Interesting thought. Last week on the 19th of October was the 31st anniversary of the Dow's biggest percentage drop in a day. It fell 22%. If this happened today that would equate to 5,700 points. Yowza!
I mention this due to the recent high volatility in the market. As stated in a recent piece, the big boys pulled out the old playbook. They buy when everyone else sells. This steadies the market, but Sebastian is taking a closer look. He does not like what he sees.
In the S&P 500, there are 139 stocks in bear territory. In addition, 66 of these companies are off 50% or more from their highs. Our media rarely provides info on other markets, but we do. The Shanghai index is down 30% for the year. Ouch! The IMF said inflation in Venezuela is one million percent. That is a seven digit ouch!!!!!!!
The Dow would have been down for the week last week if not on Friday when P&G and American Express reported a stellar quarter. The NASDAQ however reflected the mixed market. It fell, again. Technology led the NASDAQ up and now, it is bringing it down. If you look at the chip sector, it is getting messy.
*AMD was $34. Now, it is $24 and heading for $17.
*NVDA was $292. Now, it is $204 and heading to $198.
*LRCX was $209. Now, it is $145 and heading for $119.
IWM is testing its 200-day moving average and the up or down breath on NASDAQ is below 50%.
The charts get more alarming. The banks had good numbers, but the stocks cannot hold price. Net flix had good numbers and it too can't hold price. The charts say that if this trend continues Amazon could fall to $1416. If you bought at the high($2033) I can hear you say #*_* and many more unprintable emotions.
It is not just the stock market that is causing concern. States, especially old Northern stomping grounds are feeling a stress over taxes.
Tax Migration is the problem. There is a lot of news on world migration whether in Europe or the US southern border, but north of the Mason-Dixon line is having a different spin on the problem. Wealthy citizens are moving South, most notably to Florida and Texas because they are tax free states on income and state taxes are lower. California is experiencing this too as their citizens move to Nevada. State budgets and pensions will soon gather headlines.
Speaking of state taxes leads us to the home building industry. Bank of America just downgraded three big construction firms: Toll Brothers, Pulte and Lennar. Zillow reported that California leads the nation in unaffordable housing and affordability in general is the worse since the housing crisis. The ITB, the ETF for home builders is in bear territory. Another firm, D.H. Horton reported disappointing sales with poor guidance.
Home sales declined another 3.4% in September and mortgage rate are at 5% and set to climb again before the year ends. Not good and getting even worse.
Subprime: It's back! Banks are providing capital for buyers who won't need a down payment, and they will receive a low interest rate loan. The test market is South Florida. Sebastian also found this: An internet company is offering a shady service whereby a customer can use. They will provide a phony job, salary and more. They will even answer a phone call to verify the phony report. This is very, very bad.
Tariff War continues as well as our deficits with imports. A new record was set in August at over $50 billion in the negative column. For the year the federal deficit is at $780 billion and racing toward a $trillion. This insanity has got to stop!!! Central banks have increased their "assets" or fake money from less than $1 trillion in 1987 to over $19 trillion today. The New York Fed reported that US consumers have the highest debt on record at $13 trillion. This includes mortgages, credit cards, student loans, car debt, etc. If wages cannot keep up with debt service, citizens are in trouble. If revenues cannot keep up with deficits our dollar is in trouble. Together, this is not good.
Elections are coming...if you vote for any Libertarian consider this: Three large tuna companies all pleaded guilty in price fixing. They kept the price of tuna artificially high. Libertarians say we do not need government regulations. Idiots! How many times have corporations been caught doing practices like this like the OPEC oil cartel like the banks connected to the Libor scandal like the firms who provided equipment to the Tennessee Valley Authority and on and on...
If all this is getting you depressed and hungry, it is diet time. Five chains are shrinking so check before you go to Chipotle, Starbucks, Subway, Noodles or Applebee's. They may have moved or closed the location. Maybe you haven't been getting a good night's sleep. Thinking of buying a new mattress? Don't bother going to Mattress Firm. They just filed for bankruptcy.
On a lighter note: Auto manufacturers have recalls on 70 million vehicles. You can find out if the car that you are driving is on the list and repairs are free. Go to: SaveCar.gov.
Wednesday, October 24, 2018
Wednesday, October 17, 2018
If It Isn't Greed, It's Fear
People are asking, if the economy is strong why did the stock market fall 1300 points in two sessions? The answer is simple: Greed. However, there are other intrinsic aspects that one word does not answer or give the big picture. I will attempt.
First, the market is no longer swayed by individual buyers. The retail customer has little push on listed companies. The number of shares that they buy is in the hundreds whereas when funds buy, it is in the hundreds of millions. In many instances, a customer buys exchange traded funds in his pension, 401K, or other retirement programs and they are run by professional managers. This brings us to the second point.
Secondly, institutions, hedge funds, professional managers are the sources to move the market. In most cases, these agents have billions to invest. They move the market. One other point to this point. With the addition of so many exchange traded funds, the market is effected by trend. When the market moves higher, these managers must buy. Conversely, when the market drops, these managers must sell.
Thirdly, the intangibles. These are the geo-political concerns. The present tariff trade wars. The emerging markets who are under duress due to currency swings, the strong dollar and the outflow of investment money in their economy. There are other factors like hacks, new government regulations and all the tit-for-tat going on between nations in the social media. Recently, we had the situation with Saudi Arabia, Brexit and elections in Germany. There is also an unreported aspect that US manufacturing workers are seeing their company make more money with nothing for them in security in wages in health or their pensions. Strikes by workers is coming! After January the market will be extremely volatile.
Lastly, this point is an effect due to the causes expressed in the third aspect. Use some logic. You are a fund manager. You begin to see in price caused by some of the points that interact with the market. You also understand that high evaluations will have a hard time to climb higher. In addition, earnings estimates are too high as many companies are telling analyst to lower expected earnings. You realize that there are less than 60 trading days left in the year. You look over your portfolio. Apple is up 30% for the year. Can it move higher, you think? Yes, but there are more headwinds like the tariffs like possible regulations and the cyber spy thing. Maybe I should sell and take my profits. If I look around, I see Facebook. It was $218 and now, only $153. In fact, it is down for the year. Why should I risk my bonus on greed?
The point is the call of greed is diminishing as the siren of fear gets louder. The manager sells. Funny thing. It seems the consciousness of the same perspective hit at the same time. After all, it is October.
Friday's bounce...
After two big selling days with fear on the breakfast table, the big boys pulled out the old playbook from no other than J. P. Morgan himself. They buy whenever everyone else is selling. It makes perfect sense. These managers got into the market at the lows. All they are doing is cross adjusting buying. In more times that can be counted this maneuver works. The buying steadies the market. "Buy the dip" mantra is heard. It convinces the herd that small corrections are inevitable, but the market will move higher. The selling ends. The point that Sebastian is trying to stress is this. In the next couple of weeks, study the volume. He believes the correction is just beginning and distribution will verify that feeling. You are going to have to do your homework. He believes that the market will be range bound until the end of the year. At that point in time all of the above will determine which way the market moves. At this point in time he sees high volatility in 2019.
First, the market is no longer swayed by individual buyers. The retail customer has little push on listed companies. The number of shares that they buy is in the hundreds whereas when funds buy, it is in the hundreds of millions. In many instances, a customer buys exchange traded funds in his pension, 401K, or other retirement programs and they are run by professional managers. This brings us to the second point.
Secondly, institutions, hedge funds, professional managers are the sources to move the market. In most cases, these agents have billions to invest. They move the market. One other point to this point. With the addition of so many exchange traded funds, the market is effected by trend. When the market moves higher, these managers must buy. Conversely, when the market drops, these managers must sell.
Thirdly, the intangibles. These are the geo-political concerns. The present tariff trade wars. The emerging markets who are under duress due to currency swings, the strong dollar and the outflow of investment money in their economy. There are other factors like hacks, new government regulations and all the tit-for-tat going on between nations in the social media. Recently, we had the situation with Saudi Arabia, Brexit and elections in Germany. There is also an unreported aspect that US manufacturing workers are seeing their company make more money with nothing for them in security in wages in health or their pensions. Strikes by workers is coming! After January the market will be extremely volatile.
Lastly, this point is an effect due to the causes expressed in the third aspect. Use some logic. You are a fund manager. You begin to see in price caused by some of the points that interact with the market. You also understand that high evaluations will have a hard time to climb higher. In addition, earnings estimates are too high as many companies are telling analyst to lower expected earnings. You realize that there are less than 60 trading days left in the year. You look over your portfolio. Apple is up 30% for the year. Can it move higher, you think? Yes, but there are more headwinds like the tariffs like possible regulations and the cyber spy thing. Maybe I should sell and take my profits. If I look around, I see Facebook. It was $218 and now, only $153. In fact, it is down for the year. Why should I risk my bonus on greed?
The point is the call of greed is diminishing as the siren of fear gets louder. The manager sells. Funny thing. It seems the consciousness of the same perspective hit at the same time. After all, it is October.
Friday's bounce...
After two big selling days with fear on the breakfast table, the big boys pulled out the old playbook from no other than J. P. Morgan himself. They buy whenever everyone else is selling. It makes perfect sense. These managers got into the market at the lows. All they are doing is cross adjusting buying. In more times that can be counted this maneuver works. The buying steadies the market. "Buy the dip" mantra is heard. It convinces the herd that small corrections are inevitable, but the market will move higher. The selling ends. The point that Sebastian is trying to stress is this. In the next couple of weeks, study the volume. He believes the correction is just beginning and distribution will verify that feeling. You are going to have to do your homework. He believes that the market will be range bound until the end of the year. At that point in time all of the above will determine which way the market moves. At this point in time he sees high volatility in 2019.
Wednesday, October 10, 2018
USMCA Deal and Cyber U-2
All the news lately has been very depressing. Whether a hurricane or tsunami somewhere causing death and destruction. Then, there is a terrorist who impales himself and takes innocent lives with his misguided deed. How about the Supreme Court nominee? The litany of negative events has two more.
NAFTA
It is now called the US - Mexico - Canada Agreement or USMCA. The whole tiff was to bring more manufacturing jobs to the US. The only thing that it accomplished on that front was that the pendulum is swinging back which is good. This moment of transition exposes why the US standard of living has declined as well as its middle class. The other reason is the Fed's destruction of the dollar along with excessive military spending.
President Trump will take bows. He should extend his face to the mud. The deal says that Mexico can only produce 2.6 million cars before a tariff is imposed. They were producing 4 million and rising. Canada gets the same 2.6 million as well as the same tariff possibility. If, and that is a BIG WORD, the two countries were to meet those agreements, the resulting 5.2 million cars will still be imported.
There is also a clause about workers receiving $16 an hour after trade limits, however this won't effect Canada as their workers get that much. Mexico can claim that through currency their workers meet that standard of living. Non-factor!
Now, total car sales have eclipsed 17 million for the last two years and is poised to reach that mark again. Those lofty figures will start to come down as the average retail price of a new vehicle is $35,700. This is more than the average cost of a new home in 1970. I put that in the piece to reflect how the Fed has destroyed our dollar's value.
Anyway, if total car sales return to 15 million plus which is where I think that they will find support, the new trade deal ensures that just from Mexico and Canada, that one-third of all sales will be imported from just those two nations. Now, consider normal imports from S. Korea, Japan and Germany make up another 50% of sales, what is left for US built producers? Also, there are other exporters vying to enter the market like China and India? Keep in mind that some importers are building plants in the US. Japan does the most, but Germany adds quite a few jobs too. This is good except these importers are not forced to join the auto union. The protection of jobs is arbitrary. President Trump did a good thing and I hope that he uses his arms to break his fall before his face hits the mud. This deal will be violated on entry permits and as a result no change or support for US workers. The shame should fall on the management of car companies and Congress for not supporting US workers because our standard of living will continue to decline.
There was one little clause in the agreement which could be a blessing. It says that if any of the three start another trade deal with another nation(read China), that nation must tell the other two 30 days before any negotiation and, (this is gold) then, the other two can kick out the third partner or do another agreement.
Now, this little clause will mean so much more with the following story from Bloomberg. This story reveals the arrogance of military leaders both in China and the US.
The US risked war and that means nuclear, with Russia back in the 1950s when they flew high atmosphere jets over Russia until the Russians shot down the U-2 spy planes. The cold war almost turned hot. Thank God for letting those with cooler heads dominate the healing.
Flash forward to today.
China
Their military leaders came up with a James Bond sequel. They put hidden chips in their servers which were ordered by US firms like Apple, Amazon and Google. They camouflaged these chips mixed with fiberglass embedded with the motherboard of the server. These chips had the ability to "block" updates under security prevention. They allowed access by hackers. This is probably how N. Korean and Russian hackers sold money from accounts. It gets worse. The chips could alter encrypted code. Now, the US military also ordered these same servers. Idiots! Imagine, the worse. We are under attack and there is no response because the command was stopped by a chip along a server line. Fortunately, this was discovered, but once is enough!
Under national security, any and all aspects of the internet must be made in America. Cut off China from making anything that can effect the internet. Anyway, this will not only create high paying jobs at home, but ensures the safety of our nation. Now, get this! Apple, has put our safety behind profits. They stated the story is not true. What Same! How does Cook sleep at night? These people risk our safety for profits. Karl Marx was right when he predicted that capitalist will come to the Communist door seeking profits before their homeland. This is Cyber War!
NAFTA
It is now called the US - Mexico - Canada Agreement or USMCA. The whole tiff was to bring more manufacturing jobs to the US. The only thing that it accomplished on that front was that the pendulum is swinging back which is good. This moment of transition exposes why the US standard of living has declined as well as its middle class. The other reason is the Fed's destruction of the dollar along with excessive military spending.
President Trump will take bows. He should extend his face to the mud. The deal says that Mexico can only produce 2.6 million cars before a tariff is imposed. They were producing 4 million and rising. Canada gets the same 2.6 million as well as the same tariff possibility. If, and that is a BIG WORD, the two countries were to meet those agreements, the resulting 5.2 million cars will still be imported.
There is also a clause about workers receiving $16 an hour after trade limits, however this won't effect Canada as their workers get that much. Mexico can claim that through currency their workers meet that standard of living. Non-factor!
Now, total car sales have eclipsed 17 million for the last two years and is poised to reach that mark again. Those lofty figures will start to come down as the average retail price of a new vehicle is $35,700. This is more than the average cost of a new home in 1970. I put that in the piece to reflect how the Fed has destroyed our dollar's value.
Anyway, if total car sales return to 15 million plus which is where I think that they will find support, the new trade deal ensures that just from Mexico and Canada, that one-third of all sales will be imported from just those two nations. Now, consider normal imports from S. Korea, Japan and Germany make up another 50% of sales, what is left for US built producers? Also, there are other exporters vying to enter the market like China and India? Keep in mind that some importers are building plants in the US. Japan does the most, but Germany adds quite a few jobs too. This is good except these importers are not forced to join the auto union. The protection of jobs is arbitrary. President Trump did a good thing and I hope that he uses his arms to break his fall before his face hits the mud. This deal will be violated on entry permits and as a result no change or support for US workers. The shame should fall on the management of car companies and Congress for not supporting US workers because our standard of living will continue to decline.
There was one little clause in the agreement which could be a blessing. It says that if any of the three start another trade deal with another nation(read China), that nation must tell the other two 30 days before any negotiation and, (this is gold) then, the other two can kick out the third partner or do another agreement.
Now, this little clause will mean so much more with the following story from Bloomberg. This story reveals the arrogance of military leaders both in China and the US.
The US risked war and that means nuclear, with Russia back in the 1950s when they flew high atmosphere jets over Russia until the Russians shot down the U-2 spy planes. The cold war almost turned hot. Thank God for letting those with cooler heads dominate the healing.
Flash forward to today.
China
Their military leaders came up with a James Bond sequel. They put hidden chips in their servers which were ordered by US firms like Apple, Amazon and Google. They camouflaged these chips mixed with fiberglass embedded with the motherboard of the server. These chips had the ability to "block" updates under security prevention. They allowed access by hackers. This is probably how N. Korean and Russian hackers sold money from accounts. It gets worse. The chips could alter encrypted code. Now, the US military also ordered these same servers. Idiots! Imagine, the worse. We are under attack and there is no response because the command was stopped by a chip along a server line. Fortunately, this was discovered, but once is enough!
Under national security, any and all aspects of the internet must be made in America. Cut off China from making anything that can effect the internet. Anyway, this will not only create high paying jobs at home, but ensures the safety of our nation. Now, get this! Apple, has put our safety behind profits. They stated the story is not true. What Same! How does Cook sleep at night? These people risk our safety for profits. Karl Marx was right when he predicted that capitalist will come to the Communist door seeking profits before their homeland. This is Cyber War!
Wednesday, October 3, 2018
Guess Who Is Buying & Backing Gold?
We live in crazy times. Rudy Giuliani, President Trump's lawyer claimed, "Truth isn't true!" Now, we have central banks buying gold and even endorsing the precious metal. Can this be true?
Central Banks
These institutions have long despised gold as it stands against their money of choice - fiat. Back in the day, they were the largest seller of gold which depressed gold's rise at the time. Gold rose from under $100 dollars an ounce to over $800 per ounce back in 1980. Flash forward to today. Now, they are the largest purchaser of gold. According to a report by the World Gold Council(WGC) central banks purchased 10% of all gold sales.
Total gold demand is at 1960 metric tons and central banks bought 193 metric tons in the first half of 2018. The majority was by Russia, Turkey and Kazakhstan. Back in 2007, central bankers gold sales amounted to 217 metric tons or 14% of the market. Keep in mind the recent turmoil with the Turkish Lira. The unspoken word in the gold market, will Turkey be a seller of the precious metal to stabilize its currency? Could this aspect continue the depressed price for gold? I say, maybe for the short term, but if the past suggests some knowledge, it is this. In the period of 2003-2007, central bankers dumped 2,600 metric tons on the market and gold kept rising. Today, I believe the cryptocurrencies have hurt gold. Now, since that trade is falling out of favor, I see gold making a run as the calendar turns to 2019. In addition, the global community is beginning to see inflation, serious debt and tired consumers.
Bottom line: Gold will shine as this metal never tarnishes.
2cd. Opinion?
You don't have to take my word, especially since this piece is from the Twilight Zone. I have other banks and banker analyst backing gold.
Bank of America just upgraded its outlook for gold. They cite that the concerns for the US national deficit and adding debt as well as tariff-driven trade wars will push the metal from this consolidation period to over $1350 an ounce. At the moment the strong dollar and good economy have kept gold out of the spotlight, but this won't last.
Guess who mimicked those word? Goldman Sachs. They see the dollar eventually falling and then, gold rising.
The top analyst at JP Morgan, Marko Kolanovic says, some nations are looking to weaken the dollar and the US use of it as the world's reserve currency. These forces along with other backlashes will cause the dollar to fall and gold to rise.
P.S. : There is one other indicator and it is conflicted at the moment. The gold price chart as well as the two indexes, the XAU and the HUI are in a downtrend. However, silver broke out on Friday. Another source for the interest in silver came from the US Mint. It ran out of Silver Eagle Coins for September. Could this, the poor man's gold, be the spark, the turning point for the precious metals? Only time will tell.
Central Banks
These institutions have long despised gold as it stands against their money of choice - fiat. Back in the day, they were the largest seller of gold which depressed gold's rise at the time. Gold rose from under $100 dollars an ounce to over $800 per ounce back in 1980. Flash forward to today. Now, they are the largest purchaser of gold. According to a report by the World Gold Council(WGC) central banks purchased 10% of all gold sales.
Total gold demand is at 1960 metric tons and central banks bought 193 metric tons in the first half of 2018. The majority was by Russia, Turkey and Kazakhstan. Back in 2007, central bankers gold sales amounted to 217 metric tons or 14% of the market. Keep in mind the recent turmoil with the Turkish Lira. The unspoken word in the gold market, will Turkey be a seller of the precious metal to stabilize its currency? Could this aspect continue the depressed price for gold? I say, maybe for the short term, but if the past suggests some knowledge, it is this. In the period of 2003-2007, central bankers dumped 2,600 metric tons on the market and gold kept rising. Today, I believe the cryptocurrencies have hurt gold. Now, since that trade is falling out of favor, I see gold making a run as the calendar turns to 2019. In addition, the global community is beginning to see inflation, serious debt and tired consumers.
Bottom line: Gold will shine as this metal never tarnishes.
2cd. Opinion?
You don't have to take my word, especially since this piece is from the Twilight Zone. I have other banks and banker analyst backing gold.
Bank of America just upgraded its outlook for gold. They cite that the concerns for the US national deficit and adding debt as well as tariff-driven trade wars will push the metal from this consolidation period to over $1350 an ounce. At the moment the strong dollar and good economy have kept gold out of the spotlight, but this won't last.
Guess who mimicked those word? Goldman Sachs. They see the dollar eventually falling and then, gold rising.
The top analyst at JP Morgan, Marko Kolanovic says, some nations are looking to weaken the dollar and the US use of it as the world's reserve currency. These forces along with other backlashes will cause the dollar to fall and gold to rise.
P.S. : There is one other indicator and it is conflicted at the moment. The gold price chart as well as the two indexes, the XAU and the HUI are in a downtrend. However, silver broke out on Friday. Another source for the interest in silver came from the US Mint. It ran out of Silver Eagle Coins for September. Could this, the poor man's gold, be the spark, the turning point for the precious metals? Only time will tell.
Wednesday, September 26, 2018
Rally On, But Watch For...
With the Dow making a new all-time high last week, the market confirmed that this, the longest market rally in history, will continue. The record setting Dow confirmed the original technical concept of the market. It said that the industrials(when we actually made things) and the transports both must hit new highs to continue a trend. The trend is in place. With that said, I must remind you, dear reader, that many high profile business leaders have given their warnings about this market. In last week's piece I mentioned many of them. The following is a summary of issues that could derail this market.
Four Triggers
1) The estimate of future earnings is way too high. Granted the tax stimulus has helped and employment is considered full, however a closer picture reveals internal obstacles. Housing, the most influential aspect to our economy is no longer affordable. Builders cry material costs, lack of urban land and experienced workers with some just citing a workers, period. With looming trade tensions as demonstrated by the current tariff wars, earnings could take a dive, halt or fail to meet projections.
2)The mid-term elections. This point in my view is over-emphasized. Does it really matter if a democrat wins a state? The only agenda on the plate is Trump's call for the wall and a infrastructure bill. The two will pass in one form or another, so what's the big whoop?
3)Inflation. To me this is always present, but the government never counts food, energy and shelter. Those three are needed every day. I have repeated this point so many times that I'm blue in the face. Nevertheless, inflationary costs have appeared in many sectors to the point where the Fed and the government can no longer get away with their lies about a lack of inflation or the phony 2% target. The tariffs will add to this issue.
4)Rising interest rates. The Fed's current discount rate is 2.50%. It will rise a quarter point later today as it is expected by everyone. To me these rates are extremely low and rising rates will not effect the market until they reach 3.50%. We have a ways to go before the Fed reaches that level, if they ever do.
Bottom line: I agree with two of the above aspects. Sebastian reminds me that if someone is packing or is pointing a gun at you, you have every reason to be fearful. However, there are other times or situations that will add to stress. A snake crawls before you. Is it poisonous? You are sitting under a tree and dark clouds form in the sky. Do you move to a new location(lightning)? I think you get my point. There are many other bones of contention that could end this market rally.
Geo-political
Whether it is the Middle East, the South Sea Islands, revolution in Venezuela or elsewhere, any of these outbreaks can cause contagion. All these points are so well known that they are like the children's tale of "Cry Wolf."
Bankruptcy
No one in general knew about Lehman Brothers until it hit the news. We hear about companies like Toys 'R Us and Radio Shack. Remember, those companies received funding. The funded institutions also suffered. One that we do not know about could be failing as I write this piece.
Pensions
This should no longer be a secret. Many states and companies have not funded their obligations to their workers. They are really hoping that the Guarantee Pension, a government agency will take this obligation off their books. This is corruption! I believe this is one big unreported issue.
Banking
The Fed's stress tests says that our banking institutions are in good footing. I disagree. The FDIC has roughly $25 billion and this small amount has to cover over a $trillion. Cannot be done!
Jobs and Employment
This is a strong point in our economy, but many companies are restructuring. They are taking advantage of low interest rates and new technology to increase their bottom line. The problem with this point is an important aspect to the bottom line - workers and wages. Generally, when companies seek restructuring, it means workers will lose. This week Wells Fargo, Under Armour and Starbucks announced cutting jobs with restructuring. These little stones build. They can become an avalanche.
Environment
This point relates to earnings. Insurance companies will be on the hook for massive wildfires out West. Hurricane Florence will cost billions and then, there is this related aspect. The flood waters have caused Carolina's pig farms, the largest in the nation, to mix with water, resulting in pig waste contamination. In addition, the flood waters are breaching Duke's Energy plant. A possible catastrophe could result with the waters mixing with toxic coal ash to poison Carolina's water supply. Pray that this type of negativity never happens. One Chernobyl is enough.
Less Than 200 Days
Brexit is coming and the two sides cannot be more bitter to each other. This is how Europe acts. Study every peace treaty in European history and antagonism is a common tread. One aspect that will surely be effected will be the currencies of the pound and euro. Beware the Ides of March!
Small Potatoes
The S&P 500 is rebalancing. The last time was in 1999. This usually is very smooth, but sometimes extreme volatility results.
Anyway, there are always dangers out there. The rhetoric between nations concerning trade and sanctions is bordering on alarming. My group agrees that the present rally will last until the end of the year and at which point, the issues suggested by this piece will effect this rally for the negative.
Four Triggers
1) The estimate of future earnings is way too high. Granted the tax stimulus has helped and employment is considered full, however a closer picture reveals internal obstacles. Housing, the most influential aspect to our economy is no longer affordable. Builders cry material costs, lack of urban land and experienced workers with some just citing a workers, period. With looming trade tensions as demonstrated by the current tariff wars, earnings could take a dive, halt or fail to meet projections.
2)The mid-term elections. This point in my view is over-emphasized. Does it really matter if a democrat wins a state? The only agenda on the plate is Trump's call for the wall and a infrastructure bill. The two will pass in one form or another, so what's the big whoop?
3)Inflation. To me this is always present, but the government never counts food, energy and shelter. Those three are needed every day. I have repeated this point so many times that I'm blue in the face. Nevertheless, inflationary costs have appeared in many sectors to the point where the Fed and the government can no longer get away with their lies about a lack of inflation or the phony 2% target. The tariffs will add to this issue.
4)Rising interest rates. The Fed's current discount rate is 2.50%. It will rise a quarter point later today as it is expected by everyone. To me these rates are extremely low and rising rates will not effect the market until they reach 3.50%. We have a ways to go before the Fed reaches that level, if they ever do.
Bottom line: I agree with two of the above aspects. Sebastian reminds me that if someone is packing or is pointing a gun at you, you have every reason to be fearful. However, there are other times or situations that will add to stress. A snake crawls before you. Is it poisonous? You are sitting under a tree and dark clouds form in the sky. Do you move to a new location(lightning)? I think you get my point. There are many other bones of contention that could end this market rally.
Geo-political
Whether it is the Middle East, the South Sea Islands, revolution in Venezuela or elsewhere, any of these outbreaks can cause contagion. All these points are so well known that they are like the children's tale of "Cry Wolf."
Bankruptcy
No one in general knew about Lehman Brothers until it hit the news. We hear about companies like Toys 'R Us and Radio Shack. Remember, those companies received funding. The funded institutions also suffered. One that we do not know about could be failing as I write this piece.
Pensions
This should no longer be a secret. Many states and companies have not funded their obligations to their workers. They are really hoping that the Guarantee Pension, a government agency will take this obligation off their books. This is corruption! I believe this is one big unreported issue.
Banking
The Fed's stress tests says that our banking institutions are in good footing. I disagree. The FDIC has roughly $25 billion and this small amount has to cover over a $trillion. Cannot be done!
Jobs and Employment
This is a strong point in our economy, but many companies are restructuring. They are taking advantage of low interest rates and new technology to increase their bottom line. The problem with this point is an important aspect to the bottom line - workers and wages. Generally, when companies seek restructuring, it means workers will lose. This week Wells Fargo, Under Armour and Starbucks announced cutting jobs with restructuring. These little stones build. They can become an avalanche.
Environment
This point relates to earnings. Insurance companies will be on the hook for massive wildfires out West. Hurricane Florence will cost billions and then, there is this related aspect. The flood waters have caused Carolina's pig farms, the largest in the nation, to mix with water, resulting in pig waste contamination. In addition, the flood waters are breaching Duke's Energy plant. A possible catastrophe could result with the waters mixing with toxic coal ash to poison Carolina's water supply. Pray that this type of negativity never happens. One Chernobyl is enough.
Less Than 200 Days
Brexit is coming and the two sides cannot be more bitter to each other. This is how Europe acts. Study every peace treaty in European history and antagonism is a common tread. One aspect that will surely be effected will be the currencies of the pound and euro. Beware the Ides of March!
Small Potatoes
The S&P 500 is rebalancing. The last time was in 1999. This usually is very smooth, but sometimes extreme volatility results.
Anyway, there are always dangers out there. The rhetoric between nations concerning trade and sanctions is bordering on alarming. My group agrees that the present rally will last until the end of the year and at which point, the issues suggested by this piece will effect this rally for the negative.
Wednesday, September 19, 2018
Odds and Ends, Sept. 2018
When you look at the historical odds of the stock market, there are only two consistent months that are considered dangerous to investing. Yes, they come back-to-back and we are in the first one, but the other ten favor investing. In addition, the market makes it easier to buy a stock than to short a company. Nevertheless, life happens and the bears do beat the bulls from time-to-time. With that said this month's piece centers more on the negative or cautious rather than on buying into the longest rally in the history of Wall Street.
Of course, all the news isn't negative in the market. There are many stocks hitting new highs like the trillion dollar club. It has two members in Apple and Amazon. Google would like to join, but the problem for the market is the clutter of obstacles on the horizon. There is the issue of trade deals. President Trump is trying to bring manufacturing back to the US. He sees the continual deficits by trading partners as cheating. Sebastian agrees with this point. His adding tariffs will slow global trade and US stocks. The Fed is raising interest rates. There is the geo-political concerns with N. Korea, Iran and the possible contagious ones like in Venezuela and in the EU. There is the present rotation of stocks within the market. One of the leaders in this rally has been the chip stocks. Dear reader, that is no longer the case. Although some companies like Qualcomm(QCOM) and Advanced Micro(AMD) are still rising, Micron(MU) was $64 and now, $44. It is heading to $37. Broadcom(AVGO) is doing likewise. It was $270 and now, $236. It touched $200. Ouch! The ETF for the chips(SMH) has been range bound since December 2017. Not good. Finally, the most traded, high risers, the FAANG stocks. Let's take a look.
Company Was Now Heading
*Facebook(FB) $218 $162 $149
*Apple(AAPL) $229 $223 still rising
*Amazon(AMZN) $2050 $1970 - still rising, recent stumble
*Netflix(NFLX) $423 $364 $310
*Google(GOOG) $1273 $1172 consolidating.
As the numbers on the chart reveal, the big boys are losing steam. Apple stated that the tariffs will effect their bottom line. This aspect could end its rising ability. The S&P had tech make up 26% of their index. They notice the trend and now, they have reconfigured tech down to 20%.
Then, there is the warnings from people and institutions that have a name. I use that expression because literary agents told me and Sabastian that we have some interesting ideas, but we don't have a name to which is the numero uno reason why my book has not been published. Anyway, you can read what they are saying. In many instances you will feel that you read the same comments before. You have. Right here!
Pimco: is raising a "yellow flag" due to rising prices.
JP Morgan: sees Tesla down to $195. It was $390. I said $249. Does it matter? This is lost sleep and financial pain. They see a recession beginning in 2020. Market will be down 20%, maybe more. They point to liquidity as the cause.
Jeff Gundlach: says you cannot have deficit-funded stimulus while at the same time, a hawkish monetary policy.
Gary Shilling: his warnings from 2004-2006 on housing was the inspiration for the book and movie, "Big Short." Excess leverage will always bring down a financial institution. Now, he says, there is $249B in debt in the emerging markets due next year. If it can't be rolled over, CONTAGION!
Jim Stack: said in 2005, there is a trillion dollar bubble in housing. Now, he says, housing related stocks went up parabolic. They will fall just as hard in the next 12 months. Not good for housing.
Raghuram Rajan: said in 2005 when he was an economist for the IMF at the Jackson Hole conference of central bankers, the banking industry is in danger with risk and possible systemic collapse. Now, he says, there is a danger with the rise of shadow banking that is unregulated. They have excessive leverage.
John Mauldin: foresaw a pullback in housing and consumer spending which will hurt equities in 2006. He claimed that they could fall 40%. This guy is spot on! Now, he says, there is danger in unfunded liabilities as excess debt makes everything rising unsustainable. He sees Europe starting the problem, maybe from Italy. Members will want to put all debt into ECB. This problem could cause a 50% collapse in prices.
Speaking of Europe, Hungry faces losing its membership voting rights in the EU due to its immigration policy. They stopped it. This is another angry member to which there is many.
The chairwoman of the IMF revised her global outlook, downward due to trade tensions.
And just yesterday three prominent business leaders, Roubini, Tepper and Dalio all turned bearish.
Maybe one reason is this tidbit about the US national deficit. Every month it cost the US, $32Billion just to pay interest on its debt. Imagine how this rises with the Fed raises interest rates?
Best wishes to go out to all under duress from Hurricane Florence. FEMA says that just one inch of water in someone's house cost $25,000 in damage to repair. That is scary...
Finally, this one goes under Wild and Crazy
Tilray(TLRY) a cannabis style company that had an IPO earlier this year at $17 per share is over $154 today. It has little revenue, roughly $34 million. Well, it has a market cap greater than the largest gold mining company, Barrick Gold(ABX) which has revenues of $7.6 billion. The market is indeed irrational and this one has trouble written all over it. Don't get me wrong. Under disclosure, I have shares of Aurora Cannabis. Good for those who have TLRY, but I'd take my windfall, now!
I like to add one point to the phony high ground coming out of Europe toward the US for not signing their climate accord. A German energy company, RWE, is destroying the last ancient forest in the country(Hamback Forest) to extract, COAL! Their phony high court gave them the go ahead to remove people from the forest who are tree and nature lovers, so the bull dozers can rip out the forest. At least, in the US we keep coal in regions and try to maintain our green environment at the same time. Also, if Germany needs some coal, we can sell them all they want, but I bet that they have restrictions against to many imports. An invisible tariff!
Of course, all the news isn't negative in the market. There are many stocks hitting new highs like the trillion dollar club. It has two members in Apple and Amazon. Google would like to join, but the problem for the market is the clutter of obstacles on the horizon. There is the issue of trade deals. President Trump is trying to bring manufacturing back to the US. He sees the continual deficits by trading partners as cheating. Sebastian agrees with this point. His adding tariffs will slow global trade and US stocks. The Fed is raising interest rates. There is the geo-political concerns with N. Korea, Iran and the possible contagious ones like in Venezuela and in the EU. There is the present rotation of stocks within the market. One of the leaders in this rally has been the chip stocks. Dear reader, that is no longer the case. Although some companies like Qualcomm(QCOM) and Advanced Micro(AMD) are still rising, Micron(MU) was $64 and now, $44. It is heading to $37. Broadcom(AVGO) is doing likewise. It was $270 and now, $236. It touched $200. Ouch! The ETF for the chips(SMH) has been range bound since December 2017. Not good. Finally, the most traded, high risers, the FAANG stocks. Let's take a look.
Company Was Now Heading
*Facebook(FB) $218 $162 $149
*Apple(AAPL) $229 $223 still rising
*Amazon(AMZN) $2050 $1970 - still rising, recent stumble
*Netflix(NFLX) $423 $364 $310
*Google(GOOG) $1273 $1172 consolidating.
As the numbers on the chart reveal, the big boys are losing steam. Apple stated that the tariffs will effect their bottom line. This aspect could end its rising ability. The S&P had tech make up 26% of their index. They notice the trend and now, they have reconfigured tech down to 20%.
Then, there is the warnings from people and institutions that have a name. I use that expression because literary agents told me and Sabastian that we have some interesting ideas, but we don't have a name to which is the numero uno reason why my book has not been published. Anyway, you can read what they are saying. In many instances you will feel that you read the same comments before. You have. Right here!
Pimco: is raising a "yellow flag" due to rising prices.
JP Morgan: sees Tesla down to $195. It was $390. I said $249. Does it matter? This is lost sleep and financial pain. They see a recession beginning in 2020. Market will be down 20%, maybe more. They point to liquidity as the cause.
Jeff Gundlach: says you cannot have deficit-funded stimulus while at the same time, a hawkish monetary policy.
Gary Shilling: his warnings from 2004-2006 on housing was the inspiration for the book and movie, "Big Short." Excess leverage will always bring down a financial institution. Now, he says, there is $249B in debt in the emerging markets due next year. If it can't be rolled over, CONTAGION!
Jim Stack: said in 2005, there is a trillion dollar bubble in housing. Now, he says, housing related stocks went up parabolic. They will fall just as hard in the next 12 months. Not good for housing.
Raghuram Rajan: said in 2005 when he was an economist for the IMF at the Jackson Hole conference of central bankers, the banking industry is in danger with risk and possible systemic collapse. Now, he says, there is a danger with the rise of shadow banking that is unregulated. They have excessive leverage.
John Mauldin: foresaw a pullback in housing and consumer spending which will hurt equities in 2006. He claimed that they could fall 40%. This guy is spot on! Now, he says, there is danger in unfunded liabilities as excess debt makes everything rising unsustainable. He sees Europe starting the problem, maybe from Italy. Members will want to put all debt into ECB. This problem could cause a 50% collapse in prices.
Speaking of Europe, Hungry faces losing its membership voting rights in the EU due to its immigration policy. They stopped it. This is another angry member to which there is many.
The chairwoman of the IMF revised her global outlook, downward due to trade tensions.
And just yesterday three prominent business leaders, Roubini, Tepper and Dalio all turned bearish.
Maybe one reason is this tidbit about the US national deficit. Every month it cost the US, $32Billion just to pay interest on its debt. Imagine how this rises with the Fed raises interest rates?
Best wishes to go out to all under duress from Hurricane Florence. FEMA says that just one inch of water in someone's house cost $25,000 in damage to repair. That is scary...
Finally, this one goes under Wild and Crazy
Tilray(TLRY) a cannabis style company that had an IPO earlier this year at $17 per share is over $154 today. It has little revenue, roughly $34 million. Well, it has a market cap greater than the largest gold mining company, Barrick Gold(ABX) which has revenues of $7.6 billion. The market is indeed irrational and this one has trouble written all over it. Don't get me wrong. Under disclosure, I have shares of Aurora Cannabis. Good for those who have TLRY, but I'd take my windfall, now!
I like to add one point to the phony high ground coming out of Europe toward the US for not signing their climate accord. A German energy company, RWE, is destroying the last ancient forest in the country(Hamback Forest) to extract, COAL! Their phony high court gave them the go ahead to remove people from the forest who are tree and nature lovers, so the bull dozers can rip out the forest. At least, in the US we keep coal in regions and try to maintain our green environment at the same time. Also, if Germany needs some coal, we can sell them all they want, but I bet that they have restrictions against to many imports. An invisible tariff!
Wednesday, September 12, 2018
Housing: Crisis to Present - Troubling Signs
What if I told you that there are still 54 US cities with homes that are still underwater even after the media claims housing has recovered? Who would you believe? This report comes from an agency tied to the census bureau. They collected national data from the 50 states of our union. I will list just twelve. You can call them the disciples of danger. Behind the stats is proof that our declining standard of living is effecting a national level. People have jobs, but the wages cannot keep up with inflation. State taxes rise. Medical is up in the stratosphere. The big three, food, energy and shelter are not in the matrix that the Federal Reserve uses. Consumers have excess debt that prevent them from saving for a down payment to a home. Consider, even though homes have appreciated over the last ten years, there are many locations that are stuck in limbo because as a nation we are losing social mobility. If people cannot advance, then it is a slow decay. This is evident across the nation as revealed in this list. When you view the list, keep in mind that one in five homes in those cities is still under water. In some localities it is worse.
The list will show the city, state and the percentage as to the city as a whole. It is very scary.
*Columbus, Ohio= 20%
*Milwaukee, Wisconsin= 24%
*Detroit, Michigan= 36%
*Toledo, Ohio= 22%
*Birmingham, Alabama= 20%
*Cleveland, Ohio= 31%
*Baltimore, Maryland= 22%
*Jacksonville, Florida= 39%
*Hartford, Connecticut= 43%
*Chicago, Illinois= 22%
*Newark, New Jersey= 29%
*Norfolk, Virginia= 21%
There are over another twenty in double digits, but I think that you get the drift. The danger is broad in scope.
In addition, builders have almost totally vacated the entry level, starter home. In past pieces I have shown you that with the media income of $38,000 per year, consumers cannot meet the lending standards to obtain a mortgage. The prices of homes exceed our ability to purchase them. In addition, consumers accumulated debt which also becomes an obstacle to qualify for a home loan. This is the reason why builders do not build starter homes. Also, in the earnings report by construction firms, they all mentioned rising costs, labor shortage and scarcity of land in cities or their suburbs. Then, we have the recent stats from government reports. It is revealing a dangerous, negative trend.
Pending home sales have declined from their already low levels for the seventh straight month. Home sales have declined for four of the last five months. Keep this in mind as the Fed raises interest rates which will add to the problem and to the trend.
If you think Trump is wrong on tariffs, you are sadly mistaken. He does not go far enough! No political, so-called leader in our nation dares to address this issue that effects our wages, our future and our standard of living more than those high paying manufacturing jobs. These are the type of jobs that offers social mobility. You can move to the Eastside! This is the core reason why foreign nationals address these industries with their state sponsored subsidies. The only person who I can recall who dared defy the status quo was Lee Iacocca. He would have made a great president, but prejudice and the powers-to-be put an end to that before it got off the ground. However, I must include this great piece back in time when Lee stood up for what is right.
Picture a fifth grade class. Today, a new student transfers to the school. The teacher introduces the little girl to the class. She sits in the front seat. Class, I would like you to meet a new student to our class. Her name is Toki Yashima and she is from Japan. I hear that she speaks perfect English, so do not be afraid to talk to her in recess.
Now, let us review what we have been studying for the past two weeks in American history. Who can tell me who said, "Give me liberty or give me death?" The class is silent. The teacher implores someone to answer. No one raises their hand. Finally, little Toki raises her hand. The teacher points to her. She rises and say, "Patrick Henry, 1775." The teacher gives a short clap and acknowledges that she is correct. She moves to another question. Who said, :I regret that I only have one life to give for my country?" Again, no one answers. The teacher says, "C'mon! We have been over this countless times. Anyone?" After another silent pause, Toki raises her hand. Reluctantly, the teacher points to her. Again, she rises, says, "Nathan Hale, 1776." The teacher says, "Thank you, Toki. Class, you should be very ashamed of yourselves. This little girl comes all the way from Japan and she knows more about our history than you." She turns to the blackboard. A voice in the back yells, "The hell with the Japanese!" The teacher turns, asks, :Who said that?" She runs up the aisle where the voice came. She studies the kids faces when another voice from the opposite of the room says, Lee Iacocca, 1982."
I love that.
The list will show the city, state and the percentage as to the city as a whole. It is very scary.
*Columbus, Ohio= 20%
*Milwaukee, Wisconsin= 24%
*Detroit, Michigan= 36%
*Toledo, Ohio= 22%
*Birmingham, Alabama= 20%
*Cleveland, Ohio= 31%
*Baltimore, Maryland= 22%
*Jacksonville, Florida= 39%
*Hartford, Connecticut= 43%
*Chicago, Illinois= 22%
*Newark, New Jersey= 29%
*Norfolk, Virginia= 21%
There are over another twenty in double digits, but I think that you get the drift. The danger is broad in scope.
In addition, builders have almost totally vacated the entry level, starter home. In past pieces I have shown you that with the media income of $38,000 per year, consumers cannot meet the lending standards to obtain a mortgage. The prices of homes exceed our ability to purchase them. In addition, consumers accumulated debt which also becomes an obstacle to qualify for a home loan. This is the reason why builders do not build starter homes. Also, in the earnings report by construction firms, they all mentioned rising costs, labor shortage and scarcity of land in cities or their suburbs. Then, we have the recent stats from government reports. It is revealing a dangerous, negative trend.
Pending home sales have declined from their already low levels for the seventh straight month. Home sales have declined for four of the last five months. Keep this in mind as the Fed raises interest rates which will add to the problem and to the trend.
If you think Trump is wrong on tariffs, you are sadly mistaken. He does not go far enough! No political, so-called leader in our nation dares to address this issue that effects our wages, our future and our standard of living more than those high paying manufacturing jobs. These are the type of jobs that offers social mobility. You can move to the Eastside! This is the core reason why foreign nationals address these industries with their state sponsored subsidies. The only person who I can recall who dared defy the status quo was Lee Iacocca. He would have made a great president, but prejudice and the powers-to-be put an end to that before it got off the ground. However, I must include this great piece back in time when Lee stood up for what is right.
Picture a fifth grade class. Today, a new student transfers to the school. The teacher introduces the little girl to the class. She sits in the front seat. Class, I would like you to meet a new student to our class. Her name is Toki Yashima and she is from Japan. I hear that she speaks perfect English, so do not be afraid to talk to her in recess.
Now, let us review what we have been studying for the past two weeks in American history. Who can tell me who said, "Give me liberty or give me death?" The class is silent. The teacher implores someone to answer. No one raises their hand. Finally, little Toki raises her hand. The teacher points to her. She rises and say, "Patrick Henry, 1775." The teacher gives a short clap and acknowledges that she is correct. She moves to another question. Who said, :I regret that I only have one life to give for my country?" Again, no one answers. The teacher says, "C'mon! We have been over this countless times. Anyone?" After another silent pause, Toki raises her hand. Reluctantly, the teacher points to her. Again, she rises, says, "Nathan Hale, 1776." The teacher says, "Thank you, Toki. Class, you should be very ashamed of yourselves. This little girl comes all the way from Japan and she knows more about our history than you." She turns to the blackboard. A voice in the back yells, "The hell with the Japanese!" The teacher turns, asks, :Who said that?" She runs up the aisle where the voice came. She studies the kids faces when another voice from the opposite of the room says, Lee Iacocca, 1982."
I love that.
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