Wednesday, November 14, 2018

Battle: State Rights Vs. Federal Government

This conflict started long before our independence. The people who pioneered America knew the tyranny of government, especially the monarchy. They united in the war for liberty, but were conflicted within over how to construct a new nation. States wanted liberties, but realized with a central government, governing would be an easier transition. With the constitution they thought that they had the answer. They settled on democracy as it seemed the least negative in forming a state.

You put things down on paper like an insurance policy, but life and lawyers throw obstacles that the original words on paper did not address. When you think about the civil war in America, one wonders if the southern states had asked for a national vote about leaving the union along with their state vote results, maybe the war could have been avoided? Maybe some type of restitution by the withdrawing states to the federal government could have been reached? It probably would have been a short term fix as European powers would have tried to enter upon the split. It is what it is.

Today

We are entering the debate again as we have often re-visited this question. In all conflicts the federal government wins or at least reaches a compromise. The "pot" question is the latest to enter the fray.

It has many names...

The lingo on marijuana is as vast as the many regions with the US and the world for that matter. It was many years ago when George Harrison of the Beatles was arrested in Japan for concealing some cannabis in his luggage. In many places this is still the law. It is not however in ten US states, and yet, it is still illegal under federal law. If you fly from California where it is legal and land in New York, you will be sent to Riker's Island. If you survive that experience, you will go to court and probably pay a fine. What is one to do?

In our democracy citizens are rarely offered true democracy. We elect lawmakers who do not listen to the people who voted them into office. They condescend citizens by calling their wishes, "Populism."
Nevertheless, politicians understand the changing climate of the masses. They also know the need for more government revenues that are taxes, but never called taxes directly, if possible. So, from time-to-time referendums are added to ballots and government allows its citizens to express their intentions. This is why 10 states now have legal recreational Mary Jane, Thai Sticks, Panama Red, Columbian Buds, Acapulco Gold, Hawaiian and African Black along with your home grown varieties.

Other debate...

There is also the dangers of cannabis. This is the human frailty aspect. It is why some people cannot stop eating. They become fat. It is why some dudes say that they do not feel anything after a few drinks and then, wrap their car around a telephone pole. This is the sad tragedy of our beings. We do not look within like Socrates said, "Know thy self."

Sadly, their will be citizens who use pot only to have it be the gateway drug into something really dangerous and deadly like heroin. For the majority it will be a few moments of pleasure like a cocktail after work. Then, there is also the lies infused into society about the effects of cannabis. These phony made up tales have hid the powerful positive effects of marijuana in medical terms. Some elected leaders have offered a change in perception.Whether it is politicians seeking revenues or learning the truth, cannabis is now allowed legally in 33 states for medical use. In addition, 8 more states are studying the possibility of legalizing pot either for medical and or, recreational. The city of Northampton, Massachusetts thinks it found another hidden treasure in legalizing pot, "tourism." People will drive over the border to buy and return home in the same day.

Bye, bye, Sessions.

Recently, President Trump has stated that he is 100% behind medical marijuana. His AG which is the DA of America , Jeff Sessions was totally against cannabis. Trump forced him out of office. This will probably lead Trump to use pot as a "trump card" when he seeks re-election in 2020. The federal government will want to get their hands on tax revenues from the selling of pot. It is just a matter of time in some smoke filled back room before it becomes public. Count on it. Personally, I'm getting some pot as in cannabis stocks like Aphria or Aurora. Maybe watch an old Cheech and Chong movie?

Wednesday, November 7, 2018

Currencies and Oil Volatility

There are a few things that everyone wants stable regardless in whatever their government policies dictate. Consumers do not want to see inflation in food, energy and shelter. Contrary to what economists say and the media reports, food is up, gasoline is up, heating oil is up and whether you rent or buy, housing is up. Dear reader, the costs far exceed the phony 2% inflation target approach of the Federal Reserve.

Nevertheless, consumers are told that inflation is benign. I, for one, do not believe the government agencies reports on consumer pricing. People don't keep track of stats, but fortunately for you, Sebastian does. The past week was an alarming change in two metrics that could cause an explosion in inflation. If it occurs, I wonder how the powers-to-be will keep the price of gold down?

Last week, the price of oil dropped significantly which is actually helpful to consumers, but the correlation in the drop in value of the dollar will offset the savings in oil. This is where the market is reaching a crucible point.

Major Currencies:

Keep in mind that emerging markets must utilize the US dollar in making purchases in oil. When the dollar rises this adds a burden in costs to these nations. Now, if their other trading partners for example like any nation in the EU and the euro goes up in value, this adds more costs and stress to their economies. This is what is happening in the present market. Then, there is the Brexit situation. What happens to the pound? This too will disrupt world trading and economies. Houston, we have a problem.

Last week change in values.
First, I'll look at the US dollar since it is the world's reserve currency. A distinction that China wants.
* USD - went from a low in February of this year at 88 to a high in August at 96. Then, it dropped to 93, but resumed its climb with a new high at 97. Keep in mind that in 2017 the dollar touched 104. Now, it is holding price at 96.34. This is a strong price.

The strength in the dollar is good for oil producing nations as they get a higher value for their product. I mention this aspect because this week President Trump has imposed sanctions on Iran. He wants a new deal. Under the previous sanctions, Iran saw a significant drop in revenues which led to a big drop in oil production from the 4m to 5m range down to one million barrels in sales. Fortunately for the global community that loss in barrels was made up by increasing production from the US, Russia and Saudi Arabia. The improving world economies from the 2008 crises made demand exceed supply. Prices rose and everyone suffered until the Iran nuclear deal was agreed upon. Iran oil entered the market which led to an oil glut. Prices dropped. Everyone was happy except the oil companies. Many went out of business. Fast forward to today. Now, we are facing world demand with less oil on the market. This major aspect will effect the value of the major world currencies as I repeat in my unpublished book, "All things are connected."
(I will show the change in oil prices after the currencies.)

*Euro - it has declined in value which makes the EUs exports cheaper, but it showed a big jump last week from 1.13 to 1.145 in exchange. This trend could be fast and furious.

*Pound - Brexit fears are building and along with them is what will be the exchange rate for the pound? It jumped from 127 to 130 which is a huge move. Currencies are usually slow like the Titanic turning and for this rapid change in value in one week is off the charts.

*Yuan - the Chinese dollar continues to fall which makes their exports cheaper. Is this a coincidence that the US and China are having tariff tensions as China seeks to be even cheaper for buyers? People, they are the poster child for currency manipulation.

OIL

We can talk about trade, tariffs and currencies all we want, but the elephant in trading is oil. Funny, the Federal Reserve does not include the world's most valuable export in their inflation matrix. Crooks! Anyway, oil has been declining rapidly while at the same time the new sanctions on Iran cuts off a big world producer with world demand rising. This is a conundrum if there ever was one. Oil by the barrel has dropped from a high in August of $77 a barrel to $63 last week. Many see oil touching $58 and possibly $55. Wow! Another way to view the price action in oil is through the oil index(XOI). The value change is mind blowing. The index went from 1600 in October to 1349 last week and it touched 1325. This is less than 30 days. How can that be? Keep in mind that two other producers, Libya and Venezuela are a mess. Prices are falling and one reason is the seasonal factor in oil, but if things remain the way that they are, prices will return to $90 or more early next year. This is what I see. Find a cheap oil stock in December and come next spring, you can go fishing 'cause you will catch a big one.

Wednesday, October 31, 2018

The TEST Is Coming

Did the capitals catch your eye? No, this is not an eye exam. Since this is a political and economic blog, you can quickly eliminate many choices. To save time and space let me get to it.

The Market

It has been volatile lately, and in a previous piece I pointed out to you how big money is looking at the market under the eyes of greed and fear. Individual money managers realize that there are less than 60 trading days left in the market for the year. Why risk my 30% profit in Apple when I see another media giant, Facebook already at a loss for the year? Big Blue, IBM is touching the low end range of its 2008 low and GE continues to reveal excessive debt, hidden book looses and cut its dividend. The manager is thinking, sell. Take profits and if things settle down, buy back at a lower price. Good logic. You can never lose if you take profits before pullbacks.

There is another point to be considered. I found when I first entered the market many years ago that charting was more accurate and easy for me to understand. One could block out the name of a stock and just read the chart to get a feel to where the company was going.

The problem with charting is this: half of the market and mostly, the big firms like fundamental knowledge of a corporation before placing money into it. For example, if interest rates are in the normal range, the banking industry will do well with the spread in the cost of money. If the crack spread in oil is right, refiners will clean up. If a banking firm is dealing exclusively with a company that needs money for a new gismo that will sell like crazy, they're in. This is the way the market works. Today, I like to begin with charts and add whatever limited fundamental aspect that I know to make a decision to invest. I do have one problem in investing. I'm pro gold and the market is pro fiat.

Nevertheless, human nature still effects the market and one truth about charting is this: a stock whether is in an up trend or down trend will always test the point where volume meets a transition point. At present the charts indicate that the market is heading down to meet the low of the year back in February.

As of last Friday the following prices for the main indexes were:
                                                Friday                                          February low
*Dow                                     24,688                                            23,400
*S&P 500                              2658                                               2532
*NASDAQ                              7167                                               6630
*Small cap                               1483                                               1436

Those targets could be met by the end of the month or early in January, but they will be met. The point that you should entertain is the volume on the day of the test. If it is lower than the February low, the test points to a higher market from that point. If the volume is higher than back in February that says the market will continue downward to the next level of support or resistance. Keep your EYES on the Chart.

Wednesday, October 24, 2018

Odds and Ends, Oct. 2018

Interesting thought. Last week on the 19th of October was the 31st anniversary of the Dow's biggest percentage drop in a day. It fell 22%. If this happened today that would equate to 5,700 points. Yowza!

I mention this due to the recent high volatility in the market. As stated in a recent piece, the big boys pulled out the old playbook. They buy when everyone else sells. This steadies the market, but Sebastian is taking a closer look. He does not like what he sees.

In the S&P 500, there are 139 stocks in bear territory. In addition, 66 of these companies are off 50% or more from their highs. Our media rarely provides info on other markets, but we do. The Shanghai index is down 30% for the year. Ouch! The IMF said inflation in Venezuela is one million percent. That is a seven digit ouch!!!!!!!

The Dow would have been down for the week last week if not on Friday when P&G and American Express reported a stellar quarter. The NASDAQ however reflected the mixed market. It fell, again. Technology led the NASDAQ up and now, it is bringing it down. If you look at the chip sector, it is getting messy.

*AMD was $34. Now, it is $24 and heading for $17.
*NVDA was $292. Now, it is $204 and heading to $198.
*LRCX was $209. Now, it is $145 and heading for $119.

IWM is testing its 200-day moving average and the up or down breath on NASDAQ is below 50%.

The charts get more alarming. The banks had good numbers, but the stocks cannot hold price. Net flix had good numbers and it too can't hold price. The charts say that if this trend continues Amazon could fall to $1416. If you bought at the high($2033) I can hear you say #*_* and many more unprintable emotions.

It is not just the stock market that is causing concern. States, especially old Northern stomping grounds are feeling a stress over taxes.
Tax Migration is the problem. There is a lot of news on world migration whether in Europe or the US southern border, but north of the Mason-Dixon line is having a different spin on the problem. Wealthy citizens are moving South, most notably to Florida and Texas because they are tax free states on income and state taxes are lower. California is experiencing this too as their citizens move to Nevada. State budgets and pensions will soon gather headlines.

Speaking of state taxes leads us to the home building industry. Bank of America just downgraded three big construction firms: Toll Brothers, Pulte and Lennar. Zillow reported that California leads the nation in unaffordable housing and affordability in general is the worse since the housing crisis. The ITB, the ETF for home builders is in bear territory. Another firm, D.H. Horton reported disappointing sales with poor guidance.
Home sales declined another 3.4% in September and mortgage rate are at 5% and set to climb again before the year ends. Not good and getting even worse.
Subprime: It's back! Banks are providing capital for buyers who won't need a down payment, and they will receive a low interest rate loan. The test market is South Florida. Sebastian also found this: An internet company is offering a shady service whereby a customer can use. They will provide a phony job, salary and more. They will even answer a phone call to verify the phony report. This is very, very bad.

Tariff War continues as well as our deficits with imports. A new record was set in August at over $50 billion in the negative column. For the year the federal deficit is at $780 billion and racing toward a $trillion. This insanity has got to stop!!! Central banks have increased their "assets" or fake money from less than $1 trillion in 1987 to over $19 trillion today. The New York Fed reported that US consumers have the highest debt on record at $13 trillion. This includes mortgages, credit cards, student loans, car debt, etc. If wages cannot keep up with debt service, citizens are in trouble. If revenues cannot keep up with deficits our dollar is in trouble. Together, this is not good.

Elections are coming...if you vote for any Libertarian consider this: Three large tuna companies all pleaded guilty in price fixing. They kept the price of tuna artificially high. Libertarians say we do not need government regulations. Idiots! How many times have corporations been caught doing practices like this like the OPEC oil cartel like the banks connected to the Libor scandal like the firms who provided equipment to the Tennessee Valley Authority and on and on...

If all this is getting you depressed and hungry, it is diet time. Five chains are shrinking so check before you go to Chipotle, Starbucks, Subway, Noodles or Applebee's. They may have moved or closed the location. Maybe you haven't been getting a good night's sleep. Thinking of buying a new mattress? Don't bother going to Mattress Firm. They just filed for bankruptcy.

On a lighter note: Auto manufacturers have recalls on 70 million vehicles. You can find out if the car that you are driving is on the list and repairs are free. Go to: SaveCar.gov.

Wednesday, October 17, 2018

If It Isn't Greed, It's Fear

People are asking, if the economy is strong why did the stock market fall 1300 points in two sessions? The answer is simple: Greed. However, there are other intrinsic aspects that one word does not answer or give the big picture. I will attempt.

First, the market is no longer swayed by individual buyers. The retail customer has little push on listed companies. The number of shares that they buy is in the hundreds whereas when funds buy, it is in the hundreds of millions. In many instances, a customer buys exchange traded funds in his pension, 401K, or other retirement programs and they are run by professional managers. This brings us to the second point.

Secondly, institutions, hedge funds, professional managers are the sources to move the market. In most cases, these agents have billions to invest. They move the market. One other point to this point. With the addition of so many exchange traded funds, the market is effected by trend. When the market moves higher, these managers must buy. Conversely, when the market drops, these managers must sell.

Thirdly, the intangibles. These are the geo-political concerns. The present tariff trade wars. The emerging markets who are under duress due to currency swings, the strong dollar and the outflow of investment money in their economy. There are other factors like hacks, new government regulations and all the tit-for-tat going on between nations in the social media. Recently, we had the situation with Saudi Arabia, Brexit and elections in Germany. There is also an unreported aspect that US manufacturing workers are seeing their company make more money with nothing for them in security in wages in health or their pensions. Strikes by workers is coming! After January the market will be extremely volatile.

Lastly, this point is an effect due to the causes expressed in the third aspect. Use some logic. You are a fund manager. You begin to see in price caused by some of the points that interact with the market. You also understand that high evaluations will have a hard time to climb higher. In addition, earnings estimates are too high as many companies are telling analyst to lower expected earnings. You realize that there are less than 60 trading days left in the year. You look over your portfolio. Apple is up 30% for the year. Can it move higher, you think? Yes, but there are more headwinds like the tariffs like possible regulations and the cyber spy thing. Maybe I should sell and take my profits. If I look around, I see Facebook. It was $218 and now, only $153. In fact, it is down for the year. Why should I risk my bonus on greed?

The point is the call of greed is diminishing as the siren of fear gets louder. The manager sells. Funny thing. It seems the consciousness of the same perspective hit at the same time. After all, it is October.

Friday's bounce...

After two big selling days with fear on the breakfast table, the big boys pulled out the old playbook from no other than J. P. Morgan himself. They buy whenever everyone else is selling. It makes perfect sense. These managers got into the market at the lows. All they are doing is cross adjusting buying. In more times that can be counted this maneuver works. The buying steadies the market. "Buy the dip" mantra is heard. It convinces the herd that small corrections are inevitable, but the market will move higher. The selling ends. The point that Sebastian is trying to stress is this. In the next couple of weeks, study the volume. He believes the correction is just beginning and distribution will verify that feeling. You are going to have to do your homework. He believes that the market will be range bound until the end of the year. At that point in time all of the above will determine which way the market moves. At this point in time he sees high volatility in 2019.

Wednesday, October 10, 2018

USMCA Deal and Cyber U-2

All the news lately has been very depressing. Whether a hurricane or tsunami somewhere causing death and destruction. Then, there is a terrorist who impales himself and takes innocent lives with his misguided deed. How about the Supreme Court nominee? The litany of negative events has two more.

NAFTA

It is now called the US - Mexico - Canada Agreement or USMCA. The whole tiff was to bring more manufacturing jobs to the US. The only thing that it accomplished on that front was that the pendulum is swinging back which is good. This moment of transition exposes why the US standard of living has declined as well as its middle class. The other reason is the Fed's destruction of the dollar along with excessive military spending.

President Trump will take bows. He should extend his face to the mud. The deal says that Mexico can only produce 2.6 million cars before a tariff is imposed. They were producing 4 million and rising. Canada gets the same 2.6 million as well as the same tariff possibility. If, and that is a BIG WORD, the two countries were to meet those agreements, the resulting 5.2 million cars will still be imported.
There is also a clause about workers receiving $16 an hour after trade limits, however this won't effect Canada as their workers get that much. Mexico can claim that through currency their workers meet that standard of living. Non-factor!
Now, total car sales have eclipsed 17 million for the last two years and is poised to reach that mark again. Those lofty figures will start to come down as the average retail price of a new vehicle is $35,700. This is more than the average cost of a new home in 1970. I put that in the piece to reflect how the Fed has destroyed our dollar's value.

Anyway, if total car sales return to 15 million plus which is where I think that they will find support, the new trade deal ensures that just from Mexico and Canada, that one-third of all sales will be imported from just those two nations. Now, consider normal imports from S. Korea, Japan and Germany make up another 50% of sales, what is left for US built producers? Also, there are other exporters vying to enter the market like China and India? Keep in mind that some importers are building plants in the US. Japan does the most, but Germany adds quite a few jobs too. This is good except these importers are not forced to join the auto union. The protection of jobs is arbitrary. President Trump did a good thing and I hope that he uses his arms to break his fall before his face hits the mud. This deal will be violated on entry permits and as a result no change or support for US workers. The shame should fall on the management of car companies and Congress for not supporting US workers because our standard of living will continue to decline.

There was one little clause in the agreement which could be a blessing. It says that if any of the three start another trade deal with another nation(read China), that nation must tell the other two 30 days before any negotiation and, (this is gold) then, the other two can kick out the third partner or do another agreement.

Now, this little clause will mean so much more with the following story from Bloomberg. This story reveals the arrogance of military leaders both in China and the US.

The US risked war and that means nuclear, with Russia back in the 1950s when they flew high atmosphere jets over Russia until the Russians shot down the U-2 spy planes. The cold war almost turned hot. Thank God for letting those with cooler heads dominate the healing.

Flash forward to today.
China

Their military leaders came up with a James Bond sequel. They put hidden chips in their servers which were ordered by US firms like Apple, Amazon and Google. They camouflaged these chips mixed with fiberglass embedded with the motherboard of the server. These chips had the ability to "block" updates under security prevention. They allowed access by hackers. This is probably how N. Korean and Russian hackers sold money from accounts. It gets worse. The chips could alter encrypted code. Now, the US military also ordered these same servers. Idiots! Imagine, the worse. We are under attack and there is no response because the command was stopped by a chip along a server line. Fortunately, this was discovered, but once is enough!

Under national security, any and all aspects of the internet must be made in America. Cut off China from making anything that can effect the internet. Anyway, this will not only create high paying jobs at home, but ensures the safety of our nation. Now, get this! Apple, has put our safety behind profits. They stated the story is not true. What Same! How does Cook sleep at night? These people risk our safety for profits. Karl Marx was right when he predicted that capitalist will come to the Communist door seeking profits before their homeland. This is Cyber War!  

Wednesday, October 3, 2018

Guess Who Is Buying & Backing Gold?

We live in crazy times. Rudy Giuliani, President Trump's lawyer claimed, "Truth isn't true!" Now, we have central banks buying gold and even endorsing the precious metal. Can this be true?

Central Banks

These institutions have long despised gold as it stands against their money of choice - fiat. Back in the day, they were the largest seller of gold which depressed gold's rise at the time. Gold rose from under $100 dollars an ounce to over $800 per ounce back in 1980. Flash forward to today. Now, they are the largest purchaser of gold. According to a report by the World Gold Council(WGC) central banks purchased 10% of all gold sales.

Total gold demand is at 1960 metric tons and central banks bought 193 metric tons in the first half of 2018. The majority was by Russia, Turkey and Kazakhstan. Back in 2007, central bankers gold sales amounted to 217 metric tons or 14% of the market. Keep in mind the recent turmoil with the Turkish Lira. The unspoken word in the gold market, will Turkey be a seller of the precious metal to stabilize its currency? Could this aspect continue the depressed price for gold? I say, maybe for the short term, but if the past suggests some knowledge, it is this. In the period of 2003-2007, central bankers dumped 2,600 metric tons on the market and gold kept rising. Today, I believe the cryptocurrencies have hurt gold. Now, since that trade is falling out of favor, I see gold making a run as the calendar turns to 2019. In addition, the global community is beginning to see inflation, serious debt and tired consumers.
Bottom line: Gold will shine as this metal never tarnishes.

2cd. Opinion?

You don't have to take my word, especially since this piece is from the Twilight Zone. I have other banks and banker analyst backing gold.

Bank of America just upgraded its outlook for gold. They cite that the concerns for the US national deficit and adding debt as well as tariff-driven trade wars will push the metal from this consolidation period to over $1350 an ounce. At the moment the strong dollar and good economy have kept gold out of the spotlight, but this won't last.

Guess who mimicked those word? Goldman Sachs. They see the dollar eventually falling and then, gold rising.

The top analyst at JP Morgan, Marko Kolanovic says, some nations are looking to weaken the dollar and the US use of it as the world's reserve currency. These forces along with other backlashes will cause the dollar to fall and gold to rise.

P.S. : There is one other indicator and it is conflicted at the moment. The gold price chart as well as the two indexes, the XAU and the HUI are in a downtrend. However, silver broke out on Friday. Another source for the interest in silver came from the US Mint. It ran out of Silver Eagle Coins for September. Could this, the poor man's gold, be the spark, the turning point for the precious metals? Only time will tell.