Separating the Pros from the Amateurs

Shaza posted this in the comments on the last thread, but it is worthy of a post of its own. Mugabe you were right in your observation the SPY has been range bound for 2 months.

I think I stressed the importance of cash and/or hedging this entire month. It is no mistake. This is the longest overnight cash streak I’ve been in almost 3 years. Intuitive trading is partly about attempting to position one’s self for anticipated market conditions. This erratic market continues to be traded by those who remain stubborn.
The market is currently weeding out the most frustrated traders and it is quickly and obviously separating the professionals from the amateurs. The question is, which camp do you belong in?
The last 5 days says it all:

How 'Brilliant' Can President Obama Be?

This has to go up just before he addresses the public on national television in 15 minutes. Thank you Shaza I almost forgot about this one. I am guilty as charged for having voted for him, but I will not get fooled again. His presidency has to be one of my all time political disappointments next to Bush II being elected and then re-elected. QB

Every person, newscaster and commentator always prefaces any, even the mildest criticism, of President Obama's policies with some statement about how dazzlingly brilliant the man is. Liberals, conservatives, independents — it never changes. Why is this? And most important of all, is it true?
What and where is the proof that Obama is such a sharp fellow? The recorded evidence is unavailable since his academic records, and test scores from three universities are sealed at his demand. Sure, he graduated from Harvard, but so did George Bush, who earned an MBA but is still pilloried by some as dumber than dirt.
We shall have to examine Obama's performance and make our own assumptions based on observations.
Obama selected advisers and Cabinet heads who have basically no experience in the private sector. He relies heavily on them to tell him what to do about the sick economy. Their knee-jerk responses are Keynesian (borrow and spend), based on a dubious theory popular 70 years ago, and proved unworkable in the past.
They sold us the stimulus ("porkulus") package of spending.The result? Rising unemployment and falling home sales prove that "recovery summer" is going down the tube without touching the sides. The president retains his economic Rasputins. Is loyalty to failure a sign of a great mind?
Obama farmed out the stimulus, omnibus budget, financial reform, cap-and-tax and health care bills to Congress — allowing it free rein. He did not exercise leadership and instead abdicated to the whims of Nancy Pelosi, David Obey, Harry Reid and Chris Dodd.
Trillions are borrowed and spent on the public sector while real jobs evaporate. Banks invest in bonds instead of businesses. Impending and threatened mandates, regulation and tax increases choke off entrepreneurial ambitions. Does this activity indicate a high level of intelligence, or just managerial ineptitude?
The president is unable to string a cogent sentence together without a pair of Teleprompters working perfectly. He can deliver a mesmerizing speech but can't even remember who is standing beside him when the tape runs off the tracks. His most often used extemporaneous word is "um."
This may be a clue as to why he has granted fewer press conferences than any president in memory. Can such performances be equated to "brilliance"? Not in my book.
Stepping in the political equivalent of a doggie dumpling seems to bring out the worst in Obama. Why and how could he pop off with everything from "The Cambridge Police acted stupidly" to flip-flops on the New York mosque issue, and everything in between? His inane mumblings about the skivvy shorts bomber, the public trial of the 9/11 plotters, the fanatic major who gunned down 13 soldiers, the Arizona immigration law and "saving or creating" jobs belies any vast reservoir of intelligence.
Sharp presidents do not dive into lose/lose situations with such gusto.
How is Obama's foreign policy working out? The U.S. needs strong allies to defeat monstrous enemies. Dissing the British, scolding Israel, canceling the missile shield in Eastern Europe and groveling to foreign royalty do not bode well. Our enemies, from Iran to Venezuela, smell weakness and timidity. Ignoring cold reality and dreaming that personal charisma is the solution to international tensions is probably on the daft side of the intelligence continuum.
The "4 million green jobs" mantra espoused by the president is a canard when examined closely. Renewable energy technology exists only due to huge government subsidies. Ethanol is inefficient, raising the prices of gasoline and corn. Wind farms produce intermittent power that flummoxes the grid and requires conventional power plants to run continuously as backup. The net carbon reduction is miniscule.
Both schemes are massive misallocations of resources better used elsewhere. An astute president would inform himself on both sides of the issue rather than blatantly parrot a load of poppycock from the Van Jones crowd.
A Republican president who parties far more than he works would be trashed by every media outlet in the land. But Obama is a Democrat who enjoys the media's deep support. He escapes any serious questions about his busy golf schedule, multiple vacations, endless fundraising and campaigning, constant banquets and concerts in the White House, and his obvious detachment from the people he supposedly leads.
He appears more of a dilettante than a leader. A smart fellow would move to de-emphasize his privileged lifestyle instead of flaunting it in front of a nation mired in a recession.
Giving him the benefit of the doubt, maybe Obama is smart. Then again, Jimmy Carter was intelligent but proved to be the worst president of our lifetimes — up to now.
• Howard, a Redmond, Wash.-based real estate developer, appeared on this page Aug. 20 with an "Open Letter To President Obama."

Right Now I’m Having Amnesia And Deja Vu – At The Same Time

From the Disciplined Investor.

August 30, 2010

Each week we provide our clients with a commentary and review of our research. We discuss a good deal of the economic conditions and positions we hold or are looking at. It is all in the spirit of transparency.
(If you would like more information about becoming a client, click this link HERE)
Below is the opening of our latest weekly report:
If the comedian Steven Wright were writing this, I think he would say: Right now I’m having amnesia and deja vu at the same time. It is one of those times that there are eerie similarities to past events and others that appear out of nowhere.
Lookingdonkey back on the week, it is probably a good idea to start with the end and work backwards since it is where the deja vu part comes in. It was on Friday that the commitments, from both the United States and Japan, to save quickly deteriorating economies were revealed. Of course these came in the form of nothing more than feather-ruffling and chest-thumping thus far, but governments know that is pretty much all it takes to generate at least a small spark. In a speech at a central banking summit in Jackson Hole, Wyoming, Fed Chief Bernanke was very careful to provide as much optimism as possible. In sharp contrast to his comments two weeks ago, he stated that the Fed had set no triggers for further monetary-policy easing and that he sees continued economic growth. (Fed amnesia?)
But, wait – that was also part of the same speech that Bernanke also noted that the Fed would do all it can to ensure growth. So, in effect, the Fed continues to believe that they are going to have to step up their efforts, but not just yet. Perfect! The ultimate carrot for the bulls. Call it the new Greenspan Put or the Bernanke Backstop, this is the new world of rhetoric gone wild. For the short-term this strategy often works as it temporarily scares the heck out of the short-sellers, or anyone who has taken refuge in risk-free Treasuries.
It also has the added benefit of lowering the cost for the very securities that the Fed has committed to buy. On these comments, Treasury prices dropped, pushing long-term yields to their steepest one-day rise since June. Even before the speech, bonds came under pressure when the Commerce Department revised lower its estimate of U.S. economic growth for the second quarter — but not to the extent that many economists had been predicting. Still, a 1.6% print for the 2nd quarter is simply terrible. At this stage of a “recovery” the U.S. economy should be growing at closer to at least 3%.
Then, Japan was out with comments regarding their desire to stop the rise of the Yen. Again, more scare-tactics with no actual commitment. But, that did move the Yen lower by more than 1% on the session. The strong comments out of Japan and the U.S. helped to spook short-investors in equities as well as holders of the Yen and U.S. Treasuries to cover positions. At least that is the “official” line from media headlines. More likely though it started with a touch of a reflexive bounce off of the all important 1,040 level on the S&P 500 and profit taking on longer-dated Treasuries.
Remember, the news out of Bernanke was actually quite negative as his admission was that there is much more work to do. Coupled with very weak economic reports over the past several days and a profit warning from Intel (INTC) – released exactly the same time that the Fed was speaking – provided more confusion but also a touch of relief.
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If you recall, it was only 6 weeks ago that Intel (INTC) had their best quarter ever and guided their outlook higher. The sudden change, just a few weeks later, shows us that there is velocity building that supports the thesis that a significant slowing is occurring. Intel (INTC) cited a sharp slowing in the PC market as consumers have once again entrenched. J. Crew’s (JCG) CEO commented during the compay’s earnings call that; ” the consumer has gone cold” and several economic indicators have been turning sharply lower.
Below are data and charts for the ECRI U.S. Weekly Leading Index (WLI), Future Inflation Gauge (FIG).
What does all this mean for investors? Well, the longer-term is not looking pretty as the Intel restatement is just the tip of the iceberg. Now that the consumer is clearly pulling back even further, analysts will begin the process of lower their estimates on many cyclical companies. Already we are noticing that companies in retail are well off their highs as can be seen by the the consumer discretionary index. Several other of the more “defensive” sectors are outperforming, showing investor risk aversion.
Even as the discretionary sector has been lagging, it is still up for the year. This shows through in the latest GDP revision that reported that personal consumption was still relatively strong during the 2nd quarter. But, that is looking like it may be the last time for a while that it stays strong as the loss of emergency benefits faded in the 3rd quarter and the high unemployment rate does not appear to be showing any signs of abating. The next report of the NFP payrolls, scheduled for next Friday, may show a rate approaching closer to 10% as private industry is not hiring and the full impact of the layoff of census workers will show through.
We know that history has shown that after a severe slowdown, companies are initially gun-shy in adding to their payrolls. Eventually, once demand returns, jobs slowly return. But this time IS different. While the “official” unemployment level is now at 9.5%, if we look back on the older models used, prior to 1994 and the U-6 report, there is a significant differential.
According to
The seasonally-adjusted SGS Alternate Unemployment Rate reflects current unemployment reporting methodology adjusted for SGS-estimated long-term discouraged workers, who were defined out of official existence in 1994. That estimate is added to the BLS estimate of U-6 unemployment, which includes short-term discouraged workers.
The U-3 unemployment rate is the monthly headline number. The U-6 unemployment rate is the Bureau of Labor Statistics’ (BLS) broadest unemployment measure, including short-term discouraged and other marginally-attached workers as well as those forced to work part-time because they cannot find full-time employment.
With that in mind, we see a greater potential for a continuation of the downtrend for equities. Sure there will be pops, but we are now taking a more defensive position until a clear direction forms and then continues. Unless there is a significant change to the economics and investor sentiment, we see that the next few months could begin a longer downtrend for world markets. The U.S. and Europe are clearly contracting, while emerging markets are still expanding. Additional U.S. stimulus will be proposed and that will hold investors in the game, but additional sovereign shocks appear to be likely.
churchillAs Winston Churchill would say about the world economy at this point: It is a riddle, wrapped in a mystery, inside an enigma.
Developed countries within the Eurozone are talking about budgetary restraint and fiscal responsibility. Much of the world markets, are looking to cool overheating economies. The Asian region (South Korea, Australia, Singapore, Malaysia, Thailand, India and New Zealand as examples) as well as the Emerging Americas (Brazil, Peru, Chile) and many other areas (Canada, Israel) are increasing rates. On the other hand, the U.S. looks to be in need of new stimulus measures. Therein lies the conundrum.
As we are well aware, the U.S. is a key driver of global trade and it is obvious that there is a pronounced economic slowing. Europe is trying to win back the favor of the world as they need to continue debt issues at reasonable costs. The region’s countries needs to quickly get their budgets and balance sheets in order expeditiously to avoid any further downgrades. The austerity measures have already started to show up around the world as trade is slowing. Asia is overheating and several areas are inflation hot-zones. Policy measures to cool economies will not included stimulus. This too will slow economic growth.
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All roads lead back the the U.S. as a slowdown could provide a double-whammy, since an internal slowdown, coupled with high levels of unemployment will further dampen growth prospects.
Until we get a clean break below 1,040 on the S&P 500 with the trend and moving averages sustaining a declining path, we will be slowly positioning portfolios with a higher level of short positions. Already we have increased the European short exposure, scaled back on individual securities as well as long index exposure in the developed markets. For now, patience will be required for all of the components to align. That is when we could see a major break down toward the ~850 level for S&P 500. (Remember, the reason why we discuss the S&P is that correlations are high right now and most financial instruments are moving together)
Again, as we have the 800-pound gorilla (government) participating in capital market through stimulus and other means, there is the need to tread carefully. What we know is that the tide has turned very negative towards stimulus measures and additional debt additions. The FED is almost out of ammunition as rates are not about to go negative and there is just so much easing they can do. Even if they push banks to lend, they cannot require consumers to borrow.

Morning Update/ Market Thread 8/31

Good Morning,

Equity futures are down again overnight after yesterday’s mini waterfall. The dollar is lower against both the Euro and the Yen, bonds are higher, and oil is down while gold rockets higher. It is quite apparent that gold is likely to take out its previous high and is very significant that it continues higher in the face of deleveraging elsewhere.

There are several economic reports that come out this morning after the open, we have Case-Schiller numbers on home prices, the Chicago PMI, and Consumer Confidence. We will announce those reports in today’s daily thread as they are released.

The folks over at put together a terrific chart showing the ECRI against the SPX and also put in GDP in the background (green bars). The ECRI has been the only indicator that I know of that does tend to actually lead the economy and the markets. The Fed’s LEI is just flat out outdated. Note on the chart that the ECRI is now at minus 5.57, almost as deep into contraction as it was in ’08. The divergence between the ECRI and the SPX is now huge - the SPX H&S pattern is clear as a bell:

If last Friday’s action wasn’t bizarre enough, coupling a Hindenburg Omen and rising new 52 week lows with a 92% volume up day… Yesterday we saw a 92% down day reversal with contracting new lows and no Hindenburg Omen! Very bizarre, and once again a reminder of how this market lacks uniformity, something that is a requirement for overall higher prices.

Yesterday’s 90%+ down day is now the 14th since the April top to go along with 12 90%+ up days.

The market fell right back into the 1040 to 1050 support range yesterday, but has fallen to the bottom of that range overnight. Yesterday’s decline came on relatively low volume which I think is a result of a traditional vacation week just prior to Labor Day. I would look for volumes to pick back up next week. Below is a daily chart of the SPX, yesterday’s close was below Friday’s open, that is bearish:

On the 60 minute chart, you can see that prices are channeling nicely downwards from the August 9th high. The bottom of that channel is now in the 1015 to 1020 range where it’s likely this current move will find support once 1040 breaks. SPX 1010 is still the H&S target of the smaller pattern:

The channel above works for all the indices except the Russell 2000. That adds to the count confusion for me, especially as McHugh changed his primary count last night to reflect the bounce that finished Friday as being a subwave 4 of 1 of 3 versus a subwave 2 of 3. He cites proportionality of the last bounce, time wise, with the first bounce of this move… you can see that clearly inside of the channel above. And the fact that it does channel nicely supports that count. Again, the RUT breaking out of the channel still supports the wave 2 count that I was using as waves are always confined to channels, when they break the channel you are likely in a new wave, or the channel you thought you were in is simply larger than you had it, and that may be the case for the RUT.

Under the new working count, yesterday’s action would be the first wave down of subwave 5 of 1 of 3. That means that we should find a small wave 2 bounce, and then some type of completion to a wave 5 bottom soon. That intermediate bottom may come upon reaching the 1010 or 1020ish area? McHugh has a Fibonacci turn date on the 2nd, and then another on the 11th of September, it could be that we bottom in a couple of days and bounce in wave 2 of 3 until about the second turn date, plus or minus – that’s his thinking. Nailing the WHEN is the hardest part of technical analysis, so take it with many grains of salt. Direction is the easiest part, then depth or range, and then timing. I’ve been telling you direction (down), and depth (1010 and then 860), but timing is difficult indeed, as is keeping the count.

Meanwhile, the VIX just keeps rolling along, nothing too severe - yet:

What I like about McHugh is that he adjusts quickly and does not stay married to old counts while offering alternatives. Many amateurs do not like that, they want something rock solid without realizing that is impossible in a dynamic market.

Morning Update/ Market Thread 8/30

Good Morning,

Equity futures are roughly flat to slightly lower so far this Monday – hey, you know some HFT ramp attempt is coming, it will only take one knucklehead to get the ball rolling into ramp mode, the others computers will sniff out that transaction before it’s even executed and it’ll be game on! There’s an open gap in the charts up to 1067 that everyone is watching… normally I would expect that gap to fill before resuming the downtrend:

Meanwhile, bonds are higher, the dollar is roughly flat, while oil and gold are both slightly lower. The Yen, is making a fairly sizable move higher as Japan’s Central bankers said they will spend 920 billion yen on economic stimulus and the central bank added 10 trillion in “liquidity injections.” What’s another 11 trillion among friends, eh? Evidently not enough to really move the Yen lower like they want, so far they are getting the opposite reaction as the carry trade continues to unwind. While a trillion Yen is “only” the equivalent of about $11 billion (roughly $120B total), when talking injections in the multi-trillions like this, it is safe to say that the Yen is quickly on its way to a major restructuring, it’s just a matter of time before it’ll take a trillion yen just to buy a bowl of rice.

And here in the States, it’s also getting harder to buy a bowl of rice as Disposable Incomes dropped after adjusting for inflation. Yet on the surface, Personal Income rose .2% in July. That was, however, below the consensus of .3%. Consumer Spending, as they track it, supposedly rose .4%, not a good thing when your income only rises .2% (unless you like debt). Here’s Econoday’s spin:
The consumer made a comeback in July-in both income and spending. Personal income in July posted a 0.2 percent gain, following no change in June. The July figure was a little lower than the consensus expectation for a 0.3 percent rise. More importantly, the wages & salaries component rebounded 0.3 percent after slipping 0.1 percent in June. This component would have been even stronger had it not been for a dip in government payrolls from laying off temporary Census workers. Private industry wages and salaries gained 0.5 percent in July, following a 0.1 percent dip in June.

The Fed is depending on the consumer to counter a faltering housing sector and Bernanke & Company got its wish at least for July. Overall personal consumption increased 0.4 percent in July, following a flat number in June. The latest beat the market forecast for a 0.3 percent gain. By components, durables jumped 0.9 percent, nondurables rose 0.3 percent, and services gained 0.4 percent

Who would have thought that an uptick in inflation would be good? Given the deflation mongering in some sectors, a 0.2 percent rise in the headline PCE price index for July looks good, following two months of down 0.1 percent. The core rate edged up 0.1 percent after a flat reading in June. The median forecast for the core had called for a 0.1 percent uptick.

Year on year, personal income growth for July came in at up 3.0 percent, advancing from up 2.4 percent in June. PCEs growth improved to 3.4 percent in July, compared to 3.2 percent in June. Year-ago headline PCE inflation firmed to 1.5 percent from 1.4 percent in June. Year-ago core PCE inflation is unchanged at 1.4 percent.

Today's report is not stellar but it is welcome news that the consumer sector bounced back and should help support overall economic growth.

Yes, who would have thought that an uptick in inflation would be good? Give us a break, I’m not buying it. The Fed is trying to create the illusion of inflation as they jawbone and manipulate data, but there is no way I believe that wages are rising for more than a nanosecond in this current environment. Wages won’t make any progress until hiring picks up, and even this report shows that the consumer will be pressured as spending more than you earn is not a sustainable relationship no matter how much the Fed and the market pumpers would like it to be. How come we can’t cheer and strive for balance? Could it be that it doesn’t help the debt pushers?

Also keep in mind that the largest segment of the population, the Baby Boomers, are now past their peak earning years and that they are moving beyond it much faster than they are being replaced. This means that overall earnings in our nation will continue to be pressured as will outflows from the markets. The next significat demographic uptick in peak earners won’t influence our economy until the year 2022 (unless the debt pushers can pull all of their income forward in time too – which is not likely especially as the social mood changes).

There is a lot of economic data coming this week, culminating with the Employment Report on Friday. Should be interesting.

From a technical perspective, I’m still counting the August 25th low as the bottom of wave 1 of 3. It looks like an a,b,c for wave 2 has occurred since that time and that we are near the completion of wave c. If that is correct, we should see significant declines soon. The alternative is that we bottomed the larger degree wave 1 and this is a more significant wave 2 which I give lower odds.

Friday’s action was VERY interesting as the HFT machines all got on the long side all day long. On the surface it looked strong producing a 92% up day, the 12th 90%+ up day since the April top to go along with 13 90%+ down days! This is nutty action for sure, it shows great distress and internal conflict in the market – not something that is bullish. Amazingly, despite the 92% ramp, we still received yet another Hindenburg Omen, the 5th in this cluster as the number of new lows rose dramatically over Thursday’s count, despite the ramp. That is a sign of sickness, a strong internal divergence.

I have heard a lot of talk that it’s vacation time again in the Hamptons, so be careful as the trading volumes are likely to be low… yet as we exit the month of August and roll into September, keep in mind that September is statistically one of the weakest months of the year. And here we are poised with multiple layers of Head & Shoulders patterns, 5 Hindenburg Omens, and a wave count saying that 3 of 3 is soon up to bat in the rotation.

Beatles - You Never Give Me Your Money:

More from Going Loco

I am going to have the pleasure of meeting Going Loco in the next week or so. He and his wife are coming to Florida!  GL I hope you like the heat as this is still the hottest time of the year. July, August and September the daily temp is around 92-95F with afternoon thunderstorms. I am so excited to finally meet someone from The Hive.

Also everyone my job is safe. Not forever, as no job is safe forever, but the VP of Operations said (and I trust her implicitly) that there are absolutely no plans to close our facility and to spread the word to staff. No more layoffs either. Woohoo!
Enough about that on to his post. QB

Going Loco. "Several followers of this blog have business interests in the UK so I
offer this view of the currency in case it is of interest. The chart
shows the FOREX view of the GBP:USD pair - it's maybe not the best chart
style in the world but Stockharts offers only currency indeces, not
pairs, and as Shaza explained some months ago the indeces are sometimes

I don't think I have seen many better examples of support turning into
Can't see the GBP going above USD$1.60 for a while yet."

Ten Year Note
30 Year Bond
Yield Curve

It's me again so Mugabe it is you turn next! Chicken Little you might want to heed Shaza's advice. TBT is a good  hedge against your bond funds going down and if I am not mistaken bond funds are not FDIC insured. I am going into the market this morning on some of Steven Place's ideas. Mugabe thanks for the second opinion.

Investors Head for Bunkers, Driving Up 'Shelter Shares

From the Wall Street Journal thanks to Shaza's research.

It is the ultimate bunker portfolio.

Amid the market tumult, a handful of stocks have seen their share prices ratchet up to record highs in recent weeks. And many of them are connected by a curious, if disconcerting, thread: Between them, they provide an investor with essentials for any respectable fallout shelter—makers of bottled water, canned goods, dehydrated broth, gas masks and auxiliary generators.
Tim Foley
Spam, check. Hard hat, check. Record highs for the makers of such fallout-shelter mainstays, check.

A portfolio of the 18 companies that reached their peaks in the past month would be up about 24% this year, compared with the broader market's 4.5% decline, a sign some investors may be taking the prospects of financial Armageddon more seriously than one might think.

Hormel Foods Inc., the 120-year-old producer of that dugout staple, Spam, is up 12% this year, and hit an all-time high of $43.95 in recent weeks. The company's stable of long-life provisions, from instant packets of dehydrated broth to wrapped sausages, are critical for weathering even the most prolonged storm.

Bottled-drink maker Dr Pepper Snapple Group Inc., whose brands include DejaBlue purified drinking water, has soared 32% this year. The company also makes Schweppes ginger ale, great for any gnawing queasiness.
Also in the bunker club, Cummins Inc. The maker of a wide range of auxiliary power generators in addition to truck engines is up 66% this year. Shares of the Columbus, Ind., manufacturer hit a record $81.83 last Wednesday.
Hard hats and gas masks? Airgas Inc. makes both. Shares of the Radnor, Pa.-based company, which spiked in February after a hostile bid from rival Air Products & Chemicals Inc., has since added to those gains, hitting its best-ever close, at $66.72, on Friday.
"If it's the end of the world, what do you buy? Canned foods, guns and the generators," said Keith Springer, president of Capital Financial Advisory Services. "There are a huge number of people who feel this is the end of the world."

Robert Shiller, Professor of Economics at Yale University, sits down with Simon Constable to discuss the sharp falloff in home sales, the likelihood of a double-dip recession and what the Federal Reserve should do to stimulate the U.S. economy.

Of course, stocks trading at such lofty heights high aren't necessarily a tantalizing buy. But the bunker portfolio, while vastly oversimplified, does reflect investors' preference for companies with products that are relatively immune to economic swings, and whose conservative strategies are suited to these uncertain times.
"This is a very unusual economic cycle we're going through—we haven't been through anything like it in any of our lifetimes, and we don't know how it's going to play out," says Dorsey Farr, partner at Atlanta-based investment advisory French Wolf & Farr. "We don't see where this economy is going, and some of the potential outcomes are frightening."

Many of the star performers are steady dividend stocks: At least half of the companies on the list have increased their dividends this year, including Cummins, Dr Pepper Snapple and Airgas.

Hormel notched up its 44th consecutive year of dividend increases and raised its earnings guidance three times this year, as growing sales of its packaged foods allow the Austin, Minn., company to "grow despite economic turmoil."

Ventas Inc., a health-care real-estate investment trust, touts itself as all a conservative investor could ask for: "reliable and growing cash flows," "strong liquidity and limited debt," "a safe cash dividend with a long history of dividend growth," all in a defensive business that hits the sweet spot at the intersection of health care and senior housing. Ventas is up 16% this year and hit its record high of $52.41 earlier this month.

J.M. Smucker Co., the maker of jams, jellies and peanut butter, hit an all-time peak of $63.68 in late July after posting its ninth consecutive quarter of better-than expected earnings amid a boom in eat-at-home families.

"Consumers are relying more on basic pantry items including coffee, peanut butter and jelly and home-baked items and our brands play a lead role in all of those categories," the Orrville, Ohio, company said.

Ball Corp., a maker of metal cans and packaging, hit its high earlier this month after notching record second-quarter earnings. The Broomfield, Colo.-based company, which is up 9% this year, recently increased its plans for stock buybacks.

Baby-food maker Mead Johnson Nutrition Co.—an essential part of any family-friendly bunker portfolio—is up 20% this year and hit its high of $54.55 in late July.

Big Macs aren't on offer to anyone holed up underground, but McDonald's Corp. finished regular trading Friday at a record $73.99, thanks to its big presence in faster-growing countries outside the U.S. and, no doubt, man's basic need for burgers during any economic cycle.

Another Video from StockTwits

The Case for Ben Bernanke as Mad Scientist

by Robert Wenzel
Economic Policy Journal
Recently by Robert Wenzel: Why Bernanke Isn't Having a Nervous Breakdown

The opportunity for Federal Reserve Chairman Ben Bernanketo stargaze in the clear skys of Jackson Hole, Wyoming and to bond with a horse whisperer has done Bernanke some good.
The speech he just delivered, in the land where Dick Cheney roams, was almost John Wayne like in its frankness. Perhaps, after his visit with the horse whisperer, he considers himself a cowboy. Whatever he may think of himself, though, clearly the label "mad scientist", with the emphasis on "mad" fits best.
Let us look at this Bernanke speech, delivered in the land where buffalo roam alongside Dick Cheney.
First, Bernanke gives himself, and his fellow government interventionists, a pat on the back for creating and sustaining an economy that continues to leave European governments on edge about their financial conditions. A concern that also holds true for many U.S. cities and states, indeed for the United States, itself. He pats himself on the back as high unemployment continues to linger,as home sales hit record lows and as business await news about what new regulations will suffocate the economy.
Some environment for a government employee to take a bow. But he did:
On the whole, when the eruption of the Panic of 2008 threatened the very foundations of the global economy, the world rose to the challenge, with a remarkable degree of international cooperation, despite very difficult conditions and compressed time frames. And when last we gathered here, there were strong indications that the sharp contraction of the global economy of late 2008 and early 2009 had ended. Most economies were growing again, and international trade was once again expanding.
Bernanke then went on to show that he is an unabashed Keynesian:
For a sustained expansion to take hold, growth in private final demand – notably, consumer spending and business fixed investment – must ultimately take the lead.
There was only very limited talk in Bernanke's speech of savings (He only briefly mentions business fixed investment) driving an economy by producing more goods. In Bernanke's Keynesian view it is all about consumption.
Focus a man on eating fish (consumption), instead of catching more and picking grapes and baking bread, and the man's economy will never grow.
Bernanke then admits that he was surprised that savings are increasing:
Among the most notable results to emerge from the recent revision of the U.S. national income data is that, in recent quarters, household saving has been higher than we thought – averaging near 6 percent of disposable income rather than 4 percent, as the earlier data showed.
Doesn't Bernanke get that people throughout the land are scared out of their financial minds? That the demand for cash is soaring (Being picked up in the Fed data as additional savings) because people have no clue as to what is going to happen next in the economy? All he notices is the housing factor problem:
Household finances and attitudes also bear heavily on the housing market, which has generally remained depressed
He then admits that major corporations are also scared out of their wits and holding large amounts of cash:
Generally speaking, large firms in good financial condition can obtain credit easily and on favorable terms; moreover, many large firms are holding exceptionally large amounts of cash on their balance sheets.
He then admits that the employment situation is a disaster:
Incoming data on the labor market have remained disappointing. Private-sector employment has grown only sluggishly, the small decline in the unemployment rate is attributable more to reduced labor force participation than to job creation, and initial claims for unemployment insurance remain high.
He then confesses that the FOMC didn't expect this second leg of the downturn:
Overall, the incoming data suggest that the recovery of output and employment in the United States has slowed in recent months, to a pace somewhat weaker than most FOMC participants projected earlier this year.
So what does Ben do at this point, right after dissing his earlier forecast? He makes another one:
I expect the economy to continue to expand in the second half of this year, albeit at a relatively modest pace. Despite the weaker data seen recently, the preconditions for a pickup in growth in 2011 appear to remain in place
He does not explain how he has adjusted his forecast methods in making this forecast. Or is he using the faulty forecast methods that failed him earlier this year?
Read the rest of the article


Barry Ritholtz posted this excellent chart (figure 1) earlier that shows US interest rates going back to 1790.  As you can see, we’ve had a long history of low rates.  In essence, this has been a 220 year bull market!  Unfortunately, the recent blip in rates from the 1970′s oil price shock has many of us thinking like gold fish – in the VERY near-term.
(Figure 1)
The brief interest rate spike that the hyperinflationists constantly point to is not a cyclical occurrence.  You’ll often see this chart (figure 2) which implies that rates have come down from a great “bond bull market” therefore they are about to go right back up and the bull market in bonds will end and we will all lose our life’s savings in the bond markets.  But a long-term perspective (figure 1) shows that this is simply not true.  The bond market has been in a 220 year bull market.  Despite the myth that bond markets have recently become cyclical the long-term evidence shows this to be entirely false.
(Figure 2)
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Larry King and Sarah Palin Pray for CNBC in this Video Spoof

And From StockTwits

Morning Update/ Market Thread 8/27

Good Morning,

Equity futures are higher overnight, trending up all night and then spiking higher on the second release of Q2 GDP data. Bonds are sharply lower on the release, the dollar is flat, oil is flat, and gold is higher.

The Q2 data originally came in at 2.4%, and expectations had been knocked down pretty hard, as I mentioned yesterday, to 1.3%. It came in at 1.6%, thus removing 33% of the supposed growth, yet “beating” expectations. What I can tell you is that our GDP number is one of the most watched and yet most manipulated numbers in the world. It is VASTLY overstated and is simply a psychological tool belonging to the central banks who want you to believe that their financial engineering is the same thing as engineering something real. It is not. At any rate, we unfortunately live inside of their debt backed money box for now. Here’s Econoday:
The Commerce Department confirmed the claim by many economists that second quarter growth was softer than initially believed. Second quarter GDP growth was revised down to 1.6 percent annualized from the advance estimate of 2.4 percent. The new figure was higher than analysts' expectation for 1.3 percent.

The downward revision was primarily due to a higher net export deficit and a smaller gain in inventories. Also getting downgrades were residential investment and government purchases. Partially offsetting were modest upward revisions to personal consumption and nonresidential fixed investment.

Many traders are focusing on final sales. Real final sales to domestic purchasers was revised up to 4.3 percent from the initial estimate of 4.1 percent while final sales of domestic product (adds in net exports) was revised down to 1.0 percent from the advance figure of 1.3 percent.

Year-on-year, real GDP is up 3.0 percent, compared to up 2.4 percent in the first quarter.

On the inflation front, the GDP price index was bumped up marginally to 1.9 percent annualized from the initial estimate of 1.8 percent. The median market forecast called for a 1.8 percent figure for the second estimate.

Even though overall economic growth slowed substantially from the first quarter's 3.7 percent pace, domestic demand was actually stronger-4.3 percent compared to 1.3 percent in the first quarter. Certainly, there will be some slowing in domestic demand growth in the second half but a rebound in exports could help support the overall growth rate. The bottom line is that the latest GDP revisions are more supportive of continued recovery-albeit modest-than a double dip.

On the news, equity futures gained, rates firmed marginally, and the dollar index edged up.

There will be one more revision of this number, oh boy, I wonder what they can cook up and what the deflator will be? Just a joke to me, there has been no real growth in this country for at least a decade if not longer.

Corporate Profits were also released for the second quarter, coming in almost exactly flat from the first quarter, but up a ridiculous 37.7% from the year prior. Keep in mind that’s almost all financial engineering there too, with the financials returning from a brief mark to reality back to mark to fantasy. Even with Enron accounting times a million, corporate profits plateaued.

Consumer Sentiment is released at 9:55 Eastern this morning.

There was no Hindenburg Omen yesterday due to the number of new lows contracting to only 38. That is a positive internal divergence against the market that declined yesterday. There is also a short term positive divergence on the Stochastic and RSI 30 and 60 minute charts that I pointed out yesterday.

Keep in mind that this is likely a small degree move, and that it can end at any point, most likely when we least expect it.

One more indication that made me go “hmmm” yesterday after the close was the positive close and long tail up on the Transports behind a hammer with the tail in the opposite direction. Such “dueling hammers” almost always resolve in the direction of the second tail, in this case higher, and sure enough it is opening higher this morning, but doesn't mean that it has to finish higher:

This rise in prices this morning overthrew the top of the descending channel of the past few days, but quickly fell back inside. Note that yesterday afternoon’s decline stopped short of making a new low, thus this move still looks very much like a part of a small subwave 2. The key level to watch is still SPX 1040, a break below that level will likely mean a quick trip to 1010.

Being Friday, I would expect some back and forth during the day, but the usual game of late is to HFT ramp into the close, then rocket higher Monday morning. The surprise will be when that doesn’t occur. What a market. Free it ain’t.

Don’t forget that the “consumer” still comprises the majority of real economic activity and their sentiment (released this morning) is more important from my perspective than an engineered GDP number.