As for stocks, they are slowly sliding south, with
the S&P sitting down at 1866, down more than
a half a percent in premarket trade.
The Rainmaker Report is a high level executive summary of global
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veteran with a unique perspective on markets. With actionable
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He would look up at the lecture hall of kids, and
ask if he thought anyone had the same
birthday. Out of the 50 or so kids in the class,
they all looked around and wondered what the
odds of any of these 50 had the same birthday
out of 365 choices.
Well some kids would clearly shake their head
no, believing they were odds of no better than
50/365 or 13.698%.
Today is Monday May 5th, 2014:
And then he made it more interesting, as kids
tapped away on their Iphone calculators.
Tuesday Quit Rule
Who would bet an A in this class on it?
False Bottoms
Taylor Made
On DeMark
Good Morning. Today is Cinco de Mayo. This
morning begins with news out of Ukraine, as
fighting has escalated, and dead and wounded
bodies are starting to be reported in size.
As far as news is concerned, there was a
Tuesday Quit Rule announcement out of Target,
on Monday.
Apparently the CEO is going to spend more time
with his family after Target’s credit card hacking
breach finally took down the top boss.
Ok, now I want to lodge a complaint with
Twitter. I already told you not to invest in it,
but this is different.
The slackers immediately sat up in their seats.
Could they really get an A by just betting this
idiot teacher?
I see all these social media companies trying to
“act as if” they are a viable marketing channel.
The growth of the company is based mainly on
the fact that it is a new, noncompetitive
marketing angle in which all major companies
are supposedly obliged to participate in.
My father gauged the response, keeping mental
note of how “smart” the class was from
semester to semester.
Well I want to start with a story about my
father. He would teach a class at the local state
college, and he would start the year off with a
question to get the kids involved.
The kids started reciting their birthdays, until on
the third person, a match.
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He then began the exercise in the back corner
of the room.
5th person had 2 matches.
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And so on and so forth until the entire class all
sat back down in hopes of actually learning
something this semester.
So this brings me to my Kevin Bacon Analogy. If
you don’t know about the Six Degrees of Kevin
Bacon, here is a little background from
Wikipedia:
Six Degrees of Kevin Bacon is a parlor
game based on the "six degrees of
separation" concept, which posits that any
two people on Earth are six or fewer
acquaintance links apart. That idea
eventually morphed into this parlor game,
wherein movie buffs challenge each other to
find the shortest path between an arbitrary
actor and prolific Hollywood character
actor Kevin Bacon. It rests on the
assumption that any individual involved in
the Hollywood, California, film industry can
be linked through his or her film roles to
Kevin Bacon within six steps. The game
requires a group of players to try to connect
any such individual to Kevin Bacon as quickly
as possible and in as few links as possible. It
can also be described as
a trivia game based on the concept of
the small world phenomenon
and just a little bit about the small world
phenomenon:
The small-world experiment comprised
several experiments conducted by Stanley
Milgram and other researchers examining
the average path length for social
networks of people in the United States. The
research was groundbreaking in that it
suggested that human society is a smallworld-type network characterized by short
path-lengths. The experiments are often
associated with the phrase "six degrees of
separation", although Milgram did not use this
term himself.
Ok so this research says that social networks are
short-path lengths. You know everyone around
you, and they know someone else that you
don’t know, and so on and so forth until after
just a short time, you are connected to
everyone on earth.
Seems pretty simple, except for the
mathematical anomaly of Twitter, where I find
this latest follower who began following
@sleevesrolled, the Rainmaker’s Twitter Handle
on Saturday.
I have to say, writing the Rainmaker Report
every day is the easy part. The hard part is
finding qualified prospects to actually subscribe
to the thing.
So I wondered if advertising on Twitter was a
good idea.
I decided to see what kind of response I would
get by doing no marketing on it at all, and then I
could see what it would be if I actually
marketed there a little.
Well right away I would start to get these
Fugaze followers.
I instantly flashed back to my Father’s class
experiment where more than one of the 50
people had similar birthday.
I barely Tweet anything, because it seems dumb
to me to be broadcasting news out to everyone.
I had put my paper out a few times, but since
most of my readers think Twitter is some kind
of dating site for teenagers, I don’t really worry
about keeping up a big presence there.
But then there is this idea that Twitter is a good
place to market.
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So here is a screengrab of my latest follower,
Aarti Kapoor. Now right away I wonder how
Aarti could have 758 followers and is following
over 800 people. But then the reality that Aarti
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is neither Following OR being Followed by
ANYONE I am also following is a bright red
warning sign that Aarti is Completely Fake.
And how about the fact that of over 800 tweets,
she does not have a single interaction with one
of her 800 followers?
For now, Twitter is more talk than action, and I
would not spend found money “advertising”
with them.
There is an entire “fake user ecosystem” being
built around these fake users. Facebook too.
All while she is Tweeting pertinent social media
news (and economic stories), from Bangalore?
Then, out of roughly 800 Tweets, there are no
favorites! Now I know everyone doesn’t know
what a favorite is, but it seems to me that all of
these fake accounts all have no favorites
whatsoever.
I would love a return distribution of Twitter
users stack ranked by followers and following. I
am sure it is out there, I just could care less
about going out to find it.
But the point here is that Twitter is charging
people to advertise, with fake users following
fake users, creating a completely fake web of
marketing deception.
Sure I could look at the fact that Aarti is from
Bangalore India where the average salary is
under the poverty level. Maybe she is just really
into Tweeting.
Soon it is going to get exposed, and I would not
want to be in the stock/s when it happens.
What are the odds of that?
Very low if Kevin Bacon can tie himself to
everyone in the world in 6 connections, having
over 800 connections and no common thread is
completely impossible.
So every time I get one of these fake users, I
delete them, because I don’t want any fake a$$
followers.
But how many do you have?
How many are really completely fake?
A larger number than is currently expected on
Wall St is my guess.
I wish Bill Ackman would read this thing and try
and expose Twitter as a Social Media Marketing
Ponzi Scheme together with Carl Icahn!
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In economics, a Taylor rule is a monetarypolicy rule that stipulates how much
the central bank should change
the nominal interest rate in response to
changes in inflation, output, or other
economic conditions. In particular, the rule
stipulates that for each one-percent
increase in inflation, the central bank
should raise the nominal interest rate by
more than one percentage point. This
aspect of the rule is often called the Taylor
principle.
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So here was an interesting Bloomberg Screen
Grab that I geesed from Twitter.
We didn’t say it was completely useless, did
we?
Below it is the definition of the Taylor Rule,
from Wikipedia.
Well this is a view of the difference between
the actual Fed Funds rate, and what the Taylor
Rule says the Fed funds rate should be.
There is this big formula that uses core inflation
and a bunch of other inputs to determine the
“optimal” rate.
So here it says the Fed Funds rate should be
.77%, and the Fed Funds rate is currently 52 bps
lower at .25%.
Now as I browse down some of the inputs, the
one that catches my eye is the Core PCE
Inflation reading.
It obviously says that there is 1.2% inflation, but
could that number be wrong by at least a half a
stick?
Because I am thinking that inflation is 1.2% AND
FALLING, instead of 1.2% and rising. That
seems to be why the Fed is trying to “make up
the difference” by pinning the Fed Funds rate to
the floor.
That could be why the Fed is holding rates at
32.46% (.25 bps vs .77 bps) of what the Taylor
Rule says it should be?
I wonder what Steve Liesman has to say about
that statistical anomaly.
And while we are at it, why not have someone
ask Janet Yellen about that discrepancy at the
next FOMC meeting, if not before?
I would like the answer to that question,
although I think I already know.
Deflation.
As that Core PCE number falls, so should the
Fed Funds rate.
If we use the .77 figure the Fed is using, and mix
up some of the inputs, we could clearly see
negative inflation (aka deflation) be the reason
for the discrepancy.
For now, rates are lower than they should be,
and that should be all the warning you should
need to understand that the Fed is fighting
Deflation. Until the short end of the curve
normalizes, don’t expect it to happen anywhere
else on the curve.
And while we are talking about Yield Curves, it
is time to take another look at the 30 year
Treasury Yields.
TYX 30 Year Treasury Yield (daily chart)
It should probably go negative if it were allowed
to, although I doubt that will ever happen.
And if the short end of the curve is only trading
at 32% of what it is supposed to, who is really
surprised that is where the 10-30’s are trading
as well?
Not me.
But the point here is that an economy that is
supposed to reaching some kind of escape
velocity, should still not have rates pinned 3X
lower than they should be.
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Last week we finally eclipsed the long term
resistance on the TLT, and the 30 year Treasury
has plumbed new/er and new/er lows each day.
Friday the fall accelerated to the downside, with
yields reaching down to 3.35% before limping
into the close.
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This week should see a continuation of that
move as the pain and suffering to P/L’s is too
much to bear and some folks might be getting
the shoulder tap soon.
Yields are falling.
That much is clear.
Either you adjust your investment strategy to
accommodate it, or you will pay the price
when stocks unwind in your face whilst you are
selling your bonds in the meantime.
And in an interesting story on Bloomberg, they
argue that 30 year Treasuries are in short
supply…
“The long-end of the Treasury
market has become a bit of a
commodity and it’s driven by a
scarcity and liquidity valuation,”
Guy Haselmann, an interest-rate
strategist at Bank of Nova Scotia, one
of the 22 primary dealers that trade
with the Fed, said in an April 28
telephone interview from New York.
“The pressure on the long-end will
be for lower yields.”
Now 30 yr Treasuries are a scarce commodity?
Last month they were for dumbasses!
The de-boarding of the bandwagon has begun…
Bonds should be bought here not sold.”
Oh, and here is the chart of the TLT, which
popped to 112.99 before closing up another 70
cents on the day.
-The Rainmaker Investor Report - 4/24/14
I only have one thing to say about that…
“A thing of beauty is a joy forever”
-John Keats
And a final reminder of our advice on April 24th,
over 2 weeks ago and 20 bps higher on the 30
year Treasury Yield:
“I will stand alone, and WHEN yields go lower,
I will be keeping VERY CLOSE ATTENTION to
those who flip flop fast on falling yields.
And you can tell everyone you know that the
Rainmaker has made contrarian call for lower
yields and has not moved his feet all year
regarding the topic.
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Ok, now it is time to beat ourselves up a little,
and then congratulate ourselves afterwards.
This is the chart of Spirit Aerosystems. Just 3
days ago I was talking about its “Fraternal twin
brother” Triumph Group, and how I wanted you
to buy some and then chest bump someone.
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Well come to find out that Spirit blew the doors
off their earnings, and popped a stupid seven
percent on Friday.
chart, above the 50 day, and the Rainmaker has
made the call.
Let’s go for a ride man.
A bunch of readers still own the name, and so
here is a copy of the conference call transcript
on Seeking Alpha.
Perhaps more importantly is the earnings report
for Triumph Group that is on Wednesday of this
week.
are fixed for the life of an education
loan, borrowers take out a separate loan
for each school year. Federal loans
make up most of the $1.2 trillion in
outstanding education debt, which has
become a drag on the economy in
recent years as many borrowers
struggle to repay.
Now I will save you all the time and just get to
the point. Does this seem like some kind of
breaking news that was just discovered last
week?
If Spirit’s backlog and quarterly guidance are
any indication, it seems as if Triumph might also
have an “Ab-so-lute Blow-out Quarter”.
Because I think this could be another reason for
the Fed Funds rate discrepancy with the Taylor
Rule.
And a final look at the most important security
on the board, the 10 year Treasury. I got to
read this planted interesting article on
Bloomberg over the weekend that says this:
I only mention it because I know there are some
readers reading this paper from deep in the
bushes, quietly waiting for it to pull back a little
before stepping in on the name.
I don’t want to see the jet doors close without
you on board. We are at the bottom of the
Student Loan Interest
Rates to Rise With
Treasury 10-Year Note
Interest rates for the school year
beginning July 1 will be determined
following the Treasury’s 10-year note
auction on May 7. While interest rates
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The problem is debt.
I usually harp on home loans as the culprit, but
perhaps even more dramatic are the school
loans for one simple reason: They are not
collateralized.
Think about it. If a kid borrows a bunch of
bread to go to college, and is currently sitting
home in his parent’s basement, JP Morgan can’t
go grab the kid and sell him to Ocwen or slice
him up into a CDO and sell it to Europe.
School loans are unsecured, and
undischargeable, which makes them like Fiscal
Herpes®.
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You don’t want to get involved.
So I will tie up our soap box talk with a plea to
everyone who is still fully invested and
complacent with their investments.
The Nasdaq and the Russell are in danger of
blowing over this week, and the S&P will be
dragged into the selling vortex if they fall.
I will point out a final note to anyone who
thinks this is some kind of Rainmaker Warning
only.
Yesterday I also read that the famous Tom
Demark Indicator has been flashing red for
stocks:
More from Bloomberg:
U.S. stocks will fall 11 percent starting
as soon as next week should some price
patterns come true, according to Tom
DeMark, the creator of indicators to
show turning points in securities.
The Standard & Poor’s 500 Index
(SPX) will have peaked if it closes above
1,891 on one or two instances without
also falling to 1,884 in intraday trading,
DeMark said in a phone interview
yesterday. He made similar statements in
February, saying that if certain
conditions were met, U.S. stocks had
reached a point resembling the time
before the 1929 market crash. TheS&P
500 rallied 8 percent over the next two
months.
So I guess the last time he predicted the same
kind of crash was in February and it didn’t
materialize.
Are you thinking that he is going to whiff twice
in a row?
Or could this be the time we break through to
the downside?
And perhaps more importantly is that every
significant hedge fund on earth uses the
Demark Indicator, and when this thing flashes
the green light to the downside, there are guys
going to pour it on to the short side.
This is not some bubble gum indicator that
mom and pop use before buying some Apple.
You need to havea Bloomberg Machine AND a
subscription to the expensive monthly service.
Hardly the kind of upfront costs that the people
sitting in Coach can afford.
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Maybe the move in bonds has more meaning to
you knowing that we are set up for a technical
breakdown in stocks imminently.
The real smart money is always in front of the
crowd.
The move in bonds has displayed that perfectly
over the past month.
Soon enough, everyone will be seeing things
our way, and we will have been camped out in
the bushes, waiting patiently to jump out and
take people’s money and high five each other.
Let’s get rich this week!
Thanks for taking the time to catch up on my
thinking and reading The Rainmaker Investor
Report.
Alejandro Reyes
The Rainmaker Investor Report is prepared by and is the property
of Rainmaker Report, LLC and is distributed for informational and
educational purposes only. There is no consideration given to the
specific investment need, objectives, or risk tolerances of any of
the recipients. This report is not an offer to sell or the solicitation
of an offer to buy or sell any securities or financial instrument ts
mentioned. Each recipient should consult their own counsel,
including tax advice before making any investment decision. Any
performance figures do not include transactional costs and are
presented as estimates only. The information, views, statements,
and opinions are based on sources, public and private considered
to be reliable, however no warranty is made to their accuracy. Mr.
Reyes is not an investment advisor and cannot make
recommendations to you to buy or sell specific securities. Please
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consult your own advisor before acting on any of the information
in this document or any other document received from Rainmaker
Investor, LLC and its affiliates. Mr. Reyes and/or his employees
may have a financial interest in securities or derivatives described
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