The Cramer Missile Crisis – Day 3

If you sold out of your long positions on Day 1 of this egregious crisis, or even better, went short and are deep underwater now, don’t despair. James “Rear Admiral” Cramer couldn’t possibly be wrong, could he? CNBC wouldn’t let just any joker on it’s air to inform you of imminent war, would they?

Of course, Israeli Prime Minister Benjamin Netanyahu has been campaigning for a US strike on Iran for years, but I’m sure his recent trip to meet with President Obama was far more profound. After all, the Rear Admiral said so, right?

P.S. While you are waiting for Cramer’s missiles to fly, you may want to contemplate one of Warren Buffet’s favorite sayings: “If you don’t know who the sucker is, it’s you.”

The Great Joe Weisenthal Rally of 2012

On December 15th, I posted “S&P 500 Fractal End-of-Range Signal” where I wrote:

“The market has been range-bound for this long because half of investors are thinking: ‘the economy is improving, so I should be buying stocks’, and the other half are thinking: ‘the wheels are coming off of Europe, so I should be selling stocks.'”

I predicted that the market would break out of its range within the next few weeks. Three weeks later, that’s exactly what happened. However, I didn’t predict which way it would break; only that the range was long in the tooth.

However, the next day, Joe Weisenthal at Business Insider posted this:

“Want to see a CLEAR sign that funding stress has eased in Europe? …this has a lot to do with the ECB’s actions that will allow banks to borrow money super-cheaply for 3 years and buy sovereign debt that’s yielding a lot more. If that’s the case, it’s working. Major shift here in the last few days/weeks.”

He totally nailed it. So, I hereby christen this rally as “The Great Joe Weisenthal Rally of 2012.”

Moral of the story: Don’t fight the Fed, or the ECB!

Next week, we get another LTRO operation from the ECB. So that’s a very big deal.

Martin Armstrong Ain’t No Oracle

I see that there is a movie about Martin Armstrong. I didn’t realize that he was out of prison. In any case, I agree with Barry: “Way too conspiratorial…”, but I will go further.

Martin Armstrong is a bullshit artist. How do I know that? Because he writes a lot about this super-intelligent computer that he invented 25 years ago.

And I have a degree in computer science.

So when he writes things like:

“Now I needed my children to help put a face on the computer. By this I mean I had to teach it how to communicate. I initially established a type interface.”

…I burst out laughing. No engineer would ever say “type interface.” The term is “command line interface”. Maybe you remember it from the old days of MS-DOS. If you look at the Wikipedia article, you will not see the term “type interface” anywhere on the page.

Right? It’s a joke. Armstrong writes gaffes like that constantly whenever he is carrying on about the magical computer that can predict the future.

If you see him, open up your Mac and start up the “Terminal” app. Ask him to type in a “copy” command. I bet he will stare at it like a deer in the headlights.

Note: Armstrong’s “type interface” quote can be found on this page. There’s a lot of text on the page, and the quote is nearer to the bottom. But I’m sure you know how to search a page for a piece of text, right? Right???

China Bites Off $375 Billion Chunk of US Economy

Libertarian economist Walter Williams jumped for joy when a Federal Reserve Bank study found that imports from China amount to “only” 2.5% of US GDP. Finally! Some solid evidence that our libertarian open-borders policy wasn’t destroying America!

But should libertarians and other globalists really be breaking out the champagne? I don’t think so. While 2.5% of GDP sounds pretty small, remember that our GDP is rather gigantic at $15 trillion. So, the Chinese bite amounts to $375 billion.

What does that translate into jobs-wise? Hard to say, but let’s calculate a rough estimate. In 2010, Walmart’s US sales were $258 billion. So, we can say that China has bitten off about 1.5 Walmarts. And since Walmart has 1.4 million employees in the USA, we arrive at a rough estimate of 2.1 million jobs lost to Chinese imports.

That’s not small potatoes.

Do we have 2.1 million jobs to burn? Not hardly. Would President Obama like to have those 2.1 million jobs in his pocket as he seeks re-election? He sure would.

And of course, when I rant about China, I am only using it as an example of our larger policy of free-trade with low-wage nations. So, countries like Mexico and India would have to be added in. Not only that, but the Fed’s calculation doesn’t consider collateral damage.

What happens to local businesses when you pick up the 250,000-strong US shoe industry and move it China? Do we only lose 250,000 jobs? Of course not. Just imagine all the restaurants, dog-groomers, and accountants who no longer have those 250,000 shoemakers as customers. The Fed report did not consider that, but the truth is that imports of sweatshop goods and services have cost the USA several million jobs.

Is it a coincidence that strong US economic growth is a thing of the past, and rapid Chinese growth is now the standard?.

Is it a coincidence that “jobless recoveries” began shortly after the gates were thrown open to cheap imports?

Is it a coincidence that the number of Americans on food stamps has nearly tripled since China was admitted to the World Trade Organization?

I don’t think so.

People like to blame Alan Greenspan for keeping interest rates too low, blowing up the housing bubble, and destroying the financial system. But I hold that Greenspan kept his foot on the gas peddle too long because he was unknowingly trying to fight the massive tide of offshoring. The real root cause is the libertarian, free-trade dystopia that was constructed at the end of the last century.

When you look at a product stamped with “Made in China” on a Walmart shelf, you are really looking at the tombstone of an entire American industry. See this story for how China targets small American manufacturing companies. Ironically, if an American company fights back against the mafia-style tactics of the Chinese, they are attacked by American retailers too. You see, retailers want those cheap Chinese products on their shelves, and actively try to destroy American producers.

Of course, American exporters are selling to China. Back in the day, the globalists used to argue that those new exports would create enough new jobs to offset the jobs lost. But that has been completely debunked. Not even Larry Kudlow will make that argument now!

History will prove my view correct. Wait and see. The USA topped-out when we brought China into the WTO. Short of trade-reform, it’s all downhill from here.

Note: China was admitted to the WTO in December of 2001. However, nations like Mexico and India were admitted earlier. See the list here.

Note: The Fed study linked above was conducted in response to the charge that the Fed’s QE2 policy would create inflation in the USA. The Chinese peg the yuan to the dollar, so they had to print huge amounts of currency to maintain the peg. That caused inflation in China, and the prospect of it propagating to the USA via higher-priced imports. I’m not saying that the Fed’s study is flawed. However, it is important to consider the context. The study would likely have not been done if the Fed didn’t feel the need to justify QE2. So, they did have an axe to grind.

Note: I was a supporter of QE2, and took much delight in the squealing of the Chinese, and their globalist fifth column here in the USA.

Top Investing Websites – Update #2

Update: The list of top investing websites now has a permanent home on this page. Please go there to see the latest Alexa rankings.

Here is an update to the list of top investing websites as compiled by my Rank-O-Matic app. I have added 19 new sites – denoted with an asterisk after their name. I found a few more, but their Alexa ranks were so low that I decided not to add them. I like having Larry Kudlow as the anchor (ha, ha) of this list. He’s great at SHOUTING ON CNBC!!!, but apparently couldn’t write his way out of a paper bag. Take that Kudlow!

Note: SPYderCrusher debuts with his new site, already above Kudlow.

Note: I outrank The “World Famous” Gartman Letter, of which I am not “subscribed of”.

Note: I have added Niall Ferguson because it pleases me to out-rank famous people. While he is an historian, he does specialize in economic and financial history, so one can make a case for his inclusion.

Here’s Me in IBD

On the morning of October 5th, Challenger, Gray & Christmas released their monthly job-layoffs report with a headline screaming: “Layoffs Surge to Highest Total Since April 2009”.

Later that night, I was quoted in Investor’s Business Daily commenting on withholding-tax collections:

“the data show no evidence of serious job losses”

And I was vindicated on the following Friday, when the big “Employment Situation” report almost doubled analyst expectations showing 103,000 jobs added in September. Not to mention hefty upward adjustments for both July and August.

Maybe Challenger’s layoffs have yet to bite since they report layoff announcements rather than actual layoffs. But then again, maybe they won’t. See the explanation that Business Insider published here.

In any case, the hardest of hard data on jobs (federal withholding-tax collections) will continue to give my subscribers at The Daily Jobs Update the straight story. Which, as the jobs report showed last week, is that the economy is not in recession like everybody thinks.

Companies Add Jobs for 18th Straight Month – Investors Jump Out Windows

The horror! Another month of the private sector adding jobs (click chart to enlarge):

I have taken the liberty of adding back in the 45,000 jobs that were subtracted from the August total due to the Verizon strike. Those jobs are still there after all. But even without that adjustment, it would still have been 18 months in a row.

So why did the stock market dive 2.5%? Investors are worried that the economy is stalling and becoming vulnerable to recession. And indeed, if we look at the second derivative of the first chart, we see that jobs growth has stalled. And the annual growth rate has ticked down for the first time since the bottom:

However, if you look back at the top of the last cycle, you can see that the growth-rate peaked in early 2006. And the stock market didn’t top out until October 2007 – a year-and-a-half later. So, while the slowing of the growth-rate is concerning, it is not necessarily the kiss of death.

And there is a huge difference between now and the last peak: the Fed had taken rates up to 5% and held them there until the housing bubble popped – and the rest of the economy along with it. Back then, the Fed was deliberately squeezing the economy, and that is the very best sign of a coming recession. Look at this Fed Funds chart:

Is it a coincidence that recessions are triggered by rising rates? I don’t think so.

And is the Fed squeezing the economy now? Not hardly, right? Is it possible for a recession to begin with rates at 0%? I suppose so, but it’s not something that has happened in the last 60 years.

Now, if Bernanke started raising rates while complaining about a gold bubble, then the odds of a recession would skyrocket. The Fed also likes to have a recession when workers get too uppity. Got to fight that “wage inflation”, right? Not exactly a problem at the moment…

And of course, there is a presidential election coming. Unless the powers-that-be give Obama the thumbs down, you can bet that the entire federal apparatus will be in high gear trying to keep the economy afloat. Hell, some of those CIA black helicopters might even fly over here and drop some bales of cash on us when they are done in Libya.

A non-hysterical scenario would be a muddle-through economy over the next year, accompanied by a range-bound stock market. Time will tell, but as I’m sure you know, swing traders can make huge profits in such a market. I think that’s a more likely scenario for as long as the Fed remains friendly. If the Fed turns hostile, Jean-Claude Trichet style, then I can’t be responsible for what happens. Of course, the ECB has already backpedaled, so the world’s two most important central banks are now dovish. Maybe it’s too late, and Trichet has doomed the world to recession. What do you think?

Simon Puts the Smack Down on Cramer

And it’s about time. During the numerous market panics over the past few years, we have seen Cramer pour gasoline on the fire. He was at it again on Thursday. At the end of the first video below, Cramer says:

“We have these banks. You don’t know what they really own because there’s absolutely very little clarity. And they don’t have enough capital. And they may have a window from an ECB, but in the end, even if they have to use it – we saw what happens, you get to the paper and it’s like panic is instilled by using it.”

Cramer was informing viewers that the situation has hopeless, that the ECB could do nothing to stop bank runs, and the situation was a state of panic. Gasoline, no? I mean, the market was already in a panic.

That’s why the great Simon Hobbs got in his face, as opposed to the other simpleton broadcasters on CNBC who should all be fired. What numbskulls!

Here comes Simon, and his pressure brought out a surprising revelation from Cramer:

It’s amazing that Cramer thinks his opinion about these things matters at all. I mean, did he really know anything about the situation at Bear Stearns? Was he in the loop, discussing matters with Bernanke, Geithner, Paulson, and President Bush? I doubt it. And I’ll bet that he knows even less about the situation in Europe.

And yet, he makes these statements like he is Moses handing down commandments. WTF?

Cramer thinks that he has a fiduciary responsibility to yell fire in a crowded theater, because if he doesn’t, and a fire starts, people will be mad at him. Ridiculous.

But if Cramer knows that hedge funds (plural) were targeting European bank stocks, doesn’t he have a fiduciary responsibility to tell what he knows the SEC?

I’m no lawyer, but aren’t coordinated bear-raids a violation of the Securities Exchange Act of 1934?

At the 1:48 mark of the second video, Cramer says:

“I do know that there’s large hedge funds that are concerned about the liquidity of banks, and they’re gunna try to do what they did here.”

Meaning: cause a Lehman-like collapse.

Well, how about it Cramer? Are you going to use your inside information to save the day by informing the authorities about this conspiracy of hedge funds?

Rick Sneeratelli

Part of Rick Santelli’s job on CNBC is to announce the unemployment-claims data every Thursday morning. And whenever the data is good, Santelli sneers at it, carrying on about how it will be revised, or why it’s not good enough, etc. If you got all of your information from Santelli, you might think that things were getting worse.

But clearly they are not. Here is a chart of the 4-week moving average of new unemployment claims, which you can see has been improving in recent weeks (click chart to enlarge):

And the spike up in the spring was almost certainly the result of assembly lines shutting down after running out of Japanese parts due to the earthquake/tsunami/meltdown.

Santelli can sneer all he wants, but people keeping their jobs is considered a good thing amongst normal people.

Santelli is a bad announcer. Mixing editorial opinions into the actual reporting is bad practice. If he wants to give an opinion after he reports the facts, that’s fine. But as it is, I never get a clear picture of the news from listening to him. I have to go to Bloomberg to see what actually happened.

With Santelli’s Tea Party downsizing the public sector all across the country, and the likes of Jeff Immelt still exporting private-sector jobs clear out of the country, it’s a miracle that claims are dropping at all. We may have a political disaster in Washington, and a financial disaster in Europe, but we do not yet have an economic disaster on Main Street – Sneeratelli notwithstanding.

Bernanke Shows How It’s Done

When there is a banking crisis in Europe, Jean-Claude Trichet pours gasoline on it

In come circles, that is considered odd behavior.

Especially for a central banker.

But not in Europe. Over there, Trichet gets to keep his job.

Bizarre.

Say what you want about Ben Bernanke, but at least he tries to make things better. What did Bernanke do today to cause the huge rally? Nothing really. But at least he didn’t roll a grenade onto the NYSE trading floor like we saw Trichet do twice during the past week.

That makes a difference.

McClellan Oscillator Makes Record Low

The McClellan Oscillator, which is a breadth momentum indicator, made a record low today. According to TradeStation data, it is now at -424.59, which is lower than both the TARP Crash low (-407.47), and the Flash Crash low (-414.13).

The selling stampede that we have just seen has been the most intense in at least 45 years. This doesn’t mean that it’s over though. The market could continue to drift downward at a more sedate pace. To see what that might look like, go back on your SPX chart to the two previous MacOs record lows:

October 9, 2008 – TARP Crash
May 20, 2010 – Flash Crash

In both cases you will see the market spending months carving out inverse head-and-shoulder reversal patterns before rallying back.

Recovering from the TARP Crash took a long time because the economy was in recession. Bouncing back from the Flash Crash was much quicker because the economy was expanding. At the moment, the economy is continuing to expand as we saw with Friday’s jobs report. If that holds up in the coming weeks, then the market has a decent chance of rallying back.

However, there is no sign at all of a reversal pattern on the chart yet. If one does indeed form, it will likely require weeks or months. If it is another inverse head-and-shoulders, then that means this current low is only the left-shoulder, and a lower-low at the head is coming.

The moral of the story is that there is no rush to catch the falling knife – even if you know for a fact that the market will be at new highs a year from now – which you don’t.

Trichet Crash II

I have always maintained that the so-called “Flash Crash” of May 2010 was in reality triggered by Jean-Claude Trichet when he voiced his “let Greece burn” sentiments on the morning of the crash.

And now I am vindicated because Trichet did it again! At the European Central Bank policy meeting on Thursday, August 4th, as financial panic was engulfing Italy and Spain, Trichet announced that he was thinking about raising interest rates some more!

And the markets crashed again.

Can you believe that?

Trichet should have been impeached or fired, or whatever they do over there, last year. He is completely tone deaf to markets.

This has to be the greatest display of financial incompetence in the history of the world.

Ambrose is Back

British reporter, Ambrose Evans-Pritchard appears to be back from his months-long sabbatical. The Telegraph just published a new column.

I am an Evans-Pritchard fan because he is one of the few people in the media who actually understand how China’s yuan peg to the dollar is really a protectionist, mercantilist device designed to siphon jobs out of the USA.

Poverty is a Problem After All

How many of the 44 million people on food stamps own smart phones? I don’t know, but according to this story, 64.5% of new mobile customers signed up for low-end, pre-paid service in the first quarter. And that’s more than double the number from 2006.

Poverty is a problem after all. Who knew, right?

What’s amazing is that there is no serious effort, or even discussion about bringing the factories home. Sure, it’s fashionable now to say that “labor arbitrage is over”, but even if that were true, which it probably isn’t, so what? We are left with the horror of a vast swath of our population not able to feed themselves, let alone buy TV shows via an iPad.

As we sit here waiting for Japan to save us, by resuming the export of auto parts to Mexico, where they will be “assembled” by former US plants, imported into the USA, and then sold by our fabulous “service economy” auto-dealers so that our lackluster economic expansion can continue at a blistering 1% pace, one wonders exactly when we will see ourselves for what we really are: a developing nation in need of protection from foreign imports.

For a long time, South Korea was one of the few places in the world where you couldn’t find a Toyota to save your life. Why not? Because of their “Automobile Industry Protection Act” adopted in 1962.

But protectionism is bad, right? Surely it must have caused a disaster in South Korea!

Guess again.

South Korea now has the 5th largest auto industry in the world, and is nipping at Germany’s heals. See the league tables here.

We opened our markets to European and Asian exporters to help build them up after World War Two, and fend off the Soviet Union during the Cold War.

Guess what?

Mission accomplished.

We saved the free world.

But if you think that we won the Cold War without paying a price, guess again.

The price is all too visible in our gargantuan national debt and massive food-stamp population.

Are we now a “developing” nation? Maybe not technically, but it would behoove us to act as if we were so that we have a chance of staving off such an outcome.

One of the few remaining items on the asset side of the national balance sheet is our huge consumer market. Sure it’s melting away as more and more people descend into poverty, but as the saying goes: “there is a lot of ruin in a nation.”

In other words, it might not be too late.

It’s time to start thinking of the USA as a developing nation. It’s time to circle the protectionist wagons, South Korean style, and adopt a national policy of industrial growth.

We have tried financial engineering. We have tried to mark-up the price-tags on our houses. We have tried to conquer oil-rich lands. And President Obama has tried to “double exports”.

Guess what?

It was all BS.

The “glorious” decade of wide open “free trade” with low-wage nations like Mexico, China, and India has SMASHED our economy.

And there is no political constituency to reverse the process.

None at all.

Tech Hiring Frenzy

Friday’s jobs report was weak relative to recent reports, but look at these two stories I came across. There seems to be an insane hiring frenzy going on in the tech sector. This guy is complaining about the quality of available programmers:

“There’s a boom on… Everyone’s desperate to hire developers…”

And this University of Washington professor has a more detailed analysis titled: “Red Hot: The Computer Science Job Market“. He says that his students are being recruited with salaries as high as $105,000 and $30,000 signing bonuses.

One student got an internship with a big company paying $30 per hour. He asked if he could work in their London office, and they sent him right over.

This is tempting me to come out of retirement and do a project or two. It just so happens that I have a computer science degree, and I can code circles around these punks. If Groupon or LinkedIn wants to throw money and stock options at me, who am I to stop them?

Of course, this type of feeding frenzy might be the sign of a top. Is Groupon just the reincarnation of Pets.com? Time will tell, but at the moment, there is no jobs-related gloom in the tech industry.

SimplyHired.com has a thing that makes employment trends charts. If you are looking for a new career, Search Engine Optimization seems to be on fire (click chart to enlarge):

The Java programming language seems to be top dog:

I suppose that has a lot to do with Google’s Android apps being written in Java.

Richard Russell’s Fan Lines

Last week, Richard Russell made a bearish call using the “three fan line” technique. You can see his chart here. Russell used the NYSE, but here I will reproduce his idea using the S&P 500 (click chart to enlarge):

My first quibble is with the first fan line (blue), which is not drawn through a significant swing low. The late November swing low was the first serous correction of the move up off of the September low. Russell’s other two lines are fine, but I would label the pink line as #1, and the red line as #2.

But why begin in September? Why not take a look at the entire bull market? Here is a weekly chart beginning in March 2009:

The SPX could drop another 85 points and still be above the primary trend line of the bull. Furthermore, the bible of technical analysis, Technical Analysis of Stock Trends by Edwards & Magee, states on page 277:

“…the Fan Principle is normally applied only to corrective moves…”

So, we are not supposed to use fan lines to predict the end of a bull or bear, but rather the end of a correction to the primary trend. What might that look like? Here is a monthly chart of the SPX where I have drawn my fan lines from the 2007 top:

The red line is not legitimate yet because we have only had a tiny pullback from the May high, and we don’t know if it will prove to be a major swing high. However, if it eventually does, then we may have a third fan line on the recovery from the 2007 top. As long as we are under that line, you could say that the rally up off of the March 2009 low has just been a bear-market rally on the monthly time-frame. And the red line might prove strong resistance for bears to sell against going forward.

And if the SPX can break above the red line, then you could argue for giving up the bear-market rally thesis, and expect a challenge of the 2007 top.

Does GDP Roll-Over Spell Doom?

On the chart below, you can see the black arrow pointing to GDP down-trending for the last two quarters. You can also see the blue arrow pointing to GDP topping-out in 2Q04 and dropping for five years.

Now before you scroll down, see if you can guess what the second chart will be about. (Click charts to enlarge.)

On the next chart I have added the S&P 500:

Notice that stocks rallied 33% for three years after GDP topped out in 2Q04 (green line). If that was your guess, then you get a gold star. Tell your Mom that I said it was OK.

Will history repeat? I don’t know, however I’m guessing that with the Fed holding rates at 0%, the odds of plunging back into recession aren’t all that great. But if they raise rates to fight inflation, then things will certainly get much more dicey.

Lack of Demand

The stock market has been rocketing upward for over a week now, so you might be wondering how my bearish call on Demand Media (DMD) played out. Did DMD catch a break from the frothing bulls?

Not hardly. As a matter of fact, there has been a distinct lack of demand for Demand. Here is a daily candlestick chart since I made my call on April 17th:

Down over 20%. How about that?

The moral of the story is that Google is a king-maker. If you follow their guidelines, they will list you prominently on their SERPs. If you cross them, they will lop off your head.

Take a look at the “stock market advice” SERP. In the #1 position you see fool.com. Google AdWords reports that about 2,900 people do that search each month, and I’m sure that fool.com ranks very highly in a multitude of related searches. Suffice it to say that at least a thousand fresh-faced investors are landed on fool.com’s doorstep each month, compliments of the king-maker.

What’s that worth?