Dave Gonigam – July 9, 2012
- 50 jobs (at least) doomed by the latest federal do-gooding: The 5 mourns for a lost loophole…
- Earnings, scandals, numbers: How “boring” headlines can pad your portfolio in under a week
- Looking for a turning point: Greg Guenthner finds a market indicator at a 15-year low
- A sign that rare earths have “jumped the shark”… readers reminisce about what a dollar used to buy… an update on Vancouver recordings… and more!
It was fun while it lasted — a rare chance for consumers to save money, for entrepreneurs to make hay and for everyone to stick it to the feds.
And now it’s over. The roll-your-own cigarette machine has been rendered a useless relic.
We already saw their days numbered last November in The 5, when city governments scattered across the land moved to ban them. Tobacco shops bought them in recent years because folks could use them to make their own smokes using a variety of pipe tobacco that’s subject to much lower federal taxes.
What the locals started, the feds have now finished off. The president signed a bill on Friday that redefines a “tobacco manufacturer.” It now includes any business with a roll-your-own machine. Thus, the smokes that emerge from those machines are now taxed at the same rate as a pack of Marlboros.
Among the casualties: A company that made and leased the machines. RYO Machine Rental of Girard, Ohio, is looking at shutting down and letting 50 people go. “This is simply about the major tobacco companies wanting to get rid of their competition,” says owner Phil Accordino.
Unamusing footnote: In keeping with the nonsense that is federal law these days, the coup de grace for the machines was administered in — drumroll, please — a highway funding bill.
On the surface, it’s shaping up to be a humdrum week.
The major indexes are all down this morning, but not much: As of this writing, the S&P 500 sits at 1,350 on the nose. The jitters are all familiar…
- The yield on 10-year Spanish government debt is back above 7%. That’s widely considered the point of no return, when it’s impossible to keep up with the interest, much less principal
- Chinese inflation eased in June; the year-over-year increase was 2.2%, the lowest in 2½ years. It feeds into the China slowdown thesis
- There’s a new kerfuffle in Washington over taxes; the president wants to extend the 2001-03 tax cuts for one more year, but only on incomes under $250,000.
All of these headlines are, frankly, prosaic. Mind-numbingly boring. Stultifying. They’re short-term noise amid a long-term macro story that’s all too familiar: The world is awash in debt. Politicians and central bankers are in denial.
Still… there are short-term profit opportunities to be found in these “boring” stories. That is, if you know where to look.
Let’s sniff out three potential market-moving catalysts this week. None is very exciting… but all have the potential to put money in your pocket.
Earnings season starts today. As usual, Alcoa begins the ritual after the close.
Expectations are, well, poor. The aluminum giant “may report an 84% decline in second-quarter earnings as the eighth straight year of surplus global production drives down the price of the metal,” according to Bloomberg.
Alcoa’s been the worst performer among Dow 30 stocks in the last year. Still there’s potential for the company to rock the “expert consensus.” Alcoa’s seeing higher demand from automakers, who need more lightweight aluminum to meet government fuel-economy standards. Aircraft makers face a record backlog.
Prosaic stuff, yes: But a surprise either way could move markets tomorrow.
On Friday — Friday the 13th, no less — J.P. Morgan Chase reports second-quarter earnings.
In theory at least, we’ll learn at that time the extent of the damage done by the “London whale” trade that went so badly wrong two months ago. Recall the original talk was $2 billion. As recently as last week, the talk went as high as $9 billion. Slight difference.
Whatever the numbers show, they too have market-moving potential.
Then there’s the Libor scandal, in which new shoes could drop at any moment.
Libor is the “London Interbank Offered Rate” — the rate banks charge each other, and not only in London. American, Canadian and Swiss banks also use Libor as a yardstick. Scads of interest rates, including your mortgage, are linked to Libor.
Traders at Barclays were recently caught rigging the Libor market, encouraged by senior managers. The CEO has resigned.
In one sense, it’s very old news. The Financial Times has been onto it since 2007. But now it’s a big deal, and the potential knock-on effects are significant. Other banks might be involved. Regulators — including the Federal Reserve — likely looked the other way. There’s talk of class-action lawsuits against any bank caught up in the scandal.
Or maybe the scandal will be swept under the proverbial rug, the way the “multistate mortgage settlement” absolved the banks of their robo-signing sins.
Whatever the case, there’s market-moving potential here too… not only this week, but for months to come.
It’s easy to feel as if your portfolio is buffeted by forces far beyond your control. But what if you had a way to harness those forces to deliver solid double-digit gains week after week? What if you could turn all that short-term fear and greed to your advantage?
That’s the idea behind Fear & Greed Trader — our one-of-a-kind trading advisory that transforms short-term market noise into a steady profit stream. Editor Abe Cofnas is our maven of market sentiment.
What does he see this week?
“Over the weekend,” says Abe, “I saw someone describe the global mood as ‘macro darkness.’ There is very little global economic optimism.”
Relative to the dollar, “The euro is at two-year lows and the Spanish 10-year bonds hit the 7% redline zone. Chinese Premier Wen Jiabao reportedly said that more aggressive stimulus is needed. The markets are also experiencing a hangover from last week’s disastrous U.S. nonfarm payroll numbers.”
“The legacy of last week’s very disappointing economic data means that this week the S&P 500 will be very sensitive to new expectations,” Abe wrote this morning as he anticipated the week’s action.
“While the balance of sentiment is bearish, the more likely scenario is that the U.S. 500 will not stand still.”
That brings us to this week’s “mock trade.” From current levels around 1,350, Abe expects S&P 500 futures to end the week higher than 1,360.5… or lower than 1,336.5.
This is a two-part trade that costs a grand total of $70. (Of course, you’re free to lay on additional positions.) As long as S&P futures end the week above 1,350.5 or below 1,336.5, it’s a 42% gain… in four days.
We’ll monitor the progress of this position all week. Abe’s mock trade last week on the Japanese yen ended with gains of 6.9% and 17%… again, in four days.
Readers who trade his recommendations for real had two winners out of three plays — 13% on gold and 14% on oil. Happy readers have been known to write in with messages like:
- “I made 205% [I made a gain of $57.50]… Not bad for my first play…”
- “Up over $2,300! In six weeks from start, I have earned a net of $2,300”
- “Made 77% gain on a total outlay of $141… I played two of the recommended positions for a total cost of $141. The resulting profit was 77%.”
For some more real-world examples of how Abe’s trades work… and a full description of how you can put them to work in your own portfolio… follow this link.
“Several important indicators are showing us that we might not be too far away from an important sentiment turning point,” writes Greg Guenthner, applying a time horizon longer than four days.
“It’s no secret that investors and analysts alike hate stocks right now.” How much the analysts hate them is revealed in stark relief on this chart…
“Fewer than half of Wall Street’s sell side analysts are bullish right now,” Greg goes on. “That’s the lowest level the indicator has shown since 1997. Note that this chart goes back to 1985. And I can count only a few other instances where this indicator fell below 50 in the past 27 years.”
“To put this all in perspective, analysts were bullish as the market was reeling during the 2008 financial crisis. If this is not an extreme reading we’re seeing right now, I don’t know what is.”
“Like most investors, analysts are usually wrong at critical market turning points. We think this could be one of them. That doesn’t mean stocks are going to shoot to new highs tomorrow. But it does give us another great reason to continue looking for powerful upside breakouts.”
Precious metals have found a floor for the moment after Friday’s sell-off. Gold is up a five spot, to $1,588. Silver is up a little over 1%, to $27.40.
More than four years ago, “rare earths” were something we had to explain in excruciating detail in The 5, so unusual a concept it was. Now… it’s the stuff of video games.
Rare earths are central to the storyline in Call of Duty: Black Ops II. In the year 2025, the United States launches a cyberattack that shuts down “the Chinese Stock Exchange.” China retaliates by cutting off all rare earth exports to the U.S.
“Aside from the fact that I’m still alive,” retired Marine Sgt. Frank Woods growls in the trailer, “none of this surprises me.”
Hmmm… The only problem with this scenario is that long before 2025, new non-Chinese sources of supply will have come online.
Even though rare earths are now “old hat” to the point of them being in a video game, the best profit opportunities remain hidden. Byron King has done yeoman’s work sniffing them out; you owe it to yourself to examine what he’s come up with.
“I ran a Derby gas station in Pella, Iowa, in the early ’70s,” writes a reader carrying on our 18-cent dollar discussion. “Generally sold gas for $0.279-0.299 — about 3½ gallons to the dollar.”
“Here is one for you — April of ’72, we had ‘Gas Wars’ and sold regular gas for $0.209 a gallon because Sinclair went to mini-service and was selling it for $0.199 — five gallons to the buck.”
“I cannot understand why people compare a price of today’s car to one 46 years ago,” a reader replies to the fellow who bought a 1966 Oldsmobile 442 for $3,300.
“It’s like comparing apples to oranges. Yes, both are food, and that’s where similarity ends. A car that has a catalytic converter, crumple zones, side door beams, air bags, abs, six-speed automatic, etc., etc., compared to something that never had it? Even today’s gas is not the same as gas 46 years ago.”
“Stick to today’s value of dollar versus the past value of a dollar in a barrel of oil, gold, a loaf of bread or milk. Comparing the price of today’s car versus one 40-plus years ago is as useful as comparing the price of a computer versus one 10 years ago.”
“My personal benchmark on the dollar goes back to a dinner I had with a lady in 1970.”
“Before-dinner cocktails, Chateaubriand for two, dessert and after-dinner drinks — and the bill (not including tip) was just shy of $25.”
“About the same time, I recall walking into a Hilton Hotel coffee shop in Hawaii and being outraged that they had the nerve to charge 50 cents for a hot dog.”
The 5: What must that cost now?
Everyone likely has his own personal benchmark for how much less a dollar buys now than it did sometime in the past. What’s yours?
And more to the point, what are you going to do about it as your purchasing power continues to erode? You’re not helpless; in fact, you have nearly 50 — to be precise, 47 — ways to protect yourself. We reveal five of them free — yours, on the house — right here.
“Will the Agora Financial Investment Symposium be recorded this year?” a reader inquires. “If so, how do I buy a copy?”
The 5: The answer is yes, absolutely. And this year we’re adding a new dimension to our regular offering. Can’t say much more than that right now… but we’ll pull back the curtain as we gear up for the conference — which starts two weeks from tomorrow. Stay tuned!
Cheers,
Dave Gonigam
The 5 Min. Forecast
P.S. FreedomFest starts Wednesday in Las Vegas. “When the festival first began in 2002,” according to a lengthy Associated Press article today, “some 850 people attended. Last year, there were 2,400.”
Friday is Laissez Faire Day at Freedom Fest — featuring a panel discussion called Live Better, Live Liberty: The Quest to Get Government out of Our Lives. Participants include Laissez Faire Books executive editor Jeffrey Tucker and senior editor Douglas French.
In addition, Laissez Faire Books is the official bookseller at FreedomFest. “Please come by the table and say hi,” says Jeffrey.” We’ll all be there.”