Bill Cara’s Blog for July 19, 2010 [See post-close report]

http://www.incrediblecharts.com/tradingdiary/2010-...

S&P +3.20 / +0.30%
Level 1,066.30
Fair Value 1,061.16
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Nasdaq +8.75 / +0.49%
Level 1,810.75
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Level 10,081.00

oops Japan was on holidays - sorry about that. Curious that Shanghai is up while Hong Kong is down. Will have to tune in to Shanghai as well, obviously the two do not follow in lockstep.

Good morning.

BHP - BHP Billiton downgraded to Neutral from Outperform at Credit Suisse.

DIS - target cut at Morgan Stanley. Shares of DIS now seen reaching $40. Parks segment should be hurt by lower consumer confidence. Overweight rating.

JNJ - estimates increased at UBS through 2011. Company seeing higher sales. Buy rating and $75 price target.

JNPR - Juniper upgraded to Buy from Hold at Canaccord based on valuation, expectations for an in-line quarter, technology positioning, and leverage potential. Target to $35.

MSFT - price target cut at Citi to $31 from $37. Client inputs remain positive, secular concerns front and center. Maintain Buy rating.

MSFT - estimates raised at UBS through 2011. Company seeing higher growth in Windows. Buy rating and $38 price target.

beginning to look like Tammy Faye B. !

"Dagong International Credit Rating had downgraded the debt levels of the US and Britain, bringing them lower than China. China of course has about $3T in reserves.

Dagong a company that normally rates bonds, has now issued ratings of the creditworthiness of nations. Some dismiss this company's ratings as Chinese politics. However, as the debt of the U.S. keeps growing and growing with no end in sight, many realize that they do have a point here."

http://tinyurl.com/2fzq2r8

China downgrades its U.S. debt. Perhaps this is the unintended consequence of Timmy's pressuring Chinese leaders to unpeg/ease the yuan. As Sinclair notes, the Chinese will only do what is good for the Chinese. Same goes for Buffett and his locked up rating on the U.S. debt by Moody's. But which rating is more right?

This you brought up back a while and it should have been pursued:

http://www.huffingtonpost.com/2010/07/19/bp-rico-l...

fresh from the beaches of beautiful cuba, i am back.

for once in the past 8 years i made the decision not to use the internet, or email for a full week, letting the market and the world for that matter go on unnoticed by me while on vacation.

it was tough at first but soon i relaxed and enjoyed just letting things pass while i drank another mojitho by the beach.

i wanted to cover a few quick things in this message before going back to catching up on the market:

1. gold's sell off today was ugly, and the charts are for the short term ugly to me. but i am long term a bull on gold and invested so im not really worried. for the miners you know my position, they are ugly and looking worse by the week. as a group, as an entire sector, using ETF's these are not good long term investments, too much risk, too much BS and trickery from management as to why they cant earn money.

remember, none of the mining analyst big shots predicted any of this long term underperformance, and now they continue to issue predictions about future stellar performance, you see they wouldnt have much of a job if they just admitted owning bullion was the best bet, it doest take a big office, lots of staff and $2000 suits to manage a single line of invetsment advice: "buy gold bullion, thanks for calling".

2. the oil cap: great. horray, its capped. now the clean up, and soon the multitude of books to be released about how inept BP and the oversight agencies were and how all of this was inevitable. whats difficult is that there is no shortage of journalists who will earn their trade by coming in after the fact to besmirch anyone involved while avoiding taking a position on anything before it happens.

we see this daily with ridiculous reports on what Moody's and other rating agencies are declaring for debt ratings without a hit of irony that these agencies are by and large as inept and corrupt as the outfits they evaluate. no, such commentary will be saved for if and when Moody's stock collapses or goes overboard. until then, its the boiler plate

"markets were shocked yesterday as Moody's downgraded ABC's debt today from Aa1-ABcA1 to Aa1-AcBca which is just 6 steps above Aba1-Aabb status citing ongoing pressure to its balance sheet"

why do ratings require so many letter? why not rate them from 1-10 to make it simple? why do we care what these rating agencies say without examining why they are saying it? no that wont happen till after their fall and on will come the claims of incompetence and flatulence. it doesnt help any of us trade.

3. regarding MFC's stock:

its down to the same price it was in 2004. in spite of that each and every year it has declared it will be doing well going forward. cutting their dividend was the tip of the iceberb. insurance companies will not fare well going forward, nor will manulife do well in this weak market place.

the former head of Manulife Mr. Delassandro oversaw his company's growth in the early part of the decade despite nothing but a falling stock price during that time and was given nothing but accolades and praise. since his retirement he has gone on to start an outsourcing company cleverly disguised as an "innovation" firm. since then MFC has done nothing, and it will continue to do so in my opinion. these stocks are pushed heavily by canadian advisors to clients under the false assumption that they are "safe" and will be stable with "good earnings" over the long term.

if you have held this stock for the past 6 years you know different and will continue to know it for the next few. check back on this post 1 and 2 years from now when MFC releases another statement about earnings being sluggish because they are so busy moving into asia and begin to cut benefits and encounter claims problems because they outsource more and more of their functions. these are organizations that are run on the cheap at every corner, and spend more money trying to present an image of trust and integrity than they do actually following through on it. time will be the judge if 6 years of underperformance hasnt rendered that ruling yet.

4. its great to be back!!

that article and others of its ilk are total nonsense.

we have heard about china "buying" gold for 6 years, none of it makes any sense or has any basis in reality. if china buys gold someone must sell it to them.

there are no shortage of economists or "advisors" that will issue a host of recommendations. china has also heavily purchased US t-bills for some time but they havent exactly done well the past decade.

lets avoid posting such articles alltogether as they come up each week and amount to nonthing imho.

Currently, no position. Downside target 1180-1154. The Juniors are really getting hurt, UXG down $ .28 to $4.27 and Exeter Resources (XRA) down $ .27 to $5.47. It looks like further downside could take these below $4.00 for UXG and $5.00 for XRA. No sense jumping in until the summer is over, awaiting for a fall rally (?) in PMs.

Looks like some support at 1060. TLT down, SPX up, VIX down - things seem to be aligned for a modest move up. And for a change XLU is not in the pole position today. Today it's oil, solar - and then XLU. Still not firing on all cylinders, but things are looking slightly more healthy than on Friday. Even XLF has made it (barely) into the green.

Their premiums go into reserves that have to have a certain amount liquid to pay claims. That has traditionally meant government bonds: no yield there.
Maybe investmt grade bonds.
Less liquid goes into mortgages, CRE, stock portfolio.
Might be tough these days maintaining profitability.
Then there is their Gteed Min Withdrawal product that covers losses in a portfolio for 30 years or so, for a small fee.
The market flop last year took their stock down a lot on this product alone.

Unlike Doc Cosa, I was itching for a newspaper and news of the market by last Friday, snapping up a newspaper in Montepulciano of all places. The IHT reported significantly lower sales year over year for the Month of May I think it was. Don't quote me on that, but I do recall Fiat Group sales down 20%.

I was intrigued by the good news story coming out of Spiegel - Germany on the up and up etc:

http://www.spiegel.de/international/business/0,151...

As it appears in Switzerland, German upper class and luxury model auto sales are up while the French working/middle class vehicles appear to be taking a beating. Auto sales are softer overall here.

http://www.swissinfo.ch/fre/detail/index.html?cid=...

Message was similar at the place we were staying and a wine merchant I spoke to in Montalcino (I wish I was back there already - just maybe 5 degrees cooler). Those with the means to spend, spend. With the mainstream Italian and French car makers down in Europe and Switzerland respectively, there's a good swath of the population not making big purchases. Then again, govt's played their hands with the scrapping subsidy a year ago and the chicken has come home to roost. Wondering how long before govt's here go round 2 in subsidies for ailing auto industries.

Well I don't buy homebuilders or their cousins, but just looking at the chart, I think its dangerous - HD:SPY shows that HD has been seriously underperforming SPY since early June. I'd maybe wait for a bounce in that underperformance chart before thinking about getting into HD.

This technique is sometimes useful - I used it to trade WAG successfully - WAG:SPY turned positive a few days before WAG itself did on June 28th.

HD:SPY is getting into capitulation territory - but it can always keep going down further. I'd wait for the bounce. JMO.

IBM is trading at 11 times earnings and TXN is trading at 11 times earnings with 10% of market cap in cash. Additionally, IBM missed revenues by $500 Million, all of which came from negative currency conversions and TXN boosted guidance above estimates.

I wonder when people will care about valuations. I know the stocks are down big after hours but at what point do people step in and buy based on valuation?

dup mesg

Top Chinese Economists Call For Government To Ditch U.S. Treasuries And Buy Gold

Vincent Fernando, CFA | Jul. 19, 2010, 3:48 AM

This comes after China cut its U.S. treasury holdings by $32.5 billion in May:

Reuters:

"Although assets in other currencies and forms are not an ideal replacement for U.S. Treasury bonds, diversification should be a basic principle," Yu wrote in the China Securities Journal.

"When demand for U.S. Treasury securities is strong, it's a rare opportunity for us to gradually pull back. That way, it will not have a big impact on prices and China will not suffer too much," he said.

Zhang Monan, a researcher with the State Information Center, a think tank under the powerful National Development and Reform Commission, told the paper that China should invest more of its $2.5 trillion of foreign exchange reserves, the world's largest stockpile, in hard assets such as gold.

Gold bulls will like these words.

Read more: http://www.businessinsider.com/top-chinese-economi...

Interesting relative pairing. I guess the forward P/E of the S & P will come into play at some point when psychology of the market has had time to rebuild itself. I wonder who decides these things anyway? GS? JPM? small group of...

http://thedailygold.com/commentaries/gold-permabul...

Always on the look-out for Generals deserting the troops...

ALOHA!!

Gold bulls will like these words.

I never have made reference to "gold bulls" or "gold bears". Not in my articles or posts. I do not believe in such labels.

To me the basis is the "monetary system" period, which in my view has nothing to do with "sentiment" words such as bulls and bears. It should be obvious to most people who still have a pulse over the past fifty years and have had to work for a living that the current monetary system is not working. If you believe "debt" should be the basis for a monetary system then you will disagree with me. That is fine. I happen not to believe in debt and I strive most of my life to not have any. Whether I can afford it or not. To me debt only supports the most perverse and corrupt sectors of society, mainly government and banks. I try to contribute as little to their long term survival as is legally and morally possible.

The money we have now has no store of value. It can be diluted into eternity and is controlled by the least trustworthy humans on the planet. The US FED has shown utter contempt for the Middle Class and the wage earner. Their only purpose for existing is to promote the power of banks over government. That they have succeeded beyond even my wildest dreams. Of course they have had more than willing accomplices.

I really do not care what the Chinese do or the Europeans or even Fidel. All I care is what the US Treasury does. I base my financial plans on that. Right now the US Treasury is telling me to get out of the USD, but then they have been telling me that since 2001. Thank God I did listen to them back then as I still continue to listen and watch their currency debauchery. It was well worth the effort to move into a much more stable currency that is not backed by unending debt and the ego and hubris of the lowest form of the human condition. DEBT IS NOT MONEY!

ALOHA!

Seem the IRS needs to meet "audit quotas" so they are finding it easier to audit small business so that they meet their quotas. Guess how many hours, on average, it takes the IRS to audit a large business with more than $250MIL in revenues? Try 973 hours ... whats that 40 days? Didn't it rain for 40 days and 40 nights? Hummmmm???

I think we have to consider a flat tax so that we can at least put the "right people" out of work. Paper shufflers like those at the IRS and the accounting department of large corporations and smaller businesses could be fired and taxpayers and companies would not even notice the loss in staff. Shuffling paper has never created any new wealth any where on the planet. Besides the accounting industry as a whole has suffered severe loss of credibility. In my estimate accounting started the downhill slide when Arthur Andersen went BK due to their role as accomplices in the ENRON fraud. Of course the fraud continues today ... How many GAAPs do we need? How many ways to NOT count losses is acceptable now? Frankly I have lost track of the new Alice-In-Wonderland version of bean counting.

So is the IRS targeting small business part of Obama's campaign to promote small business? If so, hey, don't do us any favors!

IRS Steps Up Small Business Audits
July 18, 2010

Disturbing news for entrepreneurs: A study from Syracuse University’s Transactional Records Access Clearinghouse (TRAC), reported in Forbes, reveals that in the last five years, the number of hours the IRS spends auditing small businesses (those with assets of $10 million or less) has increased by 30 percent. In the same time period, the time the IRS spends auditing companies with $250 million or more in assets has dropped by 33 percent.

The rate at which large corporations are audited has declined drastically, from 42.6 percent to 25 percent, in the last five years.

The auditing of corporations with assets of $5 billion or more dropped from 78 percent in 2007 to 64 percent in 2009.

The average number of hours spent on each audit of large corporations also went down, from 973 in 2005 to 830 in 2009. By contrast, the average number of hours spent on a small or midsized business audit has remained substantially the same.

TRAC’s report points out: “The decline in audits of large corporations is surprising because (1) the highest levels of misreported tax dollars per auditor hour are found among the biggest business organizations and (2) since FY 2005, Congress has provided the IRS with the funds it needs to hire an increasing number of revenue agents trained to handle these very complex returns.”

Theorizing as to why smaller companies are being targeted, TRAC writes: “Choosing to audit the smaller rather than the larger businesses would on its face help individual [IRS] agents meet their performance targets [for auditing a certain number of returns]. But the decision to audit the smaller companies does not help the government collect more taxes … because the data indicate that the larger the business, the larger the dollar amounts of tax under-reporting and back taxes on average that they may owe.” In fiscal 2009 the average amount of tax “underreporting” IRS auditors uncovered per hour spent auditing small to midsized businesses was $1,025. The average for large corporations was $9,354.

Forbes notes that the IRS focus on small business is counterproductive in many ways. First, while big corporations can pawn off the hassle of an audit onto an accounting department or managers, an audit of a small business usually requires lots of time and effort from the business owner himself or herself. And while the government is currently attempting to stimulate small-business job creation with tools such as tax credits, the news that the IRS is focusing disproportionately on small businesses is likely to scare businesses away from using such tax credits at all.END

Hussman followed up the debate in his weekly today. interesting what data the bulls pull to justify the current thesis "Stocks are Cheap" but does the thesis hold any water or is it just hot air?

disclosure long HSGFX

http://www.msnbc.msn.com/id/21134540/vp/38028703#3...

"A couple of weeks ago, I was in a CNBC segment discussing economic conditions. I decline the vast majority of media requests, but I thought it was important to talk about the economic risks we're observing. It was a debate-style format with another analyst who essentially recapped the same arguments that he made at the 2007 market peak. Indeed, just before the market plunged by more than half, he asserted "the fundamental underpinnings of stocks are superb." He later appeared on CNBC in January 2008 sporting a beard, asserting that all of the recession talk was overblown, and telling a reporter at TheStreet that he would not shave the beard "until the recession talk ends or housing recovers, whichever comes first." As of a couple of weeks ago, he had no beard, which was perplexing.

Now, while I have difficulty with analysts who repeatedly lead investors down the primrose path to abominable losses, my defensive approach has also left enough on the table from time to time that I don't want to throw stones. Still, one feature of his analyst's argument was different from 2007, and the more I've thought about it, the more I realize how damaging it could be to investors, so I think it's important to discuss. Specifically, instead of using forward operating earnings to assert that stocks were cheap, he based his valuation assessment this time on NIPA profits (from quarterly GDP accounting). Quoting NIPA profits in the context of market valuations struck me as odd, but the segment immediately jumped to another question. Part of the reason I don't do much TV. You can't thoughtfully discuss the financial markets in 20-second sound bites.

Here are the basics. NIPA profits (from the National Income and Product Accounts, compiled by the Bureau of Economic Analysis) are a quarterly measure of economy-wide profits, restricted to current production, less associated expenses. As economists at the Department of Commerce and the BEA have noted (Mead, Moulton and Petrick, 2004), this measure of earnings deviates substantially from S&P 500 earnings. Expenses used in the calculation of NIPA profits exclude bad debts, resource depletion, disposition of assets and liabilities, capital losses, and any deductions relating to the treatment of employee stock options. It also includes an allowance for misreporting of corporate income. Many of these calculations are only available on an annual basis, with a considerable lag, and as a result, quarterly NIPA profit estimates and revisions make significant use of interpolation and extrapolation."

http://www.hussmanfunds.com/wmc/wmc100719.htm

My take away from this article is that this nation's and the world's economy may be much more fragile than most people understand. Although the article is only about Louisiana, many high paying jobs noted therein are a result of governmental spending programs. Many such jobs were regarded as rock solid until recently. But rock solid jobs are not really secure when governmental programs are diminishing. People without jobs are barely minimal consumers and the economic health of the nation and the world is dependent on consumerism.

http://tinyurl.com/384e6t2
"In the blink of an eye, the economic focus in Louisiana has shifted from recession recovery to avoiding actual and potential job losses piling up at a staggering rate.

And there's very little that the state can do: The tally is due to the Obama administration decisions affecting petroleum, defense and space — all coming together in a perfect storm.

For Louisiana, those sectors represent some of its best-paying jobs. Thousands are at risk — and the task of replacing them, at the same pay and in the same numbers in the foreseeable future, is shaping up as a pipe dream.

Last Tuesday, Northrop Grumman Corp., faced with tighter Pentagon spending and Obama administration priorities aimed at Afghanistan and away from the Navy, said it would shut its Avondale shipyard — the state's largest industrial employer with about 5,000 workers — in early 2013 after two military ships are finished.

Avondale already was the subject of concern, since the program to build amphibious assault vessels will end in 2016, but Northrop decided to build the last two vessels at Pascagoula, Miss.

Another source of misery is the deepwater petroleum drilling moratorium in the Gulf of Mexico. The six-month "pause" that the Obama administration insists on could kill the drilling business off the Louisiana coast for years, industry and government officials warn.

Of the 33 deepwater rigs in the Gulf when the Deepwater Horizon exploded, two found new long-term homes in Egypt and off the coast of Africa within a week — just as the industry promised would happen.

Louisiana State University economist James Richardson said a six-month moratorium could slash 18,000 to 20,000 jobs. With that prediction, consider that the entire state, at the lowest point of the post-2008 economic meltdown, had lost about 49,000 jobs.

On top of that, Treasurer John Kennedy says about a third of the state's $210 billion annual economy is tied to petroleum in one form or another.

The oil spill already has had a well-documented effect on fishing and tourism along the coast. Quantifying a number is difficult — the first state jobs report since the moratorium and the full arrival of the spill is due out July 23 — but state officials already have warned that it won't be pretty.

Then there's the end of the space shuttle program. Earlier this month, the last external fuel tank expected to fly rolled out of the Lockheed Martin Corp. operation at the NASA Michoud Assembly Facility in New Orleans. By the end of September, only about 200 workers will still be around from a payroll of 2,700 in 2008 and 5,000 during the mid-1980s.

There's not much in sight for NASA either: The Constellation space program, which was being counted on for 1,900 jobs at Michoud, is the target of an Obama budget cut, though Congress will have to go along."

Sounds about right. Rock along for a few weeks to get thru earnings season, then S&P drops to about 950 where Bill has suggested. That should be just enough to scare the Fed into QE to infinity and beyond. Simultaneous action by China to quietly ease out of Treas purchases. Result = much higher prices for gold, commodities and equities, with simultaneous deflationary pressure as consumers are forced to pay higher gasoline/energy prices(essentially a tax in disguise). Hang on to your hat, it's gonna be a wild ride!

S&P +1.20 / +0.11%
Level 1,065.00
Fair Value 1,067.52
Difference -2.52
Nasdaq +0.25 / +0.01%
Level 1,805.75
Fair Value 1,817.30
Difference -11.55
Dow +24.00 / +0.24%
Level 10,084.00

wouldn't want them to have nightmares:

"China Says Exports Outlook 'Grim' on Europe Demand"
http://bit.ly/di0hJu

S&P -3.40 / -0.32%
Level 1,060.40
Fair Value 1,067.52
Difference -7.12
Nasdaq -6.00 / -0.33%
Level 1,799.50
Fair Value 1,817.30
Difference -17.80
Dow -13.00 / -0.13%
Level 10,047.00

Someone is cornering the European Cocoa market:
http://www.telegraph.co.uk/finance/markets/7895242...

ooh yeh, things have changed rapidly:

S&P -8.30 / -0.78%
Level 1,055.50
Fair Value 1,067.52
Difference -12.02
Nasdaq -16.75 / -0.93%
Level 1,788.75
Fair Value 1,817.30
Difference -28.55
Dow -88.00 / -0.87%
Level 9,972.00

gap down opening could make for a good day today. European autos are solidly red.