Thursday, October 18, 2018

AAII Sentiment Neutral -- 34% cash recommended

Based  on  opinions 
of  individual  investors
from  a  www.aaii.com  online  survey.
   data source:
https://www.aaii.com/o/sentimentsurvey





The indicator is bearish (red) 

when individual investors are bullish. 

The indicator is bullish (green) 
when individual investors are bearish.

( I ignore all the “neutral” votes )






For the week ending October 17, 2018:
33.9%  bulls  (30.6% last week)  (historical average is 38.5%)

35.0%  bears (35.5% last week)  (historical average is 30.5%)
Moderately Bullish 
( was Moderately Bullish last week )
49.2% of AAII investors 
with an opinion were bullish 
( was 46.3% last week )
   
( 50% to 70% is neutral )     







The  Four-Week  Average:
This is one of the seven EL page one 
stock market timing indicators.
It is the ONLY short-term timing indicator
= Neutral
( was Neutral last week )
53.5% of AAII investors 
with an opinion are bullis
( was 53.7% last week )

( 50% to 70% is Neutral )








Recommended portfolio
cash position:
= 34% cash
( was 34% cash last week )







EL  Back-to-Basics  Portfolio  


actual  cash  position: 

= 85% cash  
( was 85% cash last week )






Note: 

I score this 
weekly
short-term 
stock market
timing indicator 
to recommend from
0% cash (most bullish), to
100% cash (most bearish).

US Opioid Epidemic is bad, and getting worse




My birth state of New York sure is good at taxing its citizens !














The China stock bear market continues











My Finance MBA does not help me figure out why NETFLIX is so popular with investors


Monday, October 15, 2018

US Budget Deficit for fiscal 2018 ( October 2017 through September 2018 ) up 17% versus 2017 FY -- thanks to Trump






S&P 500 Price to Sales Ratio -- one of the best long-term (ten-year) stock market return indicators -- now very bearish


Yield Curves: Yield on Treasury Bonds minus Yield on Treasury notes = good leading indicator of recessions !












US Interest on Treasury Debt by fiscal year


US Unemployment Rate


NBER official recession start date versus stock market action


Education Level versus share of population and share of wages


State Government Pension Funding Gap for CalPERS (California)


US 30 Year Mortgage Rate


Income Growth Comparisons for High, Middle and Low income people



Household Income, Household Spending and Labor Force Participation by age groups


Global Buildup of Debt


US Corporate Debt - unsustainable upward rise










Where super rich populations are growing



US Net Worth versus GDP -- The third bubble since 1990s


Auto Industry Update with charts

































Saturday, October 13, 2018

Tesla's upcoming debt bills -- burning cash every quarter won't pay debt bills -- investors must continue sending their cash to Tesla ( new age capitalism ? )


Best US states (mainly "red"), and worst states ("mainly blue") -- ranked by fiscal condition 2006 - 2016


Declining population growth = declining labor force growth = lower rate of economic growth ( real GDP growth )


Economic News for the week ending October 12, 2018

Saturday, October 13, 2018
Weekly Commentary: 
Rude Awakening Coming
by Doug Noland


full column here:


My summary is below:


"Back in 2007, 
it took 15 months 
for the initial fissure 
to develop into the
"worst financial crisis
since the Great Depression."

Today's backdrop 
is altogether different 
than that of February 
(the February 2018 correction). 

For one, back then "money" 
was flowing readily 
into the emerging markets.

"Risk on" was still dominant 
early in the year. 

In stark contrast to February's 
robust financial conditions, 
the global liquidity backdrop 
these days is acutely fragile. 

Risk aversion holds sway. 

The Fed has liquidated 
about $250bn 
of its holdings 
since February. 

Both the ECB and BOJ 
have significantly reduced 
monthly QE 
liquidity injections 
from earlier in the year. 

The Fed has 
increased rates 
three times 
for a total of 75 bps. 

Rates were hiked 
to 60% in Argentina 
and 24% in Turkey. 

Throughout the 
emerging markets, 
central banks 
have been raising rates.

Global bond yields 
are much higher 
than in early-February. 

It's my view 
that enormous leverage 
has accumulated throughout 
U.S. corporate Credit 
over this prolonged period 
of easy "money." 

Rising asset prices 
are contemporary finance's 
prevailing type of inflation 
(inflationary manifestation). 

Leaving rates so low 
for such a long period of time 
was responsible for inflating 
myriad major Bubbles. 


It was an ominous week 
for the two great 
intertwined Bubbles, 
illustrated by the 
Shanghai Composite's 
and S&P500's respective 
7.6% and 4.1% declines." 




For the week
ending October 12, 2018:


STOCKS:
S&P500 dropped 4.1% (up 3.5% year-to-date)

Dow Industrials fell 4.2% (up 2.5%). 

Dow Utilities declined 1.3% (unchanged)

Dow Transports sank 6.4% (down 1.2%)

S&P 400 Midcaps dropped 4.9% (down 1.5%)

Small cap Russell 2000 sank 5.2% (up 0.7%)

Nasdaq100 declined 3.3% (up 11.9%)

Biotechs lost 5.0% (up 16.4%). 


With bullion rallying $15, 
the HUI gold stock index 
jumped 6.9% 
    (down 20.3%).


U.K.'s FTSE sank 4.4% (down 9.0%). 

Japan's Nikkei 225 sank 4.6% (down 0.3% y-t-d). 

France's CAC40 lost 4.9% (down 4.1%)

German DAX sank 4.9% (down 10.8%). 

Spain's IBEX 35 fell 3.8% (down 11.4%). 

Italy's FTSE MIB sank 5.4% (down 11.9%) 

Brazil's Bovespa added 0.7% 
   (up 8.5% y-t-d)

Mexico's Bolsa declined 1.3% (down 3.9%). 

South Korea's Kospi dropped 4.7% (down 12.4%). 

India's Sensex gained 1.0% 
   (up 2.0%). 

China's Shanghai sank 7.6% (down 21.2%). 

Turkey's Istanbul National 100 rallied 1.9% (down 16.2%). 

Russia's MICEX declined 2.0% (up 13.9%).



US  BONDS  &  MORTGAGES:
Ten-year Treasury yields fell seven bps to 3.16% (up 76bps). 
Long bond yields declined seven bps to 3.33% (up 59bps). 

Benchmark Fannie Mae MBS yields 
   declined five bps to 3.96% (up 104bps).

Freddie Mac 30-year fixed mortgage rates 
surged 19 bps to 4.90% (up 99bps y-o-y). 

Fifteen-year rates rose 14 bps to 4.29% (up 108bps). 

Five-year hybrid ARM rates gained six bps to 4.07% (up 91bps). 

Jumbo mortgage 30-yr fixed rates up ten bps to 4.88% (up 70bps).

Over the past year, 
Fed Credit 
contracted 6.4%. 

Over the past year,
M2 (narrow) "money" supply 
jumped 4.1%.



Currency Watch:
The U.S. dollar index slipped 0.4% to 95.258 
   (up 3.4% y-t-d).



Commodities Watch:
Goldman Sachs Commodities Index dropped 3.2% (up 8.2% y-t-d). 
Spot Gold rallied 1.2% to $1,218 (down 6.5%). 
Silver was little changed at $14.63 (down 14.7%). 

Crude gave back $2.83 to $71.51 (up 18%). 
Gasoline sank 6.6% (up 8%)
Natural Gas was little changed (up 6%). 

Copper gained 1.8% (down 15%). 
Wheat slipped 0.7% (up 21%). 
Corn gained 1.5% (up 7%).



Market Dislocation Watch:
October 10 - Bloomberg (Andrew Mayeda and Saleha Mohsin): 
"Global finance chiefs played down the economic risks posed by the biggest U.S. stock sell-off since February, with many describing the decline as a long-awaited correction. 'The fundamentals of the U.S. economy continue to be extremely strong, I think that's why the stock market has performed as well as it has,' U.S. Treasury Secretary Steven Mnuchin told Bloomberg News at the IMF's annual meeting… 'The fact that there's somewhat of a correction given how much the market has gone up is not particularly surprising.'"




Trump Administration Watch:
October 11 - Bloomberg (Jennifer Jacobs and Toluse Olorunnipa): 
"President Donald Trump said he won't fire Federal Reserve Chairman Jerome Powell but blamed an 'out of control' U.S. central bank for the worst stock market sell-off since February. Trump also told reporters in the Oval Office Thursday morning that he knows monetary policy better than the Fed's leaders and continued criticizing them for interest-rate increases. 'The Fed is out of control,' Trump said. 'I think what they're doing is wrong.' The president added that the Fed's interest rate increases are 'not necessary in my opinion and I think I know about it better than they do.' Trump's criticisms mark a stunning departure from the practices of his recent predecessors."


October 12 - Reuters (David Lawder): 
"U.S. Treasury Secretary Steven Mnuchin said… that he told China's central bank chief that currency issues need to be part of any further U.S.-China trade talks and expressed his concerns about the yuan's recent weakness. Mnuchin also told Reuters in an interview that China needs to identify concrete 'action items' to rebalance the two countries' trade relationship before talks to resolve their disputes can resume."


October 12 - Reuters: 
"China's trade surplus 
with the United States 
surged to a record high 
of $34.13 billion in September, 
compared with $31.05 billion 
in August… 
The September surplus with the U.S. 
was larger than China's overall trade surplus 
of $31.69 billion for the month."


October 9 - Reuters (Roberta Rampton and Lisa Lambert):
 "President Donald Trump… repeated his threat to slap tariffs on an additional $267 billion of Chinese imports 
if Beijing retaliates for the recent levies and other measures the United States has imposed in an escalating trade war between the economic giants. Trump, speaking to reporters in the Oval Office, also said China is not ready to reach a deal on trade. 'China wants to make a deal, and I say they're not ready yet,' Trump said. 'I just say they're not ready yet. And we've canceled a couple of meetings because I say they're not ready to make a deal.'"


October 8 - Financial Times (Tom Mitchell and Lucy Hornby): 
"US officials have warned China that Donald Trump will not engage in trade talks with Xi Jinping at next month's G20 summit if Beijing does not produce a detailed list of concessions, according to three people briefed on negotiations... The Chinese, however, say they have such a list but would not present it without some guarantee of it being received in a stable political climate in Washington, including a point person with a mandate to negotiate on behalf of the Trump administration… US officials have been frustrated by what they see as Beijing's unwillingness to discuss substantive 'structural issues' related to its economic and trade policies. Beijing has been similarly irritated by the erratic approach of the Trump administration…"


October 6 - Wall Street Journal (Bob Davis): 
"While the White House is progressing on trade deals with allies including Canada, Mexico, Korea and Europe, its dispute with China looks increasingly intractable, with tariffs between the world's two largest economies likely cemented in place for years. In other trade fights, President Trump used tariffs as leverage to reach deals. Threatening car tariffs helped convince Canada and Mexico to concede to U.S. demands for a new North American Free Trade Agreement, the president boasted. 'Without tariffs, we wouldn't be talking about a deal,' he said… China is different. Tariffs aren't simply a negotiating tactic for the U.S., but a way to change economic incentives. The Trump trade team believes U.S. firms need protection from a predatory Chinese state, which Mr. Trump says coerces U.S. companies to fork over technologies and subsidizes Chinese firms to expand globally."


October 7 - Financial Times (James Politi): 
The Trump administration is seeking to stop the EU, UK and Japan from striking separate trade deals with China as it tries to impose economic isolation on its Asian rival. "The US's revamped Nafta trade deal with Canada and Mexico includes a provision that would require its two neighbours to give notification of any trade negotiations with a 'non-market economy'. That clause could also force those countries to disclose details of any talks and allow Washington to walk away from the Nafta agreement if such a separate deal were completed."


October 10 - Wall Street Journal (Kate O'Keeffe): 
"Treasury officials… issued new rules requiring all foreign investors in certain deals involving critical U.S. technology to submit to national security reviews or face fines as high as the value of their proposed transactions. The new regulations, which implement a recently passed law to tighten foreign investment reviews, are more expansive than some had advocated and are likely to bring an unprecedented number of transactions into the purview of the Committee on Foreign Investment in the U.S., known as Cfius. The Treasury-led interagency committee will now require foreign investors to alert it to all deals giving them access to critical technology across 27 industries…"



Federal Reserve Watch:
October 10 - Wall Street Journal (Michael S. Derby and Josh Zumbrun): 
"New York Fed President John Williams said he expects the Federal Reserve to return to its target interest rate to normal or neutral levels within 'the next year or so.' Mr. Williams said that once rates were at a normal level, then the Fed would be well positioned to respond to surprises-either inflationary or a softening in the economy-that may require raising or lowering rates. 'My view is our path today is getting us back to normal interest rates or neutral interest rates relatively quickly, over the next year or so… From my perspective, the most important thing we can do now is get ourselves well positioned for whatever may come… Once we're there, we're better positioned for whatever may happen. If we need to raise rates more than expected we can do that in a reasonable way. If the economy slows we can adjust to that.'"




U.S. Bubble Watch:
October 11 - Reuters (Richard Leong): 
"The U.S. economy is expanding at a 4.2% annualized rate in the third quarter, the Atlanta Federal Reserve's GDPNow forecast model showed on Wednesday, following the release of the latest data on producer prices and wholesale trade."


October 10 - CNBC (Salvador Rodriguez):
 "Chamath Palihapitiya, the outspoken Silicon Valley tech investor, called the start-up economy a charade on Wednesday… 'We are, make no mistake … in the middle of an enormous multivariate kind of Ponzi scheme,' said Palihapitiya, at the Launch Scale conference in San Francisco. Palihapitiya slammed the start-up cycle of raising funding rounds and spending money to boost user growth to attract bigger funding rounds. 'It's all on paper, but it looks amazing,' Palihapitiya said. 'You've been told to grow, so you're growing. You're doing your job.'"


October 10 - Reuters (Howard Schneider):
 "U.S. producer prices increased 0.2% in September, in line with expectations, while a revision to wholesale inventory estimates for August showed the biggest jump in nearly five years, beating forecasts. A rise in services prices offset a slight drop in prices for goods, including a 3.5% drop in gasoline prices…. In the 12 months through September, the producer price index rose 2.6%, slightly less than expected."


October 9 - Bloomberg (Liz McCormick and Alex Harris): 
"Democrats and Republicans have plenty at stake in the upcoming midterm elections. But it's already looking like a no-win situation for the U.S. bond market.  ...  In either case, the result will be debt, debt and more debt. That'd be on top of what is already a grim fiscal situation. A deluge of debt supply is set to inundate the $15.3 trillion Treasury market, just as borrowing costs rise. Not only is the U.S. budget deficit primed to swell to roughly $1 trillion by fiscal 2019 and past that in subsequent years, but the interest owed by the government is also forecast to triple in the coming decade to nearly a trillion dollars a year, according to the Congressional Budget Office. 'The current debt trajectory is already quite onerous,' said Subadra Rajappa, an interest-rate strategist at Societe Generale. 'If you keep increasing supply and auction sizes, there is a point where the bond market is going to say, 'Thanks, but no thanks.'"


October 9 - CNBC (Diana Olick):
 "Millennials are in their prime homebuying years, and they're used to cheap credit. So they might be in for a rude awakening as mortgage rates jump. 
The average rate on the 30-year fixed loan sat just below 4% a year ago, after dropping below 3.5% in 2016. It just crossed the 5% mark, according to Mortgage News Daily. That is the first time in eight years… 'Five percent is definitely an emotional level inasmuch as it scares prospective buyers about how high rates may continue to go,' said Matthew Graham, chief operating officer of MND."



China Watch:
October 7 - Reuters (Shu Zhang and Kevin Yao): 
"China's central bank… announced a steep cut in the level of cash that banks must hold as reserves, stepping up moves to lower financing costs and spur growth amid concerns over the economic drag from an escalating trade dispute with the United States. The reserve requirement cut, the fourth by the People's Bank of China (PBOC) this year, comes as Beijing has pledged to expedite plans to invest billions of dollars in infrastructure projects… Reserve requirement ratios (RRRs) - currently 15.5% for large commercial lenders and 13.5% for smaller banks - would be cut by 100 bps…"


October 9 - Bloomberg: 
"The U.S. shouldn't believe that ever higher tariffs can induce China's government to capitulate to American demands in the escalating trade dispute between the world's biggest economies, according to Chinese Commerce Minister Zhong Shan. 'There is a view in the U.S. that so long as the U.S. keeps increasing tariffs, China will back down,' Zhong said... 'The U.S. should not underestimate China's resolve and will… This unyielding nation suffered foreign bullying for many times in history, but never succumbed to it even in most difficult conditions,' Zhong wrote… 'China doesn't want a trade war, but would rise up to it should it break out.'"


October 12 - Associated Press: 
"China's auto sales plunged 12% in September, adding to economic challenges for the country's leaders amid a worsening tariff fight with Washington. Sales in the biggest global market fell to 2 million sedans, SUVs and minivans… Demand has weakened as economic growth cooled after Beijing tightened lending controls to rein in a debt boom. With the latest contraction, sales growth for the first three quarters of the year fell to just 0.6%, down from 2017's already anemic full-year rate of 1.4%."


October 9 - Bloomberg: '
"Home buyers angry that apartments are being sold for much less than they paid swamped property developers' marketing offices across China over the Golden Week holiday, demanding their money back. A sales center for Xinzhou Mansion, a project of Country Garden Holdings Co… was mobbed last Thursday, videos and pictures circulated on social media show, its windows smashed by scores of protesters throwing rocks. They're furious that Country Garden is selling units for prices around 30% lower than a year ago. Similar demonstrations took place at One Mansion in Shanghai, another of Country Garden's projects. There, apartments are going for as much as 25% less than two months earlier."


October 10 - Bloomberg (Robert Williams and Kim Bhasin): 
"Chinese border guards searching travelers' suitcases for undeclared Louis Vuitton bags, Gucci loafers and Tiffany necklaces are giving luxury-goods makers their biggest scare in years. Fears of a slowdown in spending by China's consumers, who account for two-thirds of the luxury market's growth, has fueled the biggest monthly selloff in LVMH shares since 2015. At that time, the industry was wrestling with the last China-induced headache -- a crackdown on giving lavish gifts to officials in exchange for political favors. Luxury investors were already skittish, worried about whether a three-year spending boom could survive the effects of the U.S.-China trade war."



Emerging  Markets  Watch:
October 8 - Financial Times: 
"Brazil has been rocked by a political earthquake: the victory of far-right former army captain Jair Bolsonaro in the first round of the country's presidential election… As the FT's chief international affairs columnist, Gideon Rachman says, the addition of Brazil to the group of states led by 'strongmen' would make a big difference. After all, the country was, until recently, seen as a model of a nation that had successfully embraced globalisation and left the dark days of authoritarianism behind it… For years, Mr Bolsonaro occasionally made headlines with his outbursts, such as when he told a leftist congresswoman that she did not 'deserve' to be raped. He once praised the leftist Venezuelan president Hugo Ch├ívez, and said former Brazilian president Fernando Henrique Cardoso should face a firing squad for privatising state companies."


October 8 - Reuters: 
"Venezuelan consumer prices 
rose 488,865% in the 12 months 
ending in September, 
a member of the opposition-run congress reported on Monday, as the OPEC nation's hyperinflation continues to accelerate amid a broader economic collapse."




Global Bubble Watch:
October 9 - Reuters (David Lawder): 
"Global debt levels reached a record $182 trillion in 2017, having grown 50% in the previous decade, but the picture looks less grim when public assets are taken into account, the International Monetary Fund said… The IMF said a new data base in its semi-annual Fiscal Monitor report showed considerable net worth in 31 countries that account for 61% of global economic output. Assets in these countries were worth about $101 trillion, or twice their gross domestic product, with just over half the total in public corporation assets, and just under half in natural resources such as oil or mineral wealth."


October 8 - Bloomberg (Siddharth Verma): 
"Global bonds are hitting fresh milestones of misery. Strong U.S. data, a tighter-than-expected monetary trajectory, rising commodity prices and brewing wage pressures are conspiring to push Treasury yields to cycle-highs, hitting money managers of all stripes.
The value of the Bloomberg Barclays Multiverse Index, which captures investment-grade and high-yield securities around the world, slumped by $916 billion last week, the most since the aftermath of Donald Trump's election victory in November 2016."




Fixed Income Bubble Watch:
October 11 - Bloomberg (Molly Smith and Christopher Cannon): "They were once models of financial strength-corporate giants like AT&T Inc., Bayer AG and British American Tobacco Plc. Then came a decade of weak sales growth and rock-bottom interest rates, a dangerous cocktail that left many companies feeling like they had just one easy way to grow: by borrowing heaps of cash to buy competitors. The resulting acquisition binge left an unprecedented number of major corporations just a rung or two from junk credit ratings… In fact, a lot of these companies might be rated junk already if not for leniency from credit raters… 
Bloomberg News delved into 50 of the biggest corporate acquisitions over the last five years, and found: 
By one key measure, more than half of the acquiring companies pushed their leverage to levels typical of junk-rated peers. But those companies, which have almost $1 trillion of debt, have been allowed to maintain investment-grade ratings by Moody's… and S&P Global Ratings. The vast majority of the 50 deals-valued at $1.9 trillion collectively-were financed with debt. This M&A-fueled leveraging of corporate balance sheets contributed to a surge in debt rated in the bottom investment-grade tier and now represents almost half of the outstanding market…"


October 9 - New York Times (Andrew Ross Sorkin): "It is often called the nuclear option. In the trade war between the United States and China, economists and investors have long tried to game out how both sides might use their clout. In virtually all the predictions, at least until recently, they revolved around a tit-for-tat tariff war. Even in the gloomiest of doomsday scenarios, there is one weapon that has long been considered unthinkable: the Chinese, the biggest holder of United States foreign debt with more than $1 trillion, publicly taking a step back from buying United States Treasuries - or worse, dumping what they own in the open market. The very idea is typically dismissed as a waste of time to even consider, and the reason is a sort of mutually assured destruction. It would be wildly irrational in economic terms, the thinking goes. China selling Treasuries would send interest rates up and hurt the United States, but it would simultaneously severely damage the value of China's own Treasury holdings. As the industrialist J. Paul Getty famously said, 'If you owe the bank $100, that's your problem; if you owe the bank $100 million, that's the bank's problem.' In the United States-China relationship, China is very clearly the bank."




Geopolitics Watch:
October 12 - Wall Street Journal (Editorial Board): 
"The disappearance of dissident Jamal Khashoggi in the Saudi consulate in Turkey last week is a debacle that could have far-reaching consequences for the Middle East and U.S. interests. President Trump has to seek a full accounting lest he lose control of his foreign-policy agenda in the region. Mr. Khashoggi entered the consulate on Oct. 2 and there is no evidence he left alive. The Turks are whispering to everyone that they have audio surveillance tapes of Mr. Khashoggi's interrogation, torture and murder, though they have released nothing to the public."


October 8 - Wall Street Journal (Jeremy Page and Michael R. Gordon):
 "A rare public confrontation between the top U.S. and Chinese diplomats marked a new level in the worsening relations between the world's two biggest economies and risked complicating an anticipated summit meeting between President Trump and North Korean leader Kim Jong Un. Secretary of State Mike Pompeo exchanged testy words with Foreign Minister Wang Yi in Beijing… at a critical moment for U.S.-China relations, with trade negotiations stalled, military talks halted and both sides blaming each other for a recent close encounter between their warships in the South China Sea… Mr. Wang began his meeting with Mr. Pompeo by accusing the U.S. of escalating trade friction, causing trouble over Taiwan and unjustifiably criticizing China's domestic and external policies. 'We demand that the U.S. side stop this kind of mistaken action,' Mr. Wang said."


October 7 - Bloomberg (David Tweed): 
"For decades, the U.S. has guaranteed freedom of navigation in Asia's waters, patrolling the seas with a view to maintaining the principle that no sovereign state shall suffer interference from another.
China's growing military prowess, combined with a dogged assertiveness over its territorial claims, is testing the old ways and providing a potential flashpoint for the two powers. 
That tension is felt most keenly in the South China Sea. Where is the South China Sea? Stretching from China in the north to Indonesia in the south, the waterway encompasses 1.4 million square miles, making it bigger than the Mediterranean Sea. It borders countries including Vietnam, Malaysia and Singapore to the west, and the Philippines and Brunei to the east. It's a thriving fishing zone… holds promising oil and natural gas reserves. Even more noteworthy is the vast amount of trade that transits through its waters. In 2016, that amounted to some $3 trillion, including more than 30% of the global maritime crude oil trade."