Sunday, December 4, 2016

Trump Nation







                                        
                                                                                                 The Economist photo


We are three weeks into a new era.

President elect Donald Trump continues to cause alarm among many as he goes about his business of staffing a cabinet. Most of his picks seem intentional to cause further divide amongst a divided electorate in the United States.

The antics and blunders of Trump also cause alarm around the world. China relations being the latest example.

An initial rally in the stock market and selloff in bonds seems to anticipate increased federal government spending. At the same time there appears to be a coalescing of efforts to rescind many of the social safety nets, and thus a new cause for discord.

Trump raises questions about the role of the President of the United States with his personal intervention in the United Technology/Carrier deal. What will the role of the new federal govt be with regard to market forces?

The bond market seems to anticipate government borrowing and currency devaluation even as the U.S. Dollar strengthens. I think the dollar rally will be temporary as the uncertainty over Trump administration policies increases.

Brexit was the epitome of uncertainty.  Trump is reinforcing the tenets of his policy that lend to global uncertainty. How long this uncertainty lasts is up to those in control of influencing Mr. Trump and his policies. And, upcoming elections in Europe have the potential to add to the influence of nationalist and populist sentiments, leading to a general decrease in international trade. To my mind populism and protectionism means higher prices.

Rising interest rates were something that the right wing in the U.S. have been actively encouraging. The Tea Party movement was strident in its criticism of the Federal Reserve and central bank policies worldwide. It remains to be seen how they temper their criticisms in the face of actual Fed tightening with a Republican in power.

It could be that we are at a moment where winds change in a direction that precipitates a storm. Probably centered on the bubble in bond prices that has taken hold over decades.

My sentiment has turned bearish for the short term to medium term. There is much uncertainty about the future and I think this must have a bearing on those who control the largest purse strings.
Rising interest rates will surely weigh down asset prices, stocks included, and the stock market has a huge influence on mass psychology in our financial economy where savings are defined by stock and bond holdings.

Sleep well,

gh

Wednesday, November 9, 2016

The Cheeto Wins!

Trump will be POTUS.

He promised protectionism.

He promised infrastructure.

He promised to do away with regulation by govt.

He promised an end to ObamaCare.

He promised a wall on the southern border.

With the exception of the end of the ACA, all these promises are inflationary.

It was Trump we smelled.

He has not promised an explosion of national debt, but that is what he will bring.

It is a sad day for The United States of America.

I predict a huge inflationary flameout taking a few years to play out, and then we will find another Franklin Delano Roosevelt.

Control risk,

gh

Wednesday, October 19, 2016

What's that smell?

The markets act like they are getting a whiff of inflation.
Or more easy money.
What is the difference?

Finally more buying in materials.

Some of these things are starting to look like long term bottoms are in.

Time will tell.

Control risk,
scale in on the way up so you are following an uptrend.

gh

Friday, September 9, 2016

Bonds Sell Off

Supply side economic theories and policies came of age in the 1960-70's. How could supply side ideas not gain traction in a period of inflationary forces. The cost of goods was rising steadily after WWII. What else is there but to encourage more production. And as inflation spiked in the early '80s and then was crushed by Volcker supply side theories came into their own. Decades of intentional low interest rates to encourage supply also had the effect of encouraging consumption through consumer financing innovation enabled by a steady decline in bond yields and interest rates in general.

It does appear that the world has reached the limits of supply side benefits. Perhaps a few years ago. Now producers yearn for a time of increased demand sufficient to raise prices for basic commodities. Over production of goods and services, combined with technologic advances in production has combined to produce a stagnation in western economies even as the consumers find themselves over burdened with debt and lacking wage leverage.

The long decline in interest rates produced a financial based economy that increasingly put it's earnings and savings in financial instruments, bonds and stocks and other derivitives, anywhere for any yield, due to the lack of opportunity in manufacturing or services.

At long last we may begin to see some wage pressures in an upward direction. Consumers may begin to see an increase in purchasing power and basic materials prices look to have bottomed. And the Central banks of the world are beginning to lean toward "normalization" of interest rates after years of a zero interest rate policy.

We see pressure on the long term bonds with, perhaps, the start of a trend change in the direction of interest rates.

With the massive sums that are parked in bonds I wonder what an exit from the 'safety' of bonds will look like. The bond market has certainly gotten lopsided over the last few years. The normalization of interest rates could be rapid.

But the question remains. If not bonds, then what?

And if normalization due to mild inflation, then what?

Mild inflation is good. And the money has to go somewhere.

 

Tuesday, September 6, 2016

The Dollar and the Fed

There has been talk for some time of the Federal Reserve keeping the value of the U.S. Dollar in mind when considering interest rate changes. The currency war, and all that.

So, the Fed seems to keep looking for reasons NOT to raise short term rates, despite their 'data dependent' stance on decision making.

All of this is due to the U.S. economy being the best of a bad lot, so to speak, in the world.

We now have two weak ISM surveys in a row. What if the U.S. economy is slowing, despite the 'weak'  dollar.
How long would it take to get to the point where the Fed had to actually DEFEND the dollar?

What would that look like?  Weak dollar. Slow economy. Inflation as a monetary phenomenon.

Would long bonds hold up with a serious dollar weakening?

Is the present dollar weakening just a response to expectations of fiscal stimulus? Perhaps....

What if there are actually some bond vigilantes out there? I bet there are too many of them.

Just thinking.

Control risk,

gh

Friday, August 26, 2016

Fischer Spills the Beans?

Stanley Fischer was being interviewed. When asked if he thought that the Fed would raise rates later this year, or even twice this year, he answered, "yes to both your questions". The stocks started selling at those words. The stock indexes have some soul searching to do with the prospect of a raise in interest rates. There have been two or three "tantrums" at the prospect of this over the last few years.
Earnings for some retailers have been surprisingly weak. Notably Dollar General yesterday.
The Fed may get the timing wrong. That is the risk.

Hence:
Free Falling


Time for another tantrum?

gh


 

Thursday, August 25, 2016

Weak Retail?

Dollar General down sharply today.
How can retail sales be weak if wages are rising?

From DJ news:

General Hit by Weakest Sales in a Decade -- Market Talk

14:26 ET - Frankly, Dollar General's (DG) F2Q results weren't THAT bad. But this is an expectations game, and after seeing shares jump 28% in 2016 they will notch their biggest decline since late 2009's return to the stock market. In fact, DG hasn't had a double-digit decline before today; it's at session lows with a 17% decline to $76.17. It hasn't been the most-volatile stock, notching just 3 double-digit stock gains. But when you log the slowest same-store-sales growth since a decline at the end of 2005, investors are bound to sit up and take notice. Dollar Tree (DLTR), which posted its own soft sales this morning, is down 9.1% in what would be the biggest drop since February 2009. (kevin.kingsbury@wsj.com; @kevinkingsbury)

(END) Dow Jones Newswires

August 25, 2016 14:26 ET (18:26 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.- - 02 26 PM EDT 08-25-16


"Slowest same store sales growth"

AND WE HAVE JANET YELLEN SET TO SPEAK TOMORROW IN JACKSON HOLE. AND THE TALKING HEADS HAVE BEEN SCREAMING FOR A RATE RISE FOR MONTHS, IF NOT YEARS.
WILL THE FED MAKE AN HISTORIC BLUNDER?

ANYTHING IS POSSIBLE.

CONTROL RISK,

GH

Friday, August 19, 2016

Watch FCX

Freeport McMoran has had a huge run up this year, as have many of the miners. Looking at a long term chart I see that FCX could have a long way to go.

I am a fairly short term trader, often holding for only for 2-3 months, but I keep an eye on long term charts because many large funds hold for much longer time frames and invest for those lengths of time.

A cup and handle is a powerful chart pattern simply because it forms a 'triple top' and gives anyone who wants to sell at "the top" plenty of opportunities to do so.  When evaluating chart patterns I pay attention to what volume does during a move up, or down. A strong bullish signal is given when there is strong volume on the upswing and declining volume on the downswing or sideways 'consolidation'.

FCX shows all of these and is a good stock to watch for an indication of what may happen in the mining sector as a whole, and the world economy for that matter.
A weak U.S. dollar and the effect of that currency on materials prices is a major factor.

A breakout above recent one year highs could be the start of a major trend change in the miners.


A small position here is warranted, with additions as the stock moves up. IF IT MOVES UP.
IT MAY NOT MOVE UP.

But I think they all will eventually, probably after they fake out all of us chart readers. LOL

Control your risk,
gh

Friday, August 5, 2016

Squeeze the Bonds

Short of ideas for a title I settle on the aforementioned.

It is my belief that way too much money is parked in the bond market. In order to get that money to come back into circulation the governments of the world will have to let inflation get going good before any raising of short term interest rates. They need to flush some of the money OUT of the long bond markets. Any rising of short rates risks an inversion of the yield curve.



Squeezing long bonds would mean a squeezing of yield shorts. The reach for yield may be coming to an end as the economies of the world start to improve. Todays Robust Jobs Report is evidence that the U.S. economy continues strong. I think it is only a matter of time before the rest of the world follows. Emerging markets (EEM) continue to look strong in the face of strong U.S. data.


I am making bond shorts a core long term position. TBT is the vehicle of choice.


Will be controlling risk however......

gh

Wednesday, August 3, 2016

On Fiscal Stimulus

If you look at politics the world over it is hard to miss the populist sentiments.

As I pointed out HERE several weeks ago the outcome of coming elections will be fiscal stimulus in the form of infrastructure type projects.

Japan is working on this now.....

If we ask, "why the populist sentiments?" we can come up with an answer that includes the amount of debt that has accumulated over recent decades and the effect that debt has on growth and consumption around the world. Lack of growth, combined with the accumulation of wealth at the top has left people angry. (the accumulation of money looking for rent is why interest rates are so low and why their are no 'bond vigilantes')
If we can accept these facts of life, then we can conclude that aggressive fiscal stimulus, ie, putting money into the bottom of the wealth pyramid, is the same as debt forgiveness. Fiscal stimulus will finally spur inflation and inflation wreaks havoc on the bond market. The bond market is where all the wealth  is parked.

Debt forgiveness is a redistribution of wealth by resorting to inflation.

Unfortunately it is the only option left short of raising taxes on the rich and providing a broader social safety net.
You makes your choices....

Invest accordingly,

gh