Andrew Left currently has a short position in MNK. Quite an interesting stock that he has more information on in his website www.citronresearch.com
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.
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.
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.
Isn’t it ironic that the S&P 500 increased at the same rate the FED bought bonds to raise asset classes? It could be coincidental- until you realize stock prices have entered bear markets as the FED started selling $50B worth of bonds per month.
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.
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.
Just to validate the call on stocks dropping 2000 points on the Dow. Here is a post from my facebook account in October at the top of the Bull market. Buy gold, silver, and other commodities.