EOQ Friday – Quarter Closes with G20 Meeting in Play

Image result for g20 cartoon japanWe've got high hopes!

Whatever problems the World has, we like to think our leaders are going to solve them and there is often a lot of faith put into these G20 meetings and, while it is great that our leaders get together and talk once in a while – it's really no different than any executive retreat – not a whole lot actually gets done – it's mostly an all-expense paid week off for 20 of the most powerful people in the World.

They do get together and issue a "communique" but already at this meeting France is insisting that the G20 make a firm statement on Climate Change and re-commit to the Paris Accords, which is something they have all done except Trump so it's really aimed at just him.  Japan wants the communique to promote free trade and again, this is all about Donald Trump and trying to get him to agree with the other 19 World Leaders.  

We always have high hopes into these meetings but I'll remind you that the last G20 Meeting was in Buenos Aires on December 1st of last year and that was a Saturday and on December 3rd the Dow topped out at 26,000 and by Christmas Eve (24th) we were below 22,000 – a 4,000 point correction after the G20 Meeting – so forgive me if I'm just a little sceptical as we head into another one pressing new market highs (26,650).

At the December Summit, the agenda was to discuss the Future of Work (as more and more people are being replaced by robots), Infrastructure and Sustainable Food along with the need for Crypto-Currency Regulation and resolving the Trade Wars.  In fact, the US, Canada and Mexico sight NAFTA – oh, excuse me, the United States-Mexico-Canada Agreement, which is not just NAFTA again – and even that still hasn't been ratified 6 months later.  

While the other 19 nations at the last Summit recommitted tot he Paris Climate Accord, saying it was "irreversible and committing to its full implementaion" they also aknowledged that the United States withdrew from the Agreement, so I imagine when France says they wants a statement on Climate – I assume they mean from the 19 rational countries because good luck changing Trump's mind on that one! 





G20 Thursday – World Leaders Gather as Storm Clouds Form Over Global Economy

Trump is on the other side of the World.  

Unfortunately, that doesn't stop him from tweeting and the President was active last night, sending this very scary video out to his followers while calling the Democratic Debates "BORING!" (they were, but it's not polite) and calling NBC and MSNBC "FAKE NEWS Orgainzations", which undermines the basic principles on which our democracy was founded.  All in a day's work for the President...

On his way to meet with the other World leaders, Trump insulted all of our allies saying that, if the United States were attacked, Japan would only “watch it on a Sony television.” He called Germany a security freeloader and chastised India for raising tariffs on American goods.

Trump has meetings scheduled with each of those leaders tomorrow so we're off to a great start already.  The President has already spoken favorably about Vladimir Putin and told reporters that what they discussed in their meeting would be "none of your business" and Saturday Morning, Trump is scheduled to meet with Mohammed Bin Salman, who had Jamal Khashoggi murdered and dismembered – Trump had nothing bad to say about him either.

As noted in the New York Times, Trump also continues to repeat his lies about NATO – our primary military alliance:

After assailing the treaty with Japan, Mr. Trump went on to repeat what has become a perennial attack on Ms. Merkel’s Germany. “We pay for close to 100 percent of NATO,” he said. “People don’t know that. We pay for close to that because Germany doesn’t pay what they’re supposed to pay, and out of the 28 countries, seven are paid up.”

As he has consistently done since taking office, Mr. Trump mischaracterized how NATO works and

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What Now Wednesday? Powell Disappoints, Mnuchin Makes Promises…

Wheeee, what a ride! 

As we expected, Powell's speech yesterday was a disappointment and the Dow fell 200 points during Tuesday's session and you can see why we're using the DXD ETF as one of our primary hedges.  We stayed down overnight but, early this morning (about 5am) Steve Mnuchin jumped on CNBC at midnight in Bharain to tell Hadley Gamble that the US and China were "90% of the way there" on the path to a trade deal.

This is, of course, meaningless nonsense as we're the same 90% of the way there as we were when trade negotiations broke down a few months ago so Mnuchin is simply tearing a page out of Chamberlian's book to declare "Peace in our Time" to score points at home, no matter how untrue the facts of the matter are.  Still the market responds like Pavlov's dogs EVERY time someone in the administration says we are making progress on trade, and this morning was no different with the Dow Futures (/YM) popping over 100 points (0.4%) on the "news", we get a rally.  

Image result for trump xi trade cartoon

We had the same "good news" at the last G20 meeting in December, when the headlines were: "Donald Trump and Xi Jinping declare trade truce at G20" yet here we are, 7 months later with even more tariffs and even less progress.  We were 100% then, we're 90% now – what exactly is the market celebrating?

Certainly it wasn't the Data as we had TERRIBLE numbers from the Richmond Fed, New Home Sales missed by 10% and Consumer Confidence dove 10% in Expectations and 8.3% overall.  Consumer Confidence is now at a 2-year low while Economorons predicted it would be higher – which shows you how clueless the people making pronouncements on this economy truly are!  

As you can see from the chart, forward expectations (red) re now lower than they were when Trump took office in January of 2017.  If we see the other segments move lower to join them, then we really have to question:

  • 700 (31%) S&P

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Toppy Tuesday – Trouble at 2,950 – Again

At least it's not 2,800.

The S&P is back up 150 points from our DOOM!!! line, which didn't turn out to be very doomy when we failed it 27 days ago.  In fact, we bottomed out at 2,740 and now we're up 210 points (7.66%) and we tested 2,860 and failed that but never came close to the +15% line at 2,990.  2,925 is the +12.5% line so we'll keep an eye on that but if the Russell (/RTY) can't get back over 1,550 – there's really nothing to be bullish about.

7,750 on the Nasdaq (/NQ) and 26,800 on the Dow (/YM) are the other lines to watch and we've made good money – over and over again – shorting the Dow Futures at that spot.  We got some good market news this morning as AbbVie (ABBV) is buying Allergan (AGN) for $63Bn, which is 50% over yesterday's closing price.  When investors see one deal like that, they assume the whole sector is undervalued.  ABBV may be overpaying as AGN only has $15Bn in revenues and has lost money consistently and is a bit of a one-trick pony with Botox, which is more than half their total sales but they were supposed to turn things around this year and they did make $2.5Bn last quarter ($5Bn profit projected for 2019) – so I guess they saw something others did not in their due diligence.  

Image result for trump iran cartoonMeanwhile, tensions with Iran continue to heat up as Iran's President Hassan Rouhani called the White House “mentally retarded,” dismissing the Trump administration’s latest round of economic sanctions as pointless and declaring that Iran would not be intimidated.  Rouhani’s personal attacks on Trump are especially significant. In the context of the Iranian political system, Rouhani is regarded as a moderate who is relatively open to negotiations with Washington, and the insults from Rouhani further diminish the already-remote prospects of talks between the two sides. 

Oil (/CL) is hovering around $57.50, which is up 15% for the month so you can thank President Trump when you fill up your gas tank next week.  Gasoline (/RB) is at $1.86 and that's up 12% – so far and we may see $2…
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Monday Market Movement – Post Fed, Pre G20

There's a whole lot of nothing going on this week

We''re in between earnings seasons and in between market-moving events and, though we do have a GDP Report on Friday, it's the third revision to Q1, not a new report and should be steady at 3.1% so – yawn.  It's the 2nd Quarter's GDP that's in trouble as estimates have that down around 2% and possibly below.  Durable Goods come out on Wednesday and, unless they are a strong positive upside (doubtful), we're closing Q2 with a whimper, not a bang.

Other data that matters this week is Consumer Confidence tomorrow along wiht Home Sales and Personal Income and Spending on Friday along with Michigan Sentiment.  Earnings season restarts in the middle of July with bank earnings but, until then, it's pretty much all speculation as to whether things are getting better or worse on the eearnings front.  

One major data-pont that has us worried is Factory Activity, whichhas gone into contraction in the US, Europe and Japan and is sitting at decade lows as of the June surveys.  And it's not just the PMI that's in the dumps, the latest IHS Survey found strong correlation to the downside in all aspects of Manufacturing AND Services:

  • Flash U.S. Composite Output Index at 50.6 (50.9 in May). 40-month low.
  • Flash U.S. Services Business Activity Index at 50.7 (50.9 in May). 40-month low.
  • Flash U.S. Manufacturing PMI at 50.1 (50.5 in May). 117-month low.
  • Flash U.S. Manufacturing Output Index at 50.2 (50.7 in May). 37-month low. 






TGIF – Four Witches Test the Market Highs

It's quad witching day!

The quarterly expiration of options and Futures contracts can cause a great deal of market volatility and, when your indexes are pushing all-time highs – down is a lot easier than up so we're still shorting the Dow (/YM) Futures below the 26,800 line which was good for 200 points yesterday and gains of $1,000 per contract and our Nasdaq (/NQ) Futures short call at 7,800 from yesterday's PSW Morning Report (subscribe here if you want to stop missing these calls) is good for more than 50 points so far – also gaining $1,000 per contract.  What a great way to finish the week! 

Futures are a very valuabale tool to have in your trading belt but can be dangerous.  Usually we play options, like Wednesday morning's call to go long on Gasoline (and you don't even want to know how much the Futures have made if you didn't play it), which is now at $1.85 due to a massive refinery fire in Philadelphia, where we had the following trade idea:

Speaking of justifications, OPEC is acquiescing to Russia's demands to move their meeting to July 1-2 in Vienna and OPEC will do ANYTHING to get the Russians to join them in cutting production – just in time to screw American drivers over the July 4th Holiday.  If you believe in OPEC+, you can play the September Gasoline Futures (/RBU19) long off the $1.65 line ($1.62 has been the lows so I'd plan to DD there for a $1.635 avg and stop below $1.60) or you can play the Gasoling ETF (UGA) and I'd go with:

  • Sell 10 UGA July $28 puts for $1.40 ($1,400) 
  • Buy 20 UGA July $27 calls for $1.70 ($3,400)
  • Sell 20 UGA

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Thursday Thrust – Powell’s Comments are Spun to Blast Market Higher

“The case for somewhat more accommodative policy has strengthened.” 

That is the phrase investors are taking to the bank from Powell's press conference yesterday.  While the Fed Chairman didn't bow to Trump's pressure to deliver an immediate cut – he did leave the door open to interpretation that he was willing to cut rates the moment the economy begins to falter – giving investors a "Powell Put" to the market.

It wasn't the US markets that took Powell's statement as bullish but overnight the spin was in and now the Dow Futures are up 250 points as the spin doctors chimed in overnight to take any stray word Powell said and treat is like it was policy:   

“The market now knows the Fed is going to ease unless the data dramatically reverse,” said Steven Blitz, chief U.S. economist at TS Lombard.

For the Fed to not cut rates at its July meeting, “it would take all of the data coming in to be consistently strong,” together with an end to trade-related uncertainty, said Seth Carpenter, chief U.S. economist at UBS.

The central bank’s rate-setting committee on Wednesday dropped language from its policy statement describing its stance as “patient”—which implied rates were on hold. Instead, it said uncertainties about the economic outlook have increased, a phrase it has used during past periods of rate cuts.  “The committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion,” the statement said.

Of course that means that IF Trump makes a Trade Deal with China or tensions with Iran calm down or earnings or economic data improve – then the Fed will have no reason to cut so will good economic news be bad news for the markets going forward?  We'll have to see but, for now, the madness continues. 







Record High Wednesday – Will the Fed Pop Us or Drop Us?

We are so close – again.

Back on May 3rd, I explained how the market was confusing efficiency for a strong economy, noting that Corporations can make more money while the people starve.  At the time, I noted that materials sector performance looked too weak for a proper bull market and, for the quarter, we're still in very bad shape with Petrolum down 9%, Natural Gas down 19% and Copper down 7.5% – those are not signs of a strong recovery.

Speaking of Copper (/HGZ19), yesterdsay morning's long trade idea from our PSW Report (subscribe here if you don't want to miss our trade ideas) with contracts jumping from $2.64 to $2.70 for gains of $3,000 per contract before lunch!  Our options trade idea for Freeport-McMoRan (FCX) is slower-moving but that stock gained 1% yesterday and will really take off if there's progress with China.

Meanwhile, the indexes blasted higher as Trump tweeted out that he will be meeting with China's Xi at the G20 this weekend and, although that's kind of the point of the G20 – people are very excited about it.  Also, as noted in yesterday's Morning Report, Draghi fever spread across the markets and anticipation couldn't be higher that our Fed will also signal that it's ready to cut rates, buy bonds, buy assets – whatever it takes to keep the rally going becuase what on this Earth is more important than making rich people richer?  

Nonetheless, we are urging caution into the Fed Report and yesterday, in our Live Member Chat Room, we discussed a good 3-month hedge to take us, not just through today but through the summer:

Hedge/QC – Two factors in selecting a hedge is which index is ahead of the others (that's what the Big Chart is for) and which index is most likely to fail.  From the Big Chart, the Dow is now back to the May high S&P close and Nas lagging a bit and RUT lagging a lot so Dow or S&P and BA may come down more and drag the Dow and others if the trade talks blow up so

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Terrific Tuesday – Draghi Fever Hits the Markets, Blasting Higher

More free money! 

This is why Goldman Sachs put Mario Draghi in charge of the European Central Bank (ECB) – exactly for a moment like this when they need to boost the US markets and this statement couldn't have been timed better – just ahead of the start of the Federal Reserve's 2-day meeting that will lead to a policy announcement tomorrow at 2pm.  Draghi said the ECB is "ready to launch another round of stimulus" as inflation remains below targets.  

That target is, of course, 2% and if we were over 2%, they would be raising rates to fight it so the entire process is ridiculous but the most ridiculous thing is basing your entire monetary policy on a singly, unreliable data-point.  Of course, the inflation target is just an excuse because, over or under, we've seen Central Banksters call it "transitory" – meaning they will totally ingnore it when it suits them.  In this case – the Masters want to see all-time highs in the markets – so low inflation is our #1 excuse to jack up the markets.  

Low rates aren't free – taxpayers subsidize the wealthy by artificially reducting rates through Government Debt (where the wealthy lend the Government money to subsidize their rate cuts) and we are being forced to do this (year 10) in order to force the prices that we pay to go unnaturally higher (in order to increase Corporate Profits so the wealthy can have more money).  Are you beginning to see a pattern here?  It didn't take long for the Oligarch-In-Chief to weigh in on the subject:

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Monetary Monday – Market on Pause Ahead of the Fed

Image result for fed funds rate chartWe're wating on the Fed.

We have "the greatest stock market in history" and "the greatest economy in history" with "record employment" but, if the Federal Reserve doesn't lower rates below the current 2.5% they have set – it will be "a disaster".  Clearly, to any rational person, something must wrong with those statements existing at the same time but they all come from our President's lips and far be it for me to call Donald Trump a liar – so I guess we just have to accept that it's all true.  

30-Year Fixed Mortgages are still 3.5-4.0% yet Home Sales are still trending lower and that's impacting a lot of high-paying construction jobs which, in turn, impacts the materials industry and even banking, as less people look for loans to buy homes and then the Durable Goods crowd can't sell washing machines, refrigerators, couches and TVs and there's less hardware and paint sales, etc., etc. 

Image result for new home sales 2019Housing, as always, is a major driver of the economy and it's kind of hard to ignore it when it begins to falter – but that's exactly what the market is doing at the moment.  This is where the panic is coming from as even a 1% rise in rates last year has caused a 10% decline in housing activity and we NEVER came close to getting back to our pre-2008 levels in the first place.  

What Trump doesn't understand is that, for the average American, low rates aren't enough to get them to invest in real estate.  You can't "take advantage" of low rates on homes you can't afford and very few Americans have $50,000 to plunk down on a $250,000 home – not that there are many $250,000 homes left anymore anyway.  Not only that but Property Taxes have risen out of control and Trump has limited their deductability – making the rises much harsher and not many people in the bottom 90% have tax lawyers to get them out of paying their share.