Earnings Report & Trading Outlook

- "Failing to prepare is preparing to fail."
- Ben Franklin
Our great founding father would probably say get your money out of the market at this time because there are signs that indicate rough waters ahead.
The new calendar year began in October for the government and it ran a deficit of $136.5B. This is 12.2% higher YOY. They spent $136.5billion dollars that they don't have and they have been doing this year-after-year without consequences. This is our so-called leadership. But hey, they'll tell you that the dollar is strong and it will rise some more if the Fed raises rates in December.
The stock market is down for the year and yet, it is close to all-time highs. This would be a conundrum except we know that the Fed printing cheap money is the sole driver of the market. Many claim the recent decline on the aspect that the Fed might raise interest rates for the first time since June 2006. So, let us look closely at the third quarter earnings report to get some insight into the US economy.
With 88% of S & P companies reporting, earnings are down 3.7% and future guidance says that it will fall again for the fourth quarter at another 3%. If we dig deeper, we see commodity sectors down at recession levels. By the way, the world's third largest economy, Japan is in recession.
CEO
of a steel company stated that steel is not only in a recession, but a depression. When steel recovered after the crisis of 2008, it peaked at 2000. Today, it is at 608 and falling. Dr. Copper was healthy in 2011 at 4.25 a pound and now, half that level at 2.16 and falling. King Coal touched 35,000 in 2012 and today, 6,162 and falling. Rail car orders are down 83% and big trucking orders are down 45%. Finally, oil which we all need in one form or another every day. It is down 52% at a little over $40 per barrel and falling due to overcapacity. This tells you that there is no big demand in products that are needed if an economy is growing at home or abroad. Need a second opinion? The CEO of Maersk Group, the largest shipping transportation company in the world says, "He sees a difficult period ahead." This sad outlook is reflected in the Baltic Dry Shipping Index which is at its lowest level, EVER!
You will still hear the talking heads on television and the media calling, "to buy the dips, the market is just off the highs," however the market is manipulated by its indexes. Fact: there is only one company still in existence in the original Dow Jones, GE. The index like all the indexes gets reprogrammed all the time. At present, five companies are responsible for the markets surge.(Apple, Google, Netflix, Amazon and Facebook.) The market is getting less on sales and revenue(see above or below.)
IBM
is a perfect reflection of what is really happening. Market value has dropped every year from 2009 at $167B and now, $129B. The company like so many, have used stock buybacks to keep the share price up. Just think, in an age of personal PCs, IBM use to receive over 50% of revenue from hardware and today, just 6%, while at the same time it has gone into debt to fund share buybacks by spending $116B from 2004 to 2013. It now has a debt ratio of 295%. They are not alone as other big names like Walmart and GE and many others have done the same thing. They borrow cheap money from the Fed. In fact, the record of debt of $1.4trillion set in 2014 will soon be broken in 2015.
Take a look at some of the biggest names in retail: Macy's, Dillard's and Nordstrom - all reported lower earnings and a lower future guidance.
Housing is one of the biggest deceivers of all. It gets many government programs at taxpayer's expense to save those who made a serious mistake in the crisis of 2008. In addition, low rates by the Fed has stabilized the sector with prices that are even higher than the collapse of 2008. Yet, home ownership is at levels reached in 1978 - 1978!  There is no entry level housing because wages cannot meet the cost of home ownership and we all are lambs to renting which is off the charts and rising. The government does not call this inflation, it is just appreciation. Manipulation!
Finally, Goldman Sacks reports that US companies will spend a record $608b on buybacks this year which is 10% more than last year, but research and capital expenditures are down, so where is the future growth going to come from? If you listen to the media, you are preparing to fail.

Gresham's Law Hits Currencies

A recent episode in my life correlates to what is happening in international currencies. My lease is coming to an end. My greedy landlord offered me an extension with a rent increase of 16%. Isn't he sweet? I thought about that. I have to make due with the same income and yet, this one aspect to my life now costs me 16% more than yesterday. My protests fell on deaf ears. I reminded him that I always pay on time, get along with the complex neighbors, never cause a problem and take care of his property. He reminded me that my same apartment only generated $500 per month for him in the past. I thought about that. What do you do when your income is the same when rent was $500 per month and now, almost $700? You become homeless is my first thought. I wanted to tell him that his greed will drive out the good tenants and will be replaced by those who never pay on time, cause problems and don't take care of the premises. Gresham's Law: Bad money drives out good money. Fiat money killed our silver coins and devalued our currency. Good neighbors are replaced by poor neighbors and then, crime.
Take my above situation and now, apply it to what is happening with global currencies.
Governments
understand the benefits of fiat money. It costs them nothing to print and although this printing devalues your currency, the lower market value will cause a surge for your nation's exports. They never mention the flipside. A lower valued currency is a negative aspect to their citizens and in addition, this policy will also cause inflation to their imports and thus, a hardship to the citizens like my rent increase. These political tendencies are nothing new. We had a doozy back in 1921 - 36 period. There was one difference. It appears that "printing" policies by governments then, allowed more time to determine the effects of it, as compared to today. Let's revisit.
1921
Germany overprinted. They destroyed their currency which led to the collapse of the government. In 1925, France and Belgium devalued. This made England and the US with the stronger currency. They got the exports and we got the deficits. In 1931, England struck back by going off the gold standard and devalued. Then, in 1933, the US devalued and closed gold to its citizens. Then, in 1936, England, France and Belgium devalued again to gain market share in exports. It is the same today except the time duration seems to be 24-months at the most as opposed to three to five years back in the day.
Today
politician's understand the disposable society and instant gratification After the financial crisis of 2008, all governments printed, but the US kept at it with another devaluation in 2011. Then, the Japanese under Abenomics made a bigger push downward in 2012. They not only printed and bought government bonds, but also stock shares. The EU answered with stimulus. Now, they've added QE and negative interest rates. A government does something and the competing government follows with something, but all forget that its citizens still have the same income with food rising with taxes rising with insurance rising and eventually, gasoline will catch up. What do they do become homeless? The Syrian refugees are walking to Germany and Europe, but where will the homeless citizens of these nation's walk too?
The pie is shrinking and there is not enough to go around and to answer Liz Saunders: Yes, there is over capacity and it is in currencies. There is not enough pie which means almost all get less and this is demonstrated by China.
China
is 10% of the global GDP and if China gets less than this effects everyone else. A quarter less for China equates to 2.5% less for world GDP which according to the IMF will be 3.6% in 2016. By my math I see global GDP will be 1.1%. I guess they use modern math. Now, I see another problem. Say, I'm right at 1.1%. However, if China shrinks, then its trading partners who are also part of the equation will also shrink to which, makes the 1.1% figure too high because they will have less. Bad money is being driven out by worst money which whether you realize it or not, is the cashless society. Jobs are outsourced leaving only transfer "money" as income. The velocity of money is disappearing to a digital account ledger which is another reason to End the Fed!

So Many Candidates, So Little Hope: The Republicans

Yes, it is the Republicans turn. As stated, I have no faith in our so-called leaders or those to be nominated. Remember: Faith is more expensive than hope and hope itself is sinking like a stone in water. With that said, here is the present group.
Mirror, Mirror on the Wall...
The Republicans firmly believe the concept that anyone can become president in the US. In fact, a rumor circulates that every Republican Congressman and Senator looks in the mirror every morning and sees the next president.
Here is the present list and there is enough to field a diamond or a gridiron. Not to leave out B-ball, there is still time to sport a starting five. The day is young.
*Jeb Bush: the media's choice, perfect status quo, but no popular support - fading fast.
*Ben Carson: his calm approach is gaining traction and grass root support. Seeks tax reform, balance budget, a doctor who opposes Obamacare and he is pro-life. Could gain a position as a cabinet or VP running mate, but won't win the nomination.
*Chris Christie: fading and GW Bridge scandal hurt. Probably will dropout.
*Ted Cruz: Hispanic appeal always inherent. Rising from the dead. Says he is fiscally conservative, but offers no real details other than against democratic spending. Says he is for jobs, but votes for trade packs which kill jobs. I see nothing in him.
*Carly Fiorina: token female. She is against planned parenthood group. Says she is for the middle class, but offers no real ideas. Could be offered a cabinet position to gain female votes.
*Jim Gilmore: CIA type and not to be trusted in my view. Will increase military budget.
*Lindsey Graham: war monger and has no idea how to help the US economy. Probably will dropout.
*Mike Huckabee: fading fast, but made a strong statement for American workers by going against the H-1B visas. Sounds more democratic than republican which is why he is fading.
*Bobby Jindal: token ethnic for diversity effect. Has a plan to replace Obamacare, nothing else. Probably will dropout.
*John Kasich: strongest candidate that talks about issues and displays answers to questions. This type of candidate should do better, but our system is so bad that he too, is fading, He is for a balanced budget(Good - my support) against abortion(I like to see this as a national vote which I expressed in my unpublished work)against ethanol subsidies(Good - my support)I don't know if this candidate has conviction to his positions as almost all candidates say they are for something just to collect votes with no real purpose behind it. Doesn't sound like a Republican, but could gain a cabinet or VP running mate position.
*Rand Paul: against fiat money(Good -my support), but personality is losing audience. Probably will dropout.
*Marco Rubio: Hispanic appeal is inherent. A young, war monger who would increase military spending. This guy is terrible and has no vision for America, however the rich like him like Paul Singer, a billionaire who recently endorsed him.
*Rich Santorum: same old, same old. Probably will dropout.
*Donald Trump: I think his star peaked. The media and insiders hate him which makes him worthy, if nothing else. Shoots from the hip which can backfire. His abrupt style needs to be pushed into a more teaching, calm manner like Ben Carson to gain national appeal. He is against trade packs. (good- I endorse.) He needs to clarify his immigration stance to be more pragmatic. (The US cannot take in immigrants when 10 million go unemployed, but are not counted in our manipulated agencies. Maybe in the future if things get better is my position.)
There you have it, but again, this list changes from week-to-week. Say goodbye to: Jim Webb, Scott Walker and Pataki."...Nana, nana, Nana, nana, Hey, hey, Goodbye..."

So Many Candidates, So Little Hope: The Democrats

Yes, we are down to little hope because faith cost more than hope and personally, I have no faith in our so-called leaders. This is the digression that we find in America and that is depressing. For the next two weeks I will look at the presidential hopefuls who leave me with so little hope.
With the concept of fair play I will take a look at the US 2016 Democratic Presidential Candidates and next week, the Republican field. We have a cultural concept in America that anyone can become president. This belief is fading with the last Supreme Court ruling on campaign money. By next week I expect the number of Republicans to decrease because of a lack of money, although they call it funding. Chafee bowed out the other day and it was last reported that he had only $284,000 in his kitty. Democratic slogans are nice, but money is determining the outcome. Sadly, political office is up to the highest bidder and thus, no one represents the people anymore. If this keeps up, we will experience a Bastille Day.
Last Count
the democratic field is down to four. If the press had their way, the democrats would choose Hilary and the republicans would back Jeb. That is the "free press" idea of democracy: two status quo candidates and career politicians who have no vision for America and will do nothing for the people.
Of course, there is always talk of new entries like Ben Affleck, Kamala Harris, Mark Warner, Ben Casey and others from week-to-week. Joe Biden dropped his name from this group.
So, Sebastian took a look and this is what he found.
Martin O'Malley
was the Governor of Maryland. Declares he wants to rebuild the American Dream. I say, "Great!" Then, I ask, "How?" NOOOOOO Answer. There is another problem here. His mother is a lifer in politics as a career staffer. The only good thing that I can say about him is that he is financially responsible and we definitely need that component, but he doesn't offer any other components.
Lawrence Lessig
has a Harvard pedigree. His resume reads like a Chamber of Commerce profile. His best idea is to rethink our laws that choke creativity, but offers nothing for the country as a whole. At best, this guy could fill a cabinet position, but president? Please!!!!
Bernie Sanders
closet candidate to the people and that alone makes him standout. He foolishly declared himself a "socialist." He should've just stated that some socialist ideas are good like social security. He would like to provide medical for everyone and free education all the way through college. No one I know would not like or need those benefits except Bernie offers no way to pay for them which is very, very bad. It makes him a tax and spend Democrat. I do like that he is against the TPP trade pack, but I would like to see a resolve to tax imports to create jobs at home and to tax outsourcing. Those are two taxes that I would endorse. No candidate in either party has taken that position.
Hilary Clinton
is the presses favorite. They always cast her in a favorable light like last week with the Benghazi Hearings. The reality is that she is a career politician that has never come up with a good idea for the nation although she was a senator amongst her many positions. Getting back to the Benghazi Hearings, she revealed why she is such a phony and never should be elected president. In a response to the criticism that she neglected to provide security for the embassy, this is her response. "I have a professional staff that are experts and I let them make the decision about the security request."
Now, my idea of a leader is one who has a professional staff that offer the pro and con to a decision, however, that decision is made by the leader and not the staff. She is the worst. Get out of town!!!!

A Tale of Two Engines

Ever see one of the modern freight train engines? They appear as twins in back-to-back formation. Also, in many cases, they appear to be facing in opposite direction, although directly attached. I thought about that. Maybe they use one to pull forward and the other to push backward when on the same track. I'm not in the business, but their is a metaphor for an analogy to the global economy.
The US is the lead engine in the world market and China is the twin engine. Together, they powered the global community out of the 2008 crisis. Both used the same techniques: low interest rates that provided cheap money, stimulus to market sectors and the recapitalization of their banking system. It worked, at least for a while until over capacity gummed up the stations. Now, the train is slowing in both directions as it approaches a steep hill.
WTO
The World Trade Organization just reduced its global outlook. Historically, global trade runs around six percent. Today, it is down to three percent. This is the latest in a long line of bureaucratic reports that add to the declining trend. Agencies like the EU, IMF and IB all have reduced their global outlook. Dear reader, I offer you a closer look at the twin engines.
China
The Caixen Flash China General Manufacturing Purchasing Managers' Index, basically PMI, in China dropped to a 78-month low. It sits at 47. Anything below 50 is contraction. Could it be an engine mechanical problem? It seems like no one is setting aside money for repairs which need to be done. Companies have been using their bread for buybacks and not basic needs which offers a cloudy outlook. If there is nothing to move on the train or the engine needs repairs, there is nothing to buy or sell which means eventually, layoffs. People without income do not shop even if the train finally brings something to the station. The continuing slowdown in China's GDP is gathering steam as it fell again, this time to 6.9%. Of course, I don't put any faith in Chinese government agencies numbers which are even worse than ours which are pretty bad.
US
The US engine faces its own problems. The rising dollar has hurt the S & P 500 companies and sinking oil has caused severe layoffs across the board and across borders like OPEC, Russia and Canada. (See recent articles.)
Looking closer at the US engine, internal problems loom. The Empire State Mfg. Survey is negative. The Philadelphia Fed Business Outlook shows contraction, as well as the Kansas City and Dallas Fed Mfg. reports along with the general Factory Orders Report.
Here is a perfect example with a Wall St. institution no less. Morgan Stanley's earnings plunged 42% after the CEO restructured the company so it would stabilize its earnings. Nice job, you overpriced flunky!
In addition to poor earnings the US economy has other problems. When the train stops at stations, every global player is adding cars to pull as they dump on the US economy. In fact, they're building a new depot, the Trans-Pacific Partnership which will only dump more on the train and US economy to which will cause the mechanical breakdown of the engine. In fact, the recent monthly trade balance report confirms my viewpoint: The US ran a $48B deficit.
At present, the train faces a steep hill. I think a retrograde motion will happen whereby the train reverses, stops and uses the China engine to give dual strength to climb the hill. However, both engines need repairs which have been neglected. Both will be recalled for repairs at their respective depots and I see them there for quite awhile. I wonder what is happening in the caboose?

Outlook: Oil & $

...Turning and turning in the widening gyre. The falcon cannot hear the falconer; Things fall apart, the center cannot hold; Mere anarchy is loosed upon the world.
- W. B. Yeats

How does this relate? Oil, my friend. The CPI may not include oil and food, but you and I, dear reader need it every day. One-half of the equation (former)is down over 50% while the latter half is up around 10%, although the government says otherwise. We have benefitted due to the additional strength of the dollar. This is why we have been able to meet life's obligations with many living a good life and the rest of us just existing. With that stated it is important to look deeper into oil because any spike will cause serious inflation to most of us. Yes, I call it inflation, although the pundits will just say that oil is just returning to its price level. That level eats out the house in most of us.
We all know the reasons why oil declined. All one has to do is follow the petroleum reading on Wednesday. Inventories of US oil is 100 million barrels above their five-year average. The global market has more oil than demand. Those two factors tell me all that I need to know except will it continue.
Morgan Stanley
the big Wall St. house says it believes the oil market has stabilized and because China will grow, so will the demand side. They add,"...not only in oil, but commodities." Could this proclamation by this institution be the cause that oil rose 9% last week? Let me say this disclaimer: Never Trust Wall St.
Here is the way I see this price action. Gold and silver have been moving to the upside with conviction. This worries Wall St, the Fed and the government. They do not want to see another generation getting into the Founder's belief in precious metals as money, however M.S. is looking to hop on the bandwagon by declaring all commodities and at the same time, take some luster off the enemy of the fiat state. Like all pundits, they offer partial truths. In this case they remind us China is still growing to the tune of 6.8% and China consumes 50% of the world's production of: copper, nickel, aluminum, steel and coal. In addition, they are second in oil consumption and lead inmost industrial categories.
A successful investor, E.B. Tucker also likes the price action in oil, however he favors oil tankers as the way to monetize the upside. He likes Euronav (EURN)because they have an upgraded fleet and they pay out 80% of their profits in dividends. He might be on to something, but $13 is the highest that I would look to enter. One reason is the trend. Supply and demand still favor declining prices. The other reason has to do with US production. It peaked at 9.6 million barrels this year in June. US companies have been able to hold off the price destruction due to hedging. Even with that conservative approach to production, the leaders have fallen. Exxon (XOM)is off 52% and CVX is down 34%. Many other companies will suffer in 2016 because their hedges will expire. Most of these type of contracts are one year in nature. X.O. will be hurting along with most of the shale oil producers. Pioneer will get $70 a barrel in 2016. They are one of the lucky ones, but there are very few others with extended contracts. Production will gradually shrink, however if demand doesn't close the gap, prices will still decline. That is the big "if" for 2016.
Saudi Arabia
has preempted any market niche like the vote in Congress to allow US companies to export oil. I can only hope the ban continues because US citizens will pay at the pump if the ban is lifted. Nevertheless, OPEC is discounting its oil price to Asian nations to maintain control in the oil world. Then, we have the other important part of the equation...
The Dollar
The dollar began a rise in July 2014 from .80 cents to back to a dollar in value. Pundits claimed it would be at par to the Euro by now. Did you read my disclaimer? Never Trust Wall St.
At present the dollar slid to .94 cents and it is trading sideways. I see a continuation in decline. There will be no interest rate hike by the Fed which would have put the dollar at par to the euro. The bond market also sees negative rates and so does reality.
US Treasuries
did something that it never did before: paid no yield. No compensation to borrow three-month treasury notes. This is the transition to negative yields which is already happening in the world. This will lead to banks charging you to deposit your money and if a crisis happens, you could lose access to your own money.
Some have spoken out against the Fed like Carl Icahn, Howard Marks and Casey Research because they see that we are losing our free market, especially in money. Central bankers have skewered the free market with cheap money and they are gumming up the system. As a result I see the dollar returning to its breakout point of .86 cents. This will cause inflation here and around the world. This will not be good for oil demand. When the storm passes, I like CVX and EURN if it falls to $12.
And as always the culprit is the Federal Reserve which is why I say, End the Fed!

Confluence Point

If you ever been to an amusement park with its thrill rides, the joyride can best explain what I see in the market and our economy. The clearest example would be the roller coaster. The ride begins with the long ascension upward. This correlates to the economy and stock market after a downturn. The slow climb on the "wall of worry" as things get better with high anticipation. After a peak there is a sudden drop which relates to a market test of the lows. This happened in August 2011. The ride then goes through a series of quick turns, sharp bends as it slowly rises. You might even bounce up from your seat, but the wheels stay on the tracks as you zoom up, down, and all-around. You want this fun sensation to last, but alas, the bends are now more even, the speed decreases and then, the ride is over. If you take the ride numerous times as I have, I come to notice the confluence point. We have reached that same point in the market and our economy.
Shuttle Signs
What I mean by this is the market swings of triple digits, up and down with no clear direction. Back and forth the market goes, where it stops nobody knows. Market sectors like oil are down, but bio up, then, down again, but oil rebounds or seems too.The shills tell you to buy the dips, but few give insights like the importance of the bond market. Not here, dear reader, you get what I see a clear signs the market and our economy is turning - south.
If things were great and really improving the following could not be happening...
Bonds
are heading to their highs with the ten year back to 2%. Economist, Shiller predicted the 30 year to hit 2%. The Fed talks rate hikes, but action speaks louder than words. Money printing never stops. The
IMF
like clockwork have lowered their global economic forecast every quarter since the last quarter of 2014. Now, they say world growth will only be 3.1% and like I've said every quarter, they're wrong again as it will be lower.
Job Cuts
The labor bureau stated that this is the 30th straight week of job claims below 300,000, however we all know that they fudge numbers. I have questioned their numbers repeatedly since according to the  Challenger Job-Cut Report, there have been over 100,000 announced job cuts in the last two months. Yes, the announcement can be for a future date, but at this present moment consider the magnitude of the announcements.
*Conagra 1,500.
*Walmart 500.
*HPQ 32,000.
*Microsoft 7,800.
*Schlumberger 11,000.
*Qualcomm 4,500.
*Target(Canada) 17,000.
*A & P 8,500.
*RadioShack 5,424.
*Baker Hughes 7,000.
AMD 5% of its global workforce.
Bebe Stores 2% of its workforce
Caterpillar, Chesapeake, Bank of America, Goldman and many, many more.
Sometimes companies like to use code words for their actions. They will announce that they are restructuring the company and they will cut costs. Cutting costs is a code word that always includes job cuts. GM plans to cut costs of $5.5 billion. Dunkin Donuts says it will close 100 stores. That is a lot of lost revenue and jobs for our economy.
All of the above happen when the ride is almost over. As B.B. King sang, "The thrill is gone..."