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18Aug

Risk off trade resumes after bounce

Alex Business, Economy, Finance, Metals, Stocks 0 comment

High frequency traders, institutions and retail investors pushed markets lower today, and in recent days, after a brief reprieve from the selling abated in to a liquidation frenzy. Gold made new record highs, silver stayed strong as the commodity complex crumbled. Most investors are very nervous about the prospects of another recession looming, but the reality is we’ve been in a depression for four years and a recession within a depression is looming.

We’ve been enjoying the eye of the storm since April of 2009, when the banking system no longer was obligated to mark its assets to their real values and trillions of dollars were injected in to the banking system. Unfortunately the sugar high has worn off, and now the situation is worse than before.

As the oversold correction was neutralized by short covering, opportunistic buying and technical traders the stream of bad news resumed, with more worrisome headlines about the Greek debt situation, widespread investigations in to high frequency trading firms, a spread of the European bank contagion because of their leveraged bad debt holdings, and American banks facing the prospect of the credit default swaps they sold to the EU banks being called in.

In addition, economic data has been deteriorating, with poor jobs, inflation and housing data rattling the fundamental picture from a recovery to the brink of an economic contraction. Inflation and unemployment are higher, while new home sales are flopping.

With these economic headwinds, and several market powderkegs ready to blow, the average investor is looking for a safe haven. Many are buying US Treasury bonds, pushing the yields to record lows below 2% on the 10 year and collapsing the 2s to 10s spread, making lending less lucrative for banks. Others are turning to precious metals, as we see gold, silver and even platinum have good price action and solid technicals.

At this point the likelihood that a significant further leg down in the economic picture and within the equities markets will occur has heightened significantly. The macroeconomic risks in most developed and emerging countries, ranging from inflation, social unrest, high unemployment, losses in investments and property, continue to gain momentum and appear to be converging as a catalyst towards a global risk asset sell-off, the likes of which we haven’t experienced since 2008-2009.

The likelihood of bank holidays and further government and Federal Reserve intervention in to bond markets, money markets and potentially equity markets has also heightened. Further fiscal and monetary policy that accommodates a deflationary environment will more than likely occur within the next quarter.

Gold and silver prices should head much higher because of the aforementioned situation and response. Gold is due for a correction, but when that may occur is questionable given the mood of the markets and the desire to hold tangible assets over equities or paper currencies. Silver on the other hand is poised to test the $42.50 resistance level, and if it can breach higher, potentially test the $48-50.00 area where the last high was made. Within the next 3-5 years, it is very likely that both gold and silver will be multiples higher than they are today in terms of pricing in US dollars.

Either a deflationary depression or a hyperinflationary monetary collapse would be beneficial for precious metals in the short, intermediate and long term. Whether or not such severe events occur is uncertain at this point, but currently deflationary forces are at battle with inflationary central bank policies — and it is extremely rare that either economic catalyst is balanced out perfectly with the other. Instead, massive bouts of volatility and overshooting towards deflation or inflation are a more likely scenario, as tools of fiscal and monetary policy are more like howitzers than scalpels.

04Aug

Risk off panic selling, Euro collapse and more

Alex Commodities, Economy, Metals, Stocks 0 comment

The world markets were roiled today by panic selling. The sell off was catalyzed by negative news on Italy’s solvency, accelerated further by margin calls on major institutions, forcing a major deleveraging across the board. Many are fearing a reemergence of recessionary declines across the globe.

Europe’s outlook has significantly weakened as of late after its been revealed that the fiscal problems of the sagging debtor states are growing more severe at a rapid rate. Headlines today included major exchanges shuttering temporarily, bond issuances being suspended and civil unrest growing. The Euro lost about 1.35% of its value in a single day, a significant sell-off — and one that is likely to continue.

The downside risks for speculative paper assets are intensifying. Growth stocks lost 5-8% or more of their value in a matter of minutes. Some posted double digit losses. The selling in the US continued in to the close without much sign of short covering, indicating that many are still bracing for a negative jobs report tomorrow.

Gold, silver and other precious metals were no exception, as margin calls forced traders and investors who were employing margin to deleverage their portfolio, selling their profitable positions to cover losses, presumably in equities.

The only green on the board was primarily in the US dollar and bonds, once again finding themselves as a safe haven asset during times of panic. One has to wonder, given the underlying uncertainty regarding the US debt, and the condition of global and local financial markets, how long such a phenomenon can last — especially given the tendency for investors to migrate in to hard assets when there’s a whisper of inflation.

The most likely scenario from this point forward is more quantitative easing, probably coordinated by the G7 countries, instead of a unilateral US effort, to prop up sagging markets. Such a liquidity infusion would likely spark a significant rally in commodities and equities, at the cost of the purchasing power of various fiat currencies. Such a powerful inflationary force could cause precious metals to stage vicious upward price discovery as more paper currency is created out of thin air.

In the short term and intermediate term we are looking at a very oversold market. By just about every measure possible we are in a very dangerous zone to be selling stocks. A violent bounce is highly likely, but how sustainable that bounce is depends entirely on what the ECB and Fed say in the coming weeks.

Technically on the S&P 500 there’s a good chance that we’ll see a retest of November, 2010′s lows around 1171 if economic data and news continue to build on the negative sentiment. The 1225 area has now become resistance. This could be the formation of a new trading range or the beginning of a significant downtrend.

Gold made new highs today, but margin calls forced liquidation and brought the price down over $40 from its highs. Silver tested the $42 level, but the same liquidation brought silver down by over 7% at the lows. There’s a good chance that the correction in precious metals could continue if the liquidity vacuum effect of souring debt markets in Europe continues. If instead central banks announce additional easing and credit expansion then we may see a significant rally.

Unfortunately today’s markets are no longer primarily powered by economic growth, but instead moreso from central bank money printing and artificially low interest rates. This is the main reason that more and more investors are turning to hard assets to hedge against, if not profit from, future inflation. If the sell-off continues, with gold, silver and other hard assets seeing discounts, I would consider it an opportunity to buy such assets as the longer term outlook is higher inflation and a resulting attraction towards precious metals.

25Mar

Intuit’s online problems plague customers again

Alex Business, Stocks 0 comment

Just a few days ago I authored an article about the persistent glitches within Intuit’s online payment system causing serious problems for customers. At the time of the article being written the problems had (supposedly) been fixed. Now those same problems are back and Intuit seems to be having a hard time wrapping its arms around what’s wrong and how to fix it once and for all.

The problems are manifesting themselves in all of Intuit’s online services for small businesses, including, but not limited to payment processing, payroll and messaging. This crippling outage has created massive amounts of productivity lost among Intuit’s millions of small business customers. Many are turning to alternatives to settle transactions, such as cash, checks or manual credit card transaction settlements (either over the phone or pushing them through later when the functionality is restored).

The questions I wrote about before must be echoed again, and now with a bit of table pounding. What is Intuit going to do to mitigate the chance of these now frequent outages from occurring in a way that complicates the everyday business operations of its key client base? Will those very same clients continue to use Intuit as a payment processor, or opt to instead use one of the many alternative merchant processors out there? Is Intuit going to provide some kind of fee holiday to make up for the inconvenience this has caused?

I’m now recommending shorting shares of INTU because I feel that the company does not have control of this situation and it is going to have an impact on their margins, the confidence of their customers and their ability to sell their online services in the future.

(Disclosure: The author does not have any positions long or short in INTU, but may be selling calls on INTU in the next week.)

22Mar

Intuit recovers from two day online glitch

Alex Business, Stocks 0 comment

Small businesses found themselves without the ability to process credit card payments, payroll and use Intuit’s Quickbooks messaging system for the better part of Monday and Tuesday of this week while the company claimed that there was a problem during a recent ‘routine maintenance’ on their servers.

Intuit stumbled many times during the outage, claiming that it was fixed only to have the problems quickly re-emerge several times. At about 3:45 pm (EST) Intuit announced that some of the services were back online, but users at that point had lost the ability to use critical functionality for what can seem in the small business world as an eternity.

During this period of uncertainty the stock lost nearly 3% in value and many small businesses began searching for alternative ways to settle payments and process their payroll. This is not the first such problem to affect Intuit’s online systems for small businesses, either, as last year a similar problem brought down payment processing for at least one business day.

The question becomes, is Intuit able to competently manage their online systems or is this a sign of events to come, where random outages as a result of ‘routine maintenance’ happen during prime business hours and are not corrected in a timely manner?

Only time will tell, but I feel that with a company that has more debt than cash and a market cap that exceeds their enterprise value, a correction in INTU shares is warranted and an heartfelt apology to their customers is absolutely necessary.

27Dec

Has Google peaked?

Alex Business, Stocks 0 comment

Google was once an idolized rock star of Wall Street, delivering astronomical profits as its stock soared in to the stratosphere. Back then rumors of Google’s operating system were all the buzz. Everyone believed Google’s “don’t be evil” slogan and the smartest graduates gravitated towards their job offerings. Their search engine was unparalleled and the future appeared bright and limitless.

The hunger for fresh ideas

Now the euphoria has worn off and reality is setting in. By all accounts Google is grasping for straws to find growth organically and has set its sights on other companies to fill the void. After a failed acquisition attempt of Yelp last year and more recently Groupon, it’s becoming clear that some key start-ups don’t want to be purchased by the company.

Google is instead rolling out its “Places” offering, which promises to compete with the likes of Yelp and Groupon, but entirely lacks the charm and community of either site.

There is a notable exception (to the recent hesitation of being bought out) that has raised quite a stir. Google’s planned acquisition of ITA, a leading intermediary bridging the gap between customers and airlines, has prompted enough concern that the US government has threatened an inquiry and a non-profit called Fair Search has emerged to raise awareness of what the acquisition could mean for consumers, claiming that higher prices and less choices for airfares will be the result.

Too big to succeed?

Inside the company diversifying away from search seems to be a key effort, even if the results are less than optimal. Google Checkout has been a lackluster performer, as companies are hesitant to adopt the payment mechanism when so many superior alternatives exist. In addition, Google TV doesn’t appear to be nearly as popular as the company had anticipated, disappointing users in the quality of its product and upsetting the content distributors they had partnered with from the poor adoption rate.

Will these products go the way of Google Wave, another failed offering that was poorly marketed and subsequently abandoned only shortly after its beta?

Big trouble in China

The search giant also had an embarrassing fiasco in China earlier in the year. Apparently their internal systems were hacked due to a combination of phishing and vulnerable Internet browsers, allowing sensitive internal data and e-mail accounts of political dissidents to be compromised.

Instead of standing by its word to not cooperate with the Chinese censorship system, Google succumbed to all of the demands of the Chinese government and cooperated by implementing a sophisticated system that blocks what are deemed questionable keywords and search results, such as “democracy”.

Viral marketing

Adding to the mess there have been several reports floating around the Internet that the silicon valley company’s advertising systems are delivering malware to end users. The Santa Clara corporation claims they actively work to provide a safe search environment, monitoring their results for malware — but do they do the same for their ads? Evidently not.

Search engine backfiring?

Worst of all, though, is that Google has lost its core. Search engine results provided by the indexing behemoth are now rife with spam and irrelevant data, some links even lead to malware infected websites despite the aforementioned efforts to safeguard users. Other search engines such as Bing, Ask and Yahoo are ramping up their efforts and competing quite effectively in the quality of their results.

The customer’s always … alone?

Most people can’t speak to a live human being at the marketing monolith. Apparently only high paying advertisers are able to get anyone on the phone. Everyone else has to deal with electronic communications that can take weeks, if not months, and sometimes result in no response whatsoever. Customer service is not something the company seems to value.

A choppy chart


Google Chart

As a result of all these troubles the California company has had a hard time keeping investors confident over the past few years, as shareholders have been increasingly nervous about future growth prospects. While share prices managed to more than double since the depths of the sell off in late 2008 and early 2009, there is a significant level of resistance in the $630.00 area that has yet to be breached.

What’s next?

This all begs the question, has Google peaked? Are they now franticly searching for ways to generate more profit and expand margins at the expense of the quality of their most important product? Is the brain drain to Facebook and other emerging Internet companies derailing efforts to maintain dominance in an ever changing environment?

Only time will tell, but this investor believes that the best is behind Google, that better opportunities will be found elsewhere and this stock should be sold, if not shorted.

(Disclosure: No position, long or short, in GOOG.)

12Nov

S&P 500 uptrend intact for now

Alex Commodities, Finance, Futures, Stocks, Technical Analysis 0 comment

The S&P 500′s uptrend remains intact in a defined channel that found support today, during the stock market sell-off, at the 20 day moving average. The chart below shows the trend channel as well as the moving averages.

S&P 500 chart

Uptrend channel intact

There are some technical issues at play here, however, that we cannot discount. First and foremost, as I mentioned in the previous post there is a double top pattern in the S&P 500 that is playing out and causing a decent amount of fear. Combine that with Chinese inflation worries that toppled the Shanghai index down over 5% last night and we find the markets climbing a wall of worries in to the weekend. Most commodities took extreme hits today, with sugar, silver, palladium, gold, cotton and various grains falling off their highs. Oddly enough the dollar was weak while all this selling in commodities and equities was taking place, which is contrary to what we’ve seen in the past months.

Seasonally this time of year tends to be rather positive for equities. The holiday season usually gives earnings and employment a boost and consumer sentiment usually picks up — except for what we witnessed in 2008 of course. Next week should shed more light on the technicals and fundamentals of these markets. As we see trading begin in Asia it will be interesting to see if the appetite for precious metals is once again renewed as it was after the silver sell off on Tuesday after the CFTC raised margin requirements by 20% (from 5% to 6%).

09Nov

Is the rally topping out or just starting?

Alex Bonds, Commodities, Forex, Futures, Stocks, Technical Analysis 0 comment

We’ve seen a significant gain since the bottom in March of 2009, up about 80% since those 666 S&P 500 lows.  Now the market is facing significant resistance, even after the massive $600 billion QE2 plan to inject more liquidity.  The resistance comes both in the US dollar beginning to find trend line support and the S&P 500 showing potential resistance at what could become a double top formation.

First let’s have a look at the long term dollar chart:

US dollar long term chart

It’s clear that the US dollar, despite a large drop in recent months, is beginning to find support at the trend line formed from previous lows. If this trend holds it could bolster the ailing US currency and provide room for not only a short term reversal, but some significant appreciation on the back of Europe’s woes and a correction in the commodity currencies. On the other side, the dollar is seeing significant headwinds towards sustainable appreciation because of the unsustainable forward looking debt load of the US government combined with the massive stimulus and easing programs.

Now let’s have a look at the S&P 500 chart:

We see the potential for a double top formation in the index around 1220. If this level can not be broken to the upside then we have some serious downside potential to contend with in the US stock market. The rally of around 15% over the last two months indicates that many are confident in putting their money in to equities, rather than bonds, and with that a lot of speculative stocks have seen impressive gains. But another side of this rally is that it has largely been supported by extremely loose monetary policy, a “Bernanke put,” is what many are calling it, meaning that there’s no reason to buy protection (or put options) on your investments because the Fed will be there to prop up the market.

This is an inflection point. It has the potential to decide the direction of where many different markets, including currencies, commodities, equities and bonds, will be trading for the next several months ahead. Should the dollar fail its trend line support and the S&P break to the upside of the resistance around 1220 we’ll see a massive rally in other currencies, commodities and equities. If instead we see the dollar hold firm and appreciate against other currencies, reinforcing the trend line support and the S&P breaks down at the aforementioned resistance level then we could see a daunting correction in other currencies, equities and commodities.

All we can do now is watch, wait and act accordingly…

28Jul

Wall Street “reform” blocks SEC FoIA requests

Alex Economy, Legislation, Stocks 0 comment

Not only is this beyond ridiculous pandering to Wall Street, but it illustrates to whom our government serves. No Freedom of Information Act disclosures from the SEC after the new “reform” law. No press coverage of future scandals with what should be public information. We fund these entities continued existence through the public’s money and yet we have no right to see what they have done wrong?

04Jul

There is no economic recovery

Alex Economy, Finance, Stocks 0 comment

The economy has not been saved from disaster with zero percent interest rates, bank bailouts, stimulus or tax breaks.  In fact, some economists and market speculators have argued that these measures made the economic crisis much costlier and protracted its eventual resolution.  We are experiencing major asset deflation.  It’s spreading across just about every investment class, from real estate to stocks, higher yielding currencies, riskier bonds and most commodities.

Don’t believe the hype

The degree of naivety necessary for our policy makers at the Fed at at the congress to believe that creating more debt to solve a debt-based crisis is only exceeded by that which we as a population are engaged in to believe that BP is actually capable of cleaning up this spill or at this point even addressing the leaking well.

It’s necessary to look beyond the nonsense being reported through the mainstream news outlets and see the situation for what it really is:

  1. We have a tremendous amount of debt, close to 100% of GDP if you aren’t counting the outstanding liabilities of Fannie and Freddie, yet we’re continuing to spend more money borrowing against the future earnings of people who have not been born.
  2. Our banking system is grossly insolvent.  These companies have so many illiquid, worthless assets that are leveraged to the hilt that if they ever had to mark to any reasonable market valuation they would implode and bring down their counterparties.
  3. Unemployment is extremely high and the statistic is flawed because after someone stops receiving unemployment or if they are no longer looking for a job they are not counted.
  4. A lot of risk from the private sector has been transferred to our government and yet the private sector is still in terrible shape.
  5. The US has transformed from a industrial superpower to a consumption-oriented debt monster, which has, out of necessity transferred most of our industry overseas where cheaper labor, lower (if any) environmental standards and a dire lack of human rights prevail allowing products to be produced at an extreme discount.
  6. Our real estate market, about $20 trillion dollars in size, is continuing to experience a massive contraction.  The real loss of wealth has already been trillions and as that continues it will create significant losses in consumer spending, which accounts for 70% of the US economy.
  7. Housing numbers continue to disappoint, with May’s report being the worst in the statistic’s history.
  8. Small businesses, the largest engine of growth and hiring in the US have been largely ignored by the tax breaks and stimulus programs, causing massive layoffs and many companies shutting their doors.
  9. Let’s not forget that even FEMA acknowledges the BP disaster will cost trillions of dollars.  BP does not have trillions of dollars, so obviously that leaves us holding the bag.

The false recovery is over

After spending tens of trillions of dollars to save banks from themselves, record Wall Street bonuses, mergers that made banks a bigger risk than they ever were before and an incredible lobbying campaign to neuter Washington’s efforts to reign in the tail that wags the dog, we are seeing fractures in the supposed green shoots that were supposed to lead the way to a V-shaped recovery.

As we see deflationary pressures begin to take control of the markets once again, a new credit contraction looms.  One that again begins to wipe away asset value as a flight to safety resumes.  We’ve seen increasing strength in gold, US dollars and treasury bonds at the same time as an indication that a new panic is setting in.  Two year US treasury bonds set a new record low yield recently.

Derivatives are a ticking time bomb

The worldwide financial derivatives market is estimated at 600 trillion dollars, a mind boggling number (about ten times the world’s GDP). This should serve as a reminder of the funds required to keep this financial fraud going, a fraud that only sees the underlying real asset representing a fraction of this amount. What would the banksters in this derivatives game use to pay off their bets if things went sour?

If you guessed your hard earned money, then you are correct!  We’ve already seen it happen in the last few years and it’s prone to happen again.  If one were to attempt to coin a term for this it would be something along the lines of reverse Robin Hoodism, that is to say robbing from the poor to give to the rich.

Look towards Japan and Greece for answers

Japan is embroiled in a deflationary downward spiral triggered by a real estate crisis that occurred back in the 90s.  They never recovered because instead of acknowledging the problem and moving forward, their government and central bank did the opposite, allowing insolvent zombie banks to continue their existence, lowering interest rates and trying to outprint the amount of debt imploding.  Deja Vu?

Greece attempted to conceal a large amount of debt with the help of a familiar friend (or fiend if you prefer), Goldman Sachs.  It even worked long enough to get them in to the EU, but now that the problem has been exposed they have lost the confidence of their creditors.  Funny how creditors are the new masters and citizens are the new servants with governments merely acting as a proxy.  Debt peonage anyone?

U-turn necessary to avert cliff on the horizon

We must reverse course immediately before we drive in to disaster.  Reckless spending, corporate welfare, ineffective  stimulus and impotent economic policy are all forcing a void in our country’s future.  We are wasting time with measures that not only are completely ineffective, but they are creating a massive problem for all of us.

There is still time for us all to stand up and demand a fundamental change in direction.  Rather than spending, saving.  Instead of exporting jobs, keeping them at home.  Cut the demand for petroleum-based fuel by focusing more effort on domestic alternative energy sources.  Focus on restoring our natural resources and improving the environment rather than destroying it.  Stopping the de-industrialization of America and starting to compete again as a manufacturing superpower using renewable resources.  What we need is a vibrant, but sustainable economy that doesn’t experience the violent boom and bust cycles that promote poverty and currency value destruction.  It’s time to bring America back in to our hands.

21Jun

Goldman “Hacks”? Botnet manipulates stocks

Alex Business, Stocks 0 comment

Just when I thought I had seen it all, an article surfaces that says a botnet organized by unscrupulous geeks manipulated stock prices for a profit of about 100,000 euros.

“A Belgian federal investigation into an electronic bank account heist reveals a sophisticated attack designed to manipulate stock prices, a Belgian newspaper reported over the weekend. 20 Belgian victims were infected, and the cyber-thieves used those accounts to manipulate share prices and profit about 100,000 euros.“

In this incident the attack was on a small scale,  but imagine for a moment such an attack on a much larger scale.  Stocks rising or falling by the will of compromised trading systems controlled by a group of crooks.  Wait a minute.. that sounds vaguely familiar.  Sort of like the alleged stock price manipulation that large firms engage in with high frequency trading?