Wednesday, August 26, 2020

Odds and Ends: August 2020

 Much Ado About Nothing - Shakespeare

The dog days of summer are passing and the hope is that it takes Corvid-19 with it. For many, these last days of the summer are spent with relaxing reading. We, at Evolution feel the Bard of Avon is appropriate. In contrast, the market is in a rotation period. Market watchers understand that the market has leaders, best power forward, cleanup batter or QB. This period is marked by what big money sees as the next big thing and they rid themselves to what they see as fading. One can clearly see this with Buffett. He cut his financial holdings and (this falls under Ripley's Believe It or Not) purchased gold. He chose one of our favorites, Barrick. Yay! 

You can also see this in the steady rise of hedge funds favorite chip-maker, Nvidia. It is expensive, but the company is expanding. It looks to capture the upgrade cycle period from Google and Microsoft. It is not just graphics anymore. With those examples, the recent records set by the market indexes is very deceiving. 

- Men were deceivers ever - One foot in sea and one on shore

Apple is king! We do not refer to New York, although the Yankees are fitting. We are talking markets. The FAANG tech leaders of last year are no longer a group, but just the chairman - Apple. The stock is responsible for the record highs. If Apple rises, so does the market. If it declines, which is rare, the market follows. This is due to the weighted structures which are led by Apple. This reality is giving a skewed view of the strength of the market. The cell phone leader has a new buddy in Tesla. Together, they are pushing the market higher. We dug deeper. The Advance/Decline line is trending lower. We see that new market highs barely edged out new market lows. The other aspect is the phoniness of the people who determine the stocks that make up the Dow and Transportation Index. This week they kicked out one of the most important company that America produced - Exxon. This has big ramifications for the market. There are many funds that mimic the indexes. They will buy the new like Salesforce and sell the old like the oil giant. This action just prior to options expiration on Friday is reeked with corruption. The words of wisdom from William began this paragraph. Know their intent! 

- I would challenge you to a battle of wits, but I see that you are unarmed!

China is smart. They always enact plans that look out further into the future. They control many rare earth items. In addition, they copied the US idea for a reserve petroleum reservoir. They just ordered 2,000 tons of cobalt. This commodity is a key material for battery operated electric vehicles. They do these things to be prepared unlike the US which did not even have basic health items like face masks or hand sanitizer. With the elections coming, the way we see things here at Evolution, both the Democrats and Republicans suck!

Of course, relations with China will be a big issue as the public finally became aware that we are to dependent on imports, especially from China. A Bank of America report says that it will cost the US economy $1trillion to get out of China. With all the wasted trillions that the government spent due to the virus, I say that this would be money well spent. Saudi Arabia agrees! They just pulled out of a $10 billion deal to have a oil refinery built in China.  

- I rather hear my dog bark at a crow, than a man swear he loves me.

Do you remember the mantra, "Dow 36,000?" Well, I guess with inflation, their new version is, "Dow 50,000." These unknown, want-a-be make statements with no conscious. We have one. A report stated that mortgage delinquencies are up more than 8% in the second quarter. This trend is up 4% from the first quarter. The forecast in the 3rd quarter is (are you sitting) 12%. Yowza! These stats are from bank loans. The FHA government loan program hit its own record at 16% in the 2cd quarter. Note: Almost all these problem loans are protected by the CARES Act, but it is expiring. President Trump signed an executive order to shield the public from this dangerous crisis, however we feel it will not stand up. Eviction notices and defaults proceedings are happening. When this news hits the market in mid-late September, we see a Dow at 23,000. 

If your region is under the virus stress, don't call Pizza Hut for dinner. They just closed 300 stores. Green Street Advisors stated in a report that they expect more than half of all mall-based department stores to close by the end of 2021. The process is under way with 14 major retailers filing for bankruptcy. If you prefer to glance at a magazine rather than a book, check out Rolling Stone. In it, Wade Davis writes about many issues we have noted here at Evolution. He fears that a change is happening in world leadership. The US time is passing to China. We say that if the US ever publishes my book and enacts some of my ideas, the US will experience a new surge like Constantine gave the Romans before it all ended. Another writer that we like is Michael Sandel with his book, "Justice." Of course, this week ends with the Fed annual meeting in Jackson Hole, Wyo. In their last published report the Fed did not disclose how much in dollars the amount of bonds that they will buy. They did say that they would not mind if inflation surpassed their 2% goal. Everyone knows that food and shelter is way above the government stats on inflation. This returns us to Shakespeare, and his work, Much Ado About Nothing. Peace.