The Question of Change

 - "Panta Rhei" or everything flows. What it meant is that change is constant.

- Heraclitus

We know that the ancient Greek is correct. We should know by now, that the Federal Reserve is a phony institution created by the wealthy for the wealthy. Last week the US and UK banking groups met to "discuss" their respective economies and possible interest rate change. They did nothing. For those of you who do not have score cards, the US under the Federal Reserve has had zero "effect" interest rates since 2003. In all that time with all the BS from political pundits and candidates about what they can do for the economy and periods of rapid growth, the Fed has not changed their position on interest rates. In fact, they found more ways to add stimulus by purchasing assets or QE among other tricks of their manipulating ways.

Biggest News...

this year has been inflation, supply bottlenecks and labor. We can address the last two through the pandemic. If you recall in March 2020, the effects and fear of COVID-19 caused over 10 million to lose their jobs under government lockdowns. Then, it dawned on President Trump that the effects of a downward economy would hurt his reelection. He gave out one lie after another. He sought to buy time and confidence that under his command, the economy would return to full strength. 

Stimulus

The two political parties feared the next election. They feigned compassion by offering free money to all. President Trump signed moratoriums on evictions for renters and mortgage holders. Their gestors were appreciated. Money was invested for a virus cure. Hope returned. This is why we had a close election. Many were fed-up with Trump, but others offered to give him another chance.

Last November...

the country chose Biden. Medicine was developed to fight the virus. The country as well as the global community saw positive signs in fighting the disease. All economies began to return to normal. However, there were still doubts and fears. We saw outbreaks in large gatherings like in closed environments of planes and stadiums. The idea of the mask finally gained acceptance. I still wear mine. Slowly, fears of shortages like in toilet paper began to subside. However, we also began to see price increases. It showed itself in gasoline (energy). At the grocery store it appeared in a slow process. First, there was no product like tuna, rice and toilet paper and then, there they were except they all cost more.

Do you see the transition? Workers are returning and supply problems were slowly being addressed to which leads us to the present and last item - inflation. No political politician will willingly bring up a hot issue like unions, race or inflation. They play, "Out of the press (sight), out of mind." However, enough grumbling causes the topic to find press (sight) and dialogue (mind). 

Now, knowing human greed and logic, it is easy to understand why some companies and nation's pushed their economy to produce. They sought market share. However, the problem of logistics came into play. You make your product. You get it ready for transport. Then, you find that truckers need more money due to the cost of energy, regulations and labor. It is not only ground but air and shipping. Then, the connection of one transport to a warehouse or port finds the same economic problems. This is the current state of product to the shelf. The whole system also had another problem. The concept of just in time delivery to keep inventory costs down adds to the problem. No one has inventory. News leaked about a shortage of chips, medical supplies and items that were needed for repairs. Enter the Fed.

Powell Speaks...

about inflation for the first time last March (2021). He says, "It is transitory." It will clear itself up within a few months. We move to the end of the next quarter or the end of June. Inflationary numbers get worse. Powell gets "Yelling" Yellen and others to support his call. Then, Powell adjusts his timeline toward the end of the year. He comes out last week after the no change in rate meeting to say, "Inflation will probably continue into the second or third quarter of 2022." 

Heraclitus would ask...

Haven't you had enough of this lying buffoon? The Federal Reserve's policies are leading to negative rates. This means money is worthless. The institution has destroyed the American standard of living. It is bankrupting the nation. The whole agency is in violation of the constitution and beliefs by the founding fathers on our currency. We need a change. We need to End the Fed!  Peace.

The Elevator is Going...

DOWN!

There are as many expressions on Wall St. as there are shares to trade. One of the most famous should have you second guessing yourself as to why do I even want to risk my hard earned money at the casino.

It goes like this, "The market's purpose is to take the most amount of money from the most amount of people in the shortest amount of time." That is the reason why bonds is the choice for the conservative investor. However, the Federal Reserve has taken that choice off the table. It is one of the many reasons why we at Evolution say, "End the Fed!"

Anyway, I am not about to give you a litany of meme's on the stock market. I will attempt to explain what we have noticed, particularly on last Wednesday. The market surged to a new record. There is also underlining thoughts on the market. One of them says, if the market hits a new high, it could go higher. We do not disagree with this adage. The same thought holds true on the downside.

Back to the market: On the subsequent days, the market did follow through as well as NASDAQ. Even the transports kept their high price. So, why all the pessimism, you ask? Last Wednesday, the market surged. However, it was just the powerful techs that caused the climb. Amazon, Microsoft, Google and Apple pushed the S&P 500 to record levels. Big money still has control of the market. Their power could prove our call wrong. This will change when they sense fear. However, as we see it, as we looked closer, the market's advance decline was scary. There were only 31 of the 500 firms in positive territory. That equates to 469 firms declining. This shows the market lacks conviction. The volume of shares are falling off the cliff as the market moves upward. That is another tell.

Put it this way. You have a store and you have a sale. It is crowded with customers. You are happy and realize that you could sell at even a higher price. You raise your prices. People are still coming to your shop, but less and less each week. Then, one day, you look around and no one is in your store. This is the present state of the market.

Last Friday

We saw earnings from Amazon and Apple, the two leading engines of the market. I thought the numbers were good, but the market had even greater expectations. Both stocks fell. So, who will carry the baton for the market? This leads back to expressions. One must realize that no words on variable actions can be a tautology, but there are grains of truth. From a chart view, the market climbs like a staircase or the "wall of worry." It declines like an express elevator going down. 

One last thought. I would feel terrible about giving advice and it turns out wrong. So, do the prudent thing. Put in a stop on your shares. If the market continues to climb, no harm no foul. It it falls, you get out with little or no damage. These are words for the wise. Peace.

 

Odds and Ends: October 2021

The Dow hit a new record last week which means it could go higher. However, we, at Evolution are sticking with our call for a correction. In an earlier piece, we mentioned three views on the market. Kiyosaki sees a crash. Steve Sjuggerud sees a melt-up and "Doc" Eifrig is neutral. 

We begin with the ongoing problem with inflation and the LA harbor. At the beginning of the month there were 60 vessels circling the waters, waiting to be serviced. President Biden pushed to allow the port to remain open 24/7. Today, there are over 100 vessels with cargo waiting for transport. This should tell you what it tells me - lack of supply will keep prices high and even Biden says inflation will stick until the end of the year. Meanwhile, the Fed Chairman, Powell continues his lie that inflation is transitory. Maybe he is right? The transition will happen when prices are so high, no one buys?   

Evergrande Saga...

It got a reprieve last week when the real estate developer made a $83 million payment that was due a month earlier. They are not out of the frying pan. They have a few more notes with coupon payments due by the end of the year. The total due is $385.5 million. However, as Evergrande took the headlines, another developer defaulted. Fantasia Holding Group defaulted. They could start a contagion problem that is under the radar. And no sooner than that thought emerges, another Chinese developer defaulted. Modern Land joins to "Default Club." By the way, Evergrande says it will devote its money and energy into its electric car company. The automaker has no model, no design and no revenue. 

Speaking of no revenue,

Digital World Acquisition (DWAC) closed at $94.20 last Friday. They have no income and no details as to when they will make money. Shares were offered as units for $10 a piece. You are paying excess on a hope and dream. These are the type of things which indicate the market needs to cleanse itself and why we see a correction.

Biden's Bill...

is still a work in progress. At Evolution, we backed the electric car provision that helps union workers, however the question on how to pay for the infrastructure bill is unknown. Biden did reveal that 55 major US corporations paid no taxes in 2020. What we would like to see is how many rich people paid little or no taxes. We need to close tax loopholes and raise taxes on the wealthy. Another report showed that the wealthy avoided paying $163 billion in taxes with loopholes. Bottom line: We cannot continue  reckless deficit spending. Programs must be paid as they go and the rich are not contributing their share.

Earning season...

is off to a good start as reflected in the Dow. This is not real. It is based on earnings and sales in 2020. With COVID-19, there were few sales and little income. You can get the picture by looking at the picture industry. Movie ticket sales have topped 2020. One would think things are getting better like the stock market indicates. Dear Reader, ticket sales are 70% less than 2019 which was before the pandemic. Don't be fooled again...

Some good news

A successful transplant of a pig kidney to a human. All signs look good. I guess pigs will be flying.

Go Purdue! Not the football team. We are for the Irish. However, Purdue's research is second to no one. They have developed a new white paint that can keep surfaces 10 to 15 degrees cooler without using air. We paint our roofs with it and we help the environment without using energy. This is the "White" Revolution for climate.

Conundrum Club

Is it possible to have a company with a market value in excess of one trillion and offer bonds that are rated junk? Yes! Tesla becomes the first member of the club. Many more will join in the future as the Fed will continue to erode the purchasing power of the dollar to which will also grow inflation.

Speaking of Inflation

We got two more clues that it isn't transitory. Billionaire grocery store owner, John Catsimatidis sees higher prices sticking around well into 2022. Proctor and Gamble reported higher costs with little relief...It gets worse. Jack Dorsey, CEO of Square, sees hyperinflation for the US and world. Not good.

So, who are you going to believe? "Yelling" Yellen and "Lying" Powell or reflections from life? 

One scary note...

A shooting streak across the northern US sky last week is unknown. Our government says it thinks it is a Russian satellite gone bad. We have our doubts. Why, you ask? Because a failing satellite will descend in an orbit until it crashes. The sighting should have been noticed around the world and not just in the US. Then, you add this: recently, Russia revealed it successfully tested a hypersonic plane. Maybe they used it to test our defenses? Back in the day, we flew spy planes over Russia. Do you recall the stupid U-2 policy. It was provocative to say the least and now, maybe Russia is doing the same stupid provocative spying? Our government does not want to cause the Sputnik fear again by saying it is a failed satellite. I say, shoot it down! With those words, it is hard to leave with the message of goodwill, but stupid is as stupid does. Peace.

Must Have: Union EV Credit

Ever wonder what do these phony politicians argue about behind closed doors? Complaints, mostly. They are directed at the "other" party and where to get money to get reelected. With the truth exposed, every once in awhile, they do the job that they were elected to do. At the moment, the give and take is with the infrastructure bill. There are many points of contention, but we at Evolution feel the tax credit to help the US automakers develop and sell electric vehicles should be a slam dunk. It isn't! 

Plus side...

more than 100 US House reps have asked the house Speaker Nancy Pelosi to keep a $4,500 tax credit for union-built electric vehicles.  

Negative side...

this is not even close to 20%. 

Where's Biden?

He talks about the "green" revolution, but this is an example of putting action before words. He talks about helping the middle-class. Our automakers in this country are still unionized. All the outsourcing is killing our middle-class. All the manufacturing jobs that have grown in the US has been in the South with the phony meme, "right to work." They are anti-union. The jobs pay better than what is available in these states, but those workers will find out the hard way when management looks elsewhere for cheaper labor. However, that is not the point. The reality is manufacturing has dropped to 12% and still falling. Union manufacturing barely holds 7%. These facts don't need Ivory Tower research. We can see it in people exiting retail and hospitality jobs by the millions. People are sick and tired of jobs with no social mobility, no benefits and no future.

Case in point

State sponsored entities receive government backing in money with rules and regulations along with tariffs. Yet, these same officials cry fowl when the US offers subsides to industries. The problem lies in capitalism. It is slow to react. How about space? In 1957 Russia scared America with Sputnik. It has taken almost 65 years for capitalism to join the party. Back in the day, China was a peasant society. With state sponsored money and help, they are on the far side of the moon. The US invented the phone, but our greedy CEO's in telecommunications show no US firm with 5G capability. They do buybacks but no R&D. The US invented solar, but lag in the industry. We don't make wind panels or solar panels. Our anti-union stance not only kills our middle-class, but social mobility and future economic growth.

Flipside

When government offers contracts, the speed line to invention and innovation is put in place. Consider Eli Whitney? He got one of the first government contracts. He put the money into R&D. He developed interchangeable parts. This tax credit could go onto develop better batteries, a cleaner environment with better electric vehicles. We need this!

Who is Against?

Tesla, because it is non-union. All foreign automakers like Toyota, Volkswagen, Honda, Hyundai, and Nissan Motors. They are lobbying hard. Can you put two and two together?

If the Democrats and Republicans don't include this necessity, but continue to throw wasteful money to the military, our nation will fall further towards 3rd World Status...By the way, there is a clause to end all tax-payer credits after automakers reach 200,000 units sold. I would amend this to continue with one exception. No US tax credits for foreign automakers of electric vehicles. Bottom line: We will find two truths about the two political parties. Is the Republican call to make America great again with made in America for real? Is Biden's campaign speeches on jobs and the middle-class just BS? Time will tell. Peace.  

Problems = Questions = ?

 - Sometimes the questions are easy, but never the answers.

- Sebastian

Question: After the Cayman Islands, which country has the least transparency in financial matters?

You might think China or some Middle-East location, but the answer is right in front of you like a misdirection magic trick, the US. Money corrupts and we lead in this sad category.

Question: If new car sales dropped 25% in September and countless retail firms cite product shortages as well as labor problems, how come consumer advocates say spending is strong?

Because the media is controlled with few newspapers to provide real answers that go against the status quo. Consider the latest economic report from Washington. The Labor department announced only 194,000 jobs for the month of September. Then, they followed up by saying, unemployment dropped to 4.8%. C'mon! You know that this is wrong. The media and government has lost touched with reality and the common man. There are 5-million less jobs from the same period one year ago. How long are we going to put up with this BS?

Question: If the US debt is such a concern, why doesn't the dollar decline and sharply?

Because the global community has increased their debt levels at the same time and due to the same problem, the pandemic. Global debt is reaching 260% of world GDP. The US debt level for 2020 hit 107% to GDP. All nations need and have to have low interest rates or the game will be exposed. This is why our founding fathers chose gold as our currency. In a sad related story, the US Congress plays politics with the debt ceiling. You can only "cry wolf" so many times. No one is hears the call. This could blow up one of these days.

Question: If taxes provide more revenue for government, why doesn't the US raise taxes to lower our deficits?

No one wants to say this truth because they fear that they will not get re-elected. One place to start is from a recent report that shows the richest 1% have more wealth than the entire US middle-class. Another report shows the rich void taxes on a yearly basis of $163 Billion with loopholes. We say close them.

Question: The recent quick fix on the debt ceiling pushed it down the road. Does any other nation have this problem?

The only other nation that deals with it is Denmark.

Question: Everyone is talking about inflation. Fed Chairman Powell has been shown to be wrong about his "transitory" nature of price rises. Now, the Fed is using the old playbook of magic and misdirection. Other Fed Governors are taking the podium like Chicago Fed President Charles Evans to deflect the pressure. He backs Powell by saying not only will inflation subside, but fall below the Fed's 2% target. By the way, he does not provide a time table for his claim.

Our answer comes from many sources. Bridgewater's, Jensen joins our chorus by saying that he not only fears inflation, but stagflation. For those of you not familiar with the term, it means little or no growth and higher inflation. Wood Mackenzie reminds us that rising energy prices find their way into our electric bills. This winter those bills will be much higher. The EU reported that energy costs hit a 13-year high for the 19-member group. Overall, their inflation grew at 3.4%. In the US, grocery managers report that only 70% of their orders are filled. By deduction that means 30% of product is short in supply and will result in a higher price. Even the Labor Dept. added wholesale prices rose 8.3% in August year over year (yoy).  Shortage of truck drivers and refrigerated transport resulted in a 10% rise in prices, especially in meat, eggs, milk and pork.

Question: If inflation is evident, how do banks respond?

Quick answer is to raise fees, but there is a bigger concern. The banking industry uses a playbook that seeks financial stability. When inflation appears, some assets get distressed. Banks are not ready for this change in the economy. Problems are under the surface like loans based on asset price. If banking issues arise, the Fed will show its true colors by coming to the rescue. They are the lenders of last resort (LLR) and market makers of last resort (MMLR). 

Dear Reader, as you can see there are many questions, but honest answers are few and far in between. Peace. 

How Long...

are we going to listen to Chairman Powell and his lying band of corrupt bankers, the Federal Reserve? No one needs a recap on their formation. The most influential banker of his time, JP Morgan got a weak man, President Wilson to back the idea. Ever since, the banking industry and big time Wall Street houses knew that the Fed had their back. This means no matter how reckless the two are in their investments, the worst that could happen to them was to come out even. The Fed allows them to privatize the profits and socialize the losses. 

Flash Forward

We all felt the effects of COVID-19. As the government added stimulus to ease the pain, demand slowly grew. However, the pandemic had more than the physical virus. It had the effect for the healthy. Parents did not want to risk having their children in confined spaces. Teachers felt the same fears. The example spread throughout economies. People who worked at ports or on ocean carriers felt the same danger. So, we have a problem of worker participation. 

Result

We got shortages in supplies from toilet paper to masks. As the economy strengthened, other areas like computer chips, parts for phones, cables, etc. showed the same limited supply. Basic economic laws went into effect: More demand with less supply = higher prices. This appeared around the globe in 2020. Our Fed Chairman avoided the issue. He made his first response in February of this year. At that time, he claimed the shortages and resulting inflationary prices would soon recede. When June came around and inflation persisted, Powell said "This is transitory." Last week, he cast the blame on the virus. It is frustrating. He goes on to say that inflation could stick around well into 2022. How many times being wrong is enough?

We say, "BS!"  Hey, we are not the only ones. There are people in power who realize the same thing. However, they do not have an answer or courage with their beliefs. They are terrified to suggest a return to the constitution which said Congress decides currency issues. They fear a catastrophic effect to banking and the global community. The most that they will do is offer a name with the hope that this convinces the public that they are aware. They have a solution. They have the right horse to lead the agency. In the meanwhile, everyone and every corporation will suffer from inflation. This adds risk to the stock market and the economy. There is confusion. Here are some bylines...

Robert Kiyosaki, the best selling author sees a market collapse this month. One site that we frequent is Stansberry Digest. They have people who give all sides to the market and economy. Dan Ferris is a Bear. Steve Sjuggerud believes in the "melt-up." Doc Eifrig is neutral. Our Sebastian sees this: When 7-stocks control 25% of the S&P 500 that is rigging that is manipulation and that is deception!

One serious reason why we hate the Fed is debt. Debt is not transitory. It not only grows and looms over an economy. It compounds to make the burden heavier each year. At the moment, our government is running the worst deficits in our history. The addition of more stimulus will only compound the effects. It is not that we are against the infrastructure proposal, this should have been done thirty years ago. We want ways to pay for the plan. We should tax the rich like Eisenhower did after WWII and close loopholes. We end all foreign entanglements which would allow us to cut the military budget and of course, End the Fed!

Poor Leadership

Our society is being negatively effected by continuous deficits. If the government can do it, why not them? People are buying stocks in the belief that they can only rise. They are following influencers. They are buying on margin. Margin debt is at a record and approaching $1 Trillion. There are more options being sold than shares of stocks. Keep in mind, the majority of options end up being worthless. While people are in a buying mode, 60 ships sit in the LA harbor waiting to be unloaded with no timetable. China has Evergrande and rolling blackouts. Inflation for August came in higher than forecast at 3.6% while our government offers a 30-year T-Bond at 2.06%/ Lies! BS! One other thing. That wrong forecast is typical. Case in point about our so-called "experts." I watched a PBS piece on SpaceX. Behind the scenes, the experts at NASA and the Pentagon were mocking Musk (Tesla CEO) in 2002. They said he does not know what he is talking about or anything about space. We forget who these people were except for one point. They are always wrong! 

One other thing...

The above quotes on Chairman Powell were taken from a summit. Guess where? In Europe among the ECB people. These central bankers meet all the time and yet, they are considered independent. I consider this collusion. By the way, no one at this inflation meeting presented the UN report showing global food prices up 31%. No one talked about the fact that the 1% (richest) avoided paying $163 Billion in taxes while all nations suffer deficits. Did they even mention how the 19-members of the EU had inflation of 3.4% with energy (Europe still uses energy in their formula) leading the way? They did say that they agreed with Powell that inflation would soon recede. "Birds of a feather..." We say, End the Fed!  Peace.

Odds and Ends: September 2021

- Where jealousy and selfish ambition exist, there is disorder and every foul practice...

- From a letter by the apostle, James

This monthly piece usually highlights tidbits on interesting news. This month, the aspects of the news that is interesting, carries over into October. We have the continuous coverage of the pandemic. We now are told that even vaccinated people can catch the virus. The booster will help, but healthy people with a good immune system is the best protection.    

We have Evergrande Group. In China, you can have an monopoly. This real estate developer is so big that the numbers are off the charts. They are the biggest in the world. They have pushed out paper and investors around the world have bought. First point - the founder is a gambler. He expanded into electric cars, solar and who knows what else? The company has $300-B in liabilities. It only has $15-B in cash. They had a bond payment due last Thursday for $84 -B. The Chinese government "suggested" that they pay. Keep in mind in China, the government owns all the land in the country. The real question is about default. If they fail to meet their obligations, who else will suffer? How large will the contagion grow? Finally, real estate is 17% of China's GDP. The firm will have an additional 30-days to come up with the money. I think the corruptness of state sponsored entities will show its face. If not, Houston, we have a problem, especially if the derivative market is connected. 

We have the continuous unemployment problem that here at Evolution, was highlighted earlier in the year. It is persistent and the proof shows in the low participation rate of workers. 

We have more and more corporate firms like Nike, Costco and FedEx complaining about higher costs, the supply chain and labor shortages. The Fed Chairman keeps saying that inflation is temporary. How long will he stick to this script? Does anyone ever challenge him or the Federal Reserve? We do. We say it all the time - End the Fed!

Speaking of the Fed...

They made their notes known after their last monthly meeting. Along with the BS on inflation, they talked about their techniques to combat the I-N-F word. The thought of them ending QE surfaced recently. The chair stated that some time in the future, possibly in June 2022, they will end tapering. Sebastian predicts that they are trapped. They are already offering "negative" rates when compared to inflation. They failed to raise rates when they had the opportunity. Why, you ask? Because in the last few recessions, the Fed was able to lower interest rates to stimulate the economy. Today, at .25%, they have no working room. They trapped themselves with their old playbook of low rates and printing money. Someone suggested the "bond vigilantes" will surface. I don't think so. Again, why, you ask? Because the Fed buys almost all the treasuries. No one in their right mind will offer to buy falling rates. Yet, there are speculators who do. One more time - why, you ask? Because they can make money as the rates fall lower than their purchase price. They know the government will return their capital. The return is not as important as the loss of capital. This game is ending too. The Fed is trapped!

Second opinion?

How about Doctor Doom? Roubini agrees with us. He recently stated on the Firing Line, "The Fed trapped themselves in this super cycle of debt." He goes on to say that the Fed is hoping that they can rollover the present debt by the effects of inflation like in the 70s. 

Rigged?

When you have buckets of money as well as government connections, one should step back and observe the big investment houses. There are 100 large caps in a Bear Market. Yet, the big shots on Wall Street are saying that 35 of them will soar. The others will rise to neutral. How about this firm that Vanguard, Geoge Capital and others are buying. The question is why? The firm just announced it lost $6.8-B for the third quarter. The virus negatively effects its future which is clouded by more debt borrowing, share dilution and losses. They are parlaying an old adage on Wall Street. Find a firm that is rising while the market looks tenuous. This is a form of rigging the market and especially, most of these big shots bought at lower prices. They are only leveraging their investment and trying to fool you.

Bond Market

is showing all the negative influences of the Federal Reserve. Junk Bonds are lower than the normal range of the 10-Y note. Investors are flocking to buy any of the 1900 issues that are available. By the way, at least 700 of these are rated distressed. How about this? The last high on US bonds was in February of 2020. It has been straight downhill since then. This is why some investors have bought, however, the margin is gone. Of course, the Fed could change course again and introduce a "negative" rate issue. They have no shame! Again, We say, End the Fed!

China

has outlawed cryptocurrency. For an atheist nation this is God sent. Good for China. 

What would you do?

Last week, there were pictures of border police on horseback using straps to push back Haitians from sneaking over the border in a rural area. People jumped on the police for brutality. The way I see it, there was NO brutality. The police asked the immigrants to turn back. They did not. The police did not charge into these people, seeking to cause harm. They showed restraint. The strap is only symbolic. It is not that harmful. The illegals also showed restraint as no one sought to fight the police. This is just another sad day on our Southern Border because all the critics do not have any solutions other than condemning those caught up in the problem.  

Change in Europe

As for now, the Social Democrats' won a narrow vote. They need to get partners to form a controlling bloc in Germany. They have many questions - immigrants, Brexit, gas pipeline, EU and their economy are all up front. We will know by the end of the year.

One more report...

Investors use a guideline of three "Red" flags in investing. Is the liability to asset ratio less than 70%? Is the total debt divided by shareholders under 100% of equity? Is the cash ratio to short term debt in balance? China's Evergrande Group fails all three tests. For-warned is for-armed. Peace.