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Sept 28 2013 Weekend Market Comment

Sept 28 2013 – As I mentioned last week, despite other good market news, the party killer would be this week when the US government is bracing for a possible shutdown, as Republicans and Democrats in Congress remain deadlocked on a budget to continue its funding. Agencies have begun making contingency plans ahead of the 1 October deadline to pass a new funding resolution. The Senate has passed a bill to fund the government until 15 November. But House Republicans have said they refuse to approve the bill without a provision to strip funding from President Barack Obama's health law.

Now think about the market open this Monday, Asia has been opening weak for
sometime now, next on comes Europe still digesting the new mess in Italy. The party of Italy's former Prime Minister Silvio Berlusconi says all five of its ministers are resigning from the shaky coalition government. The development follows weeks of worsening relations between his party and Prime Minister Enrico Letta's centre-left grouping. Mr Berlusconi had already threatened to withdraw his ministers if he is expelled from the Senate for tax fraud.

So as Money managers wake up in New York, they should see world markets down and this just happens to be quarter end. This is the last chance for many mangers to get things right before the last critical quarter of the year, as well as the traditional process of “window dressing” where firms dump their biggest losers so they do not appear in the quarterly report. Add to that we are in the three most dangerous weeks of the year with us making it through the end of September but now comes the early October. In other words there are a lot more reasons to sell on Monday than buy.

It is all in the Charts
I mentioned before the weakness is showing up in the charts long before it made the headlines. Here is the famous Green arrows graph and the NYSE above 50-day average graph, both in areas that could be on the edge of a sell-off.

Also the YP Primary Sell indicator has given up hope

I am still overall long but I have really pulled in my horns and raised cash.


Although automakers are doing very well in Canada, many of the financial press are saying that Canadian’s are turning in gas-guzzlers for more fuel economic vehicles but that is not true. In fact subcompact sales for cars like the Ford fusion are down this year. What is changed, Canadians are buying more trucks. Trucks were only 8% of the personal vehicles in Canada in the 1990's now trucks are over 20% of the market of new personal vehicles purchased.

Strong demand for trucks drove auto sales higher in June, even as sales of passenger cars hit the brakes compared with a year ago, according to data compiled by DesRosiers Automotive Consultants on Wednesday.

Canadian sales of light vehicles hit 171,608 last month, up 1.3 per cent compared with the 169,459 vehicles sold in June 2012.    While light truck sales climbed 6.7 per cent to 96,587, passenger car sales fell by 4.9 per cent to 75,021.

It is a mystery with fuel price rising and consumption dropping why large trucks sell so well. One possible theory for the truck mania is due to pollutants entering the water system. Endocrine, or hormone, disruptors are chemicals that affect the hormone and other functions in animals and humans. Exposure has been linked to birth defects, development disorders, tumours and cysts, body deformation, learning disabilities, ADD, cognitive impairment, and more. While exposure might not necessarily always affect a pregnant woman in significant or obvious ways, it often affects the developing fetus.

A common hormone disruptor is Bisphenol A (BPA) found in many hard plastics and in the lining of tin cans. It has been shown to have effects similar to those above but also in feminizing males when the bodytreats the BPA as estrogen.

A recent study from the Cardiff University Otter Project and Chemicals Health and
Environment Department in Wales, has found a potential link between the size of the Otter penis and the amount of contamination and chemicals present in the water where they bathe, swim and eat from. Besides the hormonal changes affecting the otters' "manhood" (otterhood?), and potentially their ability to reproduce, there is also concern that the contamination is affecting other animals in similar or unique ways.

So it might be as simple as penis size shrinks -- the need to compensate with a big truck increases?

Another concern I have about this trend to larger vehicles, regards the nature of mammal brains and highway saftey. The Human brain is many times larger than the brain of dog and considerably smaller than the size of an Elephant brain. Yet brain size has no direct effect on the intelligence of the species.

The following equation was developed in the late 19th century by Snell: E=CS^r, where E is the weight of the brain, S the body weight, C is a constant "cephalization factor", and r an epirically determined exponential constant. Kuhlenbeck suggests this value to be around 0.56 for mammals. Macphail asserts that this exponent would be approximately 0.66 for most mammals.

Once an acceptable value of r is determined, then we see that brain weight is determined by two other factors, S, the body weight and C, the cephalization factor. This equation, then, gives us a way of establishing the relative capacity of brains of different species with different body weights. When we enter values for the weights of brains and bodies of two species, then a value of C can be determined for each species. We can then find the encephalization quotient (EQ) which is the ratio of C over the average mammalian value. For example, if a certain species has an EQ of 2.0, this means that the species has a value of C twice as high as that expected in a mammal of comparable weight with average encephalization. Or if a species has an EQ of 0.5, then this species has a level of encephalization half that of an "average" mammal". Let us look at the following table of encephalization quotients (using Macphail's 0.66 as the constant r value):

Rhesus Monkey
(Macphail, 243)

Now here is the interesting part, if you strap yourself into a vehicle are you not effectively creating a larger “animal” and so under the formula do you need to change the value of S for a man in a truck and therefore lower the human intelligence of all drivers but more so for larger vehicles? I have (of course) a YouTube video to demonstrate this but it was hard to pick from the long list, but this guy is a very fine example: click here to play  just Google pickup truck idiot - I got 1.7 million results.