I wrote a book and the meme within it is, "All things are connected." Because I don't have a name like Paris Hilton, Kim K. among others, agents have declined my work. This is why I write a blog - to get a name or possibly some recognition. It might lead to representation and then, publication.
Among the important indicators that I watch is the bond market because it will not only reflect the strength and direction of the US economy, but also the cost of financing - interest rates.
Prior to last Friday's job report, the media talk and general consensus is that the Federal Reserve will raise rates by a quarter point in June or July. The bond market says...
No!
This caught my attention. Have you checked the global market? The bond market is echoing the global trend which is down and negative in many nations.
10-Year T-Bill
rate is low at 1.70%, but that ridiculous low return is high compared to central banks elsewhere. In Germany, you only get 0.12% and a growing number of central banks are turning to negative rates. These idiots say they seek inflation for growth, but they enact a deflationary concept to achieve it.
Real Life
You have a business. To preserve cash for a rainy day, you borrow for a short term need. Now, your central bank lowers the cost of loans. You save on this cost. However, this does not mean that consumers will buy your product or if competition from State funded businesses can out-price your product through currency manipulation to win market niche. The Fed's actions have only reduced costs for businesses which gave a spark to stock prices. They have hurt all citizens through devaluation of currency and, especially savers, pension plans and mutual funds.
Accept Responsibility
Will they ever admit that their policy is wrong? For example, the Organization for Economic Cooperation and Development(OECD)just changed their projection for US growth in 2016. At least, they made an announcement. Anyway, originally, they said US growth would be 2.4%. Then, they lowered it to 2%, and now, 1.8%. Hey, they are not alone. You can add President Obama, the IMF and the Fed among others. By the way, I predicted GDP would be 0.5% in the first quarter and I was spot on until the latest government revision. Don't they always make things look better?
Mathew Mish, credit strategist at UBS is also looking at bonds, especially high risk issues. His analysts projects a rise in default rates from 2.6% last year, to 4.3% in 2016. I like to add that the market has resulted in four straight quarters of profit declines. We both realize that companies will have a harder time to cover costs and debt. For those who will seek further funding to make ends meet, they will face tougher lending standards as debt is getting more expensive, regardless of what central banks do with rates.
In addition, I see the low price for oil negatively effecting one of the strongest sectors in the US economy. I see retail continue to suffer. Together, they will effect the bond market. Mish estimates default rates for non-energy firms will rise to 3.5% in 2016 from 1.5% in 2015. We both see the default rates adding stress to the market.
Higher Rates?
If rates are raised, many pension and mutual funds will drop "old" bonds for higher returns. This action could cause a liquidity crunch and another reason why the drastic actions of the Fed is so dangerous. In any event, lending standards will strengthen along with the rate of return.
Housing
Not only does the cost of doing business climb, but higher interest rates will disqualify tens of thousands of home buyers.
The staircase, ladder climb model
We already have a serious flaw in housing - builders have by-passed affordable housing for the upscale market. The staircase model and the American dream in housing has crumbled in many regions of the country. And now, the return of Flippers! In the first quarter of 2016, flippers accounted for 20% of all home sales. They are everywhere! From cable TV in Nashville to LA. If they can't sell, then we all know what happens.
As I wrote in my unpublished work, The Evolution of Democracy: The Book of Multiple Ideas and Predictions, all things are connected.
Wednesday, June 8, 2016
Wednesday, June 1, 2016
Chief Little Cash - Big Debt
Everyone knows Apple, Microsoft, and Google has tons of cash somewhere overseas, however there are over 2,000 nonfinancial companies that added a combined figure of $6.6 trillion in debt in 2015, including the above cash rich, tech giants. This debt casts a long shadow over the same total of cash in-hand. The present balance sheet only shows $1.84 trillion for the same companies. According to S&P Global Ratings, this ratio of cash-to-debt is the lowest it has been in 10 years.
Recovery in 2009
has seen company debt grow 50 times that of its cash growth. In numbers, debt grew to $850 billion and cash grew one percent. This equation equates to bad math. Maybe those stats that say the US is falling behind the world in math and science is taking effect?
Looking deeper into the numbers, the stats distort an intrinsic aspect among the companies. The elites like in the first sentence, have the majority of cash and can withstand a difficult period, while the remaining entities(99%) have the majority of debt. They have to budget $6 trillion and their cash reserves will evaporate quickly in any downturn. Just ask the neighboring oil and gas tribe. At present, the cash-to-debt ratio fell to 12 percent among speculative-grade issuers. This aspect puts many banks in a tough situation as they have to set aside more capital to cover Chief Rainy Day who may default.
What do these four have in common?
Aeropostale, Quiksilver, Pacific Sunwear and Sports Authority????
all retailers who filed bankruptcy in 2016. They are not alone as they stand in the court line behind the 67 oil and gas tribe. Last year at this time there were only 39 standing in line. The S&P expects the default rate to continue to rise from the 3.9 percent in 2015 to 5.2 percent this year.
Analysts explain this year's January drop in stock prices to credit conditions tightening at that time. Now, they say credit is available even for Greece. They say the market has passed the danger zone.
I say, "Oh really!"
Those same analysts should have been at the victory pow-woo after Little Big Horn. The victory of bows and arrows(debt) over guns(cash) would be short lived as debt grows with interest while cash is needed in day-to-day transactions. It was a sad victory party because the future had a dark shadow hanging over it just like our economy.
Recovery in 2009
has seen company debt grow 50 times that of its cash growth. In numbers, debt grew to $850 billion and cash grew one percent. This equation equates to bad math. Maybe those stats that say the US is falling behind the world in math and science is taking effect?
Looking deeper into the numbers, the stats distort an intrinsic aspect among the companies. The elites like in the first sentence, have the majority of cash and can withstand a difficult period, while the remaining entities(99%) have the majority of debt. They have to budget $6 trillion and their cash reserves will evaporate quickly in any downturn. Just ask the neighboring oil and gas tribe. At present, the cash-to-debt ratio fell to 12 percent among speculative-grade issuers. This aspect puts many banks in a tough situation as they have to set aside more capital to cover Chief Rainy Day who may default.
What do these four have in common?
Aeropostale, Quiksilver, Pacific Sunwear and Sports Authority????
all retailers who filed bankruptcy in 2016. They are not alone as they stand in the court line behind the 67 oil and gas tribe. Last year at this time there were only 39 standing in line. The S&P expects the default rate to continue to rise from the 3.9 percent in 2015 to 5.2 percent this year.
Analysts explain this year's January drop in stock prices to credit conditions tightening at that time. Now, they say credit is available even for Greece. They say the market has passed the danger zone.
I say, "Oh really!"
Those same analysts should have been at the victory pow-woo after Little Big Horn. The victory of bows and arrows(debt) over guns(cash) would be short lived as debt grows with interest while cash is needed in day-to-day transactions. It was a sad victory party because the future had a dark shadow hanging over it just like our economy.
Wednesday, May 25, 2016
Crucial Point
With the loss of quality manufacturing jobs each month and year, car sales become a point of concern. The revived auto-manufacturing industry and the ability to sell those vehicles has been the one true bright spot in our economy.
Sales
rose pass 17.4m in 2015 after a strong 16.4m in 2014. The new kid on the block, Tesla had a breakout response for deposits on its Model 3. However, it faces many problems among which is the ability to get the product to the customer. It lacks dealerships. The nation lacks refuel infrastructure for electric cars. In addition, the new ramp-up will be a logistical nightmare. I do wish Musk well. He'll need it. By the way, Tesla diluted the value of its shares by issuing more to raise money to increase production.
This year appears to be a solid year, but projections of 18m units sold will fall far short of expectations. I believe another 16m vehicles will be achievable. One thing the auto industry has going for it is the fact that the average age of cars on US roads is 11.4 years old.
Having said that, there are quite a few other problems.
Inventories
at dealerships are building above normal and wrinkles are forming on far heads. This is nothing new for dealerships. Car sales are a lot like the oil business - boom and bust. The present solution has Mike Jackson, CEO of AutoNation, in fits. He has spoken out against auto leasing to reduce inventory and create sales. He knows those same vehicles will return in one to three years to form a glut and competition for new car sales. According to Edmunds.com, leasing accounts for 31.3% of all new car sales in March 2016 and 31% of all auto borrowers have negative equity in their vehicle. This is similar to the financial housing crisis when homeowners owed more than their home was worth.
Time Payments
the value of outstanding auto loans rose pass $1T in the first quarter. If those same customers get a flat, the repercussions of loan defaults could effect not only the dealership, but banking and the nation. This is very troubling because consumers have over $952B in credit card debt. The only time credit card debt passed $1T, we had a recession in 2008. Together, this points to a tapped out consumer.
Conundrum
Leasing sales is a tough problem. It is good because it keeps the manufacturing side busy by providing work. However, it clouds the horizon for the industry and nation. Dealers have 3.8m in inventory. This is the most in 10 years according to Wards Auto. Experian reports 1.8m leased cars will be returned this year. That means car deals will soon be forth-coming. Dealers need to make space for the 2017s.
Another problem is the duration of time payments with sales. Too many deals call for 84 monthly installments. When fully paid, the vehicle will be old with too many miles under the hood. Like I said, this bright spot in our economy is reaching an inflection point. If the wrong consequences come about from this leasing policy and lengthy payment plan, the industry could suffer as well as the economy.
Sales
rose pass 17.4m in 2015 after a strong 16.4m in 2014. The new kid on the block, Tesla had a breakout response for deposits on its Model 3. However, it faces many problems among which is the ability to get the product to the customer. It lacks dealerships. The nation lacks refuel infrastructure for electric cars. In addition, the new ramp-up will be a logistical nightmare. I do wish Musk well. He'll need it. By the way, Tesla diluted the value of its shares by issuing more to raise money to increase production.
This year appears to be a solid year, but projections of 18m units sold will fall far short of expectations. I believe another 16m vehicles will be achievable. One thing the auto industry has going for it is the fact that the average age of cars on US roads is 11.4 years old.
Having said that, there are quite a few other problems.
Inventories
at dealerships are building above normal and wrinkles are forming on far heads. This is nothing new for dealerships. Car sales are a lot like the oil business - boom and bust. The present solution has Mike Jackson, CEO of AutoNation, in fits. He has spoken out against auto leasing to reduce inventory and create sales. He knows those same vehicles will return in one to three years to form a glut and competition for new car sales. According to Edmunds.com, leasing accounts for 31.3% of all new car sales in March 2016 and 31% of all auto borrowers have negative equity in their vehicle. This is similar to the financial housing crisis when homeowners owed more than their home was worth.
Time Payments
the value of outstanding auto loans rose pass $1T in the first quarter. If those same customers get a flat, the repercussions of loan defaults could effect not only the dealership, but banking and the nation. This is very troubling because consumers have over $952B in credit card debt. The only time credit card debt passed $1T, we had a recession in 2008. Together, this points to a tapped out consumer.
Conundrum
Leasing sales is a tough problem. It is good because it keeps the manufacturing side busy by providing work. However, it clouds the horizon for the industry and nation. Dealers have 3.8m in inventory. This is the most in 10 years according to Wards Auto. Experian reports 1.8m leased cars will be returned this year. That means car deals will soon be forth-coming. Dealers need to make space for the 2017s.
Another problem is the duration of time payments with sales. Too many deals call for 84 monthly installments. When fully paid, the vehicle will be old with too many miles under the hood. Like I said, this bright spot in our economy is reaching an inflection point. If the wrong consequences come about from this leasing policy and lengthy payment plan, the industry could suffer as well as the economy.
Wednesday, May 18, 2016
Your Stream Could Turn Dry
- "You will end up in poverty if you lend money, and receive less than your principle in return."
- Sebastian
If you subtract the real inflation rate from the yield of the ten year treasury bill, we are already under negative rates. It could get worse. The trend is down because the Fed is creating deflation by shrinking interest rates. They claim a 2% target for inflation, but everything that they do obstructs the possibility. Personally, I would rather see stable prices and no inflation with social mobility alive and kicking. However, that is another story for another time.
10-Year Note
I will use the classic 10-year denomination because it is generally viewed as the benchmark both for shorter and longer issues. When you scan down the list, you will notice the hypocrisy in all the issues. Some issues offer a vastly higher rate, but you have to consider both the risk, currency exchange and historical inflation within that nation. In any event, in the US, the return of 1.75% for a ten year period is a basic lie. There has never been a period in our history of a ten year duration that prices in the first year was less than 1.75% after ten years! Dear reader, keep in mind that an investor is suppose to make a profit for the time use of his money. Our Treasury is saying, if you buy a ten year note at 1.75%, then in ten years you should see a profit. Get out of town! Anyway, the story is worse in Europe and Asia.
Country Rate Trend
US 1.75% This is down 50 basis points for year-over-year(YOY)
Canada 1.31% This is down 48 basis points/YOY
Germany 0.12% This is down 55 basis points/ YOY
UK 1.40% This is down 56 basis points/ YOY
Switzerland -0.35% This is down 42 basis points/ YOY
Japan -0.13% This is down 57 basis points/YOY
If you believe the narrative, India offers the best return
India 7.42% This is down 52 basis points/ YOY
Did you notice the insipid intrusion of negative rates? This is a scary trend that all nations are embracing. People, central banks are causing deflation by lowering the value of money. This is a destructive principle. This disease has spilled over into the private sector.
Dividends and Investors
Americans, usually like stable, large companies that pay a good dividend. Companies like J&J and oil giants, Exxon and Chevron. In Europe, investors like their large blue chips like Royal Dutch Shell PLC or Siemens AG. Dear reader, those last two had their bonds fall negative in April. Their principle is decreasing! According to Bloomberg, another $16B of euro-corporate bonds are trading with yields below zero...Idiots!
Back in the US, the current yield for dividend paying companies in the S&P 500 is 2.1%. This is less than the historic average, but it is 1.8% more than the 10-Year Treasury. Of course, the Fed's cheap money allows companies to buyback their stock. Not that this will capture a future sales explosion by the company, but it makes the quarterly report look better and the CEO makes more with his stock options...Crooks!
Last year, companies in the S&P 500 spent almost $1 trillion on buybacks and dividends. However, it is the dividend aspect that worries me. By the way, that total spent is greater than the total profits of the same S&P 500 companies. People, simple math tells you as you well know, you cannot keep spending more than you make. Something has to give. It points to the dividends. A trend is already in motion.
Last year, nearly 400 companies cut their dividend. By the end of April of this year, there are 213 cuts. At this rate, 2016 should see 639 - maybe one of yours? Keep in mind, that estimate if reached, will crush the previous record of 527 back in the financial crisis of 2009. My suggestion is never take a dividend, but reinvest it in the same company. Eventually, you will have enough free shares so that you can sell your original purchase shares and let your "free" shares grow even if they cut their dividend.
In discloser, I use that same investment plan with Silver Wheaton. Peace, out!
- Sebastian
If you subtract the real inflation rate from the yield of the ten year treasury bill, we are already under negative rates. It could get worse. The trend is down because the Fed is creating deflation by shrinking interest rates. They claim a 2% target for inflation, but everything that they do obstructs the possibility. Personally, I would rather see stable prices and no inflation with social mobility alive and kicking. However, that is another story for another time.
10-Year Note
I will use the classic 10-year denomination because it is generally viewed as the benchmark both for shorter and longer issues. When you scan down the list, you will notice the hypocrisy in all the issues. Some issues offer a vastly higher rate, but you have to consider both the risk, currency exchange and historical inflation within that nation. In any event, in the US, the return of 1.75% for a ten year period is a basic lie. There has never been a period in our history of a ten year duration that prices in the first year was less than 1.75% after ten years! Dear reader, keep in mind that an investor is suppose to make a profit for the time use of his money. Our Treasury is saying, if you buy a ten year note at 1.75%, then in ten years you should see a profit. Get out of town! Anyway, the story is worse in Europe and Asia.
Country Rate Trend
US 1.75% This is down 50 basis points for year-over-year(YOY)
Canada 1.31% This is down 48 basis points/YOY
Germany 0.12% This is down 55 basis points/ YOY
UK 1.40% This is down 56 basis points/ YOY
Switzerland -0.35% This is down 42 basis points/ YOY
Japan -0.13% This is down 57 basis points/YOY
If you believe the narrative, India offers the best return
India 7.42% This is down 52 basis points/ YOY
Did you notice the insipid intrusion of negative rates? This is a scary trend that all nations are embracing. People, central banks are causing deflation by lowering the value of money. This is a destructive principle. This disease has spilled over into the private sector.
Dividends and Investors
Americans, usually like stable, large companies that pay a good dividend. Companies like J&J and oil giants, Exxon and Chevron. In Europe, investors like their large blue chips like Royal Dutch Shell PLC or Siemens AG. Dear reader, those last two had their bonds fall negative in April. Their principle is decreasing! According to Bloomberg, another $16B of euro-corporate bonds are trading with yields below zero...Idiots!
Back in the US, the current yield for dividend paying companies in the S&P 500 is 2.1%. This is less than the historic average, but it is 1.8% more than the 10-Year Treasury. Of course, the Fed's cheap money allows companies to buyback their stock. Not that this will capture a future sales explosion by the company, but it makes the quarterly report look better and the CEO makes more with his stock options...Crooks!
Last year, companies in the S&P 500 spent almost $1 trillion on buybacks and dividends. However, it is the dividend aspect that worries me. By the way, that total spent is greater than the total profits of the same S&P 500 companies. People, simple math tells you as you well know, you cannot keep spending more than you make. Something has to give. It points to the dividends. A trend is already in motion.
Last year, nearly 400 companies cut their dividend. By the end of April of this year, there are 213 cuts. At this rate, 2016 should see 639 - maybe one of yours? Keep in mind, that estimate if reached, will crush the previous record of 527 back in the financial crisis of 2009. My suggestion is never take a dividend, but reinvest it in the same company. Eventually, you will have enough free shares so that you can sell your original purchase shares and let your "free" shares grow even if they cut their dividend.
In discloser, I use that same investment plan with Silver Wheaton. Peace, out!
Wednesday, May 11, 2016
Economic Stupidity
- "Public debt is a curse on the American public."
- James Madison
The real thinkers among the founding fathers, whose rock is this question: what is the best foundation for a new nation to which it will have the best chance to succeed? People like Madison, Jefferson and Franklin, all hated fiat money because they knew its dangers. The Federal Reserve was pushed by bankers for bankers. It is based on debt which gives them greater riches and power. They were also at our beginning, but the other revolutionaries avoided them because their attitude was seen as self-serving.
It is why the critics(see founding father above) attacked the first resolution of Hamilton because it was debt formulated. Hamilton was a friend to banking. The critics forced him into his creative mind to find gold and silver for a foundation in our treasury. It made outside influences(think English aristocrats) who wanted to purchase shares in the new nation's first bank, The Bank of the United States to deposit gold or silver for their shares. I haven't seen the play "Hamilton," but I wager this isn't mentioned. In any event, we are in the here and now. I remind you of our roots when you consider our present situation.
GDP
came in at 0.5% in the first quarter, but that stat does not reveal this inherent weakness in the results. Our nation is going into debt to the tune of $33,000 per second. We added $1.9T in debt in 2015 and our economy only added $599B to our GDP. By my math, this is a losing proposition, but by the Federal Reserve and government policymakers like Summers and Clinton, this is growth. Now, you know why we are deep in dodo. In addition, we have not paid down one cent since we had a small surplus under Bill Clinton. By the way, this is no endorsement of him or her because he began the devaluation of the dollar which helped export jobs to get the surplus. It was really an economic smoke screen. He robbed the dollar(Peter) to pay Paul(allow exports to flourish). All citizens paid with higher inflation.
Some of you know some or all of the above, however our present environment of credit being classified as an asset has spilled over into our private sector. The easy money without a true contemplation of its risks has added 59 oil and gas companies to the line waiting in bankruptcy court.
$100 Oil
was actually down almost $50 from oil's peak, but the shale explosion clouded the eyes of shale CEOs. In addition, the century price had built-in risks like geopolitical and speculators which kept oil at $100, to which these same shale producers were mitigating. Their $20 margin was being erased by their production, while at the same time, the global slowing exaggerated the demand for more oil. The Fed only knows cheaper is better and they supplied all the money anyone wanted. It helped companies refinance older, higher interest loans, but it sparked the use of cheap money for stock buybacks, mergers and the oil industry. Weak minded CEOs did not use this opportunity for R&D. Small oil firms did not find a safe solution for fracking because time is profits! Now, lawyers are cleaning up. They are like the people who supplied shovels, bedding or food for the early gold miners. That is where the real money was made just as the esquires is the gold mine today.
The oil price risk, caused by more supply than demand, which is another basic principle of economics, has resulted in lower prices. The banks maybe greedy, but they are not stupid. So, they began to tighten their lending standards and revolving credit lines. In fact, Commercial and Industrial lending(read oil and oil service companies)has gotten tighter with stringent measures in three straight quarters. Meanwhile, loan demand is at a negative 8.7 which follows a negative 11.1 reading in the first quarter. This is the first back-to-back negative readings in 6 years. This only appears during recession periods. One point that could be confusing. Oil companies are seeking more money(demand), but banks are closing their vaults(supply). The government expresses the transaction as loan demand shrinking when in reality, the standards are being tightened. This begs the question: has a recession already started?
Conclusion:
If we are to attain the evolution of democracy, we first must End the Fed!
- James Madison
The real thinkers among the founding fathers, whose rock is this question: what is the best foundation for a new nation to which it will have the best chance to succeed? People like Madison, Jefferson and Franklin, all hated fiat money because they knew its dangers. The Federal Reserve was pushed by bankers for bankers. It is based on debt which gives them greater riches and power. They were also at our beginning, but the other revolutionaries avoided them because their attitude was seen as self-serving.
It is why the critics(see founding father above) attacked the first resolution of Hamilton because it was debt formulated. Hamilton was a friend to banking. The critics forced him into his creative mind to find gold and silver for a foundation in our treasury. It made outside influences(think English aristocrats) who wanted to purchase shares in the new nation's first bank, The Bank of the United States to deposit gold or silver for their shares. I haven't seen the play "Hamilton," but I wager this isn't mentioned. In any event, we are in the here and now. I remind you of our roots when you consider our present situation.
GDP
came in at 0.5% in the first quarter, but that stat does not reveal this inherent weakness in the results. Our nation is going into debt to the tune of $33,000 per second. We added $1.9T in debt in 2015 and our economy only added $599B to our GDP. By my math, this is a losing proposition, but by the Federal Reserve and government policymakers like Summers and Clinton, this is growth. Now, you know why we are deep in dodo. In addition, we have not paid down one cent since we had a small surplus under Bill Clinton. By the way, this is no endorsement of him or her because he began the devaluation of the dollar which helped export jobs to get the surplus. It was really an economic smoke screen. He robbed the dollar(Peter) to pay Paul(allow exports to flourish). All citizens paid with higher inflation.
Some of you know some or all of the above, however our present environment of credit being classified as an asset has spilled over into our private sector. The easy money without a true contemplation of its risks has added 59 oil and gas companies to the line waiting in bankruptcy court.
$100 Oil
was actually down almost $50 from oil's peak, but the shale explosion clouded the eyes of shale CEOs. In addition, the century price had built-in risks like geopolitical and speculators which kept oil at $100, to which these same shale producers were mitigating. Their $20 margin was being erased by their production, while at the same time, the global slowing exaggerated the demand for more oil. The Fed only knows cheaper is better and they supplied all the money anyone wanted. It helped companies refinance older, higher interest loans, but it sparked the use of cheap money for stock buybacks, mergers and the oil industry. Weak minded CEOs did not use this opportunity for R&D. Small oil firms did not find a safe solution for fracking because time is profits! Now, lawyers are cleaning up. They are like the people who supplied shovels, bedding or food for the early gold miners. That is where the real money was made just as the esquires is the gold mine today.
The oil price risk, caused by more supply than demand, which is another basic principle of economics, has resulted in lower prices. The banks maybe greedy, but they are not stupid. So, they began to tighten their lending standards and revolving credit lines. In fact, Commercial and Industrial lending(read oil and oil service companies)has gotten tighter with stringent measures in three straight quarters. Meanwhile, loan demand is at a negative 8.7 which follows a negative 11.1 reading in the first quarter. This is the first back-to-back negative readings in 6 years. This only appears during recession periods. One point that could be confusing. Oil companies are seeking more money(demand), but banks are closing their vaults(supply). The government expresses the transaction as loan demand shrinking when in reality, the standards are being tightened. This begs the question: has a recession already started?
Conclusion:
If we are to attain the evolution of democracy, we first must End the Fed!
Wednesday, May 4, 2016
My Report Card for the First Quarter: Circle 65
With over half of the S&P 500 companies reporting, earnings are going to be down almost 6%. The media shills constantly remind you that the market is within 2% of its highs. They shrugged off the first quarter GDP of 0.5% due to weather, holidays landing on the calendar, playing on turf at night, all the BS. I see a different picture.
Oil Bulls
I see them pushing oil higher than reality dictates. I predict a pullback between $34 and $36. Then, a slow consolidation at around $40 until something triggers a different response. I also see the market declining because many indicators that I look at are flashing danger. This earning season will be the fourth straight with declining revenues with each quarter getting worse. We have multiple industries that are under stress.
COAL
is suffering the most. The industry has lost 125,800 jobs to date and 66 coal powered plants are about to close. This is not all supply and demand aspects. Many CEOs just overspent like Congress. Peabody bought Macathur Coal for $5.1B, 'cause money was cheap. Alpha Resources CEO made the same mistake and put his company in debt of $7.1B for Massey Energy. Now, both companies can't service their debt. You can add a host of other companies like Walter Energy and in the first four months of 2016, there are 45 defaults. This is reflected in the ETF(KOL). It is down from 2012 of $33.47 to now, at $8.73. Consider this: while many companies went to bankruptcy court which should cause prices to rise, the opposite has happened. The only demand is for lawyers and a court date. Just ask Patriot Coal as they turn to see Peabody standing behind them in line. I almost forgot. Hard core energy segments aren't the only casualties. The alternative power sources felt the bankruptcy of Sun Edison and a few in China like Trina, however the Chinese court has the invisible hand of the state to help companies.
My Suggestions
on stocks are rare because I hate the idea of adding to anyone's pain. It is bad enough that I made a mistake. I don't want to add to anyone else's pain, but I feel for the people who purchased Alpha Resources which once sold for $60 a share and today, it is .02cents. Ouch! And yes, they are standing in the court room line.
Coal has its place in our economy, but the demand side is declining due to cheaper, cleaner burning, natural gas. Coal once accounted for 50% of our electric needs. Today, it is down to 33%. It will probably stabilize at 20%. Not good.
This large industry is passing and the oil industry is also under duress with many small firms in the court line and many more seeking not to fall to that level. In addition, many retail outfits are closing stores from Sears to JC Penny from GameStop to Aeropostale. This will eventually force many malls to close and loss of jobs. Not good. By the way, did I mention that Apple declared a loss? This is why I see a market pullback and a test of the August 2015 lows. When I was in high school, this would be a circle 65. This meant that I failed, but I was so close the teacher passed me, but circled the number to let me know that I needed to do better. Now you know what I mean by my title.
News Flash: Ultra Petroleum just pulled into the court room's parking lot and it took the last parking space as a few other cars circle the lot looking to park. Another car with a door sign, Midstates Petroleum is blocking the lane as it double parks, waiting for a space to open.
Across town, lobbyists from the Puerto Rican government seek to find a loophole to "stick" bondholders with their $70B in debt. Maybe a circle 65 was to high a grade?
Oil Bulls
I see them pushing oil higher than reality dictates. I predict a pullback between $34 and $36. Then, a slow consolidation at around $40 until something triggers a different response. I also see the market declining because many indicators that I look at are flashing danger. This earning season will be the fourth straight with declining revenues with each quarter getting worse. We have multiple industries that are under stress.
COAL
is suffering the most. The industry has lost 125,800 jobs to date and 66 coal powered plants are about to close. This is not all supply and demand aspects. Many CEOs just overspent like Congress. Peabody bought Macathur Coal for $5.1B, 'cause money was cheap. Alpha Resources CEO made the same mistake and put his company in debt of $7.1B for Massey Energy. Now, both companies can't service their debt. You can add a host of other companies like Walter Energy and in the first four months of 2016, there are 45 defaults. This is reflected in the ETF(KOL). It is down from 2012 of $33.47 to now, at $8.73. Consider this: while many companies went to bankruptcy court which should cause prices to rise, the opposite has happened. The only demand is for lawyers and a court date. Just ask Patriot Coal as they turn to see Peabody standing behind them in line. I almost forgot. Hard core energy segments aren't the only casualties. The alternative power sources felt the bankruptcy of Sun Edison and a few in China like Trina, however the Chinese court has the invisible hand of the state to help companies.
My Suggestions
on stocks are rare because I hate the idea of adding to anyone's pain. It is bad enough that I made a mistake. I don't want to add to anyone else's pain, but I feel for the people who purchased Alpha Resources which once sold for $60 a share and today, it is .02cents. Ouch! And yes, they are standing in the court room line.
Coal has its place in our economy, but the demand side is declining due to cheaper, cleaner burning, natural gas. Coal once accounted for 50% of our electric needs. Today, it is down to 33%. It will probably stabilize at 20%. Not good.
This large industry is passing and the oil industry is also under duress with many small firms in the court line and many more seeking not to fall to that level. In addition, many retail outfits are closing stores from Sears to JC Penny from GameStop to Aeropostale. This will eventually force many malls to close and loss of jobs. Not good. By the way, did I mention that Apple declared a loss? This is why I see a market pullback and a test of the August 2015 lows. When I was in high school, this would be a circle 65. This meant that I failed, but I was so close the teacher passed me, but circled the number to let me know that I needed to do better. Now you know what I mean by my title.
News Flash: Ultra Petroleum just pulled into the court room's parking lot and it took the last parking space as a few other cars circle the lot looking to park. Another car with a door sign, Midstates Petroleum is blocking the lane as it double parks, waiting for a space to open.
Across town, lobbyists from the Puerto Rican government seek to find a loophole to "stick" bondholders with their $70B in debt. Maybe a circle 65 was to high a grade?
Tuesday, April 26, 2016
Fed's Idea for the Economy: Tax Money
- "The care of human life and happiness, and not their destruction, is the first and only object of good government."
- Thomas Jefferson
- "Negative rates is a destructive principle."
- Sebastian
The Yellen Fed has kept its key rate at 0.38%. Do you know what the normal average rate is? Here is a clue. It is the same rate that every bank use to give passbook savings. The answer is 5%. Yelling, Yellen has already screamed that negative rates are "on the table." The seed is in the ground.
What will you do
My first thought was CDs or Money Market Funds. However, they both have problem. CDs tie up your money for nothing in return. Money Market Funds dropped below a buck during Bernanke's tenure. Liquidity can effect this passive market. He made a temporary fix, but no real solution was developed. There is a danger and the problem has not been fixed. Not good.
I think Americans will just pull their money out of the banks which will produce another problem. The capitalization of the banking system, but first things first. Because the word will spread that people are taking their money out of the banks and putting it in the cookie jar or under the mattress, home invasions will grow. The doom and gloom movies that Hollywood creates will become a reality. We will live in fear. Gun sales will soar. This is not a society that I would want to grow old.
America
and I'm talking the philosophical concept, could die.
Italy, Spain, Mexico and Russia have already banned large cash transactions. You can't just go to the bank and ask for your money, 'cause they won't give it to you. Can you see your local branch bank refusing to give you your money? At best, they will offer you a check to which you have to find another institution to cash without a fee.
We have allowed the Federal Reserve, which really is socialism for the banking industry, to control our way of life. This is where it is leading us.
At present, there are $7.67T worth of negative interest rate bonds in the world with Japan leading the charge. In this fiat world, your central bank works with your treasury. One creates a bond and the other buys it. The Fed claims deflation must be stopped. They suggest a 2% rise in inflation, when in reality, they are creating deflation.
Corporate Bonds
are joining the party. Who is buying this crap? Probably, central banks and their shills. Royal Dutch Shell PLC and Siemens AG, both had bonds that dropped below zero and according to Bloomberg, another $16B of euro-corporate bonds are trading with yields below zero.
Where does this leave you? You can leave your money in the bank. It will be a digit in the banking system and a credit for the government. You see, dear reader, they control your money and with negative interest rates, they will tax it. What ever happened to, "No taxation, without representation!" End the Fed!
- Thomas Jefferson
- "Negative rates is a destructive principle."
- Sebastian
The Yellen Fed has kept its key rate at 0.38%. Do you know what the normal average rate is? Here is a clue. It is the same rate that every bank use to give passbook savings. The answer is 5%. Yelling, Yellen has already screamed that negative rates are "on the table." The seed is in the ground.
What will you do
My first thought was CDs or Money Market Funds. However, they both have problem. CDs tie up your money for nothing in return. Money Market Funds dropped below a buck during Bernanke's tenure. Liquidity can effect this passive market. He made a temporary fix, but no real solution was developed. There is a danger and the problem has not been fixed. Not good.
I think Americans will just pull their money out of the banks which will produce another problem. The capitalization of the banking system, but first things first. Because the word will spread that people are taking their money out of the banks and putting it in the cookie jar or under the mattress, home invasions will grow. The doom and gloom movies that Hollywood creates will become a reality. We will live in fear. Gun sales will soar. This is not a society that I would want to grow old.
America
and I'm talking the philosophical concept, could die.
Italy, Spain, Mexico and Russia have already banned large cash transactions. You can't just go to the bank and ask for your money, 'cause they won't give it to you. Can you see your local branch bank refusing to give you your money? At best, they will offer you a check to which you have to find another institution to cash without a fee.
We have allowed the Federal Reserve, which really is socialism for the banking industry, to control our way of life. This is where it is leading us.
At present, there are $7.67T worth of negative interest rate bonds in the world with Japan leading the charge. In this fiat world, your central bank works with your treasury. One creates a bond and the other buys it. The Fed claims deflation must be stopped. They suggest a 2% rise in inflation, when in reality, they are creating deflation.
Corporate Bonds
are joining the party. Who is buying this crap? Probably, central banks and their shills. Royal Dutch Shell PLC and Siemens AG, both had bonds that dropped below zero and according to Bloomberg, another $16B of euro-corporate bonds are trading with yields below zero.
Where does this leave you? You can leave your money in the bank. It will be a digit in the banking system and a credit for the government. You see, dear reader, they control your money and with negative interest rates, they will tax it. What ever happened to, "No taxation, without representation!" End the Fed!
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