Will We Hold It Wednesday – Dow 27,000, S&P 3,000 Edition

Doesn't this seem to happen a lot? 

We get right up to these critical levels on happy talk over Trade and the Fed and Earnings but then, just as the Media is telling us how great things are and what a fool you are for not chasing the market – it all falls apart – again.  To a large extent, it's because the indexes (and the individual components that make them up) are already priced for a perfect outcome. 

When you pay 30 times earnings for a stock, you are getting an effective return of 3.3% and there is, of course, the risk that something bad might happen over the time you hold the stock, causing it to go down, not up.

A 30-year note yeilds 2.2%  and has, theoretically no risk – though the real risk is you are locked into the low-rate note while inflation rises faster than your note or that newer notes start giving a better return than your note – causing the present value of your note to go lower.   That would not effect your 2.2% reuturns but it would make it almost impossible to sell your note to someone else without steeply discounting it. 

Still, the "risk-free" rate of return is 2.2% while a 30x stock is giving you 3.3% but should just 1 out of 3 of your stocks fail to go up this year, your rate of return drops to 2.2% anyway.  That means you have to be right 66% of the time with your 30x picks just to keep up with TBills.   We are able to do that using options since Being the House gives us an inherent advantage but people buying straight stocks at these prices barely stand a chance.

 

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Testy Tuesday – S&P Tests 3,000 (again) on Strong Bank Earnings

Why are we in cash? 

Certainly it starts to feel like we're missing out as the indexes rally back near their highs but this is where we got off in mid-September and here we are, a month later, not quite back to where we were when we cashed out.  Some of the uncertainty is out of the way now – it looks like we will have a trade deal with China, no one seems to care that Trump is being impeached (no on trading), Brexit is likely to have no deal but will happen anyway and Bank Earnings, at least so far, aren't so bad-looking.

Of course I'd like to see more than one day of earnings before jumping back in but what really bothers me is that ALL these positive things happened and we're still struggling to get back to 3,000 on the S&P 500.  Even Apple (AAPL) has been leading us again. blasting back to $236 yesterday – up 20% since early August.  With all this "great" stuff going on – why is the broad index only back at 3,000?  Something is not right and, until we can see what that is – CASH!!! is still safer than equities.

Of course we are picking up some bargains:  Just last Friday, we added Freeport McMorRan (FCX) to our Short-Term Portfolio in the Morning Report and that spread, with a target of $10, is already on track as FCX blasted 0.50 higher so far.  

Earnings season should give us plenty of opportunities to pick up cheap stocks as traders panic out of positions but it's too early in the cycle to start guessing which way they will go – even the banks presented a mixed bag this morning 

 

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Monday Market Movement – Still Not Really a Trade Deal?

Related imageHappy Indigenous People's Day!

China is already warning that there is no substantial trade deal and, in an opinion piece entitled “Let’s nail down ‘phase one’ before moving to the next,” the official Chinese state-owned English newspaper pointed fingers at the Trump administration’s unpredictability when it comes to foreign policy.  According to China Daily:

“As based on its past practice, there is always the possibility that Washington may decide to cancel the deal if it thinks that doing so will better serve its interests, the US should avoid backpedaling, as it has in the past, and instead cherish what has been achieved as a manifestation of a healthy and steady China-US relationship that serves the interests of both countries and the world.”

China received scant relief from U.S. tariff pressure in the accord other than the waiving of a small increase in duties that had been scheduled for this week, a far cry from the complete removal of extra duties that had been their previous negotiating position.  In return though, China hasn’t had to give much away other than vague commitments on its currency and intellectual property-practices, plus the purchase of agricultural commodities that it needs anyway. 

Meanwhile, with a pause in the Trade War in the works, President Xi has turned his attention back to Hong Kong and warned over the weekend that "Any Attempt To Divide China Will End In "Shattered Bones" and the police have come down harder on protesters who have, in turn, stepped up the violence with a pipe bomb being used for the first time this weekend and, once again this morning, protesters have shut down the airport.

 

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Fabulous Friday Finish – Trump Saves the Day?

Image result for trump trade deal cartoonThat's right, we're now expecting Trump to fix everything.  

Well, at least fix trade and the markets are up another 1% this morning, now having recovered the vast majority of last week's drop in aniticipation of a Trade Deal with China (which is not going to happen) and Fed Rate Cuts (which certainly won't happen if we get a Trade Deal with China) and, of course, because the Global Economy is great and can only get better so why worry about paying all-time highs for stocks who are literally warning you that Q4 will have some "challenges"?

Of course, we're still in a situation where there's really nothing else to do with your money other than put it in US Equities.  Bonds take your money, Banks take your money, Real Estate is still dicey, Bitcoin is hardly even a thing anymore, Oil has been decaying – not much left other than equities so we hold our noses and invest.  Well, WE don't – we cashed out last month but that is what people seem to be doing.  We're going to wait to see this round of earnings reports and guidance before we give our beautiful CASH!!! back to the markets. 

Yesterday, President Trump said day one of the Trade Talks went very well and, since we know Donald's a man of his word, the Futures have kicked into over-drive.  The meeting Trump has with China's Vice Premier, Liu He, are not until 2:45 this afternoon so it seems impossible that an actual deal could be accomplished by the market close at 4pm so we'll go into the weekend without knowing for sure and it all could reverse before trading resumes on Monday – not the best premise I've ever heard – that's for sure!  

If there is a trade deal, and even if there's not, we like Freeport-McMoRan down at $9 as they should rebound nicely if there is a trade deal and, even if there isn't, it's still a nice "buy and hold" over the long run. 

Since we actually do want to own it for the long-term, we can add it to our Short-Term Portfolio for now and move it to


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Thrilling Thursday – Dow Loses and Recovers 300 Points Overnight

What is the point?

I'm trying to write a morning overview of the market but everything can change in an instant based on a random tweet or a statement from any random Chinese or Opec official.  The market dropped a full point overnight, with the Dow testing 26,000 as the South China Morning Post (yes, we have to read that now), said Vice-Premier Liu and his team many leave the Trade Talks earlier than expected as the deputy-level trade talks made no progress this week.

Deputy-level negotiators, led on the Chinese side by vice-minister for finance Liao Min, spent the time focusing on only two areas: agricultural purchases and intellectual property protection.  “They have made no progress,” said another source familiar with the talks, adding that the Chinese side had not made headway in persuading US negotiators to consider a freeze on tariff increases, a main priority for Beijing.

The markets quickly reversed as the White House deneyed this was happening but who are we to believe, a random Chinese newspaper article or the White House?  Sadly, that's a real question these days…  

Tariffs on $250 Bn of Chinese goods are set to increase from 25% to 30% on Tuesday, while fresh duties of 15% on $160 Bn of largely consumer products will go into effect on December 15th.  Of course, China may have floated last night's rumor just to gain leverage – a harsh demonstration of what could happen to our markets should Trump fail to bend over and accept the terms they are offering.  And, of course, China's retaliatory tariffs also kick in on Dec 15th.

 

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Whipsaw Wednesday – Trade Talks Back On!

Image result for trump china screwed cartoonOf course China wants to make a deal.

Trump is so weak right now they can shove almost any crap down his throat and he'll be happy to sign the papers just to get a "win".  As we all know, it doesn't matter how awful the trade deal is for the US, Trump will still say it's "the best deal ever" over and over again until you can't even remember why he's lying anymore and isn't that good enough for US these days?

While Team Trump is ducking subpeonas like the Road Runner ducks anything you throw at him, the Dems keep blowing themselves up like Wile E. Coyote – the plans always look so good on paper but they tend to fall apart in the actual execution.  Sure the impeachment inquiry is moving along but, as long as the GOP manages to delay things, Team Trump, Fox, et al manage to repeat their message another 1,000 times and, like a catchy commercial jingle – it doesn't matter whether or not the catch-phrase is true – you start to hum the tune and, eventually, you can't get it out of your head…

So it's "trade on" at the moment as China says they are still willing to make a trade deal though traders are ignoring the fact that China actually said they are prepared to accept a "PARTIAL" trade deal – as long as no more tariffs are imposed and they will only offer "non-core" concessions, like purchases of agricultural products – which they need to buy anyway.  China said they will not budge on the other sticking points which would be a total humilation for Trump but, well – Trump.

I guess it's cool to have a President who always wins – even though it's only because he doesn't admit it when he's lost and that allows the whole country to pretend we've won – even when we've clearly lost, but at least we all feel good, right?  The market is trading up on feelings as there's certainly no evidence that things are any better and the Dow may be up 200 points this morning but the
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Tumbling Tuesday – Trade War Heats Up Again as US Blacklists China

Image result for blacklistMore Trade War!

Yesterday, the Trump Administration added 28 Chinese companies and organizations to a "Blacklist" that blocks them from buying American products – ostensibly over a sudden concern about human rights violations but this is just Trump's usual BS because he thinks it gives him leverage in the upcoming trade negotiations while what it actually does is piss China off.  

Among the alleged "Human Right Violators" just so happens to be Hikvision and Dahua Technology, two of the world’s largest manufacturers of video surveillance products. It also hits China’s well-funded, newly emerging class of artificial-intelligence start-ups. Together, the companies’ products are central to China’s ambitions to be the top global exporter of surveillance technology.

The list also includes companies that specialize in artificial intelligence, voice recognition and data as well as provincial and local security bureaus that have helped construct what amounts to a police state in Xinjiang. These entities have been involved “in the implementation of China’s campaign of repression, mass arbitrary detention and high-technology surveillance,” the filing said.

While it may seem sort of reasonable to go after the "enablers", if Hitler used an IPhone we wouldn't ban Apple, would we?  In fact, what we're banning is the ability of these companies to by the American parts that are enabling their technology in the first place.  Will it stop them from getting the parts?  Of course not – they'll just buy it from someone else.  

The U.S. government and Department of Commerce cannot and will not tolerate the brutal suppression of ethnic minorities within China,” Commerce Secretary Wilbur Ross said as he oversaw a Trump operation to get rid of the brown people.  In fact, China has been calling for the UN to act on the US's human rights violations for 2 years now and the Chinese Government said they will immeditately retaliate against these new sanctions.  

Members of the League of Social Democrats of pro-democracy party Avery Ng (C), Leung Kwok-hung also known as Long Hair (centre R) and other activists take part in a protest against US President Donald Trump and his recent immigration and refugee restrictions, in Hong Kong. Photo: AFP

Of course the Blacklist is not
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Monday Market Movement – Waiting on China and then the Fed

Image result for china trade chartMostly, we're waiting.

This weekend, prospects for a China Trade Deal took a downturn (and I'm ignoring the fact that China has no incentive to make a deal with a President who may not last long enough to sign the deal because I'm just so sick of the whole thing already) as Chinese officials said a "broad pact" was off the table, completely contradicting all the happy talk that came out of the White House last week to boost the markets.  

As you can see from the chart above (and this one), China imports $4.5 TRILLION worth of merchandise of which, $100Bn comes from the US while China exports $2.5Tn worth of merchandise, of which $275Bn is with the US.  Of course the US would like China to buy more of our goods but they simply can't afford them and forcing them to buy stuff just because US Consumers like to buy inexpensive Chines merchandise is – well, you can see how that's working out so far. 

Image result for china us trade chartIs it easier for China to forces their citizens to buy 175% more US merchandise, whether it's good or not or should China make more of an effort to make up the 10% of their merchandise sales to the US by making their easier-to-get-along-with trading partners happy?  While it would be nice to "fix" the trade issues with the US – it certainly isn't the desperate situation for China that Trump paints it to be when talking to the very uncritical suckers who still support him.

Those people never check his facts, so he can make up anything he wants but the actual trade negotiations are held in a place called "reality" and that's why the average Fox viewer, Trump/GOP lackey or Conservative pundit are wrong, over and over and over again when they try to predict what China will do next.  If your are basing your analysis on Trump's BS – what hope do you have of making accurate predictions?

Vice Premier Liu He, who will lead negotiations for China, told
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Fed Fun Friday – Powell Seeks to Save the Market (again)

Related imageMore free money!  

Whenever the market begins to dip, the Fed jumps into the fray to prop things up.  That, of course, is not what the Fed is supposed to do – but they have morphed their mission into propping up the markets since the Banksters (which is who the Fed really works for) simply make more money in a bullish market – and these guys REALLY like money.  They like money so much, they are even helping Donald Trump keep his Presidency.  

Why?  Because it it's not Trump in 2021 it's very likely to be Elizabeth Warren and she is one of the few people in Congress who actually understands the banking system – not as an abstract – but with a Harvard Law Professor's understanding of every little line they put into their 20-page contracts and she can clearly see how and where the money is flowing.  You can't trick Elizabeth Warren and, for a profession that only exists to get people to part with their money – that's a bad, bad thing.

A Warren Presidency will cost banks BILLIONS in profits and it's likely to be no picnic for the Fossil Fuel Industry or Big Pharma either.  That's why Donald Trump pulled in $125M in donations last quarter – the "Never Warren" wing of the Republican Party has vey deep pockets indeed.  Those same donors are backing all the GOP Senators and Representatives too so don't get too deep in your liberal fantasies that 20 GOP Senators will walk away from their base AND their money in order to do the right thing and impeach Trump – it's very unlikely. 

Image result for pocahontasEither way though, the Democrats win as Trump staying on despite being obviously guilty is very likely to cause enough GOP Senators to lose their jobs to give the Democrats a majority in both houses and Trump is very unlikely to beat Warren in the General Election.  So far, the only dirt Trump could dig up on Warren after 4 years of trying is that she claimed to be part Native American (and it is but a very small part), calling her "Pocahontas", which any
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Faltering Thursday – Back to S&P 2,850 as Trump Opens New EU Trade War Front

Image result for madness trumpMADNESS!

As if there are not enough things going on, Trump announced just before yesterday's close that he would now be placing tariffs on European Union goods, including aircraft, clothing, whisky, cheese, yogurt and agricultural products.  Who buys aircraft from Europe?  US Airlines do, that's who.  And who ends up paying for the additional cost of the planes they buy?  I'll give you a hint – it isn't Mexico! 

So, as if the Dow Transports didn't have enough troubles, this is going to really put them in technical trouble – along with all the indexes as they are close to failing their 200-day moving averages which, on the S&P 500, is 2,850 – also the mid-point we've been telling you would true up on the S&P chart since the beginning of summer thanks to our Fabulous 5% Rule™:

Back in our August 8th PSW Report, we noted the following bounce lines for our indexes (colors reflect current positions):

  • Dow 25,000 is the mid-point and bounce lines are 25,550 (weak) and 26,100 (strong)
  • S&P 2,850 is the mid-point and bounce lines are 2,880 (weak) and 2,910 (strong)
  • Nasdaq 7,200 is the mid-point and bounce lines are 7,360 (weak) and 7,520 (strong)
  • Russell 1,440 is the mid-point and bounce lines are 1,472 (weak) and 1,504 (strong) 

I had to change S&P 2,880 and Russell 1,472 from green to black (we're right at the lines) but, otherwise, we're right where we are (2 boxes weaker) 2 months ago and that's right where we were two months before that and, in fact, 2 YEARS before that.  This market has gone nowhere during the Trump Error – nowhere at all!  

 

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