Solid Durable Goods Number, But…
Durable goods bounced back in April, and it was a strong showing. But, I think in terms of relevance, the weak oil demand is going to trump it. Durable goods ordered in April were based on April perceptions and April numbers. We have million barrel inventory builds today.
We all knew that the beginning of the year was strong. Until I see something that more directly challenges my views, going forward, my opinion maintains that the economy is weakening going into the summer. This durable goods number was official realization of old news.
Trapping In The Suckers
Grey crowds swirl past the window pushing shadows on my grim expression before the glass of the 9th floor. Hands are crossed formally behind my back in a posture bordering on uncomfortable dignity. The translucent opacity of my reflection stares down the viewer in between glimmers of light.
And all the while, the signs keep coming.
The gains in EU bond yields are ripping to pieces. They have a ways to go yet, but the voracity of the turnaround is violent.
The euro remains weak, today’s gains notwithstanding. Try and pretend all you want that the euro wasn’t above 1.32 not even four months ago. It has degenerated at a remarkable pace. The closest thing to good news out of Europe in the last month has been that the continent receded at a pace slightly slower than expected.
Some reporter tried to pass that off as “growth” today.
I put no stock into measurements of “confidence”, nor do I ever trust manufactured economic “indicators” utterly subjugated by impertinent political meddling. Men are rash beings which largely live in the moment. They don’t “think” ahead – they “feel” ahead with bad judgment placed on what, in hindsight, are largely irregular emotions. Pretending like their “confidence” is good for much of anything is to make decisions derived from false pretenses. Only the presence of a lack of confidence carries any tactical value and weight in business or economics.
What concerns me is the caliber of those buying into the market; those that are most hard set that the market will continue to trade up, come hell or high water. These are the same people who were claiming the market was doomed – there was no path for redemption available nor would any force of heaven or earth conspire to change its fate – last September when the market head faked lower after the initial QE3/4 announcement.
For four years now, getting caught abandoned in the company of these petulant vanities has been a death sentence.
The industrial and commodity signals show broad weakness heading into the warm months; the exact format of every second and third quarter of the years since 2009. Just have a look at copper, and then dare to herald the excitement of 40 year old industry outsiders for stocks as being of any consequence to me.
As enthusiastic as these small player amateurs are now, so will their regret be double when they’ve been scattered for the umpteenth year in a row.
All Time Highs
By some marvelous act, I managed to breached my prior account highs today, without even being full long in the markets. It is a queer thing, sitting on 30% cash with SCO and EUO and yet still discovering that you’re making money every day.
I’m not greedy – if this bull market could last forever! I would be more than content to sit here collecting half a percent every trading session.
The errors from 2011 are now fully behind me. I lost quite a chunk of my money on a bad oil short then (it was much larger than the one I’m carrying now). That was the first big oil implosion after the 2008-2009 near total collapse, when it fell from almost $110 back down to inside of $80. I didn’t take my gains, instead believing that we were experiencing an epic slowdown (EU). It wasn’t long after that oil completely rebounded.
Energy markets nowadays are prone to sudden collapses that are immense in size. But they don’t last. There’s not resetting based on demand or supply. Rather, buyers pick themselves up from the beatings, quickly absorb the additional supply, and force the price higher again. It’s hard for me to imagine how this is going to work out, undisclosed bidders buying $100 oil when the US is quickly becoming a stable production powerhouse.
But for now, the name of someone’s game is to keep oil elevated. There are so many speculations for why this might be the case, it doesn’t do well to even start getting into them. We are nearing another crash, I feel. Multi million barrel inventory builds going into summer can’t go completely unnoticed. But after the quick money has been made, I’ll move on fast. The price will probably recover going into the fall, after just a few short months; nothing but a blip, in the grand scheme of things.
The Bond Story No One Is Talking About
Greece’s 10 year has soothed down tremendously, now trading inside of 10% yield, just above 8%. It was above 30% just this time last year.
It appears that a Greek default has been taken off the table. If anyone actually made a pile of money on that move (as opposed to averaging down or getting back to even) well then, I congratulate you. I certainly wasn’t going to touch it.
So what happens now?
Well, 8% is still very expensive. Greece has a host of problems mostly stemming from economic contraction and, I suppose if you really believe they even tried to implement any, austerity. And I believe the europroblem demands further attention and, most importantly, central bank intervention. If the EU ultimately holds it together, or if they decide to part ways, the euro will need to be accommodating in either case.
Now I think it was a year ago, I ran into a piece that was analyzing the behavior of countries who had debt market problems – I can’t quite remember who was the author.
But the gist of the material was that countries actually don’t tend to default on their obligations in the middle of the crisis. They wait until they have things under control and are in a more stable position. And that’s when they look at their books and realize how well they’d be doing if they didn’t have to be making payments.
It’s when the country is in a good place that they actually hit the switch.
The study looked at places like Russia and Argentina and the defaults they underwent; which were largely unexpected.
Another paper I was able to track down comes from Stanford University, authored by Mr. Tomz and Mr. Wright. The good folks at Stanford found that countries do default more during the middle of crisis, but that the correlations was remarkably weak: http://www.stanford.edu/~tomz/pubs/TW2007.pdf
In any sense, the development in the Greek bond market is a remarkable turnaround. I am not convinced that we’ve seen the last of the consequences to come from the last twenty years. And I would not be surprised if, at some undisclosed time in the future, the market was ear holed by a surprise default from at least one of these countries.
But at present the Greek turnaround is incredible to watch. One can only marvel at it all.
I Think We’re About Done Here
I know many of you hate my politics; of which I couldn’t care less. It’s sad, I know, but the degree to which today’s market is dominated by elected (and occasionally unelected) officials is such that you’d be crazy not to follow the politics.
Now, back in December, in the aftermath of a blood hound-bastard seeking his kicks on the backs of butchering kids, all of a sudden the administration swung around in the most opportunistic way imaginable, as if someone had dished them up a free five course meal with which to sake their hunger.
At that time, not quite as shocked as I might have thought possible, that they would try to capitalize on the tragedy, I offhandedly remarked that Obama had just put in motion the events that would make him an early lame duck.
As if the failure in the Senate of gun control wasn’t the first shot across the bow, now I’m pretty well sure this administration is firmly in the “dead at sea” category.
There’s no coming back from this. The administration’s top brass are seriously trying to stall on these three scandals. And one of them was directed at one of the press’s sacrosanct principles. You don’t run the clock out in a game like this…
If you want to gauge just how bad things are for legislative impasse, just take a good look at the mental gymnastics the administrations staunchest, most diehard of supporters are having to pull to write this all off.
So, what does this mean for things that can make you money? Well, for starters, the obvious is that gun stocks are no longer in the cross hairs, and won’t be again anytime soon. State legislation is probably still being pushed, but it’s all localized, and gun manufacturers are really good at leaving states that punish them. Plenty of other, more receptive places to call home – those stocks should be trading back where they were before December.
I can’t see any of these scandals hurting gun sales either…
The second outcome is going to be less direct and more “what would have happened?” kind of stuff. If the economy should start to slow and require more federal stimulus, you can forget it. It’s dead; done. Not happening.
As it is, negotiations on standard fiscal house affairs are going to be very contentious, and this time around Team Executive is going to have to keep its head down. It doesn’t do well to complain that those nasty Republicans are trying to destroy the country when your own IRS department just got caught targeting them.
Fiscal affairs usually poll conservative anyway – in principle people hate the debt and want government spending reigned in. Obama’s charisma and the trust placed with him were the only things that were leveling that playing field.
Every time Holder and Carney open their mouths, you can watch those things get shredded in real time.
The World’s Gone Loopy
The EURUSD is being flayed.
Oil is rallying back to $100 on the backs of demand destruction and record supply coming to market.
Cain Thaler has apparently forgetten basic financial reporting concepts.
TSLA stock is rallying because a company that’s never made money selling a car, to this day, has decided to increase the size of its secondary offering.
And of course, everything is up.
I’ll back off my TSLA trash talk a little. Clearly there was no grounds to say that TSLA hasn’t sold any cars. A little hyperbole is fun, but obviously they have had some success. Despite that, there is no doubt in my mind that they are padding the shit out of this quarter. Some of this is political – I don’t trust anyone in bed with the DOE. Some of it is prejudice – I come from Detroit, so if I don’t see cars, I assume they don’t exist.
As it stands, even with the rookie cash flow miss not getting picked up before I rushed to publish, there’s a lot for me to hate about that company’s books. If I’m wrong about sales of the electric platform, I promise I’ll hold a big post where I self flagellate and get all melancholy. But it won’t be for a few quarters because I’m going to give the company plenty of time redact earnings and own up.
I think the problems are there, not initially because of any numbers, but because of the small comments and way the disclaimers and disclosers are being laid out. I went searching for the numbers to support that, and largely failed. But that doesn’t mean I’m going to start jumping up and down with trust of the management.
Ultimately, my opinion is that Tesla’s product is a beautiful piece of craftsmanship and engineering that won’t make any money. The EV1 will have a gravemate yet. I’m not advocating shorting TSLA; merely commenting that paying $90 plus for a company that turned one quarter of profits in 10 years, largely not from selling their main product, is a very bad idea.
For the moment, I am still largely cash, short the euro with EUO, short oil with SCO, and holding AEC, CLP, CCJ, BAS, RGR and physical silver that’s getting cheaper by the day.
