A Deep Dive into the Market Says...

- If you want it, here it is                                                                                                                                Come and get it. Mm. Make your mind up fast                                                                                            If you want it, anytime I can get it                                                                                                                But you better hurry 'cause it may not last                                                                                                    Did I hear you say that there must be a catch                                                                                                Will you walk away from a fool and his money?

- Badfinger          

...our intuition is coming into reality. There could be a bounce, but the market is going lower. With the market at highs, why do you say that? Good point. The market is not in harmony as I will point out. With that said, the Chinese market, the Hang Sang (HSI) has seen a great decline, but it appears to have tested its lows. It is now rising. This is disharmony. We, at Evolution will continue to look at market volumes for conviction. However, since we generally discuss the US market, although we are in a global network, I will start with Home Depot.

It was the best performing stock in 2021. Now, what do we see? It is forming a "M" pattern. Some call this a reverse Head and Shoulders pattern. It is bearish. The price could and probably will return to its consolidation level at $335. Keep in mind that it just touched a high at $420. Watch the volumes on this pullback. HD is on the Big Board. How about NASDAQ? Let us look at the 3Qs.

QQQ

The charts say that it is going to the lows. It will probably fill a gap at $360. It is definitely game. This means a lot of the NASDAQ will fall with it. Still not satisfied. In the spirit of fair play, I throw out this for you.

AMZN vs. BABA

These two online powerhouses are the biggest in their nations. What do we see? Amazon is dropping. It has already fallen over 10%. It has a P/E ratio of over 63. Alibaba has already tested its lows. It has a P/E ratio of 18. It has a better price, larger market in the same business. This is no indorsement. I do not buy anything Chinese until they play fair to which is probably never.

This is not everything that we see. We look at the big picture and trend. This movie is a disaster waiting for the final scene. If you look at Cattie Wood's ETF, she is suffering from withdrawals. The stock is at the 52-week lows. Then, don't forget Evergrande? We have not heard the last ramifications from this real estate developer. In addition, there are serious, dangerous protests occurring in Europe. The Brexit clash with focus on the fishing waters, subsidies for gas and energy in France and Kazakhstan. The border problem with Ukraine and Russia which is really about NATO and weapons deployment. The geopolitical picture is a mess. When a pot is boiling, you do not put a cover on it. We have pots that could be covered in the Middle East, Asia and Africa.   

Easy Money Era

This is the heart of our distress. For example, how about Bolt Financial? The share price has doubled in three months with no material reason. The only point that could be made is that BlackRock is now an investor. How about AMC? The movie theater is losing money to the tune of over $5-per share. It has over 500 million shares floating. My math says they are losing $2.5 billion, and the virus is still out there. Oh yeah, their market cap is $10.5 billion. Are you kidding me! They are losing one-fifth of their value on a daily, weekly, monthly and yearly rate. Sing it Badfinger, "A fool and his money..." How about Zoom? Not only is it in a bear market level, but it also shows the accuracy of charting. How about the big financial, JP Morgan? It shows how quickly market perception can change.

Whatever you do and before you do it, watch the dollar. It is finally showing some of the cracks that we were predicting. Keep in mind, when something begins to breakdown, it will test the swing point. If it breaks 93, that will be the conviction sign. Hope you have some gold before this point because at that moment, gold will soar. Finally, we get back to the biggest reason for our distress, the Federal Reserve. 

Last week, President Biden appointed (these people are not elected) Lael Brainard to the Fed. All this is another mouthpiece to deflect pressure from the chairman. Anyway, she says, "That she is open to a rate hike in March." Can you see through this BS? First, she is buying time. Second, it is only a suggestion. Thirdly, it gives Powell the entire first quarter not to do anything. It is buying time. A big investor, Kyle Bass is on the books as saying, "The Fed is bluffing!" And by the way, what are we talking about? A rate hike of a quarter point still keeps the rate under 1%. Pure BS! How about three hikes? Dear Reader, we will be looking at a Fed's Fund Rate of 1.5%. This is still easy, funny money! This is why we say in order to return to real prosperity with social mobility for all, End the Fed!  Peace.

American Housing with a European Problem

Ever wonder why whenever we get a glimpse of Europe, especially England, we see photos of stately estates with huge castle-like mansions? The media sound bite quickly moves on to whatever their story point is addressed like crowning a new royalty. However, my point is the actual estate. It is sad enough that citizens were exploited to build these privilege structures, but my point is this: aristocrats never sell their property. The history of an estate goes back as long as the time of the area becoming a modern nation. 

History also has multiple examples how aristocrats hold shelter. When English aristocrats took control of Ireland, people were evicted in mass. They raised rents and made a nation full of sharecroppers. In anti-bellum South, we see the same attitude. The war changed the landscape, but the thinking came back strongly. There are plenty of mansions on a hill that are surrounded in poverty. Of course, time has changed this too. Now, the previous wealthy sold their hilltop locations for a guarded gate community. 

The US in general, has never had this problem as we developed social mobility. However, our standard of living took a double hit. Our jobs were exported. Our social mobility suffered. Then, the last housing crisis in 2008 changed the landscape. With the recession home builders scaled back their developments. Their data showed more interest in high-end housing. The traditional single-family starter home was abandoned by market forces. Thus, this action damaged the three-step approach in housing: the starter, the family home and retirement home.

Builders cannot meet demand for starter homes for many reasons. Inflation made the cost/sale approach not feasible. Builders also suffered labor and supply shortages due to COVID-19. The family home is now blended into a gated community that looks to add amenities to attract buyers and buyers who will pay more. The retirement home is also now a community. It is also developing its unique problem - resale. When an aged resident passes, who seeks to buy? Arizona is feeling this housing problem. Florida could be next in places like the Villages. 

Then, this danger emerged within the market: House flipping. There is nothing wrong with repairing a home and reselling it. It makes the community stronger. It is actually a small business that helps the economy as a whole. The problem is big fund managers took notice like BlackRock. They realized that they too could buy all the distressed homes on the market in 2008. They bought. They repaired, but they never had the intention of reselling. They raised rents and they keep raising rents. We are now a rental nation. The problem is this: those distressed homes should have been resold into the market. They would have become the starter home in the three-step housing formula. It didn't happen. Those homes are now acting like aristocrats in Europe. They will be held forever by these big funds who are now one-third of the buying market. 

Market Forces...

are showing the demand for rentals. The last quarter of the year is the slowest for rentals. However, recent data shows that occupancy is at record levels. According to Real Page, a tech real estate platform, property owners are asking and getting new leases at 13.9% higher than the previous period. At the moment, the rental market has more demand than the for-sale market. 

The strength of the market is reflected with rent prices rising 0.6% just from October. This goes against the long-term data of declining demand at the end of the year. Of course, high real estate prices are a core reason why consumers are trending toward the rental market. Rental growth is the highest in sun belt regions and lowest in the Midwest. Minneapolis saw the lowest price increase of just 4% year-over-year. Put this info with what Europe has showed.

Europe has always had the problem of social mobility. Due to its land size, housing development is limited. Almost all the housing in Europe is rental and the owners are the aristocrats of our era. The US is suffering the high cost of shelter which makes the trend a dangerous road. By the way, the crooked Fed does not include shelter in its phony matrix inflation formula. It is another reason to End the Fed!

A home is a man's (family) castle. Set a goal to be a homeowner. Don't fall prey to the schemes of the rich.  Peace.

Warning Signs

 We, at Evolution have been suggesting a correction is coming in the market. We feel more strongly after studying the latest retail data. Our conclusion will be quite controversial. In previous pieces, our prediction was for the market to turn downward after the first of the new year. The timing could be wrong. However, the realization for the market as to what we see now, will not only cause a correction, but a huge drop in market price and evaluations. 

How we see this play out...

We begin with the retail data. From a quick glance, it appears great. It is not.

Total sales were up 8.6%. Gains were made by both internet and in-store. Online sales rose a huge 11%. Brick and mortar gained 8.1%. Looking deeper, apparel surprised with 47.3% gain in sales. Electronics saw a 16.2% rise and jewelry posted a whopping 32% rise. If you compare the year-over-year price action, it is all positive. So, why the long face, you ask? 

We believe this is the first signs of stagflation (economy stagnates while inflation roars). When consumers feel that inflation is prevalent like it has been showing for the last two years, people buy because they fear that the items that they wanted will only cost more. This is reflected in the positive data. However, the consumers stop buying at a point, this is where the economy stagnates.

Why we say this?

If you take a look at Amazon, the leading retailer, you discover the signs. A year ago, Amazon made $108 billion in the fourth quarter. This year they will make $138 billion. Looks good, doesn't it. Well, it isn't. Why, you ask? With the previous year sales, Amazon made $15 per share. This year, even with the higher revenue, they will only make $4 a share. They are eating the inflation cost. It won't continue, but their timing will not jive with the consumer's. Higher prices will drive away spending.

We have seen this movie before.

Retail giant Home Depot is the best performing stock on the market. Share price is up 50%. There are only so many homes that can be made ready for sale at any given time. You buy the parts, do the work and then, sell the home into the marketplace. This has been going on since the recovery of 2008. It is coming to an end. Why again, you ask? Because we are realist. A plot for a happy ending must have an obstacle to overcome. This film starts will positive news. It can only lead to a sad ending. Nothing goes up forever.

Then, we see this change in retail and many other industries. 

Robots!

They will cause more unemployment as firms have been suffering from labor shortages. Retail and restaurants are getting into robots to fill the labor problems. They also see this as a way to solve the higher expectations by labor for wages. For example, Sam's Club uses robots to scrub floors, scan inventory and eliminate cashiers. Dinners are getting their tables, menus and orders from machines. Even the small dog walking entrepreneurs will face competition from robot dog walkers. Walgreens is filling their prescriptions with automation. I see lawsuits a coming. There will be no George Bailey to watch Mr. Gower at the pharmacy. I don't like this trend, but Brain Corp is making a fortune with its software. Their sales to retail are up 40%. They saw a gain of 69% to airports and 113% to malls with their robot software.

Second Opinion?

Remember Michael Burry of the "Big Short" fame? He sees some of the same things that we see. His prediction for 2022 is scary, too. He says, "More speculation than the 1920s. More overevaluation than the 1990s. More geopolitical and economic strife than the 1970s." Remember what we showed you in our last piece. The Fed with its easy money has led to highest corporate debt while at the same time the quality is at its lowest. It is like the old joke which follows the news that 2022 is the year of the Tiger under the Chinese zodiac. Two guys are walking in the jungle. They see a tiger. The first, a reader of Evolution, begins to run. The second stands saying, "You can't outrun a tiger." He hears this, "You're right! But I only have to outrun you."  ...Peace and hopefully, a Happy New Year!

Odds and Ends: December 2021

This is the last post for 2021. If you read the last post of 2020, you could say nothing has changed, only the names. COVID-19 is replaced with Omicron. The stimulus of that year has been partially spent, but a new stimulus is already passed. The only question is when does the money get circulated? In 2020, airlines were cancelling flights. On Christmas Eve, the airlines cancelled over 1,000 domestic flights and over 3,000 worldwide. Retail was suffering then, and it still has problems. Holiday gatherings for Christmas and New Year's were scaled back in 2020. You can say ditto for 2021. The only thing off the top of my head that is constant, is the Federal Reserve. They have kept money cheap. They offer interest rates below inflation. No! Wait! I'm wrong on that. The negative gap on yielding rates and inflation has widened. However, I'm not the one who is wrong. It is the Fed. As we say here at Evolution, "The first step back to prosperity is to End the Fed!"

Speaking of the Devil...

The Fed announced last week that they see the US labor market at full employment by March 2022. Their "plot points" give them this reinsurance. We say, this will be another "transitory" moment. They will be wrong as they always are. This is our "plot points." The Fed's easy money made pigs out of our corporate firms. Going into the last recession, corporations added $6 billion in new debt. Today, they have $11.5 trillion in debt. Many firms cannot service their borrowing like the Chinese real estate giant, Evergrande. That company is in default. The Chinese government is doing their best to keep a lid on the damage. We see further problems in 2022. Anyway, the lowest rated level on a bond that is above junk is BBB. At present, over 57% of these bonds is at risk to falling to junk. This sad contagion is also putting households at risk. The Fed grew our money supply by 40% since 2019. This data does not even take into account all the new stimulus in the works. Consider for a moment: There are over 11 million renters who have not paid rent. They are covered from eviction due to both President Trump and Biden placing a moratorium on evictions. Students owe over one trillion in loans. They also have not paid a nickel. They too are covered by presidential decree. Then, there is inflation. It is not going away. The first commodity to show the effects was lumber. It rose fourfold. Then, it dropped. The pundits and shills for the Fed said, "See! We told you prices would stabilize." Well, they are back at highs. The inflation data keeps getting worse, month after month. We, at Evolution offer you this insight to the future. Containers! These large metal crates carry the imports to our nation. Before the pandemic, the rate to load one container was $1700. Then, it rose to $14,000. Today, it runs between $18,000 and $20 grand. This affects everything. We all can see the ladder at the gas station. We see the new price. We cannot see all the ramifications due to these shipping containers.

The new word for 2022 in inflation as it relates to consumer prices will be "Drip Price." The product price might be the same, but the package will be smaller. In banking, it could mean fees. Then, there is the aspect of labor shortages, especially skilled labor. A roof trust goes up in price on a daily basis. Housing, the biggest purchase by consumers will continue to rise. The only thing keeping inflation from spiraling off the charts is the dollar.

King Dollar

At present, the dollar remains high. We look at the price action on a daily basis. It is forming a triangle. This is often a continuation pattern. However, a breach will indicate a big change is coming. Watch the dollar closely in 2022.

Spiritual Relapse...

Israel is using aid to control free speech in firms and nations that receive their government aid or stimulus. If you say anything bad about their government policy, you will not receive anything from them. The only nation lower on "strings attached" is China. If you say anything that they deem harmful, you could end up in jail or dead!

Last Idea...

for 2022 is visit Doctor Copper. In a recent report on vehicle sales for 2020, electric car sales tallied 10% of all sales. The recent stimulus has money to create vehicle charging outlets. Electric vehicles require more copper. It creates a floor in the commodity. A higher demand will mean higher prices. Find yourself a good copper mine / firm. By the way, this will negatively affect the two million workers in auto parts because there are less components in the electric vehicle. Good news is robots need repair parts and the transition is not that difficult. HAPPY NEW YEAR! Peace.

Truth in Comedy - Where are you, Bud and Lou?

I could talk about the many triangle patterns in the charts. They generally mean continuation of trend. This fits our forecast that seasonality will prevail in the marketplace until January. I could mention that we see the worst possible outcome for retail, especially small business. All those unloaded shipping containers will eventually be unloaded and delivered. The problem is timing. When retail receives the merchandise, the Christmas buying season will be over. There is also the return aspect for all companies, whether online or brick and mortar. In both cases, seasonal layoffs will result in dissatisfied customers. Many firms will lose money due to inflation, labor shortages and product shortages. Our call for a market correction in January is looking better and better. So, let us hope that we are wrong and enjoy each other while we can. However, our nation needs someone to challenge both political parties and their "yes-men" who run our government agencies. The following replay is an example of what I mean. Enjoy...

As promised, a Christmas present to you. It is from the 1930s. The comic genius of Abbot and Costello was true then as it is today. Politicians came up with this lie for many reasons. You might want to forgive them under one aspect in that it is skewed for a positive feeling in the news about unemployment. Today, it is out and out corruption to hide the fact that the best jobs along with their wages in our economy have been outsourced to foreign lands. Politicians are bought! Producers may be free in our society, but government should be looking out for the welfare of the nation. Tariffs should have been the standard reply for any outsourced product. It doesn't happen because politicians are weak, bought off, spineless souls who have no character or conscious. This is what is wrong within our democracy. Now, forgive my rant and enjoy this truthful, comic genius.

Costello: I want to talk about the unemployment in America.

Bud: Good subject. Terrible times. It is 7.8%.

Costello: That many people are out of work?

Abbot: No, that's 14.7%.

Costello: You just said 7.8%.

Abbot: 7.8% unemployed.

Costello: Right - 7.8% out of work.

Abbot: No, that's 14.7%.

Costello: WAIT A MINUTE! Is it 7.8% or 14.7%?

Abbot: 7.8% are unemployed. 14.7% are out of work.

Costello: If you are out of work, you are unemployed.

Abbot: No. Government said you can't count the "Out of Work" as the unemployed. You have to look for work to be unemployed.

Costello: BUT THEY ARE ALL OUT OF WORK!!!

Abbot: You miss the point.

Costello: What point?

Abbot: Someone who doesn't look for work can't be counted with those who look for work. It wouldn't be fair.

Costello: To whom?

Abbot: The unemployed.

Costello: But ALL of them are out of work.

Abbot: No, the unemployed are actively looking for work. Those who are out of work gave up looking, and if you give up looking, you are no longer in the ranks of the unemployed.

Costello: So, if you're off the unemployment roles that counts as less unemployment?

Abbot: Unemployment would go down. Absolutely!

Costello: The unemployment just goes down because you don't look for work?

Abbot: Absolutely, it goes down. That's how it gets to 7.8%. Otherwise, it would be 14.7%.

Costello: Wait! I got a question for you. That means there are two ways to bring down the unemployment number.

Abbot: Two ways is correct.

Costello: Unemployment can go down if someone gets a job?

Abbot: Correct.

Costello: And it can also go down if you stop looking for a job?

Abbot: Bingo.

Costello: So, there are two ways to bring unemployment down, and the easier of the two, is to have people stop looking for work.

Abbot: Now, you're thinking like an Economist.

Costello: I don't even know what the hell I just said.

Abbot: Now, you're thinking like a Politician.

You can clearly see that nothing has really changed since the Great Depression. At one time you could argue that the Democrats were for the working people, but that is no longer true. It is why I suggest that we need a new third political party that is for the people. The "Liberty Party" would promote the general welfare and end all foreign entanglements.

The next short piece reveals current problems in America. within it is hope, just like the Christ-child offers hope at Christmas time. Jacob Blake, a black man, was stopped by the police with his three children in his car. The stop became a tragedy as Blake was shot seven times in the back. A riot followed. His mother, Julia Jackson said, "Her son would not be happy with the damage to the community or by the actions of its residence." She continues by saying that she is praying for healing. She goes on to say, "We are the United States, but we are losing our ability to be united. A house against each other cannot stand!" She is praying for the police, the community and the nation. She ends in tears by saying, "America is great when we behave greatly."

She is a reflection of love, and this is God's gift to us at Christmas. Merry Christmas! Peace.

Benjamin Disraeli Revisited

- There are three kinds of falsehoods: lies, damned lies and statistics

- Mark Twain

Actually, it was the English prime minister, Disraeli who first referenced the quote. For all the education in Congress (almost all are lawyers) and in the media, one would think that someone not only opposes certain aspects of our government, but they would call them out. The moment should start with the above quote.

Inflation

The report lies adjacent to another Twain quote, "Half Truths." The government reported that inflation rose again. It reached 6.8% in November. Do you think this is right? It is what Twain calls a half truth. Why, you ask? Because like we, at Evolution have pointed out in the past, their matrix formula, copied from the Federal Reserve does not include the three basic necessities that each one of us need every day: food, energy and shelter. So, if you dropped the government formula and just counted the three needs, inflation is off the charts. Energy is up over 50% from last year. Food is up 10% from the same time period. Housing? The Fed has kept rates below inflation for years. Imagine for one moment, this historical aspect? Housing rates were considered low and reasonable at 7% throughout our history. Could you afford your home at that rate? The answer is probably no for the majority of us. As for renters, the moratorium by the Executive Branch says all you need to know. Rents are way too high for workers which is why we have the moratorium. This is the real proof of how the Fed has destroyed our currency and standard of living. Everything is a lie. No! A damn lie!

And if you believe these crooks know what they are doing, just recall the chairman's use of the word "transitory" for inflation. Combine that with the monthly reports. After every report, the Fed said in a few months these price increases will cease. In March, inflation came in at 5.6%. In June, it rose again to 6.2%. Haven't you had enough? These government agencies are run by appointed "yes-men." The statistics are manipulated crap. Our government reports are no different than third world dictators, lying to their nation. Do you believe unemployment is 4.2%? I said enough.

Another Example?

How about the recent Commerce Department report on our exports and imports?  They said that our exports reached a record. Sounds good, right? It is another half-truth. The report gets worse. It stated that our deficits were shrinking. Would you call a deficit of $67.1 billion in the negative column a positive? No way! Not even close. In fact, the total deficits for our nation for just the first two months of the new fiscal year is $356.4 billion. Then, you get people in Congress like Alexandria Ocasio-Cortez. She makes $137,000 a year. Now, she wants us to pay off her student debt loan. She must be a descendant of the explorer Cortez. She thinks fiat money printing is the new gold. Well, AOC, did you know that a good gold mine must extract 10 tons of rock just to get one ounce of gold? This is why our founding fathers chose the precious metal for our currency. You have to work hard to get it. Pay off your own student loan!

Last Word on Central Bankers

The European Common Bank Chair said the other day that inflation in the EU will drop to 2% in 2022. These crooks are all from the same mold. They back the banking industry and the rich. They lie to their constituents. By the way, will this chair face any negative consequences for being wrong? No! It is the same for the US Fed. It is all lies and more lies!

The market is reflecting all the data like from above and other sources. You can see crazy behavior in many issues. For example, Docusign, Inc. (DOCU) was $310 in September, and now $144. AMC hit $52 in September, and now $27. Going the other way, Broadcom (AVGO) was $490 in September, and now $631. Markets like this are very dangerous. Put your time into reconnecting with friends and family: send out holiday cards with love. Peace.

Homework and Prediction

 - It don't come easy. You know it don't come easy. It don't come easy.                                                           The future won't last, it will soon be over tomorrow.

- Ringo Starr - Beatles

The year is ending, but trading continues. With that in mind, it is time to look forward. I present to you three commodities to observe. They will corelate to many aspects in our economy and our standard of living, especially since the inflation genie is out of the bottle. 

OIL

It is the most important. It heats your house, moves your vehicle and it is used in many products. The new virus variant has captured the mental state of society and the economy. It won't last, but the concept of new variants will pose more anxiety. This is why oil took another dive last week. Crude settled at the $66 - dollar level. If you look at the charts, this is the same price range as last Dec. 2020. If you recall, oil sank to $10 - dollar level by April 2021. Then, the reality of shortages appeared. Oil rebounded to $35 - dollar range. After a brief consolidation, it spiked to $85. Then, we had another retracement - consolidation range. However, the fears of the new virus variant have dropped crude back to the price range of Dec. 2020. Question? Where does it go? Like Ringo sings, "It don't come easy..." Oil has a strong resistance price at $60 - dollar level. If it breaches that level, we could see a return to the price action from Dec. 2020 to April 2021. Maybe shortages could return and cause another spike? Do your homework!

GOLD

The battle will always continue the war between fiat (status quo) and hard currency (Founding Fathers). This is why it is so hard for gold to rise to its minimum price = $2600. With that said, gold at the moment is in disharmony. On the negative side, the gold price is below its 50 - day and 200 - day moving average. On the plus side, a reverse Head and Shoulders price pattern has appeared on the weekly chart. Question? Where will it go? Like Ringo sang, "It don't come easy..." Gold has a strong resistance at $1700 price level. If it falls below that, we are in trouble. On the upside, $1950 is the top of the range. If it penetrates higher, we enter a bull market to possibly $2500. This is my prediction. Let's hope but do your homework! 

COPPER

The good doctor knows all. With inflation, copper is at all-time highs. At present, it has consolidated at the highs. The virus scare will dent new highs, but price inflation has a longer effect than a virus. One can see this in the chart price. Even with big market pullbacks, copper is above both its 50 - day and 200 - day moving average. This makes it very strong. The infrastructure bill will add a floor to the price as well as electric vehicles. Copper could become the best performing product in the future. Only time will tell - sing it Ringo, "It don't come easy..." Then, of course, inflation will cause medical prices to rise. This means it will cost more to see the good "Dr. Copper." Ha! Ha!    Peace.