For the week end 1/9 auto shipments by rail were 13,276 carloads up 10.6% vs last year. Coming weeks will be more telling as they will not have holiday distortions. Otherwise, DLPH and BWA auto suppliers warned this week. I don't follow this sector too closely, so there may have been others, but I expect more in the coming months as production cuts will have to be made to reduce high inventories.
Within the ATA monthly trucking reports has been commentary most all of the last half of 2015 that high inventories has been and will continue to slow trucking activity. It should be no secret that the Dow Transportation Index has been leading stocks lower since last spring. That index made another 2+ year low today.
In the meantime, market measure of inflation and future inflation continue to tumble:
1)DXY is higher
2)10yr -2y=116 is an eight year low
3)5y5y FORWARD SWAP is under 2% for only the 3rd time in history-other two were Lehman 2008 and Sept FED no rate hike of last year
4)Even the Euro-zone 5Y5y down from 1.91% to 1.63%
Deflationary forces still rule!
World consumers are getting a "tax" break with oil prices. Oil prices could double and be net/net stimulative to the world vs a move from $60 to $90 would become a "tax". World grain and hence most food prices are cheap-another "tax' cut for consumers.
Fiscal policies by most of the Euro-zone countries has turned from "austerity" to stimulative-with the ECB buying government debt there is lots of room to continue to be stimulative. US fiscal policy has turned stimulative-given the budget deal of last month-as both Dems and Repubs look to pander to their respective constituencies.
So, if the FED would become neutral to accommodative:
1)DXY trends lower
2)M2 up $20+ billion to become up 9%+ y/y growth
with interest rates already low, stocks will become more attractive.
The wildcards? China continuing to drive the Yuan lower-which has been coming in waves-August was a wave and so was Dec/early Jan so far this year. The Saudis, as they are the oil price predator.
China, Saudis and a tightening FED are the main deflationary forces damaging the world's economy and financial systems. "Knowing" what they will do and then you will know when stock's downside risk is minimized and when the march to S&P 500 to 3000+ starts.
It is my view that since import prices have been falling about 3%, most of 2015, that the US is in a 3% deflationary environment. So when the FF rate is at .25-.50%, the real rate is 3.25-3.50%. With the 10 yr at 2.20%, the yield curve is inverted.
Yes, the CPI show positive inflation, but much of it is higher rents and health insurance and other related costs. No one want to spend more on housing and health related items-higher spending there is deflationary as it takes money away from spending in other areas. This is very similar to when oil prices are very high, it feeds the CPI higher, but is deflationary w/r to spending in other areas.
The FED has been "tightening" since August of 2014 w/r to the monetary base, its balance sheet and the wind down of QE3. As further "evidence" the DXY started its climb from the mid 70s to over 100 in July of 2014.
Bottom line, nominal interest rates are still low, but short term real rates are high as the US is in a deflationary environment of about 3%.
Free markets want to "clear":
3)Allocate resources efficiently
Creative destruction, but very deflationary!
Just the opposite, governments and central banks want to perpetuate the current status quo-economically and politically. Both have, governments and central banks, gone to great lengths- with deficit spending and easy monetary policies in these aims. Potentially very inflationary.
However, since 8/14 when the FED's balance sheet and monetary base started shrinking and the QE3 program was getting close to its end the FED stopped feeding the world the supply of $s it was use to feeding off of. That reduced "juice" has tilted the world balance towards deflation. In addition, because of government's resistance and interference they has been retarding the cleansing "clearing" dynamic of free markets-supply destruction has been slow. China especially is keeping alive vast industries that cannot operate based on economics alone. Saudi Arabia and others continue to produce oil at rates that drive prices lower than replacement costs.
So it all gets back to the FED. How much pain, some of it the good creative destruction kind, will occur before they intervene? Until they do, deflationary forces will continue to win out:
1)World GDP estimates will continue to fall
2)The ability of governments, businesses and individuals to service their $ denominated debts will get tougher
3)Debt overhang at all private and public levels absorb cash flow, leaving less for investment
If you have the answer to when the FED does their "reversal" and to what extent they begin to ease-then you will know, within days, when the reflation trade begins. Until then, its 1600-1800 for the S&P 500.
The FED's Labor Market Conditions Index came out today, 1/11, as it always does the Monday after the BLS's jobs number and it was at 2.9. The FED revised higher 11 of the last 13 months, so Dec's 2.9 matched Oct's 2.9, both highs since Feb 2015-Oct was previously 2.2.
Implication, according to the FED's model, labor conditions are even stronger than their previous readings. This reinforces my view the FED will not ease until, at least, two soft jobs reports. Of course, it is my view as with many others, that the BLS is grossly over estimating labor strength as not only are the absolute number of jobs being reported is high, but the mix is of poor quality:
1)multiple job holders (2-3 part-time jobs) are being reported as a "full" time job
2)Higher paying jobs are being lost and being substituted for much lower paying service jobs
3)Seniors are going back to work-lower paying service jobs-in record numbers because they cannot earn any money on their savings
Until the FED eases and while the DXY remains strong, S&P 500 estimates will continue to come down-GS lowered on Friday from $120 to $117-and bouts of selloffs, due to lack of $ liquidity will continue.
Hi body, There are two bargains GURE & ONP. Both stocks have great earnings and are selling for 1/4 of book value. GURE is selling for 60% of cash on hand. I wanted to hold PCTI for $5.50 but those two stocks dipped more than 10% just after I bought here. I am going to hold both through 2016 and want to catch the lows. Both will double in 2016.
On the thumbs down - there is a message board troll on the ONP board that has been harassing people for years. He has dozens of IDs and logs in and out giving multiple thumbs down to posters that own ONP. ONP gained 34% in 2015 and I have 270k shares. He follows me board to board just to harass me because he is jealous of my gains. (GURE was up 50% in 2015) I refuse to change my ID as it is 15 years old. Sadly, Yahoo counts him as dozens of users which helps their numbers. Yahoo won't stop him. I am sure he is mentally ill.
I think you are reading too much into a .25% move. I sold my 5k shares yesterday at $4.86 for a 10% gain. I have no doubt $5.50 is in the cards but I had a big bargain on the table that I needed to buy. I may get back in next week if the price stays low. Good luck.
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Since they raised interest rates and tightened monetary conditions by lowering the monetary base and free bank reserves and increased its reverse repo program:
1)2yr10yr spread has narrowed from the low 130s to an 8 year intra-day low today of 117-the bond market implying that inflationary expectations are falling as are GDP growth estimates
2)Commodity indexes continue to make new decade+ lows
3)The DXY is higher
With little hope the above trends will reverse as the FED continues to communicate they will continue to tighten-the game of "chicken" is getting more dangerous. The big question is how much "pain" will the FED inflict on financial and real markets before they reverse course. My thought is still, they will "ease" after the 2nd poor jobs number-so we are still 2-3 months away.
Within today wholesales inventory report, for the month of November, auto inventories were up 12.5% y/y with inventory to sales at 1.78, up from Oct's 1.77, and a high since 2009. Recall that Dec car sales were actually soft at 17.3 annual rate vs expectations of 18.2 million annual rate. One can only conclude is that vehicle dealers are sitting on more inventory than they would like-so AN's comments can be expanded to the vast majority of dealers. Implication, orders to mfgers are going to fall y/y for the 1stH of 2016.
Otherwise, across the whole economy inventories are up 2.2% y/y and sales are down 4.6% y/y. Inventory overhang is going to be a drag on GDP growth the 1stH of 2016-assuming the economy chugs right along. If there is a negative shock, then a recession is the cards. Slowing sales will lead to lower orders, leads to layoffs, leads to lower sales-a self reinforcing negative loop.
Let me review my bearish scenario. The US has been importing deflation (monthly import prices have been falling at a 3% annual rate for most of 2015. Therefore, if the FF rate is .25-.5%, then real interest rates are 3.25-3.5% because prices are falling at a 3% rate. With the 10yr at 2.2%, the yield curve is inverted-which leads to recessions as it is a sign of tight money.
The monetary base peaked in the fall of 2014, as did the FED's balance sheet. Hence, the FED has been tightening since just before QE3 ended. That is why:
1)Commodity indexes are making 13-16 year lows
2)World GDP growth is slowing
3)Industrial America is in recession
4)The DXY is near 12 year highs
The FED has not been supplying enough $s to the US and world economy to enable faster world GDP growth and to comfortably service debts based in $s. China is important because if they continue to weaken their currency-finally on CNBC today there was commentary that they have another 10-15% to go, taking the Yuan to 7.25-7.60 from about 6.6-China will continue to export deflation to the US. The FED has to ease to bring the DXY down-it was 76 in 7/14 vs 99+ today-and to bring down interest rates:
1)the 2y down to .25-.5%
2)10 yr down to 1.50%
3)3mo and 6mo negative interest rates
The market will bottom before the above happens, as it will anticipate, but until the FED starts growing M2 at a 9-10+% annual rate for months-imported deflation will continue to keep our interest rate curve inverted.
Having warned, for weeks, the US macro backdrop had been getting weaker and that stocks would follow-sell the rallies and raise cash-how much more is there to go? I think alot further down as China will continue to devalue the Yuan-exporting deflation to the US and earnings estimates will continue to be lowered. Last fall there was a rally off the august lows because, in my view, the FED pumped up M2 from a 5% annual rate in early August to 9%, starting in mid August (China devalued 8/11) through the 3rd week of Sept-stocks rallied till early Nov.
The FED could do the same this time, but like last time (by the end of Nov M2 was up only 2% annual rate) their short term addition of liquidity didn't make for a sustainable rally.
Ultimately, I think China has got to get their Yuan down to 7-7.5/$ vs 6.59 now-that will take months. Ultimately, the FED is going to have to start to ease-I think they wait for at least two soft jobs numbers-that make take months. So I'm waiting and looking for a 20% selloff, which gets the S&P 500 close to 1700.
bought shares April of 2012 for $1.54 some of which I'm still holding...no interest in buying shares here at $4...Good Luck