Matt Trivisonno's Blog

Note to Charlie mUNGer: Do you really want to go the “Al Gore Route”?

Warren Buffet sidekick, Charlie mUNGer, recently wrote a parable about the USA titled: Basically, it’s over…” I’m not disagreeing with his view, but look at this quote which refers to the USA:

“…rich in all nature’s bounty except coal, oil, and natural gas.”

OK, he was exaggerating a bit for his parable, but take a look at this weekly chart of natural gas over the past couple of years (click to enlarge):

The price of natural gas has continued to plunge right through The Winter of Al Gore’s Worst Nightmare. Does it look like there is an energy crisis on that chart? Not hardly. It turns out that natural gas is found in rocks, and the USA has lots and lots of rocks. In fact, we are sitting on so much natural gas that one badly placed spark could blow up the whole country.

That gas has been there all along; we just couldn’t find it. But now we have new technology, and we are finding it like crazy. If all that you have to dig with is a straw, the only place you will ever find oil is in Iraq. Everyplace else requires better drilling technology.

The moral of the story is that energy is a function of technology. If you say that the world will run out of oil on such-and-such a date, you are really proclaiming to know the future of technology. And seriously, who would be foolish enough to do that?

On February 4th, I wrote: “Of course, we have the big jobs report tomorrow morning, which often establishes swing highs and lows on the daily chart.” And we got a swing low, right? Now let’s look at an example of the jobs report causing a swing high.

On March 4, 2005, the BLS reported that the economy had created 262,000 new non-farm payroll jobs. Seems like a miracle, right? But look what the market did (click chart to enlarge):

The SPX rallied on the news, closed up another 3 points the next day, and then went off the cliff. That swing high lasted for four months.

I don’t know if the market printed another swing high today, but if it did so, it certainly wouldn’t be out of character.

As I expected yesterday, the SPX rallied up to 1123 and then turned down sharply with the SMH and IYT plunging through their Monday gaps. But while the market refused to fulfill the rest of my prophecy, if you were watching the comments, George gave you the heads up here. If you look at the time-stamp on his two comments there, and then look at a 1-minute intra-day SPY chart, you will see that he nailed the bottom and the squeeze into the close.

All the major ETF’s gapped-up Friday morning, but they all fell back to fill their gaps except for the XLF. The XLF single-handedly kept the market from rolling over. Everybody is expecting a weak jobs report this morning, and consequently the financials are cheering another month of expected easy money from the Fed.

If you are a bear, you can say: “That’s a dumb reason for a rally.” If you are a bull, you can say: “Rallying into a bad jobs report is an indication of animal spirits.” Traders appear eager to forgive a blizzard-weakened number, but will they really? Film at 8:30am. And don’t forget that swing highs, and lows, are often printed on NFP day. Maybe SPY will run up to George’s “Moo Gap” and set a bull trap.

Futures are floppy as I write, so perhaps we will see a test of the support at Monday morning’s gap. The IYT was the first to test its gap, and now the SMH has joined it. The VIX also found support at its January 20th gap on Wednesday morning. So, I’d say that the odds are with the bears today, though I’m keeping an eye out for a run up to 1123, which was Tuesday’s high. Maybe the SPX will print the right shoulder of a mini head-and-shoulders there, and then roll over in fear of Friday’s jobs report.

My withholding tax charts were one of the very first things that I published on this blog when I started it two years ago. But you don’t have to take my word for it. You can look at this post on Barry Ritholtz’s blog from May 15, 2008. That post shows one of my second-derivative charts pinpointing the beginning of the recession. Here it is:

Barry published my charts several times and always gave me full credit. He is a stand-up guy. Karl Denninger? Not so much. He published my chart without asking and did not link to my site. John Mauldin? He just plain stole my chart.

But now look at Joe LaVorgna of Deutsche Bank using my exact technique. It looks like he traced one of my charts with a crayon. Compare his crude chart to one of my highly detailed charts (click to enlarge):

(That chart goes through November 30th. My subscribers can see the real-time chart at www.DailyJobsUpdate.com.)

During the Summer of 2009, LaVorgna appeared several times on Larry Kudlow’s CNBC TV show and predicted upside surprises showing job-creation in the BLS’s “Employment Situation” report. He got it wrong every time, and gave up after a few months. It was an embarrassingly bad performance for such a heralded economist. And now he has embarrassed himself even worse. My charts have been all over the financial blog-o-sphere for two years. Everybody knows that this is my technique. It was very foolish of him to not give me credit.

You can read a criticism of LaVorgna’s analysis, and this technique in general, on this page. I agree with Wildebeest that LaVorgna is getting it wrong again, still being too optimistic.

However Wildebeest is missing the point of this technique. The US economy turns very slowly. From the MacArthur Causeway in Miami, you can watch huge cruise ships turning around in a giant watery cul-de-sac called a “turning basin”. It takes a long time; they turn very slowly. But once they have turned, they can sail out of the port. That is the exact type of turn that this technique is designed to depict.

Look back at my big chart above. For several months in 2002, there was “no progress” in withholding tax receipts. But the ship was turning, was it not?

At the moment, withholding taxes are still down year-over-year. That’s the raw data. But there might be real improvement after you adjust for the “Making Work Pay” tax credit. I have a detailed analysis on this page. I also provide charts of the raw data, and the adjusted data so that you can make your own judgements. Don’t forget that of the three people reporting on the withholding data, TrimTabs, LaVorgna, and myself, I am the only one who doesn’t run a hedge fund. So, not only do I proclaim to have the best analysis, but I also claim to be the only objective analyst.

(Note to perps: as you may have noticed in the links above, your infringing pages have been archived at WebCite and elsewhere. So, don’t bother editing your websites. Permanent copies exist. Take that weasels!)

(Note to fledgling bloggers: if you are trying to get your blog on the map, and have something that Barry might be interested in, by all means send it to him. If he publishes it, not only will you get full credit, but you will also get a link which will bring a torrent of traffic from his huge audience.)