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Wednesday
Oct192011

Ron Paul Rethinks Strategy

I'm not a really big fan of chart analysis.

I'm really humbled when I see some of the analyses that are performed by chart technicians as they crunch and manipulate data and then lay it out in simple graphic forms for the rest of us to ogle and admire.Coffee charts

I won't say that I'm amazed by what they do, but I will say that I'm amazed that 2 different people can see the same exact graphs and draw the same lines and come up with different conclusions.

Using the kind of analysis that is better suited to a Rorschach Test, somehow people see incredible details and images from the saw-toothed lines. Best of all, they even give names to the images that they think they see.

I've often wondered why the "p" in "psychotic" was psilent.

With that in mind, you might understand why charts don't show up very often in this blog site and why I pay very little attention to charting and technical analysis in the Option to Profit book.

The fact that I know nothing about the tenets of technical analysis are just incidental to their absence.

I still think of myself as analytical, but most of the time quantitative analysis is best suited for events that are predictable.

Human emotions and the reactions to external events aren't very predictable. That's why it's easy to have a "fair and balanced" discussion on any economic issue.

Until the least 2 hours of trading on Tuesday, when word came out that there would be a permanent oversight "troika" in Greece and that the EU was prepared to assemble a $2 Trillion bail out fund, the day's big story was Green Mountain Coffee Roasters.

David Einhorn, who is legend for his early and dismissed warnings about Lehman Brothers, has some concerns about the K-Cup Kings. (See his 110 slide PowerPoint presentation, GAAP-uccino)

He was fairly universally atacked.by the 99% and at least some of the remaining 1%.

GMCR has been one of those "mo-mo" stocks. Not only did it have "mo", but it had a double dose of momentum.

After a 3 for 1 split, it's current $80 per share price would have been $240. Not bad, but just a 2 months ago GMCR was at about $110.

There have been lots of questions swirling around GMCR. Accounting issues, patent issues and whether their alliance with Starbucks is really a good deal.

But look at the above graph. Just look at the performance of the Coffee Kings compared to SPDR Gold Trust Shares.

As a disclaimer. I've owned both GMCR and Starbucks in the past year and we drink lots of Peets at home, as it reminds Sugar Momma of her care free days in Berkeley.

By comparison, Gold has been a piker. It doesn't come close to even the laggard performance of Starbucks.

Gold, the basis of all that we hold valuable, the cornerstone of Ron Paul's economic theory has been, at best, an also-ran, three times removed.

Here's the thing. It's repeatedly been ;pointed out that gold is just a rock. James Altucher was the first person that I heard to come right out and say so, at the very peak of gold's price run higher. But he has also predicted that Apple will be the first $2 Trillion company, making its liquidation a possible solution to the money needed for the EU banking bailout. Although in his blogs he talks abouty a $1 Trillion level, during a CNBC interview he hiked it to double that amount. Either way. enough to buy a few months of banking calm overseas.

The rock part makes it hard to eat.

Without doing the research, I'm certain that point has been made prior to Altucher pithy "It's just a rock" comments.

Ron PaulI don't know if Ron Paul has considered that shortcoming. It's no surprise that you don't find Godfather's Pizza offering a gold topping. It may have as much to do with the fact that would be a price buster for the 9-9-9 special, as much as it has to do with its inedible state.

If the eventual GOP nominated team turns out to be Paul-Cain, they'll have to work that out.

In the meantime, not only can coffee be ingested and help to sustain life, but it also helps to nourish and give life to another useful currency.

Tulips.

Just spread those coffee grounds around the tulip bed and you'll have an energized bounty of flowering fools.

The next step is Ron Paul's. I don't see how he can keep his ground, especially after mentioning that children's health care wouldn't be on the chopping block in a Paul administration.

At least not until other areas were eliminated first, since he explained, "we wouldn't be able to do everything all at once".

If Green Mountain continues its fast fade, Paul may be spared the painful decision of switching from Gold to Grounds

In the meantime, once the EU news was reported, the market took a decent 90 point gain and quickly turned it in 250, before giving up a little.

Simon Hobbs, of CNBC, who if you didn't know, was British, has been a consistent voice of reaonable interpretation of European actions during their banking crisis.

His skepticism has, thus far, been consistently appropriate.

His critique of the report in the U.K's Guardian newspaper seems to have been well placed, as the market began to recognize that the reports were more paper tiger-like than a real full frontal assault.

For the most part, I was a bystander during the day's trading.

I did sell some JP Morgan Chase calls, but did so prematurely, as the shares went quite higher later in the day as the EU news came out.

No matter. There are still 3 days for more earth-shattering news to hit.

Once the EU news was digested and GMCR was ancient history, all ears and eyes turned to the after hours earnings reports of Intel, Yahoo and Apple.

The big news was that Apple, which always "underpromises and over-delivers", had its first EPS miss since 2004.

The inital reaction was pretty brutal, with Apple taking a quick $30 hit, which represented a 7% hit.

Cooler heads prevailed and those losses were quickly pared back to about 4%.Certainly those cooler heads prevailed in Goldman Sach's case, as it reported  poor earnins, but saw its inital 5% drop turn into a 5% gain.

Based on "technicals" one talking head on CNBC posited that Apple was exhibiting "bubble" behavior and that it's price momentum was indicating that the bubble was about to burst.

He might be right, but we'll probably never know if he was wrong.

Yahoo and Intel had nice numbers, so hopefully there will be some follow through in Wednesday's market.

The problem with that line of thought is that it puts too much emphasis on rational market action. Events driven by events and data, rather than tangentially related rumors.

Based on where we seeem to be going, the likelihood of the market responding to real economic news is as likely as Ron Paul burying his gold around Ben Bernanke's tulip beds.

More likely is that in a Ron Paul administration he would just plant a big kiss on Bernanke's two lips in preparation for a literal fitting of cement shoes, and then peacefully sip away on some fine Green Mountain espresso brew

 

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George Acs - TheAcsMan. - I now spend my time at Option to Profit - OTP.