Bubble, Bubble, Economic Trouble? - cspdailynews.com he said. Addressing attendees ... weaken,...
Transcript of Bubble, Bubble, Economic Trouble? - cspdailynews.com he said. Addressing attendees ... weaken,...
C S P NACS® State of the Industry Summit Specia l I ssue 2014 53
Before you run screaming to save
your 401(k), talk to Walter Zim-
mermann.
Then run screaming to save your 401(k).
Zimmermann, chief technical analyst
for United-ICAP, Jersey City, N.J., named
three destabilizing forces that may derail
any type of economic recovery the country
is experiencing. Calling them “risks you
wouldn’t have normally thought of,” he
named Russian President Vladimir Putin
and climate change as two, with the third,
the Federal Reserve, the biggest danger.
A combination of unprecedented
weather, potential hostility from Russia and
moves by the Federal Reserve to artificially
inflate the value of stocks are leading to or
are symptomatic of yet another economic
bubble—one likely to burst as dramatically
as the housing and dot-com booms of years
past, he said.
Addressing attendees at the SOI Sum-
mit, Zimmermann said many signs point
to the existence of a dangerous bubble,
including stock-price trends that resemble
the lead-ups to other historic bursts, as well
as the sluggish state of telltale commodities
such as copper and gold, which in a true
recovery would be doing better.
“It’s probably not time to sell yet,” Zim-
mermann said. “But when the bubble
bursts, it’s never a slow leak.”
Like walking on thin ice, convenience
retailers have get out when they start see-
ing signs of selloffs, he said. One such an
indicator is when the market moves from
high-risk investments to more secure buys.
Bubble, Bubble,Economic Trouble?
Zimmermann points to worrying factors amid a recovering economy
By Angel Abcede || [email protected]
It’s probably not time to
sell yet. But when the
bubble bursts
it’s never a slow leak.”
“
C S P NACS® State of the Industry Summit Specia l I ssue 201454
The cause of much of this looming
instability, according to Zimmermann, is
the Federal Reserve. Pointing out that it
was created 100 years ago for the benefit
of the banking class, he said the Federal
Reserve has shown its colors time and
again by propping up the banks back in
the late 2000s and by its purchase of bad
mortgages held by the banks in the years
that followed. These types of actions,
including its actions to fuel lower interest
rates, run counter to what’s actually good
for the nation’s economy.
Through its “quantitative easing,” Zim-
mermann said, the Fed has bought trillions
of dollars in bonds to lower interest rates,
hoping to push people out of bonds and
into the stock market.
“Its goal is to prevent banks from col-
lapsing and drive the stock market higher,”
he said. “All this money being forced out
of bonds by these ridiculously low interest
rates have been pouring into short-term
speculation, and this has led us to the
‘golden age’ of the speculative bubble.”
Presenting a chart displaying the
lead-up to the dot-com bubble and other
similar economic collapses, he showed what
potentially could be “a new batch of bubbles
being inflated and going to burst.”
“You cannot pour trillions of dollars of
easy credit into the market and not have this
happen,” he said.
Pointing FingersAnd the Fed’s leaders are to blame, he said.
Past chairmen of the Federal Reserve were
oblivious to impending collapses because
they clung to “failed theories and broken
models,” Zimmermann said. Alan Greens-
pan believed that the NASDAQ bubble
was a sign of increased productivity; then,
he said, Greenspan overlooked the recent
housing bubble because “everyone needs
a place to live.” But “anyone looking at a
housing chart could see the rise in unaf-
fordability,” he said.
Then Zimmermann pointed to Ben
Bernanke, who he felt “was caught flat-
footed” by the latest commodities bubble.
One of the best signs that the cur-
rent bubble in the stock market exists
is that Greenspan, Bernake and today’s
chairperson, Janet Yellen, “all agree it’s
not a bubble. Can you wish for a more
dramatic verification?”
Even bad news in this environment is
good news, Zimmermann said, because
it’ll force the Fed to continue to postpone
raising interest rates.
Those touting the eventual collapse
are also prolonging the inevitable, advis-
ing people to stay in the game. “They’re
basically saying, ‘I’m smart enough to get
out in time,’ ” Zimmermann said. “But not
everyone will get out in time.”
Another sign of what Zimmermann
predicts is evident in overseas markets.
In China, major mortgage companies
are failing. “And as investors flee emerg-
ing markets, they’re fleeing into frontier
markets like Vietnam and Kenya,” he said.
“Talk about getting out of the frying pan
and into the fire.”
At home, Zimmermann said, many
stocks are showing signs of elevated trading,
including Amazon, Netflix and Tesla. “With
Tesla, their price-earnings ratio is basically
saying, ‘No one is going to make an electric
car to compete with Tesla,’ ” he said. “So
there are a number of warning signs.”
So what’s a prudent investor to do? No
one long in the market should go on with-
out an exit strategy, he said. For example, “If
you live along the coast of Florida, you have
an exit route. When a hurricane comes, you
know what to do.”
Investors should look for what he called
a multi-year, up-trend “support line.” Such
an indicator will show signs of breaking,
giving a smart investor a sign to bail out.
He believes the market has been bullish
for too long. “Never before has margin debt
been so high,” he said. “Never have investors
borrowed so much to get so long on the
stock market.”
High Prices, Polar VortexesAnother destabilizing factor on the econ-
omy will be climate change, Zimmermann
said. With many c-store retailers affected
adversely by the extremely cold winter of
2013-2014, he said that the signs point
to a yet another repeat later this year and
again for 2015. He suggested that warming
temperatures have affected the Earth’s jet
stream, a current of wind that keeps cold
air in the north from drifting downward.
Climate change has allowed that buffer to
weaken, setting colder air down into cities
in the Southeast.
Not only did such weather directly affect
the c-store channel by forcing people to stay
home, but it also had an effect on the price
of heating fuels and distillates. The fluctua-
tions forced many of these prices up, despite
what he called the “myth” of energy inde-
pendence. “Energy independence does not
mean cheap energy,” Zimmermann said,
pointing out how global demand caused
many refiners to export their finished prod-
uct, and the cold weather only drove prices
for natural gas and electricity higher.
The so-called “polar vortex” hit at
[The economy] is at
another level of risk.
Not a physical risk, but a
psychological risk.”
“
C S P NACS® State of the Industry Summit Specia l I ssue 201456
the same time many other supply-and-
demand pressures were peaking, he said.
For instance, the collapse of the Venezuelan
refining industry due to the volatile regime
of then President Hugo Chavez has led
to great demand for U.S. imports, Zim-
mermann said. At the same time, just-in-
time delivery, which much of the country
has moved to, creates a lot of pressure on
a system that has to physically transport
product. Add to this is the fact that the
infrastructure—the storage and pipe-
lines—supporting the supply of natural
gas is inadequate for the growing demand.
The infrastructure problem is great-
est in the Northeast, Zimmermann said.
“It’s a giant slab of granite,” he said. “There
will never be adequate pipelines or storage
in the Northeast. It’s hard enough to get
a pipeline built, but no one wants storage
where they live.”
The retiring of coal plants and the fact
that many of the nation’s nuclear power
plants are facing a “dramatic” maintenance
schedule only add to the pressure, espe-
cially because electricity is the quintessential
just-in-time product. “There’s not enough
natural gas to generate electricity,” he said.
Putin PressureZimmermann also focused on what he
believed to be a global instability, in Rus-
sia and its lead politician, Vladimir Putin.
He referred to Putin as a “thug” and called
Russia a “criminal” country.
“We all like to think Russia is a func-
tioning democracy, but Russia went from
communist to criminal,” he said. “The state
assets were stolen in the most massive [case
of] theft in history. It boggles the mind what
went on.”
He said Putin’s actions in the Ukraine
have a destabilizing effect on the global
economy, and action on the part of
other countries is justified: “He should
be told, ‘No.’ ”
Putin’s goal, according to Zimmermann,
is to revive the boundaries of Soviet Russia.
“The long-term trend is decentralized,” he
said. “Putin is a throwback.”
The country rates high on many infa-
mous indexes, including those for cor-
ruption, enslavement and the number of
journalists killed. In all, the country has
the potential of being a major destabilizing
force for the global economy, he said.
Getting EducatedFollowing his general session talk, Zim-
mermann led a more informal educational
session on the topic of analyzing the stock
market. He said retailers have the ability to
see warning signs that a particular stock
or commodity is about to take a bad turn
in trading, based on even a limited under-
standing of historical movement.
“Having some knowledge is better than
no knowledge,” he advised. “So when your
broker is telling you to buy a certain stock,
you can tell him to hold off, so you can look
for yourself to judge how the stock is doing.”
Simple software applications can
turn historic data on any stock or set of
commodity prices into a graph that is at
once an ongoing frequency chart and a
bar chart moving left to right with the
horizontal axis noting hourly, daily or
monthly demarcations.
Using a stock example, he showed a
frequently used pattern called a candle-
stick, named because it combines vertically
standing bars, the colors red and green to
note rise or fall and lines going through the
center. The vertical bars look like candles.
Zimmermann showed how certain
candlestick patterns revealed when inves-
tors started losing confidence in the sample
stock, which promptly was followed with
a downward spiral in price. He said many
of these historic patterns create visually
distinctive images, leading those who fol-
low such charts to come up with colorful
phrases to describe them. Some of these
names include “hammer bottoms,” “shin-
ing-star tops” and “long-legged dojos.”
C S P NACS® State of the Industry Summit Specia l I ssue 201458
Zimmermann said other tools exist to
help validate candlestick patterns. One of
them is a relative strength index, which
charts the momentum of a stock over time.
“If the gas is zero, momentum will slow,” he
said. Such tools will “indicate if I’m going
uphill and am about to go backward.”
Speaking to the issue of high-frequency
trading, Zimmermann felt the controversial
use of complex computer analytics gives
an unfair advantage to larger hedge-fund
traders. The ability to analyze thousands
of bits of data in a matter of seconds stirs
the velocity of trading, makes the market
hypersensitive and creates unprecedented
levels of volatility, he said.
Such activity only makes any potential
stock collapse worse, because computers
are trading millions of shares automati-
cally in a matter of seconds, magnifying
any panic mentality.
Looking Past IdeologyImploring attendees to think for them-
selves, Zimmermann at once chastised the
U.S. economic system and paid it a back-
handed compliment. “[The economy] is
at another level of risk,” he said. “Not a
physical risk, but a psychological risk.”
In his general-session speech, he said,
“Three risks [inhibit] the ability of the U.S.
to remain the most creative in the world:
▶ Ideologies: He said the country
accepts economic ideologies that keep
people from examining facts and that fol-
lowing such “unthinking assumptions …
blocks pragmatic progress.”
▶ Theories: Revering theories that
are “ill-advised” can often put blinders
on the very people the nation looks to for
advice, he said.
▶ Politics: Though there’s nothing
inherently wrong with politics, Zim-
mermann said politicians “have become
adept at pushing buttons, like our kids.
Once all the buttons are pushed, we are
not at our best.”
As one who tracks human behavior
via the stock market, Zimmermann said,
“We don’t outperform, we underperform
[when] we are in the grip of our emotions.
When emotions are activated, our creative
thinking abilities are impaired.” n