Market Conundrum

The US stock market just broke new all-time highs in the Dow and S&Ps, however in this age of globalization, European banks are falling to all-time lows. Dear reader, it is not just Europe. The Japanese Nikkei 225 is down 15% and Japan's third largest bank, Mitsubishi UFJ financial Group(MTU) is threading water. It is down 38%. What gives?
In Europe
The Swiss banking giant, Credit Suisse(CS) is crashing. It is down 57% and that is no typo. Ouch! Not only did the IMF say that Germany's largest bank is the world's most riskiest, but Deutsche Bank(DB) has already dropped 59% of its value. Double ouch!! England has problems, but its worse up in Scotland. The Royal Bank of Scotland(RBS) is stumbling. It is down 52%.
Even in the US, Citigroup(C) is off by 24%. All these examples are deep in bear territory and it tells me something is seriously wrong, but we don't know what it is until it hits the fan. By the way, according to Dow Theory, the market needs the transports to go along with the Dow if the market is truly showing financial strength. The transports are a long way from a new high. Anyway, I looked deeper and my pisans are in trouble.
Italian Banks
are one reason for caution. Italy's third largest bank, Monte dei Paschi has lost 83% of its stock valuation. That is not an ouch, but closer to suicide. The government will add money to capitalize their banking system, but as it stands the outlook is terrible. The number of loans that are considered so bad equates to one-fifth of the total economy. No amount of stimulus will make sour loans turn good. Here is an insight from an official of Deutsche Bank. David Folkerts-Landau says, "European banks are sick. I'm no doomsday prophet. I am a realist." He believes the EU should recapitalize the whole system.
As things stand with Brexit, I think the EU will let the printing press work overtime. They have a real fear of contagion. This will be another devaluation for the euro. This tells me that the best investment is precious metals, especially since corporate earnings, the true driver of the markets, has been down for five straight quarters. It does appear that earnings in this quarter will not be as bad as the last quarter, yet they still will be down. Although the market may have you scratching your head, it leads me to this analogy. Baseball had its Home Run Derby last week and this year the long ball in the markets is gold and silver.

Environmental Hope and $More

I was watching my local news here in Florida and a report featured an innovative US technology company called Ecosphere Technologies. The CEO, Dennis McGuire is a fan of Jacques Cousteau. He modeled his company on Cousteau's environmental thinking. This small firm has been around for ten years and it is dysfunctional in nature. On one hand, it has amazing patented solutions to our ecosystem, but it has been an underachiever in impacting society and financial returns.
In any event I got excited when I heard that its Ozonix System does not use chemicals to treat contaminated water. The report showed the company using this system to clean up a marina in Martin County Florida.
Algae&Odor
The marina had been in the news last week because it was closed for the Fourth of July with this green slime in the bay with its awful odor. ESPH(stock symbol) says its patented technology will clean it up without chemicals which could harm the ecosystem.
I did some research. As you know I do not usually give out stock recommendations because I will feel doubly in pain if the stock tanks. ESPH is a penny stock and on the BB which should scare almost anyone away, however it takes time for small capitalized companies to make their mark. This will be the week whereby we know if ESPH can conquer the problem of algae bloom and odors from waterways.
In addition, the company has many other patents like its Power Cube which won the science award for Science Innovator of the year in 2014. This solarized portable center can be set up anywhere in the world, especially in locations off the grid. It is used to pump water in arid climates where there is no infrastructure. Amazing!
They have a host of other systems and solutions for agriculture, manufacturing, mining, oil and gas, sewage and of course, water. They have medical solutions for bacteria control and disinfection.
You could say that maybe this small firm is trying to do too much with so little capital. Nevertheless, if they are successful in this water test, they will not only help the environment, but your pocketbook too. I don't think a small investment will crush anyone and in a way our support of the company will be like partnering with the ecosystem.
For $1,000
I'm all-in, but I'll wait to see if this company can pass the test of the algae infected marina before I commit.    

Fantasy In Reality Is Fantasy

As we get closer to football season, I began to examine the top 200 players for my fantasy league. Since the first game is still two months away, my focus isn't concentrated. A new idea entered into my thinking. There is a close analogy where one could argue the similar thinking into fantasy football and the stock market.
Top Pick
in mock drafts is Antonio Brown, WR for the Steelers. This makes absolute sense. The game has gone to passing as defensive backs can no longer "hand check." No name QBs can pass for 4,000 yards, so almost all QBs will have the same stats. WR's on the other hand are a different breed. Coaches don't live in reality. They see someone who is 6'5" and they picture an offensive advantage except the player has hands of stone, is slow on the break and fails miserably. Brown is relentless to get open, excellent hands and he can do the pass/option as well as all kick returns. No brainer. In PPR leagues he is a gold mine as he always grabs at least 5 passes and he is a top option near the goal line. If you don't have the top pick, get a player with similar attributes.
Apply this thinking to the stock market. We are no longer a manufacturing nation. Now, we are a service orientated, consumer society and the service economy rules with over two-thirds of the entire economy.
Service Top Picks
At this point you can begin to breakdown the various components that benefit in this model. In transportation you could go FedEx or UPS, but since gasoline can disrupt profits, I'll pass. You could go retail, but since online giants like Amazon are hurting business, again I'll pass on this pick. In addition, the social mood for higher wages will hurt all retail as well as the restaurant field. I mentioned online services, but the growing danger of internet hacking could be a big headwind in the future. As I continued into my thinking, I remembered something about American history.
Shovels and Picks
During the California gold rush, the real winners were the suppliers of shovels, picks and mules. How would that translate today?
Debt
"Only $99 down and $99 per month..." You see and hear it every night on TV before you go to sleep. Our service economy has developed credit to go along and help you make that purchase. The companies in this sector also offer purchase protection. This limits the danger of hackers and theft. Now, I have a target. Who is the leader in this field? Synchrony(SYF). The word almost makes me think of music as in symphony. I investigated.
SYF is the largest credit card issuer. I had my no brainer.
Not So Fast, Kimosabe
Brian Double, CFO of SYF just released a statement. In it he expresses a caution about future earnings. He says the company will need to build its reserves due to "charge-offs." What the hell is that? I research. It is financial code for default. Consumers are falling behind on payments. This is like the Steelers facing a blitz team with strong pass rushers. If the QB can't get the ball to Brown, you got nada! Double goes on to say that charge-offs could spike to 4.8% in the next quarter. Not good. I study. I find that the overall default rate rose in 2016 from 2015. This is the first year whereby the default rate has risen YOY since 2010. I continue. I find that similar companies are feeling the same results. Capital One(COF) is down 6.6%. Ally Financial(ALLY) is down 5.6%. American Express(AXP) is down 23% and Discover Financial Services(DFS) is down 10%. What about my no brainer? SYF is down 14% after the report. It seems my fantasy in reality is a fantasy, but undaunted I continue. After all, the market is at highs, something must be the reason or it is smoke and mirrors. Is it all a fantasy?
I found that large banks, especially in Europe are losing value at depression levels. Deutsche Bank(DB) failed the stress test and in addition, it is down 58% and earnings declined by 58%, too. Think that is bad? The IMF said. "DB is the riskiest bank in the world!" That is serious do-do.. Credit Suisse(CS) is down 62% and earnings declined by 64%. The Euro Stoxx Bank index is off 48%. The Spanish giant, BBVA saw its profits fall 54% in the last quarter. The Royal Bank of Scotland is down 59%. The Italian Banking index is down 30%. The litany goes on and on and around the world. Rumors are surfacing that Chinese banks need a bailout. Mitsubishi, Japan's largest, is down 39%. All these institutions are in deep bear territory.
In the US, the XLF, the financial index of 94 firms, fell 11%.
All of the above companies have seen a "dead cat" bounce recently, but I see another leg down to test the February lows. One reason that I feel this way is because I got a second opinion.
Mathew Mish, credit strategist at UBS expects a rise in default rates and not just in the energy sector. He believes a spike in default rates from non-energy companies from 1.5% in 2015 to 3.5% in 2016.
Another reason and always all things point back to it, is the
Fed!
They have lowered interest rates whereby the total outstanding debt on credit cards is approaching $1 trillion. The last time consumer debt hit that level was in 2007 and we all know that outcome. The Fed will argue that the overall debt is now under a lower interest, thanks to their policy. They don't see the bubble because they are in it. You know, the tree/forest analogy?
Other Tidbits
Sub-prime credit card users are up 25%, according to Equifax and the Puerto Rican debt crisis will set off over $800 million in derivatives. For those of you who heard that Congress came up with a solution, that is not totally true. They bailed out a partial amount and the above figure is still in default and the trigger on the derivative market has been pulled. That should scare the hell out of everyone!
Together, this makes me realize that my no brainer pick in the stock market is really a fantasy and the results could cost me dearly, financially speaking. Whereas, in fantasy football, if there is a setback, the only pain is to my emotions and my brain knows that there will always be next year and I can afford to cry in my beer. However, SYF and the stock market will take all my money and just leave the tears. Which fantasy do you want and which reality?

My Rant On Brexit

- "People talkin' about us
    They got nothin' else to do
    When it all comes down
    We will still come through..."
- Eagles

You know it takes real courage to follow your convictions
Get out of your comfort zone and
face an uncertain future.
Tipping my hat to the brave souls that wanted sovereignty of their nation
That overcame eons of conflict between Catholics and Protestants to realize
that both are Christians, that both are part of the culture and at the same time,
wanted to protect that legacy.
They risked the threats of the entire world.
Going to the rear of the line, unemployed and staring into a dark tunnel.
The powers-to-be hit their currency, banks and more.
That the losers wouldn't respect the vote, calling for another test.
Looking for loopholes and world leaders saying,
"That the English are deluding themselves."
That is their story - what will be ours?

- Who's gonna make it, we'll find out in the long run..."

We are dominated by two political parties that do nothing for its citizens. On rare occasions we get an insight to elite thinking like on Brexit. Here is one, "It's always a dangerous thing when you leave democracy to the people." How about this one, "If voting mattered, we wouldn't let them do it."
Now, in our coming election we get to choose the lesser of two evils.
Hillary is despised by half of her parties constituents. Trump is hated by all of his party leaders.
Hillary says, "She's fighting for us." Here is her bio: In her 30 years, we know the Clinton's are approachable by anyone with MONEY! Her husband gave us Nafta and Cafta. We got the Shafta! Ross Perot was right. That shushing sound is, "lost jobs going over the border." She will push for the Trans-Pacific Partnership (TPP) even though at the moment she says she's against it. She will kill the last of our manufacturing. She cannot claim one thing that she accomplished for our nation except be in a coalition that placed handicap children in our public schools even though the schools were not equipped to teach and service them. The idea was correct, but the resolution wasn't. She will be just like Obama who said, "I'm for First Payer!" and we got Big Pharma - sell out! He promised to end the Middle East wars. We got eight more years of it. She will let the military complex run hog wild and our deficits will be worse than ever. If she wins, I predict more wars, higher deficits and a recession.
The only thing that Trump says that has any merit is the ending of the rip-off of globalization. He implies that he will protect American production and jobs. However, I cannot fully trust any Republican because the GOP really means, "Guardian of Privilege." I want to believe. I think that he is the lesser of the two evils, but I can't.
Together, this means that as citizens we need to find a way to form a new political party that will represent what the people really want - peace and prosperity. It can be done as we can take strength from the British vote.
It means the foremost point of this party should be to get back the sovereignty of our nation. To drop the WTO which mandates to us what we can produce, how much we can produce and at what price. The party should return to our Founding Fathers advice: no foreign entanglements like NATO and SEATO. We determine the number of immigrants according to our economic needs and abilities. We are for trade, but no blank agreements. Each trade is on its own merit. Speaking of our trading partners, Dangerfield had the answer, "No respect!" Globalization gives us: Invading species that destroy our environment, VW that poisons our air, China that poisons our pet food and all manipulate their currency to steal our jobs and lower our standard of living.
Give Peace A Chance
We want peace. All we get is endless wars that steals half of our budget, puts all of us in deep debt, while killing our youth. The military complex, this "deep state" has been wrong about every endeavor from Korea to today. Our standard of living has gone from first and now, we are not even in the top 20. Instead of war that money could have rebuilt our infrastructure, create jobs, improve education and lower our debt. This is how we obtain prosperity. It begins with peace.
We need to end the FED! Again, a return to the thinking of our founding fathers. We may not have the ability to return to a gold standard, but the Greeks taught us that all things go in transition. We need to start the change and leading the way will be a balanced budget by law. In addition, we need the courage to admit that we have many needs, but the above is the cornerstone to this new party.
By the way there are other, smaller political parties in America. The largest is the Libertarians. They want less government and less regulation. Do you know what that means? Every tree will be cut down, leaving a forest of stumps. Every waterway will be on fire due to pollution. No national parks. They are even against social security, but so were the Republicans at one time.They forget that if one man can kill another, what chance does nature have? Man will succumb to the siren call for riches like many of our doctors who dropped the Hippocratic oath for a new code: the greenback. They commit fraud on programs intended to do good as they line their pockets, stealing from us all because their resolve is weak.
Sadly, we had an example in England. Just prior to the vote. a man killed an outspoken opponent to Brexit. That poor soul could have just spoken his ideas like she did with the bottom line being a neutral vote and the citizens choosing between the two ideas. It is called, "Free speech." This blog is a good example of our founding fathers thinking. However, he ends up being like a terrorist who he believed could be hiding among the immigrants when in reality the terrorist was in his soul.
Let the Eagles take us out:
- Well, we're scared
   But we ain't shakin'
   We're kind of bent
   But we ain't breakin'

Helicopter Money Is Here!

-" There is no other agency of government which can overrule actions that we take."
- Alan Greenspan

When Milton Friedman tagged the line, he was being flippant. Things have gotten so bad about "manna" from helicopters that maybe, you thought for a second that I was going to reveal a website giving away cash?
The Fed had its June meeting, but the bond market called the minutes even before they were written. Dear reader, two markets are moving at light speed, and usually, they move at a snail's pace. This insight will give you a feel at what I'm seeing.
Currency Market
is 44 times larger than the stock market. In fact, it is the world's largest exchange. One nation and one confederation are disrupting the basket of currencies that world trade responds and trades off.
Disrupters!
The yen has gyrated 20% in range since 2014. The euro is in a state of flux. Its range has seen moves of 25%. This is a direct result of "free" money from central banks associated with each entity. Japan's central bank is doing monetary finance. No one will buy their bonds except the BOJ and to the tune of $80 trillion yen per year. The Japanese government uses deficit spending at $35 trillion yen a year. The plan is to eliminate debt by buying all the debt. Then, they will tell the world that they are debt free. Yay, helicopter money!
The European Central Bank is enacting the same plan, but closer to QE. They will buy corporate debt and this action is driving rates down for member nations. For example, take Germany. In 2014, the ten year rate was 1.44% and today, 0.01%. This is a 98% drop in two years! In fact, in daily action the German note actually went negative.
Taxing Money
Switzerland leads the charge against cash. For example, you put $100K in a Swiss ten year note and they bill you $4500 upon the due date. By the way, if rates were to rise during the period that note would also crash in total value. Who you gonna call? Ghostbusters? Idiots!
Paradox
Even though currencies have declined with mass printing, banks have tighten their lending standards because of their exposure to the falling price of oil. A recent study found that 80.2% of banks are cutting their lending to the oil and gas industry. Before they close the vault, they have added more capital to cover the wave of defaults and bankruptcies. Bank of America has added another 15% for the rainy day. By the way, the latest bankruptcy count(83) is higher than the combined points scored by James and Irving(82) in game five of the NBA championship.
Need A Fifth
The coach, the ECB, has four players in Japan, Denmark, Sweden and Switzerland. They need one more to get a starting five. At present, the team has assembled $13 plus trillion in government bonds that are negative. In fact, in the last four months negative issues have jumped 67%. In addition, as stated, bonds in Germany and the UK are so low that at various times the issues have turned negative.
Why the Bond Market Knew...
The week before the Fed meeting, the 10-Year T-Bill was 1.70% and last week, just 1.39%.Dear reader, that yield won't even match inflation for 2016 and this goes to 2026? Get real! We have been living with negative yields since 2008, but no one speaks for the citizens when talking about inflation. Food and shelter are off the charts and don't mention car insurance or the other lie, Obama Care.
Three US powerhouses are grabbing the dollars as they fall from the sky. Johnson and Johnson(JNJ), General Electric(GE) and Philip Morris(PM) all have bonds trading in negative territory. Companies will be grabbing with both hands except a few sane souls like myself. I'm not alone.
Not So Fast, Kimosabe!
In Japan, citizens are pulling their money out of banks. I predict this action will grow all over the world, maybe even develop a run on banks. Anyway, they are buying safes to store their yen. I think mattresses got a bad rap from all the mafia movies.
In Germany, the insurer giant, Munich Re recently pulled their millions from the ECB. This company insures insurance companies and I guess they are looking for insurance? Commerzbank, a German banking giant, also pulled their millions from the ECB.
World's Collide
A split will emerge within the world. On one side will be the fiat people and on the other, the awakening to real value like in precious metals. I will stop to pick up a dollar lying on the street, but I ain't looking up to the skies for some more. Real wealth takes work. You have to invest your time and energy to create value. You can't create it out of thin air. When something has real value, it will retain that value and not be subject to the wind blowing paper in the air at the caprice of some bureaucrat, a desk jockey, thinking he is a financial engineer. End the Fed!

In Defense of Donald Trump

The real big problem with Donald Trump is that he talks in sound bytes. For that matter this is the same problem with the news media.
Trump lashed out against the US District Judge, Gonzalo Curiel concerning the lawsuit against Trump University. Trump said, "The judge is probably biased against me because of my previous comments about Mexican immigration."
Then what?
The media jumps on the quote to imply that Trump is racist. This action revealed their inherent dislike for Trump and by de-facto, pro-Clinton leanings. In reality, if Donald just took the time to explain his thinking, there would be a different conversation today.
Federalist Papers
Alexander Hamilton took up the cause for the original colonies to ratify the constitution. He, along with John Jay and I can't at this moment recall a third member of the revolution group, wrote a series of articles to promote the citizens to push their local government to back the new Republic.
Hamilton advocated the three equal branches of government. He goes on to say that judges in the Judiciary Branch, can be subjective and do what is best for the nation rather than serve self-interest. This sounds all well in theory, but humans are flawed. They cannot always be subjective in nature. I can recite numerous examples, and in my unpublished work, I do. Here I will use the two most important.
Dred Scott v. Sandford
Supreme Court Judge, Taney declared in 1857 that African-Americans are inferior. The man was pro-slavery among other things. He said, "Slaves are chattel."
Plessy v. Ferguson
The Supreme Court ruled that separate but equal is constitutional in 1896.
When the court overturned the above verdict in Brown v. Board of Education in 1954, the South almost revolted again. Southern senators outlined a plan to "pack" the court with right minded people. In detail, the book called, Southern Manifesto, devised a way to boycott schools rather than integrate.
Right there points to the problem. People have their own baggage. You can get any decision in the courts as long as you get to pick the judge. This is why the Republicans are holding up the nomination process at the moment.
Getting deeper, this is the real reason why there was a quick response to Trump's latest outburst. The powers-to-be do not want this aspect to get play, to become part of the conversation because the bedrock of the elites is really at stake.
Now, if Donald Trump just explained that this Hispanic-American judge has a very close affiliation to the San Diego based La Raza, which is pro-Mexican-American and pro-immigration of Mexicans, then, maybe there is some doubt about this judge's ability to be subjective. Clinton won't reveal this truth either.
If our nation is ever going to evolve our democracy, the third branch of our system needs to be overhauled(I have an answer in my work, but I can't reveal it here). As it stands now, the Judiciary Branch is a dictatorship within our democracy. Yes, I know that decisions could be amended, but the process is too difficult and lengthy, especially with so many day-to-day verdicts. The court creates law without legislation which violates the constitution. By the way, Jefferson and Madison are on my side if you care to look it up.

All Things Are Connected

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.