Investment Capitalist

The charts I’m going to show you are simple 1 year snapshots of primary Global Macro indicators, and paint a rather bleak picture for the very near term (Global Macro is a long-term discipline). I’m not a die hard technician, and prefer statistical evidence and other quantitative data sets backing up my thesis, not just a visual representation of supply & demand (yes I know the argument that everything is in the chart), but nothing replaces actual ear to the ground research, where information flow is crucial and coming from multiple sources including Hedge Fund managers, Brokers, Institutional Traders, Specialists, etc… In other words, the network I’ve built up over 15 years in this business. I actually got my Series 7 at 18 but after 2 years at Smith Barney, I went back to school for 2 years, then I went back to trading. Once a trader, always a trader.

Here’s the point. The markets look sick on the back of some of the bleakest economic indicators we’ve seen since the Great Depression. Yes there are some optimists that see the cup as half full, and to counter them, there are the pessimists who see it as half empty.  I see it for what it is: completely dry. Not a drop left in the cup.

Why?  Take a look at the charts. Either the “flash crash” and recent major bear market top confirmations, which are undergoing retracements right now, are no reason to be worried; then there’s one thing you should definitely be worried about, and that is the debasing of not only the USD, but all major G8 currencies, as well as all currencies tied to the USD, which is half the world. Considering commodities are priced in USD’s, and you have some sort of mental block and are unable to short stocks, the long side of your MARKET-NEUTRAL portfolio should contain commodity stocks, although a global recession will kill demand, regardless of the value of the USD as nation after nation devalues to remain competitive with those tied to the US Dollar.

It’s like the days of Fiat Currencies are crashing down.  As the cycle turns, and factories close, and mergers that were done at the top are unwound or scaled back, unemployment will continue to rise.  The Bush Administration did a heck of a job destroying any last vestiges of worker’s union’s, which was one of his top policy objectives. So forget about any “cradles” to support those forced to go on welfare; the indigent, the transients, the homeless, basically, the poor.  I don’t personally agree with the concept of a “workers union” for this exact very reason. Union’s were built in the very early part of the 20th century, when workers needed rights, child labor was rampant and civil disobedience was not tolerated and countered with severe force, as if we were how Iran is today.

However, in the 21st century, labor mobility is a key factor in keeping those with specialized skills employed. Web sites with thousands upon thousands of jobs are available to the unemployed, with jobs all over the country, something that wasn’t available 100 years ago.  Labor mobility is the opposite of Labor Unions. But since the world has changed, Labor Unions have become nothing but a hindrance to productivity and an excuse for certain employees to abuse their union rights.  I recall living in Michigan and my neighbor above me was usually on strike from Chrysler. He loved it because he got to stay home and drink his Budweiser while collecting 98% of his pay!  No wonder our automotive industry was shattered. Have no doubt though, this same industry, without the ball and chains attached to it, will become the most prosperous industry in the world, powering employment in green energy, new construction, advanced labor, etc.  No more people trained to pull a lever all day long, but instead, those trained in sciences that make lasting contributions to civilization as a whole. With Labor Unions, I doubt even Craig’s List would get any hits.

I digress. Back to the present day and current market. When studied up close, one can see prices have leaped above widely used moving averages. Prices did this after confirming major tops and some even making new bear market lows!  So we know the smart money has been distributing stocks for a few years now, and in the process, creating the occasional rally that appears bullish to the laymen, like button pushing day trading robots who are going broke every day while their firms get richer and richer.  There are 4 phases to the stock market, and this is Stock Theory 101. If you don’t know those 4 cycles, get out now while you still have a chance. You’re a dead duck.

This is not a traders market. It’s not a stock pickers market. It’s not a market to invest long-term assets, it’s not a market with anywhere to hide. There is debasing going on, and unless you are sitting on something tangible, like blocks of gold and silver, then you will continue to see an erosion of wealth. Even when you are sitting in cash, you are slowly draining money away due to the ZIRP that’s been in effect forever now.

So without further adieu, I present to you the recent “event” that has all the day trading button pushers at the edge of their seats because prices have “gapped” above their 50-day Simple Moving Averages. The charts look entirely different when using Logarithmic scaling and Exponential or Weighted Moving averages, but the average person who invests via Scottrade, or Ameritrade, or eTrade doesn’t even have a clue what those terms mean. I’m going to link to the charts rather than post them because I’m not in the mood.

The reality is:  Gold is rising and the number of actual “deliveries” vs. rolling of contracts has exponentially increased in Chicago to unprecedented levels, and believe me, it’s expensive to take delivery of the gold rather than rolling the contract, plus storage, transportation, security, etc… So near term, buy companies with no overhead, that just collect royalties, like Royal Gold (RGLD) which just corrected 20% so now is the time to pick some up.

My favorite at the moment to buy and park is Chimera (CIM). They are running operating margins in excess of 80%. Their P.E. is below 6. And their yield? A fat 18% and trading for less than $4. You probably could get it for $3.50 if you’re patient. The smart play is to scale into the positi0n.  Start building it up. They are in the exact sweet spot of where you want to be as a company. Buying Residential Mortgage Backed Securities at huge discounts. They’re also gobbling up Residential Loans, real-estate related securities, and other asset-backed securities, again, at enormous discounts. If I had the money to back me, this is exactly what I would be doing right now. I would have my team combing through the pieces that make up each tranche of a CDO, ABS, RMBS, and even some CMBS.

Yields are falling and continue to fall as the Fed continues its quantitative easing operations in the market and has made it clear that their ZIRP will remain until the economy has substantially stabilized, a far cry from where we are now. The yield on government bonds can’t go to zero though because then the Chinese will look like fools for sterilizing their surpluses using zero return or negative return investments.

All the major indices, after making new lows for the year, have rallied back up to their downtrend lines, regardless of the fact that they are above their “50 day Simple Moving Average”.  But anything hopeful to cling to right?  Poor, poor fools.  The primary trend in developed economies is down. Showing promise are India and M.E.N.A. economies, especially after the World Cup being held in South Africa. Brazil is still too dependent on natural resource exports, so they’re in trouble too. As for Russia, forget it. They’ve gone back to the days of communism. There is no free market anymore in Russia.   China is still “on fire” according to the numbers, but one wonders “who’s buying all their output they’re reporting”?  Could they be manipulating the numbers? Will there be a major fallout there?  A Chinese bank went public recently, after ICBC went public last year. So there is demand for these stocks, could the demand be internal? In other words, could the party (Communist) be buying stocks for their own account?

Where does that leave us? It leaves us hoping for a major technological innovation, a world changing event, some sort of technology that will return optimism to the hearts and minds of all the Capitalists so they can finally tell the Socialists to shut-up, Capitalism works.  Perhaps if and when Obama re-directs the $100 billion+ per year our government is spending in Mesopotamia, for what, I don’t know; into domestic programs and fights not to be labeled as the “tax and spend party” by reminding the public using every channel available that the money is being diverted from the war, and not from new taxes, then we’ll see some real stimulus.  God help us if faith in the USD is lost. Unless the “brave New World Order” wants it that way, and is trying to introduce an international, single currency using SDR’s held by the IMF in the accounts of nations, and can be used as “money” between nation to nation.

I’d like to make an SDR withdrawal please.

Disclosures:  NONE