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Week Ahead 4-12-2010

admin on 04 12, 2010

This has to be one of the most depressing weeks that people in our country dread…tax week.  It is not just the day where we submit a huge chunk of our earnings but it is the misery leading up collecting all of the right information, forms and then filling it out.  This is not even considering the agony of doing it yourself or the stress that comes with the uncertainty if you did everything correctly according to the several thousand page IRS tax code.  All I can say it good luck to those who are filling it out and I hope you are owed a refund and that you actually get it.  There have been rumors that some states will be holding onto these refunds until they can get out of the woods.  I live in one of these states, but I’m ok, because I know I owe them money.  I can’t stand giving Uncle Sam an interest free loan.  I am truly amazed at the amount of people that rely on their refund.  It is just a sign of the times that people have to rely on the government to take their money away from them so they will not spend it, and then give it back to them without getting paid any kind of interest or return.  I better watch what I say or I will end up with an audit next month.

The macro – problem that I see is two fold: this is just not a one state problem and the problems are not lack of revenue.  The problems stem from years of overspending and delaying payments to pension plans.  Now that there is a lack of tax revenue it is only highlighting the true neglect that has gone on for years. This can not be blamed on one party because most of these issues go back through many administrations.  This is similar to our national government, but they can create money out of thin air.  Over the past two years we have seen our interest rates a nearly zero, but long term bond rates are being forced higher by our international counter parties.  This is something we have written about over the past several weeks.  Foreign countries who are natural buyers of our debt are demanding higher yields.  This will drive up the cost of funding our national deficit.  We talked in depth on the ^TNX (CBOE Ten year Note Interest Rate).

I read an interesting article over the weekend that pointed out that we have not had a 1% pullback in the market for over 45 days on the S&P500.  This has really only happened about 15 times in the past 20 years.  The bull markets in 1995, 2000, 2003 and 2007 all had similar rallies.  What can we infer from this…not much.  There is no clear pattern, but the longest run was 67 days without a 1% pullback.  Now that we are above 11k on the DJIA, all is good in the world.  No need to worry about those people on unemployment or the rise in your healthcare costs. Maybe a 1% pullback is in the works between now and our 67^th day.

A follow up from something we have been covering for months and mentioned in last weeks webinar on the differential between the physical and paper gold and silver markets.  The NY post wrote an article on “Metals are the Pits.”

http://www.nypost.com/p/news/business/metal_are_in_the_pits_2arTlGNbMK7mb1uJeVHb0O/0

Nothing really new in the article, but the main point here is that this news story is going mainstream and we really need to keep an eye on it. Watch the webinar for more.

Our main topic in last week’s webinar was on oil futures vs. the indices.  We spotted some nice trades that moved in our favor and may be overbought now in the short term, but for the bigger picture are still worth taking a look at.  Watch the webinar here as well.  Here is a snapshot of one of the trades we found…COP.

Greece has received a backstop offer from other Euro countries to help them out.  This is only a backstop that if all else fails, they will help them out.  If they do this for Greece, they will also do this for Spain and the other PIIGS. This is positive for the markets and should allow the Euro to rise, and the Dollar to fall.  This will most likely put pressure on the Volatility index as it adds some relief to the overall world markets.  This makes options cheaper for us to purchase.

We are nowhere near out of the woods yet on our recovery.   Just because we have gotten above 11k does not mean our economy is going on all cylinders.  The jobs and housing are still very lousy and could potentially be a major drag.  If interest rates start to rise, then housing could take a hit and we start the waterfall effect to everything in our economy.  In the short term, I would expect more of the same as long as they can hold the 11k mark.  If we start to see weakening signs where 11k is not supporting, then we could see some quick retests.  For the most part, I would expect a short squeeze that forces the shorts to cover.  This could be on any news, good or bad, but it will most likely be a 200 point day, getting us to 11.2k.

Keep riding this market until you see the cracks start to show (Interest rates, oil, employment, and housing).