Homework and Prediction

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

- Ringo Starr - Beatles

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

OIL

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

GOLD

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

COPPER

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

Black Friday Selloff

 It means everything. It means nothing. I hate that type of explanation. Here, at Evolution, we won't do that. With that said, we think it is important to dig into two aspects. By doing that, when you finish reading this piece, you can draw a better conclusion with your own thinking.

Perception and Psychology

Perception: Your first thought might be centered on the new virus variant. We all know what lockdowns do to an economy. We also know labor has justified fears that contribute to supply shortages. Together, any new medical danger could spell a repeat of 2020. There is one other factor. The market melt-up has evaluations off the chart. The market could fall a long way, but it still could be in an uptrend. Contradictory as those sounds, it is true when you look at the charts. I will give you another example. It is the most important item that we all need every day. Of course, the Fed discounts it. What are you talking about, you might ask? 

Oil. The commodity took a huge hit with a $10 dollar decline on Friday. There could be two reasons behind the fall. One, President Biden, in coordination with other nations, have decided to use their reserve stash of oil to lower prices. Then, you add the thought of another lockdown and you get carnage. If you look at the (USO) Oil Fund, even with the huge decline, oil is still in an uptrend. It gets more positive for oil when you consider a report by JP Morgan. The investment firm used historical values and added inflation to those past prices. Their conclusion: oil should sell for $78 a-barrel. It is underpriced. We, at Evolution point out one opposing aspect. Every time oil spikes, a recession follows. So, even if JP Morgan is correct, the outlook for the economy does not.

Then, like we mentioned in last week's piece, seasonality. The big money will attempt another push. They may succeed in closing the gap from Friday's fall. It will take a lot of energy to accomplish, but the trend is on their side. Consider the transports. In early November, the index rose 1,000 points in one day. Crazy as those sounds, it actually touched 1,250 points higher on the same day before closing up. However, our call for a correction is looking better and better come January. This takes us to the second point.

Psychology. The market melt-up gathered many new retailers. Many decided to grab their profits on Friday. The real winner of this Black Friday event is the federal government. Taxes will have to be paid on the capital gains. Big money has a way around the government. They have options to balance their buys. By selling, they actually increased the value of their put options. When they make enough on the decline, they will be the ones pushing the market back up. The retailers could be sucked into a bear market trap. One way to view this coming price action is to look at the volume. We believe this is the market tell. You might want to second guess this strategy if one looked at the volume on Black Friday. You might ponder? It was a normal volume day, but do not overlook two points. One, the market only had a half day. Secondly, the day after Thanksgiving is a slow day as many big players take the day off. Now, if you realize these points and you look at the volume on Friday, it was large, very large.

The volume aspect tells you many things. One, within the thinking of many investors, they have doubts about the causes for the price increases. Some market players will call these people weak hands. Dear Reader, there are too many to be classified as day traders and not investors. The Schill's control the media. Avoid the noise. Then, there is the daunting danger in continuing inflation. We believe it is here and it will be with us for a period of time. The real danger with inflation is labor. If there are calls for pay increases, this could set off a spiral of labor unrest like in the 70s. If teachers want more, so do the janitors. If you want better trained police or social workers to assist, well taxes will rise to pay for it. Then, you need more money to make your ends meet. Can you see how this gets dangerous? Then, we have to add the lying, manipulating Federal Reserve to the equation. They have been shown to be behind the curve with inflation, but they are between a rock and a hard place. If they raise rates just one point, a ridiculous 1%, the market will crater. The debt on the federal balance sheet will explode after exploding with all the stimulus. This is scary stuff. If you are planning to purchase something special for Christmas, it better be gold. I can't wait to see how the fiat people attack gold with the other danger in cryptocurrency looming. In any event, warm those Thanksgiving leftovers and have a good week. Peace. 

Odds and Ends: November 2021

We are one month away from a new year. This means that the nation is in the holiday season. This translates to positive things for the market. Seasonality... As you know, we, at Evolution have been calling for a correction. It has no chance of happening until January at the minimum. The worst that the market will do is go sideways until the door to 2022 opens. We enter the upswing of "gobble, gobble" and then, the "Santa" rally. Most probably, the market will hit new records despite the problems of inflation, labor and shortages. You can begin to see this point in the record highs for Apple, Amazon and Microsoft.

One way...

CEOs are boosting their company's stock is by announcing their firm is joining the "electric" mode. The meme saw a quick market surge for Avis and Hertz who say that they will buy electric cars to use for rentals. You will see similar action by copper firms and battery enterprises. 

Hypocrisy...

shows itself in the passing of Build Back Better Bill. Yes, we need to fix bridges and roads, but where is the mention that the steel, cement, copper, etc. will be only bought from American firms? No one mentions it because they did not include this most important aspect of the stimulus. It shows the lack of creditability in both the Democrats and Republicans. This is another proof why we need a new third political party that puts the nation and its citizens first. You want more? How about SALT? This is the state and federal tax deduction for real estate taxes and interest. This is a tax loophole. By raising it higher, you only add fuel for higher home prices. So, what happened? They raised it so that rich people can keep their write-offs by buying overpriced homes and hurting everyone. This is terrible! Not only did the political parties' close loopholes, they expanded them. Hypocrisy!

This is not hypocrisy...

but it is definitely ironic. Dollar Tree which became a powerful retailer by offering items one dollar or less, now say they will not be offering any products for one dollar due to inflation. So, will there be a name change? How about $10 Store?

Big Concern...

over the intended allocation of money and medical assistance for African nations to get vaccinated against the CORVID-19 virus. History has shown that the leaders of these nations will pocket the money and even resell the medicine to other nations. They could care less about their citizens. They will deprive their people of the good intentions and put the money in their pocket. I would like to see some oversight in the distribution of the aid. By the way, many are calling for the release of the prescription code for the virus. As I hate to see this as a medical exploitation of the needy by rich pharmaceutical concerns, I will back Pfizer. They did not accept government money to solve the virus. They used their own resources. They deserve their patent.  

Speaking of which...

drug prices rose 3x higher than normal during the period of 1984-2000. Of course, the Fed never made mention of this inflationary aspect. While we are on the topic of rising prices, it is possible to see another push higher for oil. The charts say it could hit $92-a barrel. Everyone can see the effect of the oil price when they visit the gas station. How about food? The DB Agricultural Fund (DBA) has been in consolidation for the past 7-months after a big runup. It now appears, again by the charts, to be ready for another leg up. Of course, we expect the Fed to remain silent about this aspect. After all, they do not include food and energy in their phony matrix, inflation formula. You don't need a long-term weather report. We have it for you. It will be cold in January.

Speaking of which - part 11.

CVS is closing 900 stores. Not only does this show poor leadership decisions, but what does this do to the phony BLS labor report? The government says unemployment is 4.6%. I think it is twice that, but 900 stores times all the employees of each store does not bode well for the labor picture. CVS says it will develop a new chain for healthcare called, "Care Centrix." The labor picture gets uglier with Sweetgreen. This salad chain will "employ" robots to serve its customers.

 Put all this together and let it simmer in the pot. The heat will warm the house. Greet each other with a smile. Don't let the worries of the world cloud you. Give the season greeting.. Peace

Another Looming Disaster

 By now, we all know inflation is out there. One of the chief reasons is supply. The law of supply and demand is in full play. We also know that the chief reason for shortages is due to the pandemic. It is easy to put two-and-two together to understand this picture. What no one has put together is how this major problem has added another nail in the coffin to small business.

Hammer Comes Out...

in the early days of the internet. Congress realized that commercial enterprises like Amazon had an advantage over retail because there was no internet sales tax. This gave online purchasers a 6% to 7% pricing gap. The first to feel the pain were the large anchors in malls. Bigger purchases like refrigerator's, air conditioner's and other appliances were cheaper on the internet. They were delivered to your door at no extra charge. In most cases, a local installer came with the product.

Moving along, as sales fell to the large stores within the mall, the other smaller shops saw less foot traffic. One by one, they boarded up and left. This was and is the first visual decline in our way of life. Congress has still not acted to equalize the tax gap for brick and mortar to online. However, many states saw this as revenue. They have enacted to tax online sales. Nevertheless, the hammer came out and the first nail was lined up on the coffin for small business.

Fast Forward

Here we are in the last quarter of 2021. The nation has seen many new problems grow out of the pandemic. Many businesses, both large and small lost labor. The fear of COVID-19 is the root cause. The ramifications of lost labor is less product. The media can photograph the LA harbor. You see the ships idling in the water. You realize there is a problem. At present, the number of cargo boats is 80. It now takes an average of 17-days to unload a vessel. However, that does not mean that product is on its way to a warehouse, company or store. It just sits on decking. It waits for a driver to transport it. This is where the labor shortage comes into play. How long the container sits on the dock of the bay, only Otis Redding knows. 

What we do know...

is that 4.4 million workers have quit their job in September. Of course, they are still seeking work. Maybe there is an undisclosed exodus to LA for harbor work? We do know that they are sick and tired of low-paying retail work that offers no benefits or future. This has been going on even before the pandemic. We, at Evolution have mentioned this aspect in past pieces. It is one major reason why we see a correction in the market and economy. With that said, the hammer wants another nail to bang.

Bad Signs

We checked the data from the American Banking Institute. It shows bankruptcy filings for retail. We all know 2020 was a bad year. The filings increase for the top worse five states were:                                    1) Alaska, (2) District of Columbia -not a state, (3) S. Dakota, (4) Montana and (5) N. Carolina.               Now, we look at the top five worse or highest ratio for bankruptcies for 2021.                                          1) Nevada, (2) Florida, (3) Indiana, (4) N. Dakota and (5) California. There is one so bad, I will give it its own sentence. The state of Delaware has the highest ratio at 32.97% of all retail is in bankruptcy.

Inflation...

is the cause for more nails. The Trump stimulus plan offered money to businesses, both small and large. We do know that the money had problems getting into the needy hands. However, it kept things above water. It is the reason why small firms are still operable. The hammer stopped. It had no more nails due to supply shortages. Now, the harbor problem, the trucking problem and the labor problem are adding costs. A 40-foot cargo container runs $10K to ship from Shanghai to LA. Special need containers can run as high as $18K. This is for just 40-feet of product. We mentioned the unloading and reloading problem. Now, consider the shipper. Does he risk the ire of Walmart and Amazon or the small shop on Main Street? These small shops have no product for their best time of the year - Christmas. They survived with the last stimulus. Now, they face higher prices and stiff competition. If they somehow survive, the long-term has another problem. Their repeat, faithful shoppers could desert. When they come, they cannot find what they are looking for. They end up at the big retailers or online sites. Small business could be bleeding to death by a thousand cuts. Forget the hammer! The coffin is being lined by a nail gun.  A sad time, indeed.    Peace.

The Question of Change

 - "Panta Rhei" or everything flows. What it meant is that change is constant.

- Heraclitus

We know that the ancient Greek is correct. We should know by now, that the Federal Reserve is a phony institution created by the wealthy for the wealthy. Last week the US and UK banking groups met to "discuss" their respective economies and possible interest rate change. They did nothing. For those of you who do not have score cards, the US under the Federal Reserve has had zero "effect" interest rates since 2003. In all that time with all the BS from political pundits and candidates about what they can do for the economy and periods of rapid growth, the Fed has not changed their position on interest rates. In fact, they found more ways to add stimulus by purchasing assets or QE among other tricks of their manipulating ways.

Biggest News...

this year has been inflation, supply bottlenecks and labor. We can address the last two through the pandemic. If you recall in March 2020, the effects and fear of COVID-19 caused over 10 million to lose their jobs under government lockdowns. Then, it dawned on President Trump that the effects of a downward economy would hurt his reelection. He gave out one lie after another. He sought to buy time and confidence that under his command, the economy would return to full strength. 

Stimulus

The two political parties feared the next election. They feigned compassion by offering free money to all. President Trump signed moratoriums on evictions for renters and mortgage holders. Their gestors were appreciated. Money was invested for a virus cure. Hope returned. This is why we had a close election. Many were fed-up with Trump, but others offered to give him another chance.

Last November...

the country chose Biden. Medicine was developed to fight the virus. The country as well as the global community saw positive signs in fighting the disease. All economies began to return to normal. However, there were still doubts and fears. We saw outbreaks in large gatherings like in closed environments of planes and stadiums. The idea of the mask finally gained acceptance. I still wear mine. Slowly, fears of shortages like in toilet paper began to subside. However, we also began to see price increases. It showed itself in gasoline (energy). At the grocery store it appeared in a slow process. First, there was no product like tuna, rice and toilet paper and then, there they were except they all cost more.

Do you see the transition? Workers are returning and supply problems were slowly being addressed to which leads us to the present and last item - inflation. No political politician will willingly bring up a hot issue like unions, race or inflation. They play, "Out of the press (sight), out of mind." However, enough grumbling causes the topic to find press (sight) and dialogue (mind). 

Now, knowing human greed and logic, it is easy to understand why some companies and nation's pushed their economy to produce. They sought market share. However, the problem of logistics came into play. You make your product. You get it ready for transport. Then, you find that truckers need more money due to the cost of energy, regulations and labor. It is not only ground but air and shipping. Then, the connection of one transport to a warehouse or port finds the same economic problems. This is the current state of product to the shelf. The whole system also had another problem. The concept of just in time delivery to keep inventory costs down adds to the problem. No one has inventory. News leaked about a shortage of chips, medical supplies and items that were needed for repairs. Enter the Fed.

Powell Speaks...

about inflation for the first time last March (2021). He says, "It is transitory." It will clear itself up within a few months. We move to the end of the next quarter or the end of June. Inflationary numbers get worse. Powell gets "Yelling" Yellen and others to support his call. Then, Powell adjusts his timeline toward the end of the year. He comes out last week after the no change in rate meeting to say, "Inflation will probably continue into the second or third quarter of 2022." 

Heraclitus would ask...

Haven't you had enough of this lying buffoon? The Federal Reserve's policies are leading to negative rates. This means money is worthless. The institution has destroyed the American standard of living. It is bankrupting the nation. The whole agency is in violation of the constitution and beliefs by the founding fathers on our currency. We need a change. We need to End the Fed!  Peace.

The Elevator is Going...

DOWN!

There are as many expressions on Wall St. as there are shares to trade. One of the most famous should have you second guessing yourself as to why do I even want to risk my hard earned money at the casino.

It goes like this, "The market's purpose is to take the most amount of money from the most amount of people in the shortest amount of time." That is the reason why bonds is the choice for the conservative investor. However, the Federal Reserve has taken that choice off the table. It is one of the many reasons why we at Evolution say, "End the Fed!"

Anyway, I am not about to give you a litany of meme's on the stock market. I will attempt to explain what we have noticed, particularly on last Wednesday. The market surged to a new record. There is also underlining thoughts on the market. One of them says, if the market hits a new high, it could go higher. We do not disagree with this adage. The same thought holds true on the downside.

Back to the market: On the subsequent days, the market did follow through as well as NASDAQ. Even the transports kept their high price. So, why all the pessimism, you ask? Last Wednesday, the market surged. However, it was just the powerful techs that caused the climb. Amazon, Microsoft, Google and Apple pushed the S&P 500 to record levels. Big money still has control of the market. Their power could prove our call wrong. This will change when they sense fear. However, as we see it, as we looked closer, the market's advance decline was scary. There were only 31 of the 500 firms in positive territory. That equates to 469 firms declining. This shows the market lacks conviction. The volume of shares are falling off the cliff as the market moves upward. That is another tell.

Put it this way. You have a store and you have a sale. It is crowded with customers. You are happy and realize that you could sell at even a higher price. You raise your prices. People are still coming to your shop, but less and less each week. Then, one day, you look around and no one is in your store. This is the present state of the market.

Last Friday

We saw earnings from Amazon and Apple, the two leading engines of the market. I thought the numbers were good, but the market had even greater expectations. Both stocks fell. So, who will carry the baton for the market? This leads back to expressions. One must realize that no words on variable actions can be a tautology, but there are grains of truth. From a chart view, the market climbs like a staircase or the "wall of worry." It declines like an express elevator going down. 

One last thought. I would feel terrible about giving advice and it turns out wrong. So, do the prudent thing. Put in a stop on your shares. If the market continues to climb, no harm no foul. It it falls, you get out with little or no damage. These are words for the wise. Peace.

 

Odds and Ends: October 2021

The Dow hit a new record last week which means it could go higher. However, we, at Evolution are sticking with our call for a correction. In an earlier piece, we mentioned three views on the market. Kiyosaki sees a crash. Steve Sjuggerud sees a melt-up and "Doc" Eifrig is neutral. 

We begin with the ongoing problem with inflation and the LA harbor. At the beginning of the month there were 60 vessels circling the waters, waiting to be serviced. President Biden pushed to allow the port to remain open 24/7. Today, there are over 100 vessels with cargo waiting for transport. This should tell you what it tells me - lack of supply will keep prices high and even Biden says inflation will stick until the end of the year. Meanwhile, the Fed Chairman, Powell continues his lie that inflation is transitory. Maybe he is right? The transition will happen when prices are so high, no one buys?   

Evergrande Saga...

It got a reprieve last week when the real estate developer made a $83 million payment that was due a month earlier. They are not out of the frying pan. They have a few more notes with coupon payments due by the end of the year. The total due is $385.5 million. However, as Evergrande took the headlines, another developer defaulted. Fantasia Holding Group defaulted. They could start a contagion problem that is under the radar. And no sooner than that thought emerges, another Chinese developer defaulted. Modern Land joins to "Default Club." By the way, Evergrande says it will devote its money and energy into its electric car company. The automaker has no model, no design and no revenue. 

Speaking of no revenue,

Digital World Acquisition (DWAC) closed at $94.20 last Friday. They have no income and no details as to when they will make money. Shares were offered as units for $10 a piece. You are paying excess on a hope and dream. These are the type of things which indicate the market needs to cleanse itself and why we see a correction.

Biden's Bill...

is still a work in progress. At Evolution, we backed the electric car provision that helps union workers, however the question on how to pay for the infrastructure bill is unknown. Biden did reveal that 55 major US corporations paid no taxes in 2020. What we would like to see is how many rich people paid little or no taxes. We need to close tax loopholes and raise taxes on the wealthy. Another report showed that the wealthy avoided paying $163 billion in taxes with loopholes. Bottom line: We cannot continue  reckless deficit spending. Programs must be paid as they go and the rich are not contributing their share.

Earning season...

is off to a good start as reflected in the Dow. This is not real. It is based on earnings and sales in 2020. With COVID-19, there were few sales and little income. You can get the picture by looking at the picture industry. Movie ticket sales have topped 2020. One would think things are getting better like the stock market indicates. Dear Reader, ticket sales are 70% less than 2019 which was before the pandemic. Don't be fooled again...

Some good news

A successful transplant of a pig kidney to a human. All signs look good. I guess pigs will be flying.

Go Purdue! Not the football team. We are for the Irish. However, Purdue's research is second to no one. They have developed a new white paint that can keep surfaces 10 to 15 degrees cooler without using air. We paint our roofs with it and we help the environment without using energy. This is the "White" Revolution for climate.

Conundrum Club

Is it possible to have a company with a market value in excess of one trillion and offer bonds that are rated junk? Yes! Tesla becomes the first member of the club. Many more will join in the future as the Fed will continue to erode the purchasing power of the dollar to which will also grow inflation.

Speaking of Inflation

We got two more clues that it isn't transitory. Billionaire grocery store owner, John Catsimatidis sees higher prices sticking around well into 2022. Proctor and Gamble reported higher costs with little relief...It gets worse. Jack Dorsey, CEO of Square, sees hyperinflation for the US and world. Not good.

So, who are you going to believe? "Yelling" Yellen and "Lying" Powell or reflections from life? 

One scary note...

A shooting streak across the northern US sky last week is unknown. Our government says it thinks it is a Russian satellite gone bad. We have our doubts. Why, you ask? Because a failing satellite will descend in an orbit until it crashes. The sighting should have been noticed around the world and not just in the US. Then, you add this: recently, Russia revealed it successfully tested a hypersonic plane. Maybe they used it to test our defenses? Back in the day, we flew spy planes over Russia. Do you recall the stupid U-2 policy. It was provocative to say the least and now, maybe Russia is doing the same stupid provocative spying? Our government does not want to cause the Sputnik fear again by saying it is a failed satellite. I say, shoot it down! With those words, it is hard to leave with the message of goodwill, but stupid is as stupid does. Peace.