Fake Money Friday – Weak Dollar Makes Markets Look Like They Are Recovering

The Dollar is testing 94.

That's down over 1% since Sept 1st and 1.5% off it's highs so take the market "gains" with a Lot's wife-sized grain off salt since the indexes have gone nowhere for the month yet the Dollars they are priced in have lost 1% of their buying power – that's not good!  

We're picking up longs on /DX off the 94 line, looking for at least a $200/contract bounce to 94.20 and, of course, keeping very tight stops below the line but 94 should be nice and bounce – even if it ultimately fails.  Brexit still isn't finished and the Trade War is far from settled (despite the relief rally on White House happy talk) so it won't take much to jam the Dollar right back to 95, which would be $1,000 per contract gains if all goes well.

Meanwhile, despite the huge boost from our weak currency, the S&P (/ES) is right where we left it at the end of August and the volume has gotten even lower by 10-15% – any lower than this and the last two guys trading can just get together in person to make their few transactions.  Professional traders do not like seeing low liquidity in the markets but it sure doesn't seem to bother the Robots and ETFs that are trading the market these days.  That's becuse people think things are great and aren't trying to sell but God help us all when they do…

In Wednesday's Live Trading Webinar we were shorting Gasoline (/RB) Futures at $2.04 and we let one contract ride overnight and that one contract made a nice $2,112 yesterday afternoon so – you're welcome!  It's too risky to keep playing over the weekend so we'll just hope "THEY" spike it back up over the weekend so we can short it again next week.  

More likely we'll switch to shorting Oil (/CL), which is still at $69 

 

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Philstockworld September Top Trade Review

Image result for top trade ideasYes, this is Thursday morning's PSW Report.

We were discussing building portfolios using things like our Top Trade Alerts in yesterday's Live Trading Webinar and it occurred to me that we haven't done a review since July so I think we have some catching up to do – especially as we haven't finished reviewing 2017's trade ideas yet.  We're usually about 6-9 months behind because our Top Trade Alerts are usually for long-term opportunities, not short-term set-ups.  

So far, through October, we had 40 winning trade ideas and 6 losers for a very nice 86.9% winning percentage and the Sept/Oct trades had made $59,615 by July.  As usual, our losing trades tend to turn into winners and one of our losers was Celgene (CELG) but they popped right back from a $425 loss to, currently, a $250 gain but that's only "on track" for our projected $13,000 gain if all goes well so STILL great for a new trade entry – our losers often make the best future winners – that's why these reviews are important!  

That brings us up to 41 winners and 5 losers for an 89% winning percentage for 2017 so far and I very much doubt we'll beat that into the year's close – but let's find out together as we review our November and December Top Trade Ideas to finish out the year.  Of course, it's a fairly arbitrary snap-shot to see how 2-year trades are doing at any given point in time but I find that 6-12 months is a good time to make adjustments if necessary as you still have more than a year to recover and you have 2-3 quarters of earnings to give us better information to make our decisions on.

That's right, we are FUNDAMENTAL investors so we tend not to pay attention to the day to day BS the market does.  Often if a stock we like gets cheaper, we buy MORE because, if you're not going to buy low – when are you going to buy?  

Thursday, Nov 2nd was a busy day as we sent out a Top Trade Alert for 3 stocks;  TEVA, M & CBI:


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Will We Hold It Wednesday – Dow 26,000 Edition

Image result for dow p/e ratioNo, we won't.

I hate it when authors make you read the whole article (and look at all the ads) before answering the question posed in the title so I'm cutting to the chase and saying that no, the Dow will not hold onto 26,000 because the average Dow stock is overpriced by a fair margin, with the average p/e of a Dow stock now sitting at 23.37 vs. the historic average of 18.2.  Of course the Dow is still behind the S&P (24.20) and the Nasdaq (25.75) but that's because Apple's (AAPL) outsized earnings are bringing the average down considerably.  

"But Phil", you may say, "earnings we sooooo good, weren't they?"  I would answer you as Einstein would and tell you everything is relative and that last year, against last year's earnings, the Dow's p/e ratio was 20.24 and now it is 23.74 against this year's earnings so you are paying 17.2% more for each Dollar of earnings than you were paying last year.  That's a lot!  That's stock market hyper-inflation…

As you can see from the S&P chart (I couldn't find a Dow chart), we've only paid a higher multiple than this just before the great crash of 2000 but we also paid much, much more before the 50% collapse so there may still be room to run at the top – before the inevitable happens.

Taking out Apple makes for a very ugly picture on the Dow since AAPL made $11.5Bn last quarter vs $78Bn for the other components and that means AAPL alone is 15% of the Dow's total earnings and MSFT and JPM are also around $10Bn in earnings so over 1/3 of the Dow's earnings made by just 3 companies.  So, if you want to buy AAPL or JPM or MSFT and pay a good multiple – more power to you.  The problem is that ETF buyers drive up the price of ALL the components when they are chasing the performance of just a few.

 

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Tumblin’ Tuesday (again) – China Retaliates on Trade (again)

Image result for trump china trade cartoonGee, who could have seen this coming?

China did what they said they'd did and took steps to retaliate against Trumps latest round of sanctions only China is doing it by making a LEGAL appeal through the World Trade Organization while Trump just does whatever the F he wants because, you know, the US isn't part of the World anymore and we don't have to play by THEIR rules.  After all, Trump has already said "Trade Wars are good, and easy to win" and when has our President ever lied to us?

As noted by the FT: "It is possible that Mr Trump would accept a symbolic victory. But Mr Xi cannot afford a symbolic defeat. The Chinese people have been taught that their “century of humiliation” began when Britain forced the Qing dynasty to make concessions on trade in the 19th century. Mr Xi has promised a “great resurgence of the Chinese people” that will ensure that such humiliations never occur again."

Image result for trump china trade cartoonThis is not just about trade, so it won't be easy to "fix".  This is about China's emergence as a global leader, something that really bothers Trump & Putin as they take a back seat to Bejing in setting the Global Agenda and China has their 2025 program – a 10-year plan for China to dominate Trade and Tech in the 21st Century.  Rather than promoting similar efforts at home by encouraging innovation and R&D, like China is doing, Trump just wants China to stop it.

Seen from Beijing, it looks as though the US is trying to prevent China moving into the industries of the future so as to ensure continued American dominance of the most profitable sectors of the global economy, and the most strategically-significant technologies. No Chinese government is likely to accept limiting the country’s ambitions in that way.

Image result for china rare earth trade warUnfortunately, Trump has not learned or doesn't want to learn from Nixon's great mistake which is:  Don't get into trade wars with people you depend on and with Nixon it was OPEC and oil while Trump doesn't
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Just Another Manic Monday

The Dow is up 116 points as of 8am.

Why?  Just because, it seems.  Asia closed down on Trade War fears but Europe is up slightly and US Futures are tracking higher on very thin trading (it's Jewish new year, people have off in NY) as Trump tweets about how GREAT things are, even though he's clearly lying as the S&P 500 was at 2,200 when he was elected and 2,300 when he took office but, even since the election, 2,850 – 2,200 is 650 and 650/2,200 is 29.5%, not "almost 50%" but, amazingly, no one bats an eye because, for Trump, that's a lot closer to the truth than most of the things he says…

We're just going with the flow for the moment.  We did add a bearish Top Trade on the S&P (SDS) last week but we also put out bullish Top Trade Alerts on  DLTR, OIH, HBI, LB, WPM, AAPL, MU and PZZA since Aug 15th, so still finding plenty of bargains – even in what we consider to be a very toppy market.  As I've said a lot recently – it's a lot like 1999 but the market doubled in 1999 before actually failing in 2000 so, if we are in a bubble – we can play it bullish while it lasts – as long as we are well-hedged and ready to act if things do begin to fall apart.

When a market is hot, we look for OPPORTUNITIES to pick up stocks that get sold off for bad reasons.  Back on Aug 3rd, China Mobile (CHL) got hit on news that two of their rivals were merging but CHL is so big, they are the reason their rivals have to merge to compete so I said to our Members:

CHL – Another one we just added to the hedge fund (also uncovered).  My notes to Doug were: They may get less per subscriber but China is smaller than the US so they are covering less area but they have 887M subscribers.  They have rich people who are as rich as our rich people and those people are willing to pay whatever for high-speed services.  China's Top


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Non-Farm Friday – Is America Working?

Another month another 200,000 jobs?

As we discussed last month, 200,000 jobs is not growth, that's just our population growth.  Job growth, in fact, has slowed markedly over the past 18 months and this chart shows you how far behind Obama's Trump's are falling – especially in the struggling Retail Sector, where jobs are trending negative over the previous period.  

Obama is credited with a net gain of 11.6M jobs during his tenure but that includes 2009's 3.5M lost jobs detracting from the 15.1M jobs that were gained under 7 years of Obama budgets and also not counting the 8th Obama budget – the one Trump takes credit for in his first year for another 2.4M jobs gained.  

Of course, so far, Trump's method for creating jobs has been very expensive as the deficit in 2017 was $666Bn (Obama's last budget) but this year we're already over $1Tn (up 50%) and, according to Trump's own budget, there's no end in site to Trillion-Dollar deficts through 2024, so another $8Tn will be added to the $20Tn we already owe – if all goes well.  When you consider the average wages paid for a job is $38,000, $1Tn SHOULD buy you 26,315,789 more jobs – each year!

Image result for trickle down economics trumpObviously, that's not happening but let's say that $666Bn of deficit was unavoidable and Trump spent just $333Bn extra Dollars to create jobs (wasn't that the point?).  Well, at $333Bn/2.4M it turns out Trump is spending $138,750 per job created and, as noted above, they are not really being created – we're just keeping pace with the population growth of 0.8%.

The rest of that $333Bn National Debt that Donald Trump is forcing your family to take on is going to pay for Tax cuts for Billionaires – like Donald Trump – sucker!  Notice even the GOP, who don't shy away from bullshitting when it suits their purposes, have even stopped saying the words "job creators" as it has, at this point, been exposed as the total farce that phrase always was.  I wonder what the BS will be for the next election?

 

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Floundering Thursday – Indexes Struggle to Get Back on Track

Just a minor set-back – so far.

We've lost a bit of ground in the past week but only halfway back to where we were two weeks ago (2,850), when we broke out to new highs – that's still pretty strong but, unfortunately, there's an outside chance that Trump could push through his next $200Bn worth of tariffs on China this afternoon and Asian markets were off 1-2.5% this morning but US Futures SEEM not to be worried at all, as they are up slightly.

I say SEEM because the reality is that the Dollar has dropped 0.6%, from 95.60 at yesterday's open to 95 this morning and that SHOULD be popping the markets 0.6% but they ae just flat so all this is doing is masking additional weakness.  Silver (/SI) is up to $14.30 so congrats to the players on that one as we're now up $1,500 per contract.  Even Gold (/YG) woke up and is now back at $1,211 but this is a Dollar-related move and can unwind quickly if the Dollar bounces.

Things can get ugly quickly on the trade front as China has already warned of retailiation over any new tariffs – so far they have matched the US dollar for dollar.  "If the U.S., regardless of opposition, adopts any new tariff measures, China will be forced to roll out necessary retaliatory measures," according to the country's commerce ministry.  Due to China's massive trade surplus over the U.S., many expect the PBOC could further devalue its currency or crack down on U.S. firms inside the country.

Meanwhile, U.S. and Canadian negotiators are engaged in "intense" NAFTA discussions, according to President Trump.  "If it doesn't work out, it'll be fine for our county but it won't be OK for Canada," he added. "I think they will treat us fairly."  Talks broke down last Friday after the two sides failed to reach a deal that would bring Canada into a new trilateral trade pact with the U.S. and Mexico.

It's very unclear what Trump s even trying to accomplish with Canada as we have a fairly balanced trade relationship with them so Trump's complaints that Canada is taking advantage of us makes no sense at all.  Even Mexican trade is barely out
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World of Worries Wednesday – Emerging Markets, Trade Wars Weigh on Markets

Wheee – this is fun!

Congratulations to those of you lucky enough to get the PSW Report yesterday, where we told you about our Gasoline (/RB) Futures Shorts at $2.05 as we plunged all the way to $1.98, which was good for 0.07 per contract and, while 7 cents may not sound like much, it was actually a huge one-day move and, at $420 per penny, per contract, it was good for profits of $2,940 for each contract – what a great way to start the month!

Of course we began shorting /RB on Friday, at $2 so our average (as we doubled down) was $2.025 so we only picked up net 0.045 for $1,890 per contract gains but it was on 2x so it all works out in the end!  Silver (/SI) was also a huge winner as it popped back from $14.13 (even lower during the session) to $14.20 for an 0.07 gain and /SI contracts pay $50/penny so $750 gains per contract there as well.    As I said to Investing.com yesterday:

“From here, we’re expecting RBOB to go down to between $1.80 and $1.85 over the next month and stabilize there…There’ll be the traditional pre-Thanksgiving run up, where it could get a little higher, and we’ll be shorting it again at that time.”

In Davis’ logic, gasoline’s surge to 3-1/2 year highs of $2.2855 in May, matching US crude’s rally, was fundamentally flawed.


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Tuesday Trade War Worries and Toppy Trading Patterns Persist

Image result for trump vacation cartoon

Welcome back! 

I hope everyone had a nice vacation.  Seems like nothing particularly blew up over the holiday weekend yet the market gave back 100 Dow points early this morning and we're back at 25,900 on the /YM Futures and below 2,900 on the /ES Futures and let's not forget that 2,872 is where we topped out in January and that too was a big run up but then we completely collapsed back to 2,532 for a quick 10% drop in just two weeks.  The high came on Jan 26th, to be exact, and that was AFTER Trump declared a Trade War for the first time that Tuesday

This week, Trump has "fixed" Mexico, though many "fake news" analysts say it's not fixed at all and still no deal with Canada and supposedly (also you have to believe what Trump says) we will be adding another $200Bn of tariffs to China, which would more than double all the tariffs put on all countries combined to date!  Yet the market seems generally unaffected – for now.

That Thursday (Jan 25th), I marvelled at the fact that only 7,826 (11.4%) out of 68,119 investors polled were bearish on the markets as we tested record highsNow it's down to 6,243.  This week's news cycle will be taken up with Kavanaugh's Supreme Court nomination hearings but it's a pretty big data week with ISM and Construction Spending this morning, Auto Sales tomorrow, Productivity, ISM Services and Factory Orders on Thursday and the Big Kahunah, Non-Farm Payroll on Friday.   

September, of course, closes out the 3rd quarter and we have a Fed meeting on the 26th where the Fed is very, very likely to hike rates.  As you can see on this chart, the Fed is still a hike below the average prediction of 2.25% by the end of the year and next year, the target is more like 3.25% so there's a lot of hiking ahead of us – usually not great for the market.

 

Trade still seems to be dominating the market talk at the moment.  According to Bloomberg, Trump even gave us a day…
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