Oil ETF’s up 10% since our call on Dec. 29th

Oil hovered around $45 a barrel since we added it to our watch list of bullish commodities on December 29th. Today oil has increased approximately 10%. Bullish oil ETF’s that the individual investor has access to are up approximately 10%.

Oil ETF’s are a great play to take advantage of the drop in oil prices. Oil ETF’s provide a diversified exposure to the black commodity without having the worry of poor management from a single company. We have a 1-3 year timeline to see a 25-50% return on a well run bullish oil ETF.

Beaten down sectors like Gold, Silver, and Oil until 2020.

 

oil picture

Advertisements

Candidate Donald Trump on Unemployment and the Economy…He was right then and lying today.

Candidate Donald Trump ridiculed the inconsistencies about US employment numbers and our bubble economy. AND HE WAS RIGHT!

President Donald Trump sings a different tune…

Isn’t it odd that President Trump rages on about bringing jobs back from over sees when we have an unemployment rate under 4%…? Who would fill these jobs?

Truth of the matter is that President Obama changed how unemployment statistics were calculated in 2009. Unemployment began counting any person that worked just a single hour as employed. Furthermore anyone that dropped out of the workforce was no longer counted as “unemployed”.

The mere notion that President Trump can say we have the best unemployment in US history is ridiculous. We have only been using the current employment calculation for the past ten years.

Candidate Trump was right about unemployment and the stock market in the video below. President Trump is carrying on the political charade when boasting about unemployment and the stock market.

When US Cash is Trash-what are investors to do?

US Dollar Index Since 1973

As seen from the chart above the US dollar index has been on a steady decline since 1973. In 2018 we failed to break through resistance at the 105 level and retracted to the mid 90’s. The fundamentals make this chart a more terrifying scenario.

FED Chairman Jerome Powell in mid 2018 stated that quantitative tightening and the raising of interest rates was going to be on autopilot. Essentially QT would extract US dollars from the market. The raising of interest rates would put a higher price tag on the USD. Both of these acts would raise USD value. The benefits being we as a nation could important more things-giving is more bang for our buck.

However, this scenario won’t play out because we as a nation can’t afford the rising interest rates. Our corporate debt and now $22T worth of federal debt can’t be serviced. We are at our peak capacity for interest rates. Any further rate hikes will strangle our economy and bring on a recession more quickly.

Housing, auto, and financials are all in bear markets. Manufacturing index hit an unexpected 54. Anything beneath a 50 is retraction.

Because we never de-levered corporate and federal debt- we don’t have tools left for the next recession. We are kicking the can down the road but found the wall. We can’t cut interest rates without going below zero. Well, we can, but the EU is seeing how that move has effected their economy. So what is the FED’s next move?

The next move from the FED is to sacrifice the dollar. We will quit Quantitative tightening. We could even see a rate cut in the FED funds rate. Last but not least we will resume Quantitative easing. Essentially printing more money to keep interest rates down in order to service or debt. We simply don’t have the option to pursue a stronger dollar. What should individual do?

Pursue US dollar sensitive commodities that are near a bottom such as gold, silver, and oil. Don’t buy the dip-buy the bottom.

The Perfect Storm Starts with Manu-fracturing

Just like hurricane’s today- Financial perfect storms brew far off the coast where nobody is paying attention. But the signs are there and the winds should have been paid attention to.

  • ISM New York index expected a 67—Actual Forecast 65
  • ISM manufacturing new orders index expecting 62.1–actual forecast 51.1
  • ISM manufacturing prices expecting a 60.7— actual forecast 54
  • ISM manufacturing PMI expecting a 59.3— actual forecast 54.1
  • ISM manufacturing employment expecting 58.4–actual forecast 56.1

The US economy is experiencing a massive home sale decline. As home sales decline so do home values. As home values decline the wealth effect begins to evaporate. American’s will feel less inclined to spend- or better yet to borrow and spend.

The cause and effect is being shown in a slow down in manufacturing. As manufacturing slows down, jobs will be cut, as shown in the manufacturing employment weakness. Not even a trade war with China has increased domestic output for American consumption.

The US economy is dependent on spending. Its all about spending, spending, and more spending.

Before of this spending tenement in our economy- we can’t afford to raise interest rates much higher. Raising the cost of borrowing chokes off our main economic driver.

If we aren’t raising interest rates much higher- and the stock market is influx- than we have one bull market waiting on us.

Gold and silver are sitting at a tipping point. Gold has just crossed into a net long position by commodity traders. Shorts will be on the run.

Buy gold and silver before the bubble. Last frontier of the bull markets before 2020.

 

 

Recession is looming!

In a normal functioning economy you would see positive fundamentals as the driving force behind the stock market and expansion. When those fundamentals begin to weaken you see the effects in the stock market.

In the current US economy heading into 2019 we are witnessing the complete opposite relationship. The juiced up stock market from the FED has been fueling our macroeconomic fundamentals. Therefor since the FED has stopped juicing the economy with artificial stimulus-we are have seen many US index’s fall into bear market territory. The compounding effect on the stock market will double down when the weak numbers in the real economy begin to show up. We are already seeing weakness show up in real economic data.

Housing: Pending home sales have slipped each month for the last 10 months. November year over year home sales are down 7.7%

Empire State Manufacturing Index: Fell from 22.4 to 10. Missing an expected number of 20.

Philly Manufacturing index: Fell from 12.9 to 9.4.

Consumer Credit in December: Americans consumer credit rose by about 70%. American’s can’t afford to shop without credit cards for the holidays.

The fundamentals are weakening. Those fundamentals have yet to show up in asset classes such as the stock market and housing.

We are heading for a recession in 2019. Buy beaten down commodities like silver, gold, and potentially oil index’s in 2019.

 

Buying the dip is catching a falling knife. Less than six months to purchase gold/silver.

Almost all major index’s are in a bear market. So the question is- Do we have a great opportunity to buy or would we be catching a falling knife?

In my opinion we have a falling knife until at least june 2019. If we are to analyze the corelation between the FED purchasing bonds and the S&P 500’s rise you can see the similarity. When the FED stopped purchasing assets the market traded sideways. Now that the FED is selling bonds we are seeing the market react accordingly. If you remember- FED chairman Ben Bernanke stated that the point of quantatative easing was to boost asset classes. In doing so people would feel the wealth effect and begin spending again. Now that the FED has began tightening– the asset classes are falling. Today we see the dow at 21,792 from a high of almost 27,000 in October. The FED could change course-but they have stated that they will roll off $50B in bonds back into the market in 2019. They have also stated they won’t have another rate discussion until June. If they are going to reverse this trend they will have to take a drastic action with interest rates or start more purchasing of bonds (QE).

In September and October Trump sent his top economic advisor, Larry Kudlow, to cheerlead the economy. Larry Kudlow stated everything was perfect and that this was the greatest economy in US history. Since then the market is down almost 20% or more in every index.

Today, Treasury Secretary, Steve Mnuchin is up to bat. He has stated that even with the $50B in asset’s the FED is selling that banks are still well capitalized. The fact that the quetion is being asked means that there is a problem. He can’t actually announce to the world that banks aren’t well capitalized. Furthermore- there is still $50B more per month of liquidation from the FED moving forward. They have a balance sheet of $4Trillion that they need to liquidate. We are only at the beginning of the process. Buying here is catching a falling knife.

All of the good news is a terrible scheme perpetrated by Trump’s cabinet and CNBC. Trump has to paint a rosy picture to keep his presidency together. CNBC for the last six months won’t say anything negative to keep a euphoric bull market going. All the mean while people lose their savings to the rich once again. CEO’s have been conducting insider selling at record level since September. Hedge fund managers tell clients that its too late sell and to stay invested so they can keep collecting management fees. Its disgusting.

Profit from the upcoming collapse in US Markets/Dollar… Because Emerging Markets are about to.

Financial collapses are always said to have been “unforeseeable” or “impossible to predict”. When in fact the information is staring us right in the face. By the time the main stream media is announcing the panic it is typically at least six months too late. The chess table has already been set, the rooks are staring down your king, and there are no moves available to be made.

Half of the chess board has already been set in 2018. The moves made are set to devalue the US dollar at the hands of our economic enemies.

Is it crazy to think that the US dollar will no longer be the world’s reserve currency in a year? Absolutely. Is it crazy to think that the US dollar will not be the world’s reserve currency in 80 years? Absolutely not.

In the last 80 years we have seen three (to keep it simple) monetary system changes in regards to world currency. The British pound sterling lost its reserve status in 1945. It gave way to the US dollar backed by gold- The Britton Woods system. In 1971 Nixon took the US dollar off of gold standard. In short, Henry Kissenger-US Sec. of State, made a deal with Saudi Arabia to peg to the price of oil in US dollar. This deal created what is known as the petrodollar system. It seems we are getting ready for another change.

The US being the reserve currency is great for America- But terrible for emerging markets. Geopolitical tensions, sanctions, and a strengthening dollar against emerging markets could lead to the end of our current reserve currency status.

Emerging markets are saddled with US dollar denominated debt. As the US dollar has gained strength since 2011 it has become more difficult for these EM currencies to repay the debt once converted into USD. These debts will continue to tighten EM as interest rates continue to rise. In contrast- The US gets more bang for its buck when importing goods from overseas. As much borrowing as the US does today- we would be forced to borrow more if the dollar begins to fall. If the USD begins to fall than emerging markets would be the benefactor.

US sanctions on Russia, Iran (November 2018), Turkey, and Chinese trade war have laid the foundation for these countries to break away from the dollar and enter into new trade agreements among themselves. Breaking away from the US dollar is not easy when China holds $1.3T worth of US treasuries. If they dump the treasuries too fast- their US dollar investments will plummet and they will take a huge monetary loss. So how can these countries leave the dependence of the USD? It seems gold is their answer. Gold and the US dollar move in the opposite direction. As the dollar moves up than gold moves down and vice versa. Emerging markets have recognized that this is the perfect time to buy gold and move away from the USD. Gold is at $1,200 an ounce. Today, gold costs approx. $1,200 an ounce to mine. Therefor leading to an understanding that gold is at a bottom. Take a look at what emerging market countries have done since 2016:

-2016: China’s state owned bank, ICBS, purchased Barclay’s metal storage business for an undisclosed amount. Storage facility holds up to 2000 tons of metals. China currently has 1800 tons of gold.

2016: Russian sanctions lead to an increase of 36% of their gold reserves and releasing 84% of their US treasuries.

2017: Turkey purchased 187 tons of gold. Second most next to Russia.

2018: India bought 15 tons of gold. First purchase since 2009. Indonesia, Thailand, and Philippines followed suit.

2018: Iran leaving US dollar for Euro.

2018: Turkey, Iran, and Russia in talks of vacating the US dollar among their trade.

2018: China purchased 20% of the worlds gold between Jan-May of 2018.

2018: China sold $3B of US treasuries in October 18′. Second US treasury sale in a year. The third in ten years.

2018: March of 2018 China opened trade in oil futures for the first time in Yuan.

The America first policy conducted through sanctions and tariffs has also created a “emerging market vs America” policy. I’m not saying that I know how to conduct better international policy. But it is certainly bringing emerging markets closer together and less dependent on the US dollar. Perhaps emerging market’s are using the low price in gold to release their US dollar dependence.

As the smart Institutional money buys gold at these levels-The retail mom and pop investor should be doing the same. Silver often times moves with gold yet more aggressively. Harder actions upward as well as downward. At www.streetsmarteconomics.com we are buying more silver than gold.