Heeding the Irrational Market

by Addison Wiggin – March 24, 2011

  • Durables disappoint, but stocks rally… why it’s significant buyers are back now
  • The off-budget war… how Libya is eating into proposed budget cuts
  • Oldest spelling bee winner dies… a surprising analysis of what his 1925 prize is worth today
  • "Who the f*** cares?" we asked, readers reply with equal helpings of contempt… and praise…
  • Plus, a reprise of the cult hit "We Ain’t Broke Yet"… your last chance for a discount to the Penny Momentum Trader… and more…

0:00 — Orders for durable goods — "stuff" expected to last three years or more — fell 0.9% in February, the biggest drop in four months. Machinery orders fell the most among the sub categories, down 4.2%, says the Commerce Department.

This is not a sign of a recovery. The Street was counting on an increase of 1.5%. Oops.

0:12 — Even so, "a bull market," we pervert the late Lord Keynes, "can remain irrational longer than you can remain solvent." The Dow and the S&P both opened up 0.4% this morning. The S&P is back above 1,300 for the first time in a week.

Not that you should be surprised. Our Penny Momentum Trader Jonas Elmerraji shared a chart on Monday showing the long-term trend line from the March 2009 low (the infamous S&P 666) intact and moving upward.

"The S&P 500’s return above the 1,300 level," Jonas explains, "is critical right now, following the fundamentals-induced sell -off of the last couple of weeks. But that only tells part of the story — equally important is just how quickly the S&P snapped back as the index approached its secular trend line."

0:30 — "As tentative as investors may be about the market right now," Mr. Elmerraji continues, "the price action of the last week at least shows that buyers are still willing to come out in force if the price is right."

"There’s been a lot of discussion lately about whether it makes sense for investors to remain bullish right now. I think that, in many ways, that’s the wrong question — instead, I’m concerned with whether or not the market will remain bullish regardless of how much sense it makes."

"There’s a big difference between being right and making money."

"That said, auspicious as the S&P’s price action has been in the last several trading days, uncertainty and volatility are still playing a big role in this market. That’s why it’s so crucial to remain tactical and unemotional right now.

"To that end, we’ve been exploring other asset classes to achieve gains in March."

[Ed. Note: Only a few hours remain to take advantage of membership in Jonas’ Penny Momentum Trader at the charter-subscription rate. The offer expires tonight at midnight.]

0:55 — Not that there isn’t ample reason for concern. The sovereign debt crisis in Europe is gathering speed again, for example. Portugal’s parliament rejected an austerity budget yesterday, prompting the prime minister to resign.

It’s almost a sure thing now that Portugal will have to tap the European Union’s bailout fund, to the tune of $99 billion or more.

1:02 — Moody’s, meanwhile, downgraded 30 Spanish banks, right on the heels of their decision to downgrade Spanish government debt.

1:06 — And yet like in the U.S. stock market, traders in the forex market couldn’t care less. The euro is up fractionally to $1.41.

1:09 — Crude oil is holding steady at $105.64 as we write, a few pennies off the high set earlier this month.

Well, at least the oil price makes sense.

After all, Col. Gaddafi’s forces in Libya are keeping up a relentless attack on rebel-held cities. Libyan oil production, 1.6 million barrels a day before the war, is down to perhaps 300,000 barrels now.

1:20 — "It’s hard to know exactly how this turns out," said Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, on Sunday, the day after the air strikes began."

"Let me see if I’ve got this straight," interjects our resident oil field geologist and Naval War College graduate Byron King. "The U.S. armed forces, and allies, are waging intercontinental techno-war against Libya — a desert-dictatorship that is, at root, a failing, North African petro-state with mostly third-rate military capabilities."

"But according to the top honcho of the JCS, we don’t know how it’s going to turn out?"

"What else doesn’t Adm. Mullen know? Let’s get down to basics. What’s the alliance? Who’s fighting whom? Who’s with us? Who or what are we targeting? Is this Libyan air show a NATO thing? If so, why does NATO member Turkey oppose it? Why is a core NATO member, Germany, pulling out?

"More broadly, what’s the strategy? What’s the operational concept? What’s the order of battle? What are the military goals? When the shooting stops (and it will stop, right?), with whom do we make peace? So maybe we won’t have a signing ceremony on the deck of a battleship, but what’s the theory of victory? Um… by the way, who’s in charge?"

1:41 — To this list of questions, we add our own: Who’s paying for this and how? To date, we’ve lost one F-15 jet ($30 million) and we’ve fired off 110 cruise missiles ($66 million), for a cost of $96 million. Ballpark estimates of the ongoing cost run about $100 million a week.

That’ll eat into the $100 billion in budget cuts the new Congress keeps promising. "What happened to all those people waving the Constitution last fall?" a friend asked by email this morning, citing these statistics.

1:53 — "The U.S. government doesn’t have a 2011 budget for its Department of Defense," Byron points out, "and we’re six months into the fiscal year." That’s because the previous Congress failed to pass a budget for defense… or anything else.

"Not to put too fine a point on it," Byron says, "Congress has authorized no money to fight wars — at least not this one. Thus, right now, the U.S. is shooting missiles, dropping bombs and engaged in its third, simultaneous ‘hot’ war (actually, the fourth, if you include bombing Pakistan), and there’s no budget."

There is a "continuing resolution," a means by which Congress keeps kicking the can down the road so the government doesn’t shut down. The current one expires April 8, two weeks from tomorrow.

"The nature of the continuing resolution," Byron points out, "is that it restricts the Department of Defense to fighting this year’s wars on last year’s budgeting structure. I don’t believe there’s a line item for ‘bombing Libya.’"

On second thought, it makes no sense.

2:24 — "There goes the gas glut," Byron also writes, changing tack a bit. In the wake of the ongoing nuclear scare, "Japan is scrambling for liquefied natural gas (LNG) supplies. So LNG tanker ships are moving toward Japan…"

"The Russians — particularly Gazprom — are promising to step up gas exports to both Japan (with LNG out of Sakhalin Island) and to Europe, to make up for European LNG that’s being diverted."

"Meanwhile, the loss of gas exports from Libya, through a pipeline to Italy, is also playing havoc with European gas supply. Indeed, the Italians just asked Gazprom to increase supply by an astonishing 60%!"

"You need to keep your eye on the gas players," concludes Byron. "It’s going to get better for their collective bottom line." Byron is eager to get his latest report in your hands. It’s called 11 Ways You Can Profit From the End of Nuclear and the Return of Natural Gas.

It’s yours — along with a one-month trial of Outstanding Investments — if you make a donation for earthquake relief in Japan. It’s the ultimate in "doing well by doing go as you’ll see here.

2:40 — The winner of the first national spelling bee, held in 1925, has died at age 97.

What caught our eye was not what Frank Neuhauser accomplished, but the prize he collected all those years ago: "$500 in gold, a bicycle and a trip to the White House to meet President Calvin Coolidge," reports The Washington Post obit.

Frank Neuhauser signing autographs at a recent national spelling bee…

Back in those days, gold was $20.67 an ounce… so Mr. Neuhauser walked away with more than 24 ounces. Had he held onto that through his long life, that prize would now be worth $34,833.

Turns out the prize for winning the national spelling bee is one thing that’s actually kept up with the gold price in the ensuing years. Present-day winners collect prizes worth more than $41,000…

  • $30,000 cash
  • An engraved loving cup trophy
  • A $2,500 savings bond
  • A reference library from Merriam-Webster
  • $3,800 in reference works from Encyclopaedia Britannica
  • $5,000 cash from the Sigma Phi Epsilon Educational Foundation.

Alas, the comparison still falls a bit flat, for winning the bee these days requires a lot more effort. Mr. Neuhauser’s winning word was "gladiolus," as in the flower. Last year, it was "stromuhr," a device that measures blood flow through an artery.

3:19 — "You seem to enjoy taking a swipe at Bernard von NotHaus’ conviction," a reader writes. "But he did actually stand up to the Fed, not just in words, but in deeds! I ask you, what did he really do that was illegal?"

"If you can get past your dislike for the man personally and understand what he was fighting for, a better view of the man should come forth."

"As I understand it: Liberty Dollars were privately minted gold and silver rounds. Paper certificates, akin to warehouse receipts, were also issued, effectively giving the bearer a right to claim a certain amount of gold or silver at the group’s warehouse in Coeur d’Alene, Idaho."

"This is traditionally how the system of money used to function — precious metals would be stored in private secure storage facilities, and paper certificates were issued as a medium of exchange that entitled the bearer to redeem metal from the vault. Liberty Dollars represented a return to that system.

"Where do you see this as a bad thing worthy of a condescending pen? If only you and Ron Paul had the courage to sacrifice something so noble and valuable as your freedom for the cause of liberty."

The 5: The reader then attaches an article about von NotHaus that first appeared at Casey Research, evidently unaware that Doug Casey is also on von NotHaus’s "bellybutton traitor list."

3:41 — "If I remember correctly," writes a reader who is confusing us with someone who does care, "you were quick to mention that the Republicans wasted no time when they came to power in passing the tax cuts. Evidently, you gave a f*** or you would not have mentioned them."

"Let’s give credit and blame where it is due and refrain from crude and vulgar discourse. This is supposed to be a site about how to make money. If I want to read about politics, I will go to some other site."

The 5: Indeed, this is supposed to be a site about making money. This is not a site about politics — hence, my crude and vulgar question. But if we’re going to give credit where it is due, then we think the next reader assigns it correctly.

3:52 — "You are right when you ask ‘who the f*** cares’ who passed them," our friend replies. "Does the zebra have black stripes, or does it have white stripes? Is Congress Republican or Democrat?"

"Democrats and Republicans alike are not going to change anything that might cost them votes come Election Day. They pass obscene laws and budgets because they know the majority of Americans do not comprehend what they have done. Frankly, I think some politicians do not comprehend what they are voting on either."

"Each one follows the tail of the donkey or the elephant in front of them, never asking any questions, just following the leader off the cliff. Then another one will come along to replace him or her and do the same thing, over and over again. It doesn’t matter if it is Democrat or Republican."

"Look at history: Both parties have been guilty of the same sins for many, many years now. I don’t think either party, at this time, has a workable solution. They will continue to cast stones at their opponents hoping no one notices what each of them has done. It seems to be working."

The 5: For them, perhaps. But how long will it continue to work?

4:14 — "Just thought I’d try out the dare. I’ve been thoroughly pleased with The 5, and all of your other services. It’s not only educational, although I can’t side with ALL your views, but quite entertaining."

"Please don’t stop printing your reader’s mail. As long as you include them, especially the rather nasty ones, subscribers not only receive a good education and informing market and political commentary, we get some of the best humor available."

"And to all you humorists out there, calm down. The world isn’t coming to an end, just the world as we know it."

4:29 — "I can’t tell you how often I have to laugh out loud at your responses to some of the reader comments," adds another. "Your 5 Min. Forecast provides a lot of entertainment, besides worthwhile info."

"I love your sense of humor. Does my heart and mind good! Thanks for all. Keep it coming."


Addison Wiggin

The 5 Min. Forecast

P.S. After just two weeks, "I made enough net profit on a $5,200 bet," writes a reader who does get what this site is supposed to be about, "to pay for your one year subscription" of Penny Momentum Trader. "I look forward to the coming year… and beyond."

That’s not an outlier. In fact, it’s exactly how Jonas’ S.T.O.R.M. system is designed to work. Charter subscription pricing is still available, but only through midnight tonight. Here’s where to grab yours.

P.P.S. This site is also about having a good time. In fact, the gentleman who designed the site is in a band called Mixed Business. If you’re a veteran of our investment symposium in Vancouver, you’ll recall Mark O’Dell, the band and special guest Andrew Ascosi debuted their original song "We Ain’t Broke Yet" at the symposium. Mark wrote the tune after having tortured himself by reading through the entire length of Empire of Debt. (This recorded version also features Mike Auldridge of The Seldom Scene and Lyle Lovett fame on the Dobro & Pedal Steel.)

This coming Saturday night, Mixed Business is hosting a CD release party at Mick O’Shea’s, our favorite Irish Pub, on Charles Street in beautiful downtown Baltimore. The CD features a couple of songs we think you’ll appreciate… "Guns & Gold" and "Gun In My Glove Box". The CD also features a curious ode to Tom Waits called "The Mule", penned by Greg Grillot, our copy chief.

Says the CD’s liner notes:

"Mixed Business’ self-titled output (released in 2011 and produced by Ruben Dobbs & Mixed Business) takes you to the American heartland to ponder life and love with country-inspired ballads ‘Guns & Gold,’ ‘Seasons in Love,’ and ‘You Think It’s Better This Way,’ then drops you in the Deep South to drink whiskey with share-croppers on ‘The Mule’, plants you firmly in snowbound gypsy campsites and hot back-alley Spanish brothels with ‘Yuliana’ and ‘The Red Room,’ and then meets you just down the street at your local bar to hoist a pint with the soon-to-be-a-hit-single drinking songs, ‘Gun in My Glove Box’ and ‘Bottles & Bottles of Beer’!"

"Mixed Business is what you get when you make a band out of world travelers, barroom regulars, and classically trained musicians. Blending rock, folk, blues, country, bluegrass and jazz — Mixed Business refuses to fall into any one genre."

If you’re into original music by talented newcomers, you can learn about the band here and get a copy of their debut CD here.


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