Value of Perfect Information

Name: George

Email:

Bio: Many can say they saw the economic debacle coming but few can claim to have written of the Crash of 1929 in a novel, fully a year before the event reprised in 2008 -without that fateful final day! Mine was just such an accomplishment: BLACK JACK -A DRAMA OF MAGIC [Barnes&Noble.com /Amazon]. Patton Capital Management -"Committed to Excellence" George Patton - Investment Advisor We are now accepting new accounts under management. 2011 - RESULTS ARE IN! Pi Fund: Nov. YTD +2.89%, Since Inception: Jan 2010 +50.96% Portfolio: LONGS -GLD, AZO, BG, SQM, ADM, CF. SHORTS -TZA, MZZ, SQQQ, FAZ, DUG. Cash 35%. Beta Hedge Fund YTD +0.6%, Since Inception Jan 2010 +23.51%, Cash 4%Portfolio: LONGS -GLD, BG, SQM, ADM, DBA, DAG, MOS, POT, CF. SHORTS -EEV, FXP, SQQQ, TZA, MZZ, FAZ, DUG. As a former 'client's man' I know the reliance that investors place upon their professionals to guide them through turbulent economic conditions. Few more so than the current environment. I endeavor to provide a bit of certainty that these times can be managed with a little prudence. That there are enough historical precedents to offer solutions in this investing quagmire: provide pathways to prosperity for the patient investor. I have spent twenty years in back office, mutual fund sales, and as an Independent Investment Advisor and economic commentator. Helping clients. My technical analysis has been featured on CNBC (in the 1990's) and my profile Caricatured in Barron's. Former member Market Technicians Association. As an Independent Investment Advisor I saved many clients from the "overexuberance" of the Dotcom craze. As a published novelist -one who saw the crash beforehand - I would like to help individuals make sense of the turbulent marketplace as it exists today. Vastly different from the world we knew for the last twenty + years! Also, I help institutions to profit from the vagaries of the market. I have worked for the Templeton Funds, and at the Prudential. I still recall Sir John Templeton's instructive words to me in January 1990, to wit: "Governments will always vote for inflation rather deflation. Deflation is political suicide." NEW: Look for our audio commentaries on You Tube under Stock Market Savant! Email us at GGENRAL8.6PTR@LIVE.COM for quotes.

Posts by G. Patton:

Tail Wags Dog

Written by G. Patton
January 30th, 2012 at 6:26 pm



Long ago before the invention of the reverse ETF: Legendary technician Joe Grandville made the observation that sometimes to understand a market move it is necessary to turn the chart upside down. It is still a useful exercise! Witness the chart of TVIX – Double the Fear Index. Classic wave patterns as the price declines (S&P advances) including the capitulation phase Wave V which is accompanied by extremely heavy volume. The market therefore is registering a lack of fear at an extremely crucial technical level, both short term (three years) and longer term (ten years). This is also coinciding with higher Investors Intelligence bullish sentiment.



Markets | No Comments

Tail Wags Dog

Written by G. Patton
January 30th, 2012 at 6:13 pm

Thanks to Market Watch for the following on Super Bowl Theory:

The last time the Giants were in the Super Bowl, in 2008, the S&P 500 fumbled for a loss of 37%.

Yet let’s be fair. The Giants and the Patriots have each won the Super Bowl three times. The Giants in 1987 (think October crash), 1991 and 2008; the Patriots in 2002 (think tech-bubble meltdown), 2004 and Long before thew invention of inverse ETF’s legendary technician Joseph Grandville made the observation rthat sometimes to understand it is necessary to turn the chart upside down. It’s still a useful exercise2005.

For the Giants, the S&P 500 in 1987 rose 5.3% on a total return basis. In 1991, the index was up 30.5%. And then came 2008.

For the Pats:  In 2002 the S&P 500 lost 22%%. In 2004 it gained 10.9% and 2005 saw a 4.9% advance.Average out the scores, uh, returns, and here’s what you get: When the Patriots win, the S&P 500 has lost 2.1% on average over that year. When the Giants win, the index is off 0.4%. Not-so-super, really



Markets | No Comments

Changing Perceptions

Written by G. Patton
January 10th, 2012 at 3:04 pm



THE FLYING WEDGE

Ascending pennant from beginning of fourth quarter represents a complicated pattern of hurry up and wait. Initial buying stampede (short covering) followed by a cascade pattern of up to 50%. WSJ candlestick patterns for DJIA and S&P on market data page are illustrative, as are line charts on pg. M-3 of 1/09 BARRON’s.
Two ways to interpret this pattern: Either an a-e backing and filling pennant as part of a wave II compliment to last summer’s decline or; the more radical notion, that May through September was a “Flash Bear” market barely touching the 20% decline threshold intraday. With the average bear market decline over the past hundred years eclipsing the 36%, obviously the stage was set for further declines. Investors and traders have acted accordingly but curiously, domestic markets have not responded to expectations of the worst.
Thus in October a new bull leg in the advance from March 2009 has begun based upon “QEE” -Quantitative Ease Europe. As in the mid- 1990′s rolling recovery, as indeed, paralleling the 1970′s experience, the bi-furcated economy did not completely subdue the underlying growth drivers.
Today, as long as markets are convinced that there will be no liquidity crisis as evidenced in a temporary relaxation in 3 and 6 month LIBOR rates (although they have begun a creep higher in the last few days), investors may be willing to let European officials kick the sovereign debt crisis further down the road – one more time. Ignoring underlying risks that like the summer of 2008, several large institutions may need a rescue simultaneously; or, that eventually Italian long bond rates above 7% will prove unsustainable on a funding basis.
The recent success of the ECB’s three year loan program has given stock investors the incentive to look beyond a garden variety recession. After all, with European bourses down 25% / emerging markets down as much as 35%, much of the pain for the first half of 2012 has already been discounted. With interest rates about to dive precipitously in BRIC countries it is propitious for investors to step ahead of the curve.

WAVE V COMETH

Therefore we can make the case for a wave IV completion (with “Flash Bear” et. al) from the March 2009 lows. Setting the stage for a wave V liquidity driven blow off to new highs before the party ends. Logically, I have always held the position that historic market moves should follow traditional patterns, thus validating the underlying precepts of market dynamics. The decline from the 2007 highs encompassed elements of both 1929 and the 1973/74 collapse. Ergo, one should expect the rebound from March ’09 – which also completes a larger pattern from the 2000 top, to follow an easily identifiable five wave pattern.
The final liquidity wave wave will be led by European capital injection already approaching $2 trillion when you include direct ECB funding and indirect sources EFSF, IMF. Augmenting this capital wave will be purchases by major corporations and sovereign wealth funds induced to part with retained earnings in part to: 1) Repurchase shares so as to inflate earnings comparisons. 2) Renewed merger activity to increase market share with purchase of streamlined assets. 3) Increased activity by sovereign wealth funds scared out of bonds.
It becomes apparent that government debt holdings will continue to provide increasing repayment risk and currency risk – as the EURO currency slides; bombarded by a cascade of banking write-downs and government debt re-negotiations. Taking its toll on investor confidence. Thus the alternate cost of investing in top flight companies will gain appeal. Investors will be more apt to ride out the worldwide economic slowdown we foresee in equities, rather than invest in government paper and risk the deep chasm of debt default. In Greece, Spain, Italy, the open maw of DANTE’s abyss looms just over the horizon. [That investors in short term German & U.S. paper would prefer return of capital to return on capital is instructive and elucidates this fear.]
Even in the U.S. the long term picture is clouded. With an ever-growing debt/GDP ratio and the ECRI’s long-term Weekly Leading Indicator signaling a massive Head and Shoulders top -for the first time since the 1970′s; Treasuries will likewise face a day of reckoning – one more bubble to pop!

http://seekingalpha.com/article/316924-ecri-recession-call-growth-index-virtually-unchanged-for-7-weeks

As for the inconsistencies in the evolving pattern, once the Transports and broader averages confirm the DJIA bull case, the stampede will immediately send shares soaring past levels last seen in mid-2008. Just as selling begets more selling in a vicious cycle; so too, this virtuous cycle will feed on itself; convincingly sending the averages to levels last seen pre Lehman/Fannie Mae – post Bear Stearns. Then the fun begins.

GIVE ME YOUR POOR, YOUR TIRED HUDDLED MASSES

And yes, this virtual occurrence will assure that despite the higher dollar – which has been equated with lock step share declines – the averages will rise in real terms. However, commodity prices may stall -ex. oil (the Iranian wildcard). Capital HAS toflow into equities as ALL long-term government paper is suspect -anything over five years -(domestically “Operation Twist” skews this determination by the bond vigilantes). The ROI [Return OF Capital] on IBM, CAT, AAPL, MCD are much more model able over the next ten years than Treasuries. Yes, I am calling for another period of “Nifty” investing; much like the late 1990′s pre-Long Term Capital meltdown where investing in a chosen few will outperform the aggregates. Is it any wonder that funds are being siphoned from Pimco and the Go-Go hedge funds of the last few years? Just as instructively, is it any wonder that Bridgewater Associates’ Prime Alpha Fund has such a stellar record despite its humungous size? it is the simplicity of the strategy. Well the strategy gets gets even simpler from here – hold world class equities in the ensuing flight to safety! As legendary investor John Templeton used to say: buy quality at discounts to future value and; just as importantly, identify ensuing trends.
The trend in this instance: After thirty years of breakneck expansion the developed economies have created debt/GDP ratios that are unsustainable and will hamstring growth. BRIC countries are better positioned for balance sheet expansion but their growth models are still skewed toward resource export and not domestic consumption. The liquidity wave unleashed – representing the death knell of the developed world and engine of increased monetary velocity in emerging markets – will find its way into equities. Both stocks and bonds, as the spreads for corporates over Treasuries are currently at bargain levels.

CONFESSIONS OF A BORN AGAIN BULL

Finally, there is the old technical adage about not selling a thin or dull market short. as any good magician knows when the audience’s attention if focused on a particular direction – when they are misdirected – it is possible to perform your magic. Let’s look inside the numbers.
If we delve down into the price volume action we notice that the panic volume takes place on the announcement of the U.S. debt ceiling downgrade, complete with peak volatility. Both VIX and heavy volume declines have diminished since then. Just as importantly, despite the on-going EU crisis headlines, positive breadth continues to expand as tracked by the A/D line. Cumulative NYSE growth likewise continues to advance approaching July ’11 highs, not what one would expect of a wave II rally. Also weekly new highs have been running better than 5 to 1, in the holiday shortened week just ended they surpassed 10 to 1!
Having long been a proponent that we are following a typical Kondratieff Winter, if not the 1930′s pattern succinctly – after all Heisenberg’s oft quoted ‘Observation obfuscates the result’ applies here – the averages have to contend with a myriad varietal stimulations and, as discounting mechanisms, tend to confuse the crowd. Especially at turning points! Thus in any technical analysis it is useful to include some sentiment indicators to determine where the predominance of ‘popular delusions’ can be found. Today the “crowd” is talking SHORT!
That U.S. stocks may not decouple so much but prosper exactly because of debt contagion and credit default in Europe is a concept worth consideration. Thus, flight of capital from Europe and emerging giants will push U.S. markets to new highs before this three year bull market runs its course. That the DJIA experienced a “Flash Bear” while the rest of the world, a more traditional variety, shows that the flight to safety protocol has been operative since at least last summer. Likely it will accelerate as Europe continues in turmoil and giants China and India struggle to turn their battleship economies once again toward growth.
This is how the sociopathology of collapsing systems works, sometimes. Before the SS Titanic sank below the waves the ship broke into two and the stern was raised perpendicular before the eventual descent. In the case of the U.S. economy – as forecast by the ERCI’s WLI long-term chart and the onerous debt/GDP ratio, a decade of underperformance, based upon past precedence, which will negatively impact stock prices. But before that one final hurrah!

http://en.wikipedia.org/wiki/Societal_collapse



Markets | No Comments

Crystal Ball Gazing For 2012

Written by G. Patton
December 30th, 2011 at 3:50 pm

S&P 500 STALLS AT UPPER END OF PENNANT -RSI RUNS INTO RESISTANCE @ 80
Crystal Ball Gazing For 2012



The candle charts as presented in the WSJ Section C (I resisted the urge to force the idiom) provide a splendid example of the current conundrum for the new year. The DJIA after the top in April formed a classic 5 wave decline – dropping 20% and touching bear market territory before launching a stellar advance in October to post a modest advance for the year.

QUESTION: Is this a new bull market complete with waves one and two? Albeit it, one of short duration (six to nine months), destined to challenge 13,800 if not all-time highs? If so where is the volume? Not to mention the economic fundamentals which often arrive long after the turn.

Now let’s look at the S&P 500, representing a broader swath of America’s industry. The move off the bottom, not quite as pronounced, carries us only back to the 200 Dy MA – leaving us in a bear pennant mired between moving averages: 1215 – 1265. And evidencing a trendline with a decidedly negative vector.

Eye of the Bull of Bull’s-eye?

Don’t get me started on Dow Theory bullish reversals as John Bollinger mentioned two weeks ago. The Transports, usually the lead indicator in directional change – in recent history anyway – have acted this time as a coincident indicator, following lockstep with the Industrials. In fact, the case can be made that Transports failed at the “neckline” of DJTA 5100 while the DJIA convincingly violated resistance @ 12,000.

Now the Dow Utilities move to all-time highs, that is another story! Reflective of the flight to safety and hunt for yields, that is the short answer. It does make for a pretty picture all three indices surging to reaction highs. A hint of the financial asset hyper-inflation that is to come now that the central banks have opened the floodgates. Just when government bonds are revealed to be fiat with values fleeting is the question of the new millennium [New Mayan Millennium that is]. Gold will “tell” the tale!

Profit Motive

Thus it seems, as usual, that the direction of the broader averages will once again the dictate general market and reflect economic outcomes in the new year. The NYSE, Russell 2000, S&P 400, will be heavily impacted by circumstance both here and abroad. The direction of the currency will remain paramount; mid-size companies are increasingly dependant upon exports for earnings growth. A rising dollar, one of our forecasts for 2012, will slow sales and crimp earnings even before factoring in the results of slower growth in Europe and emerging markets. This will make earning comparisons more difficult for most domestically domiciled “Transnational’s” as well as, mid-cap companies. I find a lot of economic analysis lately to the effect of, the U.S. can continue on a moderate growth path without contribution from Europe or BRIC’s; this has to be either short-sighted or disingenuous.

Has anyone noticed that the $640 billion the ECB loaned into the banks was almost exactly the same amount the Fed created in March 2008 after the Bear Stearns demise?

Food for thought.



Markets | No Comments

The “D” Word – Asia

Written by G. Patton
December 27th, 2011 at 6:16 pm



12/27/11 – Shanghai falls to 33 month lows on “gloomy” economic outlook. -Reuters



SENSEX falls to one month low on larger than expected downturn in October Industrial Production.  “Fear of declining output is turning into reality.” one analyst’s opinion put it.



Markets | No Comments

The “D” Word… in 2012

Written by G. Patton
December 22nd, 2011 at 4:04 pm

The “D” Word is coming in 2012 … DEFLATION. It will create the rationale for QE III.

BUT, will $500 billion in mortgage bond purchases be enough to ignite the liquidity engine? Or simply draw a like amount of corporate cash out of money markets?

Gold’s drop was the harbinger; creating conditions that allow even the ECB’s Mario Draghi to commit funds to support European Sovereigns: Gold dropping even as the currency falls. This week he deftly employed the “Carrot & Stick”, a favorite tool of central bankers; talking the market expectations lower while opening the liquidity window through the ECB’s new three year loan program [Creating a torrent of $650 billion in liquidity]. Some are already calling this the “New Carry Trade”. As a result Spanish yields shrank dramatically on three and six month obligations, but not on the Italian 10 yr bonds. You will remember we forecast he would not be cut from the same mold as Trichet, back in October.

The message in the sharp re-valuation of gold’s price is being confirmed by a slew of indicators worldwide. In the U. S. Industrial Production fell for the first time in 7 months. In addition, most commodity prices are following (or leading) gold prices lower as production slows. Factor in continued contractions of PMI in China and Germany (manufacturing powerhouses) that speaks to spare capacity on the rise. Also evidence acceleration of the “Risk-off” trade in India as the Rupee cascades to all-time lows against the Dollar, even as rates rise domestically. Thus economic contraction in three-quarters of the world’s GDP drivers looks likely to continue.

While we are chronicling Asian weakness; the steady erosion, to sometimes sharp implosion in real estate prices from Singapore and Malaysia, to Hong Kong, Shanghai, and much of interior China, is UNDENIABLY a “tell” that capital flight may have passed the point of critical momentum. This time China’s boom/bust cycle may have morphed into a regional contagion.

Most alarming to forward-looking analysis is the drop in monetary velocity. Chinese M-2 is now at levels last seen in 2001. That the Chinese Central Bank has the ability and track record to quickly inject monetary stimulus directly in the economy is not the issue. With the already historically high level of capital spending to GDP of 50% -a watershed for any developing economy – the “Build it and they will come” philosophy will no longer sustain the growth engine as the wealth transference no longer adds to sustainable growth. [Not enough bang for the buck.] This time the Chinese leaders will have to act quickly and forcefully with discount rate cuts and direct purchases to support the Shanghai Index. We have always anticipated and often written about dramatic measures if the Shanghai drops below 2300, a critical fail-safe.

The drop in M-2 combined with the cascading Rupee and the drop in Gold is alarming given the size of these economic behemoths and given the importance of the BRIC trade to emerging market investing and the entire risk-on carry trade.

As the U. S. Dollar moves past the 80 level on the index and 130 Euro, it signals the possibility of a new leg higher and de-facto re-ignition of the currency wars – if indeed, it ever subsided. This then presents another rationale for Chairman Bernanke to employ more monetary stimulus to weaken the developing flight to safety. Of course, QE II was such an international success in inflating hard asset prices that the push back to renewed dollar depreciation, up to and including, a Chinese depreciation of the Yuan is not outside the realm of possibility. In a pre-emptive strike last week the Chinese announced the resumption of the peg with the dollar.

When you factor into your econometric modeling: Add to the problems in Europe -which by now are legend – the slowdown in hard asset countries Canada and Australia, which are rapidly shrinking in employment and GDP, respectively. Are we beginning to witness a scenario where the BRIC’s are entering a growth recession following in the vacuum spawned by the devastating Japanese earthquake last March? Building upon, negatively, the festering political squabbles and infighting both in the USA, which presents a “W” shaped recovery; and in Europe which seems intent on replaying the ‘Beggar thy Neighbor’ Syndrome of the 1930′s with disastrous consequence – of which we have written many months ago?

This concrete vision of Synchronized Worldwide Depression as displayed in the 2011 stock prices for most major world indices -ex. U. S. has given Chairman Bernanke and his colleagues around the world the green light to pump liquidity early and often! With the just-in-time manufacturing engine in reverse and the palpable threat of Europe’s liquidity contagion going global – the threatened implosion of European banks; the $650 billion in three year loans is a good place to start, mitigating the possibility of the “D” word. The fear is that any action taken will not be enough to mitigate a chain-reaction of Lehman-like proportions. The message behind Gold’s plummet

Hence, we view the current nadir in the VIX as the eye of the storm!

BUT HEY, RELAX! ITS 2012 – THE END OF THE MAYAN CALENDAR – AND I FEEL FINE.



Markets | No Comments

D’ NILE

Written by G. Patton
December 16th, 2011 at 12:28 pm



D’NILE

 

IT IS ONE OF THE GREAT FAILURES OF HOMO SAPIENS  – OUR SHARED LINK WITH THE DINOSAURS – IF ONLY THEY COULD COGITATE (“WHAT IS THAT BRIGHT LIGHT?  OH WELL.  WHAT A LOVELY PATCH OF GREENERY”).  THE FAILURE TO RECOGNIZE CHANGE AND PROFIT FROM IT OR AT LEAST, MOVE OUT OF THE WAY!  AND NO I’M NOT JUST SPEAKING OF GOLD’S PRICE. DENIAL - One of the major sins committed by investors and captains of industry alike.  Again not listening to the changing message, the vagaries of the marketplace.  It is easy to fall in love with your brilliance:  drink your own Kool-Aide.  I’ve done it more times than I care to remember or admit.  The trick is not just to be right but to consistently profit from the experience. Mel Brooks summed it up beautifully when he said “Death is easy.  Comedy is hard.” However, it is year-end the season for D’NILE: -REED HASTINGS’ HUBRIS, “JUST WAIT FIVE YEARS TO JUDGE MY COMPANY.” -ASK JERRY WANG (SELL YAHOO@$41) ABOUT THAT ONE -LET’S ASK (IN THE CONFERENCE CALL) THE CO-CEO’S OF RIMM – OWNERS OF THE VALUE TRAP – ABOUT PROSPECTS FOR 2012 -THEN THERE’S THE HONORABLE JOHN CORZINE WHO SHOULD HAVE FOLLOWED THE IMMORTAL WORDS OF PRESIDENT WILLIAM JEFFERSON CLINTON:  “DENY, DENY, DENY!” -EUROPEAN LEADERS [ESPECIALLY GERMANY] ON THE NATURE AND REQUIREMENTS FOR RESOLUTION OF THE LIQUIDITY CRISIS -INVESTORS WORLDWIDE WHO THINK EU LEADERS “DON’T GET IT!” -FINALLY, INVESTORS WHO ARE STILL WAITING FOR THE SANTA CLAUSE RALLY! As global markets search for a bottom the pertinent question is how quickly can China return to the growth path following second month of contracting PMI numbers.  Let us hope THEIR financial leadership is not similarly – in denial! Is the VIX Volatility Index in denial as the Arms Index swings violently between extreme overbought and oversold on successive days?  As the latest sell off from S&P 1265 continues to gather steam (YES WE CALLED IT!) curiously the VIX has petered out.  Could this conundrum be caused by year-end boredom on the part of traders inured of the daily triple-digit moves?  Or could it smack of a certain resignation of the crowd as to the direction -DOWN.  Hint: note the MACD is showing the same pattern now as in the October/November period.  Be prepared for renewed trajectory catapult if supports are broken.



Markets | No Comments

Equal Opportunity – Potential top @ 12,257.67

Written by G. Patton
December 8th, 2011 at 8:25 pm





Markets | No Comments

Equal Opportunity

Written by G. Patton
December 8th, 2011 at 7:59 pm

Check with the Hirsch Stock Trader’s Almanac, check with Art Cashin (UBS) and other “old fogies”, there is an old adage that covers this situation: “IF THE BEARS GET THANKSGIVING THEN THE BULLS GET CHRISTMAS”. File this under the category Equal Opportunity. Frankly, I think there’s an old adage for every conceivable situation.

Fed Chairman Bernanke is out in front once again with the liquidity fire hose – leading by example against the intransigence of French and German officials (Punch & Judy). This as the current European brinksmanship over how much to backstop foundering financial institutions and whether the ECB can buy sovereign debt threatens to drag global growth engine lower than previously forecast by 1% as reflected in current OECD forecasts.

The co-ordinated liquidity injection – taken at face value – comes at an eminently logical moment. Domestically, Thanksgiving week capped the Dow’s worst monthly performance in 70 years; threatening to set a kilter the venerated third year of the Presidential Cycle investment formula that has worked since, well…1939!
The last negative return during the third year of a presidential term was in 1939, when the loss was a barely noticeable 0.1 percent. That loss came as storm clouds gathered in Europe with the beginning of World War II. It is hard to think of any year since the war when Europe’s problems have loomed as large to investors as they have this year. See Floyd Norris piece in the 12/2 NY Times.

In China economic numbers from the PMI to real estate prices in the past week point to a gathering weakness directly as a result of the turmoil in Europe. Hence the Chinese central bank’s cut in their reserve requirement by 50 basis points. Finally, the S&P cut ratings on a slew of money center banks, internationally, better late than never. And the less said about Italian bonds over 7% the better. The Fed’s 5AM wake-up call to market participants: don’t become overly confident in the Doomsday scenario. The market’s massive response on the back of Monday’s rally based on IMF intervention rumor of 800 billion EURO -latter denied, has effectively changed investor psychology for the balance of the year. Just what the monetary mavens intended. It is a thin market peopled by a world of nervous traders; something about long-tail cats and rocking chairs comes to mind.

While the liquidity injection provides welcome relief to LIBOR woes (the focus of our last article), which were indictive of a looming crisis; it is hard to argue that the amelioration of the fear trade can lead to a sustained new up-leg in global equities. Especially given as so many of the global growth generators are registering zero to negative domestic production. In addition to economic woes in the UK the Eurozone is now widely considered to be in the beginnings of a mild recession.

It is likely that this rally, like others in the other in the last six weeks, this “in and out” trading [Dennis Gartman has new Patent Pending on "Risk-on Risk-off"]may last a few more days; and that concerns over European solvency may resurface unless augmented by some real reforms and iron-clad guarantees.

Taking the larger perspective: Since I wrote “5 Waves Down” in May, the market may have completed an Elliott Wave I end of September and is now in the process of completing an A-B-C Wave II pattern that continues into resistance around DJIA 12,250. Likely we are set for an extended trading range with Fed actions, verbal or physical, taken at 11,320 DJIA.

As with our disclaimer last time we have to add the old Marty Zweig chestnut: “DON’T FIGHT THE FED”!
S&P chart courtesy Sy Harding’s Streetsamrtpost.com.



Markets | No Comments

Angela Merkel Knows All Too Well Its Fictional!

Written by G. Patton
November 23rd, 2011 at 10:40 am



The nameless boy plugging a dike
A small fictional story has become well known in its own right in American popular culture. The story,[11] read aloud in a schoolroom in England, is about a Dutch boy who saves his country by putting his finger in a leaking dike. The boy stays there all night, in spite of the cold, until the adults of the village find him and make the necessary repairs.
In the book, the boy and the story are called simply “The Hero of Haarlem”. Although the hero of the dike-plugging tale remains nameless in the book, Hans Brinker’s name has sometimes erroneously been associated with the character

Three Month LIBOR Rate
From the freefall in India’s Rupee to Eastern Europe’s raging liquidity drought, the “risk off” tsunami is gathering momentum. As political leaders from China, to Europe’s Matriarch, make not so subtle gestures to plug the damns in their respective economies – Financial Darwinism – protecting one’s own, is the message the markets are telegraphing to central bankers. This as Bank of England reveals that confidence in financial system falls to lows last seen in Spring 2009 and their U.S. counterpart prepares new stress tests to conclude in Jan 2012.
China’s Vice Premier Wang, jockeying for position ahead of the 2013 Central Party reshuffle, was sounding the cautious Patriarch when he opined that the world, (China included?) was headed for a “Chronic Recession” phase. As we now know – from the dramatic fall in Manufacturing numbers – this revelation of inside information set the stage for Monday’s decline. It was also a clear invitation to European officials to peddle their bonds elsewhere.

Commerzbank-ing crisis

Meanwhile in Angela Merkel’s backyard the crisis at Germany’s second largest bank continued to spiral toward resolution. With a balance sheet of some 615 billion Euros ($850 billion), affiliates located from London to Poland, this is the poster child for too big to fail. It is also too big to become a “Bad Bank”, a repository for the legion of Sovereign Debt [TOXIC] that no one wants. Fortuitous then, that Christine Lagarde and the IMF announced an emergency loan program yesterday afternoon just after Hungarian officials turned up -hat in hand – seeking loan guarantees.

Totally unrelated to the former was the announcement by the Federal Reserve of a new stress test for select financials of the too big to fail variety, which includes – for the big six “trading banks” specifically modeling a global market shock. It is enough to make one wonder is there something in the wind in excess of MF Global’s $100 billion potential dislocation, as ECB overnight loans hit levels last seen at the bottom of the 2009 crisis?

Markets Message?

If so then it is not being predicted by the standard ETF measures of risk FAZ (banking) and VXX /TVIX (market volatily & 2x volatility) Please note: Patton Capital has had positions in the past and may again in the future. While both have trended higher lately they are nowhere near the levels seen near the peaks of panic. Does this mean the crisis has further to progress? Or does the declining tops on yearly charts simply indicate that markets are becoming inured of panic and that the orderly resolution of insolvent financial institutions will continue without major market dislocations?

While withholding ultimate judgment of the markets message for now – it is an investable trend that bears watching (pun intended). In a recent post I opined that it would be the insurers as canaries in the coal mine, much as it had been in the lead up to the Panic of 2008. With the benefit of hindsight it now occurs that maybe this time the banks were unable to pass on the paper and are the very eye of the current storm. Hence the dramatic rise in LIBOR three month rates since August. The good news is that one year LIBOR rates are predicting the crest of the current liquidity tsunami by the first quarter of 2012. Just about the time the Fed announces the results of the latest Stress Test to End All Stress Tests.



Markets | No Comments

« Previous Entries