Bill Cara’s Blog for Aug 16, 2010 [See post-close report]

Good morning.

AMAT - PT Lowered from $14 to $13 @ RBC. Sector Perform

CELG - Celgene initiated with a Hold at Deutsche Bank. Target $56

GILD - Gilead initiated with a Buy at Deutsche Bank. Target $42.

ICE - Intercontinental Exchange upgraded to Outperform from Neutral at Credit Suisse based on valuation and said drivers for robust growth remain intact. Target $125.

INTC - PT Lowered from $28 to $24 @ Sterne Agee. Buy

JCP - numbers lowered at Citigroup. JCP estimates were cut through 2012. Company reduced its forward guidance. Buy rating and new $30 price target.

NE - Noble Corporation reinstated with a Neutral at Goldman. Target $34.

RIMM - estimates increased at Citigroup through 2012. Buyback program should add to earnings. Sell rating and $50 price target.

SLB - Schlumberger upgraded to Add from Neutral at Capital One Southcoast. Target $80.

today is a great time to test out my theory that when gold jumps up pre-market, it tends to spend the rest of the day moving sideways to down before market close.

if this pattern continues i believe we will see another leg down, as this last leg up was on considerably weak volume across the spectrum of gold vehicles (metal, shares, ETF's)

if we hold this as the USD takes a small swan dive on the daily charts, and not give back the pre-market gains, then my broader theory that we are headed for new highs stays in place.

as i have suspected for some time, gold will rise even if the USD rises, but oil will not. it barely could run up during the gulf oil spill, something that only 1-2 years ago would have made it seem as though $100 was in sight.

what i would like to see is a lower USD coupled with lower oil, and at least 3 quarters of this before i check back with the miners to find out just how well they have done now that their alleged 2 biggest problems (energy costs and high USD costs) have been removed, while their biggest issue (the POG) has been running for some time waiting for them to catch up.

i suspect it will be a make or break moment if gold breaks to Jim Sinclair-esque highs of $1500-$1600 and the shares barely breach their 2008 highs, still complaining forever of problems and an inability to profit.

until then, its all bullion all the time. too many are fearful of a market crash, and while the chance is always there i suspect w/ so much anticipation of a dump and cash in hand, any sort of bounce back will witness a flood of market entrants, only exacerbating the situation.

lets sit back and enjoy the music here, stocks arent looking so hot, and everyone knows it, and the market likes to do what everyone thinks it wont... usually....

Time to move out of gold for the time being, along with my coffee CNBC mentioned gold and agriculture. is it time for investors.....gold ..... agriculture yada yada yada. That's the signal.

Yet, Dave, might be the operative word. The S&P Futures did bounce from 1066.25 our old history lesson friend.

As per WIR #33 and this mornings Blog, the early bird gets the worm. Tuesday reporting before the open with consensus estimates are HD .71, WMT .97, ANF .15, SKS (.17) and TJX .73. Both HD and TJX are having nice moves today. The DLTR put call story is worth re-reading from WIR #33 - DLTR reports Thursday a.m. with consensus of .54.

Les, try long TBT when it hits 30 and TLT hits 106.
Appreciate your futures posts before market opens.
Bear E

!!!! damn, stopped to chat and posted on last Fridays blog !! anyway, was talking about the house purchase... in Kings Mtn, NC ( 25 min. from downtown Charlotte )... love the 30's and 40's construction quality and those awesome, for real, 2x4', etc... ( back when quality and not Speed of construction mattered ).. blending old style with new materials ( Pella, etc. ).. moving alot of walls, etc,, homes here are being snatch up in 2 weeks or less...regarding ' orex ', I wrote about all the comparison between VVUS and ARNA being discussed, and orex being ignored... that's a good thing... the play about 'arna ' being a ' new drug ' ( not really, but that's a lonnnnnng discussion ) may work against them... safety is one thing, efficacy is another... orex's combination drugs have been on the market for quite awhile.. although not as powerful as VVUS, it also is less ' toxic ', while delivering appx. double the result as ARNA.. as an aside, you may want to look at ' immu '... no hurry, but as I have written, it is the main competiton to HGSI... best of trades, Toby... baz

The Spin is In: "U.S. Stocks Advance as Tech Rally Offsets Economic Concerns"

http://www.bloomberg.com/news/2010-08-16/u-s-stock...

I wonder sometimes if these reporters look at the market. Currently, my screen shows that long bonds are doing the best, followed by gold miners. This is a tech rally? Seems more like a scamper to safety to me. Someone has lost confidence somewhere, and they are wanting gold and bonds...

Sometimes I wonder if they get their headlines from a magic eight ball.

Hmm ok Bill I see the INTC chart and it definitely looks odd, that support at 19.45, but - why that particular number? Definitely the bloomberg article was a whole lot of quotes from folks who were long, but ... why that number? Why not 19.40, or 19.30? Or 19.50? Is there some significance I'm not seeing here?

I've seen that kind of behavior on other stocks before, but not on a big one like INTC - at least not that I can remember.

must feel like trying to surf in a shallow lake

This much we know, but here's a great argument as to why coming redundancy and impotence is inevitable.

http://gregor.us/fossil-fuels/the-federal-reserve-...

This is complete B.S. I'm really glad that my small business doesn't need any financing.
http://finance.yahoo.com/news/Fed-survey-finds-eas...

Ross, inflation and deflation are not about prices, its about the amount of money floating around the system. And to check that, you look at bank credit, from where the majority of the money creation comes from. When net bank credit decreases, by less borrowing or defaults, then deflation occurs. Fed money printing counters that, depending on the relative amounts involved.

In addition to actual decline of bank credit, there is a whole lot of additional deflation in the system right now waiting to happen - all those loans that nobody is paying back, but are not yet written off, properties in the shadow inventory not yet sold at rock bottom prices. All the losses banks haven't taken are the deflationary shoe that has yet to drop.

Look at the fed stats on bank credit. Negative for five quarters. That's deflation.

In this area, deflation has mostly affected asset values - equities and home prices. Huge pension deficits, the big group of now-underwater homeowners, falling wages for most private sector workers are all signs of deflation, and the dollar amounts therein dwarf all your examples. In this case, its asset and wage deflation.

Increased taxes have everything to do with deflation, since sales tax collections are down - because incomes (and thus spending) have dropped due to unemployment and salary cuts.

Sorry to hear your city raised salaries 5%. How about no tax increase and no salary raise? Maybe you should let them know your feelings on the matter.

"LOCAL property investors have become "Ponzi borrowers" in a market 40 per cent overvalued, according to a Morgan Stanley strategist."

http://www.theaustralian.com.au/business/property/...

Finally someone on the record for calling the housing market a "ponzi scheme" besides that 'crazy' loner Steve Keen.

Remember its the banks you wanna short when this finally goes down. My guess is that the banks are already being sold off:

http://au.finance.yahoo.com/q/bc?s=CBA.AX&t=3m&l=o...

http://au.finance.yahoo.com/q/bc?s=WBC.AX&t=6m&l=o...

6 month time frame shows the story. Bank stocks are not showing an incipient recovery in the Australian economy, not anymore.

Ross, Dave,

For some time now I have believed "it IS different this time" — nothing in our lives is going to be "normal" as we have always known it. Bill has pointed out the changes in the markets and the lack of the long standing practices and rules.

Inflation and deflation in text book usage are misleading. Most economists, and therefore most politicians who always defer to the "experts", are working from out of date assumptions.

As Dave listed there are many categories with falling prices, the most meaningful are wages and home prices. In the rising categories are the necessities like food and energy. (Hmmm, the ones they like to leave out of the mix.)

Our mayor is pushing a $34,000 raise for a staff member who will be doing two jobs. "I will pay her fairy for the work." He's seems oblivious to the fact that thousands in the private sector are working more hours to fill slots of those let go years ago. The city budget is $millions short — police and fire crews are running extra shifts with fewer people, libraries are cutting staff and taxes are rising despite falling home values and sales.

Dave Rosenberg, Nassim Taleb and a few others have been trying to point out that we are in a whole new era.

IMO, the move into bonds is because those who are most aware of the massive changes are the most scared. The wealthy, the politicians (I repeat myself here.) have not felt the change and are still using the old playbook.

Markets are better indicators than all the talking heads on the financial Hydra.

Good morning.

APA - Ticonderoga Initiates with a Buy. Target $130

MSFT - Microsoft upgraded to Buy from Hold at BGC Financial citing expectations that the company will raise its quarterly dividend by 15%. The firm upped its target for shares to $30 from $29.

RIMM - Research in Motion downgraded to Neutral from Outperform at Wedbush.

ALOHA!!

I guess where we differ is your definition of money supply. You do not define that. It is important because there are so many different examples of money supply floating around. Some economists point to M1 or even M3 or as I charted MZM or is it FTMM or is it TMS, or AMS, the Austrian version?

In this FIAT WORLD there are so many choices. Like unemployment, we have U3, U4 U5 U6? Which is your choice? We used to have GNP now we have GDP. Why so many variations on economic data? We do not have two or six choices for H20 do we? This is why I say that economics as it is taught today is not a science, its just a bunch of ivory tower opinions depending on who will pay them the most.

Here is something worth considering. Do you know what "covered money supply" is versus "uncovered money supply"? Here are some charts to look at that shows some of this data for the major global currencies.
LINK: http://tinyurl.com/2bbj9v7

Then maybe read this ...
LINK: http://tinyurl.com/22tf3sb

I watch the US TREASURY and the US FED closely because they control the debt and the spending, thereby the value of our currency. They control taxes. They control money. Heck, they control your financial life, which is pretty much most of your waking hours! They are the main reason you are forced to "trade prices"! They can click a mouse and make $100TRIL if they want to. They try to hide the truth as much as they can and as often as they can with tricky labels and charts and data. They want you to debate endlessly inflation or deflation ... they do! They really do!!! And we are ... look at us!!! They want you to be all confused about what money supply is. They want you to only see the tip of the iceberg with their tricky data and the multipliers and the deflators and the ever changing metrics of data thrown in to make you give up in your pursuit of the truth of money. Then they employ a whole industry of accounting nerds who will dazzle you with their GAAP and NON-GAAP and FASB brilliance and flaunt their degrees as you stand in unemployment and food stamp lines while the same time you pay $3 for gas and $5 for a good loaf of bread and spend a house payment on healthcare. They want you to believe they are the experts and if you challenge them with "QUESTION AUTHORITY" then you become a kook ... and they label you with the other C WORD, "conspiracy" nut. Then they have endless "emergencies" for everything! Go ahead and debate inflation and deflation while the USD devalues the last 4% into a monetary crisis. They applaud your tenacity, your zest for the truth. Its like an endless game of Hide N Go Seek!

I keep coming back to the same question. "If these guys are such experts then why can't I buy a new house for $1800 like I could back before the US FED was created in 1913?"

Let me ask you this. Where is the HERD now? Whats the most crowded and most expensive trade on the face of the Earth right now? In other words ... WHERE'S THE BUBBLE?

Yes you're right we have to get terms straight, and I probably misused one - money supply. From what I know, the vast majority of the money in the system is created by banks when loans are made - "checkbook money." Thus, to see whether money is being created or destroyed, you must primarily look at the rate of creation of new checkbook money, which the Fed helpfully publishes every quarter.

Currently, consumers are paying back (and defaulting on) more loans than they are taking out. Net bank credit (checkbook money) is decreasing. This is exactly what happened during the depression.

The end result of a credit boom is typically deflation, because bank credit gets destroyed since the loans backing the bank credit cannot be repaid. We are in such a deflation right now, but the Fed is trying hard now to print money to make up for it. Unfortunately, the newly created Fed money is not injected evenly, so it causes some asset prices to rise (perhaps treasuries - your crowded trade) while other assets that have to be paid for through loans taken out by real people fall in price.

Based on numbers I've seen, the Fed is printing less than is being destroyed by consumers repaying or defaulting on loans. Thus, overall deflation is currently taking place.

Is this a useful definition? I think so. If checkbook money declines, as it did during the depression, that predicts more defaults ahead, along with lower wages, reduced output, reduced consumption, increased savings - all of which we're seeing.