That Nasty Word - Stagflation

Let's look at the U.S. economy like a "super-star" professional athlete. Much like a star athlete, the U.S. economy is always in the spotlight, and others look for leadership from said "super-star". That being said, global investors should focus on the performance of the U.S economy as a barometer. Here is what I am getting at, if an athletic phenom is taking a boat-load of steroids (much like the Fed pumping trillions of dollars into the economy) - then we should expect exceptional results (one would think). Instead, despite all of the inflationary printing of U.S. dollars by the Fed - the U.S. economy is putting out a whopping 1.5% GDP (and shrinking). The next question should be, what will happen when the Fed runs out of "tools" to spur growth? One answer may be that the Fed will never run out of "stimulus", as they can continue to print more money. The most important question is how markets will digest stimulus measures in the intermediate term. A term that you already know, but is not in the media currently - is stagflation (declining growth with increasing inflation). This is the worst scenario any central bank could deal with, as their hands are tied to make future policy moves. The way the economy has reacted to unprecedented stimulus measures from the Fed should be a clue that stagflation may be much closer than one expects.

A Possible Cure for Facebook's Mobile Issue

I am sure the powers that be at Facebook have already considered this, but I think this could be the easy solution to their looming issue with the increasing migration to mobile viewership. In order to monetize mobile use, FB should look to Zynga's app model (I know - Zynga is a crap stock, but FB should take a slice of their strategy and implement it for their own benefit). Zynga has a free app and a paid app for their products. They are able to advertise with their free app, and offer a paid app without advertisements. FB may want to extract a part this business model and have a free app with ads delivered at certain times, and a paid app that has zero advertisements. Realistically, FB could charge for their non-advertisement app at say $10/year. I don't know about you, but if FB rolled this out - I would be pissed at first but then succomb to the fact that I access FB so often with my mobile devices that it would make sense to pay the $10 subscription fee per year. And for those who put their feet down, they will access FB less often with their mobile devices due to annoying ads popping up - thereby encouraging them to use their PC's to access FB which provides a better advertising environment for the company. Maybe Mark Zuckerberg will read this and hire me on as an advisor (as I have many more ideas for the company), but don't hold your breath!

Facebook Earnings Aftermath

It would be an understatement to say that Facebook's earnings release tomorrow after the markets close will be closely watched. I have no opinion on what the earnings are going to be like, but I will try to give my views on how the markets will trade on the news. The first outcome would be if Facebook (FB) beats expectations. This would give some additional confidence to the markets, but stocks won't roar from it. The second outcome is that FB disappoints, on either current earnings or guidance. If this were to happen and the stock sells off massively - the markets will tank due to the residual effects on investor confidence, especially retail investors. Morgan Stanley (MS) will also tank, and they are at critical support levels on its stock chart. Again, I have no clue what FB will do tomorrow regarding earnings. I am only stating how I think the markets will treat either outcome.

Does Q-Easing Matter at this Point?

The Fed's last gasp of air will be coming soon. Today's stock market rebound from rumours of more QE is even more telling. Now markets will digest that possibility and move on to more prescient matters. Even when the Fed inevitably announces QE measures, the market will fade from the pop because the "smart" money has already factored in the move and will look toward what is next (and who will support the markets going forward)...

Is Apple the Next Microsoft or Cisco?

Think about it for a minute. Both Microsoft and Cisco became unrelenting powerhouses in their hay-days. They both continued to march higher based on their competitive edges and grew their market caps to extreme levels. MSFT and CSCO both had a "corner" on the market for their products, much like AAPL does today. At the peak of their moves up, these two stocks have essentially done nothing over the past 12 years. However, in the short-term - AAPL may be a stable stock to be invested in this chaotic market due to their relatively low valuations. Even so, I believe that this recent earnings miss and guidance disappointment will mark a long-term turning point for the stock, much like what MSFT and CSCO experienced in the early 2000's.

Is the Fed Giving Banks a Way to Unload Risky Assets?

This may sound like a conspiracy theory – that’s because it is. I do not believe that this is really happening, but as an avid player of Chess – I like to look at things from different sides and 3-4 moves ahead. Okay, here’s the conspiracy……the Federal Reserve is pumping gigantic amounts of liquidity into the markets in order for the “too big to fail” banks to be able to unload risky assets at higher prices before the next crisis hits (and freeing up capital to boot). Once the sheet hits the fan, the banks will have “better” hopes of surviving. One good thing, if this is the case – it will be the trading robots that eat the losses. Imagine their drive home to tell their robot spouse...

Investors Should Be Wary Of S&P 500 P/E Ratio

Every time you log-in to some financial news outlet, they have articles and live interviews with "analysts" who recommend buying equities in general based on a couple weak reasons. The most popular of those factors is perhaps the most flawed - the P/E ratio for the S&P 500. This number is compiled by dividing the price of the S&P 500 by the "expected" earnings of the companies that comprise the S&P 500 (with an emphasis on "expected"). The reliance of this model goes right out the window when corporate profits shrink. One cannot accurately gauge the direction of risk assets when the P/E is rising only due to declining earnings. The media will inevitably continue to mention the overall P/E ratio for the market, but as global economies shrink - it will be something the "analysts" speak of much less.

Technical Storm Brewing for Bank of America - BAC

Bank of America Corporation - BAC will be the company that financial stock investors will monitor the share price of over the next week or two. If you look at the posted chart going back to mid June, you will see that the stock has been establishing lower highs and lower lows. If BAC is to break-out of this bearish trading pattern, it must close above $8.22. This scenario could very well come to fruition given the current erraticness of the markets. If you are a trader, the level to short has two different entry points at either a failure to close above $8.30 (with a tight stop at $8.40) or a break below $7.40 on a closing basis. On the other hand, if you wish to go long for a quick bump, then be careful and only do so if BAC closes above $8.30, with a tight "closing" stop just below wherever the 50-day moving average is at the time. I believe that the markets will be focusing on how financials trade over the next few weeks to get a gauge on how things will pan-out for the rest of the year. However, this point will only prove valid if we don't get any earth-shattering news out of Europe or China - then all "bets" are off.

A Shout Out for Fed President Bernanke

I know many folks will think I'm crazy (join the club), but I think Bernanke has done an incredible job over-all. He came into office during the financial crisis of 2008-2009, and with zero help from Congress - he has managed to keep things afloat (for now). The economy is better stimulated through fiscal policies (taxes, etc) rather than monetary policies (The FED). Unfortunately for Mr. Bernanke, he wasn't privy to having a Congress that conjunctively passed fiscal policies to spur economic growth.

A Bubble No One is Talking About

Bubbles form over time, and the majority of the media and investors are aware of the bubbles as they grow. However, despite the realization of the bubble – speculators continue to drive up prices for a seemingly long time before the bubble bursts. As we have seen in the past 20 years, bubbles that form always pop – and are violent when they do. There is a new “stealth” bubble that is going on right now in the markets. The difference between this one and the others from the past is that no one is talking about it or giving notice. I am calling this new bubble the “Hope Bubble”. It seems that with each passing day we receive negative news out of Europe, the global economy, or even the U.S. economy. What happens when we get this news? The stock market goes up in value. Investors are “hoping” for two things. The first is that the world’s central banks will ramp up stimulus measures thereby giving a pop to riskier assets. The second “hope” is that the global economy as a whole will have a “soft” landing and avoid recession. In order for the “Hope Bubble” to stay inflated and continue to get even bigger is for BOTH of these hopes to stay intact. If stimulus comes from central bankers, that will keep the bubble going. However, if the global economy starts to show evidence of a moderate to severe recession (which I believe is just a matter of time) – this “Hope Bubble” will burst and markets will plummet from all of the “Hoper’s” exiting the market.

Long-Term Head & Shoulders Top in S&P 500

I pulled a maximum chart for the S&P 500, and noticed something peculiar. The index appears to be in the process of forming a long-term head and shoulders top that could bring the index down below March 2009 lows over the next 6-12 months. A head and shoulders top is an extremely bearish chart pattern. It involves an initial upward movement and minor retreat (forming the left shoulder from 2000-2003 with the S&P 500 peaking at 1498), followed by another upswing to new highs (forming the head from 2003-2007 with the S&P 500 peaking at 1526). The right shoulder is then formed by another move up, but not as high as the previous move higher (2009-NOW). If this pattern completes, I expect the S&P 500 to fall to 600 or less before there is a new long-term bull market for stocks. Otherwise, if the S&P 500 closes convincingly above 1526 in the coming months then the markets will be off to the races.

What's Next???

The President takes over the Internet, I am not even going to comment on this, just forwarding the link below for your enjoyment: http://news.cnet.com/8301-13578_3-10320096-38.html

A Deadly Game of Politics

Like a beaten dead-horse, the headlines continue to focus on news out of Europe and how they are handling the crisis. As we all know too well, politicians are far more concerned about being re-elected than the future of their constituents. We saw this in the U.S. Debt Ceiling crisis of last summer where politicians waited to the very last minute to make a deal while markets were crashing. The long, and complex European debt crisis is a bigger example of this. The politicians in Europe are more focused on keeping their jobs than solving the problem. They know that there has to be "blood in the streets" before making the tough decisions that are necessary to reverse decades of an entitlement culture. These changes will not fly with voters unless they witness how badly the markets swoon if not addressed. That being said, a forward-thinking person should expect that Europe will not act decisively until the stuff hits the fan. Therefore, as a stock market trader - I will not be optimistic until things get so bad that the European politicians are forced to make the tough (and derisive) decision to form a true fiscal union.

McCarthyism Revisited

Everyone knows what McCarthyism is, and very few know the truth behind the controversy. After the fall of the Soviet Union, spy cables were shared with the U.S. - showing that nearly all of the people accused of conspiring with the USSR were correct. To this day, our wonderful public school system still indoctrinates youngsters that this guy was a crazy whistle-blower, when in fact he was dead-on. See link below and do your own research. http://www.wnd.com/2000/02/4020/

Double-Whammy for US Companies in Europe

As the earnings season kicks off today for U.S. companies, there is going to be a common theme for those with operations in Europe. What we will be hearing is guidance that is weaker than expected due to a slowing global economy, in particular Europe. U.S. companies will be facing a double-whammy scenario going forward, that will materially impact their earnings and give more cause for concern (which will slow hiring "growth"). Not only will U.S. companies be hurt by a slowing European economy, but will get hit again by the falling Euro. Due to this likely scenario, I am not optimistic on where the global economy is headed.

Two Options for Europe

The Euro Zone has two "viable" options that may actually work, but will ultimately fail over the long-term....The first option: All Euro nations band together like the "United States". The new name will likely be the "European Alliance".If this were to happen in the next couple weeks (not likely), the markets would sky-rocket. As we all know, this will eventually happen - but not until things get so bad that politicians are forced to implement radical ideas such as growth measures. The second (and final option), is for the EU to break-up.