Five Things for Tuesday, May 12

By Kevin Depew  MAY 12, 2009 10:00 AM

No one driving the train; Food prices surging?; Wither the US Dollar?; Cocaine & the Horrors of Modern Finance; News & Weirdness


1) There's No One Driving the Train

So, finally, this is what it's come to; things are so far off the rails, so far past any decent person's sense of normalcy, what's one more bizarre incident thrown into the mix? The professional traveler understands that when you discover a golden retriever is driving the train, the point where panic is an appropriate response has long since passed. When the conductor offers you a parachute, does that make the weirdness any more or less real?

There is a point to all this, and it's related to the latest video out of Washington spreading viral weirdness among the population at large. As of yesterday afternoon it had only about a thousand or so views; this morning, 150,000.

While professionals, the one-half of one percent who follow markets for a living,  have long understood that no one is driving the train, there's a reasonable chance that everyone else in America is still harboring the view that somewhere, somehow, someone is in charge. After all, we're talking a trillion dollars here. If you are among them, see the awful truth for yourself.

Food Prices Surging?

The Financial Times yesterday pointed out important shortages in coffee and sugar affecting commodities prices. Year-to-date sugar is up nearly 40%, only outpaced by copper, lead and gasoline futures. The gist of the FT article is that coffee drinkers and sugar fiends should brace for higher prices in the near future.

Perhaps. But these prices, driven largely by crop damage in Colombia and (for now) rising demand are not easily being passed through to consumers who are in trade-down mode, opting for private label goods over premium products.

Bank of America/Merrill Lynch economist Neil Dutta, who has taken over for David Rosenberg who has ventured out on his own, notes this morning that the consumer price level for food and beverages has actually been down for the past two months. Consumer food and beverages prices, which make up only about a 0.2% weight in the Consumer Price Index, were down 0.1% in both February and March and have fallen at a 1.4% annualized clip over that time. Dutta notes that is the weakest performance for this group since 1991.

The bottom line is that the consumer, beaten down by as she is by a weak labor market and deflating wages and salaries, still holds the upper hand over pricing even when we are talking about the necessities.

3) Whither the US Dollar? Wither? Whither?

Dear Kevin:

I have a question regarding the Dollar in DeMark indicator terms.
Have we perfected a Buy Set Up at 82.63? Second , while we have gone through the TDST line on the Monthly chart at 85.93 and our above the TDST weekly at 81.13 does this continue to suggest higher dollar prices in the not to distant future after this 1-4 bar correction in the monthly work?

Minyan Frank

Minyan Frank,

Here is my read on the dollar. I evaluate with DeMark indicators from larger time frames down to smaller, so beginning with quarterly this is what I see:

Buy setup was perfected in Q2 2008, and we are now on bar 4 of the 1-4 bar corrective phase with TDST Up resistance at 90.40. The primary trend is down on this chart unless that TDST Up level is exceeded in a qualified manner. Meanwhile, an overlapping TD Sequential Buy Signal count is through bar 10 of a potential 13 buy signal.

Very difficult. The Buy Setup that was perfected on July 2007 following a qualified break of TDST Down level at 81.28 only achieved a Countdown count of 8 of 13 before recovering. Nothing conclusive on the monthly chart.

TD Sequential Sell Signal recorded the week of April 24. The TDST Down level at 82.66 has the potential to be qualified this week.

A Buy Setup was perfected on the daily chart May 5. We are now (as of the close today) through the 1-4 bar reaction window to that Buy Setup. Meanwhile, an overlapping potential TD Sequential Buy Signal is on a count today of 11 of potential 13. TDST Down level is at 81.35.

I wish things were clearer with the US Dollar. I was wrong to be a dollar bull in 2007, right in 2008. Now there are many complicating variables at work and if I had to characterize the dollar based on what I see through the technical lens it would be "uncertainty."

Gold bulls/dollar bears see things with much more fundamental certainty bordering on dogmatism. Their case makes intuitive sense, but I have never found the market to make sense, which is why I prefer to view things through a technical sense.

Meanwhile, gold has both quarterly TD Combo sell signals and Sequential sell signals in place from Q1 2008 and Q2 2008 respectively. Sell signals after recording are active for the next 12 bars. A close this quarter below 925.40 will confirm the sell signals with a bearish price flip.

Silver, on the other, hand, is on bar 4 of a potential 9 BUY Setup on the quarterly chart and has qualified a break through TDST UP resistance back at 7.82, which should now act as support.

Bottom line, I have no idea about the dollar longer term, but gold and silver seem much clearer, with silver being the clear winner of the two.

4) Britain's Cocaine Prices
Reveal the Horrors of Modern Finance

"Cocaine is a drug with deep ties to bull markets and positive social mood. While there are a myriad of reasons individuals may choose to use drugs in the first place, in the aggregate the popularity of specific drugs is driven as much by herding behavior and social mood as music, art, financial markets or fashion.

So what happens to a bull market drug when the bull market ends? Deflation.

According to the Telegraph (UK), cocaine is now cheaper than beer and wine as drug prices have fallen by half over the past 10 years, about the time the secular bear market began."

I wrote that three months ago, so why dig it up again? Because this morning I ran across this article FROM THE SAME NEWS SOURCE!


"Drug busts by Soca, Britain's organised crime fighting agency, have helped force dealers to raise wholesale cocaine prices to record levels, its boss Trevor Pearce has claimed."

"Mr Pearce told the BBC: "There is a discernible effect that we are now seeing in relation to the availability of cocaine both in Europe and also across the UK. "We are now seeing high-quality cocaine at about £45,000 per kilo wholesale in the UK. That's significantly higher than it has been and has to be indicative of the pressure which the importers are under.""
Telegraph (UK), May 12, 2009

Inflationary, no? No. Like the food prices noted above, the pricing pressure at the wholesale level is not indicative of pass-through cost increases at the consumer level. Instead, what happens is that the purity of the cocaine gets cut, and although that can temporarily help dealers boost profits by stretching a kilo, it has the unintended consequence of making the drug less and less attractive among users, thereby reducing demand.

5) News and Weirdness for Tuesday

Chinese Experts Fall 22.6% in April - NYT
BRIC by BRIC, global deflation continues apace.

Downturn has "Bottomed Out" Trichet Says
- ($)FT
ECB President now also focused on second derivative as the gruesome pace of the meltdown shows signs of a "pause".

US Budget Gap Revised to Surpass $1.8T - NYT
For those keeping score at home, it looks like this: $1,800,000,000,000. Western civilization has not existed for a trillion seconds, which works out to 31,688 years.

Sales Tax Decline in 2008 Worst in 50 Years - Rockefeller Institute
There are two major tax sources for states; sales tax and income tax. Sales tax worst in 50 years, income tax also will likely show weakness given employment. Meanwhile, fiscal conditions for states continue to deteriorate.

Bank of America Said to Raise $7.3 Billion From Sale of China Construction - Bloomberg
Among the New Poor, Banks now going through the time-honored process of selling the good to pay for the bad.

Advanta Shuts Down Credit Card Lending for Small Businesses - Bloomberg
"Advanta said it’s preserving capital after charge-offs, or uncollectible debt, reached 20 percent on some cards as of March 31."

...Meanwhile, Small Banks Dull But Safe - NYT
"Never heard of a CDS, but we do have CDs."

The Age of Austerity Means Just-in-Time Shopping for Consumers - AP
No more sundress purchases in January or sweater purchases in August. Americans are on a strict, need-to-have immediately budget.

Smaller Sponsors Finding New Fit with NASCAR -
Recession allowing smaller companies to squeeze into Nascar sponsorship.

No positions in stocks mentioned.

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