Time to prevent politicians from handing out defined benefit pensions?

Detroit has now filed for bankruptcy protection. The estimated cost of funding its pension obligations fully would be somewhere between $ 3.5 billion and $ 9.2 billion (Guardian article) though in fact the actual cost is not knowable (future interest rates and life expectancy for currently fairly young retirees being impossible to know for certain). The cost works out to an estimated maximum of $ 13,143 for every man, woman, and child currently living in Detroit. There are only about 225,000 people in Detroit who work (source) so the $ 9.2 billion estimate (from public employee unions) works out to about $ 41,000 per worker.

Unless you have a printing press for money and/or a direct connection to God who will tell you how long people are going to live and what return on investment can be expected 30 years from now, why would you promise to pay someone, e.g., $ 150,000 in today’s dollars starting 20 years from now and continuing until that person dies? Politicians seemingly cannot resist making these promises, however, so perhaps it is time to restrict their ability to do so. They are not, after all, actuarial experts. If insurance companies stuffed full of such experts are now having trouble meeting their annuity obligations (WSJ; nytimes) why would we expect politicians, motivated by a desire to get reelected, to do better?

Back in 2009 I wrote a review of a book covering the history of public employee unions and consequent pension commitments. Here we are four years later and one of America’s largest cities needs bankruptcy protection. Many of the rest (notably those whose populations are not growing) will follow into bankrtupcy if only their retirees can contrive to live a bit longer than expected and/or if interest rates remain low. Why would we want politicians to place those kinds of bets on our behalf?

Philip Greenspun’s Weblog

NFLX is the New AMZN?

Netflix is the new Amazon. What does this mean? It means for the foreseeable future hedge funds will step in and buy this name on every large dip and it will continue to have huge breakouts after periods of consolidation.

Why is this the case? In the case of AMZN it got enough large players in the market to buy in to the idea that it was going to be the Wal-Mart of the internet. WMT is far in away the greatest retail company in the history of the world with sales in the hundreds of billions of dollars. They were able to figure out how to provide to consum-ers the products they wanted at the lowest price possible. WMT was light years ahead of the competition in the integration of technology Read more […]
SMB Capital – Day Trading Blog

Procter & Gamble is Battling More Than Ackman

Written By: DragonFly Capital

Procter & Gamble, $ PG, was a sleepy stock slowly rising over time ad paying a nice dividend. Until Bill Ackman got involved. Moving to the center stage it has been a stock for growth. But as it runs into earnings next week (August 1st) it is playing two roles, that of an energized stud and that of a tired old man. Take a look. The daily chart below shows a stock that is primed for a breakout. Hitting the top of the expanding channel for the third time. A break above carries a target of 88. And the small pullback over last week creates a Measured Move higher to 86.50. With a rising and bullish Relative

pg

Strength Index (RSI) and a Moving Average Convergence Divergence indicator (MACD) that is also rising it has support to break out. But a jump out to looking at the monthly chart shows a bit of a different picture. That wedge consolidation on the daily chart looks more like long topping tails. And it comes at the completion of an AB=CD pattern and at the top of the Andrew’s Pitchfork, Upper Median Line. The Bollinger bands are also quite wide, and the last 2 times this has happened, with the price at the top of the Bollinger bands, it has dropped quickly. All of these indicate this is a good place for a pullback. The Median Line or perhaps a bit of an overshoot is a good target and perhaps earnings will be the catalyst.

pg m

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Dragonfly Capital

Will immigration reform grow the GDP via lawyers and paperwork tasks?

I haven’t been following the immigration “reform” debate too closely. But I know a lot of immigrants. One guy has been here for about 10 years. He spent his first two as an MBA student. He has split his time for the remaining 8 years working for Goldman Sachs and for a health care technology company. His two employers have probably paid close to $ 50,000 in legal fees to keep him on the green card track, but he has not yet received a green card and is thus nowhere close to citizenship. Let’s assume the government has paid public employees $ 25,000 to look at the paperwork that his employers have filed, scrutinize his paperwork every time he comes and goes, etc. “The quotas were set up in the 1960s,” he explained. “And Iceland would be given the same quota as India, despite the disparity in population. So the waiting time for a green card is much longer if you come from India or China compared to other countries.”

Right now we’re getting a great deal from having this guy here. He is paying staggering amounts of tax every year, much of it to support obligations incurred prior to his arrival, e.g., pensions for public employees who retired in the 1980s. He is paying into Medicare and Social Security but if we deport him before he reaches 65 he won’t be able to collect any benefits from these programs (which may, in any case, be restricted to folks with lower incomes than his by the time he reaches 65).

On the other hand, if he were a citizen he might add a bit to the property bubble that America’s successful cities are enjoying. “I have the money to buy a condo or house,” noted the immigrant, “but if I were to lose my job I would have to leave the country within 10 days. So I keep renting.” (probably he is happier as a result!) If he goes into the property market that might inflate the prices available to existing owners of residential property (but maybe not; his demand for rental should also work).

I’m wondering what happens if immigration reform goes through. My friend’s immigration should consume at least $ 100,000 in private and public paperwork and bureaucracy costs by the time he becomes a citizen. Supposedly if the laws are tweaked there will be 10 million new citizens. If each of these new citizens consumes the same $ 100,000 that’s $ 1 trillion that will be added to the officially calculated GDP.

[Whether or not this kind of paper-shuffling should be calculated separately from, say, maintenance of machine tools in factories and other more obviously productive activities, is a separate issue.]

Maybe this is the answer to Detroit’s woes. Everyone there can become an immigration lawyer or a federal government worker reading paperwork filed by immigration lawyers…

Philip Greenspun’s Weblog

eTradingExpo Follow-Up

As requested, here are a few useful links relating to CME membership:

CME Membership
CME Lease Prices
CME Clearing Fees
Describes Membership process, types, lease prices, and member vs. non-member clearing fees.

Lease Discussion Blog Post #1 2-3-10
Lease Discussion Blog Post #2 2-7-10
These are dated with respect to costs and fees, yet should still be conceptually relevant posts I did in the initial blog around the time of my NY Trading Expo presentation back in 2010 re: CME Lease Cost-Benefit Analysis. You’ll need to update for current costs & fees, but the concepts are similar.  At the time of the 2010 post, monthly IOM lease prices were $ 600, which have subsequently declined to $ 350.

Thanks to all who attended … I’m told the interest and attendance was strong.

Don Miller’s S&P Trading Tank

STTG Market Recap July 8, 2013

Monday started a new week and the beginning of second quarter earnings season.  As always, please see our primer on how to prepare for this very tricky time of the year.  As for the market economic news will slow down this week and instead eyes will turn (again) to the Fed Wednesday with the release of the minutes from the recent meeting, along with earnings.   Today we saw a day very similar to almost every day of this rally except for last Friday – a gap up to start the day, some intraday volatility and a close near to where the market gapped up to.  This leaves very little opportunity to do much intraday as almost the entire move is in the overnight session.  At the close the S&P 500 gained 0.53% and the NASDAQ 0.18%; semiconductor and biotech weakness contributed substantially to the lagging action in the NASDAQ.   They key economic report on the day was consumer borrowing, which expanded at its fastest pace in a year:

Americans stepped up their borrowing by $ 19.6 billion in May compared with April, the Federal Reserve said Monday in its monthly report on consumer credit. That was the biggest jump since a $ 19.9 billion rise in May 2012. The category that includes credit card use rose $ 6.6 billion, also the largest gain in a year. Credit card debt reached $ 847.1 billion, the most since September 2010.  Borrowing for autos and student loans rose $ 13 billion in May. That was the sharpest increase since February.

Turning to the markets the major indexes continued their breakouts albeit in modest fashion.  In the near term some rest would be prudent as things have come a long way since the June 22nd lows.  The S&P 500 cleared the 1625ish area Friday as needed, and today made an attempt on the trend line that connects all the lows of 2013.  Usually these key areas are not bested in one session so a stall here is understandable.  A day or two of rest and then another attempt would be most healthy.  But maybe with this sort of market that seems to gap up almost every day they will try to clear it that way tomorrow.

spx

nasdaq

 

Now that the market is becoming more healthy and most sectors are not moving en masse as individual stocks can shine, we’ll turn our focus back to more individual stocks.  But before we do that, it would be good to highlight the regional banks which we’ve noted specific strength in for the past 6-7 sessions.  Today’s bar (candle) was short term negative as we had a push to new highs and then a close at or new lows.  That usually signals a short term exhaustion signal which is no surprise as these stocks have moved extremely far in a short period and are now quite a bit away from any support.  So it would be a positive to see this group rest a few days while other groups did some legwork.

kre

 

Let’s turn to Dan Zanger from ChartPattern.com for charts of two of the most popular stocks in the market – Google (GOOG) and Netflix (NFLX); these are from last night’s letter.   First Netflix which Dan noted had a technical buy area above the $ 227 area… today the stock broke upward 3% to the $ 233s.

NFLX

Then Google which he noted would come out of this triangle at the $ 903s, today it rallied 1.3% to the $ 905s.

GOOG

 

Priceline.com (PCLN) jumped on a Morgan Stanley upgrade, with a price target of $ 1010.  We can see it broke out last Monday and held that breakout all week, so if you bought that pattern you were fortunate enough to benefit from today’s brokerage move.

As Priceline gains market share globally, the economic environment improves and more bookings move online, investors will pay a higher price for the company’s earnings, Scott Devitt, an analyst at Morgan Stanley, wrote in a research report today. He upgraded the stock to overweight from equal weight and raised his price estimate by 33 percent to $ 1,010.  “Priceline has gained market share in the European online travel agency space amidst heightened competition from Expedia,” Devitt said. “Booking.com will maintain its dominant competitive position due to its strong value proposition to hotels and customers.”

pcln

A lot of housing stocks have been hit due to rising mortgage rates but online real estate company Zillow (Z) has held in relatively well.  While the chart has been a bit choppy of late today the name surged.

z

Quite  a few retail names held in very well during the 7 week correction; one such name was Macy’s (M), which today broke out of its pattern.  One can purchase on a day like this once the mid $ 49s level is breached and set a stop loss there in case it reverses.  Just keep in mind all these companies report same store sales Thursday so will react to that figure in the short term.

m

As we move forward we want to continue to see individual stocks move well like this and not be hostage to the overall market.  Seeing breakouts hold and not completely reverse in a day or two is also important. If we find those sort of names, what the overall market does is not that important to our success.

One key loser today was Intel (INTC) which hurt the semiconductor sector.  We can see this stock recently lost its 50 day moving average so for those who focus on buying relative strength, it was a name to avoid until its technical outlook improved.

intc

Original post: STTG Market Recap July 8, 2013


Stock Trading To Go

Men’s Wearhouse, I Like the Way It Looks

Written By: DragonFly Capital

Men’s Wearhouse, $ MW, had its 4th of July fireworks early, firing their Executive Chairman George Zimmer on June 19th. But after just a few days of selling over uncertainty, the stock has been rising over the last two weeks. And I have to tell you, I like the way it looks. Take a look at the chart below. The stock is in a bearish Deep Crab pattern, but with a Potential Reversal Zone (PRZ) all the way up at 48.75. It also is breaking a bull flag consolidation at 38.80 after a move higher from

mw

35. This gives a Measured Move to 42.60. And the Relative Strength Index (RSI) is bullish with a Moving Average Convergence Divergence indicator (MACD) that is rising. These both support further price increases. It may take a couple of months to get there, but that is okay as it pays a dividend of 1.9% and goes ex- in mid September. So with or without George, the stock looks higher. Use a price of 39 as a trigger. it closed over it today.

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Dragonfly Capital

Want to donate an old laptop?

My friend Avni, who works tirelessly and without pay on behalf of Kids on Computers (http://www.kidsoncomputers.org), a 501(c)(3) non-profit, asked me if I had any more laptops to donate to her organization. If you’ve been dreaming of upgrading to Windows 8, this is your big chance/excuse. [Sadly, the children who get these machines will not be able to enjoy using Windows 8; the machines are wiped and installed with Linux.]

Here’s what Avni says…

Kids on Computers is seeking laptops for an elementary school in Molcaxac, Puebla, Mexico. The laptops must have 512MB RAM, include a power adaptor and be in working condition. We’d like to have the laptops by July 14th as we have a group of students from Mexico visiting the US leaving to go back at that time and they can transport them back.

Please contact Avni Khatri at avni@kidsoncomputers.org immediately if you have equipment you can donate.
About us: 
We are a 501(c)(3) nonprofit organization comprised of a group of volunteers, setting up a computer labs in areas where kids don’t have access to technology. We bring computers and free and open source software to disadvantaged kids.

We currently have seven computer labs in the region of Huajuapan de Leon, Mexico and one lab in Argentina. We are currently working on additional labs in Mexico and new labs in India.

Philip Greenspun’s Weblog

Top Trade Ideas for the Week of July 8, 2013: The Rest

Written By: DragonFly Capital

Here are the Rest of the Top 10:

Allstate, Ticker: $ ALL
all

Allstate, $ ALL, is breaking consolidation at the 50 day Simple Moving Average (SMA) higher. It has a Relative Strength Index (RSI) that is bullish and rising and a Moving Average Convergence Divergence indicator (MACD) that is moving higher, to support higher prices, along with Bollinger bands that are pointing up.

Anadarko Petroleum, Ticker: $ APC
apc

Anadarko Petroleum, $ APC, is moving higher out of consolidation at the 50 day SMA and above prior resistance at 88. It has support for more upside from a bullish and rising RSI and MACD.

Packaging Corporation of America, Ticker: $ PKG
pkg

Packaging Corporation of America, $ PKG, is testing resistance at 50.35 for the third time, off of a retest of the 50 day SMA. It has a rising and bullish RSI and MACD to support higher price action.

State Street, Ticker: $ STT
stt

State Street, $ STT, is testing resistance at 68 for the 4th time. As it does, the RSI is rising and bullish and the MACD is about to cross higher. It also arrived here Friday with a bullish Marubozu candle.

TJX Companies, Ticker: $ TJX
tjx

TJX Companies, $ TJX, is testing the resistance at the top of a bullish falling wedge. It has support for a move higher from a rising RSI on the verge of a move into bullish territory and a MACD that is rising after recently crossing higher. It is also in a bearish Deep Crab with a Potential Reversal Zone at 52.82.

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If you like what you see sign up for more ideas and much deeper analysis using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits feed and on chartly.

After reviewing over 1,000 charts, I have found some good setups for the week. These were selected and should be viewed in the context of the broad Market Macro picture reviewed Saturday which, heading into the first full week of July sees the markets improving and possibly ready to move higher again. Look for Gold to continue its downward move or consolidate in a broad range while Crude Oil continues higher. The US Dollar Index also looks to continue to the upside while US Treasuries resume their move lower. The Shanghai Composite may continue its bounce in its downtrend, but the Emerging Markets are biased to the downside. Volatility looks to remain low and drifting lower keeping the bias higher for the equity index ETF’s SPY, IWM and QQQ. Their charts show that the IWM is the strongest and ready to continue higher while the SPY and QQQ still have some resistance to work through in their short term moves higher before they are in the clear to move higher. Use this information as you prepare for the coming week and trad’em well.

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Dragonfly Capital

Teaching math to teachers

A friend of mine is in the mathematics department at a large state university. I asked him what he was going to teach for the upcoming semester and he replied “I told the head of my department that I would teach anything except our classes for education majors.” What’s wrong with those classes? “Remember that the weakest students at the university are the ones who are going to become teachers. The curriculum of the ed school is not about content, so the students aren’t expected to learn any math. The ed school tries to lower the bar as much as possible so that they can crank out as many teachers are possible.” What does the ed school want their majors to learn about math then? “They want us to teach them how to draw a vertical line on the blackboard, how to develop a lesson plan. We’re always having fights with the ed school professors because we try to put some math into a course with a title such as ‘Math for Elementary School Teachers.’  I tried teaching the class once but it was a disaster. The textbook is almost content-free. You’re trying to teach Euclidean geometry without mentioning anything about proofs.”

Philip Greenspun’s Weblog

The Kahuna Trade For July/August – Go Short XLF

I made my living writing Artificial Intelligence Algorithms for the financial markets in the 90’s and 2000’s. I developed one technique (and software program) for finding big (Kahuna) trades before they happened. Currently, most of you are enjoying the TLT short, which I will demonstrate was a predetermined Kahuna trade for July. Then I will […]
Slope of Hope