Recognizing key support and resistance levels is essential for successful technical analysis. Although it is sometimes difficult to establish exact support and resistance levels, being aware of their existence can greatly improve analysis and forecasting power.
By Ian Wyatt | Apr 19, 2012
Earnings season is often a high volume period. But that hasn't been the case this week.
By Ian Wyatt | Feb 24, 2010
There is an article at Slate.com making the rounds in the financial press. Warren Buffett's partner at Berkshire Hathaway, Charlie Munger, penned a parable about America's rise and fall, called "Basically, It's Over."
The article details how a young, fiscally responsible country called Basicland got caught up in the "casino" of speculation, ignored its export economy, and essentially went bankrupt.
While perhaps a bit simplistic, Munger's piece is intended as a warning about rising government debt and an over-reliance on risky financial speculation. This speculation is intended to make up for the lack of manufacturing as a major component of GDP.
Some of the statistics he throws out are a bit scary. He says "The winnings of the casinos (investment banks) eventually amounted to 25 percent of Basicland's GDP, while 22 percent of all employee earnings in Basicland were paid to persons employed by the casinos."
I haven't verified those numbers, but they certainly suggest an economy that's out of balance.
As I read Munger's article, I thought immediately of yesterday's story about how Goldman Sachs and other investment banks may knowingly used mortgage-backed securities and CDOs to set-up AIG.
I'm sure we all believe it is any company's right to take advantage of another company's weakness. At the same time, however, it seems to me that at some point, a company must ask itself "at what cost?"
In the case of the housing bubble, investment banks knew the mortgage-backed securities they were selling were junk. Not only did they set AIG up for a fall, these casinos, as Munger calls them, essentially cannibalized America to make a buck.
Munger's answer? Listen to Paul Volcker. Keep banking separate from investing. And "…produce and sell items that foreigner's [are] willing to buy."
Let's hope that our elected officials are not so ensnared in the casinos' tentacles that they can make the changes that America needs.
By Ian Wyatt | Feb 19, 2010
It's pretty hard to ignore the big news this morning – the Fed hiked the discount rate by a quarter point to 0.75%. Now, this is different from an interest rate hike (known as the federal funds rate). The discount rate is the amount of interest the Fed charges banks for direct loans.
The move is designed to make it more expensive for banks to borrow from the Fed, thereby encouraging them to borrow from private sources.
Now, the Fed said in its last meeting that this move was coming. And I'm actually glad to see the Fed make a "surprise" move. By that I mean the markets got very accustomed to the Greenspan policy of only moving rates during policy meetings. That gives the market time to adjust ahead of the meeting. Some argue that strategy decreases the effect of the move.
With this surprise move, Bernanke has taken the market by surprise and forced it to adjust on the fly. That's actually a good thing. I think it's important for the Fed to show that it's proactive.
What's more, the Fed is also showing that it is intent on removing the emergency liquidity measures it took in the wake of the financial crisis. This is an important step toward addressing fears that cheap money will spark inflation.
The biggest takeaway from this move is that the Fed is showing confidence in the economy. The Fed clearly believes the economy is strong enough to start walking on its own, without the crutch of cheap money.
Of course, the Fed has also reiterated that real interest rates, or the fed funds rate, will stay low for an "extended period of time." And most still consider that to mean there will be no interest rate hikes until early 2011. And we can look at today's Consumer Price Index (CPI) to see why.
Prices at the consumer level rose just 0.2% for the 5th month in a row. Take out food and energy, and consumer prices actually fell for the first time since 1982.
The reason is pretty clear: unemployment. With less demand, companies can't raise prices. So clearly, the Fed can't raise rates until the employment picture improves.
By Ian Wyatt | Feb 12, 2010
It's no surprise to me Europe is experiencing weaker than expected growth. In fact, in Wyatt Investment Research 2010 Economic Predictions and Investment Outlook, I wrote that it was likely that Europe enters recession again. And when we read that Euro-zone GDP growth for the 4th quarter actually declined 2.1%, and sequential growth was just 0.1%, it appears that recession is more than just a possibility for Europe.
The contrast between the 4th quarter in the U.S. and Europe is about as stark as it gets. And it's clear to me that the main difference is government stimulus. For instance, French car-maker Renault expects car sales in Europe to fall 10%. Car sales in the U.S. have been pretty good, and the cash for clunkers program helped. There should also be no doubt that government support for the housing market has helped.
There is also an interesting parallel between countries like Greece or Ireland and states like California and Nevada. No doubt, if California was a country and not a state, it would be on the list of countries with sovereign debt problems.
Fortunately, California's problems are somewhat masked by the overall relative strength of the U.S. economy, but that won't last. Debt issues in certain states have the potential to become a real drag on growth.
By Ian Wyatt | Feb 11, 2010
My Washington DC office has been vacant all week. It's amazing to me that record snowfalls have turned my DC staff into shut-ins (and closed the government for the third day) while life goes on at its normal pace here in Vermont.
The snowstorm that's crippled the mid-Atlantic region will certainly have an impact on 1st quarter GDP. I would expect that 1st quarter retail numbers will be pretty bad. But there could be some good numbers for restaurants coming. The rally in the dollar over the last few weeks has lowered food costs. And I also think that once we see a thaw on the Eastern seaboard, people will shake off their cabin fever with a night out. I know I would...
I'm really on the fence with this one: did the Obama administration purposefully wait to attack the unemployment situation? Or is it just dumb luck?
I ask because it's clear to me that now is the time to strike. If stimulus money had been used at this time last year to help the unemployment situation it wouldn't have worked. Corporations were still in the process of cutting costs to meet lower demand. And at the time, demand itself was a moving target.
Now that the economy has stabilized, demand is returning and corporate earnings are on the upswing. So corporations are starting to hire again. New jobless claims are down again, as are continuing claims. The unemployment rate has dropped, and on-line employment ads are increasing.
The Conference Board, a non-profit global business organization, reported that online job demand is rapidly rising. According to the Conference Board, the total job vacancies advertised online today is over four million, or the same level as November 2008.
Seems to me, the added perk of government incentives, like a payroll tax holiday or tax credits for new hires, could give companies the final push needed to add employees.
By Ian Wyatt | Feb 8, 2010
What a great Super Bowl game! I have to admit, I was pulling for the Saints, but mainly because of what the Saints mean for that city. I'm sure we all remember the horrible aftermath of hurricane Katrina. The very existence of New Orleans was in question. The Saints considered moving, and I recall suggestions that only the French Quarter be saved and made into a corporate convention amusement park.
Of course, that would have been an absurd commercialization of a proud and rich heritage. That New Orleans has come back to resemble the city it was before Katrina is nothing short of miraculous, and now the people of New Orleans have a Super Bowl trophy to crown their achievement. Congratulations, New Orleans and the Saints.
It's tempting to extend the metaphor of New Orleans to the United States as we rebuild after the financial crisis. Of course, I have no doubt that we will recover. But there will likely be no single event that crowns the recovery like the Lombardi Trophy does for New Orleans.
And besides, we're investors. It is our desire to be properly positioned for a growth in stock valuations, all the while avoiding the pitfalls of overvalued stocks and worsening economic conditions.
Clearly, investors have been pondering the potential of weaker economy as some stimulus policies end, Europe faces debt problems and China moves to slow its economy. Bloomberg reports that investors pulled $9 billion out of global equity funds during the last week of January. And investors have bet heavily on an extended sell-off as evidenced by huge volumes of put option activity.
At the same time, 73% of S&P 500 companies have beaten 4th quarter earnings expectations. That's the best performance since 1993. Strong earnings, coupled with the recent 7.3% decline, have left the P/E for the S&P 500 at 18, down from 24. The forward P/E, based on future earnings expectations, is below 13.