Click Here to Subscribe Now! Try a 3-month trial for only $68

Quote of the Day

Tuesday, February 21, 2012

 

February 21, 2012 -- "It is better to be approximately right than precisely wrong." John Maynard Keynes

 

When I started out in this business, all one had to do was follow developments in the US. Today it's a different story. Just reading the headlines in ten different papers can make one dizzy with facts and assorted opinions.

 

I've often said that the big "changer" in prices is not earnings -- it's the price investors are willing to pay for earnings, in other words the price/earnings ratio.

 

Turning to the S&P, this composite is currently earning about $100. Earnings will be about the same this year. The S&P now sells at roughly 13-14 times earnings, and investors are becoming more bullish by the day. The overall average P/E ratio for the S&P has run about 16 in past years, so if the S&P hits a P/E of 16 or better in 2012 it will be an all-time high (this is probably too optimistic). A lot of analysts believe the earnings on the S&P will drop a tad next year (material costs are rising).

 

Then there's the unemployment picture, which is cloudy. John Williams who publishes Shadow Statistics, runs the unemployment figures the "old way," which is the more accurate way. John figures the true unemployment rate is around 22%, and I believe it. The unemployment rate for youngsters 18 to 25 runs nearer to 40%, and from what I hear if you're young you literally can't find a job. If you're looking, don't bother with the US Post Office.

 

I watched "60 Minutes" last night, and the first segment was about people who haven't been able to find a job in over a year (in some cases three years). The situation is distressing and actually very scary. About 34,000 people enter this situation every month -- they are willing to do almost any kind of work, but there are no jobs. The fact is that foreign workers are taking their jobs, they are highly educated, and willing to work for a fraction of workers in the US.

 

My view -- living standards will have to come down in the US if we are ever to get anywhere near full employment.

 

With a presidential election coming around the corner, my feeling is that the unemployment statistics are more manipulated than ever. If the rate is below 8% at election time, Obama will probably get his beloved second term.

 

I've been reading an article in Elle magazine about people living alone. There are now more people living alone in the US than at any time in history. But the latest of LATs or "living alone together". This is the latest style in which married couples live in separate homes. It seems that this appeals most to older women who are divorced or widowed like this living apart arrangement or young professional women who enjoy their own space.

 

Surprise, given that men still tend to earn more money than women, the article notes that single women are buying a lot of homes these days. More than one million ladies bought their own homes in 2010, almost twice as many as single men. All of these women considered buying their own homes as a way to get privacy.

 

Meanwhile, the Fed is doing its part by keeping rates low and lower -- guaranteed lows into 2014.

 

All of which keeps bonds at nose-bleed heights, meaning that if you want income you just have to buy blue chip Dow-type stocks. The dividend yields are dangerously below 3%, that puts income-interested investors at risk -- or I should say at extreme risk.

 

But what about inflation? The Fed says that there is no inflation, that is -- if you don't consider the price of food and energy. Of course, those of us who pay taxes, medical bills and college tuition have a different take on inflation, but figures can lie and liars can figure.

 

TODAY'S MARKET ACTION:

 

My PTI was unchanged at 6376. The moving average at 6340, so my PTI is bullish by 36.

 

The Dow was up 15.82 to 12965.69.

 Transports were down 76.34 to 5163.18.

 

Utilities were down 0.32 to 452.28.

 

NASDAQ was down 3.21 to 2948.57.

 

S&P 500 was up 0.98 to 1362.21.

 

There were 1514 advances and 1527 declines on the NYSE.

 

There were 163 new highs and 2 new lows.

April light crude was up 2.65 to 106.25.

 

Total Volume on the NYSE and associated exchanges was 3.7 bn.

 

Bonds: Yield on the 10 year T-note was 2.04. Yield on the long T-bond was 3.19. Yield of the 91 day T-bill was 0.07%.

 

Dollar Index was down 0.23 at 79.09. Euro was up 0.88 at 132.41. Yen was down 0.39 at 125.50. Currency Prices as of 1 PM Pacific Time.

April gold was up 32.60 to 1758.50. March silver was up 1.21 to 34.42.

 

My Most Active Stocks Index was up 1 at 300.

 

The Big Money Breadth Index was up 6 at 1008.

 

GDX was up 1.67 at 55.82.

 

HUI was up 16.02 to 536.78.

 

CRB Commodity Index was up 5.06 at 322.45.

 

The VIX was up 0.41 to 18.19.

 

Permanent Portfolio Fund (PRPFX) was down 0.06 at 49.08 (previous day closing). YTD Return: 6.49%.

 

Late Notes - We have had two recent days of divergence and a rising wedge with low volume. That's enough to give us a shaky close.

 

Buy on the problem (the Greek problem) and sell on the good news. But was it really good news that came out of Greece today? Who really knows? And what are Greek bonds really worth? Haircut, anyone?

 

Meanwhile, gold pops 20 bucks. Pick a hammer and hammer down on a wood board 20 times. The board doesn't break, which means that's a mighty tough board. Now hammer down on 1700 dollar gold 20 times. And the 1700 base refuses to give. So you know that 1700 is a tough base for gold. Today April gold closed up over 32 dollars to 1758.50. This puts gold over the halfway point of 1750 and looking at 1800. If gold won't break below 1700, will it go over 1800? There's at least a good chance.

 

Let's see what tomorrow brings for the yellow metal.

 

Adios,

 

Russell -- still alive and walking slowly