INVESTOR’S first read.com – Daily edge before the open
S&P 500: 2,922
Friday August 23, 2019 9:17 a.m.
The market will open on the downside after China just announced it will strike back on U.S. threat to impose tariffs on $300 billion of Chinese goods with its own tariffs on $75 billion of U.S. goods, levies ranging from 5%-10% (Sept 1 and Dec. 15). A 25% tariff on automobiles and 5% tariff on parts will become effective Dec. 15.
Fed Chief Jerome Powell speaks before the Central Bankers Forum today at Jackson Hole, Wyoming. While President Trump is pressuring the Fed for one major cut in the fed funds rate, or several smaller cuts, it is uncertain Powell will yield to the pressure.
I expect him to say the Fed will track the nation’s struggling economy and cut rates if it sees fit.
Trump will attend the G-7 meeting in Biarritz, France this weekend. Climate change and trade tensions will be discussed among other issues.
Thanks to a 14-point rise in Boeing’s stock (BA: see below) the DJIA was up 49 points yesterday instead of down 50 points. At 354, BA is the DJIA’a highest priced stock. Since the DJIA is a “price-weighted” average, a move in BA impacts the DJIA 10 times more than a move in Pfizer (PFE: 35).
Boeing (BA: 354) Stock jumped again yesterday. Hundreds of Boeing’s 373 Max aircraft were grounded by major airlines after two fatal crashes last year. I didn’t think a 24% drop from its all-time high of 446 adequately discounted downside risk, so I began to track it. I noted the company has desperately needed just a little good news from a brokerage research firm or airline that could reverse its downward spiral chase shorts and bring in some buyers. Yesterday, it may have got what it needed when Cowen & Co analyst Cai von Rumohr reported the FAA’s certification flight for the 737 could take place in 4 to six weeks. It will take better news than that, but BA’s downside risk is now limited and no longer as great a risk as I feared. Coverage here will end for now.
The Trump administration and Fed will release whatever info it can muster up to stabilize this market and it may work temporarily.
Minor Support: DJIA:25,950; S&P 500:2,891;Nasdaq Comp.:7,907
Minor Resistance: DJIA:26,337; S&P500:2,927;Nasdaq Comp.:7,998
Thursday Aug. 22 “Running Scared…Caution to the Winds… Panic…Lies, Deception, Dysfunction…All With a Price”
Panic breeds bad decisions. Mounting fear of recession is overpowering the Trump Administration and Fed. They are grabbing for straws to head off a devastating recession and worse, a bear market in 2020.
I have experienced a lot of crises over 57 years in this business, but this one is scary.
Why ? Too many lies – Too Much Greed…Too much bullshit at the highest levels.
The inevitable can only be delayed for so long, until reality sets in.
All this smacks of a bubble – the cartoon where the man walks off a cliff and doesn’t fall until he looks down.
I shudder to think of the leverage that has been amassed over a 10 year bull market. So much hot money, so much entrusted to algorithms that cannot be programmed to anticipate what we are seeing in the leadership and lack thereof of our country.
So few see it. Scary !
When they do, it will be too late
Not bedtime reading, but a wakeup call.
What is most troubling to me is we are not yet in hard times, this get-reelected shell game could be prolonged for months. When hard times come there will be little anyone can do to reverse the economic and social pain.
Tax cuts are a short- term fix. But those taxes were employed to pay certain bills. Our annual deficit will hit $1 trillion this year which the Wall Street Journal says will bump government debt to 95% of GDP in ten years, up from 79% now, the highest since World War II.
CONCLUSION: As characteristic of all stock market bubbles, they just keep expanding. They either burst because they can’t expand anymore, or they are pricked by an event.
The key for investors is to do something entirely un-human – that is – walk away while others are popping champagne bottles. ……………….
Wed. August 21 “It’s All About @020 Hype Leading to a Bursting Bubble”
Tax cuts, linking the capital gains tax to inflation, reduce payroll tax – these are measures employed when a nation is deep in recession, not when as President Trump says, the “Economy is great….We’re doing tremendously well….Our consumers are rich.”
It’s all about getting re-elected in 2020, and it can backfire big time.
Interest rates barely got off the floor and QE barely cut back when the Fed panicked to cut its benchmark interest rate last month leaving little more than one or two more rate cuts it can do to pull the economy out of recession.
The Tax Cut Jobs Act was a short-term goose for corporations which spent the money more on stock buy-backs than on capex.
Capital gains tax relief may help investors but do little for the core of the economy. More tax cuts may delay the inevitable – a prolonged recession where the government is powerless to help.
Tax cuts deprive the government of funds to pay its bills without borrowing more and inflating the national debt.
BOTTOM LINE: a massive bubble burst…..Dominos tumbling one after another and a huge crunch in the stock market from a historically extremely overvalued level.
Solution: Don’t panic – don’t expend all your anti-recession ammo too early – nurture the country through the inevitable, a recession – let the stock market find its own comfort level, stop manipulating it and creating the huge bubble that will devastate investors when it bursts.
Tuesday Aug. 20 Administration and Fed Expect Recession
Recession talk is front and center with key officials of the Trump administration (including Trump) denying even a remote possibility of one.
Why then is Trump urging the Fed to cut its benchmark fed funds rate by a full 100 basis points ?
Why talk about a 10% tax cut for the middle class which only got a 1%-1.5% tax cut while corporations got a 40% cut in 2017’s Tax Cut Jobs Act ? Why the talk about a temporary payroll tax cut ?
For months I have been telling readers we are already in the early stages of a recession, especially housing and manufacturing.
It’s all about 2020’s presidential election, but the prospect of a recession is real, or the administration wouldn’t be panicking.
IF SO, WHAT IS THE STOCK MARKET DOING AT HISTORIC HIGHS in VALUATION ?
There have been bear markets without recessions, but never a recession without a bear market.
It is just a matter of time before the BIG money stops buying and institutions begin selling.
Since so many institutions key on the same indicators, the bear market will begin with a 3-day 12% – 16% nosedive.
That’s why I have been urging readers to establish a cash reserve in line with their tolerance for risk, at least 30% upwards to 75%.
The Street doesn’t want the party to end, the administration cannot afford a bear market and recession in an election year. Nine of the last 10 recessions have been with a Republican in the White House and that is a major concern for the BIG money.
Monday August 19 “Ignore Administration Hype About Economy”
I have been warning readers, the administration and Fed will release whatever information it can muster up to stabilize the market and that that may work temporarily.
White House economic adviser Larry Kudlow was on both Fox News and “Meet the Press” Sunday where he said, “I don’t see a recession at all,” and “There’s no recession coming …the pessimists are wrong”
Chief White House trade adviser Peter Navarro took the same stance on ABC’s “This Week” and CBS’ “Face the Nation,” saying he was certain we’re going to have a strong economy through and beyond 2020, adding Chinese tariffs would have no impact on American consumers.
Leaving New Jersey yesterday on Air Farce One, President Trump denied rumors of an economic downturn, saying, “I don’t think we’re having a recession…We’re doing tremendously well… Our consumers are rich.”
Small wonder then that the market will kick off trading on a strong note today.
We have yet to hear from the Fed, but give it a few hours after the open.
OK, while an administration should be supportive, it should not be manipulative against strong odds that the economy is either in a recession, or on the threshold of one.
By its verbal hype, investors are being sucked into a market that is historically very overvalued. When the truth outs, they will get slaughtered.
Just the fact the Fed is in a hurry to cut interest rates, indicates it seriously sees a recession looming. Add to that an inconsistent rebound in housing and a crunch in manufacturing and it spells RECESSION, and there has never been a recession without a bear market.
Friday August 16 “Street Ignores Warning Signs – Will Try to Run Stocks Back Up – Use Strength to Sell”
Global recession fears have driven interest rates into negative territory, i.e., depositors must pay banks to hold their money !
The US Fed is driving interest rates lower to head off a recession here. Only 8 months ago, it was raising rates – go figure.
“Unprecedented policies will be needed to respond to the next economic downturn,” reports BlackRock Investment Institute, adding “Monetary policy is almost exhausted as global interest rates plunge toward zero or below.
BlackRock’s solution is “helicopter money,” giving money directly to the public. Hey guys, I live at 7925………..
CONCLUSION: I would rather be wrong on this one, but I have been warning of a recession/bear market since late last year with good reason, and finally, the financial press is picking up on the risk.
But the Street still doesn’t get it. That’s the kind of arrogance and naivete that leads to investors getting slaughtered. This I what happens after a Fed-micromanaged 10-year long bull market.
The bull will continue, and buyers will continue to buy, at the market and on dips until suddenly the BIG money, the SMART money, is a no-show, or a piece of news so horrific that it can’t be ignored chases buyers away and triggers a selling panic.
I have experienced 13 of these market tops, and they all have at least one thing in common – practically no one thinks a bear market can happen – conditions are simply too good.
…………………………………………………………….. Thursday August 15 “Expect Fed and Administration to Talk Market Back Up”
It took an inversion of the 2 yr/10yr yield curve to wake the Street up to what has been obvious for 6 months – that we are in the early stages of a recession.
Yes, this is what I have been warning readers of for at least that long.
Another warning is appropriate now, that is that the Fed and administration are going to step in with whatever BS they can muster to turn the market back up……and of course, suck investors in for yet another drubbing.
As I have said several times this week, both the Fed and administration are master market manipulators of the stock market.
Yesterday I noted, “At some point…. the Street won’t take the bait then whoosh down the market goes to a level that does discount the negatives. Yesterday’s “whoosh” down was just the first of many when the BIG money, the “smart” money, decides to bail out looking ahead to an opportunity to buy back ion 35% – 45% lower, more for Nasdaq.
CONCLUSION: Expect hype about tariffs, meetings with China’s Xi Jinping, and lies about the strength of the economy.
These comments will trigger sharp rallies. Investors will jump back in… only to get their clock cleaned all over again.
There have been bear markets without recessions, but never a recession without a bear market.
I have experienced 13 bear markets and 7 recessions and have never seen such ineptness and spewing of untruths in any of them.
Wednesday August 14 “Bulls “Must” Hold the Line….or else”
Why worry about buying, I wrote yesterday, “The Fed is there with another cut in rates, or verbal hype, and it has been a long time since this administration floated an untruth about optimism on trade talks.”
Within 90 minutes of my post, the administration announced it would postpone the 10% tariff on $300 billion of Chinese goods scheduled for Sept. 1 until Dec. 15. The DJIA shot up372 points erasing Monday’s 391 point loss.
It is clear to me the announcement was timed to prevent another leg down in the market, something this administration and Fed do not want so close to a presidential election year.
As noted Monday, the Fed and administration manipulate the market all the time.
I have argued for letting the market find a level that discounts current and potential negatives. Eventually, the market will do that anyhow, but not until a lot of investors get sucked into stocks by the hype.
At some point, I noted, the Street won’t take the bait then whoosh down the market goes to a level that does discount the negatives.
THAT JUNCTURE MAY HAVE COME TODAY . PRE-OPEN TRADING INDICATE A BIG DROP AT THE OPEN IN FACE OF THE INVERSION OF THE 2-YEAR AND 10-YEAR YIELD CURVE, THE FIRST INVERSION SINCE 2007.
Expect the Fed or administration to counter with a commentary that rebuts the seriousness of the yield curve inversion.
Tuesday August 13, 2019 “Street’s Algos Unflappable Until Overridden By Selling”
Buyers will rule UNTIL someone breaks ranks and sells, triggering a stampede to sell. This is a “I won’t sell if they don’t sell” mentality. The Street’s algos are unflappable until overridden by common sense.
So far buyers are there on pullbacks even though they are paying up for stocks. Why worry, the Fed is there with another cut in rates, or the verbal hype, and it has been a long time since the administration floated an untruth about optimism on trade talks.
Both the Fed and administration manipulate the market all the time, as well as huge pools of leveraged money.
But, comes a time, all that doesn’t work, buyers are chased away by fundamental, domestic and international developments, and big investors scramble to lock in profits.
This negative rant must get old after a while, but all I am saying is, there are soooo many signs of trouble that aren’t discounted in valuations, and that situation won’t last forever.
When this aging and overpriced bull market heads down to a level that reasonably values stocks, it will happen suddenly, 12% – 18% in a matter of days and that will more than sting.
What No One on Wall Street Wants to Hear
>We are in the late innings of an economic expansion, so a recession is a good bet. The current expansion started in June 2009, has lasted 120 months, the longest in history, twice as long as the average length of 11 cycles since 1945.
> Of the 10 recessions since 1950, the average time between the low point in the unemployment rate and the start of a recession was just 3.8 months. The unemployment rate is 3.6% which was hit in May. Technically, we won’t know when the start of the current recession is official for months after the fact, since that conclusion is reached by the Nat’l Bureau of Economic Research (NBER) and they consider host of economic indicators.
>Bear markets lead the beginning of recessions by 3 to 12 months. The current bull market at 123 months is 4 times the average of the last 15 bulls going back to 1957
>Nine out of the last 10 recessions have occurred with a Republican in the White House.
Investor’s first read.com
A Game-On Analysis, LLC publication
Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer. Neither Game-On Analysis, LLC, nor George Brooks is registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.