Timing

The word can be traced to so many outcomes in sport, job opportunity, life and of course, the economy. You can probably think a few more where it applies. We, at Evolution, are using the point of the word as it pertains to the stock market and the economy. 

Last week...

...we stated that a market bounce could be coming, but it should peak by Friday. Our timing was off. It showed itself late Thursday and continued into Friday. The indicators that we apply still point to the same outlook. Why, you ask? 

Many Aspects

The stock market uses the current trend price as an outlook for six months in advance. With that concept, the investors are seeing earnings, the leading component to price action, as a negative. This is their thinking:

1) Higher interest rates make the future earnings of companies a lot less.                                                    2) Higher yield on bonds along with their safety, makes them more attractive than stocks. This moves          money out of the market to go into bonds.                                                                                                3) A stronger dollar means less profits and thus, less earnings because most of the company's income          comes from the outsourcing of their product.                                                                                            4) Inflation increases costs to all firms and consumers. The results lead to a slowing economy.                5) Finally, the effects of higher interest rates on residential and commercial activity are becoming a              larger worry as construction affects so many aspects of the economy.

Fraud

This corrupt activity always seems to show itself just before a market crash. We are seeing it now. Think back to recent recessions and the revelations of fraud just prior to the market sell-off: Long Term Capital Investment, NINJA loans in the financial industry and the king, Bernie Madoff. Today, we got the crypto-currency poster boy, Sam Bankman-Fried. We bring this up because last week, oil changed course in a volatile way. The contract dropped $10 bucks for the week. This is an unusual price movement with little news. However, it does relate to the market's future outlook. Investors took profits, but then conflict broke out in the Middle East. 

Oil Bounce

It actually only popped to its upper range, consolidation level. When there is trouble in the world, the US military lobbyist gets to work. It means more military aid. It means more spending which means more deficits. It means a return to the status quo. The bounce could turn into a rally. The SPX could hit 4450. There is a gap at that price. However, there is resistance at that level and with more unpleasant revelations about the economy, the rally will end.

Getting back to oil, a little blurb about oil contracts and fraud. We feel there is more to the story. Then, we read about a Singapore oil tycoon, Lin Oon Kiun. He falsified oil sales to a bank, HSBC Holding Plc. I don't know all the details. We will not speculate, but we give credit to the Singapore High Court to find justice. All these cases can lead to other cases and since the oil contract moves so quickly, we say maybe the timing of more bad news is coming.  Peace.

Bearish Engulfing

...on the daily chart of the USD last Thursday could be a signal for a market change? However, the weekly chart shows a continuous rise and breaking over the resistance level at 105. What gives? This is not harmony in the market. King Dollar did fall back into the 105 range and then, it touched 107. By hanging at highs, it could go higher. The question: Can it hold price? So, what else do we see?

Last week...

...we concluded that a short bounce is possible. If it appears, it should reach its peak this Friday. Nevertheless, the price action of the dollar will be the determining point. Now, consider the price action in the oil contract. Oil broke out above the 93-resistance level. It also gathers steam from the aspect that a golden cross of the 50-day moving average over the 200-day moving average with stronger volume on the upside as opposed to weaker volume on the downside. This is impressive when you throw into the equation the strong dollar. If oil pierces $95, then $100 oil comes with a new resistance level of $105. The Fed may not include energy in their phony matrix inflation formula, but we do. This oil price action says inflation is not going away. 

New Dilemma

If inflation persists as we indicated, how does the Fed address the problem? At the moment, commercial real estate is in do-do land. They have loans coming do that they originally received with low interest rates. During this period, COVID-19 caused havoc. Workers left the office. Many of these rentals left the commercial building. Income has gone negative. Many commercial property owners have let their buildings go to bankruptcy court. Now, they face higher interest rates that will make commercial projects lose their position. A conservative estimate puts the figure at $4.6 trillion by 2026. Joel Litman, an influential money manager says, "Credit is the key to market direction." We cannot argue about his point. The signs of higher interest show themselves in the fact that last month, 57 companies went bankrupt. 

- 2 out of 3, ain't bad...

Meatloaf sang the hit, but Powell can't sing. If he stands pat, the damage will continue. If he raises rates, it will get worse. His only way out is to lower rates and admit defeat. Admit the Fed does not know what they are doing. Neither will happen because ego, big money and the status quo are at stake. All this adds to our meme, End the Fed!               Peace.

Odds and Ends: September 2023

- Let me issue and control a nation's money and I care not who writes the laws.

- Mayer A. Rothschild

Those words are true, but I feel it put an arrow on Jewish people because most problems in society can find their root in money. Today, in the US, the Federal Reserve prints and controls our currency. In China, the Communist Party dictates to its central bank in the same way. This does not fall under an "odd" in our monthly piece, but the other half, "ends" has a whole other meaning. 

Last week, the US military released a report where they predict war with China by 2027. Talk about the end, this would be it. The report claims China is in preparatory stages to start the conflict.

In a different style and approach, the Chinese government offered a "carrot and stick" to the islands off its coast, mainly Taiwan. The missive states that its province, Fujian, would tender beneficial trade and development to the coastal islands which include Kinmen Islands, some Matsu Islands and some Wuqui Islands. Many of these islands are under self-rule. The ultimate goal is to find a way for Taiwan to return to China. At the same time, Chinese warships circled the Island of Taiwan. 

We Say...

...all those islands were never really a part of China, so the propaganda is a lie. Taiwan had 17 different ingenious tribes before an influx of people from the China mainland, mainly the Yaggi clan. This was due to the constant warfare under different Chinese dynasties and other invaders. There are records of Chinese and Vietnam Chinese trading from the islands. This Chinese claim amounts to nothing more than any conqueror like Rome controlling the Mediterranean Sea, saying that all those lands should belong to Italy.

Nothing New

This is how China operates. They offer help to a nation to develop a project, mainly shipping ports. Then, they wait for corruption or other problems. They offer more money for full control. China now controls 17 large world ports like the Panama Canal and shipping centers in Germany. They are in the process of controlling trade in South America and many parts of Africa. This is their playbook. 

The US military has too much say in our government and you can see the results by their lion share of our yearly budget. Our military and the Chinese Communist party have only caused ill well and distrust throughout the world. The final "end" would be using war to solve domestic economic problems in both nations.

Our Answer

Both nations agree to cut trading and go their separate ways. No hard feelings. No more threats. No more hacking and stealing data. Both governments seek to do the best for their nation, climate and peace. Because the other way, millions will die, the world climate could be destroyed, many millions more will die a slow death of starvation and both nations will face WWIV like Einstein said, "With rocks and stones."

Meanwhile

The Federal Reserve admits losing $100 billion. How, you ask? They receive less for the old bonds that they purchased and they pay out more to the newer higher yielding notes.

We told you back in our yearly forecast that this year, strikes would be in vogue. There have been 70 strikes so far. 

Sadly, rising inflation and health costs are forcing more health concerns to close. The number is shocking - 580. There are waiting lists to see a doctor or an assistance care facility. I feel for those workers. Patients enter too late and die in a bed that these workers have to service. A new patient enters in the same poor condition. Death calls and the cycle continues. Needless to say, depression fills these workers.

Market

A small bounce could be in the works. However, the calendar turns to October. This is the worst month for the market. The Dow appears weak. NASDAQ has more strength. Keep in mind that the dollar rose over 105 and the next resistance is 107. Even with window dressing approaching, King Dollar will act like a lid on the market. In addition, there are many gaps in the high flyers like Amazon, Apple, Google and Invidia. The chip stock looks bullish, but the others are trending lower to close the gap and or, remain in consolidation.        Peace.

Controlling Factors

- Endless money forms the sinews of war

- Cicero

No need to remind you that the printing of dollars lowers its value (read inflation). When cheap money does not spur an economy, the next step is dangerous for all of us, war. Still another reason to End the Fed!

Anyway, this week Sebastian is offering to help you realize what you may already know, but forgetting its impact. There are three aspects that control the direction of the market. They are all in harmony. They all indicate that prices will fall.

C.A.P.E.

It stands for a cyclically adjusted price-to-earnings ratio. To put in laymen's terms, I will use this example. You are thinking about buying a used car. You follow advertised prices and for sale by owners. You have a fairly good idea what you expect to pay. Suddenly, you notice that these used vehicles are surging in price. You put off your purchase because you know value. The stock market is like the increase in used cars. It is now expensive. In fact, by historically comparing prices of the market, the present CAPE is greater than the market value in 1929. Not good. A low CAPE is good for the market and a high CAPE is not. The price is now high.

P/S

This stands for price to sale. Today, the ratio is 2.4. This is high. How high, you ask? When the market burst during the .com period, the ratio was 2.3.

Interest Rates

From a historical point, they have just returned to normal. From what the Federal Reserve has done to our thinking and economy in recent times, rates are high. I could get technical and relate this to the lost value in the dollar, but we are living with what we now have to work with. Higher interest rates make money expensive. When money is cheap with low interest rates, stock prices are supported. Higher rates dampen prices that form a resistance level in the market. This is where we are today. These three factors are all negative for the market. It is going lower.   Peace.

Connecting Dots

- Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.

- John Maynard Keynes

In last week's piece we informed you that our call for a "Stealth Recession" is still in play. This week we offer you supporting factors that will help you see our point.

Market

The latest really in the Dow and other indexes failed to hold on price. There is no conviction. Volume at the rally was low. This demonstrates the market is really building cause for its next move. The longer the market stays below resistance points and in consolidation, the bigger the next move will be.

Oil

The corrupt Fed may leave out the most important commodity in their inflation matrix, but you and I need it every day. The price of oil keeps rising as we mentioned last week. In addition, the energy sector under the XLE made a new all-time high last week. Inflation is not going away. In a related report, an alarming point about the excess spending by our government with the military as the biggest spender was released. This year the interest on our debt will surpass $663 billion. That unbelievable figure is set to double by 2028. Now, more than ever we need a balanced budget and the Fed ends! There are other ramifications that can be seen in the US and around the world.

In the US...

...another gift to the world from America, the movie industry is suffering. It is not the strike. It is the debasing of the currency. Ticket prices to see a flick are way too high. Our largest movie chain, AMC will soon join Radio Shack, 5&10 Woolworth in the netherworld of failed businesses. In the...

UK

One of their largest retail stores filed for bankruptcy. The 52 Wilko chain is gone - out of business. In...

Asia...

...mainly China, homeowners face this reality. The largest real estate company entered into bankruptcy. The second in size, Country Garden is following in their footsteps. Real Estate is 17% of the Chinese economy. It shows a common bond with the people of China and US citizens. The desire to own your own home.

In the US, the Fed causes home buyers to become the biggest obstacle. In China, the Communist Party as well as one of the oldest sins of man, greed. The party is seeking world domination with money. They spend their budget on buying resources, land and shipping ports. The US military squanders our lives and resources on military bases and weapons. They have over 100 military bases around the world. Why? You can call it anything you want, but this is a form of imperialism. This is wrong and it only causes antagonism against America. Neither government looks out for their citizens. The military is the biggest, most wasteful component in our budget. Back to China...greed shows itself in the real estate developers expansion plan. After they exhausted all the local banks in China, they turned offshore. Now, the Communist Party manipulated their currency, the yuan to keep it low versus the US and world currencies to push exports. The yuan should be the most expensive currency because China leads the world in manufacturing. It is the largest exporter and user of commodities. Their currency should be at the highest. Manipulation! Anyway, it is causing a backfire to real estate. Many of these loans are to American firms on processed in US dollars. Since the dollar is high, more yuan is needed to cover loan debt. This is basic economics. Your costs are rising and sales declining. Chinese firms are in do-doo thanks to their government's expansion plans that do little for citizens.   

Remember to keep your home. This crisis will pass and you will still have a roof over your head.                                                                        Peace. 

 

We Stand...

...by our call. 

Funny thing about time, it has a price like the thesis of Edward Chancellor in his work with the title name. His idea says time causes mistakes in setting targets like inflation. It seeks to assess the relationship between variables like supply and inflation that are stationary. They are not. Needless to say, the Fed does not like his theory.

I guess a Fidelity Strategist must have just read Chancellor's book. It announced last week that it sees a spark for a recession in 2024 due to a wall of corporate debt that is due and faces higher interest rates. The firm is not the only one, but these small voices are drowned out by the bulls who dominate the media.

3.8%...

...unemployment. Well, we gave you the math metrics that calculate the percentage. In real numbers, new jobs came in at 187,000. So, if one tick is 150,000, this means 787,000 loss work. This is a big jump from 3.4%. Time will reveal September's numbers. We do not feel that they will be good. At the same time, oil has broken through resistance. It could test $93 per barrel. This puts a burden on all citizens. This continues what we at Evolution have termed, "A Stealth Recession." While Powell talks, people suffer. When the pain hits the wealthy, then it will get a media meme name. We already gave it one. We just got a clue from a report by the Dallas Fed, of all people. It is in manufacturing. The data says....

1) Computer and electronic product manufacturing: Customers are reducing or cancelling orders due to soft demand. The volume of orders is down 51% year-over-year.                                                      2) Food manufacturing: There are fewer government contracts. Customer discretionary spending has declined.                                                                                                                                                        3) Machinery manufacturing: Slow. Phone not ringing. Projects are being postponed and payments late.                                                                                                                                                                4) Primary metal manufacturing: The industry says it is in a technical recession.                                  5) Printing and related activities: They are surviving due to previous large contracts. Nothing on the horizon.                                                                                                                                                          6) Transportation equipment manufacturing: Higher prices and interest rates are hurting.

We stand by our call.  Peace.                              

Odds and Ends: August 2023

- We become what we love and who we love shapes what we become.

- St. Calare of Assisi

Dear Reader, you should realize what has become of your purchasing power. You should further realize that the Fed is an institution to protect the banking industry and the wealthy. It is what they love. It is what they become.

You hear and read about it every day. When the UPS truck drivers get paid $49 per hour, our dollar becomes less in value. It is no wonder that the UAW has voted to strike. Think about it? They are saying if a truck driver gets that much, how much more are we worth? We build trucks! Here, at Evolution, we called this development by workers seeking more money last January. We do not take joy in being correct in our call. We worry for low-wage earners, for seniors and for small businesses. 

Meanwhile...

the market shills are calling for another bull market. They declare that the Fed will stop raising interest rates. They dare to say that the consumer is resilient. I guess that they did not read our piece last week. When consumer debt on credit cards passes $one trillion and for the first time, more consumers roll over their debt on credit cards rather than paying the full amount, this is an economic fire. When more banks (5) are downgraded by the ratings service firms (Moody), the banking contagion has not gone away. When in China, the biggest real estate firm, Evergrande files for bankruptcy (we called it) and a variety of other factors all point downward, do not be misled. When you view the charts of the big indexes, you will begin to see what we see.

Indu, Spy and Tran...

All retraced to their last breakout point. This is not the price action of a bull market. Consider these two large footwear firms, Nike and Footlocker. They are included in the Fed's consumer retail formula for inflation. Even though our population is growing, these two giants are sinking in the value of their stock. Not a good omen. 

Other Factors

We used the term. Here is the most important consumer purchase, a home. With mortgage rates over 7%, applications have fallen off the page. Home buying is the least affordable it has been in 40 years. Zillow is seeking to help with a 1% down payment loan for first-time home buyers. This is good and bad. It is nice to help, but again our lower purchasing power in the dollar has caused prices to reach unaffordable levels. Then, we read this...

Panama Canal...

has a back log of ships on both sides. The reason is the slow service. The reason for slow service is drought. These small-minded chaps who operate the canal had no vision to store water to cover a drought situation. What this means is there are fewer products on shelves and the cost to put things back on the shelf will cost more. Definitely not good. By the way, China is now the owner of the canal. Is this political? Who gets hurt more by the poor operation of the canal? We do. Enough said.

BRICS

They added six more nations to their pact. What this means to us here at Evolution is this: End the pentagon's control of our budget and cut military spending. Put more tariffs on all imports and pass a balance budget amendment. Take politics out of economics. A strong dollar helps the poorest in our nation. When you help the least, everything else will fall in place, including keeping the dollar as the reserved currency.  

Good News

Although home buying is the least affordable it has been in nearly 40 years, Zillow is seeking to help with a 1% loan payment for first-time home buyers.

The government finally did something against these punk-ass, weasels who steal from people and companies. They made a cyber arrest. I would like to see news like this at least once a month. Then, these federal workers will finally earn their paycheck. We don't need photo moments like in drug busts. We need more crack-downs and busts. Thank you. 

A small firm in Grand Rapids, Michigan called, "Battelle" can clean dirty water, especially if it contains dangerous plastic residue like PFAS. Yay!!   

- Be gracious to us, O Lord, for we are in distress.

- Psalm 31: 9

God, bring consolation and relief to Maui.   Peace.