Rosey's Outlook

Blog 967: My Final Blog, The Whole Kit and Kaboodle

noreply@blogger.com (The Rosey Outlook) — Sun, 25 Dec 2011 22:25:00 +0000

That's right folks, this is going to be my final blog. It's been a lot of fun but working full time, managing money, and writing a blog website is a lot, and I'm out of gas.

I thought for my final blog, I would attempt to cover everything........................is that possible? And since I've always come from the perspective of how things will impact money and assets, let's discuss those first!

MONEY

Cash: Regardless of what pundits will tell you, that cash is a terrible investment because it earns nothing and inflation erodes it's value, I believe cash is still KING. If you had the chance to talk to my parents, they would tell you we've missed every asset bubble melt down starting with the tech bubble correction post 1999.

Their net worth has been the rock of Gibraltar because we chose to move out of bubble assets before they imploded, and in each case cash was the significant storage of safety.

Cash today is still their largest holding for many reasons. I still believe we are in a deflationary cycle environment where we will see significant economic set backs and corrections in asset values.

Specifically though, how does anyone get excited about owning US bonds at peak levels with tiny yields. The US bond market could be the next bubble asset implosion. Then there's gold, on an 11 year run without much of correction, and over due for a significant correction in time or price. And how about that stock market, a double off the 2009 lows. And let's not forget real estate, the latest bubble melt down, an asset that could be in a Japanese style deflation type environment for a long time. Where, oh where, does one put their money in a long term buy and hold strategy in these classic asset categories?

We want cash levels higher than what the pundits promote on TV because being defensive is still a central theme. We still have a healthy amount of mattress money as part of our cash position.

And, when it comes time to buy the best deal of a life time in the next correction, one has to have cash ready for that! Selling a declining asset to buy another declining asset is useless.

Tax Receipts: This is still our largest holding next to cash. It's about 15% of our total net worth. Our receipts pay interest of 10% with very little risk as long as we do our due diligence. It's turned out to be a great deflationary investment. It's a great alternative to both bonds and real estate.

Precious Metals: First, everyone should have 5-20% of their net worth in PMs. I recommend holding the metal in physical form versus buying an ETF like the GLD. Note: We have trimmed our PM exposure in the past couple years because gold is very over bought on the long term charts.

Below is the monthly chart of gold. The price of gold has failed at the over head trend line. While there is still a window for another push up, let us assume at least an interim high is in for now. What you'll notice is that gold can go through a significant correction in price or time and still hold the blue uptrend line. There's lots of price levels for support too. What's missing in this massive move up is a long sideways correction. Notice the monthly MACD is trying to turn down. If this is ready to unwind lower to something close to zero, a long sideways correction would fit. But even a range bound correction could see a large price range.

When I think of buying more PMs, I want to do it when price has pulled back, I want to scale into it or dollar cost into it, and I'd like to see the weekly MACD well below zero. A big range bound correction would be a great signal, but that could take months. For now, I'm on hold with PMs.

Stock Market: The stock market has enjoyed a very nice rally from the 2009 low, but I've always felt that was a cyclical rally within a secular bear market, and I still believe in that today. And while there might be a little more gas upward for the market, I also believe there is another significant correction coming in 2012 or 2013.

The question has to be will it happen before or after the 2012 Presidential election? The time frames or windows for a market top/turning point for me are January 2012 (34 Fibonacci months up from the March 2009 low), March/April 2012 (3 year anniversary from the March 2009 low), or sometime in the fall of 2012 as we head into the election itself. These are conceptual ideas for the time being and I've charted them for visual perspective.

1) January 2012 High: This is the weekly chart of the SP500. The market fails at the downtrend line in the next few weeks with the weekly MACD rolling over somewhere near the zero line. That could be quite bearish.

2) March/April 2012 High: The market double tops on the 3 year anniversary of the March 2009 low.

3) Fall 2012 High: This is my lest favorite idea because I'm bearish, but none the less, if the bullish view can gain momentum, then price could push above the 2011 high. I would look for a high somewhere in the blue resistance lines along the black uptrend line.

The Risk Chart: Below is a monthly chart of The Risk Chart. You'll notice the risk chart made a massive broadening wedge pattern, completing a year before the 2008 stock market meltdown. It was one of the two charts we used to move to cash in late 2007 and then short the market in 2008. The Risk Chart went through classic wedge price behavior, it then corrected and splashed below the bottom wedge line, and then followed with a bounce back to the middle wedge line. Both of those are classic price behavior. I've label those waves A and B for now.

What's fascinating is The Risk Chart is tracing out a "possible" Head and Shoulders topping pattern. It looks a touch unfinished in both price and time. Ideally, this should get up to something around 75, and on a time line, anything between January and April of 2012 is a fit. This is something I'm watching closely as an indication of a potential market top or turning point of significance. Ideally, the MACD should be close to the zero line before turning.

US Bond Market: The biggest bubble on the planet, maybe of modern time, is the US bond market. Below is the monthly chart reflecting a bubble channel over 30 plus years. Price is once again testing the upper range. You'll notice that every time the bond market strikes the upper range it is followed by a correction to the lower channel lines. A correction in US bonds seems likely in 2012.

Real Estate: Yes, it's a regional market and location is important, and there are places in this country that may have bottomed, but I still see real estate as the falling knife nationally. Don't get me wrong, we will see a bounce in values from time to time because nothing goes straight down for ever.

Land: Land slated for development is still an avoid. You can't buy and build it for less than what you can buy an existing home for in today's world.

Vacation Homes: I hate this category. First, we will probably see the tax deduction go away for interest on a second home in the coming years. Second, higher taxes in general on the wealthy will compress affordability. Third, Baby Boomer demographics are a negative for this segment. This sub-segment is still a sell/avoid.

Farms/ranches: If I had to own real estate, a small farm or ranch with it's own water source is probably the one. Sure, it's over valued too, but if I could own a farm with no debt, it serves as a great deflationary home base with it's own food and water source.

High End Homes: The attack on the wealthy via higher taxes and a continuation of wage deflationary plus Baby Boomer demographics should compress high end values moving forward. I have a number of clients with high end homes, and their values are still trending down, I see no change in this dynamic. Most important though is the move up market is virtually ZERO, and thus there is no demand.

Multifamily: The one area where we still see active building, and we might be in the formation of a bubble, at least in the total units being built. Currently, it's being supported by a strong rental market because the demand to own is down. However, multifamily is in for large correction when the bond market bubble corrects and interest rates go much higher, and Cap Rate to value income properties goes up compressing the value of apartments.

Note: I'm still running a deflationary investment model for mom and dad, and I expect that to continue for the foreseeable future.

MY 6 CANARIES

I have 6 canaries (indicators) that I'm watching as it relates to another deflationary leg lower of size. Those 6 are IBM, AAPL, Gold, Palladium, Copper, and Junk Bonds.

IBM and AAPL are easy to understand because they are the largest components of their respective stock market indexes. Thus, how they go, so should their indexes.

IBM Monthly: As an indicator of market health, I like to keep an eye on IBM. What you'll notice is IBM pushing higher after a long sideways pattern, but the monthly MACD is approaching significantly over bought levels. A rollover and cross of the monthly MACD would indicate a correctional phase of size in price or time for Big Blue, and thus would indicate the same for the stock markets.

If IBM corrected back to major support at the black line, that's $120, that's a correction of almost 40%. If that happened, what do you think the rest of the stock market is due for?

Back testing support is a classic expectation!

AAPL Monthly: On the monthly chart, we see AAPL in a series of impulse moves higher. The monthly RSI is reflecting divergences, and the monthly MACD is very close to rolling over. I've said it before, and I'll say it again: who is not in AAPL? Are we all in this market favorite? While we could get another push to a new high like $450ish, it seems like the entire world is in love with AAPL and everyone that can be in this stock is already in this stock. A correction of size in time or price seems logical in the coming months. A correction in AAPL, especially if joined by IBM has to be a negative for the markets.

If we correct back to the uptrend line that's roughly $300, which is a 25%ish correction. If we back test the prior major peak, that's roughly $225 and correction just under 50%. You get the point though, what does the rest of the market do if AAPL is ready for a correction of size in price or time?

$GOLD Monthly: Below is the monthly chart of gold. We have a divergence on the RSI and the monthly MACD is trying to rollover, then cross and head lower. Gold is massively over bought on the monthly chart, and while there's still a chance of a splash higher, if the MACD crosses and heads lower we could be in a correctional phase. This doesn't mean that the secular bull market is over. One of the things that is missing in this chart is a sideways correction over time.

The chart below has a lot of data drawn on it. Assuming the top is in, I'm using two sets of Fib retracement levels to gauge support. In black are the Fib retracement levels using the absolute low, and in green are the Fib retracement levels using the most significant prior low.

What you'll notice is $1,300 stands out where we have both black and green retracement levels. And then 1,100 to 1,150 where we have another set of green and black lines with the lower BB. We could easily correct while keeping the bullish secular trend in tact.

However, a correction of that size in price is something I feel will correspond with a deflationary leg in the US economy. So, we have to keep an eye on the monthly MACD rolling over and crossing as our indication of deflation!

$COPPER Monthly: Copper is a key industrial metal and can correspond well with the economy. You'll notice it made a weak new high in early 2008 before collapsing, which is exactly what followed in the stock market and the economy. Fast forward, and we've made a another weak new high in the middle of 2011 and have fallen back below the 2008 high while building large divergences on the RSI and MACD. This chart is screaming economic and stock market warnings.

We have cluster support at $2.75, which is where the lower BB is and the prior price low. If we get below that, we should view that as a deflationary trigger.

$PALL Monthly: This metal has done an excellent job of correlating with the economy and stock market. When we've seen price roll from a high point with the MACD turning down, we've also seen economic weakness and stock market corrections.

The key support level is $600. Let's use this level as our trigger for deflationary.

JNK Daily: The junk bond market has correlated well with the stock market bottom in 2009. It represents the risk on trade, and as long as it is pushing higher it indicates health in the stock market. There's nothing bearish in this chart yet. A weak new high and reversal would be the first clue moving forward.

My six canaries are technical indicators I'm watching for the next deflationary leg lower. Most of them are showing early warning signs that are very serious, so we need to keep an eye on them in 2012. Note: When using monthly charts, patience is needed because it can take several months for significant technical events to finalize.

DEFLATION RISKS

One of my favorite blogs I've written (August 2009) was Mustard Seeds for Deflation: The Deflationary Cycle Full Monty .

In that blog, I discussed 8 risks for deflation:

1) Higher Taxes
2) The US Bond Market
3) Wage Deflation
4) The Next Wave of Foreclosures
5) Non Primary Residential Real Estate
6) The Baby Boomer Switch
7) The Local Municipal Government
8) The Bubble State (California)

1) Higher Taxes:

We are starting to see higher taxes and fees. In the State of Illinois, they have raised state tax rates. In CA and NY, the move is growing to raise taxes on the rich. The federal government is also trying to raise taxes on the rich.

What might happen over time is the attack on the rich via higher taxes. Over time, the threshold or income levels for these higher tax rates will slowly come down and more people over time will fall into higher tax brackets.

Higher taxes are a simple "part" of the cure for budgetary issues at every level of government. Tax inflation will cause compression in net income and eventually impact real estate affordability and consumer spending, which ultimately keeps the deflationary cycle alive.

The phase of higher taxes is in inning number 1, and we are just beginning this very slow process of boiling the frog (That's you by the way).

2) The US Bond Market:

Here's the monthly chart of the 30 year US bond market. If we get the correction in the bond market I'm looking for, then the question is really: are we ready to break the channel or not? If so, this would indicate a bubble size correction is in play. Using Fibonacci retracement levels, I've put in the expected correctional zone. And what do we all know about bubble corrections? They go much further than expectation, so we could go well past that zone.

The problem with a bond market correction is that yields with go up significantly. These yields will impact interest rates charged on mortgage loans and cap rates used to value income producing real estate.

Higher mortgage rates will make owning real estate more expensive. Those on variable rates might find themselves blown out of their house, and a new home buyer will be able to afford less home on higher rates. Both of these are net negatives for real estate values.

Higher cap rates will compress the value of all income producing real estate, even apartment buildings.

What doesn't get discussed much these days is that artificially super low rates today is forcing banks to write millions of super low fixed rate loans. If rates go significantly higher, the cost of funds for banks could exceed the income or yields they earn on today's fixed rate loans. Higher rates could create a significant issue for future bank earnings and be apart of another banking industry issue.

Ben Bernanke is trying desperately to keep rates low, but as we've seen in Euroland, once the confidence is gone, bond holders will sell off bonds most vigorously, and rates rocket higher.

Just because we are the United States doesn't mean we can't go through this very same issue, and the bond market will trump Big Ben.

Higher rates is the wild card in deflation, it's the one thing that could break the back of our economy by being the death nail in real estate and once again putting the banking industry at deaths door.

3) Wage Deflation:

We've already seen wage deflation in the construction industry, and real estate and mortgage brokers.

We will see wage deflation continue in a number of forms.

First is the massive consolidation wave coming in banking. There are just under 8,000 banks in this country, and we could easily consolidate this down to 5,000 to 6,000 in the coming years. In this coming consolidation phase, many bankers will lose their jobs, which will compress the pay scale for bankers.

We will also see a consolidation in Wall Street, which is on the verge of happening soon. With less trading and underwriting comes lay offs, which again keeps pay and bonus rates down.

In the world of municipal pay for workers and retirees, we have to see higher taxes and lower pay to solve muni budgetary issues. The pay rate for workers and retirees will be coming down over time.

And lastly, higher taxes will force net income compression or wage deflation on net income, especially for higher income earners.

Wage deflation (real estate deflation being the other) is a core component of a deflationary cycle.

4 and 5) The Next Wave of Foreclosures and Non Primary Residential Real Estate:

While we have another bulge in foreclosures coming in 2012, I've found my self looking at real estate in the form of my pet topic: Critical Mass.

A couple months ago, I had the chance to chat with Steve Moyer about this topic and he had some interesting comments.

It started with an email to Steve, “How bad is the real estate data getting lately? It’s comical. High end could be the big loser in the next leg lower.”

Shortly there after, Steve called me and we got into the big money talk, something he and I do on a regular basis, and if you ever get the chance, talking money with Steve is a treat!

He and I discussed a lot of concepts and topics, and he’s a fan of my pet topic: Critical Mass!

We both believe in the notion that it’s really a matter of when not if the Bond Bubble comes to an end and a severe correction in bonds will send interest rates much higher. In that light, Steve said, “it’s time for Critical Mass 1: Things stay the same. And Critical Mass 2: Bonds correct and rates go much higher.”

Steve’s ability to see around the corner raises an interesting concept, and as usual he's spot on.

Critical Mass 1: Things Stay the Same!

If things stay the same: jobs remain weak, we have a muddle through economy, prudent lending standards remain the same, 25% of homeowners remain upside down, and another wave of foreclosures is upon us in 2012, then we could see lower real estate prices nationally. But what might be the key ingredient is the lack of demand will keep real estate an issue. Currently, there is too much uncertainty to get those who can buy, to get out there and buy.

Euroland: there is so much uncertainty and financial distress stemming from Europe, it too is creating uncertainty for both stocks and real estate.

Politics: A leadership vacuum in the US! That’s right, we have the weakest leadership in decades here at home. From Bernanke to Obama to the GOP. The recent battle over taxes/spending/deficits has only gone to showcase how weak our leadership really is.

The upside down club: There are currently an estimated 25% +/- of home owners upside down. Those in this club have no equity to use to buy up into the next house. Again, this helps in creating a demand vacuum, and with little demand, how do we soak up the supply of homes and shadow inventory?

Lending Standards: lending standards have returned to more normal and prudent levels, which they should, but that too has an impact on demand.

Foreclosures: A new wave of foreclosure notices have begun with big banks like Bank of America ramping up the foreclosure process. This will add financially distressed supply to the market sometime in 2012.

If everything stays the same we could see lower real estate prices easily in the future.

The standard thought of a 5-20% price correction seems like a no brainer in the coming months. We don’t have to do anything to get there because everything will remain the same, because we will not get the kind of bubble economic growth to change any of those dynamics.

This is Critical Mass 1. In this view, we could see a water fall event where real estate falls 2-3% in a month, or 3-10% in a quarter because there is simply too much uncertainty, too much financially distressed supply, and a paralyzed buyer (weak demand) forcing that repricing event in the near future.

My conversation with Steve was so interesting, he said. “You need to discuss Critical Mass 2: what if the bond market corrects and rates go much higher!”. Let’s get to that concept now!

Critical Mass 2: Bonds Correct and Rates Go Much Higher

First, let’s look at the monthly chart of the 30 year US Bond below. What stands out is the obvious Bond Bubble channel. Price has returned to the upper end of that bubble channel. The logical expectation is for a correction in price. The question has to be do we pull back to the bottom channel or are we ready to break the channel and end the bubble with a bubble correction?

If bonds are ready for a correction of size, then bond yields are ready to rise. Since mortgage rates are tied to bond yields, we should expect a rise in mortgage rates.

The problem in the world today is everyone believes low rates are here in perpetuity. And just about everyone believes Bernanke can control rates and he’ll keep us in low rates for ever.

WRONG! At some point the market will decide this equation. And as it stands, bonds at record pricing is the equivalent of the ALL IN BET. What happens when the “All in bet” fails?

Steve said something I thought was quite poignant. He said the pending correction in bonds and spike in rates will most likely happen at the absolute worst time. I tend to agree with that line of thinking and I have a couple of thoughts on how that will happen.

The first is taxes: It’s a matter of when not if we see higher taxes at every level of government. We see minor trends that have already begun, but if we are to cure our deficit issues, they do require some form of the US citizenry paying more in taxes. I personally believe that happens in a more definitive manner after the 2012 elections, possibly as soon as 2013 with a strong attack on the wealthy paying more in one form or another.

The second is the Baby Boomer Switch: It’s just a matter of when boomers decide to adjust their life style downward because they will be making less in retirement. This requires the largest generation in America to sell their home and move down while spending less.

I‘ve said it before, you could easily get a trend of higher rates at the same time we see a trend in higher taxes. And those could happen at the same time boomers have to go through the Baby Boomer Switch.

Critical Mass 1 and 2:

In either case, it's highly unlikely we have bottomed in national real estate values. The dynamics behind both Critical Mass 1 and 2 could keep US real estate in a long term Japanese styled deflationary market environment, longer than most would expect.

In all likelihood, the bottom in Critical Mass 1 and 2 will not be the same time period because the trends in higher taxes, interest rates and boomers should take 2-5 years from now to unfold in a more complete manner. The dynamics for Critical Mass 1 should unfold before that.

And, an over sold bounce or cyclical bull market within a greater secular bear market could happen in between these two conceptual ideas.

While both Critical Mass 1 and 2 represent some kind of opportunity to buy real estate in the future. The world’s greatest timing to buy real estate is not until higher taxes and interest rates have squeezed every once of value out of real estate.

6) The Baby Boomer Switch:

As the Baby Boomers age and reach retirement in mass, there demographics will change. Their income will drop, eventually like or not most of them will move down in real estate, and because they will be on a tight fixed income they will spend less.

All of this is a continuing negative for real estate and consumer spending, which impacts the economy and tax collections for municipal governments, and will aid in the deflationary cycle.

7) The Local Municipal Government:

For most of the past 5 years, municipal governments have used accounting tricks, debt, and gimmicks to solve the bulk of deficits. Later in the cycle came lay offs and the elimination of some services. But at some point, we reach a point of bare bones staffing and service levels, and then the math requires a real solution.

Even if budgets were to balance, the overhang of pension liabilities requires a significant change in the math.

The math dictates one of three or a combination of three solutions: Higher taxes, lower muni pay to workers and retirees, and/or bankruptcy. All of which are an economic drag and aid in the deflationary cycle.

Even with a robust economy, the overhang of pension liabilities is too big, and thus the outcome will be lower pay, higher taxes and more muni BKs.

8) The Bubble State (California):

The Bubble State has the largest muni budget issue as a state, and more importantly the collective city, county, and state level. It's the largest population in the nation with the world's 8th largest economy.

California has turned into the state no one can afford to retire in or raise a family in. With muni budget resolutions coming at every level within the state, a currently high unemployment rate, and the majority of high end real estate set for correction, it won't take much to send The Bubble State into a bubble state correction.

As goes The Bubble State, so goes the country. It's too big too......................well I won't say it. Never the less, CA will impact the rest of the economy should it experience a decline!

Additional Risks for Deflation

Since writing that original blog, a number of things have popped up that are risks for causing or aiding deflation:

1) Federal Spending: US debt levels and budget deficits are out of control, and it seems like we are on the cusp of pushing higher taxes on the wealthy while looking for spending cuts. Spending cuts at the federal level are healthy, very healthy long term, but short term it has a net drain on the US economy. Like increasing taxes, decreasing spending could be a long drawn out process, which supports a deflationary cycle era.

2) Iran/North Korea: True wild cards, these two countries pose problems we can't fully gauge but the impact could be large. In the case of Iran, any increasing tension will cause oil/gas to spike higher, which impacts the wallet of all Americans.

And then there's a new 28 year old leader in North Korea. We have no idea how a new and young leader in North Korea is going to react to American policy, and thus the risk is now elevated.

3) Euroland: The problems facing Europe are quite severe, and even if they protect themselves from a liquidity event, the chances are great that Europe goes through a deflationary leg with falling real estate values on top of compressed stock markets in 2012. A very weak Europe could have an impact on large multinationals here in America. That coupled with a potentially strong dollar could impact earnings from the multinationals here in the U.S.

4) China: The issues with China center around the concentration in their economy. The biggest part of their economy is real estate development, which has been in bubble mode and showing signs of deflating. The second largest part of their economy is trade with...............that's right Europe. It's conceivable that at the time they experience a collapse of their real estate bubble they could experience trade issues with Europe in recession. Can the global economy withstand those impacts? If China goes trough a significant economic correction, would that not have some impact on the US economy?

I guess I'm up to 12 risks and counting for deflation. Yes, things are getting worse not better. Using a boxing analogy, we are one right cross away from hitting the canvass.

Ironically, some of these are a when not if. We will get higher taxes, Baby Boomers will age, and interest rates will go up when the bond bubble busts. Some of these are very likely to happen at the same time intensifying their impact on the deflationary cycle.

WHAT'S WRONG WITH AMERICA

I could ramble on and on and on about any number of issues like gov't spending, the deficits, jobs, the economy, Democrats, Republicans, The Federal Reserve, blah, blah blah.

It's actually quite simpler than that, but missed by most Americans. The number one issue is:

We are a country that is of and by the wealthy, corporate America, lobbying special interest groups and the political elite for the very same group. We are not a country of and by the people for the people.

The public has become bamboozled and betrayed by the two party system. Both parties are failing their own constituents as they suck up to the 1% of this country.

The two party system is really a one party system while the sheep are still fighting a left versus right battle, while the political elite have de-unified this country.

Politicians are thriving because of the big money donors while keeping their constituents focused on issues like jobs, deficits, taxes, entitlement programs, etc. They have the public fighting amongst themselves when the biggest problem is politics.

We have lost one of the concepts that has made America so great. What's next, the right to free speech?

As long as the masses keep buying into this manipulation the country will have a political system that's failing America.

We must get back to a country that is of and by the people for the people. That requires some radical changes to the way politics works! It has nothing to do with creating jobs, or government spending, or entitlements. It requires Americans to stop fighting for their block of cheese, and begin to think about the greater good of America long term.

My solution would be the following law, with the bill titled "We the People":

1) Political donations can only be made by a living breathing human being, a citizen of the US with a social security number.

2) That contribution is limited to a certain amount each year for each politician.

3) You can only donate to a politician that represents you (ie: you can't donate to a politician in CA if you reside in NY).

4) The number of seats held by any political party of the House or Senate can be no more than 30% of the total.

Items 1-3 attempt to eliminate contributions from corporate America and lobbying groups (1), and limit donations via the wealthy (2 and 3). In essence, let's design the game so the politician can't be bought as easily as they are now by a select few with deep pockets. Item 4 hopefully fosters better competition of political ideas by requiring more than 2 parties, to better serve the greater good of humanity. Let's get off the Coke and Pepsi two party system.

Did you notice my solution has nothing to do with the left versus right? It's all about shrinking the money and thus corruption in politics and centering the focus of politicians back on to the people of America. We can always have the fight between parties, but wouldn't it be great if politicians actually represented us in that debate?

THE TOP 5 THINGS I WOULD DO WITH THE US GOVERNMENT

Okay, let's assume for now we are never going to cure the political system, because that would require the masses to wake up. What are the most significant things I want to do?

1) Close down Freddie, Fannie and the FHA. Let's get the government out of the business of housing finance. It's a joke!

2) Let's phase out of Social Security, make illegal all pension plans, and move to a mandated self driven retirement savings for everyone. Let's get the government out of the business of providing retirement and force people to put away for themselves.

3) Let's punt Obamacare and go back to the drawing board.

4) Let's change or punt the Federal Reserve. I prefer closing it and let the market set interest rates. At the core of our problems is Fed Policy trying to manipulation the economy for short term gains, which has only served to create greed and rolling bubbles, and their subsequent collapses. Financial engineering is a failure leaving structural issues to deal with for future generations that are simply too big!

5) Let's stop being the world's police officer.

Those would be my top five. Oh sure, there a plenty of other things we need to tackle, but let's shrink the size and shape of the US government, it's costs, and the burden it carries.

COMING TRENDS IN DEFLATION

1) Frugality was popular in the last recession, and it will become vogue in the next deflationary leg. The consumer nation will be forced to rethink what they can afford and whether or not they want to build some savings.

2) Generations living together will increase under the financial pressure of trying to make life work.

3) Eventually, we will see a redistribution of Americans to where it's cheap to live within the United States. Retiring Boomers and young families will chose to leave the more expensive areas for better affordability.

4) Personal Bankruptcy at some level will be viewed as a norm.

5) Real estate values will cycle lower over time, well below what most people could every think is possible in probably a Japanese style deflation model. In some of the worst areas, you will see prices fall 80-90% from their peaks.

6) We are going to see an elevated number of small businesses close their doors or go out of business. As a banker, I see too many businesses that are just getting by, and the 2008 recession depleted assets of the business or the owner, and there is little to no reserve to withstand another sharp recession like 2008. Another 2008 could end a lot of small businesses.

7) SOCIAL UNREST: We already see it in minor forms of the Tea Party and the Occupy movement, but the country is one economic stumble away from this trend intensifying. The masses are going to get very angry because someone has moved their cheese.

HOPE ALL IS WELL

I want to take this time to thank you the reader for coming to my website. It's been a pleasure to write a blog. I want to thank all of those who sent me an email with a question, comment or concern, I really enjoyed getting all of them.

I've always ended my blog with "Hope all is well" because we live in tough times, with little light at the end of the tunnel, and things could get significantly worse, so I wish you the very best in tough times.

If I had to give one last piece of advice it's to save money, protect your wealth and love your family and friends.

As always my friends, hope all is well.

J.D. Rosendahl, Rosey

Stock Charts: Market Pokes Above Downtrend Line!

noreply@blogger.com (The Rosey Outlook) — Fri, 23 Dec 2011 22:17:00 +0000

$SPX 15 Minute: Market is pushing through minor resistance and is looking a little more impulsive compared to yesterday.

$SPX 60 Minute: Breaking above the downrend line and another set of resistance levels come into play.

$SPX Daily: This is still my favorite chart now. We have cluster resistance at 1,307. The green line is the 78.6 retracement level. The black down trend line and the middle pitchfork line cross there. If we are thinking in terms of Fib days, next Thursday is day 8 (assuming the markets are closed Monday. And January 5th is day 13 and the exactly 34 months from the 2009 low. This could be a significant turning point, so watch to see if we get there and the market fails!

My Watch List: I don't have anything right now I like a great deal. There's still a chance this back and forth expands in a range.

From MY Trading Desk: Today we closed a long on TBT for a gain. Later in the day, we took a half short on BBBY.

Next week could be interesting. It could be a low volume week with money managers pushing month/quarter/year window desing. If we get this, we could easily see the market float up to the cluster resistance zone

Happy Trading

J.D. Rosendahl, Rosey

Stock Charts: Market Pushes Right to the Top Wedge Line

noreply@blogger.com (The Rosey Outlook) — Thu, 22 Dec 2011 22:22:00 +0000

$SPX 15 Minute: The past three days up looks like an abc (zig zag), so far!

$SPX 60 Minute: Market continues to coil inside the red lines. The question has to be: do we get a break out, or do we need another pull back? If it's a abc up, then a pull back for the final leg of the wedge could start very soon. A retest of the 1,232 and 1,219 zone would make sense in this idea. Again, only below 1,219 is there concern for the near term bullish view.

$SPX Daily: Let's keep an eye on the market because a break out to the upside is expected in the near future. If that happens the market has another 50-75 points up coming.

My Watch List: Since we are heading into Xmas weekend, I think taking Friday off is probably a smart idea.

From My Trading Desk: We were busy today. We sold long positions on CYN, MOS, and MMM for small gains, and we sold ABC for a tiny loss. We scalped a short on BBBY and a long on POT for very nice gains.

I now have the pleasure of calling mom and dad, and telling them they made good money selling pot today, always a fun phone call.

Towards the end of the day, we put a full long on POT.

We are now back to heavy cash and happy to be there. The market is still coiling, which brings elevated risk. Being heavy cash, I can wait for the market to confirm the break out view expectation and trade more aggressively into the names I like with confirmation.

Happy Trading

J.D. Rosendahl, Rosey

Stock Charts: Stocks Shake Off Bad News From ORCL

noreply@blogger.com (The Rosey Outlook) — Thu, 22 Dec 2011 02:55:00 +0000

Another long day, so I will keep it brief.

$SPX 15 Minute: The market was able to over come a little pull back today, and we have minor resistance over head.

$SPX 60 Minute: We back tested the 1,232 level with today's pull back. Notice the first red box, price pulled back a couple of times after a big move up, and before the next leg higher. We might be doing that again in the second red box.

$SPX Daily: This is the chart I like most for this index. We should test the red downtrend line and the 200 day MA in the coming days. A break above that and that opens the door for a test of the middle pitchfork and the black down trend line. I still like where they cross as a potential turning point.

My Watch List: It's still the same longs as yesterday.

From My Trading Desk: We had a handful of fractional longs going, so I closed two (XOM and MOS) for small gains. We did buy a fractional long on TBT.

I'm still trying to keep it small and nimble because we are coiling in No Man's Land, and that carries some risk.

Happy Trading.

J.D. Rosendahl, Rosey

Stock Charts: Market Bounces Smartly

noreply@blogger.com (The Rosey Outlook) — Tue, 20 Dec 2011 22:42:00 +0000

$SPX 15 Minute: Not a hard concept, big gap and run out of a down channel. We should be in bounce mode.

$SPX 60 Minute: Market smokes past the 1,219 and 1,232 levels, and the down move looks finished.

$SPX Daily: Notice the market went up for eight days, and then consolidated for 8 days, very nice Fib time frames. So, if the bounce is 5 days that's next Monday, if it's 8 days it's end of month/year, and if it's 13 days it's first week of January (which is a Fib 34 months from the 2009 low). Notice where the middle pitchfork and the black down trend line cross in early January, let's see if we get there and turn. First though, we need to break out of this consolidating phase between the red lines, which is our immediate focus.

$INDU: Inverse H&S bottom?

IBM and AAPL: Both made a nice showing today, which is what we should expect on a big up day. Both look to have more gas moving up, and each could scratch another high.

JNK: I haven't put this up in a while, but we have a nice move out of bull flag, an indication the risk on trade is alive.

My Watch List: Today was an easy day, as we punted the short trading charts and moved into long trades.

MMM: Trying to push up to the neckline.

MON: Possible ending diagonal structure!

MOS: If the markets are going to rally, then the dollar should be weak to tame and commodities will bounce. Looks like a possible wave c trade.

XOM: Pushing above the downtrend line. Up next is resistance levels.

ABC: Possible completed ABC on ABC.

TBT: If the market is going to rally, I would expect US bonds to pull back and this could go higher.

From My Trading Desk: Very busy day. At the open, I closed shorts on CMG and BBBY. I needed to get out of the way of this train, and didn't want to be short CMG because it's a mo mo stock. Those were very solid moves even though we had to take the loss because CMG ran all day long. We scalped TBT for a nice gain, and a long on XOM for a small gain. Losses today were more than gains, but all in all, it wasn't that big of a deal because we were using fractional positions.

Later in the day, we took half longs on ABC, MON, MMM, MOS, XOM and CYN. I'm trying to stick with household names for longs.

Again, using fractional positions, as I want to make sure the market continues to rally, which is what I expect near term. Back below 1,219 on the $SPX would be concerning.

Happy trading.

J.D. Rosendahl, Rosey

Stock Charts: Market Continues to Slide

noreply@blogger.com (The Rosey Outlook) — Tue, 20 Dec 2011 00:08:00 +0000

Long day, so I will keep this brief!

$SPX 15 Minute: The market traded down to what I would call minor support at 1,205. We finally have divergences building on this time frame, so a bounce might be coming in the near term. And, it still looks over lapping and corrective down. The bottom of the channel is 1,183ish!

$SPX 60 Minute: Before we get that bounce though, a test of the green line crossing with the red uptrend line is highly likely. It might serve as a place for the market to shake out before the bounce.

$SPX Daily: If we need to test the lower pitchfork line the market could be soft all week long. Below that would be a significant development.

My Watch List: I'm still using the same short candidates as Sunday's update.

From My Trading Desk: Today we closed our short on RL for a small gain. Later in the day we took a half short on BBBY.

If we get below 1,200 and test that green support line on the daily chart, I will use that to close some shorts and take gains because I'm still in the camp that a bounce is coming.

Hope all is well.

J.D. Rosendahl, Rosey

Reader's Have Trading Questions

noreply@blogger.com (The Rosey Outlook) — Sun, 18 Dec 2011 18:27:00 +0000

The past couple of days I received a couple of great questions:

Rosey,

What's your view on the behavior of the VIX over the last few weeks? On the sell off starting Nov.14 the VIX hardly rose at all. During the sell off earlier this week, the VIX went down. Seems abnormal. It's making me lean bearish. Maybe it's an effect of the holiday season.

Good trading!

I'm going to look at it a little differently. Below is a chart of the $VIX. In October, it went in the exact opposite direction of the market like is expected. The past several days the market is down and so is the $VIX, which is not what we normally expect.

Since it's not acting as is normally expected, I haven't been using it lately as a tool. If you've noticed, I haven't put it up on my blog in a while.

As traders, we have our tool box of indicators we watch for clues. I like to follow IBM and AAPL too, but they aren't always giving signals. So, as traders we need to recognize when a tool isn't useful and look for something else in it's absence.

Lately, I've been using the $TRIN EMA 13 Day and $CPC EMA 5 Day. Someday, the $VIX will fall back into order, but for the time being I've been looking else where for clues. Currently, I think IBM could be a big indicator of market health.

AND

I've been meaning to write you since I first ran across your blog over two years ago. The interesting thing for me was that what you did during the '08-'09 bear market for your parents parallels my experience - but in reverse. I'm the parent and I helped keep my (30-something) kids out of financial trouble. Like you, we actually made a small gain during that period.

I want to thank you for sharing your trading analysis in your blog. I think your work and analyses are exceptional. Even though I am an engineer (recently retired), I'm not that methodical - a bit more like game-playing for me. But I tend to do all right.

Right now I hold zero stocks and just trade about 10% of my portfolio. Most of my ready cash is in a GNMA fund which is not very volatile but just seems to chug along at about 5 to 6% interest plus cap. gains per year. Recently, my trades are mostly aggressive ETFs. I have partial positions in TWM, EUO and EEV and a larger one in UUP. I think I have a feel for currencies as I have lived and worked in several countries and, as an American, I have always been closely aware of exchange rate behavior.

This brings me to a question: You talk about taking fractional and full positions. Could you define a full position (as a fraction of your trading portfolio)? I'm sure your readers would be interested. For me a position is usually around 10 - 15% of my trading money.

Best wishes to you for the holidays and many thanks for your blog.

First off, congrats on successfully navigating the 2008-09 recession.

Secondly, congrats on having a limit for trading in your case it's 10% of your portfolio. In my world, our limit is 15% of my parents net worth is slated for trading. Furthermore, no one trade can be no more than a certain dollar amount, which is a fraction of the greater total available to trade. And lastly, we limit the number of either total long or short trades. This keeps us from getting all in and over exposed in general.

Our approach is mostly hitting singles and doubles, and taking what the market is giving. Occasional we hit a home run, but we rarely take a big loss.

Finally, a full position is the max dollar amount we allocate for a single trade. A fractional position is a lessor amount. I usually use 25%, 33%, and 50% levels. I use fractional positions to build into a position.

As a trader, I might start with a full position if I'm heavy cash or I really like a technical set up. I use fractional positions to build a position because I might feel there's a chance I'm early, or I'm trading an aggressive idea like being short one of the mo mo stocks or using a leveraged ETF.

Using fractional positions is nothing more than another level of risk management, which is what trading has to be all about first and foremost otherwise we shouldn't even bother.

Hope all is well.

J.D. Rosendahl, Rosey

Stock Charts: The Market Again Can't Hold Gains.

noreply@blogger.com (The Rosey Outlook) — Sat, 17 Dec 2011 17:33:00 +0000

$SPX 15 Minute: The market tested the 1,232 area today and failed like yesterday. Price is stuck in a down channel and the Fib retracement zone. Above 1,232 might be the bullish confirmation near term. I'd prefer to see one more shake out lower to finish this leg lower. Maybe something around 1,200.

$SPX 60 Minute: The 1,219 and 1,232 levels are proving to be a key price zone.

$SPX Daily: The red trend lines are now the new No Man's Land, as price coils between them. The last two days the market tried to rally but failed. Those candlesticks suggest we need another push lower.

IBM: Easily the most interesting development all week. Big Blue is rolling over and sitting on uptrend support with divergences. Early next week should be interesting for Big Blue.

The weekly on Big Blue shows the wedge pattern is right on top of an uptrend line.

The other uptrend of importance is on this chart, and we could slide down to it!

$RLX and RTH: Both retail indexes are trying to hold uptrend lines. If the market is ready to bounce, we could see these make another push up. I'm personally bearish on retail regardless if it needs to push up or not. A break down is the first little confirmation.

$CPC EMA 5 Day: Does this need to go a little higher to confirm a market low for this stock market leg down? I like that kind of correlation here, so maybe this is saying the market needs to splash lower next week.

$GOLD Weekly: If the MACD is going to unwind itself to zero, there's a chance we chould test the first Fib. level at $1,450ish.

My Watch List:

CMG: A little lower Friday, and test of the uptrend line could be just around the corner.

RL Weekly: This continued lower on Friday and has cluster support at $120, which we should test. If so, this could break down next week, especially if the market shakes lower.

GOLD Weekly: This stock bounced on Friday, and it might need to bounce to filled out a H&S top on the daily chart. The weekly though still shows a stock that is tired with the weekly MACD rolling over and heading lower. Cluster support is $90ish.

DECK Weekly: With divergences in place, I think there's a very good chance we test the bottom wedge line.

FDX: Price closed right at resistance on Friday. Above it serves as a nice trigger.

From My Trading Desk: Friday we scalped a gain on a full long of FDX and a loss on a full long of BLL. The loss was smaller than the gain and the market looked like it was going to roll over, so I closed the two longs.

I'm looking for the Market to show us if the move down has finished or do we need a little more downside first. Next week should provide those answers.

Happy Trading.

J.D. Rosendahl, Rosey

Stock Charts: Market Fails to Hold the Bounce

noreply@blogger.com (The Rosey Outlook) — Thu, 15 Dec 2011 23:22:00 +0000

$SPX 15 Minute: Market gapped up and tested both 1,219 and 1,225 and then failed at what is now resistance. The price structure down looks incomplete, specifically, a new low on a divergence on this time frame would be a better indication of a possible finish to this consolidation lower (if it's not something else entirely).

$SPX Daily: Back above 1,232 is probably what we need to confirm a bottom. We can't rule out a splash or wash out move to the green support line.

$SPX Daily: Today's candlestick tends to confirm nothing bullish yet, It had the chance of gapping up and running higher, but failed and it still looks like we need more work lower.

IBM and AAPL: Both of the these heavy weights traded lower on an up day. Both are starting to roll over and look more bearish. While neither has broken key levels yet, the patterns or technicals they display are starting to look worrisome for Mr. Market, there's no way these two break down and not drag the market with it.

RTH: Retail holds the uptrend line for now. It needs to rally to keep a more bearish view from taking hold.

GDX Monthly: Could be a distribution top. Price back below the prior peak with the monthly MACD turning down.

My Watch List:

GOLD Weekly: If the GDX and the metal are going to continue lower, this should follow. This stock still reflects a weekly MACD that is just beginning to decline. We should be in corrective mode for a while. The red arrow is cluster support, which we should test in the near future.

CMG and HANS: These two have very similar patterns and continued to decline today. A pull back to the uptrend line seems like for both. Below that is far more damaging technically. On both, the daily MACD is just beginning to roll over.

DECK: Big gap down below minor support. Major support is well below. Price is well below the low BB, so maybe this stalls for a few days while the lower BB plays catch up. Maybe a back test of the 200 day MA, but we should eventually test major support.

RL Weekly: A reversion to the uptrend line seems likely.

FDX: Nice big gap up and run today. Price above $85 would be interesting. This is my only long side candidate currently.

From My Trading Desk: Today we took the gain on HANS closing that short because the market was pushing higher. After the market reflected weakness, we took shorts on CMG, RL, and GOLD. We also scalped a gain by trading a half long on FDX.

Happy Trading.

J.D. Rosendahl, Rosey

Stock Charts: Markets Break Support

noreply@blogger.com (The Rosey Outlook) — Thu, 15 Dec 2011 04:19:00 +0000

$SPX 15 Minute: Yesterday, I suggested I was looking for a bottom possibly today in the view of 5 Fibonacci days down combined with the over lapping corrective structure. The market has pushed itself to a possible completion with a little shake out to 1,200-1,205 tomorrow followed by a reversal.

$SPX 60 Minute: Below are the two WXY patterns up that make sense.

$SPX Daily: The market broke below a lot of support today, so the door is wide open for a bearish move. The RSI is trying to turn down too. The lower blue pitchfork is also in play now.

IBM: We finally have the start of some bearish looking technicals on Big Blue. Divergences building with price falling below the prior peak, Further declines add to the bearish view and impact Mr. Market greatly.

AAPL: Potential double head and shoulders pattern. If we actually got below the neckline the target is sub $300, and that's not good for Mr. Market either.

RTH: The retail index has fallen back to the uptrend line with divergences. This could turn bearish with further declines.

$USD: The dollar rained all over the markets today. If it's going up, that's not good for Mr. Market.

My Watch List: In general, I'm looking for retailers for potential short candidates. The following are the four charts I've shorted most recently with easy success.

GOLD Weekly: This stock is displaying a reversal set up on the MACD that looks like a corrective mode should be upon on us. Price should test cluster support at roughly $90. Below that is far more bearish.

HANS: For now it looks like an ascending wedge, which is bullish, but a pull back should continue based on the divergences. If it gets below the uptrend line the bearish view gains momentum.

CMG: Same pattern on CMG as HANS.

DECK Weekly: Big divergences and price sitting right on the uptrend line. A break down is viable.

From My Trading Desk: Today was quite busy. We closed yesterday's short on HANS, and scalped full position shorts on CMG, DECK, and GOLD. At the end of the day, I put a full short on HANS back on.

Note: The futures have the market opening down at 1,205. If we open lower, I'm going to close my short on HANS for a gain if I have one. Then I'm going to watch the market to see if do get that reversal, or do we continue lower.

If you've been following my trades they have been on the short side even though I've been expecting wave C up to start soon and bring a Santa rally. The technicals are getting worse on individual stock charts, so I'm going with that, but I'm keeping my duration short because Mr. Market is driven by news out of Euroland, and that has been to unpredictable and the bounce for Santa is still viable.

Happy Trading.

J.D. Rosendahl, Rosey

Curing Greed in Banking: Readers Got an Itch.............Allow Me to Scratch It!

noreply@blogger.com (The Rosey Outlook) — Wed, 14 Dec 2011 18:20:00 +0000

Recently, one of my readers emailed the follow:

JD. How about doing a report on why Banks need to be Banks and not involved in Real Estate and being Investment Banks. In my opinion, this is just being ignored by Congress and the Senate. Don't you think they should be separate, like it used to be? Had the Banks stayed out of RE and the Securities businesses, many of the past years problems may never have occurred. That would be a good start to stop the Greed!

I'm a banker, I tend to agree in sentiment. Specifically, I think a bank should be involved in lending deposits to make home and cars loans, commercial real estate loans, business loans, and buying AAA bonds for that portion of their balance sheet they can't lend out.

I think banks should be allowed to sell investment and insurance products to their clients that are underwritten and managed by non banks. I do not think banks should be allowed to create their own mutual funds or investment vehicles for sale.

I also believe that banks shouldn't be allowed to buy or make exotic securities.

And, I believe that banks and investment banks should not be allowed to own each other.

So, if I'm keeping it simple, yes by all means, let's make a bank a bank.

Greed

There's just one problem, making a bank just a bank won't stop the "greed" that's pervasive in the United States because the greed will just move to a different segment of society.

Remember, the first bubble was in high tech and IPOs in 1997 to 1999, then the bubble mentality shifted to real estate and debt (banks), and now it has shifted again to US bonds and Gold.

The problems we face in banking are a symptom of greed, not a cause of greed.

The problem that faces and debases the American way of life on Main Street is Federal Reserve policy first and foremost, and the way in which congress operates secondly.

Federal Reserve Policy has been the one constant during each bubble past and present. It's Federal Reserve policy under Greenspan and later Bernanke that keeps the rolling bubble mentality (Greed) going, moving from one asset to another while never dealing with structural issues.

If Greenspan and Bernanke had not been the loose money whores, then the greed factor would be no where near the levels we've seen the past 2 decades. Fed Policy is the cause of greed.

In addition, it's congress that encouraged stupid ass lending via Freddie and Fannie, and then later via FHA, which today still accounts for 90% of all loans in one form or another. But on a greater scale, it's Congress, that's owned by a select few that also stimulates bubble mentality through policies that don't deal with structural issues.

To Cure Greed

This is where the rubber meets the road, because to cure greed, we as a nation have to cure the stupidity that is the Federal Reserve and Congress (The Political System).

To do that, the masses will have to pull their head out and realize what the problem truly is and give up thinking it's a realtor, a mortgage broker, bankers or Wall Street. Those are symptoms!

I'm tired of people getting this wrong because we can't have functional solutions when we see the problem wrong! Anyone or any politician who points the finger at bankers and/or Wall Street is missing the true cause or problem. They either don't understand the issue (The Masses) or they have an agenda (Politicians/1%).

Secondly, to cure the problem, these very same people (The Masses) need to realize that the dual party political system is a joke, and that EACH party is failing America, even failing the majority of their own constituency.

As it stands now, the average American has been bamboozled into the fight of the right against the left or vice versa, while the political elite laugh their ass off and cater to the top (1% on both sides of the political fence) and we have essentially a one party system.

The masses fight over secondary issues while getting scraps, when in essence they have been demeaned by their own political party to the role of sickly runt sucking on the hind teet of the political SOW.

Lastly, these lazy and ignorant hoards will have to get off their fat ass and fight the political system for real change. Such change won't do anything for anyone economically in the near future, and will most likely cause financial pain (Reckoning Day!) near term, while being a functional and fundamental solution for the long run.

One of my favorite people to discuss money and trends with emailed me the following quote which sums it up nicely:

The occupiers are not the measuring stick. The rest of America is a sad sack bunch of do-nothings. At least give the occupiers credit for at least doing something, anything, as the rest of America sits on their ass, doing nothing.

The problem isn't banking my friends, no it's a symptom from what ails us all. It's that the political game provides too much power over the people, ultimately controlled by the few, which rewards the few (1%) and keeps the political elite just that.................elite, and kicking the can down the road.

While the masses here at home have no real clue as to what the real problems are, or getting off their ass and doing anything functional about it, nor are they willing to give something up for the greater good of the country!

If we don't address the real problems that cause greed, the solutions we get from the Bobbleheads who run this country will only be solutions that are, AND let me quote a reader from Down Under who gets this just right:

Like wiping your bum with Glad Wrap

Dear America: Please wake the "F" up and smell the coffee, your getting hosed and it's your own dam fault! If you don't, you'll keep getting lame solutions from Uncle Sam, but it's really the same kool-aid.

The definition of insanity is doing the same thing but expecting a different outcome. America keeps looking to the Federal Reserve and Congress for answers to problems they created, thus America is insane. Thus, we deserve what we get for being insane.

I have to say this, I loved getting this email because I've been wondering when I was going to write this rant. It's been brewing for months now, and it needed to be said.

I thank the reader for the timeliness of the email, and my response is directed at you, no not you the individual, but you the masses, because it's only a populist movement of independent thinking Americans who've shed their political affiliations in an effort to serve the greater good of the country that we have a chance at finding a real cure to greed and fixing this country!

Hope all is well

J.D. Rosendahl, Rosey

Stock Charts: Markets Might Have Finished the Consolidation

noreply@blogger.com (The Rosey Outlook) — Tue, 13 Dec 2011 23:58:00 +0000

Sorry I missed a market update yesterday, but I was in the field all day.

$SPX 15 Minute: Overlapping structure down looks very corrective and possibly finished.

$SPX 60 Minute: Possible inverted H&S bottom.

$SPX Daily: Excuse the busy chart below but it seems to highlight a lot of good data. The black down trend line, which is about the 200 day MA is holding price as resistance. I talked about it a few days ago, that a bullish flag right below resistance made a lot of sense, and that seems to be the case so far.

The horizontal black line, which is also the 50 day MA, is a support area, it's actually in between two other key numbers of 1,232 and 1,219, the market actually dipped down to the lower number today.

Price is also holding the red pitchfork as support. If we break below 1,219 and hold it, there could be something else going on.

Here's something for the Fibonacci Geek in all of us. We have 8 days up into wave A, and tomorrow is 5 days to finish B. If we got another 8 days up for wave C, it also gives us 21 days up from the November low and potential turn date of Dec 26th.

So, I'm looking for the market to find some traction very soon to confirm the ABC structure up is still in play. Anything in between the black lines is No Man's Land.

My Watch List: No charts because I'm waiting to see if the market shifts gears from corrective to impulsive.

From My Trading Desk: On Monday we took a short on CMG and GOLD. Today we took a nice gain on GOLD by closing it, and a small gain on CMG by closing that short. We scalped a gain by shorting fractional positions on BBBY and FDS today. We shorted a fractional position on HANS.

I closed most of my positions today as the market was down in the support zone and the over lapping pattern looks near complete.

Happy Trading.

J.D. Rosendahl, Rosey

Bankruptcy Denial Continues: Harrisburg and Jefferson County

noreply@blogger.com (The Rosey Outlook) — Tue, 13 Dec 2011 17:02:00 +0000

We still live in a world where we simply can't let muni bankruptcy be the path of choice.

Harrisburg Council appeals bankruptcy decision

HARRISBURG, Pa. - The attorney for Harrisburg City Council says he has filed an appeal of a judge's decision to throw out the bankruptcy petition of Pennsylvania's debt-choked capital city.

Mark Schwartz says in an email the appeal was filed Saturday with the U.S. District Court for the Middle District of Pennsylvania.

Last month, federal bankruptcy Judge Mary France ruled Harrisburg may not seek bankruptcy protection, calling such a filing illegal. That ruling cleared the way for the state to take over the city.

Schwartz says he feels the decision "was in error" and that the case could end up in the U.S. Supreme Court.

Harrisburg is saddled with about $300 million in debt tied to its nearly 40-year-old trash incinerator. Beset by environmental problems and fines for years, U.S. Environmental Protection Agency shut it down in 2003 with about $100 million in debt already piled on it, some of which had gone to finance other city projects.

It looks like this will make it's way to the Supreme court, which was probably inevitable at some point for a muni BK. The idea of state controlled solutions is dysfunctional, most states can't even balance their own budgets. Can you imaging the number of cities, towns, and counties in Michigan that essentially qualify to be state manged? Mind boggling for sure.

I say, let's kick it to the Supreme court and get a definitive answer.

Creditors: Throw Out Jefferson County Bankruptcy

Alabama’s Jefferson County doesn’t meet a legal requirement to remain in bankruptcy and its case should be dismissed, its creditors said in court filings.

Bank of New York Mellon (BK) Corp., as the indenture trustee for holders of the county’s sewer warrants, asked U.S. Bankruptcy Judge Thomas B. Bennett in Birmingham, Alabama, to throw the biggest U.S. municipal bankruptcy out of court, where the county is protected from creditors.

BNY Mellon argues that Jefferson County wasn’t authorized to file for bankruptcy because, under Alabama law, only counties, cities and towns that have issued funding or refunding bonds are eligible for Chapter 9 municipal restructuring. The county has only warrants, which are distinguished from bonds under Alabama law, the bank said in yesterday’s filing.

“In light of the county’s lack of funding or refunding bonds and the resulting failure of specific authorization to file its Chapter 9 petition, the county’sChapter 9 petition must be dismissed,” BNY Mellon lawyers said in the filing.

Jefferson County creditors including JPMorgan Chase (JPM) Bank NA, which owns more than $1 billion of the sewer warrants, Bank of America NA and Assured Guaranty Municipal Corp. filed court papers supporting BNY Mellon’s request for dismissal.

Legal Test

Bennett scheduled a two-day hearing starting Dec. 15 to decide whether the county meets the legal tests laid out in Chapter 9 of the U.S. Bankruptcy Code.

Jefferson County filed bankruptcy last month after county and state officials and bondholders failed to implement a tentative agreement that would have cut debt by about $1 billion. The county’s bankruptcy was caused by more than $3 billion in debt related a sewer system that doesn’t collect enough money from residents to pay its obligations.

Since the bankruptcy filing on Nov. 9, the county has battled bondholders and the receiver for control of the system and its finances. Bennett hasn’t ruled on what limits, if any, the bankruptcy imposes on the receiver, John S. Young Jr.

The case is In re Jefferson County, 11-05736-9, U.S. Bankruptcy Court, Northern District of Alabama (Birmingham).

Bank of New York Mellon might have a case, at least on the technicals of the case. But where they fail, and what I hope the court understands, is that the public didn't negotiate these transactions. They were conducted by politicians who were/are often bought and paid for by bond issuers and frequently don't understand financial instruments such as these.

In an attempt to reach the right decision, I'm hoping the court will see itself as the negotiator for the public because the political system has failed the public in this case. It's time to send a message that the public was not served in the process of creating or issuing these bonds or warrants and let the BK filing move forward.

Hope all is well.

J.D. Rosendahl, Rosey

Stock Charts: Market Bounces Back to Resistance

noreply@blogger.com (The Rosey Outlook) — Sat, 10 Dec 2011 19:56:00 +0000

$SPX 15 Minute: Does the consolidation need to expand? I'm in favor of that compared to it has bottomed and it's a new leg up. In either case, we should know next week.

$SPX 60 Minute: The last two days have swung back and forth in between the resistance and support zones. We are in No Man's Land. This could expand a little more next week.

$SPX Daily: Price bounced Friday right back to the resistance zone. I prefer the idea of a little more consolidation next week just below the black line, but nothing looks bearish. The red line is the target in the view of ABC up with a time line of end of 2011 give or take a week.

$SPX Weekly Nonlog: The target on the weekly chart is slightly higher than that of the daily but they are very close in the 1,320 to 1,325 area. Again, this is the target in the view of ABC up. MACD edging back up supports pricing move higher.

$SPX Monthly: The down trend line on the monthly provides resistance in the same general area as the daily and weekly. I full expect the market to move up and test that area. The monthly MACD has crossed but it's failing to head lower and provide a more bearish feel. Note: If the market can find a way to get above the down trend line then 1,420ish is in play, which supports the bullish view.

IBM: It still has the bullish theme working higher with room on the RSI and MACD to support higher pricing. The bearish view would start to show up with divergences on the RSI and MACD and then price below the prior highs at $190.

AAPL: Price should at least push up to and test the bottom of that gap area.

My Watch List: No charts, I'd like to see how next week starts. Does the market break out to the up side, or do we need more consolidation?

My Trading Desk: Friday we took small gains by closing shorts right after the open on HANS and WYNN. They were small but I wanted to get out of the way of market strength working against those shorts and push more money to cash.

Next week, I want to see how the market starts the week before I make any new trades. I still think we have another leg up even though the past few trades have been shorts. Heading into the end of next week, and the following week I expect volume to be low during the holiday period and we need to be aware of that.

Happy Trading

J.D. Rosendahl, Rosey

Attack The Rich: Top Income Tax Rate: How's 83% Sound?

noreply@blogger.com (The Rosey Outlook) — Fri, 09 Dec 2011 17:32:00 +0000

If there's one trend that seems to be gaining momentum it's the attack or tax the the rich theme: Top Income Tax Rate: How's 83% Sound?

This should get Grover Norquist up off the couch: a paper by a prominent team of economists says the tax rate for top U.S. earners could be hiked to 83 percent without hurting anyone but the “mega rich.” And in what’s sure to add gasoline to the income-inequality debate, they suggest pay increases for the wealthiest few reflect mostly “rent seeking” — econo-speak for unshackled greed — rather than executive-suite productivity improvements.

Thomas Piketty of the Paris School of Economics, Emmanuel Saez of Berkeley and Stefanie Stantcheva of MIT reach those conclusions after disputing that tax cuts in several countries since the 1970s had any real impact on per-capita GDP growth. As they say in their less wonky summary (hat tip to 3 Quarks Daily) — illustrated with the table at the right — “countries that made large cuts in top tax rates such as the United Kingdom or the United States have not grown significantly faster than countries that did not, such as Germany or Denmark.”

What does show a strong correlation is falling tax rates and the share of pre-tax income held by the top 1 percent — which has more than doubled in the U.S., to more than 20 percent, over the past 40 years. Piketty, Saez and Stantcheva offer three possible explanations for what happens after a tax cut: 1) the wealthy work harder; 2) they hide less of their income from the government; 3) they bargain harder for higher pay. Long story short, the authors endorse No.3. As they say, “executives can be overpaid if they are entrenched and can use their power to influence compensation committees.”

They’re suggesting politicians should feel emboldened to tackle income inequality and federal deficits by rolling back 30 years of Republican efforts to flatten and depress income taxes. The current 35 percent top marginal income-tax rate is the lowest it’s been since 1992. Before Ronald Reagan’s first term, the rate had not dipped below 70 percent since 1935. As the authors put it:

Up until the 1970s, policymakers and public opinion probably considered - rightly or wrongly - that at the very top of the income ladder, pay increases reflected mostly greed or other socially wasteful activities rather than productive work effort. This is why they were able to set marginal tax rates as high as 80% in the US and the UK. The Reagan/Thatcher revolution has succeeded in making such top tax rate levels unthinkable since then. But after decades of increasing income concentration that has brought about mediocre growth since the 1970s and a Great Recession triggered by financial sector excesses, a rethinking of the Reagan and Thatcher revolutions is perhaps underway. …

With higher income concentration, top earners have more economic resources to influence social beliefs (through think tanks and media) and policies (through lobbying), thereby creating some reverse causality between income inequality, perceptions, and policies. We hope economists can shed light on these beliefs with compelling theoretical and empirical analysis.

That’s a dry way of saying the rich make a lot more than they deserve and they’ve used that wealth to persuade the rest of us that they deserve it.

Whether it's states like California or New York who are trying to get new tax hikes on the rich passed, or whether it's the Occupy movement, or President Obama's push to increase taxes on the rich, the movement to attack the rich is gaining strength.

It's not totally unexpected, the logic being that the disperity between the rich and the rest of us has never been wider. Plus, the rich have benefited the most from government bubble policies the past 20-30 years. Plus, governments at all levels need more taxes and there is no other source.

I have a few problems with this line of thinking in general. First, increasing tax rates on the wealthy and they will do what is written above as item number 2 in the article, and hide their income and/or live off cash/assets while deferring income recognition. The mega rich have the ability to tinker with reportable income in ways the rest of do not.

They might just take their money and expatriate to a low tax haven like many US corporations have done.

Lastly, curing income inequality is as much if not more of a political problem than a tax problem. In that, the game of politics is controlled by the mega rich, which is why we have income inequality. You can't cure the problem with higher taxes alone, but not do anything about how the game of politics is played. This article fails to land squarely on the part of the issue.

Should the rich pay more in taxes? Yes, it's a no brainer, but shouldn't we all pay more including the 40-50% of low income workers paying no taxes. Every income earner should be a paying stake holder in this country, even if the amount paid is a token figure.

The trend of attack the rich will continue to grow for many reasons. The frustrated masses will continue to see it as the pot of gold at the end of the rainbow. The media will thrive on the topic because it creates great head lines. And Democrats will make it a focal point of coming debates and policy action.

But purely increasing the tax rate on the rich won't current the issues we face because our problems are a spending and debt problem that dwarf higher taxes on the rich. It's simple math.

Hope all is well.

J.D. Rosendahl, Rosey

Stock Charts: Market Turns at Cluster Resistance

noreply@blogger.com (The Rosey Outlook) — Thu, 08 Dec 2011 22:19:00 +0000

$SPX 15 Minute: We finally have the pull back and consolidation of gains I've been looking for the past few days. The actual wave count could be any one of several, so the view below is conceptual, it could expand.

$SPX 60 Minute: Even with today's sell off, it's not a big event because price remains firmly between support and resistance zones. The RSI does suggest we could linger around the support zone for another day or two. Below support and something else is going on in structure.

$SPX: If it's still ABC or 1-5 up, I like wave 2 or B consolidating just below the black down trend line. So, maybe a few more days of grinding in place.

My Watch List:

DECK Weekly: A little follow through to the down side today. Solid divergences brewing.

DRI Monthly: Divergences on the RSI but price remains slightly above the prior peak support.

WYNN Monthly: On the daily chart this might look like a descending wedge. On the monthly, the MACD is rolling over with pinching BBs. IF it breaks down, it could slide to the 50 month MA.

HANS: All this over lapping structure up looks like a running wedge, and there's a few ways to account for it in an Ewave structure. The move up from the most recent low doesn't look impulsive, so another pull back seems likely.

From My Trading Desk: Today we took small gains by covering shorts on DECK and DRI. We scalped a gain by shorting UNP. Later in the day we took small short positions on WYNN and HANS.

Note: I can't say this enough, Mr. Market is in No Man's Land, there's no great reason for big bets.

I'm still trying to keep it light and narrow.

Happy Trading.

J.D. Rosendahl, Rosey

Stock Charts: Market Still Testing Cluster Resistance

noreply@blogger.com (The Rosey Outlook) — Thu, 08 Dec 2011 01:47:00 +0000

$SPX 60 Minute: Market is stuck between price zones, in No Man's Land. Below is my expected outcome.

$SPX Daily: Nothing really new today. The market is testing that cluster resistance area once again. Will we pop above and then back test, or do we consolidate first? We should see the answer to this soon.

IBM: Price above the middle pitchfork with widening BBs, there's nothing bearish going on in IBM yet.

Still in the up channel with nothing bearish in this view either.

$TRIN EMA 13 Day: This has been a solid tool for gauging a potential roll over in the market the past several months. It has finally pushed down to the area where the market has rolled over in the past.

My Watch list:

DECK Weekly: The daily chart doesn't provide much of technical use, but the weekly and monthly are quite interesting. We have solid divergences forming with the MACD trying to turn down.

DECK Monthly: Still one of my favorite monthly charts. Big RSI divergences, but the MACD has yet to turn over. BBs starting to pinch!

DRI Monthly: MACD has rolled over but price did hold the prior peak support today. Below that should open some selling pressure.

From My Trading Desk: At the open, DRI seemed to have stalled going down so we closed our fractional short for a small gain. We scalped a short on AZO for a gain. We shorted a small position of DECK. And going into the close we shorted back into DRI after it had bounced intraday.

I'm still keeping my trades to a minimum because Mr. Market is in No Man's Land.

Happy Trading

J.D. Rosendahl, Rosey

Stock Charts: Market Takes Another Run at Cluster Resistance

noreply@blogger.com (The Rosey Outlook) — Tue, 06 Dec 2011 21:32:00 +0000

$SPX 15 Minute: Has this wave up finished or not? There's still a chance for one more push up, but it's getting tired!

$SPX 60 Minute: The Market is stuck in between support and resistance. I'm still on the view that a consolidation of this move up is pending.

$SPX Daily: Another run at cluster resistance today.

IBM: There's nothing bearish in Big Blue currently. If it needs to test the top trend line that's around $210, which is the P&F target the last time I checked it.

My Watch List: Not much has changed, I do have one idea that we traded into today.

DRI Monthly: The company announced a reduced outlook. Ironically, this occurred just after the technicals were rolling over, so now we know why! We have a Monthly MACD rolling over, which I would consider bearish., Divergences on the RSI, again bearish. But look at the last high on the RSI, it failed just below 70, a classic sign this stock is tired. Price closed right on the prior peak, and I expect price to move down to lower price support levels.

From My Trading Desk: We took a half short today on DRI.

I wasn't planning on shorting anything, but the specifics on DRI seemed compelling. I'm still looking in general for the market to consolidate gains, and that should provide the next long side re-entry point. So, it's still watch and wait for now.

Happy Trading,.

J.D. Rosendahl, Rosey

The Brown Economy: Gov. Jerry Brown implores California voters: Please raise taxes on yourself

noreply@blogger.com (The Rosey Outlook) — Tue, 06 Dec 2011 20:02:00 +0000

Governor Brown faces yet another deficit and now he wants the citizens of CA to foot the bill with more in taxes: Gov. Jerry Brown implores California voters: Please raise taxes on yourself

Republicans blocked the efforts of California Gov. Jerry Brown to fix a budget crisis through more tax revenues. So his new plan is to go straight to voters in 2012.

Gov. Jerry Brown on Monday proposed a ballot initiative that would ask Californians to raise taxes on themselves.

Facing huge deficits despite $10 billion in budget cuts last year, California needs new tax dollars in order to avoid catastrophic cuts to schools and government services for the elderly, Governor Brown said.

His plan includes a 1 percent income-tax-rate increase for individuals making more than $250,000 per year, and a 2 percent rate increase for those making more than $500,000. It would also increase the state sales tax by half a cent to 7.75 percent.

1% more on income earners over $250,000, 2% more on income earners over $500,000, and an increase in the general sales tax rate on everyone.

What Brown is not saying is that he doesn't want to ask unions for real cuts. As the State runs out of ways to kick this can down the road with accounting gimmicks and more debt, the math forces less spending or more tax revenue, or some combination there of.

Luckily, so far, Republicans have been able to block tax increases, but Governor Brown is trying to get enough signatures to avoid legislature and let the people make the call.

What Brown is also not telling the public is the long term ramifications of tax increases. As one of the highest taxed states in the union, increasing taxes will only provide the incentive for people to leave the state, people like the wealthy and Baby Boomers, the people who have money might just take it some where else.

In essence, higher taxes could help fix the budget near term, but be part of a cycle of decrease tax revenues in the future and increasing deficits, especially during the next recession of size.

In total, at least 10 initiatives that propose tax increases are vying to qualify for the 2012 ballot in California – a sign that the state that led the national tax revolt with Proposition 13 in 1978 might now be considering at least a partial reversal of course.

With many states still focused only on cuts, such a bold statement from California could reverberate nationwide – either giving other states cover to try similar measures or showing that, even with budgets in dire straits, tax increases are a political impossibility.

“A victory for tax increases in California could encourage similar moves in other states,” says Jack Pitney, a political scientist at Claremont McKenna College. “If the tax measure goes down to defeat – in a blue state running a huge deficit – the effect would be to chill such proposals in other states for many years to come.”

I tend to agree because CA is often a place where trends are set, so how the vote on taxes comes down is important to the national trend of budget resolution.

Brown’s proposal is projected to raise $7 billion per year and would expire in 2016. On Monday, he dismissed the idea of going through the Legislature, where a two-thirds vote is needed for raising taxes. Indeed, Brown tried to go through the Legislature earlier this year to get a tax measure put on the ballot, but Republicans blocked him.

So now the plan is to collect enough citizen signatures to put his plan on the ballot without any input from lawmakers.

“I am going directly to the voters because I don’t want to get bogged down in partisan gridlock as happened this year,” said Brown in a statement. “The stakes are too high.”

He's going to the voters because he can't get Republican voters, and there are plenty of union employees as CA citizens that will sign this, so it should make the ballot in CA.

He suggested that the state can’t make any more cuts responsibly. “Spending is now at levels not seen since the ’70s,” he said. “Schools have been hurt, and state funding for our universities has been reduced by 25 percent. Support for the elderly and the disabled has fallen to where it was in 1983.”

“The stark truth is that without new tax revenues, we will have no other choice but to make deeper and more damaging cuts to schools, universities, public safety, and our courts,” he added.

Brown does a great jobs of spinning the truth. The reality is that the cuts have barely touched union pay levels, benefits, or retirement benefits and pensions. He's leaning on public fear to support tax policy.

The pay levels at CA Universities is out of control, and no where in his comments does he discuss this notion!

The depth of recent cuts may have changed minds in California. Some 64 percent of California voters said they would pay more taxes if the money went to public schools, according to a November poll by the Los Angeles Times and the University of Southern California.

“Now people are seeing how spending cuts are hitting the most vulnerable – elderly and kids in school,” says Loyola Law School professor Jessica Levinson, former director of political reform at the Center for Governmental Studies.

Spending cuts are hitting service levels, which is designed specifically this way to put the fear into voters. If you cut services and people, then the public gets less. However, if you cut the pay and benefits to public unions then the service levels would have remained the same to the public.

No where, does Brown or any other Democrat discuss that notion. That the people don't have to have less if union employees took the hair cut that's needed.

But analysts say the sheer number of initiatives may overload voters. Moreover, Republicans could try to counter with initiatives of their own.

“While Brown may be successful in persuading some of his allies in his tax-increase battle to remove their initiatives from the ballot, one might imagine that his opponents will decide to pursue a voter misdirection strategy by seeking to add counterbalancing initiatives of their own,” says Lara Brown, a Villanova University professor and author of “Jockeying for the American Presidency.”

The stakes are high for what might follow in other states. “In the same way that Proposition 13 did, indications are that California is willing to turn the corner on what government is and our willingness to fund it,” says Barbara O’Connor, director emeritus of the Institute for Study of Politics and Media at California State University, Sacramento. “Perhaps it is time to lead the rest of the country out of the morass by example.”

It will be interesting to see how the public votes in CA. It does in many ways set national trends.

It will be interesting to see if the public buys the political spin coming from Brown.
But what no one is discussing, and this goes for the major media channels as well who fall asleep at the switch is why do we need higher taxes when the problem is a spending issue. Nor, is there any discussion about the economic impact in CA with higher taxes eventually chasing people into lower tax states.

We are still not dealing with deficits from a long term perspective, and only focusing on curing one deficit at a time, year in and year out, and thus we get stupid policies, which seems to be the national trend.

Hope all is well.

J.D. Rosendahl, Rosey

Stock Charts: Market Tests Cluster Resistance

noreply@blogger.com (The Rosey Outlook) — Mon, 05 Dec 2011 21:59:00 +0000

$SPX 15 Minute: The market's work up on this leg was unfinished and pushed higher. It still looks unfinished, so we might get another splash up. We finally have divergences forming though.

$SPX 60 Minute: Market testing minor price resistance. I'm still of the view that a finish to wave 1 or A up is done or about to finish soon, and a consolidation is to follow.

$SPX Daily: Market pushed right into cluster resistance. This is an ideal spot for a consolidation. A bull flag would be interesting!

My Watch List: I'm waiting to see the market consolidate the gains of the big run, so no charts yet.

From My Trading Desk: We had no trades today.

It's really a simple story right now, I think the market could be buoyant most of December, but I'd like to see a consolidation as a re-entry point.

Happy Trading.

J.D. Rosendahl, Rosey

Stock Charts: Was That A or 1 Up?

noreply@blogger.com (The Rosey Outlook) — Sun, 04 Dec 2011 17:55:00 +0000

$SPX 15 Minute: We have enough waves up to label it finished, and a correctional phase should being soon. The door is open for one more push up to complete the count though.

$SPX 60 Minute: I still think it's viable the market back tests key support before we beginning another leg up. The MACD turning down supports this idea;

$SPX Daily: The market pushed right to the first down trend line and this could be where we see the market consolidate last week's gains. That being said, there's nothing bearish in the charts and the trend should be upward most of December.

My Watch List: I've got no charts up because I'd like to see how the market starts next week.

From My Trading Desk: On Friday, we took advantage of the early push up and closed longs on MMM, FDX, and XOM. I thought we might be close to ending wave A or 1 up and going into the weekend, I wanted to move towards cash.

For next week, I'm looking so see if we build a consolidation or pull back. The market should be in an upward trend for December, and I'm looking for a re-enter point based on a wave B or 2 pull back.

Happy Trading.

J.D. Rosendahl, Rosey

Cat Fight: Jim Rogers vs Marc Faber on China

noreply@blogger.com (The Rosey Outlook) — Fri, 02 Dec 2011 17:56:00 +0000

Is there a funnier notion than a cat fight between these two gentlemen? Okay, putting aside my sense of humor, I love reading stuff from both because they usually bring valuable views to the table!

China Hard Landing Possible; Impact ‘Devastating’: Faber

A hard landing for China will have a major negative impact on global commodities and risk currencies, says Marc Faber, the editor of The Gloom, Boom & Doom report, who adds that he is more worried about a Chinese economic downturn than a recession in Europe.

Faber, whose investment portfolio is concentrated in Asia, believes a Chinese slowdown is already under way.

"The (Chinese) economy consists of many sectors and I think some sectors are already probably in a recession," Faber said to CNBC on Friday in a phone interview. "I think growth will be much lower and it is possible that we could have a hard landing with no growth at all."

Faber, who correctly predicted the 1987 stock market crash and more recently forecast the stock market correction in August, says China's economy depends largely on capital spending, which tends to be volatile and has a strong multiplier effect on the economy.

While a recession in Europe could mean a gross domestic production contraction of 1-2 percent, he expects a shrinking Chinese economy to have a more widespread impact globally.

The commodities market, in particular, will bear the brunt of a China economic deceleration, said Faber. "If the Chinese economy grows at 10 percent, or 5 percent or no growth, it has a huge impact on iron ore, copper, nickel, anything. “

"It will have on the global economy a devastating impact via the resource producers of the world, whether it's Brazil or Australia or the Middle East or Africa," Faber added.

When asked about investor Jim Rogers' view that commodities will continue to do well in the long-run, in spite of a China slowdown, Faber said: "If I was always bullish about commodities and completely missed out on the crash in 2008, then obviously, having tied essentially my reputation to commodities, I'd continue to be bullish." Read Rogers' rebuttal here.

Still, Faber says gold [XAU= 1748.04 4.30 (+0.25%) ] should get some support over the near-to-medium term as he expects central banks in Europe and the U.S. to print more money to prop up their economies. As such, he advises investors to steer clear of the Australian dollar [AUD= 1.0226 -0.0016 (-0.16%) ], the Canadian dollar [CAD= 1.0164 0.0026 (+0.26%) ] and resources stocks.

Faber says he is staying well diversified with his portfolio divided equally in four parts between gold, real estate, stocks, and cash and bonds. He adds that he is keeping cash on hand to scoop up assets should markets correct further.

Jim Rogers: Faber's Wrong About China

Jim Rogers thinks Marc Faber has got it wrong about China, when he says the country is possibly headed for a hard landing, which would lead to a devastating impact on commodities around the world.

"Marc still does not understand China. There are going to be several hard landings in the next few years, but China’s will be less hard overall than others such as Greece, U.S., et al," Rogers told CNBC in an email.

Rogers says some parts of China's economy will have a "hard landing" but other parts will continue to boom. He says the commodity market will have a correction, but rebutted Faber's view that it would be devastating.

"Yes, there will be consolidations in the commodity bull market just as all markets have consolidations," he said. "In 1987, stocks declined 40-80 percent worldwide, but it was not the end of the secular bull market in stocks."

Rogers said he was still long commodities, adding that gold went up 600 percent in the 1970s and then corrected by 50 percent scaring a lot of people. "It then continued its secular bull market and rose 850 percent. Corrections are the normal way of all markets."

According to Faber, Rogers' bullish call on commodities is misplaced. "If I was always bullish about commodities and completely missed out on the crash in 2008, then obviously, having tied essentially my reputation to commodities, I'd continue to be bullish," Faber said.

But Rogers said Faber had got it wrong when it came to his call in 2008. "I proclaimed repeatedly far and wide that one should not buy commodities in the run up phase. I also explained that I was not selling mine since we were [and are] in a secular bull market," Rogers said.

"I explained that my shorts of Citibank, Fannie Mae, all the investment banks and homebuilders, plus my long position in the Japanese yen would protect me in any sell-offs. When one’s shorts decline 90-100 percent, it is a good year even when one’s longs decline," Rogers added.

According to Rogers, Faber is the one who has made many wrong calls, arguing that he "totally missed" the secular bull market in commodities that began in early 1999.

"Also back in those days, he and his friends proclaimed often that China was a mess and would continue to be so," Rogers said. "They all were wildly excited about Russia. Some of his friends even left China to start operations in Russia. We all know how that resulted."

Ironically, the cat fight seems less about what will happen, then a pissing match about prior investment track records, which is comical. I've made some calls as good if not better than both of those guys. I got my family out of the stock market in 1999, back into the stock market in 2003 and back out in 2007. I got them out of real estate in 2003 and into gold in 2004. My only big miss was not getting back into stocks in 2009. So, when I see two gurus squabbling over track records I find it comical.

China

I believe both have some solid thoughts on China, and it seems more a question of when and to what degree. I struggle with the idea of China because from what I've read their real estate market is being propelled by building vast amounts of real estate that sits empty, virtual ghost cities. There comes a day when the building boom and the infrastructure boom comes to an end or major slow down, and it will produce a hard landing.

Ironically, I have a client that is an inspection firm of metal and concrete as it relates to the building of bridges. They currently have a hand full of big jobs in the united states. They are bidding on 3-4 bridge jobs in.................that's right China. The jobs are quite large!

As someone who has called major market turns with some success, I can say calling what will happen and when it will are very difficult to get both right. Will China have major issues and be part of global recession? Yes. Timing however is far more difficult to gauge because bubbles expand the normal cycle time frames from which we are all used to in gauging market turns.

I would rather argue that any hard landing in China, the Eurozone, or the US, will happen at a time when all three have an issues, serious economic pain of various degrees, which could easily create a global deflationary environment.

Gold

We bought into gold quite heavily in 2004. We actually sold some in the past 18 months. We've moved from a 20% weighting of the families net worth to 8%. Our cost basis was mostly around $440 and we had huge gains in 6 years and it was time to book some profits. We've held onto some because everyone should at a minimum have 5-10% invested in the physical holding of precious metals.

Below is the monthly chart of gold. What you'll see is a virtual straight line up. I personally have a hard time with the idea of buying gold now, even though it could wiggle higher, maybe up to $1,900 - $2,000. The technical reason is that the monthly MACD has yet to roll over and indicate a correctional phase, so the door is open for another push up.

That being said, I am interested in buying back into gold and silver, but I want to see a correction. Both Faber and Rogers believe a correction could happen, as do I. I believe it's a correction within a secular bull market, but that doesn't mean we can't see gold correct back to $1,200, maybe even $1,000, it just depends on the strength of the so called hard landing, and the global deflationary environment. I would expect gold to reflect relevant strength even as it declines in such a deflationary world.

Cash

I agree with Rogers on the idea of keeping cash. It's our single largest weighting. I think about it differently then rogers though. Why would I want to own bonds, especially US bonds, they're at record highs paying scant interest? Why would I want to buy into gold now, when it's wildly over bought and due for a correction in time or price? Why would I want to buy a propped up US stock market that has doubled in two years? Why would we want to buy US real estate when the values of real estate have yet to reflect the impact of more wager deflation, higher taxes coming, and a bond market correction sending rates much higher?

Cash is king. Yes, we will use our cash for buying opportunities like Rogers when we go through the next correction, but why would anyone want to be putting money to work and holding asset categories that seem flawed? I ask these question because I personally can't get excited about a long term buy and hold approach on much these days, hence the reason cash is king for us.

Hope all is well.

J.D. Rosendahl, Rosey

Stock Charts: Market Takes a Little Siesta

noreply@blogger.com (The Rosey Outlook) — Thu, 01 Dec 2011 23:40:00 +0000

$SPX 15 Minute: The impulse move up (wave 1 or A) looks unfinished, so we should get a little more upside before we need to consolidate.

$SPX 60 Minute: I like the idea of pushing a little higher, then back testing what is now key support! MACD is almost ready to support a consolidation of this advance.

$SPX Daily: The ideal spot for wave A or 1 to finish is at the cross of the resistance line and the middle pitchfork, or a splash up to the 200 day MA. This should happen soon.

My Watch List: Nothing new today, the same charts from yesterday (CSX, DD, MMM, FDX, XOM)

From My Trading Desk: Today we sold the remainder of our CGEN for a very nice gain. I might be out a touch early, but it's a thinly traded small cap. We also took small gains by selling longs on CSX and DD. Later in the day we bought a fractional long of BLL because it has the same inverse H&S structure as CSX and DD.

Happy Trading.

J.D. Rosendahl, Rosey

Critical Mass Update: Why The Strategic Walk Away is So Strategic

noreply@blogger.com (The Rosey Outlook) — Thu, 01 Dec 2011 18:03:00 +0000

It's a big reason why the strategic walk away is so strategic: Average Foreclosure Time Sets New Record

Foreclosures are setting new records again, this time not in their overall numbers, but in the time it is taking for all of these properties to be processed through the legal system. The average loan in foreclosure has now been delinquent a record 631 days, according to a new report from Florida-based Lender Processing Services.

BINGO, and that's why the strategic walk away is so................................well strategic. You can live in a house during the foreclosure process and NOT make a loan payment for 631 days on average. That's almost two years.

The actual time frame will vary widely depending on the bank's appetite to reflect a loss, and whether or not a bank can directly foreclose without a court and judge, or the bank has to go through judicial foreclosure involving a judge.

Never the less, being able to live in a house payment free for 12-24 months is probably the major benefit for anyone who owns a house and is upside down. If prices continue to decline, someday at your option you might choose to live payment free.

I know lots of people who are seriously upside down, fighting to make their house payment, real estate taxes, insurance, not to mention all of their other bills, WAITING for things to get better. I say good luck with that thought.

What most people haven't done is at least draft a strategic plan of how, when and why living payment free will work. The potential savings opportunity is enormous if done correctly.

You must understand what kind of state you live in, and whether or not a bank in your state can comeback at you for loan deficiencies or not. You also need to understand the potential tax liabilities on the forgiveness of debt. Seeing an attorney is highly recommended to understand these and other issues.

That being said, the strategic walk away is so, because it's taking the system too long to foreclose. If the process only took 6-9 months, it wouldn't be so strategic.

The after effects of the so-called "robo-signing" foreclosure paperwork scandal, now more than a year old, continue to plague states which require these cases to go before a judge.

The differences in processing times are blatant when you compare judicial versus non-judicial states. Non-judicial state foreclosures inventories are less than half those of judicial states, and foreclosure sale rates in non-judicial states are four to five times that of judicial states. Judges are starting to ramp up the process.

Bank repossessions actually surged in October in many judicial states, up 48 percent in New Jersey and up 73 percent in Indiana month-to-month, according to RealtyTrac. Still the backlog is still enormous. Overall foreclosure inventory is at an all-time high, 4.29 percent of all active loans, according to LPS.

Hello, foreclosure inventory is at an all time high. This means we will see a bulge in financially distress homes hitting the real estate market in 2012, whether it's an REO for sale or short sale is not very meaningful, it's the volume of financially distressed homes in total that's the issue.

"The discrepancy will go on in perpetuity, as there always has been a difference between judicial and non-judicial timelines," said Kyle Lundstedt, managing director of LPS Applied Analytics. "Even prior to the worst of the crisis, loans were 4-5 months more delinquent in judicial states at time of foreclosure sale. The number today is more like 8 months, but will return to the 4-5 month difference depending on when and how fast foreclosure sales occur.

A record-high inventory of foreclosures in process does not bode well for the near future of the housing recovery. All those distressed properties will sell at a deep discount, likely bringing down the prices of surrounding homes.

They will also add to already historically high existing home inventories, while demand is still weak. While there is considerable investor demand for distressed properties, new foreclosures are still outnumbering foreclosure sales by over 3:1.

That 3:1 ratio is not quite as important as it used to be because banks have learned to work with homeowners using short sales during foreclosure, and thus foreclosure sales are down because short sales are more prominent and the ratio stays high.

I've said it before and it's still the most important relatively new issue in real estate, and it's slack demand. If demand remains weak, and it should, a bulge in financially distressed real estate should impact real estate values in 2012.

In addition to the "robo-signing" delays, we are now beginning to see the effects of ineffective loan modifications. Repeat foreclosures made up nearly 45 percent of new foreclosures in October. Of the 2.1 million modifications since the start of 2008 more than 10 percent were in foreclosure with another 27.4 percent delinquent 30 or more days, as of the end of the third quarter of this year, according to the Office of the Comptroller of the Currency.

Modifications have only served to keep the foreclosure problem from being larger than it is, it's in part kicking the can.

Lundstedt said foreclosure moratoria, process/documentation reviews, evaluation for loss mitigation and bankruptcies make up the rest of the repeat foreclosures.

As the mortgage market continues to work through the backlog of troubled loans, looking forward, loans originated in 2010 and 2011 are now the best performers on record, thanks to tighter credit requirements.

Of course that begs the question: Did the pendulum swing farther than necessary to the conservative side? Is underwriting now unnecessarily restrictive?

One of the dumbest questions of the year. We want loans issued to be performing, and it's because lending standards are prudent. We want a loan system with or without the government issuing loans to be one that makes sense based on the ability to repay a lona not juicing the real estate market.
2012 will be interesting for real estate. If the economy can improve, even just a little, then the wave of foreclosure might not impact real estate or not that much. If the economy and the stock markets roll over in any form of serious correction, then the mood in real estate could get ugly!

Hope all is well.

J.D. Rosendahl, Rosey

Stock Charts: Market Boldly Clears Key Resistance

noreply@blogger.com (The Rosey Outlook) — Wed, 30 Nov 2011 23:03:00 +0000

$SPX 60 Minute: The market in one day cleared through both resistance levels and has taken off the most bearish Ewave views for the time being. Even though we are over bought, structure up looks impulsive, so I would expect follow through in December.

$SPX Daily: In the summer and fall of 2011 I said often that I thought December of 2011 or January 2012 made for a more significant turning point from a top. One of the reasons I liked that time frame is that January 5th 2012 is 34 Fib. months from the March 2009 low. We also needed more time to get the monthly MACD in a position to roll over, which is usually a slow process.

The ABC (or 123) up seems likely now that the market has bounce hard off the 61.8% retracement level last Friday and pushed past key resistance at 1,219 to 1,232. The ABC pattern looks viable once again.

$SPX Daily: This is my bullish view. If A = C then it's 1,376, and the market scratches above the prior high. You'll see two sets of pitchforks, notice the middle pitchfork on the blue line interacts the upper pitchfork line in red right around where A = C, and in time it fits an end of December 2011 or January 2012 high, quite nicely. Dec 26th will be 21 Fib days from last Friday's low, and January 12th 2012 is 34 Fib days. Those targeted time frames are both very close to the January 5th, 34 month Fib time frame from the March 09 low.

$SPX Daily: This is the most common bearish Ewave view. It's similar to the bullish view above, in that it's WXY up, but the end of it will fall short of making a new high. There's resistance at the 78.6% retracement level of 1,307 on the blue line, and the down trend line in black at 1,325ish. So, that would be the bearish zone you might expect this rise to fail and turn. On a time line, I like the idea of 13 Fib days up from last Friday (Dec 11th) or 21 Fib days (Dec 26th).

My Watch List: Now that we have clear key resistance, it's back on the long side. I have several fresh ideas. I'm sticking with households names too. I would expect high tech mo mo stocks and retail to do well if the market moves higher, but that's not where I want to be.

CSX, MMM, and DD: The inverse H&S bottom pattern is displayed in all three of these household names. We have not broken a neckline on any of them, but I expect to at least push up and test that area in each case.

XOM: Price pushed right to the down trend line on good volume and the MACD is close to turning up and crossing.

FDX: Price seems likely to test the 200 day MA and resistance in the very near future.

From My Trading Desk: The market made it a no brainer today, we entered fractional long positions on CSX, MMM, DD, FDX, and XOM. I kept it light because the market needs to hold the 1,219 to 1,232 zone to remain on the upward view, and while I expect that to be the case, I would rather add to fractional positions as they and the market moves up, while keeping my initial risk tightly managed.

Expecting this move up to continue, I still like the idea of this being an ABC up pattern, and in either case we should have more upside to go. I also like the idea of a potential high water mark later this month (Dec 26th) or in January 2012.

I'm more focused on potential turn times than price levels, and will let the structure narrow the focus as we move up.

Happy Trading.

J.D. Rosendahl, Rosey