Sterling Market Commentary for Tuesday June 4th, 2013

Sterling Market Commentary for Tuesday June 4th, 2013

A Look at the Market Since Our Last Update: It has been a busy couple of months, and unfortunately we have not posted a blog in almost 3 months, not since March 7th, 2013 to be exact. I thought it would be a good idea to see where things closed on the date of our last update and see how they fared in our absence. On Wednesday March 6th, the following items that we normally track closed at these levels and we had the following commentary.

Dow Jones Industrial Average: On March 6th, the Dow Jones Industrial Average closed at 14,296.24 Our Prediction: We predicted the Dow Jones Industrial Average would move higher and test 14,677.92 on a closing basis. Actual Results: Since our last publication, the Dow Jones Industrial Average reached a closing high of 15,409.39 on May 28th before closing yesterday at 15,299.85 Net Result: Stated Upside Target Exceeded.

NASDAQ Composite Index: On March 6th, the NASDAQ Composite Index closed at 3,222.37 Our Prediction: We predicted the NASDAQ Composite would move higher and test 3,514.77 on a closing basis. Actual Result:? Since our last publication, the NASDAQ Composite set a closing high of 3,502.12 on May 21st, and an intra-day high of 3,532.04 on May 22, before closing yesterday at 3,465.37 Net Result: Upside Target Exceeded.

S&P 500: On March 6th, the S&P 500 closed at 1,541.46 Our Prediction: We predicted the S&P 500 would move higher and test 1,575.21 on a closing basis.? Actual Result: The S&P 500 moved higher and closed at 1,669.16 on May 21st, before closing at 1.640.42 yesterday. Net Result: Upside Target Exceeded.

Dow Jones Transportation Average: On March 6th, the Dow Jones Transportation Average closed at 6,110.93 Our Prediction: We predicted the Dow Jones Transportation Average would move higher and test 7,197.77 on a closing basis. Actual Result:? The Dow Jones Transportation Average moved higher and closed at 6,549.16 on May 17th, before closing at 6,288.27 yesterday. Net Result: Upside Target Not Achieved

Oil: On March 6th,? the price of WTI Oil closed at $91.57,? Yesterday it closed at $93.45 per barrel. An increase of $1.88 per barrel.

Gold: On March 6th, the price of Gold closed at $1,576.80 per ounce.? Yesterday it closed at $1,411.70 per ounce.? A decrease of $165.10 per ounce.

Wheat: On March 6th, the price of Wheat closed at $6.886 per bushel.? Yesterday it closed at $7.086 per bushel.? An increase of $0.20 per bushel.

Corn: On March 6th, the price of Corn closed at $6.716 per bushel.? Yesterday it closed at $6.556 per bushel. A decrease of $0.33 per bushel.

Soybeans: On March 7th, the price of Soybeans closed at $14.486 per bushel.? Yesterday it closed at $15.324 per bushel.? An increase of $0.838 per bushel.

A Few Thoughts on the Upcoming Market: In looking at the charts from yesterday’s trading activity, it looks like the interest rate sensitive stocks are starting to come under pressure.? The Utilities have been in decline for a while and other industries that are very capital intensive appear to be starting to pullback. The rest of the market appears to be staying at the punchbowl and drinking as much Kool Aid as possible.? We are going to start taking a more in depth look at the markets and the high volume indices again and expect to be back to publishing our usual insight into the market shortly.

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Sterling Investment’s Update for June 3rd, 2013

Sterling Investment’s Update for June 3rd, 2013

Site Changes: There have been some changes with the site, and here is where we are at with them.

  1. We Got Hacked: About a month ago our content management system (CMS) got hacked. The primary damage was the overwriting of our web page template, and a loss of access to some our news pages. Rest assured none of our reader information was compromised. We could find no evidence of any reader or user data being compromised. This is primarily because we do not store your data. We keep no record of your user or personal information, therefore there is nothing for the hackers to get. The hacking attack was primarily malicious in nature. Our tech support providers tend think these types of attacks are the work of foreign governments or non-governmental agencies (NGOs) probing U.S. cyber technology in preparation for some yet unknown future series of attacks. (Something to think about)
  2. New Cloud Based VPS Server: We have been hosting our site for a long time through HostRocket (www.hostrocket.com). They have done an excellent job for a very long time. However, our equipment was beginning to show its age and it was time for an upgrade. So we moved over to their cloud based VPS Hosting division DotBlock (www.dotblock.com).? It took a little work, but it sure looks like it was worth it. The new vps server should dramatically improve the responsiveness and up-time of our web site.
  3. Discontinuation of Internal email Service: We are discontinuing all email services using our internal email service. The reason for this is really very simple. It just simply became too hard to avoid being occasionally blacklisted, despite our best efforts to comply with all the anti-spam rules and regulations, as well as proper emailing procedures; we just could not keep up all the efforts to block spam and the occasional being incorrectly identified as a spammer. It is very time consuming to correct those issues. So in addition to all the other reasons to prosecute spammer, you have yet another reason, it chokes out legitimate business.What we are going to do is transition over to a service based distribution system that essentially delivers our newsletters and blogs through an approved sender network. We are currently testing several systems and will make a decision shortly.
  4. Additional News Pages: There have been some changes in a couple of key services that we rely on that most of the web users may not be aware of.The most significant is that Google is going to discontinue its RSS Reader. We were a very heavy user of the Google Reader, having multiple Reader accounts with a massive number of news feeds coming. As a result of Google’s decision to discontinue its Reader, we need to find a new way to access all of these RSS feeds. One of the simplest is to move as many of them over to new web pages on our various services. Look for us to roll out a massive number of new pages in the next few weeks as we need to have this completed by the 1st of July when Google discontinues its Reader. For the record, we wish Google would reconsider and keep it alive. We feel that the Google Reader is an invaluable tool that most people would use if they knew more about it.
  5. Additional News Sites: Sterling Investment Services through its Sterling Holdings division maintains a portfolio of web properties that we are developing to provide news on a variety of topics. The move to the new vps server allows us to greatly expand the existing web properties and develop new ones.? We plan on rolling many new sites over the course of the next several months.

Please look for more news and updates over the course of the next few weeks as we add new services and features to our site.

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Sterling Market Commentary for Thursday March 7th, 2013

Sterling Market Commentary for Thursday March 7th, 2013

A Look at the Market Since Our Last Blog:  The overall market moved slightly higher yesterday in a relatively broad based move that saw the majority of the various sector indices I track move higher on the day as well.  In the commodities, Oil was lower by $0.39 to $90.43 per barrel, and Gold was unchanged at $1,574 per ounce.  In the grain markets,  Wheat was sharply lower by $0.222 to $6.836 per bushel, and Corn was sharply lower as well by $0.204 to $6.884 per bushel,  while Soybeans were slightly lower by $0.004 to $14.66 per bushel.

A Few Thoughts on the Upcoming Market:  The overall trend of the market continues to be to the upside; and my number 1 rule of trends is that a trend remains in place until it is broken.  With most of the major market averages setting new all-time highs, I thought now would be a good time to reiterate my upside target levels.  Here are our near term upside targets for the major market averages.

The Dow Jones Industrial Average closed yesterday at 14,296.24  In the January 17th edition of the Sterling Market Commentary we stated an upside target on the Dow Jones Industrial Average of 14,677.92 on a closing basis.

The S&P 500 closed yesterday at 1,541.46  In the January 28th edition of the Sterling Market Commentary we stated an upside target on the S&P 500 of 1,575.21 on a closing basis.

The NASDAQ Composite closed yesterday at 3,222.37  In the January 30th edition of the Sterling Market Commentary we stated an upside target on the NASDAQ Composite of 3,514.77 on a closing basis.

The Dow Jones Transportation Average closed yesterday at 6,110.93  In the January 15th edition of the Sterling Market Commentary we stated an upside target on the Dow Jones Transportation Average of 7,197.77 on a closing basis.

Please note, that I am not expecting these indices and averages to go straight to our stated price targets, and there could be pullbacks along the way.  Also, they may not all hit their stated price targets at the same time.  What I am saying though, is that I am highly confident that I am highly confident that these indices and averages will hit their stated price targets on a closing basis over the course of the short to intermediate term;  after which I believe there would be a reasonable chance of a pullback.

The Bottom Line:  We are expecting the overall market to continue to move higher.

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Sterling Market Commentary for Wednesday March 6th, 2013

Sterling Market Commentary for Wednesday March 6th, 2013

A Look at the Market Since Our Last Blog:  It has been a busy week since our last market commentary blog on Tuesday February 26th.  In that blog I stated that I thought there was a good chance the overall market was entering a period of a pullback.   This was primarily based upon the selloff of the market that was precipitated by the results of the Italian election.  With the Dow Jones Industrial Average setting a new all-time closing high yesterday, I obviously got it wrong with my expectations of a pullback in the overall market.  I tend to believe as a lot of people do who I very much respect, that this market is primarily being propelled higher by the efforts of the Federal Reserve to flood the market with liquidity and push interest rate lower while sending equity prices higher. Unfortunately this is also one of the biggest market manipulations in the history of the world.  Market manipulation is still market manipulation regardless of who is doing it, and there is a reason why it is illegal.

The manipulation of the market for a stocks (as well as bonds  or commodities) always ends badly for those who end up purchasing the stock (or bond or commodity) at manipulated prices.  This is because they end up over paying for what they bought.  A lot of times the manipulation of a market also works out very badly for those doing the manipulation.  It does not matter if this is a penny stock, a bond, or a commodity the results are nearly guaranteed to be bad or disastrous.  Let me give you a few examples of what I am talking about:

  1. The Hunt Brothers Attempt to Corner the Silver Market:  The Hunt brothers of Texas attempted to corner the Silver market in the late 1970s and into early 1980.  It resulted in the collapse of the price of Silver on March 27th, 1980.  Those investors and traders that didn’t get out that day spent the next 30 years waiting for prices to return to those levels.  Those investors/traders who bought right before the price collapse still haven’t seen the price of Silver recover.
  2. Amaranth Advisors – Natural Gas Futures:  In late 2005 and early 2006 this hedge fund attempted to acquire a dominant position in the natural gas futures markets; and force prices higher by limiting the supply of natural gas that could be delivered as required by the contracts.  The fund did succeed in pushing the price of natural gas to around $9 per mmbtu before the price collapsed to less than half that level.
  3. Countless Penny Stock Pump and Dumps:  The Securities Exchange Commission is constantly taking enforcement action against unscrupulous penny stock promoters who attempt to lock up the supply of a penny stock and drive the price higher, after which they dump their holdings on an unsuspecting public and allow the price to collapse.
  4. Government Mandates for Biofuels:  This created an artificially high demand for biofuels, resulting in sophisticated and unsophisticated investors pouring hundreds of millions of dollars into uneconomical projects.  The resulting demand for agricultural products to create the biofuels drove prices higher,  and created bubbles in numerous side industries before the market for the biofuels collapsed due to the uneconomical nature of the cost of production of the biofuels.

Furthermore the excess liquidity created by the Federal Reserve creates asset price bubbles that ultimately burst and destroy the capital of those who own those assets.  Here are a few examples:

  1. The Dotcom Bubble:  The Dotcom bubble of the late 1990s was in part created by excessive easy money on the part of the Federal Reserve.  It subsequent collapse and the losses inflicted on investors caused many of them to swear off stocks and move into real estate investing.
  2. The Housing Bubble:  Less than a decade after the bursting of the Dotcom bubble, excessive liquidity on the part of the Federal Reserve combined with manipulative government regulations created a housing bubble; the collapse of which is still haunting the U.S. economy to this day.

As I asked several times in this week’s edition of the Sterling Weekly,  why should things be any different this time? Particularly when the Federal Reserve has gotten things wrong so many times in the past.  There is no good answer.  The bond market is tremendously larger than the U.S. Housing Market.  When the bubble in the bond market that is being created by the Federal Reserve bursts, as all bubbles ultimately do,  the damage to the U.S. economy is going to make the damage caused by the bursting of the housing bubble look like a kid’s game.

Despite what the market may do in the short term;  I think the Federal Reserve has turned it into a game of musical chairs where no one wants to be left standing when the music stops.

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Sterling Weekly for the Week of March 4th, 2013

 Sterling Weekly for the Week of March 4th, 2013

A Look at What Worries the Market

Since the previous edition of the Sterling Weekly, the Dow Jones Industrial Average rose 193.68 points or approximately 1.4% to close at 14,089.66 on Friday March 1st, 2013.  The overall market has been in a fairly reasonable upward trend since the start of the new year.  The Dow Jones Industrial Average is now just a few points away from its all-time high set in the summer of 2007.  Normally everyone would be rather excited when the market is close to a new all time high.  However, while the overall market appears to relatively fairly valued based upon traditional measures there continues to be an overriding sense of anxiety concerning the markets valuation and the status of the U.S. economy. I find that almost everyone, from friends to business owners and other investors,  has some form of this concern or worry. It is like nothing I have ever experienced before.

I think it is worthwhile to ask ourselves where this sense of anxiety and apprehension comes from; and if in doing so the answers may shed some light as to weather the concerns and worries are valid or not?  I see see the primary problem coming from the brass knuckle politics being played out in Washington, D.C.  I have said for a very long time that I believe politics is the single biggest influence on the market,  and I believe that is true now more than ever.  I see four main drivers from Washington that are putting downward pressure on the U.S. economy and the confidence level in the U.S. economy. They are Federal Deficit Levels, Federal Reserve Board policy, Taxation Rates, and new government regulation.  This is how I think they impact the overall market, and U.S. economy.

Federal Deficit Levels:  The Federal Deficit has never been higher, both in terms as a percentage of Gross Domestic Product and in total dollars.  No country in the history of the world has ever used excessive deficit spending to create a stable and prosperous economy.  I challenge you to name one!  In fact it been one of the primary sources of economic ruin for countless countries throughout the history of the world.  It is the source of the fiscal and economic crisis that has gripped Europe for several years now.  Why should it being any different now?  Why should something that has never worked before in the history of the world, suddenly work?  Why should it being any different this time?  These are questions and concerns that are shared by investors, business owners, managers, other decision makers, and citizens in general.  There is no valid answer as to why it will be different this time.  In fact history has shown that when someone really believes that this time it is different, what they are actually doing is setting themselves up to fail.  The bottom line is that these sky high deficits unnerve those who make investment and spending decisions, and as long as the deficit remains high, people are going to be extremely nervous about investing or spending any money.

Long term economic prosperity is created by sound fiscal policy.  By governments that run a balanced budget and are able to properly invest for the future and return excess tax revenue to its citizens.  When you think of strong economic powers in the world today and throughout history,  they have all had balanced budgets or at the very least minimal deficits.

Federal Reserve Board Policy: The Federal Reserve Board is committing 2 major wrongs that are severely damaging the economic growth of the United States.  The 1st being it keeping interest rates artificially low, and the second is it is monetizing the Federal Deficit.  Those are both items that will get a country and its economy in serious trouble.  History has taught us that artificially low interest rates will lead to either excessive inflation or create bubble in the economy, both of which always lead to some form or another of serious economic pain. Since it is not always easy to determine which of the two will occur, the safe thing to do is hold onto your cash until you can figure it out; and that is what it appears people are doing.

Additionally there is a great deal of concern over how the Federal Reserve will unwind or reduce the amount of government securities it owns.  However you want to slice it,  the unwinding of the government securities position owned by the Federal Reserve is going to have a depressing effect on economic growth.  Just stopping the government bond purchases by the Federal Reserve is going to cause interest rates to spike.  That is going to have a hugely disruptive effect on the US economy, and probably the world economy.

Monetizing the national debt is something that was always considered the greatest of economic sins.  When a government buys its own debt, it is essentially printing money out of thin air.  It is destroying the value of its own currency.  It distorts the true level of interest rates, and creates concerns that interest rates will rise too high when they ultimately do rise.  No country in the history of the world has ever created economic prosperity by buying its own debt or simply printing money.  It has never worked, and it always leads to a disaster, usually in the form of hyper-inflation.   Why should the results be any different this time?  Why should the United States be special? The concern is that the current policy by the Federal Reserve Board is creating a bond bubble that will make the housing bubble pale in comparison.  If those concerns are true,  then when the bond bubble bursts, as all bubbles ultimately do, then the crisis it creates will make the financial crisis of 2008 look like the good old days.

Instead of enabling unsound fiscal policy from Washington D.C. and sky high deficits, the Federal Reserve Board should allow interest rates to rise to their neutral level of 1.25% of the rate of inflation, which would be approximately 3.5% for Fed Funds; and stop purchasing new government debt.  This would allow interest rates to move towards their natural market level and enforce some fiscal discipline on Washington DC.  This would also go a very long way in restoring confidence in the economy of the United States.

Taxation Rates:  There is nonstop talk by the Democrats in Washington DC about raising tax rates.  Constant concerns over the changing of tax rates make it difficult to plan for investing, savings, and spending. Higher taxes hurt all three items.  The smart thing for a prudent person to do if you are concerned about higher tax rates is to save your cash and reduce your spending and investments.  Raising tax rates will not solve the deficit problems of the United States.  The Federal Government has never collected more than 21% of the Gross Domestic Product (GDP) in tax revenue.  Raising tax rates to infinity will not change that fact.  What it will do is hurt the economic growth of the country.  No country has ever taxed its way to economic prosperity.  It has never happened.  What higher taxes do create is economic stagnation and corruption. The concern is that the Republicans will eventually loose the battle over higher tax rates, and when they do, tax rates will go to far higher levels than are currently being discussed.

The talk of constantly higher tax rates needs to end.  What this country and the U.S. economy needs is a level of certainty and stability that cannot be provided when there is a non-stop battle to raise taxes.

Government Regulation:  The Obama administration and Democratic controlled Congress under Reid and Pellosi embarked on the greatest increase of federal regulations in my lifetime.  Even loosing control of the House of Representatives in the 2010 elections, the Obama administration has continued on with significantly expanding the level of regulations businesses must understand and comply with.  Just think of the legislation that was pushed through in the first 2 years of the Obama administration.  There was Obamacare and Dodd-Frank;  two pieces of legislation that were so expansive that they still have not drafted all the rules and regulations or taxes associated with either one of them.  That does not even take into account all the regulatory changes coming through all the various government agencies such as the Environmental Protection Agency (EPA).  All these new regulations further add to the level of uncertainty and expenses businesses, their owners, and managers are facing.  This reduces the overall level of spending and investment as businesses work to conserve cash in order to make it through uncertain times.

What the government needs to do in order to help the economy is to slow down the pace of new government regulations and work on streamlining and reforming existing government regulations in order to reduce the compliance cost and burden placed on businesses.

There is an old saying that the market climbs a wall of worry.  However, generally when the market is climbing its wall of worry,  the rest of the country is enjoying the good times. It is not a normal market when the rest of the country is setting atop the wall of worry, and the market is partying up the good times.  Like a lot of people, I have a tough time shaking the feeling that there is a going to be a day of reckoning like we have never seen before.  I do not know when it will occur, but as time goes by I keep feeling we are getting closer to the point of no return.

 

Sterling Economic Calendar for the Week of March 4th, 2013
Date Time Release For Forecast Prior
Mar 05 10:00 ISM Services Feb 56.0 55.2
Mar 06 07:00 MBA Mortgage Index 03/02 NA -3.8%
Mar 06 08:15 ADP Employment Change Feb 150K 192K
Mar 06 10:00 Factory Orders Jan -3.0% 1.8%
Mar 06 10:30 Crude Inventories 03/02 NA 1.130M
Mar 06 14:00 Fed’s Beige Book Mar
Mar 07 08:30 Initial Claims 03/02 355K 344K
Mar 07 08:30 Continuing Claims 02/23 3100K 3074K
Mar 07 08:30 Trade Balance Jan -$45.0B -$38.5B
Mar 07 08:30 Productivity-Rev. Q4 -1.7% -2.0%
Mar 07 08:30 Unit Labor Costs -Rev Q4 4.2% 4.5%
Mar 07 10:30 Natural Gas Inventories 03/02 NA -171 bcf
Mar 07 15:00 Consumer Credit Jan $10.0B $14.6B
Mar 08 08:30 Nonfarm Payrolls Feb 170K 157K
Mar 08 08:30 Nonfarm Private Payrolls Feb 180K 166K
Mar 08 08:30 Unemployment Rate Feb 7.9% 7.9%
Mar 08 08:30 Hourly Earnings Feb 0.2% 0.2%
Mar 08 08:30 Average Workweek Feb 34.5 34.4
Mar 08 10:00 Wholesale Inventories Jan 0.2% -0.1%

 

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Sterling Market Commentary for Tuesday February 26th, 2013

Sterling Market Commentary for Tuesday February 26th, 2013

A Look at the Market Since Our Last Blog:  It has been a busy couple of weeks since our last market commentary blog on Monday February 11th.  In that posting I did state that I thought the overall market would continue to move sideways with an upward basis; and that is pretty much what it did until late last week when on Thursday the 21st, the Dow Jones Industrial Average closed at 13,880.62 breaking short term support at 13,927.54.  Then we had the Italian election.  Now it looks like we could be seeing a pullback with some profit taking in store.

I would like to point out that in the January 18th, January 22nd, and February 5th editions of the Sterling Market Commentary I warned that Dow Jones Industrial Averages would see upside resistance as it approached these levels; and that is basically what happened.

A Few Thoughts on the Upcoming Market:  In looking at the charts from yesterday’s trading activity, I think there is a very good chance that we will see a pullback in the overall market.  I think there is a very good chance the Dow Jones Industrial Average will continue to move lower and test its former upside resistance levels, that are now downside support, which were set in early October of last year.  I see the Dow Jones Industrial Average continuing to move lower and test 13,610.15 on a closing basis.

The Bottom Line:  I am expecting the Dow Jones Industrial Average to trend sideways to lower over the course of the next several trading sessions.

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