A Peak Under The Hood will be dedicated to providing unique insights into macro topics happening around the world and how these topics may affect financial markets. We will try to provide an entertaining, but informative blog, on subjects ranging from Real Estate, Mortgage Markets, Commodities, Major Stock Indexes, Bonds, and Select Trading Ideas. Our site will contain original posts, charts and also include opinions from outside investors and reporters who furnish original thoughts. We will attempt to dig deeper than what can be found on major network financial news outlets and it is our hope that you will continue to visit the site as we provide intelligent analysis that may be counter intuitive to mainstream ideas.

Monday, June 20, 2011

Off to See the Wizard...The Euro's Beetle Kill Forests

Happy late Father's Day to all of you out there. 

I have a 4 month old daughter, so I had a pretty awesome father's day to say the least.  My wife let me do something that I rarely get to do anymore...

You know it-- Eat REAL (no turkey for this dad!) bacon.  It was amazing.

Tune in for Wizard Speak Tomorrow

For those out there that believe in magic, Master Wizard Ben Wizzie will address his minions tomorrow in what will surely be the most anticipated say nothing speech he has had since his last post rate decision say nothing speech.  We will hear about 'stubborn' unemployment numbers, 'slow, yet sustained' economic recoveries and 'easing' inflation pressures that should help cure both unemployment and slow recoveries.  After that he will pull a rabbit out of a hat, put a stripper in a box and cut her in half and try to pull a silver dollar out from behind Lebron James' ear-- but he will only be able to find three quarters.

While Ben Wizzie's speech and post-speech press conference will be the buzz of the day, the real issue for all the markets should be (and will be over the next 12 months) Europe, the Euro and the Euro have's vs the Euro have not's.

The Already Infected Euro Zone Forest

I spent my Father's Day in the small mountain town of Grand Lake, Colorado.  Grand Lake is a true blast from the past Colorado mountain town.  There is only one street in the entire town that runs about 6 blocks and houses a combination of ice cream stores, T-shirt shops and bars.  It is one of those 'My Parents went to Grand Lake and all I got was this Crummy T-Shirt' kinda tourist trap for about 14 weeks a year. It is one of those towns that lives for their 4th of July fireworks over the lake.  Most of the year there is literally one road in and one road out (and that was true this weekend as the seasonal road, Trail Ridge Road, was closed due to 5 feet of weekend snow!).  While the lake is beautiful, the one thing you notice when you pull into this one horse town is the acres upon acres of dead pine trees-- victims of the pine beetle that feeds on the lodge pole pine tree that is (should I say was) the dominant tree in much of Grand County and the Grand Lake area.

Pine Beetles can not be stopped... once they show up it is inevitable that the mature forests will be destroyed.  The destruction can, and does, take years.  At first, the needles show a faint red, but over many seasons the whole tree's needles will turn red as the tree dies.  A season or two after, the needles fall completely of the tree and the tree stands like a arbor skeleton, next to thousands of other dead trees... ghost like and lifeless... the entire forest transformed. 

Greece is essentially no different than Grand Lake.  For that matter, so is Spain, Italy and Portugal.  These countries are infected with beetles that are slowly taking them down.  For years the town of Grand Lake did everything imaginable to try and stop the beetles while saving the forest.  They continued to spray chemicals that did nothing, hoping that 'this year's batch' would kill the beetles... but the beetles can not be stopped.  Europe and the Euro have similar problems.  They have tried to stabilize Greece, but it has failed.  They again will try to bail-out Greece with high hopes that 'this restructuring' will be the one, but ultimately all of these attempts will end in failures... one after another.  Greece, Spain. Italy, Portugal... the Euro itself?

The one flaw for Grand Lake was the idea that the beetles could be stopped.  Instead, Grand Lake should have been looking for ways to rebuild for when the forests were dead.  How could this have been done?  Plant different trees like Aspen that are not susceptible to the beetle?  Clear trees at the first sign of infestation?  The answer to that question, I don't know. Europe needs to start putting together their plans for countries that will inevitably default instead of kicking the can down the street by trying to save them through restructuring insanity-like plans that have always failed in the past. 

Today Grand Lake is a beautiful town surrounded by hundreds of thousands of dead trees in all directions.  Some say that this is nature, and that is the way it is supposed to happen.  Some say the worst is over for Grand Lake, and that now they can focus on building a new forest.

However, the cost of not having a plan will soon show it's ugly head for Grand Lake.  Today Grand Lake is a beautiful town surrounded by hundreds of thousands of dead, dry, fallen over, rotting trees.  The forest is a sea of fuel for a forest fire.  With no other vegetation in place and no clearing measures for the dead forest, a single rouge match, a bottle-rocket that flies off course or a smoldering cigarette tossed from a passing car will torch the whole area.  After the forest burns, the trees, whose root systems are essential to holding together the jagged mountain side soil, will be gone.  Until regrowth can happen, any large rain or snow melt will be susceptible to mudslides.  This process could happen this summer or it could take years, but it is only a matter of time until it happens. 

We will have to see what the cost of doing nothing is for the Euro-zone.  The Euro itself may not go up in flames like Grand Lake, but there will be fireworks.

The beetles can not be stopped.

Thursday, June 16, 2011

Happy B-Day 2Pac; Hunting Naked in the Woods Drunk in the Dark with a Machine Gun

Big Shout out to My Dogg Pac...

A big shout out to 2Pac-- It would have been your 40th birthday today had you not gotten yourself shot to death due to some stupid 'rap battle'.  Coulda, Shoulda, Woulda... fear not Mr. Pac-- your legacy lives on to this day as white teenagers across the country have sex to your music in the back of of their parents leased Cadillac and Lexus SUVs after every homecoming dance... It is good to go out on top.

A long break clears the mind for a writer, and I have to say that my mind is crystal clear.  This is the complete opposite of the markets.  The S&P looks pretty beat up these day.  I suppose that is the same feeling as the Jones' had in 2007 when their 900 sq ft town home dropped 120K in value and they couldn't cash out enough to support 3 vacations, a few Louis Vuitton bags for the girls, a shiny new leased Escalade and weekly Bloomin' Onions benders at Outback Steakhouse.  When the QEII party ends, there is no after party... for the time being that is (see Nov 2011 if you have a time traveling Delorain to see the next QE plans).

The markets are in an interesting spot right now.  The limbo bar has been set pretty low, meaning that 'less-bad' data can come across as 'phenomenal' to those in the doldrums.  Today was a perfect case and point to this argument.  We had not only another week of crummy jobs numbers, but the Philly manufacturing numbers were about as ugly as the VHS tapes you found of your parents doing the nasty to Madonna's 'Like a Virgin', when you cleaned out their basement before the short-sale.  Just plain terrible data today-- some of the worst we have seen in years... and the market shrugged a mid-day sell-off to finish ahead.

We are most likely at a point where the market will kick in a short-term rally.  The 10-year has been flat for the week despite all the nastiness from the NY and Philly manufacturing numbers and TLT has had a bear of a time getting over the 200-day moving average hump.  This coupled with today's turn-around in the markets points all signs to (sucker's) rally is immanent.

It should also be pointed out that uber-bull Jimmy Cramer called for a 10% correction, which should be reason in itself to do the complete opposite and ride a nice shorty run on the SPY. If Cramer Says Sell... BUY BUY BUY

Hunting Naked in the Woods Drunk in the Dark with a Machine Gun

Secular bear markets bring on intense and often erratic short-term rallies that are often explainable.  Usually the financial porn media finds a 'reason' and rides the living hell out of it until the rally fades.  Over the last year we have ridden the 'Rebirth of American Manufacturing,' 'The Jobs Recovery,' and 'The Consumer Renaissance,' and all of them have been complete bull excrement.  The only reason for any rally since last October was QEII.  Plain and simple-- kill the dollar and put upward stress on commodity prices, which in turn will raise raise equity prices.  Higher equity prices make people's 401Ks stronger and they spend more money when they go to Dennys (I'll have the 'Moon's Over My-Hammy' please!)  QEII was no different that a smoke-and-mirrors show the local auto dealer puts on for you when you go in to buy a car.  Create the illusion of 'something good' right now so that you will buy in and sign on the dotted line.  QEII worked great for a few months, but now the party is over.  The effects were similar to drinking 4 wine-coolers very fast-- a crappy buzz that leaves you feeling violated with a headache soon after.  And the headache is not going away because the hair of the dog (QEthrEE) is so far off at this point due to political hand-slapping.

Still, this market will make you think the grass is brighter in the near future.  When the markets recover a good portion of the losses you will hear something about 'Lower gas bringing back the consumer,' or 'Stay-cations bring stronger growth to retail as more consumers shop near home,' or 'job-seekers happy with part-time work as they get more time with family.'  It will be something ridiculous for sure.

The problem is that many people don't know the difference between bad (advice) press and real (information) data.  A Philly Manufacturing number that is sliding faster than Tiger Wood's apparel sales is real data.  A story on Dow to 20.000 in a year is just bad press.  If you had never been hunting before and you took a trip to Colorado to land your first kill, you would not know the difference between bad advice and real information unless you had done some research.  If you blindly went into your hunting expedition and your 'guide' told you that all real hunters went hunting naked in the woods, drunk in the dark with machine gun, you would probably start tossing back Tequilla in your birthday suit when the sun went down.  You may actually enjoy the experience (if you can find someone to rent you a machine gun at 10,000 feet) but you would not have gone hunting.

Remember that real data does not support any rally right now-- jobs numbers suck, China is falling to pieces, QEII is done, commodities are falling apart, the dollar is strengthening and Europe is just plain f'd up (that is 2Pac speaking peeps)... Smells like a recession brewing to me!  

With a good chance of a short term rally for the S&P, make sure that no matter how much fun you have that you don't wake up naked with a hang-over in a field, out of ammo.... surrounded by ANGRY BEARS!  

I hope you are smarter than that...



PS-- sorry for the break-- took on a new job that required me building out a sales team on a short time frame.  I promise to post more often.  Cheers and thanks for reading-- We greatly appreciate the support    

Market Update

It is our opinion that downside is not complete and rallies should still be sold. Today market is rallying and there is a lot of talk of a bottom.

Do not think so!

Update- If markets hold and base tomorrow we shall rally. We are at important time in the market. Any short position should be given tight stops as you do not want to be caught in a rally after the decline we have had. It will be intense. 

Tuesday, June 7, 2011

Market Update

We are not done to the downside. I think there is more downside pressure than most realize.

Good Luck out there!