Forecast 2017

-"Today comes from yesterday, and together forms a path toward tomorrow."
- JFL

Before I make a fool of myself and digitalize my opinions, I always like to look back on my previous prognostications. In my Forecast 2016 I said that the Fed would only add a quarter-point rate hike and a whole lot of BS! Perfect. Do I have a crystal ball? No. Because I called for the dollar to be range bound from 93 to 100. Well, I was right for ten months. Close, but no cigar.
King dollar has hit 103 four times in the last two months, but it failed to hold price due to the lack of conviction as in volume. However, if the Fed comes true, the dollar will rise further, but that will be revealed in time or a later paragraph.
I was correct in saying that world currencies would continue to devalue to gain market share in exports. The last two reporting months had global imports giving (us) the US a record average of over $61 billion per month. Maybe I am a sage? Can anyone foresee the day when imports cause us $100 billion in deficits in one month? Sadly, this will happen if we stay on the path that we are traveling.
Smaller Points
I thought that the "hover-board" would become a fad. Not my fault that it contained a faulty design. I also said that Virtual Reality would grow and become big. I got that one!
I was wrong on precious metals as I said that they would consolidate their gains. They went up and now, they are in a downturn. They did turn a profit for 2016 and I could argue that the bear market in the metals is over. I will make my yearly call after the 1st of May. Read on!
I was correct in my market forecast in calling that the market would correct by 10% in the first quarter, but I was wrong in saying that a test of the August 2011 was on the way. I was also wrong in saying that S&P earnings would continue to decline into the fourth quarter. I was right for three quarters, but again, no cigar.
I was correct in my worry about mutual fund withdrawals along with pension underfunding becoming a problem. In addition, I was right in my call that health companies would drop out of the ACA.
No one in the media mentioned my call that the EU would continue into debt and the refugees would become a multi-nation problem for them. Go figure.
I was perfect in my South American views except the Brazilian exchange did become the best in the world. I didn't see that.
My call on the Middle East was easy as there is never a solution in that region since the Roman times.
Finally, I still stand behind my call that Denmark should be praised and copied with their approach to alternative energy. All in all, I think that I earned another B-plus grade. Why couldn't I receive those grades in high school?
D-Day Pushed Off
Before I rest on my laurels, my Forecast 2017 will not be in a typical format. Just as the Chinese calendar for the new year starts at the end of January and the Hebrews have a different calendar as well as India and elsewhere, it is getting impossible to use our Western date in this global environment in the 21th century as the starting point. My outlook will only hypostasize until the 1st of May. It will all depend on what happens on the 20th of January and the first 100 days of the new administration.
As we enter 2017, the market is adjusting to the over-bought condition in the belief in Trump. The smart money is taking profits off the table in a wait-and-see approach. I'm beginning to have my doubts too, but for different reasons. The only aspect that I can agree with is Trump's call to renegotiate or end trade deals. He has appointed a billionaire cabinet of Republicans who favor the same old same old approach. They favor less government and by that they mean a free pass to do whatever they want to increase profits. This is greed over responsibility. It is a sin of capitalism. For example, you have the relationship of coal and electricity. The utility needs to put scrubbers to clean out the poison of residue and the coal company needs to put safeguards for the miners. Greed says this is an obstacle to profits. The only way that scrubbers will be installed is if legislation forces them. The only precautions for miners comes from legislation. We have to protect ourselves from the sins of capitalism. However, we do not need agencies that create laws without Congress. I feel that Trump will allow the judgement of his appointed to make that call. I do not trust these people to do the right thing which is make companies take safeguards, to spend money on responsibility to our eco-systems and workers.
Barons of yore...
We already turned that corner in the 1880s and it took fifty years to stop the exploitation of the land and labor. The fight goes on. We need to repeal the Taft-Hartley Act of 1947, but I never hear anyone calling for this crusade. Bottom line: I don't like Republicans and I don't trust Democrats. Libertarians are naïve. Socialists have more bad points than good. We need a new party for the people and nation.
Boiling Pot
To make any calls prior to Trump's actions would be premature. At this time you hear from pundits the same calls either pro or con on the economy. It is rare for anyone to hit it on the head. There is a boiling pot out there which contains the terrible condition of banks in Italy and Germany along with elections in Europe and refugees. There is the oil agreement to which I say won't last. There is the continuing defaults on bonds by Chinese companies. There is the dangerous debt to GDP in Japan. ISIS, terrorism and the Middle East is never far from headlines. There is the reality that a black swan will appear and I feel that derivatives will be it. Whatever happens, it won't happen until Trump has his honeymoon period. This is the reason why I cannot make any valid calls at this time. In addition, I do see the Fed making a rate hike early in the year and one more at the end of the year. I hope the military cannot talk Trump into an aggressive policy with China, especially in the South Seas. China is slow to act, but once they do, it will be hard to change. We do not need the Chinese to view Trump's policy as aggressive because they may meet aggression with aggression. Keep in mind that it is you and I that make America strong not the military complex. It is not a new bomber, but us. We are the ones who will be doing the doing and dying if the military screws up. It is like the Fed has the backs of the banking industry, we are the reluctant insurance policy for the "deep state."
The strong dollar will be good for US consumers, but it will mask inflation. If Donald follows Clinton's thinking and he forces a lower dollar, we will have dangerous inflation. If king dollar continues to rise, it could go to 113. At that point even a corporate tax cut won't help earnings. This will also effect world currencies and volatility in money is never good.
The boiling pot has spices like the business cycle, the migration cycle and sadly, even a war cycle. I do not like the foundation of the world at this moment. The cornerstone will rest on Trump's inaugural address. If he follows JFK, things will be fine. If he follows Reagan, our nation will be bankrupt by the end of his administration. I could go on-and-on, but why? We all need to give Donald a chance. His actions will speak louder than his words and after the first 100 days, then we will know where our destiny will lead.

Holiday Trading...

is always light and when you consider the aspect that trading volumes have declined in recent years, it would be foolish to enter the market. One deep pocket could send a share up or down which brings to mind an old Wall Street proverb:
"The market can stay irrational longer than you can stay solvent."
With that said there are a few points worth paying attention too as the market will begin in earnest around the third or fourth of January.
A strong dollar will cause harm to US companies. I call to mind when Oracle released earnings a week ago. They said, "The strong dollar hurt the bottom line." Dear reader, the dollar was 93-cents during their reporting period. It is now at 103.
King $Dollar
It will be helpful for US consumers, but it will lower our exports and increase our imports. This will add to our deficit. It will be a drag on GDP. This will make a headwind for gold. However, I like to note that on the 27th of December at 2:30 AM, there was a serious buyer of gold as 59,000 contracts were bought. This is a very rare occurrence. In addition, corporate America won't be manipulating their stock in 2017 because corporate debt is 45% of GDP. They don't have wiggle room to do buyback and service their previous debt. The market is in over-bought condition as the PE ratio in high at 28.
Not Only That...
According to the St. Louis Fed, public debt is at an all-time high while the velocity of money(M2)is at an all-time low. With Trump coming, the Fed said that our government in general, runs more deficits than surpluses. Our monetary base has exploded and yet, Americans only save less than 5% of earnings while the Chinese save 35% of their earnings.
All of the above is food for thought as we should take some time to reflect, give thanks and enjoy the holidays. Peace. 

One Story in the Naked Country

- "Truth is like the sun. You can shut it out for a time, but it ain't goin' away."
- Elvis Presley

I have mentioned from time-to-time the growing crisis with state and local pension funds. It is like the children's story of the king parading naked. He believes he is wearing the latest style and no one will risk telling him the bad news. In a sense, we the taxpayers are the king because we provide the revenues for the system to function. No one in government will risk his job to inform us of the bad news.
There are a million stories in the naked city and over 300 million in our naked country. To relate to each would require enough space to fill a Congressional bill. It is no wonder that laws are passed by the legislature without reading the entire bill. In addition, we have presidents who sign these acts knowing they contain aspects that could cause trouble down the line. Their ego prevents them from vetoing the whole bill due to a "sneak-in" provision. That is a serious problem in our government. It is another story. Today, I will mention three.
"Bureaucrats know...
the price of everything, but the value of nothing." When the Fed speaks about their positive effects on GDP, they forget that within it are aspects that are neglected like the future cost of pollution to people and the environment. They make debt an asset when it is a liability. This leads us to
Dallas Police and Fire Pension System.
The Fed at the top echelon of bureaucracy and down to the smallest office, no one factors into the future equation, demographics. Dear reader, the baby boomers are one-fourth of the population. Social Security gets 10,000 applicants a day for benefits. This will happen for the next fifteen years. Dallas is a microcosm of this important economic cost. Officers are retiring. Word gets out that "red tape" is holding up their benefits. This has caused over $600 million in withdrawals from the fund. The alarm has sounded, and king taxpayer is not going to like the news. The mayor of Dallas has demanded that withdrawals be halted. as the fund has plunged to 36%. This translates to 36-cents for each recipient. It needs another 64-cents to cover. At present, there are another $154 million in a pending situation. The City of Dallas has indicated a "DOUBLE" property tax to get the $1.1 billion bailout for the fund.
Now, no one objects to fairness, but how fair is it to dump on all citizens for excess promises? This projected tax increase could and will cause a mass exit from the city. Property values will shrink which will only make all services suffer. This is like the spiral loss of tenants that makes malls disappear or downtown cities to appear as ghost roadways. No one foresaw what Detroit looks like today and their are many more examples, but the motor city is the poster child.
Illinois
is a classic example of politicians not putting away for a rainy day. The state has to allow 20% of its budget just to meet obligations to pensions. Now, a story surfaced that Illinois is risking the honor of its lottery. Apparently, the lottery scratch-off has not awarded 40% of prize money. Steal a million here, steal a million there and you can cover some pension liabilities.
California
is watching what is happening in Illinois. A report released from Stanford says that California is short of its state pension obligations by $1 trillion. Yes, that is a "T."
Actions to these problems take time to develop. One option that won't be utilized is passing the buck. The poor kicked can is so dented from being kicked that it is unrecognizable.     

Odds and Ends

My grandparents taught me to never waste. We passed down clothes from older to younger and if they were still in good condition, we donated them. If not, we cut off the buttons on shirts and put them in a jar for possible use somewhere down the road. We had jars for many things in closets. It was called the Odds and Ends collection. As the inaugural approaches, it is time for Trump to act and the following bits and pieces are not from a DC5 lyrics.
Capital Controls
were enacted in China in the gambling district of Macau. When you realize there is a war on cash, Trump needs to reassure everyone that he won't end the use of money in our society. Although there are many ways to view the decision to limit cash withdrawals from ATMs by the Chinese authorities, two main points come to mind. One, this stops outflows of money from China as many people use this technique to convert Yuan's into dollars. Secondly, maybe there is a deeper problem like not enough currency in circulation to meet the demands of the Chinese population? This is how rumors begin that can cause runs on banks and the Chinese do not have FDIC insurance for depositors.
ECB
has declared that it will cut back on its QE purchases. If you hadn't noticed, the euro has dropped in value. This is an attempt to strengthen the currency. It sits at 106 and it will decline further after the Fed hikes US interest rates tomorrow by another quarter point. This is great for European exporters, but very painful for citizens in the EU. A lower euro makes prices rise. Inflation will be a severe topic in the EU in 2017 along with the health of its banking system.
King Dollar
Currently, it sits above its confluence point at 100.99. It also entered a bullish cross pattern on the daily chart. It should rise again after the Fed announcement. This is great for US consumers, however it is hiding inflation in imports. A strong dollar makes products seem cheaper, but in reality, inflation is rising. Any decline in the dollar will hurt consumers and our economy. When our GDP can only reflect a 1.6% growth rate, we are on the border of trouble. When you consider all the manipulation of stats to makes our economy look better, a weak dollar will spell trouble with a capital "T".
Globalization
Economists say that free trade improves our standard of living and produces quality jobs. When I gather results that lie doesn't hold up. At present, our labor participation rate of 62.7% is almost 5% points lower than our historic average and this goes back to 1970s. Pundits counter that unemployment is at historic lows at 4.6%. Yeah, how about the fact that 34 hours is now considered full time and almost half of labor is part-time? These odds and ends takes us back to GDP. Usually, our exports make up 9.5% of GDP. Now, it is up to 12.2%. The shills claim globalization works. I reply that we average $40 billion in deficits every month in every year for over a DECADE. The world dumps on us and steal our jobs. This is why we have more people in poverty and collecting food stamps than ever before. Dear reader, don't forget all the invading species that destroy our environment on land and water.
So, Donald, what are you gonna do about it? Remember, action speaks louder than words and as for the record setting stock market, remember this: the higher you go, the thinner the air.

Much Ado about Nothing...for NOW

Leave it to Shakespeare, the bard of Avon to understand all the commotion that can be generated before the fact. The world has had three big election results in 2016 and the before, during and after  BS never stops. There is one great positive. All the experts had it wrong, and the populist movement is a major setback for the elites.
Brexit
The first vote was in England. The shills in the media claimed that Britain would go into a  depression which could take the global community, if it leaves the EU. It left, but only on paper. Nothing has changed as the behind the scenes elites seek a way to stop the people from their will. They see this unforeseen result as a loophole in their strategy for One World government under their rule. It appears that the results of this election will be put off until 2018 to give the elites time for their plan - B. This is what Europe calls democracy. There will be problems economically, but more civilly.
US Election
Another setback for the elites who already had their playbook out with a Hillary win. The stock market is going to the moon in belief that Trump will trump all legal handicaps for big business. Anything goes or I should say, "goes out the window" like air pollution or clean water as the Sioux will soon find out even with their short-term victory against the pipeline company. Time will tell what will actually happen. Demographics and pension shortfalls will play a huge part in it. Civil unrest is also on the table.
Italy
Matteo Renzi said if the people did not accept his ideas that he would quit. He's gone. The elites are scrambling for a way around the will of the people in this latest setback in their plans. Behind the scenes, the EU will step up their pressure for Italian banking reform. This is the real, future danger for anyone and everyone who has money in a bank. This is what is central in the Italian results. Renzi wanted the power to change their constitution which would allow him to use a corrupt idea, the bail-in.
Bail Out, Bail-in
Central banks always have the backs of their banking system. However, with the people seeing this one-sided protection in the crisis of 2008, a new plan is surfacing among central banks, the bail-in. This is corruption at its highest.
Our deposits are only backed by faith just like our currency. The FDIC gave everyone peace of mind and we no longer have runs on banks due to their missteps. Dear reader, when we deposit our money at a bank, we are actually lending the bank our money for them to do whatever they want with it. Whether its greed or survival, banks make mistakes. The FDIC protected us against those occurrences. Now, the concept of bail-in is emerging. This is an idea to recapitalize banks if they become insolvent. The FDIC won't be utilized. FDIC lacks funding anyway and they could never cover a "too big too fail" institution. The bank would just seize our money as their asset and use it to recapitalize itself. We would be robbed!
This is already happening in Europe. For centuries aristocrats stole from their people. This is what Renzi was planning to do. It is another example of small thinking from behind the scenes elites in the EU. The EU put pressure on Renzi by implying that no bail out for the Italian banking system was in the cards. At present, it is estimated that Italian banks hold $400 billon in non-performing loans(NPL). These are loans that are 90 days past due with no hope to be repaid. This figure represents 18% of all outstanding loans and makes up 20% of GDP. Serious problem. No wonder the people said, "No!" I would too.
With negative rates and now, the bail-in, world banking is in a terrible position. Dear reader, the template has already been tried with the Cyprus crisis of 2013. It started with capital controls to stop or limit withdrawals. Then, they made a bank holiday. When the banks reopened, everyone took a haircut to recapitalize the banks - the bail-in. They took their depositors money. The EU is perfecting the method. Our central bank, the Fed is studying their playbook. We need to unite to crush this thinking or we all will end up in poverty.
P.S. Soon the Dutch, the French, and the Germans will go to the polls. The elites will try to scare the people while they attempt to get a new election in Great Britain...and the beat goes on.

What's Happening With $Gold?

Ever since the election surprise of Donald Trump, two things have happened in the stock market. The Dow and S&P 500 have recorded record highs and the precious metals have been pushed to the sidelines along with Hillary.
Why, you ask? Good question because the Trump agenda appears to be extremely inflationary which is a hallmark selling point for metals. The recent price action is based on beliefs. Clues are revealed in Trump's choices for cabinet positions. Sadly, he is picking the same old same old. However, this could be an appeasement for the Republican congress.  As this pans out, there will be doubts about the vein of riches flowing from his administration. The market will pullback a bit. The metals will bounce, and yet, nothing concrete will be known. This is how I see it...
100 Days
The market will give Trump a honeymoon. During that span the market will reveal two quarters of earnings. After the big jump in GDP of 3.2% for the last quarter, I see another drop in the GDP in first quarter. This makes for a range bound market. In addition, the market expects the earnings recession to end. This has nothing to do with the election results. The market will also adjust to the measly quarter point hike by the Fed. We will also see the results with quota numbers from the OPEC meeting. I see no change and the oil glut grows. Black Friday and retail are dying. They will give way to Cyber Monday and internet purchases. For every piece of good news there will be a piece of bad news. This will reinforce the market in a range. Of course, there could always be a surprise like a geo-political event or anti-immigration in Europe or here. There is even a rumor that India will ban gold imports because they are a drain to India's economy. This won't happen because a gold ban would be a culture shock to that society and make Modi, a one-term prime minister. He probably will keep the rhetoric against gold and he could add a tax. This is a negative.
There is always something to worry about, but if anything, it could be the US pension plans in cities and states. By the first of May, yes May Day is the inflection point. It needs to be circled.
All this is conjecture. What price for the metals?
The metals are facing a serious technical challenge. Not only are the fiat people gunning for them, but gold and silver are staring at a "death cross." At present, both show a bearish flag/pennant pattern. The charts reveal this same pattern in individual stocks. This is not good. In addition, the two indexes are conflicted at best. Gold needs to rise to $1218 an ounce and silver needs to rise to $17.14 an ounce. With that said, I do see a near-term bounce.
$XAU
held its support level and no new low was achieved. It needs to get back to 85 to break the downward pressure.
$HUI
the gold bug index hit a new low which is dangerous. It needs to get back to 194 to break this downward pressure.
The direction of the metals and the market will be effected by the Ten-Year Treasury. The recent action in the 30-Year downturn held support before 147 and this is crucial for everything. After digesting all of the above, I see an inflection point and it points to the first of May. I have a name for this:
Emotional Pit Stop
How the new president reacts will determine his administration. If one studies cycles as I do, it won't matter what Trump does because the cards will deal him his hand of fate.

Low Tide For Shippers

"The market is irrational and it can stay that way longer than you can stay solvent" is an old Wall Street proverb.

That wisdom is so relevant under today's market euphoria. The market seems to hit new record highs on a daily basis since the Trump upset election win. This high tide has lifted all boats, but I'm here to warn you that shippers have been caught on a sandy bottom for three years running. Yet, shippers have enjoyed gains of parabolic proportions. Dry Ships(DRYS) is up 1500%. How about Paragon Shipping(PRGN)? It is up 49% in two days. Throw a dart at a shipping company and see profits that will cover all your holiday desires.
No Free Lunch
is another expression and it applies doubly to shippers. Let's take a closer look.
$BDI
is the symbol for the Baltic Dry Shipping Index. It too has jumped off the charts. The day before the election it stood at 800. It now floats at 1257 and rising. Now, in the fourteen or so days after the election, did all shipping companies receive a 50% order increase? By the way, this index hit a low back in February of 290. I can safely say that they didn't have to call-in help to answer the phone orders. Now, I'll answer the question. No. Let me say this again, but even louder. NO!
Shippers face a double whammy. There are too many boats facing declining orders as global trade has slowed. The fifty day moving average for the index is 620 and the 200-day is 925. So, do you want to pay 33% more than the moving average? There is strong resistance at 1480 because the tide has already left the harbor.
What about individual issues, you ask?
How about Dry Ships? This rusting carrier had it stock jump(see above) since the election. It is only paint covering the rust. This company specializes in stock splits or I should say reverse stock splits. Back in October of 2014, it did one and its stock went to $7,500. per share. Then, it went straight down to $3.84 just last month. But paint covers many faults and with another 15 to 1 reverse split, the stock went over $100 last week. If you bought this election hype, get a tin cup fast. You're going to need it as the stock fell to $11.81 on Friday. This carrier is not alone as there are many other examples like Paragon Shipping(PRGN - see above)which climbed to $2.61 a share. There are rumors that the board has already approved a bankruptcy plan. The stock was $45. a share back in July 2015. How about Sino-Global Shipping? It had gains of 553% two weeks ago and another 68% last week. By the way, Sino-Global is one of three members in an Asian trade alliance which lost one member - Hanjin Shipping. It entered bankruptcy back in June.
Consider This:
You ordered something. Hanjin ships it. The court now has jurisdiction. You can't unload. Due to the failure of your order, you go bust. You call a lawyer. He just got back from his vacation cruise. He gets in the court line to file your lien along with thousands of other lawyers for a claim against a company that already couldn't meet its normal obligations and now, faces this.
Marianas Trench
is the deepest part of the Pacific Ocean floor and if you buy into this shipping frenzy, this is how deep your stock could fall. Another pearl of wisdom, "A sucker is born every minute." Caveat emptor!