Round Two With NAFTA

The first 100 days have come and gone and Trump's central rhetoric of ending trade deals or at least, renegotiate them, is just hot air in the wind. All this week behind some closed doors, the second round of negotiation between the US, Canada and Mexico is taking place in Mexico.
Trump complains that he cannot get results from the people that he hired. I could have told him that Republicans will never do anything for ordinary Americans. These are the same people who pushed for NAFTA. Then again, Trump said that he won't hire poor people. There goes my social mobility.
The Argument
The people who favor NAFTA (nothing but shills) point out the success of US corn and soybeans since the program began, I have news for you. People and governments buy when hungry. Those two products in the US favor large industrial/agricultural farms. The two may not have had the huge growth during this time period without NAFTA, but the basic law of economics would have garnered some success in any event. I'm not even going to include the stupid ethanol program. Food is basic. Hunger equals demand and demand equals sales!
Now, flip the coin! The US lost 12 million jobs in manufacturing. That's right! Now, SHUT UP!
An auto parts factory lost along with the actual assembly plant, Adios! An air condition plant closed. No jobs, Nada! An appliance maker deployed over the border. Hasta Luego!
We hear the BS in other aspects of the economy like the shrinking middle class and stagnant wages. Well, just read the above sentence. Republicans gave us the "trickle down economy." They just didn't say where it trickled too - south of the border. But hey, it is not just Republicans. Old "slick" Willie persuaded, lobbied and signed the law. This is why I always say we need a new third party. A party for the people and one that has middle class thinking and values and its people. All we have in Congress is millionaires and lawyers.
Getting off the topic. In the pause the shills gather their second point: technical service jobs because of NAFTA.
This is smoke and mirrors because those jobs are temporary in nature. The foreign companies are training home grown workers in this field and when ready, those jobs will go to the local yokels.
Closer Look
I like to offer you a different perspective with tomatoes.
Tomatoes
I would estimate that at least half of the US population has tried to grow tomatoes at one point or another. However, I am talking about farms and farmers. Recently, a small Florida farmer pointed out the problem and it centers on NAFTA. He hires transient Mexican workers for his product. He says he cannot compete with his Mexican workers versus the Mexican workers in Mexico. Why?
First and foremost is currency manipulation. It is central to why Mexico sends 80% of its exports to the US and why it has excessive surplus monetary gains against the US. It is why the ETF, EWW is soaring. It is why the central bank of Mexico upped its forecast for GDP from 2% to 3%. The rules and regulations of NAFTA add to the problems of US producers. Even if parts of the deal could be renegotiated, any upset party could take the new deal to NAFTA's court and even the WTO. There is a bureaucracy of layers working against the US, but I have an answer(see end).
It is why this small Florida farmer is slowly dying. It is not just manufacturing that is gutted by NAFTA, but every aspect of our society. To be fair it is true that the US tries to level the field by subsidizing agriculture. The problem is the program only helps large industrial complexes and does little or nothing for the small farmer.
No Milk for YOU!
It is why one day our milk will come from Canada. Sadly, the currency tricks work north of the border too. Our diary farmers are also dying a slow death.
All talk no action
That is the feeling behind the bravado of the "Donald." This is reflected in the Mexican peso. After Trump's election win, the peso plunged 17% on fear of tariffs. Now, it is actually up versus the dollar and up over 5% from that victory night. This is what the smart money is doing. They are making profits on the wall of economic worry with Mexico, while the media plays circus games with new appointees and talk of trade deals.
This should be added to NAFTA and if we can't, drop it like a bad habit. The US will place tariffs on all products and services to the tune of the difference between the high of the US dollar and the low of the competing foreign currency. Amen! Oh yea, those NAFTA and WTO courts? Screw you, US law "trumps" your bureaucracy. Amen!

Currencies and Precious Metals

- "No problem can be solved from the same level of consciousness that created it."
- Albert Einstein

The above quote is for the shills meeting in Jackson Hole, Wyoming. We should all know by now that governments manipulate their currency to either export or import. This of course, is only one layer of the onion that governments use. This piece does not examine protectionism, but the implications of the recent action in major currencies.
$USD
I told you a little ways back that the dollar is under attack. It has fallen from its high of 103.8 in January of this year to Friday's close of 92.6. It even touched a new yearly low of  92.2, only to find a new lower low on Tuesday at 91.5. Every time that the dollar has tried to bounce, the ball has no air. The volume of negative contracts has enough juice to not only test 88, but carry it through to 84. The dollar has broken its 50 and 200 - day moving average. If you have not realized this extensive move, you may now ask what does it mean? The answers only lead to more questions, however I stand by Sebastian's prediction that our exports will grow and Trump will look great. This does not mean America will be great again, but a replay of the Clinton administration. US citizens will get inflation, the same stagnant wages and more of our industries will be gutted by globalization. Even if Sebastian and I are wrong about the effects of a low dollar, we know for certain what it means elsewhere.
-"one man's ceiling is another man's floor..."
- Paul Simon
EURO
When its low tide on one side of the ocean, its high tide on the other side. Back in January of this year, the talk on the Euro was parity to the dollar. The euro hit 104. Now, at 1.192 and touching 120, the shills bark European stocks. The strength behind the move could carry it to 124. As stated for the dollar, if 88 is penetrated, then 84 is in play. The correlation can thrust the euro to the 128-131 range.
Yen 
It too has risen against the dollar as it sits at 109 and it could go lower.
Where does this lead? Fortunately. I have a friendly doctor who is a world traveler. He gave me this answer.
Dr. Copper 
China is buying and that means prices will rise. Copper was $2.50 a pound in May. It closed last Friday at $3.06. This is a huge, huge move in a short period of time. The volume is strong and copper has surpassed its 50 and 200 - day moving average. It should run to $3.23.
Putting the currencies in a basket which by the way is what the IMF wants to do, but only an expression in my usage, the conclusion is simple= $Gold! 
The results of all the manipulations on currencies cannot manipulate gold. It is the only real money to win against the fiat moves. It has finally breached a new top last Friday and when I relate to you the machinations within the market, you will realize what Sebastian and I see.
On Friday about 30 - minutes before Yellen would speak in Jackson Hole, a whale sold 2- million contracts of gold. This huge short in the past would have ended the gold rally. It didn't. In fact, it was not only engulfed by gold, but gold rose to close up at $1297.9. This shows the conviction of the internals and strength behind the move. We see $1327 and a possible run to test the $1375 set back in July 2016. We also like silver and one reason close to my heart is that I can afford it. At present, silver is moving in a monster range. The volume is very strong to the upside and we see $17.88 in play. Not only that, but if things continue the way that they are trading, $18.28 looks doable.

More Bits and Pieces

I call this "more" B&Ps because it is in effect, a continuation of Odds and Ends. Also, Bits and Pieces is a song title by the DC5. They sang of a broken heart and I sing of our poor, convoluted brain that is constantly bombarded with data. Sadly, I am adding to it.
Stock Market
Cracks are showing in this bull rally. In the past two weeks the market stopped its uptrend, and had triple digit down days with volume. This is reflected in small cap, S&Ps and the Dow Index. The Russell 2000 and Dow Transports both fell below key levels and also on volume. When there are fewer people in the store, you sell less. That is the way this market hit its record highs. I have warned you that with less companies to choose from, money gets concentrated. When everyone exits for the door at the same time, you have a stampede. The Trump election win gave this market a 4,000 point boost. I see the expectations faltering. This will cause the market to retrace back to the point where it began its climb. The one positive that I see has been energy. We have been using more oil and gasoline this summer. Although this aspect took to our economy after the Independence Day time period, this usage is following the old cycle of summer driving. This means that the oil market will hold up the stock market until Labor Day. At that point if the oil glut returns, the market will tank. One fundamental reason for this is the internals of our economy. We are a credit economy. This means everything is in debt: our homes are mortgaged, our cars are mortgaged and most of our gadgets are mortgaged. If the paycheck gets cut due to less hours, delinquencies will rise. This causes a chain reaction in a negative spiral. Not good.
Housing
The need for shelter is eternal. No wonder the Fed does not include it in its inflation formula. In our consumer economy it is our biggest purchase for an individual. The only positive at the moment is the Fed has kept the interest rates low. In fact, mortgage rates are at its lowest point in 2017. Nevertheless, housing starts and permits continue to decline with a tight inventory of existing properties and at very high prices. A central problem for buyers has been the down payment. With the medium price for an existing home at $267,000, a buyer needs at least $30 grand for 10% down and other closing costs. This stumbling block has caused purchasers to seek the lower 3% FHA loans. I have nothing against these mortgages except life happens. See above or below. In addition, buyers are returning to ARMS(adjustable rate mortgages). The housing industry has utilized these two loopholes for years, but the threat of liar loans or ninja loans could resurface with the high demand. The real risk to housing will be in the future. Any downturn or spike in ARMS could severely damage the housing market recovery. According to Susan Wachter with the University of Pennsylvania's Wharton School, the key will be multifamily construction. Rents are too high, but more available and affordable rentals will allow people to save for the down payment. This point like all intellectual concepts does not jive with reality. Rents are too high, but the people building new units know this and they are seeking to keep it that way. In a related aspect the Trump administration is looking into all tax loopholes including the home deduction on interest payments. The present talk centers on a cap. Consider Beyoncé and Jay Z just signed a contract for an $88 million dollar home in L.A. The monthly payment comes to $250,000. Now, I say this these crazy homes prices have a deep root in the tax deduction. I say it should be eliminated after $5 million and dramatically reduced after the average home price for that tax year. You want to close the wealth gap? This is a good starting point.      
Three Mile Island
is scheduled to close. Not what you think. No environmental disaster is looming. It is basic economics. Costs are too high. The cost to maintain a nuclear plant is very high. These guys never suggest this when seeking to get a license to build one or the design flaws. Don't fret these points because they won't be building more in the near future. The reason is natural gas prices. As long as gas prices remain under $3, nuclear facilities lose money. Three Mile Island is set to close in the near-term. In fact, five nuclear plants have closed in the US since 2013. I, personally rejoice about this. I am against nuclear energy, however there is another option to explore for nuclear fission and it is very safe. I would like to see more research into this option. Trump is working with the Department of Energy to study flaws in nuclear design with the hope to resurrect the industry. It never hurts to have choices. Out.

Odds and Ends

Jobs and Unemployment
The big story with jobs and unemployment is this: Job creation has lowered the unemployment rate to 4.3% and yet, there is conflict of information. Why? Because the other big story in 2017 is the slow dying of retail. Stores are closing. Brick and mortar have lost over 465,000 jobs, while e-commerce has added 166,000. Now, my old math says 300,000 people are out of work just from retail. If you review the government stats, unemployment claims have been under 240,000 for the past two years. Of course, these are bureaucrat stats. Go figure?!  
$10 Billion Threat 
That is the real value of all the yearly oil flow from Venezuela to US oil companies like Chevron, Phillips 66, Citgo and Valero. Proposed sanctions will cause a spike in the price of US gasoline. These companies cannot find substitute distributors due to the fact that those same companies have spent millions to coordinate their refineries to work with the Sulphur content of Venezuelan oil. Venezuela is the 3rd largest supplier to the US.
At the moment the Venezuelan president/dictator, Nicolas Maduro is sitting with a smug attitude even though the US processes all their oil for gasoline. His country is in turmoil and the GDP has fallen off the cliff, but he feels the US is all talk and won't follow through on the talk. Trump cannot afford anymore problems, especially with North Korea on the radar. Trump could counter by releasing the reserves from the national storage facility. He also indicated that a military option is on the table, however this plays into Maduro's hand because he blames the counties problems on US intervention.
In any event, I told you in previous articles that Venezuela could cause an economic world recession due to the parabolic move of their stock exchange. Last week, the index hit over 193,000 which means that it has tripled this year after doubling from last year. Help me out? What did they invent or discover to cause such a movement when the citizens are rioting in the street? I see a bad, negative derivative chain of events.
More Middle Class Death 
In the south US workers rejected joining the UAW union. Nissan used the same tactic as Boeing with its workers to reject union membership or proposals. The word union is still a dirty word in economics and yet, it was only the union founders who gave us a 40 hour week and the ideas of a pension, sick pay and unemployment insurance. When you get things for free, you take them for granted.
Federal Reserve 
did not raise interest rates as expected. In addition, rates are not expected to increase from a survey of economist until March of 2018. Sebastian has been saying all along the whole story is just another point of manipulation and control by the Fed. They cannot raise rates due to the ballooning US deficit which by the way is already up 10% this year and sits at negative $566 billion and counting in the RED! By the way the Fed has their vacation in Jackson Hole, WY. next week and we can expect more control, more manipulation and BS!
Pot vs. Wine 
In California the fight is just beginning even though both "pleasures" have been with us for a long, long time. California will issue restricted licenses to grow marijuana. We all know the soil in Napa/Sonoma is the best. The problem centers on a study showing that one acre of pot could return $1 million while one acre for wine only yields $200,000. The wine growers fear that pot growers will economically force them out of the valley.
Bond Bubble
Greenspan has started the dialogue in open forum. He feels if rates keep rising, this will cause the bubble in bonds to pop. He is not alone as Sebastian shouted this fear when the Fed began lowering rates to unhealthy levels. When you raise rates, the value of older bonds decline. Greenspan fears a return to stagflation which is the worst economic condition. It means inflation is rising and yet, the economy is not. Sebastian feels stagflation is possible. We have phony inflation data that does not include food and energy, the two things people need every day. In addition, the government does not include shelter which is off the charts for home ownership or to rent. The Fed is now trapped. Economists like Shiller agree with Greenspan and hedge funds managers are joining the chorus. Trump will probably fire Yellen to get a dove and or a return to QE by the Fed. In any case, no matter how you add up all of the above, things are not looking good.

An explanation for Dow 22,000

Yesterday:
Image if you will, your local supermarket. We are going to the dairy aisle to get a quart of milk. Now, in this musing, we have four brands to make our choice. Let us not differentiate between low fat or 2%, just plain milk without GMOs.
First, we have the national brand. For consumers who just moved into the neighborhood, this will be their choice.
Next, we have the local dairy. This will be supported by folks who grew up in this environment.
Thirdly, we have the discount brand. People buy what they can afford.
Finally, we have the new kid on the block with fancy cartoon characters. They will try to get your kid to bug you to buy their product.
These are our choices with some backstory. Now, since the four brands are in the refrigerator section, we must conclude that they are all making money and that is why they are still in active business.
Now, dear reader use an analogy here. Instead of milk, imagine the US stock market in the 1990s.
The market listed almost 7,000 companies. The Wilshire 5,000 was the choice to find a good small cap stock with growth potential. With so many choices, money circulated.
Today:
In the refrigerator section we basically find two choices. The reasons are many like high prices and changing consumer preferences to government subsidies favoring big corporations over ma and pa operations. You can buy the national brand or if still available, the local brand. Since land near cities is so expensive and tax burdened, in short order the local dairy will sell out to a housing developer. Then, we will only receive one choice and when it goes GMO, no choice.
This is what happened to the US stock market. We no longer use the Wilshire 5,000. We use the Russell Small Cap Index or Russell 2,000. The Big board has only 3,400 companies and shrinking. There are many reasons for this, from mergers to going out of business. The shills never mention the reason so many went out of business. It is due to globalization. This is the death of the middle class. The shills sometimes tell some truth, but only to mask their intentions which is really unknown to them as this is behind the doors strategy. They may suggest that rules and regulations are hurting companies. This is true. The Sarbanes-Oxley Act hurts small business which large corporations love because it gets them one step closer to going out of business. This has directly effected IPOs to the market. The cost is too high to go public. It is why the real successful companies in the US are private concerns. This is the real reason why the stock market keeps setting new record highs. There is little to choose and money is funneled into the few remaining choices. If there is a correction, this will cause a stampede to exit the market. By the way, the long-term up channel line has just been reached. This is the first time since the fallout of 2008 and guess what? The market ended its streak of record closes as it had a down day. Not good. 

Market and Gold Update

Dear reader, you are not going to like or agree with my market outlook, but I call 'em like the charts reveal them. For those who will mumble after reading that maybe I visited a Colorado "medicine" shop or something similar, the answer is no,...but I'd like too.
Market Internals
I start with the Transports. It is the second shoe in the Dow Theory. It was late to the market party of new highs, but it did attend in early July. This gave the overall appearance of a strong market and economy. The problem was it didn't stay long. It left immediately and the transports are down 500 points since then. Please note, it came down on high volume in this low volume market.
Speaking of volume, there is a serious disconnection between the overall market and its leaders. The starting five of the FAANG GROUP account for 25% of the market gains. This gives a misconception of the market strength. The rest of the market is quietly falling apart.
Consider MSTR:
This is an important tech stock. It was $195 on the 24th of July. Today, it is $139. This is an example of the breakdown in market internals. Remember all the hype about infrastructure and tariffs? Take a look at the steel stocks. One of the best is AK Steel. It was $9.25 in February. It was glowing not from the fires to shape steel, but the Trump inauguration. Now, it is $5.47 and falling. How about retail? It is the backbone of a consumer society. The XRT(retail)was $50 and now, it touches $39. Commercial real estate is showing strains. Look at the ETF, KIM. It was $32 and now, it touches $17. How about the auto industry? They are feeling it and this is no "it" girl. From slowing sales to delinquent buyers, the outlook isn't pretty. A huge return of leased cars won't help the picture. 
King Dollar 
One of the big reasons, but not mentioned in the media is the US dollar. It effects everything. There is something going down behind the scenes. The dollar touched 103 in early March. Now, it touches 92 and falling.
Part of me thinks this is a replay of the Clinton administration. He gets credit for a surplus and economic improvement. This is the shills talking, and sadly, they dominate the news. Slick "Willy" killed the dollar. This action resulted in high inflation. Yes, we sold more exports, but imports always glom exports. This social and financial engineering looks good on paper just like NAFTA until we realize that the imports have gutted industry after industry. The outlook isn't bright, unless we turn to  GOLD. 
For every drop in King Dollar, there is a corresponding rise in gold. At the moment, 88 cents is in play. Remember last month when I told you that a rally in the Euro was coming? The euro has risen from the talk of parity to 118 and rising. In addition, the dollar hit the "death cross" and with conviction. While the dollar walks to the place of skulls, gold hit the "golden cross." Oh, yeah, this is earnings season and the miners have been crushing more than rocks. They are over-achieving and looking real strong. The media hypes big winners, but never mention precious metal miners unless it is bad news. In this thin market, gold is acting like a growth tech stock of the 90s.
All good for precious metals. I see gold retesting $1300 and then, a move to test the last high of $1375 in July 2016. Silver needs to break $17.16 and then, we will have some action.
Good investing. Go Yanks! Go Irish! Practice those mock drafts 'cause the NFL is around the corner.
Peace.

A New Police Danger

I don't want to pick on the police because like my mother told me, "There is good and bad in everything." As for my life experience with the lawmen not to mention a few relatives, there are two types of cops. You have officers and pigs. The pigs are the thugs who shoot first and ask questions later. The problem is we don't have enough officers and it seems that the thugs are in the majority. The recent tragedies and travesties of the law to our citizens is bad enough, but the latest dictum from the US Attorney General, Jeff Sessions could germinate a seed of rebellion in our society. When you find more reasons to suppress people, there is bound to be a backlash. It is like Newton's Law, "For every action there is an equal opposite reaction."
Where's your license?
There are stories in the news and internet all the time like kids being arrested for selling lemonade in front of their home or laws not allowing garage sales. These things build up and form a poison to our emotional state. This new oppression I fear could swell within the cortex to explode with unforeseen consequences. The English taxed and the American colonist responded, "No taxation without representation!" The disease of no representation is already present in our society. Our government never does what citizens want. They condescend our thinking as "Populist."
A new thorn in our garden...
The attorney general wants police to seize cash and property during any course of action. Sessions uses a truthful logic in this approach, but he does not understand the concept of abuse. He says that he does not want drug dealers to benefit by their illegal operations. This sounds good, but this change in procedure has an underlined profit motive for the police. The cash and property that they take will be kept for their department and things like their pension.
Reality
The police have seized more property and cash than robbers. That is not a misprint. In 2014, federal law enforcement took more cash and property than crooks. State and local authorities seized untold millions more. Since 2007 the DEA(Drug Enforcement Admin.) alone has taken more than $3B in cash from people. By the way, most of these people were not even charged with a crime. How would you like to be stopped after going to your bank and then, have all your money taken from you and all the police have to say is that you were under suspicion. This is Abuse! This is Tyranny!