May has passed; June is about to join it with the book on the Federal Reserve to be opened. It will confirm what J P Morgan has stated, "There is an 85% chance that the Fed will cut rates this year." The day after the June meeting had Fed governors saying that they feel a cut is needed due to the usual suspects: trade tensions and tariffs, geopolitical concerns, etc.
Morgan Stanley Business Condition Index...
is an example of information that is more consistent in data value than the political dangers of tariffs and regional conflicts. Granted, it is not the only business index. Bloomberg has a great commodity index and there are many more out there to draw conclusions as the real character of our economy. Anyway, according to the index, it fell an astonishing 32 points. Anything with that type of change is eye opening. This index hit the same level as in 2008 and we all know what that translates too. The normal range in this index is 55 and Morgan Stanley says it is now 13! This is a serious red flag. By the way, if you are keeping score, this goes next to the inverted rate yield for a double bogey.
Speaking of Interest Rates
The US ten year note is falling and I mean falling. It dropped below 2%. The Fed has not as of yet changed course, however the market reacts as if it had. The ECB is ready to cut rates. Japan is the poster child for low rates. Switzerland leads everyone in the race to negative bonds. At the moment there are $12 trillion in negative bonds circulating. The most are in the EU and Japan with 50% in government bonds and another 20% in corporate notes. The contagion is spreading. Our ten year could reach 1.73% next year. Yeah, you lock up your money for ten years. You put $1,000 in the bank and you make $1.73 in interest. This is proof that fiat money and the Fed has failed! End the Fed!
P.S. lowering of interest rates is also a form of currency manipulation. For those of you who watch the dollar as we do at this blog, you will notice this: 3 Black Crows formed in the recent dollar retreat. This is a negative pattern in the dollar. It also indicates that even if the dollar rallies, it will again test the lows.
Cyber Warfare
a little known component to the defense bill says, "...the military can use its own discretion and without presidential approval to deter and eliminate any dangerous cyber actions." This is the type of dangerous authority that can lead to war when with a little more thought prevention, an internet roadblock can be found. Idiots!
Picture Tells a Story
in the 1990s, we were addressing our national deficits and even had a surplus. China was not an economic power or threat and our exports were as high as 57%. Today, our national deficit is in a technical bankruptcy level. China is an economic power and threat. Our exports are down to 16%. The reason behind all this economic disaster is outsourcing, military budget and a lack of taxes to the wealthy or tariffs to protect workers. The political parties can attack each other until it all falls apart or take a look at the big picture and do something that will benefit all Americans and our way of life.
Keep in mind that Republicans were against Medicare and its costs. Wake Up! The interest alone in the 2020 budget will exceed the costs of Medicare. We are entering Doo-Do Land.
Oil Tanker Attacks...
was in the news. The US was quick to put the blame on Iran. Dear Reader, the answer is simple. For years industry has used the "Clad Melt." You use an explosive charge to weld two metals. There is metal in mines, torpedoes and all higher explosive charges. The explosion of the charge will melt into the metal of the oil tanker. All that is needed is to dissect the remains. Then, you can see where the metal was forged and have a clearer picture of who the culprit might be rather than using the medium as a platform to support political views or worse. Facts speak louder than BS!
S & P at Record High
This reborn rally is very dangerous. Four tech stocks (Facebook, Microsoft, Amazon and Google) account for 25% of the rise in prices. If there is no trade deal, these four will decline to which could translate into a serious correction to the entire market. The real safe choice and one that benefits with a declining dollar is gold. A word to the wise...
Sky Sail
Have you heard of this new idea in freight cargo carriers? The ship extends a kite-like sail very high above the carrier as it floats on the water. The sail gathers wind like wooden ships of old to pull the boat along the water. Crazy as it sounds, it works! This technique could save cargo ships $2 billion a year in fuel costs. This is a beautiful idea.
Catch 22 in Housing
The lowering of interest rates has caused a resumption to the housing and real estate market. Lower rates help buyers afford the high price of homes, however more buyers in homes makes for still higher prices. Home sales surged in May, but the price rise was also the best in two years. This could be a blow-off rally because the spring season was a failure and summer is the last, best shot this market has to make this year an up market. The data yesterday does not look good in the tea leaves at the bottom of the cup.
Trucking...
was one of my many jobs in life. The state of trucking shows revenues in serious decline. Retail is suffering due to the dangers of tariffs and competition with e-commerce. This has caused the spot prices for truck cargo to drop. Keep in mind that the trade amount between the US and Mexico is $347 billion and 85% of it moves through trucking. I guess the Grateful Dead are dead!
Taxes...
nobody likes them, but they are a necessary evil. Here is one that I can get behind. Tax the foreign earnings of US companies that outsourced their plants to other lands. The only chance America has to right our ship is to bring back good, high paying jobs. This will also help state and federal government with revenues and hopefully, somebody gets a bill out there to balance the budget. In fact, I would go even further to get jobs back in the US. I would declare that any company that has outsourced its factory to be a foreign company. Then, I put a tariff tax on all their products that they
make elsewhere and import to the US market. If it's not made in America, it is not American!
