There is a negative chill in the air. For those of us who look with distain at advertising for Christmas the day after Halloween, the feeling is eerily similar. The market never acts the way our reasoning does. It is like Pittsburgh losing to Oakland last Sunday. No one in their right mind would gamble on the Raiders, but they won. How about this? The episodes of a company closing plants, and laying off workers tells me that that company is in trouble. GM's stock rose on the news. This is the backstory to my pieces on "Odds and Ends." I can say this as in humor, but I can never do it in life: The Epiphany of George Costanza. The episode on Seinfeld where George realizes that everything he ever did in life was wrong and if he did the opposite, it would be right.
To say the market is struggling is an understatement. However, I believe there will be another bounce. The market shills are correct in the aspect that employment is strong and earnings are good. They, like the Fed, always lie about inflation, but the recent decline in oil will be a big boost to retail this holiday season. This is why I see a "Santa Clause" rally. With that said, I agree with Sebastian that the Ides of March will be a transition point for the market and the economy.
Trade Truce?
The market will find some solace in the 90-day trade tension truce between the US and China. China is buying soybeans. They have dropped their retaliation 25% tariff on US cars for the truce period. I say, take this news as a grain of sand. They are restocking their supply of soy for a possible future dispute. The 25% tariff drop only lowers their tariffs from 40% down to 15%. They still steal technology. They still demand that all companies doing business in China reveal everything about their product and company, and they have to be declared a Chinese company. They are thugs in trading. I say, drop China like a bad habit!
ECB
The European Central Bank have come out to say that the easy money period is over. Then, they say interest rates won't change(either up or down) until the summer of 2019. So much BS!
Libertarians
These are the guys who say we need less government and no regulations. Naïve idiots! Another example as to why we need government watchdogs because man is guilty of greed and other sins. He is capable of murder to achieve his ends. The sad thing is that we need watchdogs to watch the guard dogs. How about Johnson and Johnson who enter the picture? It has been revealed that the big shots in the company knew 50 years ago that asbestos will find its way into talc powder. They are as guilty as the Libor banks, traders at J.P. Morgan, cigarettes firms and many, many others. In fact, there are 300 firms under investigation for price fixing. Of course, for example, even when scientist think something is bad like Monsanto's, Roundup or Dow's, Vulcan, political, corrupt appointees allow these terrible companies to produce and sell those two toxic chemicals. Like I said, we need watchdogs to watch the watchdogs.
GM, Boeing
Are two of the many firms that met with President Trump in his early days of administration to find ways to make "America Great Again." They all said we need a tax break. A tax break for business with the idea that corporations would end outsourcing and bring work back to America. They got it. Then, Boeing pressured its union workers to drop demands if they wanted to keep the company in Seattle. As soon as they won the vote, the company moved work to non-union South and used their tax benefit to buy back shares which reveals their anti-worker stance.
Verizon will drop 10,000 workers. They say, either take our buyout offer or adios.
GM first offered buyouts for older workers. Then, they just said that we are closing multiple US plants and laying off 10,000 workers. The future of the company rests in building cars in Mexico with cheap labor or robots, if possible. I say, tax all imports!
Farm Bill
A $860 billion subsidy farm bill was passed. There are a few aspects that I would say about this. I'm all for helping farmers except this bill is for industrial agricultural giants. It does little for small farmers. It does include food stamps which was needed to get sufficient votes to pass or else, screw poor people. Isn't it amazing how elected leaders cry about entitlement which hurt the budget and yet, they say nothing about the blotted expense to the military or agricultural categories. By the way, the two entitlement programs were self-supported by the users until our so-called leaders monkeyed around the bills to add countless un-contributing arms. In addition, the bill legalizes the production of hemp which is a big plus to the pot industry. I like Aurora Cannabis myself.
Money Outflows
Are expanding at record levels. The retail investor has taken money out of mutual funds for 24 consecutive months. Last week they took a record, $46 billion. When money leaves these funds, the fund is forced to sell. This selling sets of computer programs which compounds a selling or down day. When March 2019 arrives, get out of the way!
Housing
Housing sales plunged in October. The market is showing cracks in the wall. The medium price of a new home is $309K. When you consider, land costs have risen. Quality labor is scarce, and the rising costs of materials that are threatened with tariff tensions, the signs are indeed gloomy. The only reprieve has been the recent decline in mortgage rates. However, with the Fed rate hike looming, this will disappear like a mirage in the desert. More and more people will be trapped as renters like a prisoner in an economic jail.
Misc.
President Trump says he will shut down the government if they don't give him money for his Border Wall. I thought that he said Mexico was going to pay for it? The IMF says global growth will slow in 2019 and this worries me as US corporate debt is at $9.7 trillion. Back in 2007 it was $4.9 trillion and they couldn't service it at that time. The recent declines in the banking sector reflect this worry. But what really scares me is when Janet "Screaming" Yellen says the same thing in a speech. I guess the best thing one can do is buy a real Christmas tree for the holidays. They are plentiful and the industry could use the sales as the fake trees dominate the market just like the currency.
Wednesday, December 19, 2018
Wednesday, December 12, 2018
Present State of the Market: December 2018
The present market has finally succumbed to the whims of life. News now moves the market as the market is overly sensitive to the latest news like from the oracles from Fed governors as to what their take on interest rate hikes. It keeps one eye on the charts and the other eye on the news, particularity on the White House. Did the Donald change his stance on tariffs? Did the Chinese offer something to end the tension?
The market is a forward looking vehicle with at least a six months picture of the economy, inflation and prices. The market must have sensed something back in February of this year when it reached its lows. It rallied after that time period, but then, formed a consolidation range until it finally reached a new all-time high. The bulls were running strong until news of pulling out of the Iran deal jolted the market. Like a sharp curve along the path, the bulls lost traction. They began to skid. Trade tensions and tariffs caused the bulls to crash upon each other in a pile up. The strength in the run was over. You get more conviction when you look at the volume in the QQQ and SPY. The average up volume is well under 100 million shares while on down periods, it increases to an average of over 120 million.This is displayed in the Dow as prices hit lows in July, November and now, in December. Under candlestick charting a dark cloud has formed. This indicates more downside. I see 22,000 as a possibility and a confluence point.
The other half to the Dow Theory, the transports are also showing cracks in the armor. The transports now show a bearish engulfing under candlestick charting for the week. This is a very strong negative for the market. The transports broke under 10K and they have already broke below their February low. It looks like the confluence point will be 9,500.
The technology led NASDAQ is also running out of stream. After hitting an all-time high in August, it has constantly touched new lows. It rests around 6950, but it too has revealed a bearish engulfing under weekly charting. This indicates more trouble ahead. I see 6250 on the horizon. Volume will be very important on how we approach this level.
The small cap, IWM is also screaming, "Get out!" Like its sibling, the NASDAQ, it too reached an all-time high in August at 172. It is now 144 with 131 as a confluence point.
Baltic Dry Shipping Index($BDI)
This is the one important index not showing any considerable weakness. Things are still moving around the world. With that said it is important to remember that the BDI sits at 1372 and that is far below the normal range for this index. Its price level has never returned to the normal level prior to the financial crisis of 2008. It is like the Fed which keeps rates artificially low and for so long that one begins to believe this is normal. It is like Sebastian said in a piece a while back, he sees the market in a range bound period until after Christmas of this year. He see the winter storms coming in January 2019. Dress warmly.
The market is a forward looking vehicle with at least a six months picture of the economy, inflation and prices. The market must have sensed something back in February of this year when it reached its lows. It rallied after that time period, but then, formed a consolidation range until it finally reached a new all-time high. The bulls were running strong until news of pulling out of the Iran deal jolted the market. Like a sharp curve along the path, the bulls lost traction. They began to skid. Trade tensions and tariffs caused the bulls to crash upon each other in a pile up. The strength in the run was over. You get more conviction when you look at the volume in the QQQ and SPY. The average up volume is well under 100 million shares while on down periods, it increases to an average of over 120 million.This is displayed in the Dow as prices hit lows in July, November and now, in December. Under candlestick charting a dark cloud has formed. This indicates more downside. I see 22,000 as a possibility and a confluence point.
The other half to the Dow Theory, the transports are also showing cracks in the armor. The transports now show a bearish engulfing under candlestick charting for the week. This is a very strong negative for the market. The transports broke under 10K and they have already broke below their February low. It looks like the confluence point will be 9,500.
The technology led NASDAQ is also running out of stream. After hitting an all-time high in August, it has constantly touched new lows. It rests around 6950, but it too has revealed a bearish engulfing under weekly charting. This indicates more trouble ahead. I see 6250 on the horizon. Volume will be very important on how we approach this level.
The small cap, IWM is also screaming, "Get out!" Like its sibling, the NASDAQ, it too reached an all-time high in August at 172. It is now 144 with 131 as a confluence point.
Baltic Dry Shipping Index($BDI)
This is the one important index not showing any considerable weakness. Things are still moving around the world. With that said it is important to remember that the BDI sits at 1372 and that is far below the normal range for this index. Its price level has never returned to the normal level prior to the financial crisis of 2008. It is like the Fed which keeps rates artificially low and for so long that one begins to believe this is normal. It is like Sebastian said in a piece a while back, he sees the market in a range bound period until after Christmas of this year. He see the winter storms coming in January 2019. Dress warmly.
Wednesday, December 5, 2018
Corruption of Bonds: Yield Curve
The current market rally from the recovery stimulus is now the longest in history. Of course, the latest obstacle to it is the early stages of a trade war. However, as I have pointed out in past pieces like China's excessive leverage problems or the US housing problems where the traditional starter home is being by-passed in the so-called housing recovery - the market keeps trudging along. It has a few down days over news or fears, but then, it finds its footing to move higher.
If you want to be technical about the progression to new highs, I understand. The Dow hit its high this year back in January. Nevertheless, the small cap and Nasdaq hit highs since that time. Overall, the market stays above 25,000 or near its high which can be called a consolidation.
Bigger Picture...
There is also the total picture and this one offers more truth. It is also way bigger than the stock market. It is the bond market. US bonds as demonstrated by the 10 - year note has been in a range. Upward pressure has been exerted by the Fed who say that they are now near neutral in a gradual return to the normalization of interest rates. The market, however refuses to believe in the Fed's ability or determination to raise rates back to reality(my choice of wording). This has kept downward pressure on long term rates.
In the time lapse since the financial crisis of 2008, the Fed gives BS about inflation, their tool box and using the media like the bully pulpit to control both the masses and Wall St. It has worked, but the world is changing. China is seeking control away from the Fed. To achieve their aim, they have forged alliances, offering gold for oil and now, spending a trillion or more to develop and control a new silk trading road. Europe has broken away from the US with their central banks. They are going beyond low - to negative rates. This is what happens with fiat money. Its true value gets exposed with time. It is actually worth less over time. The central banks of Europe are outwardly stealing from their citizens and in more ways than one.
The US government is working behind the scenes to keep the "petrol dollar." If all nations must use US dollars for oil, then the cornerstone for control by the Fed is in place. This is why the Chinese are offering gold for oil in trading. It is too early in the game to know if this could be a turning point. Yes, there are other factors, but these are the trends in place.
With that said, we return to the bond market for insight. At present, the rising dollar is killing emerging market nations. They borrowed money at lower rates and with a lower dollar. Now, rates are higher as well as the dollar. They have to buy dollars for oil and other commodities, but most of all, financing. Investors always seek yield and safety of that yield. It is why bond trading is controlled by Wall St. Emerging market nations are suffering a double whammy of higher rates and a higher dollar to conduct transactions. Anyone, saying that emerging markets is a buy in nothing more than a shill. They are hurting. China is trying to use that hurt to gather them into their fold. If you go(EM), you will be entering the cave of heroin and watched by a dragon. It is the siren call to your own death.
There is another problem in the bond market. Because the Fed is raising rates and Wall Street does not believe them, we are approaching what is called, inverted yield. The debate is reflected in this fashion. The inverted yield means that short term rates are higher than long term rates. It has not happened, but we are very, very close. Whenever this happens, a recession soon follows.
There are red flags that are pushing this condition in bonds. First, inflationary lies. This is something that I have talked about constantly. The Fed lies about inflation because it directly effects the second reason which is debt. Excessive debt by all in America. If rates were normal, the following three would have great difficulty in servicing their debt. The government is over $21 trillion and projected to add a trillion each year for the decade. Corporations used their capital for buybacks instead of paying down debt or research. They used it for mergers and acquisitions to which added to their liabilities. They have debt up to their eyeballs. Finally, the US citizen has run up credit card debt that recently passed one trillion and student loan debt that also passed one trillion. When they are repaying this debt on monthly installments, it will be higher and higher due to rising rates. It will become more difficult as time passes. It will probably first show up in delinquent car loans, but it will surface. Debt has to be repaid. A day of reckoning is approaching and it will be painful and ugly. These are the reasons why Wall St. does not believe the Fed will raise rates to normalcy.
Finally, consider this big lie...
Lending is based on the US 10 - year bond. Currently, the rate is around 2.99%. This is higher than Europe where in Germany it is only .31% for the same term. In Switzerland it is worse, .09%. These banks are stealing from their citizens. This sends investors to US bonds. In Japan, the rate for the same term is .08%. Crooks! It is like this throughout the world. You can get higher yields in Brazil at 11.62%, but their fiat money could become worthless. Risk must always be in the equation. So, investors buy US bonds, but the Fed is the central liar of all liars. Consider everything in pricing going back 10 years? If you buy a US 10 - year note, it now pays 2.99% and the 30 - year bond pays a paltry 3.32% or for the added 20 years, a buyer only receives .33% higher. Get Real! Simple logic says, if in ten years you get almost 3%, then 30 years should get 3x 3% higher. See how they steal? These people are corrupt! By this logic we are already at negative rates and logic tells me this is already an inverted yield. Danger ahead!
News Flash: 3- and 5-year yields fell to negative 1.4 basis points on Monday. Then, the 2- to 10-year soon followed. First time since 2007 that we have an inversion in notes. This is a major warning to the economy and the strongest indicator that a recession will soon appear.
If you want to be technical about the progression to new highs, I understand. The Dow hit its high this year back in January. Nevertheless, the small cap and Nasdaq hit highs since that time. Overall, the market stays above 25,000 or near its high which can be called a consolidation.
Bigger Picture...
There is also the total picture and this one offers more truth. It is also way bigger than the stock market. It is the bond market. US bonds as demonstrated by the 10 - year note has been in a range. Upward pressure has been exerted by the Fed who say that they are now near neutral in a gradual return to the normalization of interest rates. The market, however refuses to believe in the Fed's ability or determination to raise rates back to reality(my choice of wording). This has kept downward pressure on long term rates.
In the time lapse since the financial crisis of 2008, the Fed gives BS about inflation, their tool box and using the media like the bully pulpit to control both the masses and Wall St. It has worked, but the world is changing. China is seeking control away from the Fed. To achieve their aim, they have forged alliances, offering gold for oil and now, spending a trillion or more to develop and control a new silk trading road. Europe has broken away from the US with their central banks. They are going beyond low - to negative rates. This is what happens with fiat money. Its true value gets exposed with time. It is actually worth less over time. The central banks of Europe are outwardly stealing from their citizens and in more ways than one.
The US government is working behind the scenes to keep the "petrol dollar." If all nations must use US dollars for oil, then the cornerstone for control by the Fed is in place. This is why the Chinese are offering gold for oil in trading. It is too early in the game to know if this could be a turning point. Yes, there are other factors, but these are the trends in place.
With that said, we return to the bond market for insight. At present, the rising dollar is killing emerging market nations. They borrowed money at lower rates and with a lower dollar. Now, rates are higher as well as the dollar. They have to buy dollars for oil and other commodities, but most of all, financing. Investors always seek yield and safety of that yield. It is why bond trading is controlled by Wall St. Emerging market nations are suffering a double whammy of higher rates and a higher dollar to conduct transactions. Anyone, saying that emerging markets is a buy in nothing more than a shill. They are hurting. China is trying to use that hurt to gather them into their fold. If you go(EM), you will be entering the cave of heroin and watched by a dragon. It is the siren call to your own death.
There is another problem in the bond market. Because the Fed is raising rates and Wall Street does not believe them, we are approaching what is called, inverted yield. The debate is reflected in this fashion. The inverted yield means that short term rates are higher than long term rates. It has not happened, but we are very, very close. Whenever this happens, a recession soon follows.
There are red flags that are pushing this condition in bonds. First, inflationary lies. This is something that I have talked about constantly. The Fed lies about inflation because it directly effects the second reason which is debt. Excessive debt by all in America. If rates were normal, the following three would have great difficulty in servicing their debt. The government is over $21 trillion and projected to add a trillion each year for the decade. Corporations used their capital for buybacks instead of paying down debt or research. They used it for mergers and acquisitions to which added to their liabilities. They have debt up to their eyeballs. Finally, the US citizen has run up credit card debt that recently passed one trillion and student loan debt that also passed one trillion. When they are repaying this debt on monthly installments, it will be higher and higher due to rising rates. It will become more difficult as time passes. It will probably first show up in delinquent car loans, but it will surface. Debt has to be repaid. A day of reckoning is approaching and it will be painful and ugly. These are the reasons why Wall St. does not believe the Fed will raise rates to normalcy.
Finally, consider this big lie...
Lending is based on the US 10 - year bond. Currently, the rate is around 2.99%. This is higher than Europe where in Germany it is only .31% for the same term. In Switzerland it is worse, .09%. These banks are stealing from their citizens. This sends investors to US bonds. In Japan, the rate for the same term is .08%. Crooks! It is like this throughout the world. You can get higher yields in Brazil at 11.62%, but their fiat money could become worthless. Risk must always be in the equation. So, investors buy US bonds, but the Fed is the central liar of all liars. Consider everything in pricing going back 10 years? If you buy a US 10 - year note, it now pays 2.99% and the 30 - year bond pays a paltry 3.32% or for the added 20 years, a buyer only receives .33% higher. Get Real! Simple logic says, if in ten years you get almost 3%, then 30 years should get 3x 3% higher. See how they steal? These people are corrupt! By this logic we are already at negative rates and logic tells me this is already an inverted yield. Danger ahead!
News Flash: 3- and 5-year yields fell to negative 1.4 basis points on Monday. Then, the 2- to 10-year soon followed. First time since 2007 that we have an inversion in notes. This is a major warning to the economy and the strongest indicator that a recession will soon appear.
Wednesday, November 28, 2018
Odds and Ends - November 2018
The stock market is reflecting a sad trait in human behavior. Each of us has a boiling point where we lose our patience. It is ironic that the current market volatility coincides with our national holiday of Thanksgiving.
Inside many homes their is a divisive attitude that generally splits along gender lines. The women do all the cooking while the men get to talk, watch football and relax. It is not just the cooking, but the prep work as well as the shopping. The usual chores. Good husbands help and remind their wives that friends and relatives travel many miles to share the day. It generally goes well unless someone with a too strong opinion on an issue causes old memories to surface which results in unkind words or bad vibes. The lack of patience of putting self before others and not counting the blessings.
This is the stock market. Before it could brush off the usual suspects like the Middle East, excessive debt by corporations and nations, migrations problems and whatever the news could throw at it.
Now, the boiling point of trade tensions and Fed rate hikes lead the list as water overflows the pot. The turkey is dry. Did someone forget to baste it? Finger pointing leads to loudness and speaking without thinking, The market uses math formulas that trigger buying or selling without human thinking. At the moment the selling triggers more selling as the system is running the market. The computer does not know patience or cares about the trait. It follows its engineering just like the Fed is trying to manipulate an engineered economy. Here are some other aspects that are on the table along with the turkey, mash potatoes and carrots.
Cost of Money
Banks and other money users like to use short term financing to adjust their books at the end of the month except these rates are rising. One reason is the Fed is no longer supplying these assets to the market. These funds are expiring from the stimulus of the Fed from the financial crisis of 2008. Short term rates have risen and this cost is hurting the bottom line for many institutions. They will cut costs which means come January layoffs will be announced. This is like trying something that you have doubts about and after you tasted it, you regret it. Meanwhile, the Fed is drinking around the punch bowl. When the layoffs become widespread, they will enter the vault for the emergency playbook. It has one verse, "Throw money at it!"
FAANG STOCKS
If you do not own them because you cannot afford them, I understand. However, it is important to realize these market, technology leaders are diving off a cliff.
Company WAS NOW
*FB $220 $131
*AMZN $2,050 $1502 and touched $1,420.
*AAPL $232 $172
*NFLX $419 $258
*GOOG $1,273 $1,024 and fell below 1K
In addition, the overall market has declined by 10% which is correction level. One reason points to rising interest rates. The question emerges, "Why risk the market when I can get a short term 3% in safe notes? I can wait, collect interest and then, make a decision." Money is in competition with the capital intensive industries which only drives up the rates even higher. As 2019 arrives, the debate will intensify between securities and bonds. If rates keep rising, the tug of war will be won by notes. This makes more money leaving the market and lower prices. This will be the focal point of the market in the coming year.
Bit Coin
As my regular readers know, I'm against the cryptocurrency. I'm for precious metals. With that said, the digital money is still competing for investors money. Lately, they have been hurting like the New York football teams. The cryptocurrency has plunged 24% just last week. It has lost $700 B since January of this year. Nevertheless, traders do not believe this decline is capitulation. The new kid on the block once touched $20K and now, below $4K. It looks like it will hit $3K and then, $1300 is in the cards. After that, $700 and then, ZERO! I just hope these people will turn to gold which even in the crosshairs of fiat governments worldwide, cannot distort its legacy as a holder of real value.
Housing
This is still the most important consumer item in our consumer society. Sales for existing homes rose in October, but they have fallen in six of the last seven months. With rising interest rates the outlook at best is stagnation. However, there is another aspect that is affecting the industry: flippers.
Flippers activity in the market has declined by 18%. They cite rising prices of all homes and material costs are also higher. It looks like these housing repairmen are moving into another segment in the field: NPLs(non-performing loans).
There is still 800,000 non-performing loans out there in the market. These are loans defined by being at least 90 days behind payment. According to Black Knight Inc, this is not a great sign for the market as small investors are buying these notes and seeking to collect. Many of the homeowners who still reside at these residences, believe that since they have not heard from the original lending institution that their mortgage was forgiven. There will be $135B worth of crying in 2019.
OIL
You can never overlook the most important commodity as it relates to the economy. In an aspect that does not make sense other than seasonal aspects, oil is declining. President Trump put sanctions on Iran and the loss of this producer has not caused disruption. This is in addition to Libya and Venezuela, two messy producers, which does not help the market. This is great for consumers, but I feel this will only be temporary at best. You can see the price decline in the XLE as well as the XOI. The supply shortages have been made up by Saudi Arabia, Russia and the US.
energy sector WAS NOW
*XLE $78. $63.
*XOI $1603 $1262.
AUTO
Car sales are still strong. The US is seeking a record of 17m for four straight years. I think it will fall short, especially when you consider the average price of a new vehicle is in the $30s which was the price of a home in the 70s. You can thank the Fed for lowering the purchasing power of the dollar and our overall declining standard of living.
News Flash: GM is closing 5 US plants and laying off thousands. So much for giving US corporations huge tax cuts to incite them to bring production back to the US. GM claims this is a transition to electric cars except one of the factories made the Volt, their electric car. I guess GM remembers the clause in the new NAFTA deal whereby workers must make so much dinero. Yeah, fire all your high paying veterans and you meet the criteria by employing new lower paid wage earners.
They also say this is forward looking. Yeah, they want plants that are all robotic. They also claim the tariffs hurt them on steel. Maybe they should buy US steel in the first place.
President Trump says he will shut down the government if Congress does not give him money for the Border Wall. The countdown begins, 10, 9, 8...I am so sick and tired of all this deficit spending, year-after-year, administration-after administration. Our national deficit is fast approaching $21 trillion. Funny, the Republicans say less government and less spending and all they do is SPEND!
Finally
Did I hear someone say, "Yay?" Wise guy. Just like the split in the home over chores, especially with the added aspects of the holidays, America seems to have a double standard: one for the rich and one for the rest of us.
A trader for J. P. Morgan with 13 years of experience, John Edmonds pleaded guilty to "spoofing." He said that he learned the technique when he started from veteran traders. In this practice, a trader places an order, but cancels the same order before execution. The idea is to influence future prices which distorts the market. Dear Reader, the market claims no one manipulates the price of precious metals, but Edmonds used the technique in the gold market. The CME claims no price irregularities. Fiat money talks, while real money walks.
No matter what the conversation on Thanksgiving. No matter how the food turned out, the pumpkin pie never disappoints. Peace.
Inside many homes their is a divisive attitude that generally splits along gender lines. The women do all the cooking while the men get to talk, watch football and relax. It is not just the cooking, but the prep work as well as the shopping. The usual chores. Good husbands help and remind their wives that friends and relatives travel many miles to share the day. It generally goes well unless someone with a too strong opinion on an issue causes old memories to surface which results in unkind words or bad vibes. The lack of patience of putting self before others and not counting the blessings.
This is the stock market. Before it could brush off the usual suspects like the Middle East, excessive debt by corporations and nations, migrations problems and whatever the news could throw at it.
Now, the boiling point of trade tensions and Fed rate hikes lead the list as water overflows the pot. The turkey is dry. Did someone forget to baste it? Finger pointing leads to loudness and speaking without thinking, The market uses math formulas that trigger buying or selling without human thinking. At the moment the selling triggers more selling as the system is running the market. The computer does not know patience or cares about the trait. It follows its engineering just like the Fed is trying to manipulate an engineered economy. Here are some other aspects that are on the table along with the turkey, mash potatoes and carrots.
Cost of Money
Banks and other money users like to use short term financing to adjust their books at the end of the month except these rates are rising. One reason is the Fed is no longer supplying these assets to the market. These funds are expiring from the stimulus of the Fed from the financial crisis of 2008. Short term rates have risen and this cost is hurting the bottom line for many institutions. They will cut costs which means come January layoffs will be announced. This is like trying something that you have doubts about and after you tasted it, you regret it. Meanwhile, the Fed is drinking around the punch bowl. When the layoffs become widespread, they will enter the vault for the emergency playbook. It has one verse, "Throw money at it!"
FAANG STOCKS
If you do not own them because you cannot afford them, I understand. However, it is important to realize these market, technology leaders are diving off a cliff.
Company WAS NOW
*FB $220 $131
*AMZN $2,050 $1502 and touched $1,420.
*AAPL $232 $172
*NFLX $419 $258
*GOOG $1,273 $1,024 and fell below 1K
In addition, the overall market has declined by 10% which is correction level. One reason points to rising interest rates. The question emerges, "Why risk the market when I can get a short term 3% in safe notes? I can wait, collect interest and then, make a decision." Money is in competition with the capital intensive industries which only drives up the rates even higher. As 2019 arrives, the debate will intensify between securities and bonds. If rates keep rising, the tug of war will be won by notes. This makes more money leaving the market and lower prices. This will be the focal point of the market in the coming year.
Bit Coin
As my regular readers know, I'm against the cryptocurrency. I'm for precious metals. With that said, the digital money is still competing for investors money. Lately, they have been hurting like the New York football teams. The cryptocurrency has plunged 24% just last week. It has lost $700 B since January of this year. Nevertheless, traders do not believe this decline is capitulation. The new kid on the block once touched $20K and now, below $4K. It looks like it will hit $3K and then, $1300 is in the cards. After that, $700 and then, ZERO! I just hope these people will turn to gold which even in the crosshairs of fiat governments worldwide, cannot distort its legacy as a holder of real value.
Housing
This is still the most important consumer item in our consumer society. Sales for existing homes rose in October, but they have fallen in six of the last seven months. With rising interest rates the outlook at best is stagnation. However, there is another aspect that is affecting the industry: flippers.
Flippers activity in the market has declined by 18%. They cite rising prices of all homes and material costs are also higher. It looks like these housing repairmen are moving into another segment in the field: NPLs(non-performing loans).
There is still 800,000 non-performing loans out there in the market. These are loans defined by being at least 90 days behind payment. According to Black Knight Inc, this is not a great sign for the market as small investors are buying these notes and seeking to collect. Many of the homeowners who still reside at these residences, believe that since they have not heard from the original lending institution that their mortgage was forgiven. There will be $135B worth of crying in 2019.
OIL
You can never overlook the most important commodity as it relates to the economy. In an aspect that does not make sense other than seasonal aspects, oil is declining. President Trump put sanctions on Iran and the loss of this producer has not caused disruption. This is in addition to Libya and Venezuela, two messy producers, which does not help the market. This is great for consumers, but I feel this will only be temporary at best. You can see the price decline in the XLE as well as the XOI. The supply shortages have been made up by Saudi Arabia, Russia and the US.
energy sector WAS NOW
*XLE $78. $63.
*XOI $1603 $1262.
AUTO
Car sales are still strong. The US is seeking a record of 17m for four straight years. I think it will fall short, especially when you consider the average price of a new vehicle is in the $30s which was the price of a home in the 70s. You can thank the Fed for lowering the purchasing power of the dollar and our overall declining standard of living.
News Flash: GM is closing 5 US plants and laying off thousands. So much for giving US corporations huge tax cuts to incite them to bring production back to the US. GM claims this is a transition to electric cars except one of the factories made the Volt, their electric car. I guess GM remembers the clause in the new NAFTA deal whereby workers must make so much dinero. Yeah, fire all your high paying veterans and you meet the criteria by employing new lower paid wage earners.
They also say this is forward looking. Yeah, they want plants that are all robotic. They also claim the tariffs hurt them on steel. Maybe they should buy US steel in the first place.
President Trump says he will shut down the government if Congress does not give him money for the Border Wall. The countdown begins, 10, 9, 8...I am so sick and tired of all this deficit spending, year-after-year, administration-after administration. Our national deficit is fast approaching $21 trillion. Funny, the Republicans say less government and less spending and all they do is SPEND!
Finally
Did I hear someone say, "Yay?" Wise guy. Just like the split in the home over chores, especially with the added aspects of the holidays, America seems to have a double standard: one for the rich and one for the rest of us.
A trader for J. P. Morgan with 13 years of experience, John Edmonds pleaded guilty to "spoofing." He said that he learned the technique when he started from veteran traders. In this practice, a trader places an order, but cancels the same order before execution. The idea is to influence future prices which distorts the market. Dear Reader, the market claims no one manipulates the price of precious metals, but Edmonds used the technique in the gold market. The CME claims no price irregularities. Fiat money talks, while real money walks.
No matter what the conversation on Thanksgiving. No matter how the food turned out, the pumpkin pie never disappoints. Peace.
Wednesday, November 21, 2018
Check the Turkey
Forgive me for using an analogy of our iconic symbol for our day of thanks to our economy, specifically in actions of our Federal Reserve. These bankers think that they can engineer our economy and thus, our lives. Everyone fairly understands the concept of booms and busts and how it effects our economy. Behind every bust is the Fed. Anyway follow this example...
You make and sell a product. Research shows that you have a 20% share of the market in the product that you make. Your bean counters, seeking a raise for themselves, offer this plan. We can increase production by this factor, which should not add to labor costs. Money is cheap to borrow. We can
not only increase our market share, but add x-amount of millions to our bottom line. So, the company enacts the plan. The only problem is your competitors utilize the same concept. Lo, and behold, supply exceeds demand just like our present oil market.
What happens?
Production is cut back(OPEC playbook). Workers hours are reduced. People have less to spend and the chain reaction affects all aspects of the economy. We went from boom to bust.
Enter the Fed.
They open their vault and read the emergency playbook. It says, "Throw money on it." They lower interest rates which allows poorly managed firms to rollover their debt and stay in business. It makes housing, the biggest and most important consumer item, more affordable. It gets management thinking, "Do I take this opportunity to do R&D on the cheap? If I buyback shares, I'll look good when the lower earnings come out because the earnings will be divided by a lower figure? What to do?"
The problem with the US economy is CEOs do the ego trip and buyback shares. These greedy, small minded egos follow their predecessors who outsourced our standard of living to China and elsewhere. This is sad to say, but China is the world's biggest economy. They manufacture the most gasoline cars. They seek to make the most electric cars with recent legislation. In alternative energy, wind and solar, they dominate. It is only ego that says the US is #1. Tariffs should be increased and taxes on US outsourced companies should double to force the return to the US. Anyway, China will want
their currency to be the world's reserve money. Heaven forbid! If that happens, everything that we buy will double in price. Our terrible poverty numbers will double and our standard of living will fall further. This is a future problem. Recent data indicates a more pressing concern.
New Problem
The cheap money that the Fed threw into the economy and which becomes debt, is all used up and now, money is costing more. The first signs of liquidity problems is revealing itself in short term financing. Dear reader, it takes hours to cook a turkey not to mention the days it takes to thaw the bird. Then, you have to constantly baste it so it won't dry out or get burnt. The Fed has suddenly realized that it has been enjoying the party at the punch bowl and not basting the bird or even coordinating the other parts of the meal like turnips, carrots, etc.
The global market is seeing the effects of political influence, which is generally never good. We have tariffs, migrations tensions, Brexit, Iran, Venezuela, Greece, Italy, Spain and the Middle East. We have Asians nations caught in the trade conflict between the US and China and everyone has excess debt that now, costs more. Investors are moving into dollars(safe haven) which hurts emerging markets. The higher dollar hurts all international companies. It does provide small relief to you and me, but it is only temporary.
Those names are the usual suspects except market conditions has banks and financial firms in the crosshair. The lending industry has to have their books balance at the end of the month. They take a short term asset to appear credible. Now, those rates cost more and it is beginning to effect the bottom line. The playbook is to cut costs which means, layoffs. This begins the bust phase in the economy as people have less to spend. This is the small picture. The closer to home aspect. In the big picture, a nation's debt and its ability to service that debt costs more. The US is already at unsustainable levels and with the Fed raising rates(expect one next month). The international market is looking fragile as emerging markets suffer with debt borrowed in US dollars and must be repaid in US dollars.
Finally,
We have the war between the bulls and bears in the market. People, I'm not just talking about the outlook for a stock like GE which has too much debt, but the different investing approaches to the market. As the Fed raises rates, this makes notes the safer and easier decision by investors. Why gamble on the unknowns of the market when I can get secure interest on treasury bills? This struggle for investor money will define 2019. Investors see what happened to Facebook(bear territory). The recent declines in market leaders like Nvidia and Apple(also bear territory). Even dividend firms are being questioned. Where is GEs dividend? LBrands just said all is well and then, cut its dividend in half There are many other examples. The present cloud in the market makes the safety of notes the better choice. Then, there is this aspect. In a higher market(like we have)notes should back off. They are not. Even with the looming expected rate increase by the Fed, they have not backed off. This is a tell by the market. The market believes that the Fed will stop raising rates. The market is reaching a confluence point. The market had better be right because 35% of all S&P revenues come from global aspects. Evaluations are already too high and if earnings falter, the market will tank. Sadly, the Fed relates to the market. If it is high, they conclude all is well. If it falls, get the emergency playbook out.
The turkey is done. Surprisingly. it comes out cooked to perfection. The Fed returns to the punch bowl and toast each other. We give thanks, eat, watch football and fall asleep. Black Friday comes. People shop and life resumes. All seems well except the banking industry is preparing to cut workers in January. Enjoy the day. Enjoy the season because the banking engineers are out of oil to grease the economy. Peace. Plan for a rainy day, but enjoy this one. Happy Thanksgiving.
You make and sell a product. Research shows that you have a 20% share of the market in the product that you make. Your bean counters, seeking a raise for themselves, offer this plan. We can increase production by this factor, which should not add to labor costs. Money is cheap to borrow. We can
not only increase our market share, but add x-amount of millions to our bottom line. So, the company enacts the plan. The only problem is your competitors utilize the same concept. Lo, and behold, supply exceeds demand just like our present oil market.
What happens?
Production is cut back(OPEC playbook). Workers hours are reduced. People have less to spend and the chain reaction affects all aspects of the economy. We went from boom to bust.
Enter the Fed.
They open their vault and read the emergency playbook. It says, "Throw money on it." They lower interest rates which allows poorly managed firms to rollover their debt and stay in business. It makes housing, the biggest and most important consumer item, more affordable. It gets management thinking, "Do I take this opportunity to do R&D on the cheap? If I buyback shares, I'll look good when the lower earnings come out because the earnings will be divided by a lower figure? What to do?"
The problem with the US economy is CEOs do the ego trip and buyback shares. These greedy, small minded egos follow their predecessors who outsourced our standard of living to China and elsewhere. This is sad to say, but China is the world's biggest economy. They manufacture the most gasoline cars. They seek to make the most electric cars with recent legislation. In alternative energy, wind and solar, they dominate. It is only ego that says the US is #1. Tariffs should be increased and taxes on US outsourced companies should double to force the return to the US. Anyway, China will want
their currency to be the world's reserve money. Heaven forbid! If that happens, everything that we buy will double in price. Our terrible poverty numbers will double and our standard of living will fall further. This is a future problem. Recent data indicates a more pressing concern.
New Problem
The cheap money that the Fed threw into the economy and which becomes debt, is all used up and now, money is costing more. The first signs of liquidity problems is revealing itself in short term financing. Dear reader, it takes hours to cook a turkey not to mention the days it takes to thaw the bird. Then, you have to constantly baste it so it won't dry out or get burnt. The Fed has suddenly realized that it has been enjoying the party at the punch bowl and not basting the bird or even coordinating the other parts of the meal like turnips, carrots, etc.
The global market is seeing the effects of political influence, which is generally never good. We have tariffs, migrations tensions, Brexit, Iran, Venezuela, Greece, Italy, Spain and the Middle East. We have Asians nations caught in the trade conflict between the US and China and everyone has excess debt that now, costs more. Investors are moving into dollars(safe haven) which hurts emerging markets. The higher dollar hurts all international companies. It does provide small relief to you and me, but it is only temporary.
Those names are the usual suspects except market conditions has banks and financial firms in the crosshair. The lending industry has to have their books balance at the end of the month. They take a short term asset to appear credible. Now, those rates cost more and it is beginning to effect the bottom line. The playbook is to cut costs which means, layoffs. This begins the bust phase in the economy as people have less to spend. This is the small picture. The closer to home aspect. In the big picture, a nation's debt and its ability to service that debt costs more. The US is already at unsustainable levels and with the Fed raising rates(expect one next month). The international market is looking fragile as emerging markets suffer with debt borrowed in US dollars and must be repaid in US dollars.
Finally,
We have the war between the bulls and bears in the market. People, I'm not just talking about the outlook for a stock like GE which has too much debt, but the different investing approaches to the market. As the Fed raises rates, this makes notes the safer and easier decision by investors. Why gamble on the unknowns of the market when I can get secure interest on treasury bills? This struggle for investor money will define 2019. Investors see what happened to Facebook(bear territory). The recent declines in market leaders like Nvidia and Apple(also bear territory). Even dividend firms are being questioned. Where is GEs dividend? LBrands just said all is well and then, cut its dividend in half There are many other examples. The present cloud in the market makes the safety of notes the better choice. Then, there is this aspect. In a higher market(like we have)notes should back off. They are not. Even with the looming expected rate increase by the Fed, they have not backed off. This is a tell by the market. The market believes that the Fed will stop raising rates. The market is reaching a confluence point. The market had better be right because 35% of all S&P revenues come from global aspects. Evaluations are already too high and if earnings falter, the market will tank. Sadly, the Fed relates to the market. If it is high, they conclude all is well. If it falls, get the emergency playbook out.
The turkey is done. Surprisingly. it comes out cooked to perfection. The Fed returns to the punch bowl and toast each other. We give thanks, eat, watch football and fall asleep. Black Friday comes. People shop and life resumes. All seems well except the banking industry is preparing to cut workers in January. Enjoy the day. Enjoy the season because the banking engineers are out of oil to grease the economy. Peace. Plan for a rainy day, but enjoy this one. Happy Thanksgiving.
Wednesday, November 14, 2018
Battle: State Rights Vs. Federal Government
This conflict started long before our independence. The people who pioneered America knew the tyranny of government, especially the monarchy. They united in the war for liberty, but were conflicted within over how to construct a new nation. States wanted liberties, but realized with a central government, governing would be an easier transition. With the constitution they thought that they had the answer. They settled on democracy as it seemed the least negative in forming a state.
You put things down on paper like an insurance policy, but life and lawyers throw obstacles that the original words on paper did not address. When you think about the civil war in America, one wonders if the southern states had asked for a national vote about leaving the union along with their state vote results, maybe the war could have been avoided? Maybe some type of restitution by the withdrawing states to the federal government could have been reached? It probably would have been a short term fix as European powers would have tried to enter upon the split. It is what it is.
Today
We are entering the debate again as we have often re-visited this question. In all conflicts the federal government wins or at least reaches a compromise. The "pot" question is the latest to enter the fray.
It has many names...
The lingo on marijuana is as vast as the many regions with the US and the world for that matter. It was many years ago when George Harrison of the Beatles was arrested in Japan for concealing some cannabis in his luggage. In many places this is still the law. It is not however in ten US states, and yet, it is still illegal under federal law. If you fly from California where it is legal and land in New York, you will be sent to Riker's Island. If you survive that experience, you will go to court and probably pay a fine. What is one to do?
In our democracy citizens are rarely offered true democracy. We elect lawmakers who do not listen to the people who voted them into office. They condescend citizens by calling their wishes, "Populism."
Nevertheless, politicians understand the changing climate of the masses. They also know the need for more government revenues that are taxes, but never called taxes directly, if possible. So, from time-to-time referendums are added to ballots and government allows its citizens to express their intentions. This is why 10 states now have legal recreational Mary Jane, Thai Sticks, Panama Red, Columbian Buds, Acapulco Gold, Hawaiian and African Black along with your home grown varieties.
Other debate...
There is also the dangers of cannabis. This is the human frailty aspect. It is why some people cannot stop eating. They become fat. It is why some dudes say that they do not feel anything after a few drinks and then, wrap their car around a telephone pole. This is the sad tragedy of our beings. We do not look within like Socrates said, "Know thy self."
Sadly, their will be citizens who use pot only to have it be the gateway drug into something really dangerous and deadly like heroin. For the majority it will be a few moments of pleasure like a cocktail after work. Then, there is also the lies infused into society about the effects of cannabis. These phony made up tales have hid the powerful positive effects of marijuana in medical terms. Some elected leaders have offered a change in perception.Whether it is politicians seeking revenues or learning the truth, cannabis is now allowed legally in 33 states for medical use. In addition, 8 more states are studying the possibility of legalizing pot either for medical and or, recreational. The city of Northampton, Massachusetts thinks it found another hidden treasure in legalizing pot, "tourism." People will drive over the border to buy and return home in the same day.
Bye, bye, Sessions.
Recently, President Trump has stated that he is 100% behind medical marijuana. His AG which is the DA of America , Jeff Sessions was totally against cannabis. Trump forced him out of office. This will probably lead Trump to use pot as a "trump card" when he seeks re-election in 2020. The federal government will want to get their hands on tax revenues from the selling of pot. It is just a matter of time in some smoke filled back room before it becomes public. Count on it. Personally, I'm getting some pot as in cannabis stocks like Aphria or Aurora. Maybe watch an old Cheech and Chong movie?
You put things down on paper like an insurance policy, but life and lawyers throw obstacles that the original words on paper did not address. When you think about the civil war in America, one wonders if the southern states had asked for a national vote about leaving the union along with their state vote results, maybe the war could have been avoided? Maybe some type of restitution by the withdrawing states to the federal government could have been reached? It probably would have been a short term fix as European powers would have tried to enter upon the split. It is what it is.
Today
We are entering the debate again as we have often re-visited this question. In all conflicts the federal government wins or at least reaches a compromise. The "pot" question is the latest to enter the fray.
It has many names...
The lingo on marijuana is as vast as the many regions with the US and the world for that matter. It was many years ago when George Harrison of the Beatles was arrested in Japan for concealing some cannabis in his luggage. In many places this is still the law. It is not however in ten US states, and yet, it is still illegal under federal law. If you fly from California where it is legal and land in New York, you will be sent to Riker's Island. If you survive that experience, you will go to court and probably pay a fine. What is one to do?
In our democracy citizens are rarely offered true democracy. We elect lawmakers who do not listen to the people who voted them into office. They condescend citizens by calling their wishes, "Populism."
Nevertheless, politicians understand the changing climate of the masses. They also know the need for more government revenues that are taxes, but never called taxes directly, if possible. So, from time-to-time referendums are added to ballots and government allows its citizens to express their intentions. This is why 10 states now have legal recreational Mary Jane, Thai Sticks, Panama Red, Columbian Buds, Acapulco Gold, Hawaiian and African Black along with your home grown varieties.
Other debate...
There is also the dangers of cannabis. This is the human frailty aspect. It is why some people cannot stop eating. They become fat. It is why some dudes say that they do not feel anything after a few drinks and then, wrap their car around a telephone pole. This is the sad tragedy of our beings. We do not look within like Socrates said, "Know thy self."
Sadly, their will be citizens who use pot only to have it be the gateway drug into something really dangerous and deadly like heroin. For the majority it will be a few moments of pleasure like a cocktail after work. Then, there is also the lies infused into society about the effects of cannabis. These phony made up tales have hid the powerful positive effects of marijuana in medical terms. Some elected leaders have offered a change in perception.Whether it is politicians seeking revenues or learning the truth, cannabis is now allowed legally in 33 states for medical use. In addition, 8 more states are studying the possibility of legalizing pot either for medical and or, recreational. The city of Northampton, Massachusetts thinks it found another hidden treasure in legalizing pot, "tourism." People will drive over the border to buy and return home in the same day.
Bye, bye, Sessions.
Recently, President Trump has stated that he is 100% behind medical marijuana. His AG which is the DA of America , Jeff Sessions was totally against cannabis. Trump forced him out of office. This will probably lead Trump to use pot as a "trump card" when he seeks re-election in 2020. The federal government will want to get their hands on tax revenues from the selling of pot. It is just a matter of time in some smoke filled back room before it becomes public. Count on it. Personally, I'm getting some pot as in cannabis stocks like Aphria or Aurora. Maybe watch an old Cheech and Chong movie?
Wednesday, November 7, 2018
Currencies and Oil Volatility
There are a few things that everyone wants stable regardless in whatever their government policies dictate. Consumers do not want to see inflation in food, energy and shelter. Contrary to what economists say and the media reports, food is up, gasoline is up, heating oil is up and whether you rent or buy, housing is up. Dear reader, the costs far exceed the phony 2% inflation target approach of the Federal Reserve.
Nevertheless, consumers are told that inflation is benign. I, for one, do not believe the government agencies reports on consumer pricing. People don't keep track of stats, but fortunately for you, Sebastian does. The past week was an alarming change in two metrics that could cause an explosion in inflation. If it occurs, I wonder how the powers-to-be will keep the price of gold down?
Last week, the price of oil dropped significantly which is actually helpful to consumers, but the correlation in the drop in value of the dollar will offset the savings in oil. This is where the market is reaching a crucible point.
Major Currencies:
Keep in mind that emerging markets must utilize the US dollar in making purchases in oil. When the dollar rises this adds a burden in costs to these nations. Now, if their other trading partners for example like any nation in the EU and the euro goes up in value, this adds more costs and stress to their economies. This is what is happening in the present market. Then, there is the Brexit situation. What happens to the pound? This too will disrupt world trading and economies. Houston, we have a problem.
Last week change in values.
First, I'll look at the US dollar since it is the world's reserve currency. A distinction that China wants.
* USD - went from a low in February of this year at 88 to a high in August at 96. Then, it dropped to 93, but resumed its climb with a new high at 97. Keep in mind that in 2017 the dollar touched 104. Now, it is holding price at 96.34. This is a strong price.
The strength in the dollar is good for oil producing nations as they get a higher value for their product. I mention this aspect because this week President Trump has imposed sanctions on Iran. He wants a new deal. Under the previous sanctions, Iran saw a significant drop in revenues which led to a big drop in oil production from the 4m to 5m range down to one million barrels in sales. Fortunately for the global community that loss in barrels was made up by increasing production from the US, Russia and Saudi Arabia. The improving world economies from the 2008 crises made demand exceed supply. Prices rose and everyone suffered until the Iran nuclear deal was agreed upon. Iran oil entered the market which led to an oil glut. Prices dropped. Everyone was happy except the oil companies. Many went out of business. Fast forward to today. Now, we are facing world demand with less oil on the market. This major aspect will effect the value of the major world currencies as I repeat in my unpublished book, "All things are connected."
(I will show the change in oil prices after the currencies.)
*Euro - it has declined in value which makes the EUs exports cheaper, but it showed a big jump last week from 1.13 to 1.145 in exchange. This trend could be fast and furious.
*Pound - Brexit fears are building and along with them is what will be the exchange rate for the pound? It jumped from 127 to 130 which is a huge move. Currencies are usually slow like the Titanic turning and for this rapid change in value in one week is off the charts.
*Yuan - the Chinese dollar continues to fall which makes their exports cheaper. Is this a coincidence that the US and China are having tariff tensions as China seeks to be even cheaper for buyers? People, they are the poster child for currency manipulation.
OIL
We can talk about trade, tariffs and currencies all we want, but the elephant in trading is oil. Funny, the Federal Reserve does not include the world's most valuable export in their inflation matrix. Crooks! Anyway, oil has been declining rapidly while at the same time the new sanctions on Iran cuts off a big world producer with world demand rising. This is a conundrum if there ever was one. Oil by the barrel has dropped from a high in August of $77 a barrel to $63 last week. Many see oil touching $58 and possibly $55. Wow! Another way to view the price action in oil is through the oil index(XOI). The value change is mind blowing. The index went from 1600 in October to 1349 last week and it touched 1325. This is less than 30 days. How can that be? Keep in mind that two other producers, Libya and Venezuela are a mess. Prices are falling and one reason is the seasonal factor in oil, but if things remain the way that they are, prices will return to $90 or more early next year. This is what I see. Find a cheap oil stock in December and come next spring, you can go fishing 'cause you will catch a big one.
Nevertheless, consumers are told that inflation is benign. I, for one, do not believe the government agencies reports on consumer pricing. People don't keep track of stats, but fortunately for you, Sebastian does. The past week was an alarming change in two metrics that could cause an explosion in inflation. If it occurs, I wonder how the powers-to-be will keep the price of gold down?
Last week, the price of oil dropped significantly which is actually helpful to consumers, but the correlation in the drop in value of the dollar will offset the savings in oil. This is where the market is reaching a crucible point.
Major Currencies:
Keep in mind that emerging markets must utilize the US dollar in making purchases in oil. When the dollar rises this adds a burden in costs to these nations. Now, if their other trading partners for example like any nation in the EU and the euro goes up in value, this adds more costs and stress to their economies. This is what is happening in the present market. Then, there is the Brexit situation. What happens to the pound? This too will disrupt world trading and economies. Houston, we have a problem.
Last week change in values.
First, I'll look at the US dollar since it is the world's reserve currency. A distinction that China wants.
* USD - went from a low in February of this year at 88 to a high in August at 96. Then, it dropped to 93, but resumed its climb with a new high at 97. Keep in mind that in 2017 the dollar touched 104. Now, it is holding price at 96.34. This is a strong price.
The strength in the dollar is good for oil producing nations as they get a higher value for their product. I mention this aspect because this week President Trump has imposed sanctions on Iran. He wants a new deal. Under the previous sanctions, Iran saw a significant drop in revenues which led to a big drop in oil production from the 4m to 5m range down to one million barrels in sales. Fortunately for the global community that loss in barrels was made up by increasing production from the US, Russia and Saudi Arabia. The improving world economies from the 2008 crises made demand exceed supply. Prices rose and everyone suffered until the Iran nuclear deal was agreed upon. Iran oil entered the market which led to an oil glut. Prices dropped. Everyone was happy except the oil companies. Many went out of business. Fast forward to today. Now, we are facing world demand with less oil on the market. This major aspect will effect the value of the major world currencies as I repeat in my unpublished book, "All things are connected."
(I will show the change in oil prices after the currencies.)
*Euro - it has declined in value which makes the EUs exports cheaper, but it showed a big jump last week from 1.13 to 1.145 in exchange. This trend could be fast and furious.
*Pound - Brexit fears are building and along with them is what will be the exchange rate for the pound? It jumped from 127 to 130 which is a huge move. Currencies are usually slow like the Titanic turning and for this rapid change in value in one week is off the charts.
*Yuan - the Chinese dollar continues to fall which makes their exports cheaper. Is this a coincidence that the US and China are having tariff tensions as China seeks to be even cheaper for buyers? People, they are the poster child for currency manipulation.
OIL
We can talk about trade, tariffs and currencies all we want, but the elephant in trading is oil. Funny, the Federal Reserve does not include the world's most valuable export in their inflation matrix. Crooks! Anyway, oil has been declining rapidly while at the same time the new sanctions on Iran cuts off a big world producer with world demand rising. This is a conundrum if there ever was one. Oil by the barrel has dropped from a high in August of $77 a barrel to $63 last week. Many see oil touching $58 and possibly $55. Wow! Another way to view the price action in oil is through the oil index(XOI). The value change is mind blowing. The index went from 1600 in October to 1349 last week and it touched 1325. This is less than 30 days. How can that be? Keep in mind that two other producers, Libya and Venezuela are a mess. Prices are falling and one reason is the seasonal factor in oil, but if things remain the way that they are, prices will return to $90 or more early next year. This is what I see. Find a cheap oil stock in December and come next spring, you can go fishing 'cause you will catch a big one.
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