The stock market is reflecting a sad trait in human behavior. Each of us has a boiling point where we lose our patience. It is ironic that the current market volatility coincides with our national holiday of Thanksgiving.
Inside many homes their is a divisive attitude that generally splits along gender lines. The women do all the cooking while the men get to talk, watch football and relax. It is not just the cooking, but the prep work as well as the shopping. The usual chores. Good husbands help and remind their wives that friends and relatives travel many miles to share the day. It generally goes well unless someone with a too strong opinion on an issue causes old memories to surface which results in unkind words or bad vibes. The lack of patience of putting self before others and not counting the blessings.
This is the stock market. Before it could brush off the usual suspects like the Middle East, excessive debt by corporations and nations, migrations problems and whatever the news could throw at it.
Now, the boiling point of trade tensions and Fed rate hikes lead the list as water overflows the pot. The turkey is dry. Did someone forget to baste it? Finger pointing leads to loudness and speaking without thinking, The market uses math formulas that trigger buying or selling without human thinking. At the moment the selling triggers more selling as the system is running the market. The computer does not know patience or cares about the trait. It follows its engineering just like the Fed is trying to manipulate an engineered economy. Here are some other aspects that are on the table along with the turkey, mash potatoes and carrots.
Cost of Money
Banks and other money users like to use short term financing to adjust their books at the end of the month except these rates are rising. One reason is the Fed is no longer supplying these assets to the market. These funds are expiring from the stimulus of the Fed from the financial crisis of 2008. Short term rates have risen and this cost is hurting the bottom line for many institutions. They will cut costs which means come January layoffs will be announced. This is like trying something that you have doubts about and after you tasted it, you regret it. Meanwhile, the Fed is drinking around the punch bowl. When the layoffs become widespread, they will enter the vault for the emergency playbook. It has one verse, "Throw money at it!"
FAANG STOCKS
If you do not own them because you cannot afford them, I understand. However, it is important to realize these market, technology leaders are diving off a cliff.
Company WAS NOW
*FB $220 $131
*AMZN $2,050 $1502 and touched $1,420.
*AAPL $232 $172
*NFLX $419 $258
*GOOG $1,273 $1,024 and fell below 1K
In addition, the overall market has declined by 10% which is correction level. One reason points to rising interest rates. The question emerges, "Why risk the market when I can get a short term 3% in safe notes? I can wait, collect interest and then, make a decision." Money is in competition with the capital intensive industries which only drives up the rates even higher. As 2019 arrives, the debate will intensify between securities and bonds. If rates keep rising, the tug of war will be won by notes. This makes more money leaving the market and lower prices. This will be the focal point of the market in the coming year.
Bit Coin
As my regular readers know, I'm against the cryptocurrency. I'm for precious metals. With that said, the digital money is still competing for investors money. Lately, they have been hurting like the New York football teams. The cryptocurrency has plunged 24% just last week. It has lost $700 B since January of this year. Nevertheless, traders do not believe this decline is capitulation. The new kid on the block once touched $20K and now, below $4K. It looks like it will hit $3K and then, $1300 is in the cards. After that, $700 and then, ZERO! I just hope these people will turn to gold which even in the crosshairs of fiat governments worldwide, cannot distort its legacy as a holder of real value.
Housing
This is still the most important consumer item in our consumer society. Sales for existing homes rose in October, but they have fallen in six of the last seven months. With rising interest rates the outlook at best is stagnation. However, there is another aspect that is affecting the industry: flippers.
Flippers activity in the market has declined by 18%. They cite rising prices of all homes and material costs are also higher. It looks like these housing repairmen are moving into another segment in the field: NPLs(non-performing loans).
There is still 800,000 non-performing loans out there in the market. These are loans defined by being at least 90 days behind payment. According to Black Knight Inc, this is not a great sign for the market as small investors are buying these notes and seeking to collect. Many of the homeowners who still reside at these residences, believe that since they have not heard from the original lending institution that their mortgage was forgiven. There will be $135B worth of crying in 2019.
OIL
You can never overlook the most important commodity as it relates to the economy. In an aspect that does not make sense other than seasonal aspects, oil is declining. President Trump put sanctions on Iran and the loss of this producer has not caused disruption. This is in addition to Libya and Venezuela, two messy producers, which does not help the market. This is great for consumers, but I feel this will only be temporary at best. You can see the price decline in the XLE as well as the XOI. The supply shortages have been made up by Saudi Arabia, Russia and the US.
energy sector WAS NOW
*XLE $78. $63.
*XOI $1603 $1262.
AUTO
Car sales are still strong. The US is seeking a record of 17m for four straight years. I think it will fall short, especially when you consider the average price of a new vehicle is in the $30s which was the price of a home in the 70s. You can thank the Fed for lowering the purchasing power of the dollar and our overall declining standard of living.
News Flash: GM is closing 5 US plants and laying off thousands. So much for giving US corporations huge tax cuts to incite them to bring production back to the US. GM claims this is a transition to electric cars except one of the factories made the Volt, their electric car. I guess GM remembers the clause in the new NAFTA deal whereby workers must make so much dinero. Yeah, fire all your high paying veterans and you meet the criteria by employing new lower paid wage earners.
They also say this is forward looking. Yeah, they want plants that are all robotic. They also claim the tariffs hurt them on steel. Maybe they should buy US steel in the first place.
President Trump says he will shut down the government if Congress does not give him money for the Border Wall. The countdown begins, 10, 9, 8...I am so sick and tired of all this deficit spending, year-after-year, administration-after administration. Our national deficit is fast approaching $21 trillion. Funny, the Republicans say less government and less spending and all they do is SPEND!
Finally
Did I hear someone say, "Yay?" Wise guy. Just like the split in the home over chores, especially with the added aspects of the holidays, America seems to have a double standard: one for the rich and one for the rest of us.
A trader for J. P. Morgan with 13 years of experience, John Edmonds pleaded guilty to "spoofing." He said that he learned the technique when he started from veteran traders. In this practice, a trader places an order, but cancels the same order before execution. The idea is to influence future prices which distorts the market. Dear Reader, the market claims no one manipulates the price of precious metals, but Edmonds used the technique in the gold market. The CME claims no price irregularities. Fiat money talks, while real money walks.
No matter what the conversation on Thanksgiving. No matter how the food turned out, the pumpkin pie never disappoints. Peace.
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