4.0 Poseidon Perspective April 2010

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


2/15

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


3/15


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


4/15


undertakenatanyrateofreturn? Will

increasinglyhotmoneyorbond

vigilantesflowtotheshortendofthe

yieldcurveallowinglongratestosteadily

rise? Globalinvestorswilldecideasthey

seefit. Yet,webelievethatwithout

stabilityintheUS$therewillbeincreased

volatilityincommoditiesandemerging

markets. Wecontinuetofindmuch

intrigueinCharts1&2. Theworldstwo

largesteconomiesdriftinaneconomicsea

ofunresolvedcrisis.

CHART2 RISINGYIELDMAYNOTPLAYWELLWITHEQUITIES


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


5/15


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


SOUNDINGS

Page 5

Lastmonthwespokeofeconomic

indicatorswhicharecloselywatchedas

prognosticatorsforequitymarketpricing.

Nowwelookatseveralmetricsutilizedby

marketmavens,especiallytechnical


6/15


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


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


Page 6

Anothertechnicalmarketindicatoristhe

PercentageofStocksAbovetheir50day

MovingAverage. Chart6indicatesa

commencementofadeclinefromavery

strong

position

above

90%.

Moving

averagesareapopulartoolamongmarket

technicianstodeterminetrendsand

turningpoints. Quiteobviouslyasimple

movingaveragehasalaginreflecting

prices,andthus,isafollowingindicator.

However,toacceleratepricemovesone


7/15


canuseanexponentialmovingaverage

whichmoreheavilyweightsrecentprices

inthenumericdetermination,atradeoff

oftimingforsensitivity. Eitherwaythis

chartisanidentificationofgroupedprice

trends. Yet,manyonWallStreetbelieve

thetrendisyourfriendandtrade

accordingly. Welookatthischartand

speculatethatthepathofleastresistanceis

down.

CHART6


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


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


8/15


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


9/15


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


10/15


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


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


11/15


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


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


12/15


peakedin1477ataninflationadjusted

2008US$spriceof$1,017perounce. We

believethatthesilverpitisatreacherous

placeandpricevolatilityisthesurface

symptomofgreatunderlyingtension.

CHART13 TRULYPRECIOUS


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


13/15


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/


14/15


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


15/15


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

Documents

4.0 Poseidon Perspective April 2010