TUESDAY READS

Bears Versus Bulls Sentiment Indicator
http://www.minyanville.com/business-news/markets/articles/Why-Barron2527s-Prediction-of-Dow-16/4/22/2013/id/49365

The Secret World Of Gold http://www.dailyspeculations.com/wordpress/?p=8318

Oil Down
http://www.marketwatch.com/story/oil-slips-on-china-data-ahead-of-supply-figures-2013-04-23?link=MW_home_latest_news


EU Transaction Tax 
http://www.futuresmag.com/2013/04/21/eu-nations-split-over-transaction-tax-after-uk-fil

Austerity Support Waning EU Bureaucrat Says
http://online.wsj.com/article/SB10001424127887324874204578438250267965718.html?mod=ITP_pageone_3

SHOW ME YOUR CONVICTION

Let's put a few things in perspective.

As the graph below from the WSJ shows investors are in the market. But it's heavily skewed toward defensives issues.

If that makes you feel comfortable, it reminds us of the old big toe dip in the bath water, not a plunge based on confidence.

Caterpillar, the huge machinery firm, came out with weak earnings. The stock closed at $82 and change a little over four bucks from its 52 week low and roughly $30 off its 52 week high. 

The company manufactures construction and mining equipment. The mining sector has been hard hit not the least of which is owing to the drop in metal prices, commodities and the Chinese slowdown.

Energy prices are weak. Housing's being propped up by the Fed and the MSM cheerleaders.  People want to believe. Show me your conviction. They're paying up for that defense.

A while back we mentioned the smell test. We also mentioned taking what the market gives. Well, this graph is telling you what most investors don't like. 

If this is another off-to-the-races bull market based on a solid recovery, how far can it get without energy, materials and the like?

And when do you want to buy them? 

GOLD AND THE MEDIA

It should strike you as interesting especially since the sell off in gold how many commentators stick an epithet on the end of gold to describe gold followers.

This is not new. 

Now we're not among the so-called goldbugs though we have followed the yellow stuff since even before it fell from its $800 pedestal in the early 1980s.

In fact, back when the stuff traded at $278 an ounce we used to fly to another state where there was no sales tax and a much lower premium to buy it for our clients. The point here is, we don't call the paper asset folks, equity bugs or bond roaches or derivative dermatophytes. Or how about subprime pimps?

You know the term goldbugs carries a derisive tone to it. It's one of those PC we're-better-than-you-and-we're-superior attitudes you see so often in today's media. A recent example is this article, "The Evil Fed and Gold Prices: Fear-Mongering Fail" by someone named Dee Gill from the website YCharts.

It's one more example of journalists and their haughty snobbishness. It's also an example of why more and more people today disdain MSM in particular and journalists in general. It's another gauntlet tossed down.

You don't have to be a so-called gold bug to question the reckless and feckless Federal Reserve policy of Big Ben. We've seen it before under Sir Alan. And chances are better than good we'll see it again.

We also know interest rates have been in a long term decline and that politicians and bureaucrats have screwed up mightily before. With rates as low as they are, inflation doesn't have to jump by much to cause major dislocations.

Too many apparently myopic members of the media seem to think it has to return to those early 1980's levels to hurt. It doesn't.

The other side of the coin is the phony government inflation numbers the media and its lackeys continually parrot. It's still early in the game, not so much for the price of gold but for the after effects of all the monetary easing madness.

Shakespeare in his great wisdom suggested decimating the legal profession first. If he were around today he might be inclined to rethink that order. 

MONDAY READS

Who's Afraid Of Gold
http://www.cnbc.com/id/100658922

Paulson On Gold
http://www.economicpolicyjournal.com/2013/04/john-paulson-on-why-gold-will-climb.html

Copper Starting To Smell
http://investorplace.com/2013/04/dr-copper-catches-the-flu/

Housing Bubbles
http://www.nytimes.com/2013/04/21/business/before-housing-bubbles-there-was-land-fever.html?pagewanted=2&pagewanted=print

Caffeine-spiked Foods Of Your Choice
http://online.wsj.com/article/SB10001424127887323809304578428662107511422.html?mod=WSJ_LifeStyle_Food

You Read You Decide
http://www.bloomberg.com/news/2013-04-21/dealers-say-no-end-to-qe-in-2013-as-hatzius-sees-2016-rate-rise.html

GRIDLOCK ITALIAN STYLE

Suppose one day you're at this important meeting. You shuffle casually through the meeting brochure awaiting the main speaker.

And there it is, right on the second page in the bold print of his bio: the main speaker reveals he's had 33 jobs in 38 years. Lots of diversity, not much else. And it's no spreadsheet error. Spreadsheets have been properly vetted and banned from the meeting.

How much confidence does that instill in you? The title of his talk isn't about changing jobs rapidly. It's about managing companies. A gross exaggeration you claim. Maybe. But whether you realize it, you've just been introduced to the Italian government.

Only for the record it's worse, much worse. It's 63 governments in the last 68 years. One guy, Silvio Berlusconi, the one-time friend of George W. Bush, managed to interrupt that merry go round.

Berlusconi is the only one to serve out his full five year term. The irony of his downfall centered on a, surprise, sex scandal. Europeans always criticize the US for it prudishness. But the truth is sex scandals have sabotaged more political careers there than you can wiggle a G-string at.

Italy represents the third largest economy of the of EU, no small change matter. They just elected  87 year old Giorgio Napolitano to a second term in a compromise vote to try to remove what's been an ugly standoff from the front burner when the February election deadlocked. 

For the past two years Italy's endured an economic crisis that recently suffered another blow when it's bonds were downgraded to BBB+ and a scandal over derivatives at Monte dei Pachi, the world's oldest and Italy's third largest bank, in February complicate what many now believe adds to the Eurozone's many already significant fiscal problems. 

Gridlock American style can't hold a G-string to Italy's. So does that give us a sigh of relief and yet another good reason to justify more QE? Can someone please run that by Paul Krugman?

SUNDAY READS

Politics The Global Wayhttp://www.guardian.co.uk/world/2013/apr/19/french-inquiry-gaddafi-sarkozy-2007-campaign

The Volk Man http://www.bostonreview.net/BR38.2/jonathan_david_kirshner_paul_volcker_rule_finance_william_silber.php

New Same
http://www.reuters.com/article/2013/04/20/us-italy-vote-napolitano-idUSBRE93J09020130420


Cost To Boston Of Man Hunt
http://blogs.marketwatch.com/thetell/2013/04/19/estimating-the-economic-cost-of-the-boston-manhunt/

From Goldman Sachs To Canada To UK
http://www.guardian.co.uk/business/2013/apr/18/bank-england-carney-uk-crisis-country

BRIEFS

A recent furore erupted over a spreadsheet error involving the work of two Harvard economists whose findings stated that the debt ratio to GDP matters. 

Debt, they concluded, was a drag on future growth.

The findings were a tough swallow for liberal Keynesian economists and a windfall so to speak for those who want more stringent fiscal policies.

So what do you think happened? Three liberal, Keynesian-bred economists from the University of Massachusetts reviewed the data and found a spreadsheet error. 

How many spreadsheet generated documents have errors? Well, here's a link.

What is egregious is the three used the error to attack other findings of the report that were in no way related to the error. The lead UMASS economist has close ties to the Obama administration which openly opposes any real fiscal austerity. The other two are wanna-bes. 

A policy wonk, right or left, is just another wonk. They're not your friend.

http://www.marketwatch.com/story/88-of-spreadsheets-have-errors-2013-04-17

****

What's the drug of your choice?

For most of us it's O2, oxygen. On Wall Street so claims British neuropyscopharmacologist David Nutt it's cocaine. And he says it contributed the the financial crisis, according to a CNBC report.

 Before you bust up laughing and call the guy a weirdo ( and you thought we we're going to say nut), read the piece.

http://www.cnbc.com/id/100650821


From what we read a glut of hogs may hit the market this year as feed prices fall. (See Thursday reads). Recall last year's US drought.

The quote below, given all the deflation worries making the rounds now, we'll see how prices turn out and who is more correct.

Cracker Barrel Old Country Store Inc., the operator of 622 restaurants across 42 states, expects food commodity costs to rise 4% to 5% this fiscal year, with pork among the biggest increases, Chief Financial Officer Lawrence E. Hyatt said on a conference call in February.

*

AGING LEMONS AND DISTORTED EARNINGS

Everyone is biased except you and me.  And I have my doubts about you.

Wall Street is one of the places on the planet more biased than a sports fan. You need to keep that in mind. Keep your eye on earnings. Do they beat or underperform expectations. 

Back in the tech craziness days before the bottom fell out of what was then called TMT, technology, media, telecommunication, a noted tech darling beat earnings by one penny for something like 14 quarters in a row and Wall Street loved it, pushing the stock higher and higher.

Few among the masses apparently thought to ask what are the odds of a company with a huge market cap beating quarterly earnings by exactly one penny for 14 straight quarters.  A lot like booze, good times and bull markets distort judgment.

Back then they were laying fibre everywhere. Companies like Montana Power, a stodgy utility provider to Global Crossing, one of the era's high fliers, got caught up in the fibre craze. Both are no more. Back then TMT was hotter than my old girlfriend.  

Hot stocks are like hot water bottles. After a while they eventually lose their heat. Think Apple.

According to an article in the recent issue in Barron's, 67% of companies beat the lowest estimate on their earnings, a figure above the usual 63% average. Revenue, however, is another story. Only 43% beat their revenue benchmark well down from the 62% average.

So what's the take home lesson? Cost-cutting. That''s what firms do in slow times. And that leads to the next question: How much more excess can they squeeze from that aging lemon?

TAKE WHAT THEY GIVE

There's an old saw take what they give you.

Right now the market is focused on the possibility of another slowdown or even slipping back into a recession. It's a global concern.

Commodities in general and metals and mining in particular, that's what the market disdains now. And hydrocarbons. Could there be a trap here? Of course. Life's full of traps.

But even hydrocarbon haters like Jeremy Grantham, a UK transplant who's investment strategist at Grantham, Mayo and van Otto (CMO ), a Boston asset management firm, admits in a recent interview are holding onto their hydrocarbons.

Grantham's a big climate change believer, a guy who like a lot zealous converts thinks his facts are the only real facts. That he admits to holding onto his hydrocarbons is more about hedging than honesty or conviction.

Ask yourself these questions. What is all the easy-money policy about and what do all these central bankers want? A recovery. Without energy recoveries are DOA.

If you think no recovery will ever occur, you might want to sell or short hydrocarbons. Or if you think another recovery is just a matter of when, you might start entertaining the prospect of taking what they give you.

http://www.guardian.co.uk/environment/blog/2013/apr/16/jeremy-grantham-food-oil-capitalism
 

THE OTHER FRIDAY READ

GOLDMAN SACHS RECEIVES FOMC MINUTES EARLY
http://finance.yahoo.com/blogs/daily-ticker/don-t-trust-market-not-alone-good-reason-151040450.html

YOUR ZIP CODE OR PRIVACY
http://money.cnn.com/2013/04/18/pf/data-privacy/index.html

ONLINE HEATS UP
http://www.reuters.com/article/2013/04/10/us-socialmedia-behaviour-survey-idUSBRE9390TO20130410

LOOKS AS IF OFFLINE IS HEATING UP TOO
http://www.testosteronepit.com/home/2013/4/14/europes-stark-choice-resignation-or-revolution.html

MORPHING KNOWS NO BOUNDARIES
http://www.burtprelutsky.com/

MORPH IS TO GOAL AS
http://www.zerohedge.com/news/2013-04-18/guest-post-goal-destroy-all-constitutional-culture


FOR AWHILE

A friend who really liked the ladies told us years ago, it's not what comes before, but after the but that counts, as in: "You're a really nice guy, but......."

It turns out over the years that's been a pretty decent philosophy when it comes to making money in the market.

Run a little test the next few weeks and count how many negative headlines you see about metals and mining stocks. Now this isn't a spinoff of the noted magazine cover indicator. It's a necessary precursor.

Pundits love to be right. And so does nearly everyone else. People also like confirmation. And that's fine. It's a plausible, understandable character flaw.

Confirmation and loneliness are polar opposites. Depending on your viewpoint both can make you feel good. We usually feel best when we're the loneliest. And we have a feeling we're going to be feeling that way about certain segments of the market for a while.

If we're really, really lucky for a while will translate into just enough time to build a nice position before the unexpected happens.