopping. You also have to deal with people cheering from the roadside or giving you a thumbs up wherever you go because you are driving a true zero emissions car. No Kidding.
Design was a big factor, and the sleek bullet shape will certainly turn heads. In a tribute to the Mercedes Benz gull wing doors of the 1950?s, the Model X includes its own ?falcon wing? doors.
Don?t hold your breath expecting a delivery anytime soon. Production doesn?t begin at the Fremont, California plant until the end of 2013, and won?t go on sale to the general public until 2014. The great thing about this timing is that it gives you a chance to see if Tesla?s Model S four door all-electric sedan lives up to its sky high expectations, which will see a roll out this summer. The Model S is expected to reach maximum production of 20,000 units a year in 2013.
When I spoke to engineers at the company, my big question was whether the car could make it the 200 miles from San Francisco to my beloved Lake Tahoe. It is within the stated range, but involves a 7,200 foot climb over the notorious Donner Pass.
I know from my Leaf driving experience that steep hills really eat into your range. They said that they would not be sure until test runs began next year, but not to worry. Tesla was planning to build a network of 440 volt, high amperage ?supercharging? stations along the way that can give you a full charge in 45 minutes.
To watch the video of the unveiling, please click here. There, you can also put down a fully refundable $5,000 deposit to get a place on the waiting list. The price may come in at a $70,000-$80,000 range, in line with other top of the line SUV?s with all the extras. I signed up on day one and manage to score delivery number 60. Last time I checked, they were up to 645.
I have to think that there will be a stock play here sometime this year. Tesla shares rose 55% after the December low, massively outperforming the market. If we get any kind of a selloff in the near future, as I expect, you might want to pick some up. When they roll out the S-1 this summer, you can count on the mother of all marketing pushes to positively feed into the shares.
It will also get some mileage if the price of gasoline continues to soar, as will all other alternative energy plays. There?s nothing like driving past those $5 a gallon signs and giving them the middle fingered salute.
