In this recurring monthly piece I generally do not include the year; I do for a new year. It helps perspective. As we enter the new year, our footsteps from the previous come along with us. With that understanding I begin.
Dollar
It has been rising lately. It just past its 24-month moving average at 97.36. However, this is a fraction below the 50-day and 200-day average. The dollar has been range bound for the past three years. We have seen this movie before.
The same could be said for a bearish outlook. The 95. level seems to be the crucial point. A break below that level would indicate a bearish trend.
The indicator that has been working best for the past 20 years is the direction of the stock market. If the market is in a rally mode, a delayed reaction in the dollar appears. It will gain strength. On the flip side, if the market drops, eventually the dollar follows this direction. At the moment the market is in a rally mode. The trade tensions have relaxed. The danger level in the Middle East is falling. The Brexit deal signals another year of no dramatic changes. They already have a transition period until 31st of December 2020. There are no financial worries at the moment. Together, the current trend should stay in motion until mid-year. The political circus in the US will only have an effect if something stirs the pot against Trump. He has his cards dealt. His full house which is the Senate ensures he will escape impeachment. He is waiting for his reelection to do what he intends to do. This is the trade situation with China. If he has the balls to cut off China as a trade partner, there will be a serious global recession, possibly a depression. China will never change. They will do whatever they feel will make them number one. This ego drive will show up in there continual theft of intellectual property. He should also put tariffs on US companies that outsource to China. If the product is made somewhere elese, it is foreign. It should be taxed. This is the only true way to protect American firms and workers.
Anyway, this bullish outlook will awaken the contrarians. They will be on the lookout for a short-term pullback. We also saw this movie in December 2018. As I state in my unpublished work, "All things are connected." Politics will effect how the year plays out economically for the US and the world.
Speaking of the world...
The Davos Economic Summit agrees about my indicator to the economic environment. They see the US has the highest risk facing the world. They worry about all the usual suspects: China trade, US politics, Middle East and EU tariffs. The other big concern is climate change. Of course, they don't offer any solutions like my water idea in my unpublished book.
Dry Well
The largest natural gas driller reported a huge write-down of its assets. EQT paints a sad face to the industry. Too much supply-lower prices. The lower value ($1.8-B) is a contagion that has spread throughout the industry. Chesapeake Energy is selling at pennies on the dollar. Range Resources has slashed its dividend. Many others will follow this lead. Even with a draw down on oil inventories in the latest energy report, the price of oil and gas has declined. Exxon is trading where it was in 2006. If you do not realize it, the US is pumping out 13 million barrels and it exported 4 million last month. If energy firms cut back on spending, it will not only hurt the economy, but we can expect an oil spike in 2021.
Yelling Yellen
She is in the news again. The report forget to mention that she was making money giving speeches. This time in Asia. She is worried that the trade deal with China is not over to which will negatively effect advances in technology and robotic AI. Even with the phase one deal, she noted that US tariffs of 25% will be on $370 billion Chinese goods. The trade dispute will hinge on Chinese subsidies and technology competition, especially as it applies to national security. The last sentence tells so much. She does not point any fingers at anyone. She does not mention anything that causes our deterioration in the US standard of living due to outsourcing or anything that would help the American worker. This is the Fed people and another reason why we should End the Fed!
Drive-in TVs
The biggest push at the Las Vegas CES was extra large TVs. This is not for me. If you invest in one, you may need to protect your investment. How about a "Robot Dog?" Also, not for me. I'd wait for the "Saber Light" feature.
Another trillion...
Google joined the other three members of the trillion dollar club. Remember Paul Simon's words of wisdom, "One man's ceiling is another man's floor." As Google joins the club, some other firm goes bankrupt. This is disrupting the economy, but longer-term it will be the norm to the economy.
Speaking of the economy...
the second most important purchased by a consumer is a vehicle. A new report by the IMF on auto manufacturing and sales paints a dark picture. The study shows that the auto industry accounts for 5.7% of global GDP. This is down from the previous year and the decline is forming a negative trend. World auto sales dropped to 90 million from 94 million. No surprise here. When in America a new vehicle cost over $30K, one needs an above average job to purchase one. If all things are correlated, this price comparison will hold true to everyone in any nation. Autos are being priced out of the ever shrinking middle-class. Not good. There is one piece of good news. GM says it will use an old facility in Detroit to make electric cars. This will add 2200 good paying jobs.
Give Peace a Chance
President Trump had a conference with the Israeli prime minister with his initiative for peace in the Middle East. I'm all for peace, but you cannot have an agreement between two parties if one of the two is not present. Much ado about nothing.
Finally, Year of the Rat
In another example of culture clash, the Chinese celebrate the new year which is called, "The Year of the Rat." In their societal history the rat is resourceful and thrifty and therefore, it is a prosperous sign. In US culture the rat is a sneaky thief who will betray a friend. This is not good for Trump if some republicans betray him. However, someone took a video of a rat in the New York subway system finding a slice of pizza and carrying it to its space below. So, maybe the US and China could find some common ground and have a pizza together?
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