Wednesday, September 19, 2018

Odds and Ends, Sept. 2018

When you look at the historical odds of the stock market, there are only two consistent months that are considered dangerous to investing. Yes, they come back-to-back and we are in the first one, but the other ten favor investing. In addition, the market makes it easier to buy a stock than to short a company. Nevertheless, life happens and the bears do beat the bulls from time-to-time. With that said this month's piece centers more on the negative or cautious rather than on buying into the longest rally in the history of Wall Street.

Of course, all the news isn't negative in the market. There are many stocks hitting new highs like the trillion dollar club. It has two members in Apple and Amazon. Google would like to join, but the problem for the market is the clutter of obstacles on the horizon. There is the issue of trade deals. President Trump is trying to bring manufacturing back to the US. He sees the continual deficits by trading partners as cheating. Sebastian agrees with this point. His adding tariffs will slow global trade and US stocks. The Fed is raising interest rates. There is the geo-political concerns with N. Korea, Iran and the possible contagious ones like in Venezuela and in the EU. There is the present rotation of stocks within the market. One of the leaders in this rally has been the chip stocks. Dear reader, that is no longer the case. Although some companies like Qualcomm(QCOM) and Advanced Micro(AMD) are still rising, Micron(MU) was $64 and now, $44. It is heading to $37. Broadcom(AVGO) is doing likewise. It was $270 and now, $236. It touched $200. Ouch! The ETF for the chips(SMH) has been range bound since December 2017. Not good. Finally, the most traded, high risers, the FAANG stocks. Let's take a look.

Company                                          Was                                      Now                          Heading
*Facebook(FB)                                  $218                                     $162                          $149
*Apple(AAPL)                                  $229                                     $223                          still rising
*Amazon(AMZN)                             $2050                                   $1970 - still rising, recent stumble
*Netflix(NFLX)                                $423                                     $364                          $310
*Google(GOOG)                               $1273                                   $1172                        consolidating.

As the numbers on the chart reveal, the big boys are losing steam. Apple stated that the tariffs will effect their bottom line. This aspect could end its rising ability. The S&P had tech make up 26% of their index. They notice the trend and now, they have reconfigured tech down to 20%.
Then, there is the warnings from people and institutions that have a name. I use that expression because literary agents told me and Sabastian that we have some interesting ideas, but we don't have a name to which is the numero uno reason why my book has not been published. Anyway, you can read what they are saying. In many instances you will feel that you read the same comments before. You have. Right here!

Pimco: is raising a "yellow flag" due to rising prices.  

JP Morgan: sees Tesla down to $195. It was $390. I said $249. Does it matter? This is lost sleep and financial pain. They see a recession beginning in 2020. Market will be down 20%, maybe more. They point to liquidity as the cause.

Jeff Gundlach: says you cannot have deficit-funded stimulus while at the same time, a hawkish monetary policy.

Gary Shilling: his warnings from 2004-2006 on housing was the inspiration for the book and movie, "Big Short." Excess leverage will always bring down a financial institution. Now, he says, there is $249B in debt in the emerging markets due next year. If it can't be rolled over, CONTAGION!

Jim Stack: said in 2005, there is a trillion dollar bubble in housing. Now, he says, housing related stocks went up parabolic. They will fall just as hard in the next 12 months. Not good for housing.

Raghuram Rajan: said in 2005 when he was an economist for the IMF at the Jackson Hole conference of central bankers, the banking industry is in danger with risk and possible systemic collapse. Now, he says, there is a danger with the rise of shadow banking that is unregulated. They have excessive leverage.

John Mauldin: foresaw a pullback in housing and consumer spending which will hurt equities in 2006. He claimed that they could fall 40%. This guy is spot on! Now, he says, there is danger in unfunded liabilities as excess debt makes everything rising unsustainable. He sees Europe starting the problem, maybe from Italy. Members will want to put all debt into ECB. This problem could cause a 50% collapse in prices.

Speaking of Europe, Hungry faces losing its membership voting rights in the EU due to its immigration policy. They stopped it. This is another angry member to which there is many.

The chairwoman of the IMF revised her global outlook, downward due to trade tensions.
And just yesterday three prominent business leaders, Roubini, Tepper and Dalio all turned bearish.
Maybe one reason is this tidbit about the US national deficit. Every month it cost the US, $32Billion just to pay interest on its debt. Imagine how this rises with the Fed raises interest rates?

Best wishes to go out to all under duress from Hurricane Florence. FEMA says that just one inch of water in someone's house cost $25,000 in damage to repair. That is scary...

Finally, this one goes under Wild and Crazy

Tilray(TLRY) a cannabis style company that had an IPO earlier this year at $17 per share is over $154 today. It has little revenue, roughly $34 million. Well, it has a market cap greater than the largest gold mining company, Barrick Gold(ABX) which has revenues of $7.6 billion. The market is indeed irrational and this one has trouble written all over it. Don't get me wrong. Under disclosure, I have shares of Aurora Cannabis. Good for those who have TLRY, but I'd take my windfall, now!


I like to add one point to the phony high ground coming out of Europe toward the US for not signing their climate accord. A German energy company, RWE, is destroying the last ancient forest in the country(Hamback Forest) to extract, COAL! Their phony high court gave them the go ahead to remove people from the forest who are tree and nature lovers, so the bull dozers can rip out the forest. At least, in the US we keep coal in regions and try to maintain our green environment at the same time. Also, if Germany needs some coal, we can sell them all they want, but I bet that they have restrictions against to many imports. An invisible tariff!          

Wednesday, September 12, 2018

Housing: Crisis to Present - Troubling Signs

What if I told you that there are still 54 US cities with homes that are still underwater even after the media claims housing has recovered? Who would you believe? This report comes from an agency tied to the census bureau. They collected national data from the 50 states of our union. I will list just twelve. You can call them the disciples of danger. Behind the stats is proof that our declining standard of living is effecting a national level. People have jobs, but the wages cannot keep up with inflation. State taxes rise. Medical is up in the stratosphere. The big three, food, energy and shelter are not in the matrix that the Federal Reserve uses. Consumers have excess debt that prevent them from saving for a down payment to a home. Consider, even though homes have appreciated over the last ten years, there are many locations that are stuck in limbo because as a nation we are losing social mobility. If people cannot advance, then it is a slow decay. This is evident across the nation as revealed in this list. When you view the list, keep in mind that one in five homes in those cities is still under water. In some localities it is worse.
The list will show the city, state and the percentage as to the city as a whole. It is very scary.

*Columbus, Ohio=                                                       20%
*Milwaukee, Wisconsin=                                             24%
*Detroit, Michigan=                                                     36%
*Toledo, Ohio=                                                             22%
*Birmingham, Alabama=                                            20%
*Cleveland, Ohio=                                                        31%
*Baltimore, Maryland=                                               22%
*Jacksonville, Florida=                                                39%
*Hartford, Connecticut=                                             43%
*Chicago, Illinois=                                                       22%
*Newark, New Jersey=                                                29%
*Norfolk, Virginia=                                                     21%
There are over another twenty in double digits, but I think that you get the drift. The danger is broad in scope.

In addition, builders have almost totally vacated the entry level, starter home. In past pieces I have shown you that with the media income of $38,000 per year, consumers cannot meet the lending standards to obtain a mortgage. The prices of homes exceed our ability to purchase them. In addition, consumers accumulated debt which also becomes an obstacle to qualify for a home loan. This is the reason why builders do not build starter homes. Also, in the earnings report by construction firms, they all mentioned rising costs, labor shortage and scarcity of land in cities or their suburbs. Then, we have the recent stats from government reports. It is revealing a dangerous, negative trend.
Pending home sales have declined from their already low levels for the seventh straight month. Home sales have declined for four of the last five months. Keep this in mind as the Fed raises interest rates which will add to the problem and to the trend.

If you think Trump is wrong on tariffs, you are sadly mistaken. He does not go far enough! No political, so-called leader in our nation dares to address this issue that effects our wages, our future and our standard of living more than those high paying manufacturing jobs. These are the type of jobs that offers social mobility. You can move to the Eastside! This is the core reason why foreign nationals address these industries with their state sponsored subsidies. The only person who I can recall who dared defy the status quo was Lee Iacocca. He would have made a great president, but prejudice and the powers-to-be put an end to that before it got off the ground. However, I must include this great piece back in time when Lee stood up for what is right.

Picture a fifth grade class. Today, a new student transfers to the school. The teacher introduces the little girl to the class. She sits in the front seat. Class, I would like you to meet a new student to our class. Her name is Toki Yashima and she is from Japan. I hear that she speaks perfect English, so do not be afraid to talk to her in recess.
Now, let us review what we have been studying for the past two weeks in American history. Who can tell me who said, "Give me liberty or give me death?" The class is silent. The teacher implores someone to answer. No one raises their hand. Finally, little Toki raises her hand. The teacher points to her. She rises and say, "Patrick Henry, 1775." The teacher gives a short clap and acknowledges that she is correct. She moves to another question. Who said, :I regret that I only have one life to give for my country?" Again, no one answers. The teacher says, "C'mon! We have been over this countless times. Anyone?" After another silent pause, Toki raises her hand. Reluctantly, the teacher points to her. Again, she rises, says, "Nathan Hale, 1776." The teacher says, "Thank you, Toki. Class, you should be very ashamed of yourselves. This little girl comes all the way from Japan and she knows more about our history than you." She turns to the blackboard. A voice in the back yells, "The hell with the Japanese!" The teacher turns, asks, :Who said that?" She runs up the aisle where the voice came. She studies the kids faces when another voice from the opposite of the room says, Lee Iacocca, 1982."    
I love that.

Wednesday, September 5, 2018

U.S. Notes: Screaming Inversion...Recession

All analysts have different indicators to make their determinations on a stock on the market and on the economy. I believe one of the best indicators for an approaching recession is the spread on the U.S. 10 - 2 yield curve. At the moment the curve is turning flat.

As of the last day in August 2018, the spread on the yield between the U.S. 10 - 2 year note was 25 basis points. What this implies is if you purchase the U.S. 10 year note, you only receive a fraction higher yield for the additional three years or 36 months. C'mon! Get real!

Consider what has transpired in the last three years? Housing costs are up 30 % or more. Mortgage interest rates are a full percentage higher. Understand what that means: all costs are much more expensive and wages have not increased at the same ratio. Citizens are losing and the government, run by the bankers at the Fed, only offer you a measly 25 basis points to cover those costs. How about inflation? How about Obama care? How about auto insurance? Everything is up except the rate to invest in America.

I could argue that we are already in an inverted yield if you use logic and what history has taught us.
First, let's talk logic.
The T-Bill offers you for a one year note the rate of 2.46%. This is fabulous. Consider in Europe they take money from you because they offer negative notes. You have the safety and strength of the US backing your claim. So, at the end of the year you decide to purchase a longer term note, the two year. Currently, it offers a yield of 2.62%. Wait a minute, you say! How could I receive 2.46% yield for one year and not 4.92% for two years? 
Now, you understand why people put their money into stocks because the treasury yields do not make sense. They get worse with the duration of the note. Currently, if you purchase a 10 - year T-Bill, it yields 2.88%. Don't go off on me about the difference of nine years with the one year note and the ten which is only 42 basis points higher for almost a decade. It is basically financial corruption! Anyway, the 30 year offers you a whole 3%. Wow! Hold the presses! This means for 20 additional years, you get a whole 12 more basis points. I say again, financial corruption!

It is no wonder the Fed and the Treasury play financial games. The treasury prints the bond and the Fed buys it. They purchase over 60% of offerings. Now, you see from logic all these notes have no resemblance to life and inflation. The only positive thing I can say is thank God that I'm an American and not in Venezuela, Argentina, Switzerland, Germany or anywhere in Africa.

The other aspect to bonds and notes come from history. When central banks play too many card tricks with our money, the market rises up and bites them in the ass. The only problem with that is the every day man suffers due to it. Recessions come from these financial engineering games. From an historical view whenever the U.S. 10 - 2 year yield becomes inverted, a recession follows. At the moment the yield is the flattest it has been in over a decade. It rests at 24 basis points. It has touched even lower. Whenever the yield becomes inverted a recession is eminent. This indicator has been wrong only once. In 1998 the yield inverted briefly in May. The market had a correction, but no recession. However, just two years later in February of 2000, the market displayed a pattern that it currently is duplicating. The NADAQ hit a record high of 5,000. The S & P 500 peaked at 1,527. Over the following 31 months the S & P 500 lost over 49%. It would be over a decade before NASDAQ would reach 5,000 again. That is a long time to wait to break even...

We are experiencing similar price action in the market. NASDAQ hits new records on a daily basis. The S & P 500 hit a new high as well as the transports, but the Dow's high of January 2018 has not been breached. If it does not reach a new high by January 2019, this is considered a failed market. Let me repeat that: Failed Market!
Pay attention to the U.S. 10 - 2 year yield. It is very important. Hey, on a brighter note, we got football this week, Yay!

Wednesday, August 29, 2018

Odds and Ends August 2018

In two examples that gather little following since their economies are small, Turkey and Venezuela are front and center as collapsing due to the strengthening dollar. Contagion can be contained in these small fires, but they are dominoes falling with deeper consequences behind the scenes.

Turkey
has seen its Lira fall in purchasing power. It has lost one-third of its value with the US dollar. It made the news because President Trump extended his tariffs on them in steel and aluminum. Some say this is temporary due to a political concern of an American held in prison by Turkey. The real problem is for European banks like Spain's BBVA and Germany whose banks have extensive loans to Turkey. Since the Lira now buys less in relationship to the Euro, those loans become tenuous. Turkey borrowed with a higher lira to euro ratio. Now, they must repay at a much higher lira ratio to the euro. Sebastian sees bigger problems than a pastor held in captive. Turkey by-passed a US missile company for a Russian one. They also made positive reactions to the new China Silk Road. In addition, they have not helped Europe with the Middle East migration to Europe. Erdogan tried to play one side over the other and reap the middle benefits except it has come back to bite him in the ass.

Venezuela
is a mess. Citizens are fleeing the nation. Some of their neighbors that speak Spanish like Ecuador and Peru are closing their borders to these exiting masses. This notation should be included in Trump's Wall. You would think that many South American countries that have similar language and history would have no objections to these people. They do!
Anyway, Maduro takes from one side of the nation and gives to the other side. People protested all year long. No longer. They are just leaving since Maduro devalued the currency by 95%. Can you imagine?! Prices are rising through the roof. The IMF stated that inflation will hit one million percent this year. Ouch is not strong enough to describe this. Their crazy stock exchange dropped to 1,000 earlier this year. Guess where it is now?... No! Not even close. It is worth more than all the exchanges in South America combined. Last week it hit 454,000 before a recent pullback. The nation has a huge oil deposit, but killed foreign investment in the industry with socialism. Their oil production has declined for the last four years maybe more. Records are cloudy and lawsuits are rampant. This will be a problem for all South America which connects to Central America which connects to North America.

It isn't just small nations that are feeling the squeeze in currency manifestations. The UK is getting close to leaving the EU. People and institutions are nervous. The prime minister tried to push aside these worries with a speech to which the message is, "Keep Calm Carry On." How can you keep calm when your company and or your job demands on air transport from the EU and the EU said no more? Basic contracts will be broken or cannot be renewed. The English pound and the EU euro will be revalued, and terms need to be redone. Big problem that needs to be settled by December. I guess insiders feel that the talks will be extended, indefinitely. Someone is due for a rude awakening.

Meanwhile, other emerging nations are seeking help from the World Bank or the IMF with their current loans. These countries borrowed trillions in loans in US dollars. They must be repaid in US dollars, but since their currency is worth less than when they originally borrowed the money, they are feeling a double whammy. One, repaying the loan and secondly, it cost more to repay the loan than it was first projected to cost. Double ouch!!

Thinking That I Like
In Japan recent flooding from severe weather caused extensive harm to agricultural farms and tree growing fruit. The prime minister gave funds to those affected from a section in the Japanese budget that puts money away for a rainy day. This is how government should function.

Tit for Tat
It is not just tariffs that find nations retaliating over foreign policy. Saudi Arabia cut ties to two G-7 members over incidents in their nation. Canada and Germany will no longer be on terms with the Arab nation. It may sound like small potatoes, but potatoes fill the meal.

How About These Walls?
A German sea captain is being held on trial for crimes against sea regulations. This is what is being said, but this is just another wall against immigration. Trump is not the only one as stated in a previous piece. The boat recued immigrants at sea. While docking, it was flying a German flag. The boat however was registered in Holland. Violation! A good man must suffer from politics.

In Italy a similar story. Italy is withholding its membership dues to the EU because they are not receiving enough aid in the migration of immigrants. I guess no one translated the English speech, Keep Calm Carry On?

Yes, Donald, this does happen

In Australia the political party that installed prime minister Turnbull, kicked him out of office and put someone more to their wants in Morrison. In politics down under it is not who you go to bed with, but who you turn your back too like et tu, Brute?

NAFTA'S NEW NAME..

won't be revealed until Canada gets its chance to accept the new deal between the US and Mexico. Canada's trade minister will be in Washington on Tuesday. Word out says an agreement should be concluded by Friday on accepting or declining. Keep in mind that 75% of Canada's exports go to the US.
One provision in the pact says auto workers be paid $16 per hour. All this does is give Mexican and Canadian auto workers a raise. They will rename NAFTA to cloud their deception as anger lurks below the surface in America with NAFTA. Anyone old enough in the US knows that NAFTA caused us to lose 12 million, high paying, manufacturing jobs for service sector minimum wage. The best deal was to end all deals! Place tariffs on all imports which helps reduce our national deficit and force manufacturers back into the US. The only good aspect pf this new pack is it does not undo the tariffs on steel and aluminum. Enough said!

Panda Art?

In a sign that we are in a spending bubble where we spend $, as we get $. No one puts aside for a rainy day. We have this tidbit. You give Yang Yang a treat, hand the panda a painted brush and hold a blank canvass before the cage and it will strike it. Give the panda another treat and you get another stroke to the picture. Now, you can own your own "original" for around $570.

Wednesday, August 22, 2018

Quarterly Earnings and Tariffs

The on-going earnings season is 80% over. Mostly, as predicted by analysts, it has been good. Trump's tax relief has been a big part to the bottom line. Profits are up. This is reflected in the stock market as the short correction in February is far behind the rear view mirror. A new high was set on the S & P 500, the transports and small caps. It should be noted that the S & P did not hold price. This is one aspect that points out that the market does not have full conviction. This is why the January's high in the Dow has not been breached.

Not Happy...

Trump won't admit it in public, but he is unhappy that producers have not returned to America. The idea behind the tax break was to give manufacturers incentive to reopen plants and factories here in the US. This, so far, is not happening. He instituted plan B: Tariffs. This is why it is in the title.

Tariffs will either have to be considered until they become part of the economic picture for producers and consumers or they are dropped. The market thought that they were a bluff. Sebastian saw them as reality. He is correct. Now, outsourced contracts are being adjusted for price increases. In some instances the producers will adsorb the tax. In other cases they will raise prices and pass the cost to the consumer. The Fed will be watching closely. Who knows? In the future articles could include interest rates by the Fed designed to halt inflation. The Feds actions could be to slow the economy at the same time. You know if you drive to slow, you can get a ticket. If the Fed drives up rates too high, the economy slows. Workers get pink slips(tickets). I believe Trump is right. We must force producers home and then, our workers will make a living wage. They will be able to afford a car or a starter home and get out of debt. Then, our standard of living will begin to rise again. If his gambit loses, we all lose.

With that said there is other concerns that the gang here at Evolution of Democracy see as obstacles in the earnings report. We don't feature individual stocks so much, but we look at the sectors to give a complete market view and insight to our economy.

Drugs...

had a different meaning back in the 70s. Today, it needs a better adjective. We are talking earnings.  Merck had a bad quarter and it is trending down. Pfizer had good earnings, however they mentioned the strong dollar hurting profits. Big Pharma is under pressure from the opioids epidemic. Overall, earnings are good for drug dealers.

Nevertheless, the strong dollar is being mentioned more and more. It broke out above its trading range and it could test its highs, especially since the Fed is expected to raise rates again in September. Retail giant, P&G said costs are rising and the strong dollar is hurting them. Maybe they should bring their outsourced products home? Hanes is in the same boat. They outsourced and now, they complain about the dollar. However, Sebastian noted that Hanes lost a contract and that will hurt future earnings.

Automotive

Earnings are up, but sales won't reach 17m like in 2017. A report stated that the average price for a used car is at a record $20,000. Ouch! Another report on the big three American truck sales stated that in the near-term future, trucks will have a price tag over $50k. Double ouch!!…I love my 2002 Buick. Hang in there, baby because I can't afford those prices. In other news, Tesla could be in hot water with the SEC. The stock was halted due to a tweet by Musk(CEO). He mused that he is considering to take the company private. Just moments before this media outlet, someone purchased a huge amount of option calls. This is why I like charting. Someone always knows something. The stock reopened up $29 bucks. If you or I was that someone and we bought the .25 option call, it jumped to $9 dollars after the stock reopened. This will be news for awhile and Musk could be in trouble. I see Tesla hitting $261 before it stabilizes. JP Morgan sees $195.

Tech

There is two categories in tech. They are led by the FAANG stocks and the other is the chips. All the faang stocks did well except Netflix. During this quarter Apple hit an historic milestone. They became the first company to be valued at $one trillion dollars. Congrats to them. By the way here is a short litany of other evaluations of stocks from the past.
*1st company to be worth $one billion=US Steel.
*1st company to be worth $10 billion=G.M.
*1st company to be worth $100 billion=IBM.
Keep in mind that one-fourth of Apple's income comes from China and tariffs will cause pain. I'd sell at these prices and use the tax break to keep most of the profits.

The other half, the chip sector had mixed earnings. There are some clouds and analysts are coming out to warn that the dollar along with tariffs will hurt the next quarter. Chips led the market up and they could lead the market down.

Financials

Analysts love this sector. They always push these stocks. Bank of America had a good quarter, but Wells Fargo keeps shooting their own foot. Overall, this group is in a sideways trend. In a related issue Goldman Sacks(GS) CEO says buybacks will exceed $one trillion this year. This does not necessarily mean stock prices will rise because many go to options that the executives receive. These people are buying at market highs for their retirement fund. This is so wrong.
In a related aspect, GS, BAC and MS all expressed some doubts about the current bull market. They see too much rising debt, fear of trade wars, high evaluations and Fed rate hikes any of which could derail the market.

Retail

Had a strong quarter and with back to school and Christmas on the horizon, things are looking better for this industry that employs many, many people. The margins are thin in retail and the strong dollar could surprise to the downside, but confidence is high. Overall, this sector appears okay until January 2019. There are however casualties in the field. J. C. Penny is following Sears which is following Radio Shack into business oblivion. Other signs of future worries can be reflected in Home Depot(HD). They posted good numbers, but the market sold off the stock. The company announced that it will buyback $6B in shares. Nothing like buying at highs with shareholder money to keep the stock up. This is a lack of leadership or at least that is how we see this maneuver.

Housing

This is the most important segment because it stands for not only the American dream, but it is the most expensive purchase by a consumer. Toll Brothers had a strong quarter, but don't let a high end builder fool you about the market. They stated that California is slowing and they blame the tax limit deduction as the cause. There are many other ominous cracks developing in housing. Sebastian has reminded you that the housing model that begins with a starter home is no longer working. Builders are only constructing new homes for the upper middle class and higher. Rents consume too much of a paycheck for consumers. They cannot save to make a purchase. Student debt is also a burden to housing. Younger people are living with their parents, relatives or friends. This is a formidable obstacle. In addition, sales declined in three of the last four months. The busiest season is turning out to be a bust. Even high end homes are lowering prices to lure sales. A report shows 14% of listed homes gave a price reduction in July which is the heart of the selling season.
If the Fed continues to raise rates, housing will continue to decline. Already builders are crying about the price and cost to develop land. The lack of workers. The rise in the cost of materials. The clouds are building. After all this is hurricane season. In the back recesses of the market's mind, this is a worry.

Restaurants and Leisure

Eating out is at record levels and the restaurant industry had a strong quarter. There is ominous signs in the leisure business. Airlines were dropping in value due to fuel costs, however they recovered by raising fares. Ticket prices are rising, but the Fed ignores this sign of inflation. In addition, the leader in bookings posted poor numbers. Priceline, now Bookings Holdings(BKNG) dropped like a rock in water. Could you sleep at night after seeing your stock fall 5%? This stock was over $2,000 a share. It fell to $1942. It is now around $1840. Charts say $1700 is possible. In the first paragraph about the rally in the market, I stated that the market is not totally convinced. This is one example.

Food

I see rising prices all the time. The Fed says they don't. Profits were mixed. Many producers cited rising prices and concerns over tariffs. Campbell says the extra cost in aluminum for canning comes to $1.1B or one cent per can. This effects soda, beer and any metal users. Earnings in equipment makers like John Deere had a good quarter and gave a strong guidance going forward. Tariffs have not stopped farmers from buying equipment.

One can include staples in this category. Generally, the quarter was mixed. Producers cited rising costs, the dollar and trade worries. Kimberly-Clark will raise prices among others.

Energy

The industry had a strong quarter with the rising price of crude. However, recent consumer usage is down and a glut is building in the market. A consolidation at lower levels is on the horizon.

Mining

All mining companies are in decline as prices for all commodities suffered with the strong dollar and Dr. Copper demonstrated the fear of tariffs. The price is at multi year lows. Caterpillar was not effected. They posted record numbers. Miners still need equipment and infrastructure projects are looming to paint a bright picture.

All in all the quarter appears very strong and this should have given the market the push to pass the January's high. It didn't. It has tried and failed repeatedly. This says to me you can never go wrong taking profits. With September looming, I'd be very careful.


Wednesday, August 8, 2018

Trump's Wall is not the only ONE

President Trump has threatened to shut down the government when the debt ceiling comes due if Congress does not give him money to build the barrier wall between the US and Mexico. There are good and bad points concerning the "wall" in the debate. My feeling on immigration is that I generally favor immigration except when our economy cannot accept more labor. We are at that time. The decline in unemployment is misleading. The real truth of unemployment is revealed in labor participation. We have almost 40%(38% to be exact)not employed. We have too many part-time jobs that don't offer a living wage. The nation does not need more cheap labor which immigrants provide.
Cheap labor helps the rich, but lowers everyone else's standard of living.

When manufacturing actually happened in America, the expansion of production allowed strong job growth. The competition for labor had a balance between needs and wants. The nation could absorb the influx of immigrants. With the advent of NAFTA, the outsourcing of jobs, new technology in production, the need for labor has declined. We see the results in Detroit in the Rust Belt of the Mid-west and the destruction of central cities everywhere. The lies of the benefits of trade cannot mask the rise in poverty in America or the use of food stamps.

With that said and all the BS in the news about immigration, none of the media outlets talk about immigration in the global society. In history most mass migrations resulted in historical world changes. Sadly, it usually centers on conflict. Fact is, the US is the most open nation the world has ever seen. We are at a point in time where people are being displaced due to wars, famine, political asylum, religious beliefs or lack of opportunity. So, how does the world treat their DNA brothers from another nation?

WALLS!

That's how. In European history, the city-states made castles because it gave walls for control and defense. Today, Europe and the EU do it another way.
For a few years the EU members took in immigrants from the Middle East and Africa. Italy and Greece bore the expense with little help from Brussels. Now, we see the backlass as EU members have put up barriers from barb wire fences in Austria to containment camps in France and England. Italy has a naval blockade. Immigrant ships now move to Spain and Portugal, but for how long? I say less than one year. The US has had immigrants come across the border from Canada and Mexico since we won our independence from Britain. In Europe this is a political issue and every party that campaigns against immigration is on the rise. There may be no visual wall in Europe, but society puts up obstacles with invisible barriers. At the moment there is a big issue of wearing scarfs or headdress, mostly by Muslim immigrants in Germany. Muslim woman claim democracy gives them the right to freedom of expression. Normally, I would agree except the problem as we know it, is terrorists could use this freedom to commit their crimes. When a immigrant migrates to a new nation, it is understood that the immigrant accept local customs, values and language. If locals feel uncomfortable due to terrorism, they have every right to demand the newcomers understand their concern. This is all part of assimilation. The use of head scarfs is allowed in their house of worship, but in public, the majority has every right to do what will provide protection for all.

China and Asia and moving West...

China built its Great Wall to control immigration and for defense. Today, China uses a different type of wall for control. China has a Firewall. It censors the internet. There is no freedom of speech. It is so bad that Google left China eight years ago. Sadly, money has lured them back. They will operate with a special search engine that the Communist Party approves.

How about Japan? They import labor from Thailand and other SE Asian nations. The problem is these immigrants keep their culture which collides with Japanese culture. Now, the Japanese society wants them out of the country and end all immigration. The immigrants are ruining the culture. This argument is also heard throughout the EU. It is also heard throughout Asia and continues into India. Pakistan is a result of revolution away from India due to religious beliefs. Bangladesh is also a nation evolved from religious persecution. These nations do not allow immigration across their borders. They despise each other over religious beliefs.

In S. Korea citizens protest the influx of Yemen's. They say these immigrants steal jobs, lower standards, hurt the culture and the danger of radicals. In America, if we just changed Yemen to Hispanic, the thinking is the same.

In the Philippines there is constant conflict over religion. The Muslims resent the Catholic majority. There is outbreaks of violence all the time. In Indonesia religious outbreaks occur between Muslims and Hindu's and even Buddhists. Revolution is only an argument away. None of these nations welcome immigrants.

Keep moving west to the Middle East. Iran hates Iraq. Saudi Arabia won't allow Yemen's into their country. In the strife caused by ISIS, little stories get known like the Yazidi. This is a small tribal community that lives together like in a ghetto in Iraq. The ISIS took control of the city where the Yazidi live. The Yazidi are not Muslim's. They suffer discrimination. Anyway, ISIS took as prisoners some 7,000 Yazidi women. Most of these missing women were sold as Slaves! This is not a typo. Slavery in the 21th century in the Middle East. What can you call this type of wall?

There is also severe persecution of Christians and laws on the books concerning the immigration of Christians in the Middle East. Oh, how could I forget the central hatred of Israel and Jews. Not a lot of cross border immigration going on in this region, but Israel does have a wall in sections of its border.

West to Africa...

The continent has a history of tribal conflict with the victors enslaving the losers. It still happens today in the form of past hatreds and religious beliefs. Recently, a renegade group in Nigeria took captive 400 Christian women in that nation and along its borders. They were used in forced sex and many sold as Slaves! It happens in little discussed stories throughout the continent. Most notable in Ethiopia which is in civil war between Catholics and Muslims. This is a one-sided affair. The Catholics don't have weapons and the other side does. It is slaughter. Behind the religious theme is the real reason: Oil. It is in the Catholic section and the Muslim government is doing genocide to take the land. How do you label this wall?

Bottom line: Trump's wall will be visible like the Berlin Wall. It will go up and then, probably come down. The real problem for the world is how do we get along with each other. Nations that possess a homogeneous demographic have the most peaceful environment. The US has had its problems with race. It still does. However, it is the only nation to include all peoples. This was due to economic prosperity. This aspect allowed the assimilation of many ethnic variations. The immigrants through time not only learned the language, but the values in the concept of America and the dream behind the thinking of its people. We do have a culture, but diversity diverts from the central theme in American values. Recent immigrants don't want to learn the language or respect what made America. Earlier immigrants took that challenge because they believed in the freedoms the US grants.. There are idiots out there who want a one world society. They never mention who rules because it would be elitist totalitarian in nature. The radical extreme of democracy can lead to totalitarianism.
The open border policy only makes the poor in our nation suffer due to our poor economic climate as the competition for low wage jobs only heightens tensions between the citizens who are poor and immigrants who begin in this economic level. Diversity takes from the culture and only seeks self serving rewards. Diversity over time is a wonderful thing, but to have it jammed down your throat with no respect for the present culture only offers resentment and racial strife. There may be one world, but it consists of many parts. Respect is what is needed at the border.

Wednesday, August 1, 2018

Poison in Debt is Rising...Again

Everyone should know by now that one of the biggest reasons for the financial crisis of 2008 was CLOs or collateralized loan obligations. Banks would assemble a package of loans based on borrowers ability to repay. Some were triple - A and some were Ninja's(no income no job or assets). They divided the package by yield called tranches. The riskier part received a greater yield.

The problem surfaced when too many risky loans defaulted. This crushed the value of the package. The chain of the dominoes falling sent many lending institutions and banks to financial oblivion.

As a result we got Dodd-Frank and other limitations to reckless lending, but the greed factor never goes away. Little-by-little demand for yield gave banks and non-regulated lenders the enticement to begin CLOs, anew.

There are many types of investors - pension funds, hedge funds, mutual funds, sovereign wealth funds, and insurance companies. These are the takers to bite the apple. Where are the regulators, you ask? In the pocket of the weak side of our democracy.

With tighter standards all boats floated safely. Now, it appears that banks are sneaking riskier loans into packages that utilize higher yield to attract buyers. The same suspects from above have come for another bite of the apple. This poison is circulating. We have reached a point in the debt cycle where riskier businesses are seeking and getting loans. I do not want to disparage a brand name, but think of some of the current companies in a rough patch like Sears, Radio Shack, et. al. There is another problem. Since the Fed is raising interest rates, the chances for the more riskier participants in these loan packages to default rises substantially. With too much debt on the books, companies cannot service the load. I think this danger will first appear in car loans and commercial real estate, notably with malls.

Sad but true...

One of the central usages for loans today is to buy back shares or for mergers. This practice makes the bottom line look good and CEOs line their retirement option package at the companies expense. These corrupt so-called leaders will be gone when rosy predictions of acquisitions fail to materialize. These type of loans are up 38% from last year's near record total.

Credit rating service companies like Standard & Poor's, Moody's and others have warned, but the siren's call is too great. All the blame cannot be directed to banks. Non-regulated lenders are competing for loans. They deal in toxic CLOs. They work the system. They buy lobbyists and donate to political parties. They can exploit the weak link in democracy. These are the people that I referenced above who are in the pockets.

The next part shows the effect...

You can see the results in a set back on Dodd-Frank by a recent court ruling. The Republican appointed judges ruled against the "skin in the game" provision in Dodd-Frank. The idea that the issuer retain 5% of a loan package to show good faith in the deal. It is dead! Killed by these idiots who think too much government regulation in business is the problem in our economy. They over look man's greedy, corrupt nature. They fail to see the same pattern that happens in history time-after-time.

The poison is in the system. The effects will soon be displayed. The doctors will arrive late and after the fact. Sadly, the dominoes will fall again as the disease circulates.