Where did that global synchronous economic recovery go? You know, the one strategists were gushing about as the foundation for the bull market in stocks?
Last week we saw ISM, Pending Home Sales, Capital Goods Orders, Chicago PMI, and Prices Paid all disappoint. And Europe just posted a dismal Q1 GDP of only +0.4%.
What is becoming painfully obvious is that the enormous tax breaks given the corporations to expand capital investment and create jobs is having the opposite effect.
Instead companies are accelerating the adoption of tax subsidized robots to replace workers, destroying jobs in the process, but boosting profits.
That was clear as day with the April Nonfarm Payroll Report, which came in at a weak 164,000. With all the hyper stimulus the economy is now getting, it should be over 400,000 a month.
The boost has yet to show up in Average Hourly Earnings which were up a miniscule 0.1%, or a 2.6% YOY rate. No wage hikes here.
The headline Unemployment Rate fell to 3.9%, which will be close to a cycle low. The boarder U-6 "discouraged worker" unemployment rate fell to 7.8%, a 17-year low.
Professional and Business Services gained 54,000 jobs, Manufacturing 24,000, and Health Care 24,000.
Peak earnings? Really?
Maybe for old line industrial companies like US Steel (X) and Caterpillar (CAT) which got a big, one time only shot in the arms in January from the tax bill, and then no more.
Technology companies are still powering on, full speed ahead damn the torpedoes on both earnings and announced share buy backs.
With the Trump team in Beijing this week trying to cut a deal with an incredibly weak hand, we have another big dark cloud hanging over the market.
Gee, do you think the Chinese read the New York Times too and are also aware of the president's weak poll numbers, a Mueller investigation that is closing in for the kill, and desperation to get anything done on the international front?
With corporate stock buy backs expected to leap from $500 billion to a record $800 billion this year, companies have become the sole net buyers supporting the stock market.
It's all starting to sound like a Ponzi scheme.
The great irony here is that consumer staples (XLP), long considered "safety stocks" because of their high dividend yields, have been the worst performers of 2018. When your aggressive stocks do poorly but your safe stocks do worse, you have to worry.
I have never been one to argue with Oracle of Omaha Warren Buffet. The founding subscriber to the Diary of a Mad Hedge Fund Trader has been a follower of many of my Trade Alerts, including for Bank of America (BAC), Burlington Northern (he bought the whole company), and American Express (AXP). But I could never get him into technology stocks.
Now, at last, you can add Apple (AAPL) to that list.
You know all of those panicky investors unloading Apple stock just over $150 a few months ago, apparently believing that the company's product cycle and innovation were at an end? That was Warren doing the buying.
Too bad I couldn't get him interested in the stock when Steve Jobs was still alive. Since then, the share price has risen by 400%. Knowing Steve as I did, maybe that was the reason he stayed away.
Still, I tried.
Looking at Apple's earnings this week, it's better late than never.
Buffet now owns a staggering 240 million shares of Apple worth $44 billion. It is his largest position, and Buffet is also now the largest shareholder in Apple. Remember, when you sell the shares of Apple, you now have both Buffet and Apple itself competing to buy the shares from you.
It's not a trade I would recommend.
I spent a rare week on the sidelines with the Mad Hedge Trade Alert Service, preferring to preserve my performance at an all-time high.
I decided to let the next false breakdown of the 200-day moving average take place without me. To mix a few metaphors, when the sun, moon, and stars line up once again I'll go pedal to the metal once again.
Remember, it's "Sell in May, and go away," except that this year May happened in January.
Now that the financial and technology Q1 earnings reports are out, the rest from here are going to be pretty boring.
On Monday, May 7 at 3:00 PM we get April Consumer Credit.
On Tuesday, May 8 at 9:45 AM EST, we receive the April NFIB Small Business Optimism Index, which has been red hot as of late. Disney (DIS) and China's JD.com (JD) reports.
On Wednesday, May 9, at 8:30 AM, the April Producer Price Index, and important read on inflation.
Thursday, May 10, leads with the Weekly Jobless Claims at 8:30 AM EST, which saw an of 2,000 last week from the 43-year low. At the same time, the all-important Consumer Price Index is released, the most crucial indication of price inflation. NVIDIA (NVDA) and Dropbox (DBX) report earnings.
On Friday, May 11 at 10:00 AM EST we get April Consumer Sentiment.
We wrap up with the Baker-Hughes Rig Count at 1:00 PM EST. Alibaba (BABA) reports.
As for me, I'll be playing around with my new Samsung 75-inch curved QLED quantum TV. I just bought it half price on Amazon (AMZN) half price with free delivery.
And you know what? Just to mess with me, Amazon offered me the set $500 cheaper after I bought. Jeff, you're so cruel.
Good Luck and Good Trading.
?
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I Think I See Disney?s Earnings Coming
John, you make me laugh. Following you has been awesome. If it weren't for you, I'd have been a mega bear for the last three years
Cheers
Justin
Western Australia
"The profits at Apple are unprecedented in American history. They are double the next largest competitor. All their products would fit on a small table. We've never seen anything like that," said Oracle of Omaha Warren Buffet.
Global Market Comments
May 4, 2018
Fiat Lux
Featured Trade:
(DON'T MISS THE MAY 9 GLOBAL STRATEGY WEBINAR),
(A DAY IN THE LIFE OF THE MAD HEDGE FUND TRADER),
(SPY), (TLT), (TBT), (FXE),(GLD), (GDX), (USO),
(AMLP), (STBX), (NFLX), (DIS), (AAPL), (GM)
My next global strategy webinar will be held live from Silicon Valley on Wednesday, May 9, at 12:00 PM EST.
Co-hosting the show will Mad Day Trader?Bill Davis.
I'll be giving you my updated outlook on stocks, bonds, commodities, currencies, precious metal, and real estate.
The goal is to find the cheapest assets in the world to buy, the most expensive to sell short, and the appropriate securities with which to take these positions.
I will also be opining on recent political events around the world and the investment implications therein.
I usually include some charts to highlight the most interesting new developments in the capital markets. There will be a live chat window with which you can pose your own questions.
The webinar will last 45 minutes to an hour. International readers who are unable to participate in the webinar live will find it posted on my website within a few hours.
I look forward to hearing from you.
To register for the webinar, please click on the link we emailed you entitled, "Next Bi-Weekly Webinar - May 9, 2018" or click here.
Global Market Comments
May 3, 2018
Fiat Lux
Featured Trade:
(STORAGE WARS),
(MSFT), (IBM), (CSCO), (SWCH),
(DON'T BE SHORT CHINA HERE),
($SSEC), (FXI), (CYB), (CHL), (BIDU),
Everyone who has been reading this letter for the past decade (yes, there are quite a few of you), know that I am a fundamentalist first and a technician second.
Of course, you need to use both, as those who mistakenly leave one tool in the bag reliably underperform indexes.
The one-liner here is that I use fundamentals to identify broad, long-term, even epochal trends, and technicals for the short-term timing of my Trade Alerts.
Do both well, and you will prosper mightily.
Strategists often like to cloak themselves in the fundamental or technical mantels alone. But parse their words carefully, and the best fundamentalists talk about support and resistance levels, while the ace technicians refer to the latest economic data points.
The reality is that the best of the best are using both all the time. The differential titles have more to do with marketing purposes than anything else.
Having said all that, you better take a good, hard look at the chart below for the Shanghai Stock Exchange Composite Index ($SSEC). The 2016 low has held and the long-term uptrend lives.
My bet is that it resolves to the upside. All it would be doing then is coming in line with the rest of the global equity markets, including those of many emerging markets.
Since the last top, the earnings multiple of Chinese companies has plunged, from 35 times to a mere 15 times. This means that the 6.5% a year growing economy (China) is trading at a lower multiple than the 2.3% a year growing one (the U.S.). The big question among strategists since 2009 has been how far these valuations would diverge.
If I am right, then you can expect a rally of at least 25% in the Shanghai market soon, and more in peripheral markets, such as Hong Kong (EWH) and in single Chinese names. My bet is that it starts in August, when the current correction ends and we resume the year-end ramp-up.
You should place a laser-like focus on the Chinese Internet sector, so you won't go wrong picking up some Baidu (BIDU) around $180, if you can get it (click here for my original recommendation to buy the stock at $12 nine years ago).
If you are looking for further confirmation of the coming bull move in China across asset classes, please peruse the chart below for copper. The red metal has one of the closest correlations out there with the fate of the Middle Kingdom's economy and stock markets. It appears to be breaking out of a major five-year downtrend as well.
The other nice thing about this scenario is that it provides more fodder for my expectation of another global bull market move in the fall, when you can expect major indexes to tack on another 10% by year-end.
Jim Chanos, watch your back!
"I can calculate the motions of heavenly bodies, but never the madness of crowds," said Sir Isaac Newton, the inventor of calculus and discoverer of Newton's Laws, who lost his entire fortune in a 17th century investment scam called "the South Sea Bubble."
Global Market Comments
May 2, 2018
Fiat Lux
Featured Trade:
(TRADING THE U.S. STEEL FIASCO),
(X), (XLI), (TSLA), (BA)
(ANNOUNCING THE MAD HEDGE LAKE TAHOE, NEVADA, CONFERENCE, OCTOBER 26-27, 2018)
(THE COOLEST TOMBSTONE CONTEST)
Talk about unintended consequences. Tamper with the free market and it will usually blow up in your face.
You would have thought that U.S. Steel was going to announce blockbuster earnings in the wake of the new 25% steel tariff imposed by the administration, right?
Wrong.
Instead, it has triggered a disaster of epic proportions. The reasons why provide a crash course on how fast the modern economy is evolving.
Of course, the stock market didn't like it, the shares crashing some 17.1% since the announcement. U.S. Steel, far and away the biggest beneficiary of administration policies, is now down on the year.
You may recall that we made a fortune when we bought U.S. Steel last summer at $21 a share, well before the run up into the passage of the tax package. The shares gained a mind-blowing 127%.
Not only did the company deliver a shocking disappointment on Q1 earnings, bringing in net profits of only 10 cents a share, it guided lower for Q2. Expectations had been far higher. Still, that is far better than the $180 million loss it brought in a year ago.
The CEO, David Burritt, cited unexpected "operational volatility." Take that to mean the chaos created by the steel tariffs. There is also trouble with its Great Lakes factory.
Flat rolled steel used to manufacture cars swung from an $88 million loss to a $23 million profit. But tubular steel used for pipelines incurred a $23 million loss.
What is really amazing is that the company made only a dime per share off an increase in total steel shipments YOY of 15.6%. Clearly, there is trouble in Pittsburgh.
And here is what U.S. Steel didn't expect. Instead of paying the extra 25% for imported steel, many customers are simply designing steel out of their products to cut costs rather than shifting to (X).
Three decades ago, this might have taken years to achieve. Thanks to advanced software applications this can now be accomplished in weeks. Companies are vastly more sensitive to costs than they were only a few years ago, and mere pennies can make all the difference.
It's only a matter of time before the entire auto industry shifts to carbon fiber, which has four times the strength of steel at one fifth the weight. That gives you a 20X improvement in performance and safety. Cost and mass manufacturing are the only issues.
Tesla (TSLA) is planning to make the jump in a couple of years. Boeing (BA) and the U.S. Air Force already have.
Where is U.S. Steel in a carbon fiber world? Try Chapter 11.
In the meantime, U.S. Steel consumers are scrambling to get exemptions from the punitive tariffs, creating a bureaucratic nightmare for all involved.
Wilber Ross's Commerce Department has been flooded with some 3,500 requests, each one of which takes months to review. The agency has boosted staff, but it is still overwhelmed. It looks like the only new American jobs the tariff will create will be government ones.
It turns out that many types of high grade steel, such as for razor blades and specialized carbon steel parts, aren't made in the U.S.
To prove that I learn something new every day, I discovered that even France is an important steel supplier. And I thought it was all about wine, cheese, and those cute black berets.
The net result for consumers has been uncertainty in the extreme. That purgatory has just been extended with the government's 30-day postponement of the tariffs announced yesterday.
If companies wait long enough the tariffs will simply disappear. They will certainly be declared illegal by the World Trade Organization.
The national security rationale for the steel tariffs was always completely bogus and will be laughed out of court. If steel really were a national security issue the Defense Department would have its own steel mill, as it already does with semiconductors.
The chips in U.S. weapons systems are 100% made in the USA to keep foreign back doors out of the design process.
Wars of the future will be bought with software, not M1 Abrams tanks or battleships. If fact, they already are.
As for the shares of U.S. Steel, I'm not touching them here. If the economic data continues to weaken as it has, you don't want to be anywhere near this sector.
The stock market already has reached that conclusion.
On the USS Missouri; Made in the USA