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Quote of the Day

Friday, May 18, 2012

May 18, 2012 -- "I know a bubble when I see one." Bill Gross of PIMCO on Facebook

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The forces of world deflation that I've been talking about are starting to dig in, as you can see from the charts below. First is Dr. Copper used in the manufacturing of almost everything.

 

  

 

Next is crude oil, maybe the most valuable single commodity.

 

  

 

 

Commodities

 

 

  

 

 

 

  

 

What's happening to China, the nation which is trying to accumulate all the world's commodities?

 

  

 

Here's an update on the world's stock markets.

 

 

 

 

My old friend, Joe Granville, has been terrific on this market. In his May 10 mailing, Joe writes, "We are, in my opinion, in the early stages of the worst bear market on record." I differ with Joe on one item -- I think we're now in the second half of the primary bear market that started back in 2007. It won't be pretty.

 

I watched the opening of Facebook trading on Bloomberg this morning. The whole Facebook "thing" was a bubble, in my opinion. The IPO price was set at $38, the opening bid went to just above 44, and the price then slid down to just a fraction above 38, at which point the underwriters probably started to support the price so that it wouldn't drop below the IPO price of 38.

 

Meanwhile, the Dow went negative, and it's down 75 as I write one hour before the close of today's session. This is not a market to be fooled with; it's an easy market to lose money in. The primary bear market has been held back since 2009. My guess is that the bear is angry at being frustrated so long by the Bernanke Fed.

 

Opinion -- I don't sense any severe downside pressure on this market -- yet. The tape floats around lazily all day -- then the Dow usually sinks near the close. We'll "feel" real downside pressure when it finally comes in. People are just not frightened yet. The Dow may have to break 10,000 before people take this bear market seriously. Today is Friday, and it looks as though the traders want to home "flat" or with zero stocks. Looks like the Facebook IPO will end the day just a tad above 39. The IPO was a failure, in my book. Now you can buy all the FB you want at a 1% premium over the IPO's initial price.

 

Sadly, Bernanke believes that the Fed can defeat the bear. And he'll wreck the banking system if he has to prove his misguided thesis. The harder the Fed works to halt the bear and the pain the bear brings with it, the worse the bear market will be in the end. You can't defeat a bear market by increasing inflation through creating more fiat paper. The Fed wants 2% inflation. The Keynesians want growth and increased inflation at 4%.

 

TODAY'S MARKET ACTION:

 

My PTI was down 6 at 6356. The moving average is 6375, so my PTI is bearish by 19.

 

The Dow was down 73.11 to 12369.38.

 

Transports were down 64.42 to 4873.76.

 

Utilities were up 0.07 to 464.16.

 

NASDAQ was down 34.90 to 2778.79.

 

S&P 500 was down 9.64 to 1295.22.

 

There were 762 advances and 2307 declines on the NYSE.

 

There were 13 new highs and 158 new lows.

 

Total Volume on the NYSE and associated exchanges was 4.49 billion.

 

Bonds: Yield on the 10 year T-note was 1.718. Yield on the long T-bond was 2.79. Yield of the 91 day T-bill was 0.081.

 

Dollar Index was down 0.283 at 81.10. Euro was up 0.24 at 127.39. Yen was up 0.31 at 126.50. Currency Prices as of 1 PM Pacific Time.

 

June gold was up 17.00 to 1591.90. July silver was up 0.695 to 28.715.

 

June light crude was down 1.08 to 91.48.

 

My Most Active Stocks Index was down 1 at 211.

 

The Big Money Breadth Index was down 2 at 986.

 

GDX was up 0.28 at 41.62.

 

HUI was up 3.127 at 396.395.

 

CRB Commodity Index was up 0.88 at 290.43.

 

The VIX was up 0.61 at 25.10.

 

Permanent Portfolio Fund (PRPFX) was unchanged at 46.28 (previous day closing). YTD Return: 0.41%

 

Late Notes -- Russell view: the bear should have been allowed to fully express itself during 2007-09, but that would have caused pain. And pain is the thing that every politician seeks to avoid (voters hate pain) and pain is also the thing that the Fed seeks to avoid.

 

As events are going, take bets against a second term for Obama. And maybe now you can get good odds on a bet against Obama. By late summer the unemployment rate will still be above 8%.

 

One final chart. Are consumers pulling back on their buying and credit cards? I suspect they are!