This stupid question gets circulation every once in a while. Generally, it surfaces when indicators suggest that renting is a better choice than ownership. I ask, do you want your ceiling to be another man's floor? If you like to play music loud, at least once in a while, do you relish someone pounding on your walls to turn it down? Do you like it when your landlord always says manana to repairs? How about this? The only correspondence you receive from the owners of the property is a rent hike? Your new neighbors are gang related, racists or possible terrorists? You are nervous about letting your kids walk to school as this once nice neighborhood is now part of the "hood."
If you save, your thriftiness is rewarded with shelter that you choose. If you have to rent, economics chooses your shelter.
The intrinsic message of the American dream is social mobility and owning your own home. Wasn't it one of the founders who said, "A man's home is his castle?" Doesn't matter. There is no comparison in the argument whether to rent or buy. However, there is a time and place for everything. According to a report by Florida Atlantic University, we are in one of those periods where it is financially better to rent than to buy.
From the period of 2010 to 2017 rents on a national average, rose by 4%. In many locations it was higher. During the same recovery period after the financial crisis of 2008, homes rose by double digits. The main driver for homes was the stimulus of super low interest rates and HARP loans for people who had purchased previously at a higher mortgage rate. One must also consider that homes devalued with the crisis. There was a large pool of homes offered at low prices. Together, low rates and affordability made housing a strong buy. The problem for housing is the stimulus of low mortgage rates is ending. One could make an argument that interest rates are still low if you compare to historical norms. I'm in the corner that says interest rates is a form of financial manipulation. Interest rates insure banking of profits. I am not against profits, but there is a difference between a yacht and a row boat. Anyway, the combination of higher interest rates and the rising price of homes has ended the affordability factor. Together, the end of low interest rates and affordability as well as the business cycle is indicating that if one was considering to buy a home at this point, you may want to adjust your timing to the economy. In addition to those fundamental factors many locations in the country for various reasons still face a crisis in housing. If you live in one of these 50 cities, it is definitely better to rent, while keeping an eye open for a deal on a home purchase. The top ten will appear at the bottom of this piece. The main culprit is underwater mortgages.
What is the economy of housing...you ask?
According to FAU, now is a better time to rent. Housing developers have avoided entry level homes for years because it was more profitable to work the high level market. There is a limited supply of these homes on the market. Since the value of all homes has risen substantially, a pause in price acceleration is expected. One reason will be the effect of higher mortgage rates. This presents an obstacle to housing. On the flip side to ownership is the rental market. Housing developers have over built this side of the market. New projects include underground parking and roof top play areas or dog walks. Older residential buildings cannot raise rents as tenants are leaving for the "come-ons" in new locations. To maintain full occupancy landlords are putting off rent increases as the glut of rental units rises. There is a battle for tenants and smart consumers could seek a long term lease with no rental hikes. Sebastian likes to add that this business cycle is ending to which will cause cheaper rentals. FAU says, renters could put this savings into the rising stock market or other investments as they wait and save a down payment. The wait is until housing becomes more affordable. The housing internet leader, Zillow agrees that in the near term, renting offers a better deal. They remind would be buyers that taxes on homes is rising while at the same time the federal government and some state governments are limiting the housing interest deduction. Renting frees you from repairs and new projects that offer perks like parking, dog walks or no rental increases make renting very attractive. Housing is always subject to local situations. For the residents of Denver and Dallas, renting is stronger than buying. This poses a real problem for owners who want to sell. If there are no buyers in the store, you will be out of business. Nationally, the high end market is seeing declines in pricing for the first time as evident in San Francisco and New York. Seattle, K.C. and Portland are experiencing rental gluts and as a result, rents are declining. This is spreading. With a glut on the rental side, housing will face a strong obstacle to maintain value. This is why Zillow sees renting in the short term as the best choice, but they agree with me that owning a home in the long run is the best possible choice a consumer could make.
10 Crisis Housing Cities
As promised, if you live in one of these cities, it is way better to rent than own. Keep in mind that real estate is always regional as the mantra is, "location, location, location." Always do a quick internet check for real estate outlook in your area before making a decision. Countdown to worst:
10)New Orleans 5)Detroit
9) Cleveland 4)Chicago
8) Memphis 3)Birmingham
7) Columbus 2)Toledo
6) Baltimore 1) Newark
Wednesday, January 2, 2019
Wednesday, December 26, 2018
The Fed and Independence
It was conceded by the stock market a half a year ago that the December 2018 meeting of the Federal Reserve would end in another rate hike. Somewhere along time and space, the stock market caught a cold from the usual. This is unusual due to the nature of the market. It looks beyond the daily news to a minimum of six months out in the time continuum. However, the extremes began to show their differentiation as time moved along. The outlook of six months ago and how it is today is vastly different. The Masters of the Universe are blinking with doubt. This is a serious problem when the currency is based on faith and nothing else.
Usual Suspects
The tariff talk became an actual tariff. The tit-for-tat escalated the tension. The market began to sneeze until the virus became a cold. The reason that the remedies could not fight off the on coming cold was the bacteria of a government shut-down. The awareness of the magnitude of our outstanding debt and how it would grow in interest payments due to the policy of the Fed who is seeking to return to normalize interest rates. Greed became fear. This internal shakeup caused the cells to weaken and the virus won the battle between the red and blue cells. The virus will hit all alike.
There are other influences in the environment which allowed the virus bacteria to grow like the immigration problem like the war on drugs like the actual wars in the Middle East and the distance of elected officials to the public.
Europe
In Europe the "populist" movement is gaining traction while at the same time the EU is facing a crisis with Brexit. I think the results of no action with Brexit will stimulate the populist movement. People will take a hard line against their governments who do not fulfill the will of the people. This is a slow boiling pot. The immediate condition of the EU is being determined by its central bank. Mario Draghi, the President of the ECB has stated no more stimulus. Then, he added the present allocation of medicine will last until the summer of 2019. The head of the IMF, Lagarde stated the global economy will slow in 2019. The two agencies reminded everyone of their independence in policy.
Back to the Fed
The wording of the last meeting by the Fed had its chairperson state that his committee felt the gradual rate hike policy would slow even further in the future. The chair, Jerome Powell who took office in February of this year and who was appointed by President Trump, reiterated the importance of the aspect that the Federal Reserve is an independent body from politics. According to the chairman, this is the cornerstone of the Federal Reserve.
This is a lie as the Federal Reserve as a concept was pushed by bankers and it is run by bankers with the unwritten premise to protect the banking system. It is socialism for the industry, but step away from that fact to the current dialogue - its independence.
This is another lie. The chairman is appointed by the president with the backing of the senate. This point is the weak link in democracy. The Senate is composed of millionaires and rarely do they ever do something for the people. The president gets to choose a nominee from people who express similar believes in how to achieve economic success. This person has set ideas. If a different political president was in office, that person might seek a nominee with different beliefs. You can see this more clearly with the other weak link in democracy - the Supreme Court.
You appoint a racist. You get separate but equal. You appoint a more liberal chair and separate but equal is unconstitutional. So, to say that Powell is independent is misinformation. His baggage is his beliefs. His reflection to slow the pace of rate hikes is appeasement to his boss.
So, when Powell raised the interest rates he got the ire of the president. President Trump has stated his opposition to higher rates and he even stated that maybe his choice to run the Fed was a mistake. The following day, the New York Fed Governor, John Williams declared that maybe the Fed should pause on rate hikes. Dear Reader, the New York Fed Governor is the most important member of the committee. More N.Y. Fed representatives become the chairman than any other region. Williams is singing the "Donald's" song. Since President Trump's administration is clouded with musical chairs in the executive branch, this change in position is a possibility. With that said, there are already a host of economic scholars(professional students) declaring this change in the chair of the Fed will spin the market into chaos and then, sink the economy.
It appears that Sebastian's prediction to fear the Ides of March as pertaining to our economy is looking to be correct. Sebastian thinks that fiat money is the root cause of all our economic problems. Consider how the stock market is reacting to the idea of this long played out return to a normal interest rate. It can't handle it! Fiat money was so easy to print, but the reality of the debt financing is overwhelming. At normal interest rates the economy will implode. The only true independent policy is a policy based on a currency that has its cornerstone in strength. That strength is written into our constitution. It is GOLD.
If you spend more than you collect, your currency will decline. You will get inflation. Gold keeps politicians honest and bankers in check. It forces them to spend wisely and to live within your means. This is the only true independent policy. Everything else is a lie.
Usual Suspects
The tariff talk became an actual tariff. The tit-for-tat escalated the tension. The market began to sneeze until the virus became a cold. The reason that the remedies could not fight off the on coming cold was the bacteria of a government shut-down. The awareness of the magnitude of our outstanding debt and how it would grow in interest payments due to the policy of the Fed who is seeking to return to normalize interest rates. Greed became fear. This internal shakeup caused the cells to weaken and the virus won the battle between the red and blue cells. The virus will hit all alike.
There are other influences in the environment which allowed the virus bacteria to grow like the immigration problem like the war on drugs like the actual wars in the Middle East and the distance of elected officials to the public.
Europe
In Europe the "populist" movement is gaining traction while at the same time the EU is facing a crisis with Brexit. I think the results of no action with Brexit will stimulate the populist movement. People will take a hard line against their governments who do not fulfill the will of the people. This is a slow boiling pot. The immediate condition of the EU is being determined by its central bank. Mario Draghi, the President of the ECB has stated no more stimulus. Then, he added the present allocation of medicine will last until the summer of 2019. The head of the IMF, Lagarde stated the global economy will slow in 2019. The two agencies reminded everyone of their independence in policy.
Back to the Fed
The wording of the last meeting by the Fed had its chairperson state that his committee felt the gradual rate hike policy would slow even further in the future. The chair, Jerome Powell who took office in February of this year and who was appointed by President Trump, reiterated the importance of the aspect that the Federal Reserve is an independent body from politics. According to the chairman, this is the cornerstone of the Federal Reserve.
This is a lie as the Federal Reserve as a concept was pushed by bankers and it is run by bankers with the unwritten premise to protect the banking system. It is socialism for the industry, but step away from that fact to the current dialogue - its independence.
This is another lie. The chairman is appointed by the president with the backing of the senate. This point is the weak link in democracy. The Senate is composed of millionaires and rarely do they ever do something for the people. The president gets to choose a nominee from people who express similar believes in how to achieve economic success. This person has set ideas. If a different political president was in office, that person might seek a nominee with different beliefs. You can see this more clearly with the other weak link in democracy - the Supreme Court.
You appoint a racist. You get separate but equal. You appoint a more liberal chair and separate but equal is unconstitutional. So, to say that Powell is independent is misinformation. His baggage is his beliefs. His reflection to slow the pace of rate hikes is appeasement to his boss.
So, when Powell raised the interest rates he got the ire of the president. President Trump has stated his opposition to higher rates and he even stated that maybe his choice to run the Fed was a mistake. The following day, the New York Fed Governor, John Williams declared that maybe the Fed should pause on rate hikes. Dear Reader, the New York Fed Governor is the most important member of the committee. More N.Y. Fed representatives become the chairman than any other region. Williams is singing the "Donald's" song. Since President Trump's administration is clouded with musical chairs in the executive branch, this change in position is a possibility. With that said, there are already a host of economic scholars(professional students) declaring this change in the chair of the Fed will spin the market into chaos and then, sink the economy.
It appears that Sebastian's prediction to fear the Ides of March as pertaining to our economy is looking to be correct. Sebastian thinks that fiat money is the root cause of all our economic problems. Consider how the stock market is reacting to the idea of this long played out return to a normal interest rate. It can't handle it! Fiat money was so easy to print, but the reality of the debt financing is overwhelming. At normal interest rates the economy will implode. The only true independent policy is a policy based on a currency that has its cornerstone in strength. That strength is written into our constitution. It is GOLD.
If you spend more than you collect, your currency will decline. You will get inflation. Gold keeps politicians honest and bankers in check. It forces them to spend wisely and to live within your means. This is the only true independent policy. Everything else is a lie.
Wednesday, December 19, 2018
Odds and Ends: December 2018
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.
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 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.
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