"There are three kind of lies: lies, damned lies and statistics."
- Mark Twain
I think this applies to the talking shills in the media when referencing to the consumer. Yes, cars sales are up along with rents and home prices. These high priced items reflect consumer spending, however everyone has a limit. The first sign of that limit was revealed in the Consumer Retail Report by the government. It was down .01% for February and revised way lower for January. Furthermore, when you read the latest report on consumer spending by CardHub, it makes you realize a couple of possibilities. One, spending will slow or defaults will rise. That resolution is based on the total figure of debt. The average debt on household credit, according to the findings of the study is $7,879.00. In addition, at the end of 2015, the total debt outstanding on credit cards stood at $917 billion. Together, this points to a tipping point on an individual's ability to pay off their debt. If they just make minimum payments, they will suffer the effects of compound interest, to which credit card companies will raise on their card rates. It leads to default somewhere down the road. Keep in mind, if your car goes repo, you are stuck between a rock and a hard place.
Old Habits
die hard as it seems that Americans are returning to their bad habits of living beyond their means. In the last quarter of 2015, consumers added $52.4 billion in debt and for eight of the past 10 quarters, consumers have increased their debt. When you pay off your credit cards with minimum payments, you end up with maximum interest charges. Consider the biggest age group at present: the Millenniums. They have the highest school debt in history and they love their social media. They love their gadgets and technology. They use Pay Pal and not cash. They don't understand what it takes to make a buck. They live way beyond their means. As a result, most live with their parents because debt is their albatross. Not good for our future economy. This gets reflected by corporate decisions. Stores are closing which means vacancies rise along with commercial landlords ability to meet debt obligations on their properties not to mention job losses.
Consider this:
Retailers are closing stores because sales are down, along with revenues. The following is just a sample of well known brand names that are feeling the pinch: Sears, Macy's, Men's Warehouse, Gap, Gameboy, WalMart and John Deere.
Bottom line: Even with all the spending and credit being utilized, the effects on the overall economy is shrinking sales and revenues with the consumer reaching the limit of ability to safely meet their expenses and obligations. Not good going forward.
Wednesday, March 16, 2016
Wednesday, March 9, 2016
Best Soldiers, But Worse Led
As an ex-GI, I have inside experience. Our guys are brave and honorable. However, we have leaders who just want this and that, but they have no idea what it takes to achieve this and that. In addition, there are good and poor leaders which is nothing more than a reflection of society with the same attributes. The next budget calls for over $580 B for the military. In addition, many of the other categories in the budget is related to the military. One would think that these Pentagon administers know what they are doing and that they have a vision for the future. One would be wrong. Just gander over the following list and believe me, there are many more examples of their incompetence.
* Army ended their Combat Helicopter System with a loss of $18.1 B.
* Army ended their Rach- 66 Helicopter with another $7.9 B loss.
* Air Force replaced their Environment Sat System with DWSS, but that too was cancelled, losing $5.8B.
* Air Force dropped their Laser research with another $5.2 B loss.
* Marine dropped their Presidential Helicopter and took $3.7 B loss.
* Army dropped their self-propelled howitzer. It was replaced by another system which was also cancelled. The Army wasted another $2.2 B.
* Marine dropped their Fighting Vehicle and lost another $3.3 B.
* Air Force stopped their Multi-Sensor Airship, but took a $1.9 B loss.
* Air Force dropped their Infrared System and took another $1.5 B hit.
* Navy ended their Seal System. It was replaced by the Joint Submersible, but that too was cancelled. Another $.6 B down the drain.
* Army dropped their Helicopter Recon and replaced it with drones. Taxpayers lost another $.5 B.
* Army / Navy dropped their Aerial Sensor study and lost another $.4 B.
* Navy dropped its Cruiser and another $.2 B.
* Air Force dropped its Rescue Helicopter another $.2 B.
* Army ended its Bomber fiasco and another $18.1 B of our money. It is now the Long Range Strike-Bomber and another long-range financial loss for all our citizens.
Together, all these mishaps reflect their leadership or should I say lack of leadership. Our service branches added another $69.4 B to our national debt.
Bad and Really Bad
The above is sad and I would speculate some corruption, but the following borders on treason. Sadly, no charges are files or pending. This will show the truth behind the title to this piece. In 2014, just as ISIS was surfacing, our military made an unforgiving blunder. This mishap provided this terrorist organization the weapons to become a force in the Middle East. The Iraqi army disserted an insolation that the US just resupplied and all of what I can gather became ammo for the enemy. We supplied them the weapons of their success. They confiscated the following:
* 2,300 Humvee's = $16 M
* 40 Abron tanks = $172M
* 52 Howitzers = $2.7 M
* 74,000 machine guns = $29 M
* Not to mention that ISIS was able to control oil operations and actually sell in the market.
* Hack into the department of Personal Management and collect info on government employees. Keep in mind that the budget provided money for cyber-security, but this shows the incompetence of the so-called military leaders. = $ Countless.
These guys have a disease. They go to bed crying, "I want..." and they wake up calling, "Give me..." I know a cure, have them lead a patrol...on point!
* Army ended their Combat Helicopter System with a loss of $18.1 B.
* Army ended their Rach- 66 Helicopter with another $7.9 B loss.
* Air Force replaced their Environment Sat System with DWSS, but that too was cancelled, losing $5.8B.
* Air Force dropped their Laser research with another $5.2 B loss.
* Marine dropped their Presidential Helicopter and took $3.7 B loss.
* Army dropped their self-propelled howitzer. It was replaced by another system which was also cancelled. The Army wasted another $2.2 B.
* Marine dropped their Fighting Vehicle and lost another $3.3 B.
* Air Force stopped their Multi-Sensor Airship, but took a $1.9 B loss.
* Air Force dropped their Infrared System and took another $1.5 B hit.
* Navy ended their Seal System. It was replaced by the Joint Submersible, but that too was cancelled. Another $.6 B down the drain.
* Army dropped their Helicopter Recon and replaced it with drones. Taxpayers lost another $.5 B.
* Army / Navy dropped their Aerial Sensor study and lost another $.4 B.
* Navy dropped its Cruiser and another $.2 B.
* Air Force dropped its Rescue Helicopter another $.2 B.
* Army ended its Bomber fiasco and another $18.1 B of our money. It is now the Long Range Strike-Bomber and another long-range financial loss for all our citizens.
Together, all these mishaps reflect their leadership or should I say lack of leadership. Our service branches added another $69.4 B to our national debt.
Bad and Really Bad
The above is sad and I would speculate some corruption, but the following borders on treason. Sadly, no charges are files or pending. This will show the truth behind the title to this piece. In 2014, just as ISIS was surfacing, our military made an unforgiving blunder. This mishap provided this terrorist organization the weapons to become a force in the Middle East. The Iraqi army disserted an insolation that the US just resupplied and all of what I can gather became ammo for the enemy. We supplied them the weapons of their success. They confiscated the following:
* 2,300 Humvee's = $16 M
* 40 Abron tanks = $172M
* 52 Howitzers = $2.7 M
* 74,000 machine guns = $29 M
* Not to mention that ISIS was able to control oil operations and actually sell in the market.
* Hack into the department of Personal Management and collect info on government employees. Keep in mind that the budget provided money for cyber-security, but this shows the incompetence of the so-called military leaders. = $ Countless.
These guys have a disease. They go to bed crying, "I want..." and they wake up calling, "Give me..." I know a cure, have them lead a patrol...on point!
Wednesday, March 2, 2016
Rush To Borrow...
...as the first recipients of cheap money look to rollover or refinance a new loan that is coming due between now and early 2017. The first look shows that $88 B is needed, however many of those loans fell under junk bond status. The problem is twofold. One, the rates are now higher and secondly, the lending market is tighter. Just ask Sand Ridge Energy or Energy XXI? The two oil companies missed their interest payment and no one is willing to restructure their loans which will be in default in March. Those two over leveraged companies are not alone. Standing in line are 47 other energy and oil producers. The rubber stamp that said, "Yes, approved," just five years ago, now says, "No! Denied!"
Toys 'R Us
is also in the line. Two aspects are revealed in their quest for another $1.B plus loan. One, they had to utilize the junk loan category the first time and this time, they are having difficulties in getting new finances.
CLOs
Banks, who bought Collateralized Loan Obligations(CLOs) are seeking to unload the risky debt, but now, higher rates have put pressure on them because with the timing of the rates increases and market jitters. These banks and lending institutions have $88 B coming due and losses are looming. The majority of the loans are related to oil and energy. The low price for oil are making payment of loans not applicable. Losses are revealed in the value of these loans with some down substantially.
Underwriters may be forced to eat losses or to sell at a steep discount. In this scenario banks are pulling back just as this mass of debt is hitting the market. Bank of America, the largest underwriter of leveraged loans, has tightened the ship. It previously forecast $70 B of applications. Now, it will trim that number to $45 B. One reason for this:
No One In The Store.
There are no buyers for their CLOs. In addition, credit rating agencies have downgraded these loans. These downgrades are up 126% for the fourth quarter of 2015. More companies are being labeled junk as CCC tier loans rose 3.9% in January. Bonds rated B lost 21% last month. This shows contagion is spreading.
Dodd-Frank Rules
dictate that issuers must now be able to cover 5% of the debt that they create. On the other side, borrowers cannot meet the standards needed for new loans. All in all debt seekers will have to pay a higher rate and price for new financing. As it is, they barely met the "old" standard. The only one making money is the coffee guy who has a long line waiting for service, but I suggest this to the jo server, get cash!
Toys 'R Us
is also in the line. Two aspects are revealed in their quest for another $1.B plus loan. One, they had to utilize the junk loan category the first time and this time, they are having difficulties in getting new finances.
CLOs
Banks, who bought Collateralized Loan Obligations(CLOs) are seeking to unload the risky debt, but now, higher rates have put pressure on them because with the timing of the rates increases and market jitters. These banks and lending institutions have $88 B coming due and losses are looming. The majority of the loans are related to oil and energy. The low price for oil are making payment of loans not applicable. Losses are revealed in the value of these loans with some down substantially.
Underwriters may be forced to eat losses or to sell at a steep discount. In this scenario banks are pulling back just as this mass of debt is hitting the market. Bank of America, the largest underwriter of leveraged loans, has tightened the ship. It previously forecast $70 B of applications. Now, it will trim that number to $45 B. One reason for this:
No One In The Store.
There are no buyers for their CLOs. In addition, credit rating agencies have downgraded these loans. These downgrades are up 126% for the fourth quarter of 2015. More companies are being labeled junk as CCC tier loans rose 3.9% in January. Bonds rated B lost 21% last month. This shows contagion is spreading.
Dodd-Frank Rules
dictate that issuers must now be able to cover 5% of the debt that they create. On the other side, borrowers cannot meet the standards needed for new loans. All in all debt seekers will have to pay a higher rate and price for new financing. As it is, they barely met the "old" standard. The only one making money is the coffee guy who has a long line waiting for service, but I suggest this to the jo server, get cash!
Tuesday, February 23, 2016
Economic Reality...
is scary...as opposed to what is considered news and information from the media world and most of the candidates running for president in 2016 by both of the major political parties. I'm sorry, dear reader the facts are not optimistic. Of course, it goes without saying that the Obama administration will never address these aspects, issues or trends. There are too many indicators and all are signaling a recession for the US. It could have already started. The bureaucratic government stats are lagging information. The government can't see the forest due to all the trees. Having said that, a stat from the Bureau of Labor Statistics reported a 2.4% rise in inflation. This is the highest rise in over three years for a monthly reading. I see this inflation in housing, whether renting or buying. I see it in the price of eggs and other dairy products. I see it in the cost of a Big Mac. It is up 6.7% last year. I see it in insurance and clothing. The federal government only sees lower fuel costs. It is the excuse for not giving social security recipients a "Cola" increase this year.
However, my personal economic situations do not collectively effect the nation. This does.
Baltic Dry Shipping
index fell to an all-time low under 300. Global shipping is falling off the earth. If it were only ocean containers that were hitting a rough patch, that would be one thing. However, land rail traffic is also at a standstill. If you were to visit a locomotive hub in Colorado, you would see idle locomotives that appear like a rental car lot at a major airport.
Corporate Profits
margins are all but erased since the third quarter of 2014. Declines in the S & P 500 will reach 4% and this is two straight quarters of profit declines. Some call this a "earnings recession."
Banks
too are feeling the pinch. Rock solid oil loans are hitting dust with commodity prices falling. This in time will trigger the derivative market which could devastate the global economy. The flat lining of yields reflects this worry. There were 112 global bond defaults last year and 2016 at the moment looks worse.
Employment
just fell under 5%, but job cuts also just surged 218%, according to the January reading of the Challenger Report. US factory orders have dropped 14 months in a row. Not only that, but take a look at the following releases by various companies.
* Royal Dutch Shell announced 10,000 jobs to be eliminated.
* Johnson & Johnson is dropping 15% of its workforce.
* Caterpillar is closing 5 plants and another 670 jobs.
* Sprint laid off 8% of their people.
* Go Pro is laying off 7% of its personal.
* Wal-Mart is closing all their new small stores(269). Think of all the lost jobs for workers and less revenues for the company.
There are many other behind the scene actions taking place, especially in the oil industry and all the businesses that service that industry. Add the latest release of oil inventories to the worries: Oil in storage is over 500 million barrels and climbing.
Together, all this adds up to a gloomy picture that the Fed is only making worse as they returned to their playbook. They are now increasing the money supply. It rose over 9%. This is the way the Fed usually pays off old debt by creating new debt with cheaper money and a way to devalue the dollar. It will raise the price of oil, all commodities and everything. It is why I say, End the Fed!
However, my personal economic situations do not collectively effect the nation. This does.
Baltic Dry Shipping
index fell to an all-time low under 300. Global shipping is falling off the earth. If it were only ocean containers that were hitting a rough patch, that would be one thing. However, land rail traffic is also at a standstill. If you were to visit a locomotive hub in Colorado, you would see idle locomotives that appear like a rental car lot at a major airport.
Corporate Profits
margins are all but erased since the third quarter of 2014. Declines in the S & P 500 will reach 4% and this is two straight quarters of profit declines. Some call this a "earnings recession."
Banks
too are feeling the pinch. Rock solid oil loans are hitting dust with commodity prices falling. This in time will trigger the derivative market which could devastate the global economy. The flat lining of yields reflects this worry. There were 112 global bond defaults last year and 2016 at the moment looks worse.
Employment
just fell under 5%, but job cuts also just surged 218%, according to the January reading of the Challenger Report. US factory orders have dropped 14 months in a row. Not only that, but take a look at the following releases by various companies.
* Royal Dutch Shell announced 10,000 jobs to be eliminated.
* Johnson & Johnson is dropping 15% of its workforce.
* Caterpillar is closing 5 plants and another 670 jobs.
* Sprint laid off 8% of their people.
* Go Pro is laying off 7% of its personal.
* Wal-Mart is closing all their new small stores(269). Think of all the lost jobs for workers and less revenues for the company.
There are many other behind the scene actions taking place, especially in the oil industry and all the businesses that service that industry. Add the latest release of oil inventories to the worries: Oil in storage is over 500 million barrels and climbing.
Together, all this adds up to a gloomy picture that the Fed is only making worse as they returned to their playbook. They are now increasing the money supply. It rose over 9%. This is the way the Fed usually pays off old debt by creating new debt with cheaper money and a way to devalue the dollar. It will raise the price of oil, all commodities and everything. It is why I say, End the Fed!
Wednesday, February 17, 2016
Gold: The Historic Choice
Valentine's Day just passed and we find that the flower business continues to shrink. In fact, in Iran it is a felony to practice the West's concept of Valentine's Day. I hope that this was not a sub-agreement in the nuclear treaty. Anyway, I got to thinking about gifts that show a deep respect and possibly love. I could only come up with one, but it is time proven. It is one of the three gifts from the Three Wise Men. It has been used throughout history as a tribute, a store of wealth and that custom still lingers in India and China. I'm talking about the lustrous, precious metal, gold.
- "If you don't own gold, you know neither history nor economics."
- Ray Dalio
2016
it is up 18% while everything else is down. The rally last Thursday caught the fiat people flatfooted as it rocketed higher than the North Korean test rocket. People who deal in gold attribute the surge due to investors and buyers from all global exchanges. The gold dealers were smiling and singing, "Love is in the air..."
Gold reflected this faith in it and flowing in the melody, it gained 25% for Russians against the ruble. Mexican avocadoes were no match to the 23% gain versus the peso. South Africans were rewarded with a 18% gain against the rand.
Gold spread the good feeling to the "old" hard currencies too. It gained 17% against the British pound. It rose 14% versus the Canadian loonie and another11% against the negative interest rate of the Swiss franc.
As for the US dollar, the Fed is turning red with its 13% rise.
RBC Capital Markets
George Gero, added that some investors were seeking to buy US treasuries, but they were crowded out by the Fed. They were seeking safety from negative interest rates. They found the all-time, number one, safe haven.
It Keeps Getting Better
Gold showed its permanent luster best against the yen and euro. It is up 10% in 60 days against the euro and 6% against the yen. That is one sweet move!
Looking Ahead
I see a rise to $1392 for gold and $16.28 for silver. From a technical stand-point, gold is above the 50 and 200 - day moving average which is very bullish. If I'm correct and we get there, then, we will have to look at the number of contracts to see if it can activate a booster rocket. At the moment all systems are go!
In that vein I think that NASA's "LIGO" experiment blew a circuit because as you read this piece, you realize that the two biggest buyers, China and India are hardly mentioned. I consider them a known known like Jewelry buyers. However, with that implied, some gold dealers are reminding the followers of the precious metal that the market will be extremely volatile in the coming months. One reason is the current inflow of buyers and investors can be manipulated by the second reason, the Fed. Keep in mind both Wall Street and the Fed hate gold and they will attack gold at some point. Just as I dotted the sentence, Goldman Sachs declared that investors should "sell" gold as it will fall in price. However, they did not disclose that they probably had a short position and sweat was entering their brow. Citi says, "Buy until May, then, go away." If we keep applying the pressure, they will have to move money to cover their position losses or if they close and attack another day, they risk another surge in gold due to this short covering. I say that they may lose like in 1980. For example, their shills always remind investors that gold does not pay interest, but now, neither do the banks and it could get worse. By the way, dividend paying corporations are also cutting back their rewards. In fact, dividend cuts in 2015 were higher than in 2008 (295 v. 394). On the flip-side physical gold sales keep climbing. In the Shanghai Gold Exchange, 2,596 tonnes were sold. This figure represents 90% of the total global output. If you seek small by buying some gold coins, the US Mint and Australian Mint are over-loaded with orders, but today's price is a lot lower than the future cost. Buy now and profit later. The Fed hates gold and I hate them. They have a one hundred year history. The facts say that since the Fed started the US dollar lost 95% of its value which is why I say, End the Fed!
Under a disclaimer: I have a long-term position in SLW and trade LSG and GFI.
- "If you don't own gold, you know neither history nor economics."
- Ray Dalio
2016
it is up 18% while everything else is down. The rally last Thursday caught the fiat people flatfooted as it rocketed higher than the North Korean test rocket. People who deal in gold attribute the surge due to investors and buyers from all global exchanges. The gold dealers were smiling and singing, "Love is in the air..."
Gold reflected this faith in it and flowing in the melody, it gained 25% for Russians against the ruble. Mexican avocadoes were no match to the 23% gain versus the peso. South Africans were rewarded with a 18% gain against the rand.
Gold spread the good feeling to the "old" hard currencies too. It gained 17% against the British pound. It rose 14% versus the Canadian loonie and another11% against the negative interest rate of the Swiss franc.
As for the US dollar, the Fed is turning red with its 13% rise.
RBC Capital Markets
George Gero, added that some investors were seeking to buy US treasuries, but they were crowded out by the Fed. They were seeking safety from negative interest rates. They found the all-time, number one, safe haven.
It Keeps Getting Better
Gold showed its permanent luster best against the yen and euro. It is up 10% in 60 days against the euro and 6% against the yen. That is one sweet move!
Looking Ahead
I see a rise to $1392 for gold and $16.28 for silver. From a technical stand-point, gold is above the 50 and 200 - day moving average which is very bullish. If I'm correct and we get there, then, we will have to look at the number of contracts to see if it can activate a booster rocket. At the moment all systems are go!
In that vein I think that NASA's "LIGO" experiment blew a circuit because as you read this piece, you realize that the two biggest buyers, China and India are hardly mentioned. I consider them a known known like Jewelry buyers. However, with that implied, some gold dealers are reminding the followers of the precious metal that the market will be extremely volatile in the coming months. One reason is the current inflow of buyers and investors can be manipulated by the second reason, the Fed. Keep in mind both Wall Street and the Fed hate gold and they will attack gold at some point. Just as I dotted the sentence, Goldman Sachs declared that investors should "sell" gold as it will fall in price. However, they did not disclose that they probably had a short position and sweat was entering their brow. Citi says, "Buy until May, then, go away." If we keep applying the pressure, they will have to move money to cover their position losses or if they close and attack another day, they risk another surge in gold due to this short covering. I say that they may lose like in 1980. For example, their shills always remind investors that gold does not pay interest, but now, neither do the banks and it could get worse. By the way, dividend paying corporations are also cutting back their rewards. In fact, dividend cuts in 2015 were higher than in 2008 (295 v. 394). On the flip-side physical gold sales keep climbing. In the Shanghai Gold Exchange, 2,596 tonnes were sold. This figure represents 90% of the total global output. If you seek small by buying some gold coins, the US Mint and Australian Mint are over-loaded with orders, but today's price is a lot lower than the future cost. Buy now and profit later. The Fed hates gold and I hate them. They have a one hundred year history. The facts say that since the Fed started the US dollar lost 95% of its value which is why I say, End the Fed!
Under a disclaimer: I have a long-term position in SLW and trade LSG and GFI.
Wednesday, February 10, 2016
The Market: What I See - Now
- Gravity: what goes up must come down.
Some truths have a universal application. I guess that is why they refer to them as tautologies. Logic if you will. For those of you who see the word to mean redundancy, I prefer its other meaning. In any case the present market is range bound and although the market declined last week, I don't see a follow through at this moment. It is like a glider that is falling, but catches an updraft to defy gravity.
Spreads
continue to widen, but treasuries continue to be range bound. At present they are testing their highs, but the dollar failed in repeated tests to rise further. The dollar could decline and test the .94 cents level. The bond market is saying that they don't believe the Fed will continue to raise interest rates.
In fact, negative rates are gaining traction with Japan joining Denmark, Sweden and Switzerland. It begs the question, who is next - the EU members?
Stock Market - Present
China's market entered into bear territory and Japan is following their price action. Europe is range bound and in the US, many sectors of the market are in bear territory, although the market itself is only in correction mode. The fear is that oil and oil services will pull the rest of the market south with them.
Commodities
The commodity rout has put Canada in a recession and its currency, the loonie is in a freefall. Canada is not alone as two other commodity exporting nations, Brazil and Australia are also suffering declines in valuation. Russia is on the brink of a recession because of the oil glut and Saudi Arabia's budget is in the red. When you look at the Baltic Dry Shipping Index it hits new lows every week. It fell below 300 last week. This indicates global trading is lower than even during the recession. Together, the effects is that global banking stock prices are at the same level as the recession. They will need to prepare their balance sheets for defaults with their portfolio of oil loans. As stated in a previous piece, I see a need for a new world forum on currencies because the present race to the bottom could not only trigger a recession, but a depression. The problem is that the so-called leaders generally wait until a crisis is at hand. Then, responding under pressure, they only attempt Band-Aids and never address the cause. Let us dear reader,take a look.
China devalued in early January and after their New Year's holiday, the "Year of the Monkey" their currency could slip like a monkey missing a tree branch and slipping. They won't do this in isolation. Asian nations will devalue to hold market share and Japan could institute another devaluation, taking the Yen to 140 and then, 160 even 200 is possible.
Stock Market - Near Term
With all of the above stated, the market declined last week, I still do not like the price action. There is no conviction in either the up or down movements. Even though the declines took darlings like Apple with them, there is no volume. This is an important indicator. If, they cannot push it down, then they will push it up. I see a bounce. They will try to get oil over $37, but I see this as another failed test. The bounce will be short lived. Then, I see the return to the current downtrend as I predicted in my Forecast 2016. Eventually, I see the market testing the August lows of 2011. By the way, all the effects of QE and debt is making one commodity, gold look more lustrous. I see a retest of the January 2015 highs of $1300. At that point the global fiat powers-to-be will attack it because they fear it and the possibility in an election year, a desperate candidate picking up the torch for true money and the gold standard. We can always hope.
Some truths have a universal application. I guess that is why they refer to them as tautologies. Logic if you will. For those of you who see the word to mean redundancy, I prefer its other meaning. In any case the present market is range bound and although the market declined last week, I don't see a follow through at this moment. It is like a glider that is falling, but catches an updraft to defy gravity.
Spreads
continue to widen, but treasuries continue to be range bound. At present they are testing their highs, but the dollar failed in repeated tests to rise further. The dollar could decline and test the .94 cents level. The bond market is saying that they don't believe the Fed will continue to raise interest rates.
In fact, negative rates are gaining traction with Japan joining Denmark, Sweden and Switzerland. It begs the question, who is next - the EU members?
Stock Market - Present
China's market entered into bear territory and Japan is following their price action. Europe is range bound and in the US, many sectors of the market are in bear territory, although the market itself is only in correction mode. The fear is that oil and oil services will pull the rest of the market south with them.
Commodities
The commodity rout has put Canada in a recession and its currency, the loonie is in a freefall. Canada is not alone as two other commodity exporting nations, Brazil and Australia are also suffering declines in valuation. Russia is on the brink of a recession because of the oil glut and Saudi Arabia's budget is in the red. When you look at the Baltic Dry Shipping Index it hits new lows every week. It fell below 300 last week. This indicates global trading is lower than even during the recession. Together, the effects is that global banking stock prices are at the same level as the recession. They will need to prepare their balance sheets for defaults with their portfolio of oil loans. As stated in a previous piece, I see a need for a new world forum on currencies because the present race to the bottom could not only trigger a recession, but a depression. The problem is that the so-called leaders generally wait until a crisis is at hand. Then, responding under pressure, they only attempt Band-Aids and never address the cause. Let us dear reader,take a look.
China devalued in early January and after their New Year's holiday, the "Year of the Monkey" their currency could slip like a monkey missing a tree branch and slipping. They won't do this in isolation. Asian nations will devalue to hold market share and Japan could institute another devaluation, taking the Yen to 140 and then, 160 even 200 is possible.
Stock Market - Near Term
With all of the above stated, the market declined last week, I still do not like the price action. There is no conviction in either the up or down movements. Even though the declines took darlings like Apple with them, there is no volume. This is an important indicator. If, they cannot push it down, then they will push it up. I see a bounce. They will try to get oil over $37, but I see this as another failed test. The bounce will be short lived. Then, I see the return to the current downtrend as I predicted in my Forecast 2016. Eventually, I see the market testing the August lows of 2011. By the way, all the effects of QE and debt is making one commodity, gold look more lustrous. I see a retest of the January 2015 highs of $1300. At that point the global fiat powers-to-be will attack it because they fear it and the possibility in an election year, a desperate candidate picking up the torch for true money and the gold standard. We can always hope.
Wednesday, February 3, 2016
Turning Point?!
The Monday QBs of the pundit world will all claim to have known the exact moment which caused a turn in the stock market and the economy too. They just never stated it publicly. I have. I see some serious buildup over the last eight years, especially in credit which the media forgets to remind you, is debt.
$29 Trillion
is the present total in corporate bonds. For example, Netflix will be adding to this total as they owe $4.7-billion due this year for payment for content. I surmise that because the company only brings in $6+b and the liability is two-thirds the amount. All the borrowing is reaching a debt overload point and it must be repaid. The strains of all this borrowing is starting to show. The first signs have been in all the downgrades by the rating services. These quiet notices are the highest since crash of 2008. The reason behind the downgrades in some US and some global entities is because they are failing to earn enough revenues to fund their respective companies and cover their liabilities.
Things Are Connected
Then, there is the connection of this risky debt to the bond market. Borrowing spreads reveal this risk. Spreads have widened to 1.84 percentage points from the 1.18 back in March of 2015. This change has not gone unnoticed by investors or the market. It snapped the winning streak of six years of investing in corporate bonds. Investors took a small loss of .02%, however this could be the turning point. I have long opposed the Fed in general and especially, their zero rate policy. Global and US companies are on the hook for $29 T and if rates rise, the value of these bonds declines which only makes their debt exponentially more costly. Peter Schiff predicted the other day that he sees a recession and the Fed turning to negative interest rates. His call on the Fed in 2015 was perfect and if he is correct again, he should have his own talk show.
Standard and Poor's
said the downgrades of global companies is because there debt is 3x earnings before adjustments like taxes and depreciation. This negative aspect is why S & P downgraded 863 corporate issuers last year. Yes, many of these companies are commodity in nature if that is what you are thinking, but the misleading of CEOs of the value of shares is high on the list.
Usual Suspects
Most of the borrowing went for share buybacks, dividends and merger activity. On the bright side of Standard and Poor's report is that the global outlook is stable. Sorry, dear reader I don't see it that way. For example, the same rating services said that Lehman was secure the day before it exploded. In other related aspects global companies borrowed $9.6 T in US denominated issues in 2015 and since their currencies have declined in value the payment becomes much more costly. Japan just realized this aspect and the BOJ just joined the negative interest rate for fools of fiat money. Just think my Japanese brothers, now you have to pay the bank to hold your money. This was one of the arguments against gold as it doesn't pay interest and by the way, gold is growing in value against the Yen...against the Yuan...against the Rand...against the Euro...against the Ruble, Rupee and on and on.
End the Fed!
$29 Trillion
is the present total in corporate bonds. For example, Netflix will be adding to this total as they owe $4.7-billion due this year for payment for content. I surmise that because the company only brings in $6+b and the liability is two-thirds the amount. All the borrowing is reaching a debt overload point and it must be repaid. The strains of all this borrowing is starting to show. The first signs have been in all the downgrades by the rating services. These quiet notices are the highest since crash of 2008. The reason behind the downgrades in some US and some global entities is because they are failing to earn enough revenues to fund their respective companies and cover their liabilities.
Things Are Connected
Then, there is the connection of this risky debt to the bond market. Borrowing spreads reveal this risk. Spreads have widened to 1.84 percentage points from the 1.18 back in March of 2015. This change has not gone unnoticed by investors or the market. It snapped the winning streak of six years of investing in corporate bonds. Investors took a small loss of .02%, however this could be the turning point. I have long opposed the Fed in general and especially, their zero rate policy. Global and US companies are on the hook for $29 T and if rates rise, the value of these bonds declines which only makes their debt exponentially more costly. Peter Schiff predicted the other day that he sees a recession and the Fed turning to negative interest rates. His call on the Fed in 2015 was perfect and if he is correct again, he should have his own talk show.
Standard and Poor's
said the downgrades of global companies is because there debt is 3x earnings before adjustments like taxes and depreciation. This negative aspect is why S & P downgraded 863 corporate issuers last year. Yes, many of these companies are commodity in nature if that is what you are thinking, but the misleading of CEOs of the value of shares is high on the list.
Usual Suspects
Most of the borrowing went for share buybacks, dividends and merger activity. On the bright side of Standard and Poor's report is that the global outlook is stable. Sorry, dear reader I don't see it that way. For example, the same rating services said that Lehman was secure the day before it exploded. In other related aspects global companies borrowed $9.6 T in US denominated issues in 2015 and since their currencies have declined in value the payment becomes much more costly. Japan just realized this aspect and the BOJ just joined the negative interest rate for fools of fiat money. Just think my Japanese brothers, now you have to pay the bank to hold your money. This was one of the arguments against gold as it doesn't pay interest and by the way, gold is growing in value against the Yen...against the Yuan...against the Rand...against the Euro...against the Ruble, Rupee and on and on.
End the Fed!
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