Professor Elam

Monday Feb 6, 2012

The news is here for all to see, our job at TMP is pointing out how that news affects socialmood and what is therefore likely to happen. 

A peak in positive investing mood lies immediately ahead. But a similar spike in unrest and negative sentiment world wide is also brewing .This is the result of repressive dictatorships, now no longer able to control the news citizens receive. It will also be the result of vastly inflated real estate speculation in commodity producing countries. They are about to experience their first taste of the downside of the business cycle-Sao Paulo ain't New York City. 

Mood shifts to an\ Risk On Investing Peak

This weekend using Chakin Money Flow we showed that investors rushed out of stocks at the Fall Lows when they should have been buying. Instead they bought govt bonds, at the highest prices of the year.  Here is an article page  C1 of today's WSJ that confirms our research,

Itchy Investigators Ramp Up the Risk

Robert Marcotte can't afford to play it safe anymore. With interest rates likely stuck near zero for nearly three more years, the 61-year-old retired telephone-company manager is about to ramp up his holdings of stocks and municipal bonds, using money now at the bank in certificates of deposit.

"It gets me a little uneasy," says Mr. Marcotte. "Since I'm not working, I am very risk-averse, but still need to generate income."

Mr. Marcotte is clearly not one of our 'alert Market Perspective readers!' He is about  to buy in near the top of the markets, going back to year 2000. Even a casual look at a ten year chart of any index shows the foolishness of this strategy. This is where the money will come from that will move out of TLT as we have been predicting, and into stocks. 

The article later states

One worry is that investors will take on risks they are not prepare d to handle.

That precisely reflects our investment outlook here. One adviser is quoted as saying he has received lots of questions about high yield bonds (junk bonds) international bonds, andREITs. This is classic wrong way investment behavior. Amateurs are always seeking yield when the bank offers none. And that increases risk geometrically. We will be selling outREIts, the few we own, in the next few months. 

At any rate, the hourglass is tilting towards risk for the little guy when risk is the highest it has been since Spring 2008. 

That should result in a peak in various indices to new highs, the SPX stopped as short as it could of my 1345 breakout, 1344.9 to be exact. The markets are exhibiting their usual monday morning weakness today. 

Meanwhile the winds of discontent are clearly blowing. Our cluster of Ides of March dates looms. Consider these stories

World Wide Revolutionary Strife Grows

It is all right here on pages A 6 and A 7 to see,yet Mr. Marcotte above is clearly not reading the paper. To wit - 

Egypt to put foreign workers on trial-that won't set well with the US Congress

Russia and China veto an Arab and US backed resolution calling for the ouster of Assad.Condoleezza Rice and Hillary, like Captain Renault at Rick's, are shocked. Hillary calls on an international coalition of our Allies to force Assad to step aside. Who pray tell does she have in mind?  Costa RIca perhaps?

 

The Kremlin Resorts to Anti Americanism – and so the Russians are right where East Germany was in 1989 when the Berlin Wall came down. Note it is roughly a Fib 21 years later. 

Sao Paulo is now one of the most expensive cities in the world thanks to an elevated real. A police strike spurs a crime wave. 

But surely the winner of Most Naive Expectation of the Day award is the op ed on page A13 by Alwaleed bin Talal, a member of the Royal Family, and CEO of Kigdom Holding and as I recall an  investor in Citcorp. He calls his piece

The Lesson of the Arab Spring

Here is the seminal paragraph about three fourths of the way into the article. 

If there is a lesson to be learned from the Arab Spring, it is that the winds of change that are now blowing in the Middle East will eventually reach every Arab state. Now is therefore an opportune time, particularly for the Arab monarchical regimes, which still enjoy a considerable measure of public goodwill and legitimacy, to begin adopting measures that will bring about greater participation of the citizenry in their countries'political life.

Prince, I suggest you call Mikhail Gorbachev who reached that same conclusion in 1988, only to be reversed in East Berlin. There is no putting the genie back in the bottle. As one of my clients commented on a return from the Soviet Union in 1991. They have VCRS and satellites and can see how the rest of the world lives, and are not going to put up with their status any longer. The idea that the wealth of the $100 oil should be concentrated in even a large Royal Family will not continue to 'enjoy a measure of public goodwill'

Yep, as Gary Cooper might say. 

THe kings of England and France, post Magna Charta, had several centuries to adjust their monarchies to such change. Still, Marie Antoinette calculated her timing very badly. Today's leaders will ot have the luxury of that kind of time frame. The swirl of events moves much faster. 

A Tunisian street vendor sets himself on fire. This is the butterfly effect pure and simple.

In chaos theory, the butterfly effect is the sensitive dependence on initial conditions; where a small change at one place in anonlinear system can result in large differences to a later state. 

WIki

And so the collision course is set, it is now just a matter of tracking these forces at work.