Wednesday, June 21, 2017

New Obstacle for Banking

It is easy to criticize our banks. They constantly seek ways to get a piece of our piggy bank dollars that they hold in their vaults. We forget that they have many costs in providing branch outlets that are close to our homes. My personal beliefs is that banks should be regulated like utilities and that could help in protecting them from being themselves. Wherever you stand with your feelings about our banking industry, the bottom line is that they are needed.
They have survived and they generally oppose all types of regulation. For example, they originally opposed the FDIC. Now, they realize what a great economic addition this was for our society and the health of their industry. We no longer have runs on our banks. I should add a disclaimer to that because some people can't leave well enough alone. I will get to that in a moment.
If one would check the stock prices of publically traded bank shares since the economic crisis of 2008, one would see that the banking industry as a whole is doing fine and dandy. Again, CEOs of individual banks will complain, but they make money hand over fist.
As stated, they have survived the recession of 2008, co-existed with Dodd-Frank and managed in this low interest rate environment, but now, a new obstacle is appearing on the horizon in a report from the Financial Times by Ben McLannahan.
Tech Loans 
The leader in this new competition for loans is none other than Amazon. They started quietly, but they now hold a portfolio of $3 billion in loans. They are not alone. Pay Pal and Square are also making loans. The first question one would ask is can they do this? They are not chartered like banks, but they found a loophole. They are not creating money which banks do and use for such purposes. They are using their own money like a personal loan that you make with your cousin or uncle.
Now, the total amount of money is very small, but keep this aspect in mind.
Once Upon A Time... 
retail laughed at the $18 stock of a startup named Amazon that entered retail with books online. Can you see where this is going? Some tech companies have more money sitting offshore than GDP of countries. This could be a serious obstacle for the banking industry in the future and I did not even mention the competition from online banks like Soft Bank. There is also another danger for the banking industry and this one is also seriously dangerous for you and me. Republicans, I told you before, you can never trust them, are seeking to pass a new banking rule and law called Choice Finance.
The bill would do away with OLA (orderly liquidation authority) which is the dissolving of a bank that has insufficient funds to operate by the FDIC agency. This is BAD, very BAD. This is how you start runs on banks because not only is there no mechanism to dissolve the bank, but another feature would allow banks to seize your money to recapitalize itself and stay in business. The bill has passed the House, but hopefully, won't pass the Senate. In another sad state of affairs, the bill would override an executive order from President Trump who now says that he will sign the bill if passed...And the Beat Goes On.

Wednesday, June 14, 2017

Future Shock Calmed by Words To Live By.

- You can't always get what you want...
But if you try sometimes, well you just might find
You get what you need,

- Rolling Stones

Dear reader, songs and words are scrambling around in my head. The world is ganging up on Trump over the Paris Climate Accord. It is much ado about nothing. China signs the paper, but pollutes the earth as well as many others. The real problem is that so many are completely wrong with our problem on the issue of warming climate. Yes, the planet is heating, but no, it is not in a danger zone. World temperatures sway within 2C for centuries. The reason has not fully been answered by science and therefore, for the scientist who cry today, they could be all wrong. The sun is the central answer to our problem. It effects the earth's inclination of its axis's along with our destruction of forests that produce oxygen.
First off, CO2 is needed by our world. Plants eat it and give us oxygen in return. This is our air. The problem with CO2 is when it gets consecrated into small areas, there is not enough plant life in that region to accommodate the increased carbon dioxide. If one looks back into the Industrial Revolution and locations in Britain, Germany and the US, the air was dirty, foul and unfit until quality changes took place. The air today is clean in all of those locations. The world didn't collapse. It won't today if the climate accord dies. We just need to implement safe changes like scrubbers on exit points, utilize coal to liquid for cleaner energy and more electric cars. With that said the world will still be facing much more serious problems in the future. The next wars won't be ideological like democracy versus other, Islam versus us infidels, but RESOURCES
I mentioned the destruction of trees. It is cleared for farming, used in building homes and other uses, but the real problem is population growth. Thomas Malthus first wrote of the problem back during our Revolutionary War. He noted that a greater food abundance provided a higher standard of living. However, he wanted to limit population growth to maintain the higher standard of living. He was just too early in his fears. Agricultural technology has enabled world population to grow to our present seven billion, but unless new technology can add millions of new grains, people will starve, especially in Asia and the Middle East. The Muslims had better start sowing more love because when there isn't enough to go around, the West will remember all the grief that they caused under jihad. The topic is too big for a blog, but at present, the trend line favors abundance in food, oil and other commodities. It won't last. The problem will start in ten years and it will grow and grow like population that increases every year. My favorite cowboy is The Good, The Bad, And The Ugly. It has deep meanings to the truth of life. The story has three guys who learn of buried treasure in a graveyard. In a unique dual among the three, the Bad is eliminated. When the Ugly digs by hand at the grave site, the Good hands him a shovel with one hand while holding a gun in the other, as he says this universal truth, "The world has two types of people, those with guns and those who dig." In the future when oil becomes scare again, when food scarcity is not a bad neighborhood problem, but a world problem, those with guns will force the rest of us to dig. Fret not. It is a long way off and you can help by cultivating positive words and actions in your little region of this big planet. Here are some to live by:

"Have patience with all things, but first of all, with yourself."
- Saint Francis de Sales
"He who sows courtesy reaps friendship, and he who plants kindness gathers love."
- St. Basil
"Peace is not made at the council tables, or by treaties, but in the hearts of men."
- Herbert  Hoover
"Don't expect to build up the weak by pulling down the strong."
- Calvin Coolidge
"When angry count to ten before speaking, when really angry, a hundred."
- Thomas Jefferson
"What you risk reveals what you value."
- Jeanette Winterson
"You may be disappointed if you fail but you are doomed if you don't try."
- Beverly Sills
"A friend is someone you can do nothing with and enjoy it.
- Unknown
"The whole art of life is knowing the right time to say things."
- Maeve Binchy
"Every man paddles his own canoe."
- Frederick Marrayat
"Every day can't be gold, but it is all good."
- John Liparelli

Wednesday, June 7, 2017

Currency Recalculations Coming

In this low rate environment something is happening behind the scenes. The Federal Reserve keeps implying that they will raise interest rates. This action should be like steroids for the dollar, but the dollar has failed repeatedly to climb to new highs. In reality, it keeps testing new lows and with contract volume. One gets confirmation from the 10-Year note. No matter what the Fed does, it keeps pointing lower and it could break 2%, again. It is like Ripley's, Believe It or Not.
Gold has overcome a variety of obstacles to climb this year like the antagonism of fiat oppression and the Bitcoin. One would think that the Euro would sink with Brexit, and indebted nations like Greece, Italy and Spain dragging it down. It did. The Euro has declined considerably and it began 2017 at a decade low of 103 and change. Many say that it will die over time. I would agree, but now, I see it getting stronger which adds more confusion to the currency situation. Finally, we have the Yen. The central bank of Japan wants to devalue to stimulate their export economy. They lowered its value beyond 120, but again, strange things are happening to world currencies. It is getting stronger. The big question is
There are too many reasons, but one stands out in my mind. When Clinton achieved an economy with a surplus, the weakening dollar was central. The Federal Reserve masked inflation and with no wars, military spending dropped. With high employment no one complained until everyone realized that wages didn't grow enough to cover inflation and we were all poorer. Digging deeper, it was worse. Globalization ravaged our manufacturing sector. The weak dollar didn't help and when gas prices climbed, the cries came out and Bush got in:Out from the fire and into the pan.
Trump wants a weaker dollar to stimulate the economy just like Clinton. Maybe there is a collusion among the central bankers to drive down the dollar, again, just like in the past under Clinton.
What I See
In the near-term I see the dollar falling to around 91. It is getting set to nail 95. At that point a closer look at contract volume will determine a consolidation, a bounce or further fall. I see the Euro getting its current bounce to 114, and again, a look at the volume to determine the next level. The Yen will test its low of 101 with the same understanding as it approaches that value. With all these recalculations happening, gold will benefit, especially when the parabolic move of the Bitcoin fails. People will realize that if this digital nothing can rise over $2,000 per coin, how much more is gold worth? If that doesn't sway them, the negative interest rates that banks will charge them should open their eyes to the failure of fiat debasement of their money. Until that epiphany, gold will climb the wall of worry to $1296 and $1324 is within reach.
These currency moves will cause a problem for some while others will benefit. It is like Paul Simon's song, "One man's ceiling, is another man's floor."

Wednesday, May 31, 2017

Stock Insurance for the Wise

In the movies, insurance is usually depicted as an Italian using the protection racket for the mob. In real life, it is the Wasp that sells home protection plans, but they seek lawyers and the courts from fulfilling their contractual obligations like the floods in Sandy Hook or the fires in San Diego. They offer low ball checks that pay pennies on the dollar and then, raise their premiums. So, who is the real crook? Dear reader, I'm not selling anything, but a word to the wise is said to be sufficient.
Stock Market
is at record highs as it grinds upward on the staircase of the wall of worry. Dear reader, the talking heads never remind you that when a correction comes, it uses the elevator when it goes down.
To put perspective to the market, one should look at the big picture of price to earnings or the P/E ratio. In our modern time or post WWII, value investors accepted a price range with a P/E that said 6 was a buy, 9 was a hold and 12 was risky. This intrinsic range held sway until the 1980s. During the 80s, the range was increased. The new buy level was 10 to 12, the new hold stood at 16 and risk entered after 20. Then, in October 1987, the market was reminded that the "old" range was the safe range when stocks crashed. Buyers who purchased following the old method suffered little or no harm. It was the new generation of buyers who paid a heavy price. Today's range reflects a time period of the 1990s. The P/E ratios increased dramatically. The buy bid moved to 16, the hold price jumped to 21 and risk appeared at 30. Then, in 2000, the market reminded everyone that the "old"  metric was the best advice for safe investing, "Buy when nobody wants it and sell when everyone wants it." With that meme let me throw out some pearls of today's market.
Gorilla Upgrades
I came across a memo from this advisory service. From their recent record, this group appears to be doing a good job, My point has nothing to do with them except use the information to relate to you my warning about stock prices and evaluations. The following 13 companies were upgraded to a new price by Gorilla.
Stock                                          P/E                               Current Price        Upgraded Target
Broadcom                                  22                                    241                                  290
Rockwell                                   19                                    107                                  130
Dominoes Pizza                        48                                    207                                  248
DTE Energy                              19                                   108                                  130
EBay                                         5                                     34                                    42
Intuit                                         39                                   138                                 165
Gartner                                     53                                   117                                  140
Lam                                          19                                   155                                 185
PRA Health                              16                                    36                                  86
 RTN(symbol)                          21                                   163                                195
  TSEM(symbol)                      -63                                    25                                    31
WEN(symbol)                         33                                     16                                   20
Zebra                                       53                                      105                                128
In looking at the list a few things jump at me. One, the majority of stocks are over $100 and in a minute, I will show you some over $1,000. Secondly, Tower Semiconductor is actually losing money. Not for me. The overall P/E ratio for the S & P 500 is approaching 30 and to me that spells DANGER. EBay looks like a bargain and Dominoes like a sell. I am not saying to buy or sell, but the evaluations will put you in a risky position at these levels. The stock market is like a Bell Curve and now, we are deviating to the high mean. If the market corrects, you will lose all your profits or worse, be in a negative position. When you consider the market also has the highest margin by total dollars invested, a small correction could turn into a major decline. People, institutions and most hedge funds can weather a movement of doubt, but people like you and me cannot. They call us the weak hands because our finances cannot take a 10% or higher decline, especially if you gamble and buy on margin. The plan to buy on dips has worked so far, but remember the creed of the market, "To take the most amount of money from the most people in the shortest amount of time." To that word of advice consider:
IBM                                      12                                       152  Down from 181
CVX                                     68                                        104            from 117.
Both of these strong companies pay a good dividend. IBM= 3.93 yield and Chevron= 4.13 yield. With that said, could you afford the 30 point drop in IBM? Could you face the pressure of low oil prices and hope to ride out the losses in CVX? You can rationalize that the price will go backup, but if the correction runs deep and long, you will suffer many sleepless nights. This is the danger of high P/E ratios and now, the darlings of the market, the FANG group.
Facebook                             38                                     152
Netflix                                 210                                    162
Amazon                               221                                    995 and upgraded to 1200
Google                                 45                                      969 and upgrade to 1175
The last two will form an exclusive club: $1,000 per share. In fact, Amazon hit that number on Tuesday. However, it retraced back to $996. which means thousands are in limbo and down $400.
We have been blessed with abundance, but like Nassim Taleb points out, a black swan can appear. Whether one appears or not, a market that approaches a P/E of 30 is in the danger zone. If you have profits, take them. If you think of joining the party, wait for a correction and a better P/E ratio to invest. There will always be a tomorrow and another party. You need to be patient and the worse that can happen with this approach is you will be safe rather than sorry. This is a free insurance policy.   

Wednesday, May 24, 2017

Scandals Battle for Ratings

We give the elite tax breaks in the US in the hope that they will invest their money to create jobs. So much is given to a group that surely doesn't deserve it. I just knew Trump would follow the pattern and his budget proposal confirms my thought. We also hear all the time about the rule of law and all we get is these people violating the law whether its the environment, Libor Loan Rates, nepotism and cronyism, price fixing, (especially with the precious metals), or stealing depositors savings by banks or hedge funds. It is almost funny how it always leads to the top, although they never pay the time for their crimes as in the financial crisis of 2008. That was yesterday...
This is today...
We got Trump accused of firing the FBI director because maybe, his fingers are not so clean. Just like Reagan, Clinton, Bush, the cry for impeachment is heard. We get implications about the Russians almost every day as they caused Hillary to lose, they leaked this and they hacked that. So much BS. Speaking of hot air, the latest scandal has Trump giving the Russians top secrets. Dear reader, this is the secret and core of contention. In showing what I call "good will," Trump told the Russian Ambassador, Lavrov, that terrorists are using a space in laptops to conceal a bomb and that they should be on guard about this danger. Now, our paranoid military and intelligence see this as a violation of classified material. I do not, but that is just my opinion and we don't get to mandate policy. The only good thing that happened in all this was seeing a comic side to Putin who asked, "If Trump told Lavrov top secrets, why didn't he tell me?" Anyway, there are people who hate Trump and sadly, he has not done anything that he said that he would. They are distracting someone with a big ego who can be easily distracted. Now, folks, if those scandals cannot hold your attention, just flip the dial to South America. A few weeks ago I told you that a possible contagion that is happening in Venezuela. How about its Portuguese speaking neighbor, Brazil?
Last week a story arose that claimed the new President paid hush money to the lead Congressional member, Edwardo Cunha who led the charge to impeach Dilma Rousseff. She is out and Temer is in. The IBOV which is the Brazilian stock exchange dropped over 10% or 7,000 points last week. Can you imagine the NYSE losing 7,000 points in one week? Anyway, this could be a world first for democracy with back-to-back impeachments. It gets worse because one-third of their Congress is also under indictment for things like corruption, bribery, etc.
The bottom line is what channel are you going to watch or like me, flip back and forth. At present, democracy is failing due to leaders selling out to the status quo. Wake up! You made it to the top , now do something that is good for America. Maybe you should reread, "Profiles in Courage."

Wednesday, May 17, 2017

Internet Tax and the New Black Tuesday

"Hurry! Hurry! Close-out specials! It all must go. First come, first serve. Items reduced 90%!"

No, this isn't an info-commercial. You are not dozing off while watching late night television. This is the future and it is coming to your mall. Another quarterly earnings report and another disappointing bottom line for retail. Wall St. picks up on these things faster than the public and they are dumping or shorting the category. The consumer however, will pick the bones. They will realize and see the signs(closing stores) of a shopping center that is under duress. They will hold off on purchases(disinflation)waiting like vultures for the kill. They will be able to pick up fabulous deals on Black Tuesday, but when Christmas comes, you will realize the real price of that once in a lifetime bargain. There might not be any place to shop where you can touch and compare what you can see. Don't bother to blame Amazon or other online services. You could blame the politicians due to their lack of foresight in allowing the internet to go tax free, but that won't last. Internet taxes are coming and although they may start small, just like the income tax, it will expand. How could we lose so many shopping centers? How could our government leaders not see the consequence of this loophole? It started with the new bankruptcy law in 2005 and the recession of 2008 hit it like a hurricane.
realized that their tenants were in trouble with the recession of 2008. They attempted to get ahead of the problem. So, as lease terms were ending, they offered concessions to keep their malls and shopping centers fully occupied. The problem for both the stores and landlords was the consumer realized that they could buy the same items online and tax free. In addition, online dealers could offer low prices due to the aspect that they had lower overhead costs that brick and mortar could not get around. Then, some older locations needed a makeover. In seeking money that banks were not providing, equity firms saw potential back in 2009. With the stimulus, retailers would get a boost due to the economy picking up. These firms answered the retailers call. Retailers took deals that they used to get consumers like interest free loans and creative financing which added balloon notes. No one saw that consumers seeking to escape inflation and getting more comfortable with free online shipping, might not return.
Money Due!
The lawyers will get rich as the equity loans are coming due and if the terms get extended, the interest free part won't be granted. As it stands now, retailers cannot meet their expenses, let alone a new additional cost of interest, so decisions must be made. The lawyer is on the phone and he wants his money for his client. The bankruptcy law of 2005 changed the time allowed to declare a store closing from 18 months to 210 days. This is why 19 national chain stores are announcing store closings and why they will happen this year and even more next year. Firms like Payless, the Limited, and Wet Seal are examples of equity loan financing. It was revealed in many court files that half of all retail bankruptcies had high leverage loans.
Long Shadow...
will be cast over the future outlook for malls and shopping centers. When you max out your credit options, the piper begins its song. The retailers attempted a debt strategy and it looks like it is going to fail. It is the same one that central banks use by debasing our currency and stealing our money with inflation. Anyway, many malls and shopping centers are facing a slow death as each nail, banging into a board across a door, announces another closing. Who wants to shop in a location where store after store is closed and the expression, "mall rat" takes on a whole new meaning.

Wednesday, May 10, 2017

Cycles and other Tidbits

- The historical cycle is a permanent feature of all historical thought."

- R. G. Collingwood

I believe in the many true aspects that cycles play in our lifetime and throughout history. Harry Dent is onto a great finding in his demographic findings. Strauss and Howe have a great concept in their generation approach to who we are and where we are going. There are many others who have contributed theories like the great Russian economist, Kondratieff. Another of those theories is the Presidential Cycle. It says that a new president in his first term will face an economic slowdown beginning at the end of May. In baseball, there is a saying that records are made to be broken. Will we have a slowdown beginning in a few weeks or will that theory on the presidential cycle be broken this time? The stock market says, "don't worry," as it hits new highs. In fact, here is a strange tidbit on the market that backs up the bulls. On Thursday of last week, there were no puts on the VIX, which is the fear index. Last time that happened was in early 2008 and we all know what happened later that year. Dear reader, there are other signs of what I believe will be a bubble bursting. On that same day, the new trading in the Bit Coin hit a new high of $1500 per coin. To me, this is garbage and no different than fiat currency, but get this. While the Bit Coin was rising, gold was barely able to hold $1200. I know the market can be irrational, but this is insane. In disclosure, being a poor man, my treasure is silver. On that same day, I saw silver continue its decline everyday from the 17th of April. And Platinum? It is barely above $900 and this important commodity is very difficult to extract from the ground.
What the Cycles Say
By the way, the leaders in cycle study divide life into the same relationship as our four seasons. They feel that we are entering WINTER. This is not good because during many winter cycles, war emerges like WWII. However, I hope and pray that not all aspects of cycles are correct, but I do see a bursting bubble in the stock market when phony coins are worth $1500 a piece and real money like gold is worth less. When reality returns to the stock market, people the world over will realize that fiat money is just as phony as the bit coin. Then, they will turn to gold which will bounce high like a Spaulding pink ball that I used as a kid playing stickball.