George Ure

(Back at the Ranch)  It’s the overworked analogy of the three-legged-milk-stool facing investors for the next couple of weeks..

While the Dow futures earlier were down about 50-75, this is a fine time to be working on market-direction judgment skills because we have three macro-trends and a seasonal factor going.

1.  There is a major concern around investment outfits about how “the numbers” will work out for the year.  In high-rolling firms, the bonus can be many times the salary of top decision-makers.

Here’s the problem:  The S&P 500 Index closed 2014 at 2,058.90.  Yesterday, the S&P closed at 2,041.89.  Down for the year.

So in order for the bonus pool to come in good (depending on how the compensation package is worked) a fund manager or sales type would need to turn in a barely positive performance for the year.

From the investor standpoint, the year as mostly sucked.  The return on a portfolio of S&P stocks (not accounting for dividends, bankruptcies, splits, and yada yah) is about nothing.

I won’t rub salt in the wound by mentioning something we kick around on the www.peoplenomic s.com side quite often:  The problem of where to invest when there is no ‘safe haven’ available.

So yes, there can be some hidden incentive to drive the market down in order for some managers to look relatively better than the overall slog.

2.  Tax selling happens every year.  The idea is that if you have a loser in your portfolio, you want to unload it real soon in order for the sale to settle ahead of the annual close. 

Most wise investors who aren’t psychologically married to loser instruments have been unloading since much earlier this year.  But there are enough “I know it’s going to change if I just hang in another few weeks…” types, that there is always something of a rush for the exit door about now.

Casinos are another place you find crowds of people who don’t understand runs in the statistical sense.

3.  Last but least, we have Dynamics.  (Not to be confused with Boston or Microsoft).

A long time back, I mentioned either here (or to Peoplenomics readers) that an idealized close on Dec. 31 this year would be an S&P of 1,983.76 based on my modeling work.

Just so’s you understand how good (or bad) our guesses are, here’s a summary of deviations from predicted S&P” levels on a daily basis from October 2 of this year:

That last line may not make sense, but what it means is that ideally, in my modeling of the world, the S&P would close today around 2,044.63.

The odds of that happening are very low, but the model gives us some ideas where things could/seem likely to go based on the notion that there is something of an historical replay underway that most people completely miss.  Except Peoplenomics.com readers, of course.

There’s more to it than “just history” – there is also the fact that major waves in market sentiment are somewhat self-similar.  In other words, the market closed yesterday 18 points from where it “should” have on a self-similarity basis.  Considering the position of the markets prior to the open, self-similarity between market moves is not a bad way to approach things.

But I digress.

The final point to consider:  If the market closes the year around 1,983.76 l on the S&P, this may be a different kind of approach to market analysis worth further attention.. 

No, I don’t expect it will “hit” exactly.  But to have some confidence (with 50-100 S&P points) on  where the market would end the year isn’t a bad thing.  Especially if that’s been on the drawing board since May when I began tinkering with the concept.

Even if the futures are saying Dow down 100 today, the model says the fat red guy rally ought to show up sometime…but beyond that, a soft downward trend through year-end seems to be the bigger scheme of things as they appear here in the Outback of East Texas.

Ukraine Goes Broke, Neocon’s Lose Their Syria Scam

Yeah – the Western corpgov media don’t seem to be mentioning much of two stories making it big in the Russian press today.

First off, for all their footsie-dancing with the EU, Ukraine is now broke and they will likely become the next Greece of the EU.  A quote from Russia’s Pravda explains:

“Noteworthy, the International Monetary Fund earlier acknowledged that Ukraine’s credit obligations were sovereign, rather than commercial. If Ukraine does not repay its debt to Russia before December 21, international creditors will cease to support the Ukrainian economy.

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(Back at the Ranch)  We are, as of this morning, almost exactly one week from Christmas Day.  And depending on your time zone, it’s about now that the turkey needs to go in.

People make a Very Big Deal about holidays.  And part of the act seems to be presentation of all kinds of checklists.

“Checklist for perfect gravy.”  “Checklist for perfect leftovers.”  “Checklist of 12 barf bag substitutes for this sickening season of commercialism.”

So this morning, in keeping with helping out, a couple of indispensible checklists.

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(Shreveport, LA)  For the past 3-4 months, I have been telling Peoplenomics subscribers to be very wary of the doom-porn promoters who have been trying to make the case that the world is going to end any old minute, now.

It’s not.

We don’t really need to worry until the presidential contest is “in the bag” and even then, it doesn’t look like the bottom falls out until Q1-2017.

The bad news is that once it gets rolling, the downside is not likely to be reached until we are down into the 1,500 Dow range (no, that is not a typo, but around here it is good practice to ask!).

In fact, it could be lower.  When we get to the all-time highs for the market – that I still expect in last 2016, there will still be the doom-porn types who are basing their hysteria on little actual research.

Now that the Fed decision is in, here is what I still believe will be the “real deal.”

The U.S. economy should zoom up like crazy.  A Dow over 30,000 is possible in the next 12-months.  No one else is saying this.  Instead, everyone has “football economics” disease going.  One wanker comes out with a forecast and everyone else “piles-on.”

Not around here, though.

Let me give you an example:

A number of readers have sent me “Sky is falling” notes because the Baltic Dry Index was down at 471.  This is an all-time low.

But at a little broader level, the HARPEX is not there yet – this is the container cargo index from Harper-Peterson. 

Right now, it is at 366.  The low during the 2009 collapse was what?

275.

The problem many business reporters have is they have never had actual P&L experience for managing a business unit.  If they had, they would understand what I am going to tell you right now:  In transportation companies, particularly ocean freight and airlines, the cost of fuel is usually the BIGGEST SINGLE COST ITEM.

So, what was the cost of jet fuel in 2009 when the economy was bottoming?  Here’s the answer:

Well, now the cat’s out of the bag.  The economy is down to 5% unemployment – whether we drink that Kool-Aid totally, or not.  And the price of jet fuel is down to 2009 levels.

So when the stories pop about airlines printing money hand-over-fist, how do the know-nothings explain it?  They don’t – they can’t – because they don’t understand that it’s the portion of fuel cost in the P&L.

Now, let’s play the same game with ocean freight fuel costs, shall we?  Only we will simply use West Texas Intermediate as our proxy because the data is easy to find:

What is going on right now is pretty obvious, isn’t it?  In the 2009 collapse, the price of crude was down for maybe 5-months under $60.  But now look at the prices most recently:  We have been under $60 for over a year!  Of course prices of the Baltic will come down and hit lower lows…

If you have a P&L where fuel costs are 5% of your expenses, like running a sales force to sell this, or that, it’s one thing.

But when you have 50% of your P&L devoted to fuel and related, this is what happens.

Having been sr. VP of an airline, was I surprised when this story came out this week?  Lower fuel costs send airline profits soaring…

Of course not. 

Anyone who who fancies themselves a “student or disciple of management” (or a reporter) and doesn’t have a very good financial model in Excel to help them make intelligent predictions about operating profits and what not should really find a new line of work.  (That’s why I belong to the Society of American Business Editors and Writers…pro’s do this kind of basic blocking and tackling).

Yes, the price of oil may drop down to 33, or so.  But in 2016, we are wildly optimistic about the effects of persistently low oil prices, modest inflation in the 2-3% range, and with that should come a screaming Dow. 

And at least until the presidential election next year, I don’t see gold really taking off.

You don’t want be to be one of the POP (pile-on-press) do you?

As much money as I have made on the bearish side of things, a conservative levered upside position in 2016 may be a good thing.  I’m thinking the Double Dow or something like that.

There – consider that your Christmas present and no warranty is stated or implied.  You are a grown-up (supposedly) and left-field events can come any time.  But as we have been telling Peoplenomics readers for months,.

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(Shreveport, LA) Note to Peoplenomics.com readers.  Remember that statistical problem we were talking about Wednesday?  Well, there didn’t appear to be a positive correlation.  If anything, there is a modest case for a negative correlation.  (This would make sense if you subscribed.  Makes a fine Christmas gift and I will put a form up Monday for that….)

Now on in the middle ring of this circus… If you are planning to buy someone a drone for Christmas, please remind them to register it with the Federal Aviation Administration.

We happened to take the car on our latest adventure, not the airplane.  But the FAA has really gotten  something right on drone registration.  It is still free, although the cost will go up to a whopping $5-bucks something after the first of the year sometime.

To register, click over to this FAA page.

The second page to head for is the discussion of the “no drone zone” rules. That page is here.

As a pilot, I’d appreciate it if you could keep drones out of areas immediately surrounding airports.

There’s enough to do when setting up for landing (“Terrain warning, terrain warning!” [find button to kill that!] “One-Two-Lima caution departing wake turbulence for the Dash-8 ahead of you…The Cessna XYZ, extend you downwind, turn base when able abeam the Beech on three mile final. Break.  One-Two Lima can you keep your speed up?”  “One-Two-Lima, this is up….”).  All this while Elaine is chanting “You DO see the Dash-8 on the runway, right?”

“Right…”

I’ve got a runway line up, playing winds aloft and cross winds; wondering if that stand of trees on the left will be tumbling air in my path,  a tower issuing orders, a faster airplane coming in behind me so I’m judging which high-speed turn-off, descent profile, and airspeed to keep track of.  While working out the touchdown aim-point, vertical speed indicator and trying not to bust a kidney because I didn’t make an earlier pee stop.  And I need to see where the Dash-8 rotates and touch down before there and….easy!

HOWEVER: About the last thing I need to some SOB trying to rip a wing off, or smashing his effing 2-pound Christmas present through our windshield in the middle of this. 

Thank you for not giving irresponsible people drones.

You drones are more dangerous than my AK-47?  Yep:  a drone.  Unlike guns, there are no constitutional protections.  Please register and learn about air space.

Diet Note

Back on a single dose (with meal) of chromium picolinate as part of my diet routine.

I’m using Nature’s Bounty Ultra Chromium Picolinate, 500mcg, 100 Tablets  and taking one with a meal once per day. 

They definitely boost energy, especially if you’re taking a good multivitamin with all the B-complex.

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Any person with half a brain can see what’s going on here.

And since I nearly qualify, let me explain what’s going on.

The price of crude oil went up a buck, or so, from under $35.  That means someone is believing the FedSpeak about raising rates.  Good for them.

The problem is that other than covering some developing short-side action (and yes, we expect oil will go even lower and perhaps into the $20’s when all’s said and done) that not too many other indicators are following-through.

Take your POG (Price of Gold) for example.  It plain sucks. $1,063 is not a reasonable price – if the Fed is going to raise.

Even the 10-year Treasury is languishing…see the one-month chart here.

Back in 1979, my consigliore (my tax advisor, CPA, JD and man about town in Ohio) did a very thorough dispersion study designed to figure out how long oil price changes take to completely work their way through the economy. 

The answer is surprising:  up to 60-months.

Point is, as you read the latest chapter from the National Book of Fairytales (a/k/a/ Labor Statistics) you need to apply you finely tuned retro-vision.

Retro-vision is that human skill that allows us to see all of our mistakes perfectly in hindsight.  It works in economics, too.

The simplest retro-vision that I can find (it’s early) is the price of gasoline kept by Triple A.

A year ago, the Price of Gas  (the POG everyone follows) was $2.545.  Today’s report pegs gas at $2.013.  Here in Texas, we’re eyeing $1.,803.

What this means, coupled with the collapse under $35 for West Texas crude, is that we have a good ways to go on the downside in prices yet.  Hell, I wouldn’t be surprised if by the time we get to February we’re now around $1.50 a gallon as by then, we could have crude in the $20’s.

Point is that energy costs really are in the driver’s seat when comes to the consumer price report.  Just remember there is at least 30-90 days on the gasoline pricing to work through (which means March, perhaps) and on goods like your finished plastics (that water bottle, say), the prices will be contained for another year.

The crude goes in and goes to refinery row in Houston.  Made into some industrial chemicals.  Goes on a tank car (1-4 weeks) as feedstock for a plastic resin, or what have you.  Goes for another train ride, maybe.  Eventually gets made into a blow-molded bottle.  Which then gets filled and by the time you get it out of a machine, we’re almost through summer of 2016.

Clothing is even more circuitous.  The raw materials go all over the world.  And then you have ocean freight lag and….well, that’s how a dispersion study is built.  You get a spreadsheet and a six-pack an d wait….and wait…..and wait….

Eventually, the numbers get compiles (after the goods arfe sold) and then we have another month of statistical lag.  You buy a bottle of water on the first of November, it shows up 45-days later as a component is today’s CPI report.

Which I suppose we should defrock about here:

“The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in November on a seasonally adjusted basis, the U.S.

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Who was that political candidate who said “if nominated, I will not run. And, if elected, I will not serve“?

General William Tecumseh Sherman of Civil War fame is the correct answer, BTW.

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This is going to be one hell of a Monday, so don’t expect a dynamite column  tomorrow.  Come to think of it, if you’re looking for a a dynamite column, check out the San Francisco Chronicle archives and look for some of Herb Caen’s work.  It’s more dependable and only slightly less dated.

Caen, as with most of my literary heroes, have been dead a good while.  1997 for Caen.

In fact, come to think of it, the only really good newspaper columnist I worked with for any period was Emmett Watson, of the Seattle Post Intelligencer.

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A look at the Futures board (over here) said everything you’d need to know about the markets in a single compelling sweep:

• The Eurostox 50 was down 1.7% at first glance.
• US marts are staring into a one-percent drop at the open.
• If the US keeps pace with floundering Europe, we could drop 300 on the Dow today.
• The price of oil continues to implode and we’ll get to what that means down in the Houston area later on, but the short answer is “grim.”  West Texas Intermediate was down around $36 and change.
• And running counter – never a good sign – the price of copper is back up to the $2.10 range.  We follow copper closely because the price of copper is a very good indicator of war-threats.  When copper goes up, it means the odds of war are spiking.  You need copper to make bullets, after all.  Unless you’re firing some of the epoxy-coated steel casings coming out of Russia as 7.62X39 (AK-47 rounds) but you can have a conversation with our armorer about that offline sometime. Berdan’ed what?

A fair question to begin with is?  “Why are things sucking so much?”

Since you may not be a www.peoplenomics.com reader, the answer is simple and has been in sight since Tuesday’s close.  The S&P has dropped under both the 50 day moving average and the 200 day moving average briefly.

When this kind of thing happens, you will sometimes see a bounce as the commercials will load up on the short side.  Next week, I expect the market to be down even more.  Let’s all try to stampeded the Fed, shall we?

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Living out “in the woods” as we do, there is nothing so important as a good, reliable pick-up truck.

And, among pick-up trucks, the ONLY ones that have ever made sense to me are full-size, half or three quarter ton trucks.  Something you can lay a sheet of plywood in and have it supported its whole 96-inch length.

The reason is simple:  Seems like we are always going into town (Lowes or McCoys) and picking up something that won’t fit in Elaine’s car.  Whether it’s treated “peeler poles” for landscaping, a hundred T-posts, or several sheets of plywood, finished MDF, or sheetrock, there is nothing so useful as a pickup bed that is at least 4 feet 1-inches wide – even with the bed liner in.

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Whilst we sit around and twiddle, waiting for Janet et alia to do their thing next week, we can’t hope but sit back and appreciate the “ViseGrips Moment” in here.

To the good:

• The U.S. unemployment rate is still very nice.
• The U.S.

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