Colombia overtaking Argentina - authers note - markets - FT.com:
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Tuesday, October 30, 2012
Saturday, October 27, 2012
October 27, 2012
Hola from Salta. Well maybe it was inevitable. My netbook was knocked onto the floor and while initially nothing appeared to be amiss my wireless is acting up. It comes and goes and right now working… But!!! Anyway we will see going forward as to how things work and whether I can get another one out.
The Salta region was everything it was supposed to be. Before Salta we spent 3 nights in Cordoba, Argentina’s second largest city. Attractive clean city. We were in a place out in the burbs so we had interesting jostling rides downtown by bus. Salta, however, is something else again. Beautiful old colonial town dating from 1582 (slightly younger than Cordoba). But unlike Cordoba its feel and look is more like colonial towns in Mexico like Merida in the Yucatan. Possibly it is the presence of a strong Amerindian population. The Amerindian natives of Argentina are in the Northwest and the Northeast. To the south – they were wiped out by the Spanish. Nothing new there.
Salta also has wineries but they are not as well-known as the Mendoza region. They should be. Many are down near the town of Cafayate where we passed a couple of nights in a posada run by a Frenchman. Our hostess in Salta was German. Indeed it has been an interesting variety of hosts. In Montevideo our hostess was Welsh. All were married to Argentinians or Uruguayans. Our hosts in Cordoba and Mendoza were Argentinians all of who spoke pretty decent English.
Driving in the cities remains an adventure. Streets corners with no discernible street signs so one doesn’t know where he is. But that is nothing compared to street corners with no stop lights, no stop signs or anything. It is just everyman for himself. The traffic can sometimes be considerable. Yet oddly it seems to work even if a bit on a first come basis. Have yet to see any accidents. Driving in Argentina is definitely an adventure.
Driving through the countryside especially here in the Northwest when one is in the mountains (which seems to be constantly) can only be described as breathtaking. It is an arid world punctuated with rock formations some of which appear to be from another world. It is a hard world where plants, animals and humans eke out survival. In driving we have seen Llamas, foxes and other smaller critters near the road or crossing it. Birds are a constant and seem to thrive the best in this world. When one stops all one hears is the birds. Hawks swirl overhead. But the real prize was coming on a group of vultures in a leafless tree staring off into the distant aridness. Humans have goats, sheep and occasionally cows all of which wander free range. We have also seen horses and donkeys seemingly wild. Donkeys wandered down the streets of Cafayate just like deer might in Waterton, Alberta. In the plazas of the towns and cities dogs are everywhere seemingly with no owners. Gets interesting when they sit by your outdoor table while dining begging for a scrap. They are though very polite. LOL.
Now onto the markets.
The Stock Markets…
The S&P 500 lost 1.5% this past week while the TSX Composite was off 0.9%. The intermediate trends for the two stock markets is weakening but remains up. The S&P 500 short term trend is down while the TSX Composite short term trend is neutral.
For all the October correction continues but the correction still appears to be shallow. Both continue to trace out what could be a significant top so investors cannot be complacent at this stage. But the patterns are ambiguous enough that they could also be tracing out a consolidation pattern.
The S&P 500 broke its first area of support at 1,420. This suggests a potential decline to objectives near 1,370. 1,395 is the next important support zone and if that goes a decline to 1,370 becomes very likely. If 1,370 fails to hold then under 1,350 probably means a test of the last significant weekly lows at 1,267. Under 1,267 and a bear market decline is most likely confirmed. A break under 1,370 would most likely for sure turn the intermediate trend to the downside as well.
The TSX Composite has support at 12,120 but under that level it would break down. Potential objectives are down to 11,700. That would break the last significant weekly low seen in August 2012 near 11,870. These weekly lows are very important and if they are broken a new bear market would be confirmed to be underway.
The S&P 500 needs to regain above 1,440 to demonstrate that it may have more staying power. The upcoming election could still be key. A Romney win could trigger a repeat of 1972 and see the S&P 500 run to 1,525, 1,550 and even 1,600. QE appears to be helping the banks the most and they remain key for the market. Of late the banks have been outperforming everything else in the S&P 500. If the banks breakdown then odds are a bear is underway. Many believe that an Obama re-election would trigger liquidation before Christmas. It does, however, seem simplistic that Romney wins stocks go up, Obama wins and stocks go down.
For either it doesn’t matter. The first year of the Presidential cycle is invariably the weakest and many other cycles are pointing to a potentially very weak 2013. It is possible that the October 2011 low was an early 3-5 year cycle low. It did occur at the front end that cycle. The weak rise since has been consistent with a bear market rally and while new highs were seen on this rise no one should pretend that the market has been strong despite what many pundits might be saying. QE helps keep the whole thing afloat and Bernanke’s commitment to maintain essentially zero percent interest rates until 2015 supports the sad state of the global economy and the overburden of debt. Everyone complains about the US debt or the Euro debt but remember in the last go around trillions of dollars of public debt was added to essentially bail out the banking system.
Romney threatens to not renew Bernanke but while Romney may be able to appoint a new chairman his choices are limited and no matter who replaces Bernanke would continue his policies. At the end of the day the Fed Chairman does not work for the President. He works for the banks that own the Fed. It is his job to protect them and his programs of QE and low interest rates are doing just that. But if everything becomes unglued again due to events beyond their control they will once again run back to the public to bail them out. And remember since the end of Glass Steagall in the US (under Democrat Clinton no less) the banks and investment dealers that became banks (like Goldman) have complete access to FDIC insurance to also bail them out. Private leverage that goes awry and the public pays.
The fiscal cliff is also looming but again that is just background noise. A solution to bail out the system or to keep it liquid will prevail and as before it will probably again be at public expense.
In the numbers this past week the GDP seemed to indicate that there was 2% growth in the 3rd quarter. At least that is what they would like you to believe. This of course is the headline number and the pundits picked up on it as if it was prove positive that happy days were soon to be here again. But adjusted for deflation indicator it was not significant even if a bit better than expected. The housing market remains morbid. Durable goods were negative quarter to quarter. Real wages continue to fall. There was really nothing to get excited about but they will pump it as if there was.
China continues to threaten Japan this time with mass dumping of their bonds. That I admit is an odd one even if the Chinese do hold considerable Japanese bonds. All of this is again over those islands. But one should never underestimate the history between the two nations. The Chinese have a long memory and the invasions of Manchuria and the Rape of Nanking remain even if this all happened some 80 years ago.
There may be more life to the stock markets after the election but do not let a suckers rally fool anyone. It should be the last hurrah. The only question remaining is do we get this one last hurrah or is the top now in. The numbers noted earlier are the ones to watch and if they go the bear has begun and could last upwards of two years. Canada would follow the US.
The gold correction continues. Gold fell 0.7% this past week while silver was off 0.2%. The intermediate uptrend for gold is intact but weakening. Silver is in a weak intermediate uptrend that could shift to neutral. The short term trends for both are down. Gold tested down towards $1,700 this past week. A move in that direction was largely anticipated. If $1,700 does break gold could test down to $1,650 to $1,675. However, I believe that would be it. Silver tested $32 this week and could test $31 and even $30 in a worst case scenario. Silver is not expected to break under $30. Short term indicators for both gold and silver are approaching oversold levels. However, on the weekly charts the important MACD indicator has not turned down so that remains a positive.
The fundamentals for gold and silver remain strong because of QE. And that is even as the bullion banks have pushed gold lower through paper selling. But that is weakening. The important commercial COT for gold rose again this past week to 27% from 26% as short open interest fell some 11,000 contracts while long open interest rose 3,000 contracts. For silver the commercial COT was unchanged at 28% but short open interest fell 2,000 contracts. The shorts are covering.
The gold stocks fell as well this past week but again it was shallow. The Gold Bugs Index (HUI) fell 0.9% while the TSX Gold Index (TGD) was off 0.5%. Financials fell more than the gold stocks. This is a positive sign for the gold stocks as despite the $80 drop in gold prices they have not been hit hard. The intermediate trends remain up although weakening while the short term trends are down.
Gold back over $1,730 is positive. Above $1,760 and the highs should be tested and even see new highs.
Gold’s seasonals turn positive once again in November and if this as I suspect a shallow correction only then a powerful move could get under way that takes gold to $2,100 or even $2,500. Silver could soar to $50 or higher. The lows seen in gold and silver last December 2011 and again in June/July appear to be important cycle lows. The first one was probably gold’s 34 month cycle low and the June/July low was probably the 4.5 year cycle low. I confess I have never seen both occur as it is usually one or the other but not both. Anyhow a repeat of the 2011 collapse is highly unlikely and a new major up leg should be rising from the June/July lows. The bullion banks (and maybe some hedge funds) fought hard near $1,800 to push things back but odds are when it gets through $1,800 they might well scramble to cover their shorts.
Oil was clobbered this past week breaking under $90 to test $85 losing 4.6%. Yes it was odd because the threats in the Mid-East have not gone away. Israel was alleged to have hit the Sudan bombing an arms factory. That it was an act of war which under international law is, however, usually irrelevant to Israel. And if they were slammed at the UN the US would veto. Israel has refused comment and has neither confirmed or denied. Allegedly the arms from the factory were bound for Gaza. There are rumours that Iran is also involved with the arms factory.
Irrespective it is a sign that things continue to be amiss in the Mid-East and an accident could trigger something far worse. The Syrian conflict continues and a cease fire didn’t last long. The conflict is threatening to spill over into Lebanon. Any widening of this conflict is dangerous.
Hurricane Sandy churning its way up the US coast could be positive for oil even if it doesn’t hit major oil installations. The concern is it will could seriously disrupt refineries along the east coast. With a cold winter blow also expected any shut down in refineries and the cold snap could send heating oil soaring.
Oil prices are down 13% so far from their highs. Technically now as long as $85 holds then odds favour a recovery to get underway .This would then appear to be a correction to the run up from June to September or from about $78 to just over $100. Resistance is now to $90 and $95. But over $100 oil could race towards the line up near $108 and if that falls objectives range to at least $146. Nonetheless oil has a lot to “chew” through before breaking over $100. Oil is approaching a period of positive seasonals. Recall that in 2011 oil bottomed near $76 in early October and raced to $110 by February.
Friday, October 26, 2012
Friday, October 19, 2012
Monday, October 15, 2012
October 13, 2012
Hola from Mendoza. Our journey started a week ago when it took something like 18 hours or so to fly from Toronto via Santiago to Montevideo, Uruguay. In the process we lost 2 hours although we gained one back when we crossed from Uruguay to Argentina. Montevideo the capital of this small nation of only 3.3 million people can best be described as decaying colonial grandeur interspersed with boxy 1950’s communist style buildings. Most were just butt ugly. But once you got out of the old city the suburbs were spread out although it was noticeable in the well-off sections the gates, bars and even spikes surrounding the houses. Prisoners in their own homes?
Still we quite enjoyed Montevideo staying in a small guesthouse with a delightful Welsh host. The elevator to the third floor where we were was classic turn of the previous century clickity clack and small with the metal doors to open and close. It barely took us and our luggage. But the apartment and our room were large and well laid out. Not unusual to find the gem hidden off a grungy busy street with buses rumbling by continually. But a block or two away was a grand plaza and theatres and lovely colonial buildings. Even Canada House was on the plaza. Oh and one grungy looking communist building that threatened to dominant the plaza.
Before we left we had some good meals and the best part was the $15 bottles of wine in the restaurant. Uruguayan of course. We topped off our last night with a visit to a tango bar.
We briefly spent a night in Buenos Aries after taking a bus to Colonia a 16th century Portuguese colonial town and then taking the ferry across to BA. BA is big, grand, with buildings like Paris and even a grand alley (18 lanes wide). But BA is also like being in New York City in the 1970’s. Noisy, polluted and lights. Delightful little boutique hotel again off of a noisy street (you don’t hear it much) again 3 floors up. We return to BA later in the trip. From BA we flew to Mendoza and are staying in a small B&B in a suburb of Mendoza called Lujan de Cuyo. Great hosts who speak decent English. Quiet and if you peak through the trees the Andes are in the background. Oh yes and one can’t forget to mention the wineries. They are everywhere.
Driving in Argentina is an adventure. First our rental car was a standard shift. Guess I had to ask for an automatic. Seems that standard shift is common in Argentina. We were told that automatics are expensive and as such Argentinians drive standard shifts. The good news for me was I learned on standard and like riding a bicycle one doesn’t forget how to do it. Driving is a bit crazy. They drive fast darting in and out of traffic rarely signaling. Buenos Aries looked like chaos but no one hit anyone. Ought to be fun going forward.
So onto the markets…..
The Stock Market…
It was inevitable that a correction set in. Indeed the correction that got underway following the 1,474 S&P 500 high of September 14 is unfolding in a fairly normal manner. The question of course is this a topping pattern or merely a correction to the previous run-up? This past week the S&P 500 fell 2.2%. The key here is the breaking of a previous daily low of 1,396 seen on September 4 or the 1,267 weekly low seen back in June. The 1972 cycle may still be in force. That cycle saw a shallow pullback in October before the election. The reelection that year of Richard Nixon a Republican set the market off on the nifty fifty rally into January 1973. Could the same thing happen again? Yes and more likely with the election of a Republican again. It can’t be helped that Romney has taken a slim lead. But no matter who comes faces the so called “fiscal cliff” that everyone is gnashing their teeth over. Assuming a Romney election it is possible that the tax cuts will once again be put in place and it is possible the cuts due to take place will also happen. Obama in handing over is not likely to buck what Romney wants.
But lurking in the background is the tension surrounding the wars that in our opinion are getting worse. Turkey and Syria are firing on each other. That in turn could bring in NATO. That would be a disaster of course as it could trigger a wider war involving the Russians. Note Turkey pulling aside a Russian passenger plane. Naturally that quickly became a he said and he said game with each countering each other. No Russians were harmed or that might have triggered something. Hezbollah drones are flying over Israel and one was shot down. More tension. Most likely Israeli drones are flying over Hezbollah. Iran and Russia are running arms to Assad but the Americans, the Turks, the Saudis and others are running arms to the rebels. And the rebels include Saudi jihadists who perversely are the sworn enemy of the US and may be Al Qaeda just as it was in Libya. Tension continues in the South China Sea with China and Japan being the prime ones facing off against each other. All this takes is a spark. In 1914 it was the assassination of the Archduke Ferdinand. History has a bizarre way of repeating as we are approaching the anniversary of the Great War. But a 100 years later the weaponry is more frightening on all sides.
This is not meant to alarm but direction is not encouraging. A 100 years ago when war broke out the stock markets were halted. When they opened again they were largely where they left off. 1915 was a great up year. But remember that was the US and the US was not involved in the war. This time they may be in the center of it. A bankrupt country cannot afford another war without paying for it. It will be paid the same way as the previous ones this past decade and that is by printing more money. Printing money is a sure way to inflation or bankruptcy or both.
Still a Romney election could trigger a run-up ala 1972. A Romney run-up could last into the New Year either January or even March. There are still potential objectives up to 1,525, 1,550 and even 1,600. But when it does top the fall should be at least 50% or more as it was in 2008 and 2002. But it will unfold differently. In the interim this still appears to be a correction but if 1,265 is broken then the high probability shifts to the top being in. In the interim the intermediate uptrend remains up.
Gold too is going through a correction. After a nice run from near $1,530 to a high of $1,795 gold has paused. This appears as a normal correction. What probably has a lot of people nervous is that gold is stalling at the same place it stalled in November 2011 and February 2012. The likelihood that this will fall back towards the previous lows, however, is remote. The Fed is printing money with QE3. QE3 is most likely the last QE. It is open ended unlike previous rounds of QE that had specified end dates. The pullback for gold thus far is shallow. Gold fell 1.1% this past week and silver was off 2.5%. Both remain in uptrends as do the gold indices.
This correction is paper induced. It is not occurring in the physical market. Private money and central banks in Asia and Latin America continue to add to their gold reserves. China continues to be a major purchaser of gold. The gold shorts of the bullion banks are probably trying to push things back as the market goes into the election. A pause at this time is not unusual. After the election gold should take off again if not sooner. The risk to the downside is probably to around $1,650 to $1,675. But even that may be optimistic to the downside. I couldn’t help but notice that while the commercial COT this past week remained unchanged at 25% the shorts open interest fell by 7,000 contracts. Not a lot but it was down after rising the past few weeks.
Last year was unusual for gold as it topped in September and never recovered. Once again the rally got underway in late June/July. But if a more normal strong 4th quarter seasonals kick in gold could run up into the New Year and surpass $2,100 and even $2,500. Continued global tensions that could lead to war will help gold. A Romney election will help gold as the deficit will widen further and the money printing machine of the Fed continues. N
Once gold breaks through $1,800 there should be little to stop it on its way to $1,900 and higher. Naturally I would not want to see it break under $1,650 again but the likelihood of that happening is very low as gold enters a period that is potentially cyclically strong.
Oil is going through its correction as well. It still remains a mystery what pushed it down suddenly here 4 weeks ago. That also appears as potential manipulation. Since then while oil prices have tried to break under $90 it keeps bouncing back. Oil closed up 2.2% this past week.
So $90 r4mains important but a good close under that would suggest a test of $85. But with global tensions rising the likelihood of a breakdown in oil prices is low. Resistance is at $95 and $100 but over $100 things could heat up. $108 remains important and a breakout over that level suggests a run to at least $146.
Oil is political good. Any outbreak of war in the Mid-East would send oil prices soaring. And it would probably sink the western economies plunging them into a recession.
The markets continue their topping pattern but could run higher if Romney is elected President. Gold is pausing in what could become a major “gold rush” into 2013. And oil is pausing as well but with global tensions high an accident could trigger a wider war and with it sharply rising oil prices.
Wednesday, October 3, 2012
Yesterday CBS News ran a segment on the current problems in Spain. Scott Pelley reported that the official unemployment rate was 25%. (As in all of these official measures, they do not list all of the people who have given up and dropped out of the labor market as well as all of the under employed people.. The probable actual unemployment rate is above 33%.)
CBS also commented that the youth unemployment rate in Spain is above 50% This means a whole bunch of young school leavers (including college graduates) have little or no prospect of finding work.
CBS went on to show an outdoor market in the relatively prosperous city of Barcelona. On the surface all looked well. People appeared to be well fed and content. But when one looked deeper one saw a sad story. The shop owners disposed of a lot of food products they could not sell at the end of each work day. Desperate and hungry people took the food from the garbage bins and ate it. Food banks in the Barcelona area are overwhelmed with the demand for food.
My readers by any definition this unemployment rate is "A Great Depression."
All of this came about because the Spanish banking sector acted in an irresponsible manner as did banks here in the USA. They made massive real estate loans without any serious underwriting or thought. A property bubble followed. This created a false sense of prosperity. The government went out and borrowed hundreds of billions of dollars to fund social programs and pensions that were not sustainable.
Now the party is over and the bill has come due. The US survived a similar situation because they have the power to print money and attract foreign capital. Spain does not have these abilities. The government in Madrid has bailed out the banks. But it does not have the possible trillions of dollars required to bail out the rest of the economy. The European Union does not have the political will nor the money to bail out Spain fully.
Sadly Spain is facing years or a decade of human misery.
If you are sitting in the US or some other large and prosperous country, do not just relax and say that "it cannot happen here." We have seen small countries like Iceland, Greece, and Argentina default. Now we are going to see a much larger country in a great depression. Such great depressions are like a contagious virus and will spread to other countries.
Ayer CBS News publicó un segmento sobre los problemas actuales en España. Scott Pelley informó que la tasa oficial de desempleo era del 25%. (Al igual que en todas estas medidas oficiales, no una lista de todas las personas que han dado y nos dejó fuera del mercado laboral, así como todos los archivos. Personas empleadas bajo .. La tasa de desempleo real es probable por encima del 33%)
CBS también comentó que la tasa de desempleo juvenil en España es superior al 50% Esto significa que una gran cantidad de jóvenes que abandonan la escuela (incluidos los graduados universitarios) tienen pocas posibilidades o ninguna de encontrar trabajo.
CBS pasó a mostrar un mercado al aire libre en la ciudad relativamente próspera de Barcelona. En la superficie todo parecía estar bien. La gente parecía estar bien alimentados y contentos. Pero cuando uno se veía más profundo se veía una historia triste. Los dueños de las tiendas dispuestas de una gran cantidad de productos alimenticios que no podían vender al final de cada jornada de trabajo. La gente desesperada y hambrienta tomó la comida de los contenedores de basura y se lo comió. Los bancos de alimentos en el área de Barcelona están abrumados por la demanda de alimentos.
Mis lectores por cualquier definición, este tipo de desempleo es "Un Gran Depresión".
Todo esto se produjo debido a que el sector bancario español actuó de manera irresponsable al igual que los bancos aquí en los EE.UU.. Ellos hicieron grandes préstamos de bienes raíces sin suscripción grave o pensamiento. Una burbuja inmobiliaria siguió. Esto creó una falsa sensación de prosperidad. El gobierno salió y pidió prestado cientos de miles de millones de dólares para financiar programas sociales y de las pensiones que no son sostenibles.
Ahora la fiesta ha terminado y el proyecto de ley se vencen. Los EE.UU. sobrevivió a una situación similar, ya que tienen el poder de imprimir dinero y atraer capital extranjero. España no cuenta con estas habilidades. El gobierno de Madrid ha sacado de apuros a los bancos. Pero no tiene los miles de millones de dólares necesarios posibles para rescatar al resto de la economía. La Unión Europea no tiene la voluntad política ni el dinero para rescatar a España en su totalidad.
Lamentablemente España se enfrenta a años o una década de la miseria humana.
Si usted está sentado en los EE.UU. o en algún otro país grande y próspero, no sólo relajarse y decir que "no puede suceder aquí". Hemos visto a los pequeños países como Islandia, Grecia y Argentina por defecto. Ahora vamos a ver un país mucho más grande en una gran depresión. Estas grandes depresiones son como un virus contagioso y se extenderá a otros países.