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 || aabcede@cspnet.com

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