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8/9/2019 4.0 Poseidon Perspective April 2010
1/15
THE
POSEIDON
PERSPECTIVE
soundnavigationthroughperilouscrosscurrents
30April2010
DearInvestor,
Afewwordsconcerningcurrenteventsare
inorder. TheFedsFOMCmeetingwhich
endedon
Wednesday,
April
24
was
not
newsbutbusinessasusual. Thelongerthe
Fedrefusestoincreaseinterestratesthe
greatertheburdentoUShousehold
savingsandthegreatertheriskthatthis
greatexperimentinZIRPandQEwillgo
terriblyawryastheFedwillnotbeableto
controlthegeniewhichmayrefusetogo
backintothebottle. TheFedisclearly
nowhereclosetoseriousconsiderationof
raisingshortterminterestrates. The
tragedyisthatlowshorttermratesbeget
shorttermthinking,spending,and
speculation. Higherrateswoulddemand
shorttermadjustmentbutmoresavings
andgreaterlongtermcapitalinvestment.
TheGoldmanSachsaccusationshave
becomeapoliticalcircusandany
indictmentsare
being
moved
quickly
into
theemotionalcourtofpublicopinion.
Therearesomestraightforward
regulatorysolutionstothecrisisinour
bankingindustry;however,theyrequirea
sturdybackbonetoinitiateand,most
importantly,toenforce. Wewouldinclude
theratingagenciesasanareathat
demandsreformandstrictoversight.
Theircurrent
conflicted
status
quo
is
not
acceptable. Weareintheprocessofa
macroeconomicinversionwherebytherole
ofcreditandfinanceisnottosupportthe
economybuttheroleofconsumers,
manufacturers,andservicesistosupport
thebanking,insurance,andrealestate
juggernaut.
Finally,thecrisisinEuroGreekfinanceis
thefirstmajorhurdleinredefiningthe
Eurostatescompactandeconomic
relationship. Thisprocessabettedbythe
IMFwillmoveacrosstheeconomiesof
Europesmotheringgrowthandcreating
increasedanimosities. Theresultwillhave
animportantimpactontheUSeconomy
andmultinationalcompanies. Europeis
thelargestmarket,exceedingAsia,forUS
exports.US
banks
also
have
substantial
exposuretoWesternEuropeespeciallyin
theircriticalTier1capitalbase. Finally,the
risingUS$willmakeallthingsAmerican
moreexpensive,andthusputadragon
futureearnings. Weseereducedexports
andprofitsaftercurrencytranslation
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THEPOSEIDONPERSPECTIVE 30April2010
adjustmentsfortheremainderof2010and
wellinto2011.
Wewouldarguethattheeconomicsofa
nationcanbelikenedtotheeconomicsof
itsstructuralunits,thehousehold. A
householdwhichdoesnotsavesoonfinds
itselfseriouslyindebtandahouseholdin
seriousdebtsoonfindsthatitscreditors
becomeanonerousburdenonits
autonomy. Spendthrifteconomicsand
lackofsavingsarenotuniquetoGreeceor
SouthernEurope. TheUKandtheUS
representshamefulmanagementoffiscal
andmonetary
matters.
Through
the
lens
ofcurrentdemographics,babyboomers
needswillusurpanypotentialforchange.
TABLEA1Q2010 1Year 5Years*
DJIndus 4.11% 42.7% 0.66%
S&P500 4.87% 46.6% (0.19)%
Nasdaq 5.68% 56.9% 3.70%
DJTran 6.71% 63.0% 3.32%
S&P600
8.33%
62.0%
2.32%
MSCIEAFE 0.22% 50.0% 1.05%
MSCIEM 2.11% 77.3% 13.0%
Gold 1.52% 21.2% 21.0%
*5yearvaluesaretheannualcompoundrateofreturn
Meanwhile,theAmericanequitymarkets
haveshownarobustfirstquarter,1Q2010
asseeninTableA. Theseresultsarea
continuationof
the
strong
growth
in
global
equitypricessinceMarch2009. Thisrise
maycontinuebutwebelievethatequity
marketsareovervalued,overbought,and
vulnerabletocorrection. Substantial
returnsoverthepast5yearsarelimitedto
EmergingMarkets(EM)andgold. We
speaktotheroleofpreciousmetalsbelow.
TheUS$traditionallyexhibitsaninverse
correlationwiththeequitymarketsand
overthepast4yearsthisrelationshiphas
strengtheneddramatically. Theimpactof
thispricingrelationshipcanbeclearlyseen
inChart1whichdepictstheS&P500price
overthepast9years. TheweakUS$over
thepast
2years
has
been
very
good
for
equitymarketsandriskyassets. The
currentrallyinstockssinceMarch2009has
beenaccompaniedbyafallingUS$. We
seeanyfurtherinvestmentinUSequities
asaquestdrivenbychasingreturns.
Suchbehavior,akintomomentumtrading,
requiresthenextwaveofmoreexcited
investors(greaterfools?). Theriseinthe
S&P
500
has
been
82%
over
56
weeks;
this
equatestoacompoundgrowthrateof
4.73%permonth. Webelievethatthe
surgeinequitypricesovertheshortterm
hasproducedanunsteadystate. Thisis
nottosaythemarketscouldnotgohigher.
However,historicalreturnsfromcurrent
levelsasmeasuredbyCAPE,seebelow,
havebeendismaltonegativeoverthepast
decade.
Page 2
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THEPOSEIDONPERSPECTIVE 30April2010
CHART1 RISINGUS$MAYANTICIPATETHEVERGE
Source:PSI;StockCharts
Chart2illuminatestheUSBondrallyand
thedestructionoftheNikkei225overthe
past21years. Longbondshaverecovered
someyield
return
from
the
plunge
in
late2008duringthecreditpanic. This
maysignalthebitterendtorisinglong
bondpricesandthestartofaslowbuildin
longterminterestrates. Thisoutcome
dovetailsneatlywiththeinflationvs.
deflationquestion. Atthistimewewait
andwatch.
Coincidently,
we
continue
to
find
great
relevancyintheJapaneseexperienceofa
dualbubbleeconomy21yearsago. Some
economistsjudgetheJapaneseresponse
andpoliciestorebuildafterthatexperience
asadismalfailure. Iftheresultsare
judgedrelativetotheNikkeiperformance,
thisistrue. ShouldtheUSeconomicand
monetarypolicybejudgedbythe
performanceoftheNasdaqoverthepast
10years?
How
are
we
to
judge
the
current
effortstoreflatethebankingand
residentialrealestatesectors? Shouldwe
reconsidertheviabilityofmonetarypolicy
whichproducezerointerestratesand
fiscalpolicywhichproducescrippling
deficitspending? Bothofthesehavebeen
utilizedinJapanoverthepast20yearsand
theresultsarequestionable. However,the
US
is
different.
We
dont
have
a
self
supportingpopulaceofsavers.
Page 3
AnotherquestionwhichChart2raisesis
theadequacyoftheUSBondyieldinthe
faceofgrowingstrengthoftheUS$. Will
thedemandforUS$sasasafehavenbe
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THEPOSEIDONPERSPECTIVE 30April2010
undertakenatanyrateofreturn? Will
increasinglyhotmoneyorbond
vigilantesflowtotheshortendofthe
yieldcurveallowinglongratestosteadily
rise? Globalinvestorswilldecideasthey
seefit. Yet,webelievethatwithout
stabilityintheUS$therewillbeincreased
volatilityincommoditiesandemerging
markets. Wecontinuetofindmuch
intrigueinCharts1&2. Theworldstwo
largesteconomiesdriftinaneconomicsea
ofunresolvedcrisis.
CHART2 RISINGYIELDMAYNOTPLAYWELLWITHEQUITIES
Source:PSI;StockCharts
Page 4
Wemustnotethebarmeasureforthe
30YearYieldinChart2from2002until
2006. OnOctober31,2001theUSTreasury
announcedthattherewouldbenofurther
auctionsof30yearbondsincludingboth
nominal
and
TIPS.
This
decision
was
basedupontheexpectationsoffuture
fiscalbalancingandexpectedbudget
surpluses. Themovewasalsojustifiedasa
savingstotaxpayersthroughlowerinterest
ratesonshortertermdebt. Needlessto
say,upontheannouncementthepriceof
the30yearbondsoareddrivingdown
yields. Themove,thus,hadavery
favorableimpactonequities. Theimpact
onhomemortgageswasalsoverypositive
asitdrovedownlongtermborrowing
costs.
We
will
not
be
as
cynical
as
to
suggestthatperhapsthatthiswasaployto
driveupbondpricesasagifttothebanks
orasanimpetustokeepmortgagerates
lowtosupportaboominhousing. Yet,we
doquestioncurrentUSTreasuryand
FederalReservepoliciesofverylow
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THEPOSEIDONPERSPECTIVE 30April2010
interestrate,veryhighliquidity,andfiscal
supportforcollapsingfinancial
institutions. IstheUSgovernment
enteringaperiodofrestrictedlongterm
financinginfavorofadependenceupon
shorttermnotes?
Chart3showsthedeclineandsubsequent
unfathomableriseinbankand
homebuilderequitiesoverthepastfour
years. Weinterpretthischartasan
indicationofamajormarketdistortion.
KBEistheETFwhichrepresentstheKBW
BankSectorIndex,adiversifiedgroupof
24money
center
banks.
XHB
is
an
ETF
whichattemptstoreplicatetheS&P
HomebuildersSelectIndustryIndex. Their
risesfromthelowsofMarch2009are250%
and160%respectively. Whiletheyhave
notreturnedtothebubblehighsof2007
08,thesesectorsarebothstillattachedto
lifesupportfromtheFederalReserve
andUSTreasury. Goingforwardwedo
notbelieveeitherofthesesectorshasthe
earningspowertosubstantiatecurrent
prices. Theseindustriesweretheprime
moversinthedevelopmentand
exacerbationoftherecentfinancialcrisis.
Yet,investorsexpectthattheywillbethe
leadersin
recovery.
Go
figure.
CHART3 YET,THELOSERSRISEWITHSUSPECTMERIT
Source:PSI;StockCharts
SOUNDINGS
Page 5
Lastmonthwespokeofeconomic
indicatorswhicharecloselywatchedas
prognosticatorsforequitymarketpricing.
Nowwelookatseveralmetricsutilizedby
marketmavens,especiallytechnical
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THEPOSEIDONPERSPECTIVE 30April2010
analysts,tomeasuremarketdirectionand
breadth. Evensomeofthemore
sophisticatedmarketstrategistsatmany
banksalludetothesestandardsas
representativeofmarketsentiment.
Active,technicaltradersbelievethatthe
market,initsownarcanelanguage,
foretellshowequitypriceswillfluctuatein
theshortterm.
WebeginwiththetraditionalPut/Call
ratioinChart4whichmeasuresthetotal
numberofputsdividedbythetotalcalls
producingaprescientratiopremisedupon
thosewho
are
bearish
buying
puts
relative
tothebullsbuyingcalls. Asthenumber
movesbelowone,themorebullishthis
measurebecomes. Wehavealsoincluded
a50daymovingaverage(MA)which
indicatesthatthisisagrowingtrend.
However,whenthenumberdropsbelow
.70asithasthismonththeinterpretation
maybethatofmarketcomplacencyor
over
enthusiasm.
Our
contrarian
nature
viewsthisbullishindicatormoreasa
warningsign.
CHART4
Source:PSI;StockCharts
Next,inChart5weviewtheBullish
PercentIndexwhichisthenumberofS&P
500stockswhicharetradingwithPoint
andFigurebuysignalsdividedbythe
entireIndex. Thisisapopularindicatorof
marketbreadth. Thepercentage
providesarelativemeasureforthe
determinationofoverbought/oversold
markets. Obviously,thismeasureisnot
applicabletoindividualsecuritiesbut
looksattheoverallmarket,inthiscasethe
S&P500. Wenotewithinterestthatthis
indicatornowexceedsthemarkettopin
2007.
CHART5
Source:PSI;StockCharts
Page 6
Anothertechnicalmarketindicatoristhe
PercentageofStocksAbovetheir50day
MovingAverage. Chart6indicatesa
commencementofadeclinefromavery
strong
position
above
90%.
Moving
averagesareapopulartoolamongmarket
technicianstodeterminetrendsand
turningpoints. Quiteobviouslyasimple
movingaveragehasalaginreflecting
prices,andthus,isafollowingindicator.
However,toacceleratepricemovesone
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THEPOSEIDONPERSPECTIVE 30April2010
canuseanexponentialmovingaverage
whichmoreheavilyweightsrecentprices
inthenumericdetermination,atradeoff
oftimingforsensitivity. Eitherwaythis
chartisanidentificationofgroupedprice
trends. Yet,manyonWallStreetbelieve
thetrendisyourfriendandtrade
accordingly. Welookatthischartand
speculatethatthepathofleastresistanceis
down.
CHART6
Source:PSI;StockCharts
Manystrategistsexhorttheriseofsmall
capcompaniesassignifyinganewbull
market. WeshowtheS&PSmallCap
Index(SML)inChart7. Somepundits
arguethatmonetaryeasingismore
beneficialtosmallcapcompanies. This
indicatorissupportedbythestrongrally
inhighyield(junk)bonds. Thesurgein
small
caps
is
still
mediocre
in
comparison
tothestrongappreciationofotherequity
sectorsduringthepastyear.
CHART7
Source:PSI;StockCharts
Therearemanyotherindicatorsformarket
movementsincludingAdvance/Decline,
Accumulation/Distribution,moneyflows,RelativeStrengthIndex,andtheVIX.
Whilemanyoftheseindicatorsare
clockingstrongbullishsentiment,we
continuetofindcomfortinacontrarian
stance. Unfortunately,thisrisingtrendin
equitymarketsoccurswhentherateof
unemploymentis9.7%andnotthe6%of
threeyearsago. CapacityUtilizationis
belowits
long
term
average.
Housing
prices,sales,andnewstartsare
substantiallybelowtheir2007levels.
Retailandautosalesaredown. Defaults,
foreclosures,andcreditcarddelinquencies
arestillrising. Thereisaserious
possibilityofacapitalgainstaxincrease
whenthecurrentlawexpiresthisyear.
Incometaxesmayalsorise. Themarketfor
stocksappears,inourhumbleopinion,to
havedecoupledfromthemainstream
economyandresidesinaworldofitsown.
Page 7
Wewillendwiththemostinfamousand,
perhaps,mostimportantmeasureof
marketandsecurityvaluation. Itisthe
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THEPOSEIDONPERSPECTIVE 30April2010
Page 8
proverbialPricetoEarnings(P/E)ratio.
ThissimplemetricisWallStreetsmost
popularmultiple,bandiedabout
incessantlytopromotesomequestionable
enterprisevalues. However,evenwiththe
scourgeofearningsmanipulationthatwas
flagrantduringthebooming1990sthis
simplemetrichasthecapacitytohold
greattruth. InChart8JohnKeefehas
combinedlongterminterestrateswiththe
CyclicallyAdjustedP/E(CAPE)pioneered
byRobertShilleratYaleUniversity.
ProfessorShillersratioutilizescurrent
pricewitharolling12monthsof10year
averageearnings. Inthiswayhemakesan
adjustmentforchangesinthebusiness
cycle. TheCAPEinChart8was21.3xat
thetimeofthisgraphicandnowexceeds
22x. Thisrelatestoalongtermaverageof
around16dependingupontimeframe.
Wewouldsuggestthatatthisstagethe
equitymarketisgrosslyovervalued.
CHART8 LOWINTERESTRATESWITHARISINGTIDE
Source:JohnKeefe,TheMacroView
WEATHERWATCH
Afterlookingatmanytechnicalmetrics,
niftyalgorithms,andderivative
correlations,wereturntothefundamentals
ofeconomicactivitytoframethevalueand
pricingofsecurities. Hence,weseek
guidanceamongthebuildingblocksofthe
economy. TheprimemeasureoftheUS
http://i.bnet.com/blogs/case-shiller.bmp -
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THEPOSEIDONPERSPECTIVE 30April2010
economyistheconsumerwhosupports
around70%oftheGDP. Chart9tellsus
thattheconsumerisnotgainingspending
powerinthecurrentenvironment. While
dissavings,creditcarddebt,and
governmentoutlaysmaybridgethe
spendinggapintheshortterm,theUS
economyneedsmoreincome.
CHART9 STAGNANTINCOME
Source:St.LouisFed
Unfortunately,theprimesourceof
consumerincomeisjobs. Continuing
unemploymentatabove9%hastwo
seriousrepercussions. Thefirstisthe
crimpitputinconsumerspending.
Secondly,itputsdramaticpressureon
governmentfinances. Atthesametime
thatthe
Federal
government
has
extended
unemploymentcompensationthereisa
continuingdragonwithholdingtaxesto
fundcurrentoperations. Chart10
providespostWWIIemploymentlevels
andsignifiestheseverityofthecurrent
employmentproblem.
CHART10 CONTINUINGSTRESS
Source:St.LouisFed
Anysustainablerecoverymustincrease
employment.
PROVISIONING
InTableBwesummarizethereturnsfora
numberofcommodityindexesoverthe
past5years.
TABLEB1Q2010 1Year 5Years*
GKX 8.34% 8.62% 12.0%
CRB/Reuters (4.81)% (2.71)% 2.46%
DJUBSSoy 6.92% 9.32% NA
WTIC
8.34%
8.62%
12.0%
Copper 4.14% 18.9% 16.0%
Silver 3.68% 35.1% 19.6%
*5yearvaluesaretheannualcompoundrateofreturn
Page 9
Whilethisassetclasshasnotshownthe
samesurgeasstocksoverthepastyear,
commoditypricescontinuetoincrease.
http://research.stlouisfed.org/fred2/graph/?s%5b1%5d%5bid%5d=DSPIC96http://research.stlouisfed.org/fred2/graph/?s%5b1%5d%5bid%5d=DSPIC96http://research.stlouisfed.org/fred2/graph/?s%5b1%5d%5bid%5d=DSPIC96http://research.stlouisfed.org/fred2/graph/?s%5b1%5d%5bid%5d=DSPIC96http://research.stlouisfed.org/fred2/graph/?s%5b1%5d%5bid%5d=DSPIC96http://research.stlouisfed.org/fred2/graph/?s%5b1%5d%5bid%5d=DSPIC96http://research.stlouisfed.org/fred2/graph/?s%5b1%5d%5bid%5d=DSPIC96http://research.stlouisfed.org/fred2/graph/?s%5b1%5d%5bid%5d=DSPIC96http://research.stlouisfed.org/fred2/graph/?s%5b1%5d%5bid%5d=DSPIC96http://research.stlouisfed.org/fred2/graph/?s%5b1%5d%5bid%5d=DSPIC96http://research.stlouisfed.org/fred2/graph/?s%5b1%5d%5bid%5d=DSPIC96http://research.stlouisfed.org/fred2/graph/?s%5b1%5d%5bid%5d=PAYEMShttp://research.stlouisfed.org/fred2/graph/?s%5b1%5d%5bid%5d=PAYEMShttp://research.stlouisfed.org/fred2/graph/?s%5b1%5d%5bid%5d=PAYEMShttp://research.stlouisfed.org/fred2/graph/?s%5b1%5d%5bid%5d=PAYEMShttp://research.stlouisfed.org/fred2/graph/?s%5b1%5d%5bid%5d=PAYEMShttp://research.stlouisfed.org/fred2/graph/?s%5b1%5d%5bid%5d=PAYEMShttp://research.stlouisfed.org/fred2/graph/?s%5b1%5d%5bid%5d=PAYEMShttp://research.stlouisfed.org/fred2/graph/?s%5b1%5d%5bid%5d=PAYEMShttp://research.stlouisfed.org/fred2/graph/?s%5b1%5d%5bid%5d=PAYEMShttp://research.stlouisfed.org/fred2/graph/?s%5b1%5d%5bid%5d=PAYEMShttp://research.stlouisfed.org/fred2/graph/?s%5b1%5d%5bid%5d=PAYEMShttp://research.stlouisfed.org/fred2/graph/?s%5b1%5d%5bid%5d=PAYEMShttp://research.stlouisfed.org/fred2/graph/?s%5b1%5d%5bid%5d=DSPIC96 -
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THEPOSEIDONPERSPECTIVE 30April2010
Webelievethatpricingwithineachsector
ofcommoditiesisdrivenbythebasic
balanceofsupplyanddemand. Partofthe
demandsidemaybedrivenby
speculators/investorsbutthatiswhata
freemarketrequires. Thedemandside
isalsodrivenbytheglobalwaveof
liquidityprovidedbycentralbankersand
therushtohardassetsinthefaceof
inflationexpectations.
Whilewesupportanallocationto
commoditiesasanassetclassour
continuingpositionshavebeeninthe
holdingof
precious
metals.
Further,
we
believethatthiswillcontinuetobea
significantallocationuntilthereare
adjustmentstovaluationinotherasset
classes. Uponpriceadjustmentand
realisticvaluationswemayreduceour
cash,goldandsilverpositionsto
accommodateotherriskyassets. We
continuetoexpoundthattomakemoney
in
the
markets,
one
must
buy
when
prices
arecheap.
CHART11 REGAININGSTRENGTH
Source:PSI;StockCharts
Chart11showstherecordpriceofgoldin
December2009. Webelievethatprices
under$1,200perouncecontinueto
representcheap. Peoplewhospeak
aboutgoldbeinginabubbleareill
informedanduneducatedinmonetary
history. Untilthereissomeresolutionof
thecurrentcredit/debtcrisiswhichisonly
exacerbatedbyFederalReservebalance
sheetinflation,goldbullionrepresentsa
storeofvaluewithoutcounterpartyrisk.
WefollowtheCommitmentofTraders
(COT)aspublishedbytheCommodities
FuturesTrading
Commission.
The
recent
resultsforgoldaresummarizedinTableC.
TABLEC SNAPSHOTCOTGOLD2010
Date
Open
Interest*
Producer
Shorts*
MMoney
Long*
Largest
4Short
Apr20 682,040 253,161 202,279 29.1%
Apr13 696,345 250,931 205,120 27.8%
Apr6 648,116 228,575 185,616 28.1%
Mar30 603,626 209,910 157,723 28.3%
Mar23 665,203
212,488
165,927
26.6%
Mar16 675,464 218,615 179,677 27.1%
Mar9 666,239 221,675 182,721 27.8%
Mar2 657,701 218,144 185,798 27.4%
Feb23 630,275 209,972 174,352 28.0%
Feb16 609,964 193,827 169,899 27.8%
Feb9 632,281 204,865 169,333 27.2%
Feb2 638,521 218,920 189,560 28.2%
Jan26 651,455 233,770 184,073 31.7%
Jan19 722,095 258,542 204,120 38.2%
Jan12 709,092 260,889 205,311 30.9%
Jan5 691,557
251,160
201,286
31.0%
Source:CFTC;PSI
*AllnumbersarepublishedbyCFTCinCOT
reportsandreflectbothFuturesandOptions
Page 10
Whileweundertaketheseexerciseswithout
expectation,therearetimesthatwemay
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THEPOSEIDONPERSPECTIVE 30April2010
Page 11
uncoversignificantmarketchanges.
Uncomfortablewithadataminingexercise
wesimplynotethattherisingpriceofgold
inearlyJanuary2010wasaccompaniedbya
riseinopeninterest. Unfortunately,this
activitywasreflectedinagreater
concentrationofshortinterestbythe
largestfourplayers,allbanks. However,
afterthepricecorrectioninthefirstweekof
FebruaryManagedMoneyheldstrong
andincreasedtheirlongpositionstoride
outshorttermvolatility. Thereisnoclear
proofofmarketdirectionwithinthese
numbers. However,weseestronger
participationbylongpositionsinspiteof
continuedconcentrationofshortinterest
control.
CHART12 DOWNWARDTRAJECTORYINTREASURYVALUE
Source:PSI;StockCharts
WedepictinChart12thevalueoftheUS
TreasuryBondinrelationtogoldoverthe
past11years. Relativetogoldthelong
bondhas
declined
75%
in
nine
years
from
early2001totheendof2010. Thisisasad
commentaryonUSTreasurymoney
managementskills. Itmayalsobeavery
strongargumentforthereturntoagold
standardformoney.
Silverisasmuchanindustrialmetalasitis
apreciousmetal. However,itislosingits
correlationwithequityreturnsandturning
backtoward
its
historic
monetary
base.
If
thiscontinuestherecouldbepricerisesthat
exceedtheotherpreciousmetals. While
goldisnearitsalltimenominalprice
high,silverremainsmorethan60%below
the$49.45pricein2008. Asanasideone
pundithasstatedthatthepriceofsilver
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THEPOSEIDONPERSPECTIVE 30April2010
peakedin1477ataninflationadjusted
2008US$spriceof$1,017perounce. We
believethatthesilverpitisatreacherous
placeandpricevolatilityisthesurface
symptomofgreatunderlyingtension.
CHART13 TRULYPRECIOUS
Source:PSI;StockCharts
Weperformedthesamereviewofsilveras
wedidforgoldandtheresultsaresimilar.
However,therehasbeenasteadyerosionof
concentrationinshortinterestsincethe
highof
39.4%,
in
the
January
26,
2010
report.
Thisdecreaseof12%issignificant. More
importantly,duringthisreductionof
concentrationthegrossnumberofOpen
Interesthascontinuedtoclimb. This
wouldargueforlessmarketdominationby
theBig4playersand,perhaps,theresult
ofChairmanGenslerscommitmenttomore
closelyregulatethecommoditymarkets.
We
also
note
that
the
long
positions
held
by
ManagedMoneyappeartobeinstronger
hands. Theincreaseintheselongswasover
100%fromthelowonFebruary9tothe
April20report. Perhaps,theyboughtthe
dip.
TABLED SNAPSHOTCOTSILVER2010
Date
Open
Interest*
Producer
Shorts*
MMoney
Long*
Largest
4Short
Apr20 155,405 64,584 36,204 34.6%
Apr13 154,294 65,387 36,751 33.3%
Apr6 146,903
61,743
33,659
35.3%
Mar30 138,719 59,200 28,067 35.5%
Mar23 137,392 59,152 26,667 36.1%
Mar16 139,862 61,208 28,173 36.1%
Mar9 137,627 59,154 26,627 35.8%
Mar2 133,233 57,730 22,411 36.6%
Feb23 139,415 60,251 19,648 36.5%
Feb16 151,116 59,036 19,434 34.1%
Feb9 150,078 58,967 17,516 34.7%
Feb2 150,051 65,055 21,677 37.6%
Jan26 153,070 69,086 26,889 39.4%
Jan19 163,608 70,947 37,518 38.2%
Jan12 159,868 71,111 36,399 39.3%
Jan5 154,501 67,469 30,247 38.2%
Source:CFTC;PSI
*AllnumbersarepublishedbyCFTCinCOT
reportsandreflectbothFuturesandOptions
Theultimatedeterminantofthepricefor
silver,moresothanforgold,issupply. Any
strongdemandtotakedeliveryof
physicalmay
create
full
transparency
on
thefuturesmarketsandtheresultforthose
whocannotdeliverwillbemuch,much
higherprices. Timewillrevealmanyissues
whichmarketparticipantsprefernotto
discuss.
Page 12
Weendonapleasantnote. Thestock
marketconsistentlyalsogoesupinthe
verylong
run.
Since
1950
these
increases
appeartoclusterincertainmonthsofthe
year. InChart14weseethewell
constructedhandiworkofPrieurdu
Plessis,ChairmanandPrincipalofPlexus
AssetManagementinCapeTown,South
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THEPOSEIDONPERSPECTIVE 30April2010
Page 13
Africa. Hisastutemarketinsightscanbe
foundatwww.investmentpostcards.com.
Thesametypeofinformation,market
moves,andhistoricalstatisticscanbe
foundinabundanceinHirschsStock
TradersAlmanac. Onesuchanomaly
whichhasstrongannual/seasonalauspices
isthePresidentialCycle. Wecertainly
donotattempttotimethemarketfor
shorttermtrading. Wedolookatthe
marketasapricingmechanismandat
currentpriceswedonotviewequitiesasa
reasonableinvestmentevenatthecostof
punishingshortterminterestrates.
CHART14 ANARGUMENTFORMARKETTIMING?
Source:PlexusAssetManagement
Weknowhowharditistoleavetheparty
whenthecrescendoofexuberanceis
peaking.From
aroaring
good
party
to
the
cold,harshrealityofawetnightisnota
pleasantchoice;truesuccessinlifecomes
frommakingverydifficultandunpleasant
decisions.
SellinMayandgoawaysoundslikesomeromantic,GreatGatsbylineutteredasthelight
heartedfinancierstepsontothetendersoontoboardhis30meterketchinNewportBay.
Nevertheless,eventhemostflippantremarkmaycontainasmuchtruthaswit. Asfor
boatingasRattyinTheWindintheWillowssays,Thereisnothing,absolutelynothing,
http://www.investmentpostcards.com/http://www.investmentpostcards.com/ -
8/9/2019 4.0 Poseidon Perspective April 2010
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THEPOSEIDONPERSPECTIVE 30April2010
halfsomuchworthdoingassimplymessingaroundinboats. Wehavetoagree;and,as
longasoneismessingaround,itshouldbedoneingoodtaste.
EXHIBITA 91/27.7mS&SCamperNicholsonAluminumKetch
Source:
Sparkman
&
Stephens
Awellriggedsailingshiponabroadreachintheopenseaisanartifactofbeautyandgrace.
Itperformsadmirablyinresponsetothebasiclawsofnature. Tosailafinelytunednautical
craftisanexperienceofjoyandbliss. Todesignsuchmasterfulworkistoapproachthe
sublime. So,itwaswithintherealmofthesublimethatOlinStephensspentmuchofhislong
life. OlindiedinSeptember2008attheageof100havingbeenamemberoftheNewYork
YachtClubforover78years. Hewasundisputedlyoneofthegreatestnavalarchitectsofthe
20thCentury. Hiscareertranscendedmanymajorchangesinthedesign,materials,and
riggingforoffshoreracing. Thisprofessionalpassageincludedthetransformationofhull
materialfrom
wood
to
steel
then
aluminum
and
onto
fiberglass.
He
was
the
design
impetus
andexecutionerforarecordeightAmericasCupmatchboatsandsixwinnersbetween1937
and1980(therewasaWWIIbreakinracingfrom1938until1958. Duringthisperiodthere
wasonlyoneotherarchitecturalteamwhichcommandedaCupwin. Itwasduringthis
periodthathemasteredtheuseofwatertanksfortestingofracingdesigns.
Page 14
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THEPOSEIDONPERSPECTIVE 30April2010
Page 15
StephensleftMITinhisfirstyearandlearnednavalengineeringonthewater. Hemastered
anunderstandingofdragandlift,cutandthrust,windandwaveandthemyriadapproaches
todesignwhichwouldmosteffectivelyaddresstheseforces. Problemsolvingcameeasilyto
amindthatcoulddiscernhowtheseforcesworkedtogetherandwhichwereinnatelymore
powerful.Hewasaleaderinthearcanescienceofoffshoreracehandicapping. Thisrocket
scienceforwatercraftincorporatesconvolutedmathinordertogiveconsidered
measurementstohull,length,beam,freeboard,girth,foretriangle,mast,boom,andstability.
Amidthefluiddynamicsofnavaldesignandracingrules,hisgreatestdesigninnovation
cameinthegreatsloopriggedIntrepidforthe1967Cup. Inabrilliantdeparturefrom
traditionOlinmovedtheruddertoaseparateskegfurtheraftfromthekeel,formfollows
function. Thisseparationresultedintwomajorbenefits;itreduceddragandincreasedthe
accuracyofsteerage. Needlesstosay,allsubsequent12meterdesignsincorporatedthis
change. InaninterestingadvanceafterOlinhadretiredfromCupdesign,the1983Cupwas
wonby
the
fiber
hulled
Australia
II
which
introduced
the
infamous
winged
keel
to
12
meterracing.
Olinwasamanofuniqueengineeringcapabilitiesandvitalityignitedbybluewaterracing.
Heendeavoredinarealmwherehewasabletomakegreatcontributions. Soitiswitheach
ofuswhoaredrivenbythepassiontoexcelandfindanarenainwhichourcreativityand
drivesurpasstherestrictionswhichlimitsomanyothers. Greatdeedsdemandgreatenergy,
involvement,andinnovation. Theyaregovernedonlybyindividualethicsandsocial
incentives. HerewereflectonOlinStephensaccomplishments;EdwardTeach,aka
Blackbeard,
was
also
a
great
competitive
sailor.
Sincereregards,
BrianE.Shean,CFAPRINCIPAL
POSEIDONSTRATEGICINVESTMENTS
_________________________________________________________________________________
Theviewsexpressedinthiscommentaryarethoseoftheauthoratthetimeofcomposition. Theassumptions,analysis,and
conclusionsaresubjecttochangeinconjunctionwithchangesinthesecuritiesmarketsordiscoveryofadditionalor
conflictinginformation. Allinformationconveyedhereinhasbeendeduced,compiledorquantifiedfromsourcesthoughtto
beconsistently
reliable.
This
informational
report
is
produced
for
general
circulation
and
is
not
to
be
construed
as
a
solicitationtobuyorsellsecurities,financialinstruments,orinvestmentproducts. Priortoenteringanytransactionsfor
investmentproductspleaseconsultacompetentfinancialadviserandundertakeproperduediligence. AMDG