Smooth Sailing?

Geeks that we are we have our favorite Federal Reserve Governor and that is Richard Fisher from Texas. In a speech yesterday he outlines his ideas about cutting back on Fed purchases which have heavily influenced the stock market and the housing market. Here are some of the bullet points from his presentation on the economy, the housing recovery and Federal Reserve mortgage backed security (MBS) purchases.

Time to Reset the Fed’s Sails?

With that caveat in mind, my staff and I think there is a better-than-even chance that the present GDP growth consensus forecast of 2.4 percent by professional economists may be underestimating the underlying pace of growth.

Monetary policy is hyper-accommodative, driving interest rates to historic lows and equity markets to historic highs; if anything, it may be giving rise to excessive speculation and risk taking. (In addition to the pricing of CCC debt and the surge in low-covenant lending, margin debt is climbing rapidly.)

I have advocated that we begin to reef in the sails, beginning with our MBS purchase program. In my view, the housing market is on a self-sustaining path and does not need the same impetus we have been giving it. In recent months, under its balance-sheet expansion program, the Fed has bought about 50 percent of gross issuance of agency MBS, partly to replace prepayments of our MBS holdings. When refinancing activity eventually shifts down, the Fed could soon be buying up to 100 percent of MBS issuance if the current purchase program continues.

I think we can rightly declare victory on the housing front and reef in (or dial back) our purchases, with the aim of eliminating them entirely as the year wears on.

He goes on to note that the Federal Reserve’s action may be all for naught if the Fed does not get help on the fiscal side from Congress.

I argue that the Fed has no hope of moving the economy to full employment unless our fiscal authorities get their act together. Those economic agents with the wherewithal to expand payrolls and put the American people back to work must have confidence that our fiscal authorities and regulation makers—the legislative and the executive—will reorganize the tax code, spending habits and the regulatory regime so that the cheap and abundant money we at the Fed have made available to invest in job-creating capital expansion in the United States is put to use. Until then, I argue that the Fed is, at best, pushing on a string and, at worst, building up kindling for a massive shipboard fire of eventual inflation.

Strong stuff from a straight shooter. Fed pushing on a string. Shipboard fire? Congress is asleep at the switch. (I hope that the IRS doesn’t read my blog.) We could be on the verge of a massive melt up if the market does not pull back soon. Thanks to Congress’ inaction the sequester is serving to goose stock market gains in a roundabout way. No real inflation. No real jobs growth. Only asset price growth. Blowing bubbles. We all know how that ends. For now we dance.

Watch the US Dollar as strength continues. We are left to contemplate over the weekend the currency moves of late in the Yen and US Dollar. A stronger dollar hurts US multinationals and their earnings prospects. Other countries have their currencies pegged to the US Dollar and that will hurt them as well. The strength in the Yen hurts Japan’s competitors in the Asian region the most. Lots brewing. Currency crisis coming? Tariffs next??Looking at page 15 to see what is going to land on Page 1.

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.

1987 or 1999?

The market seems stuck on replay as the Fed continues to juice and investors continue to chase. Pressure is intensifying on the shorts. The bull market since 2009 is getting very long in the tooth. In the last 18 straight Tuesdays the market has returned (since January 25^th 2013) 9.8%. Without Tuesdays? 0%. (H/t zero hedge)Bad news has been good – more QE. Good news has been good. See its working! At some point good news may become bad news. Good economic news would mean that the Fed needs to taper back on QE.  Will the glass become half empty?

So this is what billionaires do for fun. David Tepper of Appaloosa Management went on CNBC yesterday to tell us what Arthur Cashin has been telling us for the last month. Tepper’s emphasized that the impact of the Fed’s US Treasury purchases were having a greater effect due the sequester and the lessening of the issuance of Federal debt. Tepper points out that the Fed does need to taper off or asset prices will rise too fast. He went on to note that even if the Fed does taper asset prices will still rise only a bit more slowly. Is Tepper right on the market’s reaction to a tapering of QE? That is the key. It seems as though Tepper is betting that the Fed will taper too late. Fed purchases are having more impact and need to be tapered off before the market rides too high too fast. Knowing academics as they are they will not stop QE until the data conclusively proves it to be the right decision. Hint – By then that will be too late.

Are we currently in 1987 or 1999?? Both years had a relentless rally that drove the market up over 30% on the year. Both soon saw major movements downward. 1987 was the beginning of a bull market and the 20% selloff one day late in October was a blip in the charts as markets moved higher throughout the ‘90’s. 1999 was very different. 1999 saw the end of the great Internet Bubble which saw valuations in the stock market rise to nosebleed heights. We are still in recovery mode 13+ years later. We see the current market more like 1987. Things are getting better albeit slowly. If we are correct we foresee a sharp fast correction when the music stops and not a monumental change in sentiment ala 1999 and the bursting of the Internet Bubble. We believe we see an equity market that is overvalued but a bubble. The bubble this time is in US Treasuries. That is why we are short in duration and out of long term Treasuries. Equity market could conceivably rally another 20% before the correction. The market is squarely in Bernanke’s hands. (H/t chart – Jones Trading.)

We are watching Japanese bond yields very closely. The trade has been known as the widow maker on the street because so many have predicted the rise in Japanese bond yields for so long. Things may be changing. Japanese bond yields are rising while the Japanese government is making huge purchases. Watch Japan.

If economic reports continue to disappoint will Bernanke & Co stay on their QE path? This could drive asset prices into the stratosphere. California Real estate. Stock prices. Yield products. In recent blogs we have warned of overvaluations in all of these areas. Our reinsurance contact recently regaled us with more tales of his firm and others being approached by financial advisors to create more yield producing products out of disaster insurance. 2% for the fund manager. 1% for the advisor. The investor? They get 400 basis points above risk free yields. Is that enough when one hurricane could wipe out your entire investment? Read the fine print. He also noted that it is not the earthquakes you worry about. It’s all about wind. Hurricanes season just got even more interesting. Hopefully, some further insights in our blog next week as we will have dinner and drinks with him this weekend.

I am starting to feel as though we are playing musical chairs. You know the kids game where everyone is playing excitedly but anxiously waiting for the music to stop. Who will get the chair?

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.

Looking to Buy a New Car? – Currency Wars

The game changer this week may be the currency markets. The Yen pressed thorough 100 to the US Dollar this morning and the currency wars around the world are heating up. Central banks and governments, as much as they claim that they are not, are clearly in a currency war or debasement scenario. Each country does not want its currency to appreciate against its trade partners. Here is an example and perhaps advice. If you are looking at buying a car this year you may want to look at the Japanese versions. The lower Yen will enable Japanese carmakers to make concessions on price when compared to US or German auto makers. Don’t think for a second that the Korean carmakers are not focused on this fact either. Korea is not going to want to see its currency appreciate versus the Yen – lest its carmakers will suffer. Hence the term currency war. It will not end well and no one really wins.

Commodities and currencies seem to be the current flash point. We watch commodities because they give us insights into the economy. Copper has been falling all year which portends weakness out of China. Lumber is entering a bear market as it has fallen from its recent highs in March. That tells us that the real estate market may be slowing in the US. Currency wars are affecting commodity prices as well. Most commodities are priced in US Dollars and so they will suffer price falls as the US Dollar appreciates. Gold, silver and oil are all taking a hit this morning as a result. We continue to watch oil as its recent rise tells us that the economy could lag as oil prices have risen over $95 a barrel. Watch oil as the summer driving season approaches.

Speaking of hedge funds being negative on the market. Apollo Global Management CEO Leon Black made a comment this week that was widely circulated. He stated at a hedge fund conference in Las Vegas that he was “selling everything that wasn’t nailed down”. Apollo priced a secondary this morning which allows strategic investors and partners to sell portions of their stake in the publicly held company. When the smart money is selling take heed.

The pendulum swing regarding attitudes towards risk is one of the most powerful of all. In fact, I’ve recently boiled down the main risks of investing to two: the risk of losing money and the risk of missing an opportunity… In an ideal world, investors would balance these two concerns. But from time to time, at the extremes of the pendulum’s swing one or the other predominates. Howard Marks – The Most Important Thing Illuminated

The worry that seems to dominate the street right now is that of missing an opportunity. Not the stuff of which bottoms are formed- only tops. Investors are convinced that as goes QE so go asset prices.

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.

Bubbles Back?

In addition to the noise that the US Treasury will be issuing floating rate notes it seems that Congress and the President are on their way to helping out student loan borrowers. There is talk of a bill to be presented that will help student loan borrowers by making their loans of the floating rate variety. We posed the question on Friday. Does the government think that rates are headed even lower? I am from the government and I am here to help. Watch for more hints from the government as to the direction of rates.

Statistics out of China say that it continues to slow and Europe is struggling to get back to growth. Jobs report from Friday was better than expected but it was the revisions that really hammered the point home. Always watch the revisions. Revisions were higher for the last two months. One caveat is that too many part time jobs were created and that has us on edge. Recently, consultants from the restaurant industry expressed to us concerns from management about how to manage their workforce and stay under the 30 hour provision from Obama Care. Could that be why so many part time jobs were created?

Another anecdote, this time from an overheating real estate market. Recently, two friends expressed to us frustrations about buying a home. One was being outbid or outfoxed on homes locally in Atlanta as homes sell in hours and above asking price. The other friend committed to his employer to move to California. He agreed months ago and was waiting for the end of the school year. He has now has seen home prices there jump 30%! Have we just recreated the real estate bubble? The FOMC is full of academics and not traders. They will not anticipate the end results and will look for it in the data. By then, it will be too late. They may be letting this get a bit too far. But remember, the market can stay irrational longing then you can remain solvent. We ride the wave for now.

Investing, when it looks the easiest, is at its hardest. When just about everyone heavily invested is doing well, it is hard for others to resist jumping in. But a market relentlessly rising in the face of challenging fundamentals–recession in Europe and Japan, slowdown in China, fiscal stalemate and high unemployment in the U.S.—is the riskiest environment of all.- Seth Klarman Quarterly Investment Letter 2013 (H/t zero hedge)

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.

Spring Has Sprung – Sell in May?

No point in blogging in front of the Fed and ECB so we figured we might as well wait 24 hours and hear the whole thing rather than speculate. The FOMC has decided to add the word increase to its press release suggesting that the Fed may increase the buying of assets that it is doing every month which currently rings the register at $85B. The ECB is lowering rates this morning and that is helping the Euro ease off of its highs. What Europe really needs is a lower currency but in the currency wars that have ensued over the last few months Europe has been a non player.

Arthur Cashin proffered thoughts this week from those in his rolodex on the Sell in May thesis.  Sell in May has worked for the last 3 years. (The mkt has corrected 10.7% in 2012, 20.4% in 2011, and 16.3% in 2010. – Polcari ). Fear is high this year but the results may be low.

Calendar Considerations – Tomorrow is the beginning of May so a “Sell in May” review is in order. To avoid re-inventing the wheel, let me plagiarize the veteran Jim Brown’s synopsis yesterday.

Sell in May? We are at that time of year when investors have to decide if they want to take profits and move to cash for the summer or risk losing those profits in the next correction. The Stock Trader’s Almanac has made the “Sell in May and go away” trade one of the most visible trends in the market. Because the markets normally decline in the summer they came up with the best six months trading system. If you had invested $10,000 in the Dow in 1950 and only kept the money in stocks from November through April you would have $684,073 as of the end of 2011. If you reversed the strategy and invested for the May-October period you would have lost -$1,024 over the same 61 year period. That is a pretty telling statistic and the cycle rarely fails to produce.

 

He went on to note that in an issue of SentimenTrader, Jason Goepfert notes the changing face of margin accounts and free cash balances:

In March, margin debt marched higher yet again, by more than $13 billion. Free credit, on the other hand, shrank by more than $8 billion. Free credit is the amount of “cash” that is available for investors to withdraw from their accounts.

Taken together, that means that investors’ available cash (free credits minus margin debt) was reduced by approximately $22 billion.

That available cash figure now stands at negative $92.2 billion. The only time period in history that exceeds this amount were the months between December 1999 through September 2000.

The other two times in recent history that the balance exceeded negative $75 billion, June 2007 and March 2011, both preceded major corrections.

Those are some pretty scary data points. All in all, it seems to be a good time to be lightening up. On another note from the I am from the government and here to help department we are seeing higher tax revenues from increased rates and that may lead to the government issuing fewer bonds. Great news right!?  Hold it. The impact of the FOMC’s bond buying business will be even greater now thereby continuing to distort asset prices even further. Not only will the distortion be greater but any new or increased activity by the Fed will push the unintended consequences of QE to new heights. The new tax revenue and austerity from the government is not really helping the economy.  Austerity. Careful what you wish for. Bernanke has been consistent in that he didn’t feel that the Fed could do everything and overcome bad fiscal policy. There are some things that the Fed cannot influence and needs Congress’ assistance. The Fed can engender confidence. It can spike asset prices. It cannot spend money and stir the economic engine directly as Congress can. That is fiscal policy. Careful what you wish for. Austerity may be causing more problems than it solves. Current policy is creating higher tax revenue which equals a slower economy and higher asset bubbles.

Yesterday and Friday are two of the few days in May that the Fed will not be out and about purchasing assets. There is continued noise about the US Treasury issuing floating rate notes. (H/t zero hedge Does the US Treasury think that rates are headed even lower? Deflation may be rearing its ugly head again. Bond prices are doing very well since the beginning of March and base metals are headed lower. Be careful if the market begins to feel that the Fed is impotent and Congress inept.

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

Answer: George Washington took the oath of office at Federal Hall in NYC.

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.

Germany Topples Europe

Last week was a big week in the Spain vs. Germany matchup. No, we are not talking about the austerity debate or the core of Europe versus the Periphery. It really was Spain vs. Germany. The 1^st leg of the Champions League semifinal of club soccer was played last week and it pitted a German club vs. a Spanish club on both sides of the draw. Spain lost horribly as its two most vaunted clubs – Real Madrid and Barcelona lost badly to Bayern Munich and Borussia Dortmund. What does that have to do with investing? Football outcomes have been known to start wars. An all German final will not help to assuage the feelings of the unemployed periphery and may only seek to antagonize.  As a reminder, Spain’s unemployment is north of 27% and its youth unemployment (those under 25) is north of 57%!!! It could be a long hot summer in Madrid and Barcelona as anger towards Germany grows. Never underestimate the power of the beautiful game.

Our good friend Kenny Polcari at the NYSE suggests that the market has seen more late day sellers than usual. The final hour of trading brought on more sellers than buyers, reflecting a consecutive 3-day pattern near the close of trading and could likely be an omen that a topping pattern may be taking shape. -Polcari

He also notes the divergence he is seeing as the Transports and Small Caps are struggling while the Dow advances. Will further weakness provide evidence that we are in fact stumbling again as we have each spring during the past 3 yrs – the mkt has corrected 10.7% in 2012, 20.4% in 2011, and 16.3% in 2010 –? – Polcari

Corporate revenues continue to stumble as execs try and keep up with rising stock prices and the higher bar set by Wall Street. Most execs compensation is closely tied to their stock price. Not wanting to take a pay cut in the form of a lower stock price they cut jobs instead. Is QE not letting the economy get back on its feet? There are increasingly glaring unintended consequences of current monetary policy.

Global currency wars continue and the ECB rate cut this week only moves it further along. There are no winners here. Only first mover advantage. Market may be quiet until later in the week when FOMC meeting breaks up and ECB is expected to lower rates after its meeting. Calendar may help the markets here as end of the month ramp up is followed by new money for the month of May. Watch for out for Tuesday. Every Tuesday has been up this year. Sell in May and go away has worked the last couple of years. Will it again?

On an anecdotal note, we were on line at Academy sports this weekend when a senior citizen couple bought the last round of AR 17 ammo in the store. The only reason that we noticed was that the gentlemen behind us told his son that the store was all out and they needed to send mommy back this week. Strange days indeed.

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

Answer: The only two players in the history of Major League Baseball that have hit 12 home runs in the month of April to begin a season are Albert Pujols and Mike Schmidt. Justin Upton of the Atlanta Braves has now joined that illustrious list.

Today’s Question: On this date (+1) George Washington took the oath of office. Where did that ceremony take place?

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.

Danger Where You Least Expect It?

Would you rather buy a slow growing company that is heavily regulated utility with a 4% yield and trading at decade high P/E ratios or would you rather buy a high growth high margin business like Apple which trades at a 9 P/E and has a dividend around 3%? Just to be clear. We are not telling you to buy Apple or sell utilities. Utilities may continue to trade ever higher as baby boomers seek yield and Apple may continue to trade lower as risks hinder their growth. The question before us is has the market been turned on its head due to easy money policies from the Fed? Has yield chasing become too extended? Bizarro world is at play as investors are paying up for defensive stocks such as consumer stocks and utilities. Investors in defensive consumer giant Procter and Gamble are paying the Piper this morning as its earnings disappoint. It may be time to revisit the concept of risk and safety. Be very careful when chasing yield. Sometimes safe havens are no longer as safe as they once were. The safest investment in the world becomes risky if you pay too much for it. Safe may be getting risky and risky may be safer.

Horrible durable goods report this morning comes on the heels of a terrible PMI report which followed a report showing slowing China growth. It seems as though the market reaction is well it can’t get any worse! At least we will get more QE. It seems that QE is all that is moving markets. Wags and pundits are saying that the market rose on the back of better sovereign yields in Europe yesterday. The reason sovereign yields are falling (and bond prices rising) is due to the preponderance of cheap money around the world and capital flight from Japan seeking yield. Money is moving from Japan to grab yield wherever it can and that place seems to be Europe. Be very careful chasing yield. It will take your money faster than just about anything else. QE around the world is dominating investing. QE’s effects on the economy seem to be having very little effect as each variation of QE has had a diminished effect. More of what is not working? It seems as though investors are counting on it.

Corporate earnings have managed to make their bottom line numbers but missed on the revenue front. That tells us that more cost cutting and little hiring are the continued company line. Fake tweet drove the market down 145 points and back up in minutes. It may be a wakeup call as volatility continues to reign. Volatility is a sign that all is not well in the market and computers will be quick to back away in a downdraft. Watch the volatility. As it seems to be signaling an overheated market.

 

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

Answer: The NBA franchise that has gone the longest without appearing in the NBA Finals is the Sacramento Kings.

Today’s Question: Only two players in the history of Major League Baseball have hit 12 home runs in the month of April to begin a season. Who are they?

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.

Back to Work

The mysterious case of the commodity sector seemed to crest last week as gold had one of its sharpest one day falls in its history. What do we make of that? Possible signs of deflation coming down the road or a slowdown in China. The fall may have been exacerbated by margin calls and large investors being forced to sell to raise cash. All together not a positive for the global economy especially as we see the price of copper falling as well.

As you know volatility is on our radar as a key indicator of market strength or weakness. Those metrics were dampened by the Boston Manhunt. Boston has a large financial contingent and they were not fully staffed as authorities told them to stay in place on Friday. The rest of the financial sector around the US was glued to their TV sets as the manhunt took place in real time. We will look for volatility to return this week as traders return to their desks.

Caterpillar and IBM missed earnings pretty badly. The companies that have hit their earnings estimates have hit on the bottom line but revenues have sagged. That tells us that cost cutting is still the driver and not an expansion of business. Hiring is not picking up. More QE to come.

Market closed off 2% last week. Is that enough of a pullback to draw the bulls back in? We will see as the week unfolds but we will be watching commodities, earnings and volatility for clues. Caterpillar’s earnings are a warning that China is slowing and commodities are saying the same. Corporate earnings are at all time highs and the execs in the C Suite will be looking to keep things that way. (So much for the jobs picture getting better.) Bernanke’s decision to not attend Jackson Hole in August has some on edge. Is he prepping his successor as he prepares his exit? How will market react?

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

Answer: The only 3 golfers to successfully defend their Master’s title are Jack Nicklaus, Tiger Woods and Nick Faldo.

Today’s Question: What NBA franchise has gone the longest without appearing in the NBA Finals?

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.

Tide Turning?

We look to the UK as an example to give us clues as to what could happen here in the US. Recent inflation expectations from its central bank have inflation rising to 3% later this year with food price increases and higher energy costs kicking in.  UK unemployment is creeping higher as well with average earnings decreasing. Not the outcome that a central banker would want. Higher inflation although through transitory measures is not helping employment. Pushing on a string. QE seems to be having a diminishing effect around the world. The last two weeks have seen lower food and energy prices. If those prices begin to rise again look for geopolitical anxieties to rise especially in Egypt, a large grain importer.

Record corporate profit margins are being held onto by the finger nails at large US corporations. A report this morning has Procter & Gamble planning to save up to $2B by extending the time it takes to pay suppliers to 75 days from 45 days. (H/t Seeking Alpha) P&G hopes to sweeten the pain by working on an arrangement in which banks would pay the suppliers, possibly early, and then receive the money from P&G later on. The suppliers would be charged a low interest rate until P&G pays up. Large corporations using leverage to put the pain on smaller suppliers. Small business does the hiring in this country. Bernanke will not be happy as sky high profit margins, expectations at Wall Street firms and executive compensation packages reliant on equity prices may forestall hiring.

 

Yesterday’s rally only got back the selloff from the Boston bombing. Asia and European economic data are struggling. Another exogenous event with the Ricin attack in DC may have market on edge. Market was overdue for a pullback. Is this a pullback or something more? For now it is healthy. Volatility continues to be a sign that the market is struggling. Volatility may be the key to market direction for now. Our current market structure seems to exacerbate momentum in the market. That is fine when the market is rising but may present problems if the market begins to head lower. Newtonian markets. A market in motion tends to stay in motion.

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

Answer: The last player to win a playoff at the Master’s with a birdie was Tiger Woods.

Today’s Question: Who are the only 3 golfers to successfully defend their Master’s title?

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.

Gold’s Fall

We have been out traveling the last two weeks but much is the same as when we left. Commodities continue to sell off. This is an indication of what could be one of several things. Are market participants feeling more confident that policies are working and the flight to safety trade is off? We don’t think so. Is the news that Cyprus is selling its gold stash and that possibly Spain and Italy might be pressured to sell as well causing the selloff in the metal? It could be but the sum that Cyprus is selling is only $400MM worth. If that is the case why are other metals and commodities selling off as well? We have noted that iron ore and copper have been pummeled this year along with the yellow metal. Wheat and corn are negative for the year. Are players seeing deflation again? Government bonds of Germany and the US have rallied and are green for the year. Deflation seems to be back on the radar. We are back to the see saw battle between investing for deflation with inflation on the horizon.

Economic reports are growing in their negativity here and abroad. China in particular has taken some lumps in its latest economic reports. Earnings season is in full swing here in the US. Corporate CEO’s have tried to ratchet down expectations but analysts have not bit. Expectations may be a bit too high here in the US. Lower oil prices will help economy but for now the concern is that lower demand equals lower economic conditions.  Watch commodities for clues as to the economy’s direction.

Volatility continues to be a sign that the market is struggling and computers will back off of their participation/liquidity due to larger than normal market movements. Volatility may be the key to market direction for now. Our current market structure seems to exacerbate momentum in the market. That is fine when the market is rising but may present problems if the market begins to head lower. Newtonian markets. A market in motion tends to stay in motion. Let’s be careful out there.

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

Answer: The last player to have won the Most Outstanding Player from the losing team in the NCAA Men’s Basketball Tournament was Hakeem Olajuwon from the University of Houston in 1983.

Today’s Question: Who was the last player to win a playoff at Augusta with a birdie?

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.