June 8 2013 – There was a small bounce back this week as the Non-Farm Payroll number shows better growth than expected. It is almost as if the market is beginning to accept that it will soon be facing a world without economic stimulus. The numbers were precisely what the market wanted; some improvement but not so much that taper talk would again dominate the discussion. Shares shot up.
This graph shows the daily price action on the equal weight S&P 500, and the blue line is the 50-day moving average, as you can see it bounced right off it. The only thing you might worry about now is that at 64 (about 1675 on the S&P500) you can see we will hit the dreaded double top, and a bigger summer sell off might yet be with us. (?)
Even former Federal Reserve Chairman Alan Greenspan chimed in, saying that the central bank should taper now, even if the economy isn't ready. He should know, his long running, late 1990's cheap money policies, helped fuel the 2008 crash.
"Bond prices have got to fall. Long-term rates have got to rise. The problem, which is going to confront us, is we haven't a clue as to how rapidly that's going to happen. And we must be prepared for a much more rapid rise than is now contemplated in the general economic outlook. We're still well below the [rate] level we normally ought to be at this stage. The consequence of that is that when the bond market begins to move we may not be able to control it as well as we'd like to. And that has a lot of ramifications with respect to all sorts of markets."—Alan Greenspan
It is exactly this trend that makes the TBT trade work. This week, after a tiny pull back, it worked very well.
Gold after a brief rally to “feed the ducks” continued on its path lower.
What Works Now
Well everything was up Friday, but one day does not make a turn around.
From my recommended list,
Community Health Systems
Electronics for Imaging
Health Management Associates
Norbord Inc (Canada)
Forget Facebook, the hot stock on the internet now is TripAdvisor.
There is lots of others turning up this week, if you think the worst is over, you might look at:
PSMT, BK, V, LLY,
BIDU, RENN. (caution these are volatile)
CFP, JDS, PPL, CDZ
If you want a quick trade consider Canadian Auto Parts manufacture Magna. The stock should rise on better than expected sales right up to Aug 9th when they release earnings. Dump it before then. $65.88 is your stop loss.
What is NOT Working Now
It is important to not put all your eggs in one basket. Any one company can have a surprise. Last week news came over the wires on one of my favourite recommends, Iron Mountain. I said previously to buy this on a pull back, well forget that.
Shares of Iron Mountain Incorporated (IRM) fell 15 percent on Friday on concerns that the company’s REIT conversion would fall through. The Internal Revenue Service is scrutinizing the firm’s plans to convert into a real estate investment trust (REIT). The IRS says it wants to study whether the company’s server warehouses constitute real estate.
This is still a great company, but now is not a time to rush in. As you know we don't try to catch "falling knives". But you should keep it on your radar.
One country specific EFT that was a consistent winner has turned into a dud. That last bright spot in Europe, Turkey. This country fell from 5% a year growth darling to, "I can't get out of here fast enough", as protesters spooked investors. It is not just last month's Turkish youth rioting in the streets, that kind of thing is controllable. What is new is the common man has joined in banging pots out their windows, long into the night. It is a sort of rage like the 1976 movie Network, "I'm as mad as hell and I'm not going to take this anymore" grass roots protest.
Did You Know . . .
This week $7 billion flowed out of emerging market ETFs. Thats the biggest weekly outflow since 2011
Feeling Guilty?. . .
Cambridge sociologist Geoffrey Ingham says; In all Indo-European languages, words for “debt” are synonymous with those for “sin” or “guilt”, illustrating the links between religion, payment and the mediation of the sacred and profane realms by “money.” For example there is a connection between money (German Geld), indemnity or sacrifice (Old English Geild), tax (Gothic Gild) and, of course, guilt.
Spotlight on a sector: Airlines
Oil is still holding up, but long term I believe as supply increases, it will drop from here. One day, not now, if we do see a period of lower fuel costs you might look at a group of stock that I truly loathe, Airlines. Other people make money in Airlines but I always just get crushed along with the luggage.
What can I say – Herb Keller you're a genius and you built the most imitated airline of all. So here is to your baby Southwest and it ‘s two wan-be imitators
This low cost Irish airline is revolutionizing low cost airfare in Europe. Profits are strong because European Airlines are so uncompetitive. This company has made a name for itself in bad service and outrageous extra charges for things like luggage. Passengers grumble and they curse but they line up to get tickets. That said, 40 euro to go anyplace in Europe is a bargain too good to pass up.
Typical customer opinion -- "I know Ryanair are not your ideal model of customer friendliness. I am used to being treated like shite and just getting on with it. I never choose to fly with them if I can help it but if you want to go to Stanstead, then you do not have a choice as they have elbowed everyone else out to remove competition. Recently they did away with all check in desks. You have to check in-online. That is ok, BUT, they have a time limit of 4 hours. If you check in after that, you have to do it in the airport. Guess what the charge for that is? €70! I just tried to check in on-line 3.5 hours before departure. They really are utter utter ***ts. This is a sly nasty spiteful way of ripping people off." – Mr Des Higgens
Since 1996 This Canadian low-cost carrier provides scheduled and charter air service to 86 destinations in Canada, the United States and bits of Mexico and the Caribbean. In 2012, WestJet carried 17,453,352 passengers, making it the ninth-largest airline in North America by passengers carried.
Westjet service levels have been dropping in the last 5 years, but it does not matter since its only competitor, Air Canada, is bloated from years of government bailouts, incompetently managed and unionized to the hilt. For a worse flying experience than Air Canada you would need to fly Aeroflot.