Continuing on this theme, the DXY got as low as 92.57 and new 1+ year low. However, 92.57 is very close to last August's low of 92.62-so really making a double bottom. In the short run, I do think the DXY is going higher, as the FED has been stingy with monetary aggregates the last 3 weeks, sending commodities lower for a time.
After a few weeks of soft macro data, the FED will be "forced" to add liquidity in size again as soft macro data and falling commodity prices will stir deflationary fears. Net/net I think the market is setting up for a very strong 2ndH-to new highs-as a weaker $ filters through the economy positively around the world such that one benefit will be increasing earnings estimates for the Dow 30 and S&P 500 for 2016 and 2017-those estimates are still falling now.
Exports were at 52.5, up from March's 52 and at an 18 month high-the weaker $ is starting to help mfgrs. Also of note, Euro-zone GDP was higher than the US, .6% vs .5% and the Euro-zone's April Mfg PMI was higher than the US, 51.7 vs 50.8-so the weaker Euro all last year and into early this year did what it was supposed to to.
Now the the shoe is on the other foot, the US has the weakening currency, so with a time lag, US mfging is going to pick up. This trend will favor industrials and tech as long as that tech is not old tech selling into the enterprise space in direct competition with the cloud. As an example not to buy, BRCD warned today. However, the stuff to buy is the continued build out of broadband both wireline and wireless.
Should the DXY stay below 94-next big resistance area is 92.50 (8/15 intraday low)-we should see "evidence" that the US economy is getting stronger. With the reflation trade (higher commodities) providing financial relief for many companies and countries, their increased casfhflow should lead to higher "spend" soon-perhaps some hiring.
At this time the Atlanta FED has 2ndQ GDP up 1.8%, which is below consensus of 2.5%, but better than the 1st Q. By the 3rd Q, GDP should be greater than 2%. Soon, I should see coincident indicators, like steel production, RR car loadings ,trucking indexes etc, turn up to follow higher commodity prices. When that happens, small cap tech should get the excitement that gold/silver are getting now as the psychology around small cap tech is similar today as it was around gold/silver stocks last Dec/Jan.
The rest of the world may not care until Aug/Sept, so there will still be lots of time after many of these companies report 1stQ numbers that maybe bleak. But most of my research suggests that; at least for the broadband buildout theme, both wireline and wireless; that capX spend will be getting stronger each Q over Q this year.
As has been my theme for over a year, the FED has to "back" the whole process by increasing monetary aggregates. Since the FED has net/net not the last 3 weeks, I think prudent to raise cash net/net with the ideas that the S&P 500 could roll over back under 2000. Then, after a few bad macro numbers, the FED will be back in the game of adding liquidity.
DXY hit 93.18 this morning a nine month low-however it is not because the FED has been adding lots of liquidity. It is more of many traders got caught on the wrong side of the trade when the BOJ did nothing-expecting the Yen to go weaker, but now forced to cover sending the Yen stronger. Also, the Eurozone printed some good GDP numbers today-strengthening the Euro.
It light of that, I will take more gains on gold/silver today as gold is having trouble breaking above the March high of $1288. The lower DXY will be good for tech stocks later in the year, so I have been buying PCTI, KTCC and VIRT because of the strong KCG earnings.
Worthless press release about some local engineering school (Surely, because of his outstanding engineering skills....) Q1 numbers most be bad (surprise, surprise) and the doctor is laying the ground for plan b at school... if the board ever gets wise enough to fire him....
Consistent with the theme, that if interest rates are forced, by bond vigilantes, to normalize once inflation becomes a problem (3% or otherwise) bond losses will be massive.
If I have the numbers correct, there is currently about $48 trillion in government debt outstanding with an average interest rate of 1.38%, the all-time low yield was 1.29% earlier this month-of course over $7 trillion of the debt carries negative interest rates. The problem, if interest rates were to move up .5% or 50 BPS, the losses on those bonds would be $1.6 trillion. Most bonds are held by banks and other financial institutions and bought with leverage. Once interest rates start to rise, if too quickly, bond owners will have to sell to cover their "margin" calls as their equity is getting wiped out as interest rates rise (bond prices fall). If the central banks don't step in, with QE measures, there will be a self reinforcing selling loop until markets clear-2008-9 all over again.
All securities derive their value off of government-so called risk free bonds. Once that market breaks, then all other market, especially those that use debt to prop up their prices-like stocks and real estate-will get hammered. Central banks are trying to get more inflation to stave off deflationary forces and increase nominal GDP. The huge job, which I don't think they will be able to do, is to get inflation higher, but slow it down to some level that does not cause interest rates to normalize.
So trade accordingly, I don't see anyway out, but for 12-24 months or until inflation gets high enough-forcing interest to normalize, most assets prices are going higher. It will be matter of catching the shifts of pessimism and optimism around each sector that will determine one's success.
With world debt so high, as a % of GDPs, interest rates can't go up too much to fast because of:
1)Assets prices would fall
2)Debt servicing would be more difficult-perhaps setting off a self reinforcing negative loop like we had in the "Great Recession".
Also, the FED can't "tighten" relative to the BOJ and ECB because that will send the DXY up, putting downward pressure on commodity prices with all its world deflationary implications. So, the world has have increasing amounts of added liquidity (leverage) to service its current debt, keep asset prices flat to higher and then generate GDP and job growth. However, keep in mind, less and less GDP growth is realized for each amount of new debt.
So the FED has quit a balancing act. It doesn't want to add liquidity too fast, but it must "keep up" with the BOJ and ECB to keep the DXY from going back up, but enough to get nominal GDP up to the 4-5% area to keep asset prices up.
So, this why I'm bullish on the "reflation trade" as the FED has to keep assets prices up, nominal GDP up because not enough nominal GDP and/or falling assets prices will lead to a self reinforcing negative sales loop-a deflationary depression. But this is a game of re-arranging the chairs on the Titanic. As some point in time, when inflation gets to 3%+ sustained in the US and Euro-Zone, (3% is my arbitrary figure at this time-it could be less or it could be more), interest rates, instead of being negative in absolute and real terms, will "normalize" and get back to positive real rates of 2.5-3% real rates above each countries 10yr bond.
For example, if inflation gets over 3% in the US, the 10yr will go from today's 1.9% to 6%+. At that level, bonds loss 20-25%, stocks will loose more, real estate collapses, the budget deficit would get over $2 trillion/yr putting the US at risk of not being able to service its debt, the $ falls, so the US imports deflation, sending interest rates even higher.
World debt levels have increased dramatically since the 1960s-especially at the government level. Part of that dynamic was the US going off the gold standard in 1971-mostly because of the financial pressure of the Vietnam War and the implementation of the "Great Society" programs. In essence, without the gold standard, politicians "discovered" every increasing deficit spending to "buy" votes. The problems, above and beyond the moral and financial hazards, is that in the last 20 yrs or so more debt has led to less and less GDP growth. The problem is so acute now, that any "whiffs" of deflation puts industries, governments and individuals at risk of being able to service all that debt. The great recession was all about servicing debt backed by real estate. So, since 2009, central banks have provided extraordinary amounts of liquidity to prevent any more outbreaks of falling asset prices. That changed, July/Aug 2014, when the FED got half way through its QE taper. Implications? The world got use to certain levels of added liquidity from the FED, but with the FED's balance sheet and monetary base now shrinking, the DXY shot up-tightening financial conditions around the world-unleashing deflationary forces (falling asset prices) in commodities. After the December rate hike and the resulting fallout, the DXY double topped at 100.51 in December, and has been down net/net ever since at the FED realized their mistake. So where does that leave us?
BB06, by the way, I bought 3000 PCTI in the mid $4.50s near the close today as well. Dividend announcement after the close makes for a nice yield.
Comments by VZ, PLXS and CLS all suggest wireless capX spending was flat to down the 1st Q y/y, but will be up each Q sequentially this year and up y/y for the rest of the year. Now these are big macro numbers and so there is not a direct relationship to PCTI, but does increase the odds that PCTI will see some of that increased CapX spend-hopefully, with new products and services get an increasing share. Since wireless build out is still only in the 4th or 5th inning, 5G testing will start next year, the combination of: antennas, analytics and services should be good businesses to own over the next 1-2 years.
If current mgt doesn't increase sales and earnings, another company or financial buyer will buy out the business, at a higher price, to get higher returns out of those businesses.
Yes, IBD publisher is basically a "momentum" guy. However, on stocks that I have a high conviction on I have "core" shares and "trading" shares. The "core" stay in the portfolio and the "trading" shares go when the RSIs get get over 70.
Since it my view that negative interest rates are a license for fiscal stimulus, whomever wins the White House will increase spending for:
4)In the case of Trump, probably increase tariffs as a negociating tool
Given that stock ownership, as a % of the population, by Americans is at a 19 year low (52%) according to Gallup (2007 it was 65%), the odds of the market melting up in the next 18 months increases as a bullish "consensus" will permeate market psychology when it "understands" that worldwide monetary and fiscal stimulus is going to lead to large S&P 500 earnings increases for 2017 and 2018.
Although I'm cautious for the next few weeks to a couple months-DXY relative strength and the risk of large Chinese Yuan devaluation-S&P 500 2500-3000 is in the cards over the next 18 months.
Sold both my RF (RSI 77) and KEY (RSI 75) for small gains and bought some PCTI near the close. Both RF&KEY have large oil exposure according to a Reuters article out today which helped in making my decision. Commandor doesn't your philosophy of taking gains on high RSI stocks run counter to IBD which believes one should buy strength?
M2 flat last two weeks, DXY double bottom around 93.90 the last few days-looks to be heading back up over 95 to me-which will take stocks and commodities down. Time to take gains on high (greater than 70) RSI stocks.
On a different subject, much has been made recently of China' s improving number/outlook etc. It is my view that the March improvement is:
1)Coming off a very slow FEB when the country was shut down for 10 days of holidays
2)Seasonal bump as real estate suppliers-steel, cement, copper industries-ramping up for their spring/summer building season that is benefiting from government stimulus
What I'm getting at is the sustainability of China's "rebound"-I have doubts. All the while the PBOC has been injecting massive liquidity-which should be sending the currency down but the government is keeping it up to make the shorts cover. Bottom line, I expect the run of "positive" macro-data out of China to disapate by June/July. At that time, PBOCs continuing liquidity injections and soft macro-data should put pressure on China to devalue their currency down to 7.25-7.50/$ vs about 6.50 today.
That would export deflation around the world and shock the current reflation trade into a massive "grab for liquidity" sell off. I'm net/net raising cash-only buying stocks that are absolutely cheap that will benefit from long lasing themes-such as wireless and broadband build outs.
I'm probably a couple months early in my concern, but it suits my notions of reward/risk. Of course, if the FED continues to add liquidity in all the monetary aggregates I look at, I will be inclined to buy more that I would have.
If I'm correct on China, the policy responses will be more central bank easing and fiscal stimulus-putting the reflation trade back in play-but the S&P 500 may start from a level 200 points below from whatever levels it was at just before the "deflation" scare.
DXY got under 94 today-getting close to the 9 month low of 93.63 of 4/12/16. Stocks, commodities getting a bid, while bonds are selling off-all consistent with my view that the FED has to ease. Reinforcing the "ease' view is continuing soft macro-econ data. Today was soft housing starts and permits. Going back last week, retail sales for March were very soft with 9/13 catagories down y/y.
Given the strong run up since 2/11-I think it prudent to take gains on stocks with RSIs over 70.
But could be a buyer on Friday if the monetary aggregates show more FED easing.
Only when buying, at the end of the year, to take advantage of tax-loss selling My "mechanics" are more along the lines of buying RSI's below 30 and taking gains when RSI's get above 70. Given recent strength in gold/silver stocks (RSIs above 70)-I have been taking some gains.
After what are expected to be soft 1st Qs, PCTI and MRVC are my favorites. WSTL has been "bottoming" in the $1.13-$1.15 area for weeks, any positive news sends it back to the $1.40s-where it spiked a few months ago. However, I'm looking to hold all these stocks for the next 12-18 months, in anticipation of 50-200% moves.