Wednesday, June 13, 2018

As Strong as the Weakest Link

The market is surging again, but internals indicate trouble ahead. The leading financial is Goldman Sachs(GS). Financials make more money on rising interest rates because they can play the spread(cost of money before lending). Rates are set to rise at the next Fed meeting on June 13th.

GS hit a low in February along with the rest of the market. However, most of the market has regained momentum, but GS hit a new, lower low. It is now over 40 points off its highs. This is a red flag.

We all know that the Dow and other indexes re-align from time-to-time. Last week Twitter took the place of Monsanto on the S & P 500. I find that very reflective of what is wrong with America and our economy. Bayer bought out Monsanto. They will be the biggest agricultural concern in the world. I don't want to go off point, but I have to include this tidbit. With that merger five companies control the world's food production. That is scary for food safety.

Anyway, Twitter is a social media company. A magazine in digital form. The company produces nothing for society while Monsanto was a producer. We lose on the index a creator of wealth for a creator of chit-chat. Look around! Facebook could be worth more than Exxon. How about SNAP (rhymes with crap)? We all need Exxon. My life is fine without Facebook and Snaps of the world. There are many more examples, but they all are waving a red flag.

If you doubt my point, consider this: The US invented the chip, the computer and the internet. YAY! Hold the excitement! As of last week, our computer ranking in the world was FIFTH! That is no typo. We were behind the Swizz and China. Fortunately, IBM collaborated with a chip firm, Nvidia to place the US back at number one. The question remains, number one for how long? Red flag.

Back to the Market

Chips are also weak beneath the surface of the market. Check out Lam and Amat?  Red flag.
The airlines say that earnings will suffer due to the rising cost of fuel which is up 60% from a year ago. Southwest already missed and American indicated that they will miss. Red flag.

Finally, a geo-political concern. This is not one of the usual suspects. Argentina's currency is falling off a cliff like many emerging markets due to the rise in the dollar. Argentina raised its interest rates to - are you ready for this? 40%. That is no typo. Can you imagine having to pay off your credit debt at those rates? Anyway, they received a $50 billion loan from the IMF. The only concern the IMF had was in seeing Argentina control its inflationary problem. If 40% can't do it, the world market is going to get one big shock. By the way, Argentina's currency, the peso is still falling in value. Red flag!