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On Housing, Bonds, and Bubbles: Random Observations of a DeMark Trader


As governments around the world go out of their way to save us from ourselves, the markets keep chugging.

Before leaving for a spring break vacation, I offer my latest observation on the economy and markets.
  • Among the many rules aimed at suppressing rental housing inventory in the name of more affordable rental housing, the District of Columbia has long had in place completely useless provisions regarding older structures that might contain lead paint (most other states have similar provisions). Not to be outdone, about a year ago the Environmental Protection Agency saw it necessary to pass its own set of useless/redundant rules regarding lead paint. Bottom line? Nothing has changed in terms of what must/needs to be done to address lead-paint concerns, however to comply with the new federal regulations the EPA gets to collect about $1,000 per landlord. "Hello I'm the government, and I'm here to help you."
  • It could be worse, of course. You could be living in Italy, for example, where over the last couple of months, the Guardia di Finanza, (the armed branch of the Italian Internal Revenue Service) has been randomly stopping shoppers exiting stores and demanding that they provide receipts for what they purchased; they have also been stopping drivers in high-end luxury cars and subjecting them to "brown shirt" style investigations of their financial affairs. The upshot is that over the same time period, the export of used luxury cars from Italy to Eastern European countries has increased from about 60/week to 200/week. Even more fascinating, these cars are being returned to dealerships for free, rather than being sold, to get rid of them quickly and inconspicuously. Of course the Guardia di Finanza is now rumored to be tapping dealerships' phones to eavesdrop on who might be trying to get rid of the luxury rides. Yes, I know, the tax enforcers are acting solely for the greater good of the country... kinda. Meanwhile, anecdotal as it may be, shoppers have stopped shopping and stores have stopped selling, even though that's seemingly inconsistent with most Italians' genetic make-up. Sounds like the technocrats have it all under control.
  • As a follow-up to my recent comments on EMC Corp (EMC), a few more things to consider regarding its valuation. Back of the napkin, the enterprise value of EMC excluding EMC's economic interest in VMware (VMW) (the "Stub") is $20 billion. The 2012 Stub's EBITDA estimate is approximately $4.42 billion. That makes the EMC Stub EV/EBITDA 4.5x for the leader in a space (data management and storage) at the center of the world as we know it, if not the universe as it will be known (slight exaggeration, but you get the gist).
  • Not a day goes by that Democrats don't remind us that under President Clinton, tax rates went up and the economy/federal tax receipts boomed. And not a day goes by that Republicans don't remind us that under President Bush tax rates went down and the economy/federal tax receipts boomed. Pull up a chart of federal tax receipts between 1998-2000 and 2005-2007 and both are correct. Not to be picky, but I seem to recall that between 1998-2000 something happened with a thing called the Internet, day-trading, the Nasdaq, an equity bubble.... And serendipitously, in 2005-2007 I believe we had a debt/housing bubble. So let me think about this: equity bubble + higher tax rates = lots of money for the govie; debt bubble + lower tax rates = lots of money for the govie. We burnt through the equity, we burnt through the debt...wait...any takers for a printing-money bubble + you-pick-the-tax-rate = lots of money for the govie? Tim? Ben? Anybody?
  • If the 136-10 daily TDST Level Down support on the US 30-Year Treasury Bond (US1) does not hold, and price does not respond to the completed TDST Buy Setup, have no fear, Chubby Ben is here.
  • If you are looking for a stock that has been demolished on the back of a complete failure to execute, look no further than Intralinks Holdings (IL). And yet, with new management, positive cash flow, an improving balance sheet, a very intriguing niche, and a stock price closer to being an open-ended option than an equity, I can't take it off my screens. This is a multi-year turnaround story, if a turnaround materializes. And if it does, it's easy to see a pretty hefty upside. I'm not sold on it yet, but....
  • Here are two noteworthy articles from Light Reading Europe on VoIP traffic controls in Europe and the impact of the Apple (AAPL) iPad 3 on LTE networks. At risk of sounding like a broken record, these issues play right in the lap of Acme Packet (APKT) and Procera Networks (PKT).
  • Speaking of broken records, I have not mentioned the state of the bond market today because it really hasn't changed from last week, or the week before, or the week prior to that. That we will probably finish Q1 with a new record for corporate issuance and spreads at some of the tightest ever is all we need to know. Money for nothing and bonds for free.
  • On a daily timeframe, tomorrow the S&P 500 (SPX) should register a TDST Sequential Sell Setup; yesterday it completed a TD Wave 5 pattern. The last time we saw a TDST Sequential Sell Setup we also had a completed TD Wave 3, and the SPX corrected about 2% in three days, before resuming its march upward (textbook DeMark behavior). We'll see what this latest exhaustion signal brings, but the way things are going, bears may want to re-categorize a bear market as a 2% drop instead of 20% or they'll never see another bear market again. On a weekly basis, 1426 remains a DeMark objective before more meaningful resistance.

Editor's Note: At Minyanville we often argue that markets and stocks are driven by four primary attributes: the fundamentals, the technicals, the structural, and psychology. In this weekly piece, trader Fil Zucchi will attempt to digest these four measures to come to actionable recommendations, but with a couple of twists: Rather than relying on standard technical analysis, he will examine the technicals through the lenses of "DeMark" indicators. And rather than highlighting straight entry and exit points for stocks, he will use options to gain long / short exposure, control risk, and generate cash flow. Investors should note: This column will be written 1-2 days prior to publication, so by the time it appears the prices of the securities mentioned may have changed.
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