Friday, June 04, 2010

The Case For DOW 4500 WATCH IT Unfold! - Week 5 - $SPX - ALL RED

Wow is all I can say...  I got a baaaaaaaaaaaaadd feeling about this...

Oh and here is the PC Ration and volumes as of 2:19:46 PM EST, this just saying go short.  BTW, this is courtesy of TOS Platform.  It rocks!

Here is the closing picture for today 5 stocks in the S&P 500 finished up!  The PC Ratio below tells the story as does the $ and trade volume.  I can't imagine any investor wanting to be playing in this, I have to think even big investors are also getting leery.  Today I think I heard some necks snapping and backs breaking as any hedge funds that might have had a chance to live after May no just got their throats stomped. 

I can't believe Larry Fink and Barton Biggs came out bullish!  They aren't looking too smart right now.  Here is the above to snap shots again, after market close.  YUCK!

PC/Ratio of .28 on advancing stocks... WOW!  Over 1.601 on declining stocks. This just screams short on Monday too!


The Case for DOW 4500 WATCH IT Unfold! - Week 5 - A Little Dipper

I  just wanted to bring this to your attention.  A nice head and shoulders on the daily $SPX, $DJI and $RUA looks like it is close to completing the right shoulder.  This pattern has been in development since December 2009, clearly this pattern should give anyone special heed if you are considering buying into these bargains. 

This H&S pattern is encapsulated witihn the 20 year pattern I have been writing about extensively. 

If you subscribed to my Aimed Daily Market Forecast or Aimed Bi-Monthly Market Forecast you would have known about the potentiality of it 24 hours ago.  Check out the William Tell TradeCraft store for details, just click the June 1 bi-monhtly report image.

Todays action looks to have made this right shoulder a done deal, definately bad news for Monday-Next week, unless something extraordinarily positive happens...

It's possible this could still head up, but it actually double topped, so I 'd say it's a goner.  Especially since the the DOW dropped 150 at the open.  Maybe a success story out of the Gulf will stem the bleeding, but even that may not be enough good news.

The $RUA is sans Fibonacci lines...  Each chart looks the same there is no escaping this Large Cap, Small Cap, Micro Cap, it just doesn't matter.

The little dipper.

Wednesday, June 02, 2010

Fink Says U.S. Stocks to Rise - Someone better tell the insiders then...

Out of all the DOW 30 only have 2 show positive above zero line insider trading buying JNJ and VZ, every other stock is in the major selling mode or a few at the the flat no sell no buy, but this period follows a heavy period of selling which took place over the last few months.  Maybe Fink is a contrarian or his precious Aladdin system is seeing something the rest of the market isn't.

This huge volume of insider selling doesn't really give a lot of support to Fink's thinking.  His idea that companies are cash rich, well this is still a reflection of the looming threat of a credit crisis materializing at any point.  If we were close to normal companies would be buying their stock back, or buying new businesses, but it's not really happening.

BlackRock’s Fink Says U.S. Stocks to Rise as Companies Thrive

By Anthony Effinger and Sree Vidya Bhaktavatsalam

June 2 (Bloomberg) -- BlackRock Inc.’s Laurence D. Fink, who leads the world’s biggest asset-management firm, said the stock market is poised to rally because U.S. companies have built cash reserves and manufacturers are returning to health.

“We’re ready to really rock and roll as a country,” Fink said today in a meeting at the Oregon Investment Council, which manages retirement accounts for public employees and invests in BlackRock’s funds. The meeting was held in Tigard, Oregon.

Second-quarter profits at U.S. companies will be stronger than analysts expect, said Fink, chief executive officer of New York-based BlackRock, which manages $3.36 trillion in investments.

Fink was even more bullish on the U.S. a few weeks ago, before Europe’s credit crisis, he said.

“We’re very bearish on Europe,” he said to the group of two dozen employees and board members at the council.

For Related News and Information: Top fund-related news: TFUND

Last Updated: June 2, 2010 16:02 EDT

Remembering the 20 Year Anniversity of October 19th, 1987

Robert Prechter, Elliot Wave International Reprise of the 20 year anniversary of October, 19th, 1987.

Fun lookback!  I guess.

Tuesday, June 01, 2010

Is There Survivorship Bias in Index Performance? Seeking Alpha Edited

Before you accuse me of being doddy or repeating myself, let me just say this is a second post of a recent post which was published by Seeking Alpha.   The Seeking Alpha edited version is available below or you can follow the jump to the article on their site.  The latter of which has some rich commentary from other participants on Seeking Alpha.  Thanks for reading!

Is There Survivorship Bias in Index Performance?

In the performance analysis of hedge funds, survivability bias -- the logical error of concentrating on funds that "survived" some process and ignoring those that didn't -- can skew the performance results significantly for an investor or hedge fund of funds interested investing in hedge funds with similar strategies.

For instance, many weak funds are closed and merged into other funds to hide poor performance, i.e. GLG Partners (GLG) being bought by MAN, or Amaranth closing its doors for good, can augment a historical view and spin a positive bias on the results of the "Survivors." If you were to exclude GLG and Amaranth (granted, they were dissimilar strategies) in your measure of return performance in a given basket of hedge funds starting by including only those funds existing as of today in a five-year look back, you would be susceptible to creating a positive skew in your performance return numbers. More often than not, even sophisticated investors seeking the best performing hedge funds or mutual funds will inadvertently be relying on fund or peer performance data that is positively skewed mainly because it doesn't include the return performance of weaker or dead funds.

When hedge funds and mutual funds develop marketing materials for their funds they will often include a benchmark (S&P 500, MSCI Hedge Fund) and their return performance as compared to their peers (funds with a similar strategy). They will often utilize a universe of funds that exclude dead or merged funds, as this puts their returns in a better light. This can result in a discrepancy of up to 1.6% of additional return performance (Alpha).

Essentially, you will have a fund that has an 11% return with the bias, instead of a 9.4% return as calculated without the bias. When you are discussing amounts greater than $1MM this 1.6% is substantial. Since this bias can occur in many situations it is not inconceivable that this can also occur in indices, etf's or any defined basket of funds that trades or that can be invested in. It is also likely that positive survivorship bias has pushed indices like the DOW 30, S&P 500, NASDAQ 100 and Russell 1000 to an un-natural positive skew over time.

Survivability bias in effect plays into a lot of how we perceive the world and it can make a very real impact, positive or negative. Let's look at a couple of different examples.

Bullet holes: A brain teaser - During World War II the English sent daily bombing raids into Germany. Many planes never returned; those that did were often riddled with bullet holes from anti-air machine guns and German fighters. Wanting to improve the odds of getting a crew home alive, English engineers studied the locations of the bullet holes. Where the planes were hit most, they reasoned, is where they should attach heavy armor plating. Sure enough, a pattern emerged: Bullets clustered on the wings, tail, and rear gunner's station. Few bullets were found in the main cockpit or fuel tanks. The logical conclusion is that they should add armor plating to the spots that get hit most often by bullets. But that's wrong. Planes with bullets in the cockpit or fuel tanks didn't make it home; the bullet holes in returning planes were "found" in places that were by definition relatively benign. The real data is in the planes that were shot down, not the ones that survived.

This is a literal example of "survivor bias" — drawing conclusions only from data that is available or convenient and thus systematically biasing your results. Another great example of survivorship bias can also be found in business advice books. Here are some specific examples of survivor bias in business advice:

So far I've ("a smart bear") been asking rhetorically whether survivor bias might be severely skewing business advice. Steven Levitt (of Freakonomics fame) investigated this question directly.

He (Mr. Levitt) was reading Good to Great by Jim Collins, a book that analyzed eleven companies that were mediocre, but then transformed themselves into stock market sensations. A conclusion was that the common trait was a "culture of discipline." This book has sold many millions of copies, so it's a good example of popular writing on business advice. One of the eleven "great" companies was Fannie Mae (FNM), and Steven Levitt was reading this book just as Fannie was collapsing in financial disaster. Hmm, he thought, I wonder how those other "great" companies are doing. Turns out, had you invested in those eleven companies in 2001 (when the book came out), your portfolio would have underperformed the S&P 500! (Fannie Mae wasn't even the only case of total disaster — also extolled was the now-bankrupt Circuit City.) Why didn't these companies continue to succeed?

It turns out Jim started by combing through 1435 companies looking for good candidates for the book, and picked eleven. With such a large sample size he was bound to find companies that fit his criteria, however, that didn't mean that they were great due to his hypothesis. On top of that, Jim doesn't bother asking whether any of the 1424 other companies also displayed a "culture of discipline." Maybe that's something that many public companies have regardless of performance. Is this book an aberration? Nope, Steven investigated another business book from the 1980s — In Search of Excellence — and found the same effect.

Given the previously mentioned scenarios for survivability bias we can extend this to the process of selecting and or deselecting stocks that are listed in the major indices, e.g. DOW 30, S&P 500 and the Russell 1000. Specifically, in the process of rebalancing the indices it is the tendency for failed companies to be excluded from indices because they 1. No longer exist, 2. Their market capitalization has fallen or 3. Their industry is in decline (which likely caused the first two reasons); this is considered Type 1, survivor bias. Inherent in this type of bias is the error you make in just counting the survivors.

Another type of survivability bias, is associated with companies which are successful enough to be included, but because they have not met the criteria for inclusion until recently, their five-year look backs tend to include uncharacteristically high rates of return.

This is described as, "the error of inclusion prior to qualification" or Type 2 survivor bias. This can introduce abnormally high return data if you were to include a company which today was added to the index vs. a company than has been "qualified" and in the index for some time. I imagine ETF's as a group have a propensity for huge performance survivorship bias, but this is just a hunch, not something I am interested in determining, but you might.

Does this mean that indices like the S&P 500, The DOW 30 and the Russell 1000 are inherently flawed?

Frankly I don't know and it is difficult to determine. I am not advocating that the indices are flawed… well, OK they are flawed, but it's more a shortcoming than a handicap. Moreover the issue becomes how the underlying components of these indexes are viewed by people whose job it is to deconstruct the indices for a living. Think about this, a company gets dropped from an index. While a large amount of care is taken that the weighting of the indices isn't impacted negatively, a smaller amount of care is taken that a stock might perform too positively at the point of inclusion, but what of the next few years? With inclusion of the new next generation up and comer company, it is likely that it has been viewed as a leading contemporary of the future economy.

This suggests in essence an inherent upward bias in the indices. It's like changing out tired horses on the pony express for fresh legs. In December 2001, Enron was replaced in the S&P 500 with NVIDIA (NVDA which brought the S&P to include approximately 77 NASDAQ weighted stocks. NVIDIA a 21st century stock replacing a 20th Century also ran, shenanigans notwithstanding. As an offset to the previous example TYCO was also replaced, by Northeast Utilities (NU). So while there is a bias in the indices, it's not something to be running from. The propensity of the index though given the selection and de-selection process suggests that it is positively biased.

What are the possible ways that survivorship biases affect the indices?

Money managers, fund managers, investors and even Traders struggle with this issue of survivability bias because it can cause a real discrepancy between a thoroughly back tested trading model and the real life market. In mutual funds many well regarded fund managers believe that survivorship bias can also overstate a mutual fund's performance returns by more than 1.6%. A trader struggles with it when the universe of stocks they selected by measures of liquidity and market capitalization changes over time. This assumes that their universe stays static and the indices of course do not. The problem with indices relative to a static universe of stocks a trader is likely to select for their portfolio is outlined here in a white paper by Tick Data:

Universes where membership is based upon capitalization, such as the Russell and S&P indices, reward (include) companies whose stock prices have been outperforming, i.e. rising in relative ranking based on capitalization, and punish (remove) companies whose stock prices have fallen such that their market capitalization no longer qualifies for inclusion in the index.

For example, the 1050th company in market cap experiences relative outperformance versus existing members of the index and its market cap increases in rank to 990th. That stock then becomes a member of the index on the next index rebalancing date. In the meantime, an underperforming company that was a member of the index is crowded out as its market cap now falls below the 1000th largest. The outperforming stock is in and the underperforming stock is out. A trader that defines his/her universe on the day following such a theoretical event will test his/her trading strategy only on the outperforming company and will never see the impact of the underperforming stock on the strategy's results. This is survivorship bias.

However, it gets worse. Real-time practice begins to disconnect from simulation almost immediately. The next stock that rises up the ranks of capitalization to merit inclusion in the index will not be added to the universe. Again, I am assuming the universe, once defined, remains static. The underperforming company that was just crowded out of the index is not removed from the universe. As a result, in real time the trader is not trading the outperforming company, is trading the underperforming company, and both are in direct opposition to what was done in simulation.

Moreover, how can survivorship bias impact index performance?

Well consider this scenario which Tick Data provides in their white paper, which I borrow heavily from to make my point. Enron, Worldcom Global Crossing, and endless dot com blowups maintained substantial influence in the Russell 1000 during Tick Data five year test period, 1998 - 12/31/2003. However by virtue of defining the universe (RUS1000) as of 12/31/2003, these companies, and their negative downside performance had been excluded. As time and distance from these points of failure increased so did the positive skew in the Index data from which many traders made their assertions and recommendations for investment decisions.

This is inherently problematic on two levels. On one level it creates a false level of optimism when looking at the Russell 1000 Index as the companies included in the index on or by 2003 excludes a significant number of major deadbeats, and in the same vein the companies that were replacements to the dead beats most likely exhibited extraordinary growth in a short time period, Type 2 bias e.g. Carmax which was added to the index in December 2002 and since they had a relatively short existence their 5 year historical analysis include returns of 477% in 2001 and 66% in 2000 this gets added to the mix and causes people deconstructing the indices to their basic components to drastically overstate an indexes relative performance.

This further compounds the optimism as you now have a company included in the data and the five year look back feeds the current optimism about the future value of the index. This is why you can have some people convinced that stocks are undervalued and other(s) are convinced stocks are way overvalued. Leaving investors thoroughly confused and scratching their heads wondering whether to stay or go.

The second level is a bit more sinister as, when the "deconstructionists" forgo inclusion of the dead beats in their five-year look backs, they gloss over the amount of risk you take on, ignoring the very real possibility that a future bunch of drop outs like an Enron, Global Crossing etc. etc. can be modeled in your risk profile or their risk analysis. The end result is that it can't, and this creates a problem in modeling and assessing future risk appropriately, because you have sheltered your model from Enron/Lehman (LEHMQ.PK)/Bear risk. This is over simplified, but can provide a good context with which to put the 2003-2007 rally into context, led by Apple (AAPL), Google (GOOG), eBay (EBAY) and a stalwart of other 21st century companies. All of a sudden stocks got really undervalued because the dead beats were gone and new thoroughbreds were added. It's akin to having a market that resembles a narcissists' selective historical view of their own performance attributes.

So what does this mean right here and now?

Well much like the survivorship bias was likely skewed positively from 2003-2007, we have ascribed that notion to the 2009 rally, especially since December 2009 – March 2010 many bad performances fell off the horizon. What this means is that the "deconstructionists" and their chief prognosticators are likely to start getting bullish when the Bear Stearns, Lehman's etc. etc. are just specks in the rearview mirror, and the inclusion of a new batch of upstarts creates an open road off into the horizon. However, we need to learn more about the planes that were shot down, before we can move forward otherwise we will unnecessarily risk very possible repeat of 2008-9. Be a survivor.

The Case For DOW 4500 WATCH IT Unfold! - Week 5

As I suspected in my post Case For DOW 4500 - Week 4

The hedgies took a bit of a hair cut in May, and these are the top guys (rockstars), I am even surprised at the size of the drawdown in May, 6.9% in Paulson's case! I expected a bit of bad news on hedgie returns, but this is worse than even I thought.

Top Hedge Funds Get Smacked

Note to the curious check the market sentiment indicator on the $DJI 10 year, but if you look at the monthly in post above it is decidedly bearish. This indicates that their is still a lot of fight left in the bulls.

However, if you look at the market sentiment on a daily basis... the worm has definately turned my friend!  The resistance is at $DJI is 10,232.33, with the next major support level at 9,361.

Here is the $SPX for good measure...  resistance at 1,117.91-1,190.89; major support 1,066- 1,030.


Monday, May 31, 2010

Bold Gold, The Rhodium Rodeo and Cash For Clunkers

I was inspired to write this article by the flaming punch; counter punch exchange between Market Ticker (aka Karl Denninger) and Gordon Gekko (aka apparently we don't know). Have a look for yourself here Gordon Gekko On Denninger and here Denninger On Gekko . Good points were made on both sides, but I'm predis positioned to err on the side of Market-Ticker's view. I looked at the Gold piece in depth a few months ago before I even had a thought about launching and writing a blog, of which this analysis was used in my article published on Seeking Alpha On Our Token Economy.

My view on Gold was that all it would take is for someone to announce that they had figured out a way to turn Lead into Gold and the market would go down like a lead balloon. By the way you can turn lead into Gold, it was accomplished way back in the 50's and again later unintentionally by the Russians in the 70's.

Transmutation of lead into gold isn't just theoretically possible - it has been achieved! There are reports that Glenn Seaborg, 1951 Nobel Laureate in Chemistry, succeeded in transmuting a minute quantity of lead (possibly en route from bismuth, in 1980) into gold. There is an earlier report (1972) in which Soviet physicists at a nuclear research facility near Lake Baikal in Siberia accidentally discovered a reaction for turning lead into gold when they found the lead shielding of an experimental reactor had changed to gold. Turn Lead Into Gold

I suspect the techniques have gotten better and the cost has gone down significantly and or with the run up in Gold is more cost effective. I continue my assertion that as long as Gold goes up so will the value of the dollar, mainly because the US has the largest Gold reserves in the world. Another observation from that article was to point out that Portugal had surprisingly larger Gold reserves than the UK and likely made a better credit risk than did the UK. This was primarily due to the UK selling nearly or nearly half (415 Tonnes) of it's Gold reserves in 1999 at an average price of $276 an ounce.

Apparently this was at a low that is affectionately referred to as "The Brown Bottom" after the then Exchequer of the British Treasury (Then Gordon Brown) decided to sell UK Gold for a pittance. In what appears to be just irony too good to be true, Nick Leeson of Barings Bank fame gets to comment on this particular trade and compare Browns 6.6 Billion Pound loss with his $1.3 Billion loss. You have to think that Brown conveniently excoriated Leeson on his trade, and probably rode Leeson's hide all the way up to the role of Exchequer, only to have done an even worse trade, threatening a whole Commonwealth. For their efforts Leeson went to jail and Brown became Prime Minister of Britain!

OK so this is all well and good, so now we have gone from the "Brown Bottom" to the "Gold-Man Top" so now what? Is Gold a better play, well I think what happens is the price run up will create the demand which we have seen which will continue until supply can catch up.

A perfect case study is when the Hunt Brothers attempted to corner the Silver market and they were done in by Dr. Jarecki of Falconwood Corporation, aka. Gresham Investments fame, as the principle counter party to the Hunt Brothers trade. Here it is described in his own words.
“As the price of silver over very few months rose from $7 to $17 and then to $30, 40, and 50, the American public took its rings off, sold its silverware, and some even took their silver teeth out of their mouths. People lined up, two hundred deep, to sell silver. The smart people laughed at them. The market price of silver was $50 and the yokels were selling it for $30 to the scrap dealers who were selling it to the bullion dealers for $40 who were hedging it in the futures markets at $50. But when these billions of dollars worth of new silver got refined and came on the market and the Hunts, in an effort to keep the supply-induced price drop from causing margin calls that would bankrupt them, had to buy it up, the corner failed. It was not by an act of the Federal Government, but because the market itself corrected the imbalance between supply and demand and thus ultimately bankrupted the Hunts. It is here worth mentioning, of course, that it was the little guy who made the big profit and that it was he, through the market, that foiled the Hunts’ attempt.”
This posting is also worth checking out if you also want to consider the effect of recent alleged market manipulation of the world gold and silver bullion markets, by two large banks. Bullion Market Manipulation

This aspect of Gold as a hedge and the idea of it being thought of as a "Disaster Hedge" which it isn't really as I pointed out in as referenced here What the Rebound In The Art Market Signals got me to thinking well if Gold is the rube trade?  Then where is the real precious metals trade?

This question led me to discover the Rhodium Rodeo... What is Rhodium?

To summarize, Rhodium, is likely THE rarest precious metal you can find in existence. It's current price is roughly $2,635 per Troy ounce as of May28th, and since it isn't and exchange traded commodity you basically have to own it to have it. Interestingly enough Rhodium, is also a by product of spent nuclear fuel and generally produces 400g of Rhodium per ton of spent fuel. The half-life of the radioactivity in the Rhodium is less than a year or in some isotopes and not more than 20 years in others, but it still is a relatively expensive process to reclaim. However, what is so remarkable about Rhodium was the price it was at in the Summer of 2008 when it was at a high of $10,010.00 per Troy Ounce. This was from a standing start of $533 an ounce in 1979 and a breakneck jump from $2000 in 2005. Back to a low of $760 an ounce in January of 2009. Talk about "buy and hose"!

The natural demand for Rhodium is in the manufacture of automobile catalytic converters.  In fact 81% of the world production of Rhodium in 2007 went to this use. If you look at the USDOC finding below you see an astounding revelation that the Rhodium in your cat converter, if you bought a car in 2007-8 the 1/8 of an ounce Rhodium added $1,200 in cost to the price of your car! Don't even think about the 15-20% cost added by adhering to Emission Standards which was another surprising revelation.

"The US Department of Commerce has estimated, according to a 2008 report titled "Increase in Vehicle Cost Due to Implementation of Emission Standards"[citation needed], that catalytic converters add as much as $1200 on to the sticker price of a vehicle. The same report also stated that EPA required equipment, including catalytic converters, cost somewhere between 15% to 20% of the sticker price of a new vehicle. As an example, if the MSRP of a vehicle is $20,000 then 20% ($4000) of the MSRP price is due to EPA emission standards. Not only is there a rise in the cost of a purchase of a new vehicle, but also an increase in the cost of gasoline over the life time of the car. Catalytic converters limit the airflow of exhaust through the exhaust system making the system less fuel efficient. The EPA has estimated the loss of fuel efficiency by 5% per gallon. That is, a vehicle burns 5% more fuel to travel the same distance with a converter than it would without."Catalytic Converter"
So when the car market hit a wall Rhodium got ejected over the wall and off a cliff. Funny enough not even the dust up between Russia(Second largest producer of Rhodium, 1of3) and Georgia couldn't put rhodium back together again, as that all transpired in August 2008 while Rhodium was well into it's cliff dive.

Oh and what a beautiful dive it was.  The drop off is astounding, and no splash even.  Even more astounding  when you factor in the time frame which was pretty much the height of the equity market down trend which also failed to break its fall.

OK so Bold Gold, The Rhodium Rodeo, where does Cash for Clunkers fit in?

Well I left you a teaser in the discussion about Rhodium and its use in the catalytic converters of cars. Of the total 2007 production of Rhodium 22 tons of it was mined and 6 tons was recycled or reclaimed, mainly from the recycling of catalytic converters.

When you consider that the "Cash For Clunkers" program was derided as a huge waste of money you have to consider the genius of the idea, and possibly why it didn't cost nearly as much as we thought it did. The fact that it took less fuel efficient cars off the road, and provided a big shot in the arm for the auto manufacturer's. Not only because it created a short demand spike.

You have to consider that the Rhodium, Platinum and Palladium held within those cars made the program half as expensive, and twice as effective. Generally because the dealers benefited from the scrap money, the recyclers benefited from the metal recovery and the automakers benefited from the lower prices of these metals as the market after being crushed was held back from running up again to because of a brand new supply of reclaimed precious Rhodium.

I thought it curious that the program could care less about cars more than 25 years old, the ones you would think have the most inefficient engines and most pollution, but it was really all of the cars with old catalytic converters the US Government was really interested in.

But wait there's more! Remember the 15-20% added cost of a car to keep emission standards, that part doesn't include the cost of 5% extra fuel consumption that the old cars had as a result of having catalytic converters in the first place.  Originally the program was targeting 250k cars off the road, by the end of the program they had succeeded in taking off 678k "Gas Guzzling" cars off the road. At a cost of $2.854 Billion, however, when you factor the fall in prices of precious metals due to reclaiming precious metals from old catalytic converters and the collapse in the market for Rhodium the Auto industry benefited hugely.

The National Highway Traffic Safety Administration (NHTSA) also released the final eligibility requirements to participate in the program. Under the CARS program, consumers receive a $3,500 or $4,500 discount from a car dealer when they trade in their old vehicle and purchase or lease a new, qualifying vehicle. In order to be eligible for the program, the trade-in passenger vehicle must: be manufactured less than 25 years before the date it is traded in; have a combined city/highway fuel economy of 18 miles per gallon or less; be in drivable condition; and be continuously insured and registered to the same owner for the full year before the trade-in. Transactions must be made between now and November 1, 2009 or until the money runs out.
I'm guessing the cars today are much more efficient with gas and have mitigated a lot of the fuel consumption issues introduced when catalytic converters were just introduced. I suspect as well that the process for using Rhodium in cat converters requires a less of Rhodium than it did even several years ago. So this was clearly a net net gain.

But wait there's more... Russia at 14% of world supply (S. Africa is 82%) was suspected to be intentionally and artificially lowering the supply for these precious metals there by increasing the price, it is clear that Rhodium was in a swoon at this point but what isn't clear is why did it fall lower. Like to less than $800 from $10,000… perhaps we had Russia in the throes of their financial worries dumping there stockpiles on the market.  This could happen to any commodity, and it does.

Things to worry about with the gold trade...

The IMF in September made a big announcement about the intention to sell about 400 tonnes of it's gold reserves of which India(200 Tonnes, Sri-Lanka (10 Tonnes) and Mauritania (2 Tonnes) leaving approximately 191 Tonnes left to sell.  The question is to whom are they going to sell it too?  The only entities capable of taking this amount are the Central Banks and none of them are running to do so.  So I guess this means that if their aren't any Buyers the only thing left are sellers.    
Indeed- as promised in yesterday's post- we were hoping today, to highlight the positive angle via which the WGC viewed last year's slowdown in central bank gold disposals. In its Gold Demand Trends publication, the organization spoke of the supply of gold from the official sector as: "all but [having] dried up during 2009. Net sales of 44 tonnes compared with sales of 236 tonnes the previous year and an annual average of 444 tonnes over the five years to 2008. The net sales were wholly concentrated in the first quarter of 2009, which was followed by three subsequent quarters of net purchasing, albeit at very modest levels. Sales of gold under the auspices of the Central Bank Gold Agreement (CBGA) were virtually non-existent during the fourth quarter, amounting to less than 2 tonnes. Gold Prices Down On IMF Sale
The Gold market is so exposed to the Central Banks, the very entities for which we owe the rich re-birth of gold prices can easily commit patricide, and kill it. I also ask if the demand is so high for Gold why isn't anyone stepping up to take the last 191 tons of it off the IMF's hands?

In closing Rhodium is by far a better disaster trade as it the most rarest of the precious metals, and as a disaster hedge is ounce for ounce a better store of value, but why did it at the height of the market uncertainty in 2008 and again in 2009 fail? I guess you could make the argument for it being highly illiquid as one of the reasons, but you don't keep it as a trade you keep it as insurance. This is trouble with precious metals as a whole, it's volatile temperamental and no sure thing.

One thing to note, the annual production of Rhodium is 1% of Gold, yet its price is only about 50% more than Gold so if you are looking for a good disaster hedge, consider this.  No one knows about it and it is really under the radar, and it's rarer than Gold.  Rhodium is once again on the move how much is attributed to the rebound in the car market vs. the disaster hedge alternative is up for analysis, but no doubt it is on the move and should be watched carefully or even owned.

Sunday, May 30, 2010

Fun with Google Search Trends

The week before last I was writing an article about the What the Rebound in the Art Market Signals, in which I utilized a tool Google provides which enables one to input "keywords" to check on their search and news relevancy.  It helped to make my point that the strength in the Art Market signaled a top in the market and what was likely to follow was a decline in the major averages. 

I decided to revisit the Google trends tool this weekend and try some different search terms for fun and curiousity, and here is what I came up with.  The one you see above is "Bull Market vs Bear Market, I was struck as to how the previous spikes seemed to jibe with the past in terms of the market's performance.  What was also fascinating was the recent sharp divergence of the two terms in what I am guessing is the last couple of weeks. 

Apparently there is a higher incidence of bear market in peoples thinking as least in terms of their search habits.  It is also interesting to note the cities (mostly major american metropolis') and that the news relevency on "bear market" just sprouted.  Clearly the news reporting hasn't quite caught up to what's on peoples' minds... yet. 

Here is another Bear vs Bull vs Market Correction...

Market correction doesn't really seem to get a lot of play at least in the search terms, but in terms of news relavency it's always in the mix.

Debt vs. Credit Crisis is interesting as well I caught myself looking at this chart thinking to first comes credit then comes debt them comes... err...  paying off your debt?

I was hunting around perhaps for some other ideas about clear signals, and found the "happiness" ones to be even more fascinating.  I don't even know what to make of it, but it would appear that happiness is escalating despite the nearly full mail bag of bad news coming each day.  The last one "happy" vs. "sad" was intrguing because of the consistent spike in "happy" around the holidays.  Must be the search for the killer Happy New Year's Party!


"Happiness" vs. "Sadness"

"Happy" vs. "Sad"

Have some fun with Google search Trends yourself and amaze your friends and family.  You can try it here, and if you think you came up with something tradeable, be sure to let us know, or you come up with an interesting search trend result, share it in the comments.

Fun With Google Search Trends


My Favorite Roller Coaster!

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