Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

Soft Patches Become Hard Landings (by Goatmug)

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I am back to publishing the macro update in one huge post again.  I tried to break the data into several posts last month, and it just didn't work.  To simplify life for readers and myself, I'll just post the whole enchilada here.  If reading documents the size of the Magna Carta isn't your cup of tea, simply scan the pretty charts and view the trading wrap up at the bottom.  If you desire more detail or Goatmug's take on the data, simply read the fluff. 


Rail traffic in the US continues to push higher in year-over-year comparisons.  We did see coal shipments under perform last year during this week.  So far year to date, only food tonnage is down from last year at this time. 


We continue to see the improvement over last year's shipments, while the economy has encountered a "slow patch" it will be important to follow the trend to see if we see a further regression toward last year's totals.

CP – Regular readers know that I often examine individual rail company delivery statistics to try to catch an edge on short term trades, especially to identify outpeformers and poor performers.  Canadian Pacific continues to be a laggard that I'm watching.  It appears as though railfax had some data issues because we don't see the chart populated for the last several weeks, despite that, I don't see much change in the information from other sources.

UNP is barely exceeding last year's hauling numbers so I thought it would be one to put on our radar.  It is also notable that the only other rail that is showing negative y-o-y shipping totals is Ferromex which UNP owns a 26% stake in.  Don't pull the trigger on this one, just add it to your watch list as a potential short.


Railfax continues to tinker with the information they provide and in fact are toying with the idea of limiting much of their data (boooo!).  In the last couple of years we saw shipping information on autos, scrap metal, and timber, but this month we are back to Crushed Stone and a new one, Chemicals.  Both of these metrics are good for gauging economic health.  Crushed stone is used in the commercial real estate areas and obviously chemicals are used in manufacturing, agricultural, and energy applications.  There is nothing shocking to report here.



If the Crushed Stone data didn't give us a tip off, the MIT Transaction Based Index sure will.  Once again the index is showing that real commercial real estate transactions are losing ground and seller's positions are weakening.  We note here that there was a 4.23% decline in March in the value of deals getting done.



It all can't be bad right?  Despite the poor jobs reports, Monster Worldwide is showing some pretty positive numbers in terms of the number of job listings on  May dipped a little, but clearly April and May indicated that job listings are a a higher point than they have been for almost two years.  I'm generally pretty skeptical and negative about this economy, but this is a good sign.



The average home price is finally moving up and we'll call this a trend.  Yes, of course in some parts of the nation things are nasty, but overall we are seeing a pick up in the average home price.  Pricing is still at levels that are equal to the "pits of hell" of late 2009, but at least we're heading higher.  The recent drop in the stock market and resulting bid for treasuries may actually be a boon for housing data as mortgages rates are falling.  Now, the only trick will be for those scrappy realtors to find quality buyers to scoop up all those deals!  (I've had two conversations this week already with home sellers and realtors that have lamented about the inability of folks to actually borrow).



I've decided to put the ECRI data back into the monthly packet, but have avoided populating my own graphs.  I'll simply highlight their information here about the trends in home prices, and while real home prices continue to dip, leading indicators for home pricing seem to show that there is some rebound happening.  This is of course backed up by the NAR data, which makes me feel better about the NAR data, because we've already seen that NAR economists are essentially an arm of the realtor marketing alliance.  They would never, ever, ever, come out and say that it wasn't a good time to buy, would they?  The area I live in has been totally insulated from much of the drop, so I feel like I live in some alternate reality where everyone I meet can afford a home that costs $1 million and more importantly can afford the $3,000 a month in property taxes that comes along with that house payment.  In that price range, things have been fine in my town, but clearly other parts of the US have not been shielded by such fortune.

In addition, we find the ECRI Weekly Leading Index information showing a downturn for the fourth consecutive week. I think this is one data set that has the market spooked and this is really why I brought this back out.  The "rate of change" is indicating that the "green shoots" are turning yellow and are wilting. 



Good old Alan Greenspan used scrap metal as a bell weather for the economy's health, however perhaps we should say he used it for a measure of the health of a bubble.  If it's good enough for Uncle Al, it's good enough for the Goat!  Scrap prices hit the skids since peaking in February.  While the composite index has tried to build a base over the last two readings I am not sure that the downward trend has abated.  Frankly, base metal prices and all commodity prices have been under attack since Ben Bernanke's declaration that commodity price inflation is "transitory", so the correction is not surprising.  It is in the economy's best interest to see commodity input prices fall and relieve some of the stagflationary risks we are faced with presently.


I find the Ceridian / UCLA Fuel Index study full of information, however I despise that it offers this data with a two month lag.  As I've often reminded visitors to the blog, this piece of data is great for confirming direction and slowdowns that have occurred in long term trends, we just have to deal with the dated data.  The PCI (fuel index) seems to have peaked in March and turned downward.  This study is so great because the PCI (fuel index) consists of real time (errr not so real time for us) data from commercial trucks.  Each time they fill up, they transmit the amount of fuel they consume.  This information gives us a powerful view into the real transportation activity and health in the nation's economy.




Despite all of the tremors related to Greek insolvency and all of the undeniable issues with the PIIGS, we see that 6 month Euribor is just under 1.75%.  Remember the amazing days when interest rates had a 3% handle on them?  Rates have been climbing over the last couple of month and are up almost 65% since last September.

In contrast to those really expensive 1.75% Euribor rates, we see that the 6 Month USD Libor rate is  down to an eye-popping .40%.  Unlike our friends across the pond, our rates have about 15% since last September.  Obviously "one of these pledges is not like the other".  The divergence between the two sets of rates continues to illuminate how differently our central bankers have attacked these problems.  Their leadership has attempted some sort of fiscal control and monetary restraint in an effort to actually begin steps toward normalcy, our guys have thrown caution to the wind and jammed rates lower and lower and lower. 



I always find that Bloomberg's US Financial Conditions Index is one of my favorites.  Yes, it has it's flaws especially since it is driven by liquidity flows and stock market gyrations, but despite that, it seems to tell the truth quite often.  Over the last month, we've seen a total meltdown in the FinCon Index and it has steered itself toward a sub-zero reading.  Anything below zero is a recession, while numbers above also indicate that there is growth.  We are in that no-man's land area where we can't say one way or another where we'll end up, but if we are growing, it isn't overwhelming, that is for sure.

In a valiant effort, the Baltic Dry Goods Index has battled through May to just under 1400 again, where it looks as though it may drop.


The USD has risen a point or so against an incredibly bad chart.  The buck is in a make it or break it position here, and if it doesn't hold these critical support levels, we'll see commodities off to the races with $140 oil within striking distance.  As we've discussed many times, the devaluation of the USD must be thought of as a dance, something that is choreographed and one that has a rhythm.  Our leadership simply couldn't "crash"the dollar, they have to walk it down gently or else the entire scheme would fall apart very quickly. 


If you had any doubt that your purchasing power had eroded, look now further than this graph to clearly understand what Alan Greenspan and Ben Bernanke have done to your dollar, business, family, and lifestyle.  In order to support bubble after bubble and keep interest rates artificially low, they have purposefully crushed the value of your currency.  Isn't paper money great? 


I've been keeping this one around for entertainment purposes only.  As if right on queue as soon as the Coppock signaled a reversal and gave a buy signal, all hell broke lose!  Interestingly, if the Dow Jones stays under 12,350 it will signal a SELL.  Perhaps the indicator will redeem itself after all.  Please note, according to Coppock rules, it is still in a BUY till the end of the month as these are monthly data inputs.



William Dudley, NY Fed Governor said  recently that "Despite our recent soft patch, economic conditions have improved over the last year."  Typically Dudley, Yellen, and Bernanke are the only 3 Fed bankers that you need to pay attention to, because they are the driving force behind the Fed.  As you might expect, they usually support the same positions and don't ever go "off the reservation" like some of the other guys.  As many of you know, I believe the "other guys" are simply there to make it seem like there are honest discussions occurring at the Fed, when in reality all the other players matter little.

As I mentioned though, Dudley is one of the guys that matter, so I often make sure to read and re-read his statements because they are another read into Bernanke's views.  In fact, they often use the same words and language to describe our economy and its challenges.  In this case, Dudley gives us more of the reasoning behind the famous "commodity price inflation is transitory" because he lays out that our weakness in the economy is due to several key issues.  He states that rising commodity prices, the Japanese earthquake, and severe weather are passing issues.  Dudley goes further, just like Ben Bernanke and highlights that they can have faith in their notion that inflation is transitory because long-term inflation expectations are stable, BUT what is even more illuminating is that he says that these levels are now elevated and it does have the Fed concerned.  This is much less confident of a statement than what we heard from the Chairman in April. 

This is the rub.  The Fed still believes that it is in control of the situation despite the fact that it is having funding issues, has tremendous balance sheet risk when interest rates rise, and is backed further into a corner when commodity prices rise.  No wonder why we are seeing them impress upon us how small inflation is, how temporary it is, and how it really isn't anything to worry about.  These comments are part of the PR campaign to make expectations a reality. 

The problem with this "soft patch" is that many of the important metrics we are watching are still falling and weakening.  If the continued weakening persists and they can't force oil, gas, softs, and other commodities lower to kill longer term inflation expectations they'll be at risk for driving us off a cliff.  We've noted many times before that each basis point of interest rates cost us taxpayers billions, and this doesn't include all of the bad execution on treasuries we've bought at less than best prices.  If this soft patch gets any worse, we'll certainly be in for a hard landing.


I have continued to hammer home the idea that we've lived through this before.  We've endured the issues with falling economic metrics, a weak stock market, and political threats to collapse the financial world if the debt ceiling isn't raised.  Couple that in with a few legitimate jitters over the status of the Greek bailout and you have a perfect storm for trading challenges.  The question is really though, can the markets deal with it and still go higher?

Here are specific plays to think about over the next few weeks as you position your portfolio.


Look, about 80% or more of professional money managers must be fully invested all the time.  As they perceive areas like energy and industrials to be more risky, they need to rotate out to the next thing.  In the sector rotation model I posted a couple of days ago we find that Consumer Staples, Defense, Utilities, and Healthcare are all part of that next step in the process.  I personally love cash, so I view these trades differently, as usual we need to know the game that is being played by portfolio managers that are trying to beat the index.  The gamble is that these defensives will lose less or outperform the risky stuff, therefore they can incrementally beat their benchmark and get paid their bonus.  We on the other hand have cash as an option, I'd use it too.

PPA (Defense)

XLV (Healthcare)

XLP (Consumer Staples)

XLU (Utilities)

Oh yes, I'm short a few technology names in anticipation of the rotation out and a slow down.  I'll highlight a few of these in other posts where I can give more specifics.


GLD or physical gold would be the answer here.  Everyone knows this will be the final outcome, no one wants to end up holding the bag.


Gasoline has continued to be a tough trade that has been very volatile.  I have closed this trade, but there is still a good potential for a move higher, one little hurricane in the Gulf of Mexico would move this solidly higher.


EMLC – I like this play here, it is an etf constructed of sovereign and foreign debt in the local currency of the issuers.  If Bernanke is able to slide the value of the dollar  lower, you will gain in the currency play as well as the yields associated with these foreign bonds.

Physical gold or silver and GLD if you like fake paper stuff.  My view on silver and gold is oddly different here, I am a long term holder, therefore this is NOT a quick hit trade like I usually focus on.  Silver could easily test $32, but I still have a very large position in physical silver and it isn't going anywhere.  Who knows, I may need to kill an intruder with a 40lb brick of silver if we go Mad Max anytime soon.

That's it for the monthly update, I'll do more in the coming days about specific trades mentioned here and also reveal other positions that I have on now.

Are Women Better Investors?

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Are women better investors than men? That's what David Weidner argued in his widely-tweeted MarketWatch column Tuesday, "Women are better investors, and here's why".

From Sex Scandals to Investing

After reminding readers of recent sexual scandals involving male politicians, Weidner actually made a broader argument, that women are better at pretty much everything:

Why is it that men so often self-destruct? In the political world, Weiner joins Eliot Spitzer, Bill Clinton, John Ensign, Arnold Schwarzenegger and John Edwards as hypocritic slimeballs who let their pants set their personal policy.


Women, on the other hand, do almost everything better. We’ve known this intuitively for a long time. If you didn’t, just ask your wife or your mother. But now there’s a raft of evidence that suggests women are better at everything — including investing.

Women take fewer risks

Weidner went on to cite studies by Barclays Capital, PLC (BCS) and Ledbury Research, and Merrilly Lynch, respectively, that found that women were more likely to make money in the market, because they take fewer risks, as well as Dan Abrams's new book, “Man Down: Proof Beyond a Reasonable Doubt That Women Are Better Cops, Drivers, Gamblers, Spies, World Leaders, Beer Tasters, Hedge Fund Managers, and Just About Everything Else.” This sort of cheerleading about the superiority of women, particularly in the context of financial decision making, isn't new.

Not a new argument

In his New York Times column two years ago ("Mistresses of the Universe"), Nicholas Kristoff made a similar argument:

At the recent World Economic Forum in Davos, Switzerland, some of the most interesting discussions revolved around whether we would be in the same mess today if Lehman Brothers had been Lehman Sisters. The consensus (and this is among the dead white men who parade annually at Davos) is that the optimal bank would have been Lehman Brothers and Sisters.

Wall Street is one of the most male-dominated bastions in the business world; senior staff meetings resemble a urologist’s waiting room. Aside from issues of fairness, there’s evidence that the result is second-rate decision-making.

Blaming men

Kristoff seemed to be unaware that the former Chief Financial Officer of Lehman Brothers (LEHMQ.PK) wasn't a "dead white man" at all, but the live woman pictured below, Erin Callan. This photo, which appeared in a Wall Street Journal article from May, 2008 ("Lehman's Straight Shooter: Finance Chief Callan Brings Cool Jolt of Confidence To Credit-Rattled Street") was captioned as follows: "Erin Callan is known for being frank, fashionable".

Original caption: "Erin Callan is known for being frank, fashionable"

Kristoff continued,

“There seems to be a strong consensus that diverse groups perform better at problem solving” than homogeneous groups, Lu Hong and Scott E. Page wrote in The Journal of Economic Theory, summarizing the research in the field."

Gender diversity and risk management

Perhaps Mr. Kristoff would have been a little more skeptical were he aware that gender diversity at high levels of financial firms didn't seem to help the problem-solving processes at those firms. In addition to Callan, other women held high roles at major financial firms that stumbled during the financial crisis, including  Sallie L. Krawcheck, former CFO at Citigroup, Inc. (C); Zoe Cruz, former head of trading and risk operations at Morgan Stanley (MS); and Amy Woods Brinkley, chief risk executive at the time at Bank of America Corporation (BAC).

Are women really better investors?

How to reconcile the studies cited by David Weidner, which showed that among individual investors, women tend to have higher returns, with the paucity of women on "greatest investors" lists (e.g., this one from Investopedia, which lists 19 men and 0 women)? Perhaps investing is a field where women are better on average, but men are better represented at the far ends of the bell curve. One thing seems clear though: women aren't better at everything than men. Men are clearly better at pandering.

Hedging costs of stocks discussed above

The table below shows the costs, as of Tuesday's close, of hedging four of the stocks discussed above against greater-than-20% declines over the next several months, using the optimal puts for that. First, a reminder about what optimal puts mean in this context, and why I've used 20% as a decline threshold.

Optimal Puts

Optimal puts are the ones that will give you the level of protection you want at the lowest possible cost. As University of Maine finance professor Dr. Robert Strong, CFA has noted, picking the most economical puts can be a complicated task. With Portfolio Armor (available on the web, and as an Apple iOS app), you just enter the symbol of the stock or ETF you're looking to hedge, the number of shares you own, and the maximum decline you're willing to risk (your threshold). Then the app uses an algorithm developed by a finance Ph.D. to sort through and analyze all of the available puts for your position, scanning for the optimal ones.

Decline Thresholds

You can enter any percentage you like for a threshold when using Portfolio Armor (the higher the percentage though, the greater the chance you will find optimal puts for your position). The idea for a 20% threshold comes, as I've mentioned before, from a comment fund manager John Hussman made in a market commentary in October 2008:

An intolerable loss, in my view, is one that requires a heroic recovery simply to break even … a short-term loss of 20%, particularly after the market has become severely depressed, should not be at all intolerable to long-term investors because such losses are generally reversed in the first few months of an advance (or even a powerful bear market rally).

Essentially, 20% is a large enough threshold that it reduces the cost of hedging but not so large that it precludes a recovery. When hedging, cost is always a concern, which is where optimal puts come in.

Hedging costs as of Tuesday's close

The data in the table below is as of Wednesday's close. I've added SPDR S&P 500 (SPY) for comparison purposes.

Symbol Name Cost of Protection (as % of position value)
(BAC) Bank of America Corporation 6.94%**
(MS) Morgan Stanley 4.91%**
(C) Citigroup, Inc. 3.33%*
(BCS) Barclays, PLC 5.19%*
(SPY) SPDR S&P 500 1.28%*

*Based on optimal puts expiring in December, 2011

**Based on optimal puts expiring in January, 2012

Fool’s Fractal

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Notice anything similar about these two charts?



Just about identical, right?

Well, one of them is LinkedIn (LNKD), which went public a month ago. The other is Pandora (P), which went public just hours ago. So one of the charts is made up of a month's worth of data and the other is just a few hours' worth.

Yet they both appear just about identical – – suckers buying at the top on IPO day and then just getting hammered.

People never learn. Ever.

I can't wait until Facebook finally comes out with its IPO and we can start a sustained, devastating, worldwide bear market with cataclysmic consequences for all the global economic powers. It's going to be like nonstop sex with an all-you-can-eat buffet. Then life will finally be worth living.

Moments of Truth (by Springheel Jack)

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I have switched over to the 60min contracts on ES, NQ and TF this morning.

We saw the strong move up I was expecting yesterday morning, and it was strong enough to push the 60min RSIs on ES, NQ & TF into overbought territory. What happens now is very important for setting the direction for the next few days. ES fell slightly short of my 1294/5 target (on June ES), and may nonetheless be forming an IHS with a slightly downsloping neckline. There is another possibility though and that is that ES is still forming a broadening descending wedge with the next downside target in the 1245-50 area, which would take ES the ideal bottoming zone for this latest move down. The key trendline is the upper trendline of the wedge / the IHS neckline. A break above would target 1324 (from the IHS), and a move above 1311.80 on SPX should signal that the major low is in:

There's not much to see on NQ apart from yesterday's broken declining channel, which was retested nicely before the move up during market hours yesterday. There is another possible sloping IHS on NQ but it isn't worth marking up yet. NQ is still underperforming ES considerably which looks bearish:

TF moved almost exactly to the target I gave yesterday morning and there is therefore an IHS with a horizontal neckline that may be forming there. The target would be 816 on a break up, and TF was the strongest of the three indices yesterday and overnight:

I saw a very nice little rising channel on EURUSD yesterday and posted it on twitter in the afternoon. It broke down overnight and EURUSD is now reaching two key support levels. The first support level at 1.343 has already broken since I capped the chart below and EURUSD has reached the second key support level at the H&S neckline at 1.43. There is now therefore a fully formed H&S on EURUSD that indicates to 1.39 on a conviction break of 1.43. That is a very important level to watch today and a break down would also look bearish for equities:

Copper moved up with some conviction yesterday and has now reached a very important resistance zone. Firstly it is again retesting the broken rising wedge lower trendline, and if it breaks up through it with any conviction then that bearish setup is a writeoff. Secondly and less importantly I have a declining channel on HG with resistance at 417.60, and for both of these reasons I would regard an hourly close over that level as an important break up. Short term however the current level looks like a double-top with negative RSI divergence and I'm leaning short on copper today:

Silver is looking very interesting today. In the short term I have a declining channel on silver where the obvious next move is up to channel resistance in the 37.25-37.50 area:

That channel is not the interesting thing about silver at this level, but you can see the really interesting thing on the daily SLV chart, which shows another bounce off the ten month rising support trendline from just under 18. This is a very key trendline and it must really be broken for the deeper summer retracement on gold that I was talking about yesterday. I've also marked in the overhead gap resistance zone that must be broken if silver is to reverse back up strongly:

We haven't reached my SPX & NDX targets for the main interim low that I'm expecting, and I'm still expecting those to be hit.If we're going to reverse back down again then the obvious level to do that from is the highs yesterday. If those highs yesterday are exceeded, on ES and TF particularly, then that would look bullish and as I mentioned earlier, a break above 1311.80 SPX should signal that the low is in. Copper has reached the obvious point of failure here and a break above would look bullish. EURUSD has now fully formed the H&S we've been watching form all week and a neckline break with conviction would look bearish for everything else I've been looking at today. Overall I'm leaning short but expecting a bounce into the open today.