I would agree. The policy responses, with a time lag, will be:
from most governments and central banks.
Not commented on Friday was the Yuan hitting a 5 yr low vs the $. China's exporting deflation to the rest of the world will force central banks to err on the side of easing. On Thursday, the Markit mfging PMI for the US, was 51.4 up from May's 50.7-most all if the increase was due to stronger exports. So, the weaker $ is helping the US economy at the margin. The FED will keep the DXY weak in order to keep that trend going and to counter the Yuan's fall-the currency war is in full force as the US is now participating.
It may take a few weeks for many players to re-balance their portfolios after getting caught wrong footed on 6/24, but once that process completes, the macro economic backdrop will get better as fiscal and central bank stimulus programs get "fleshed out".
The situation doesn't improve if the FED does not follow through on their recent dovish statements with increases in the appropriate monetary aggregates and allows the DXY to move higher. The DXY got to 96.70, intraday, on 6/24, so there could be a retest of that level in the coming days/weeks. But it is my view the FED will have to add enough liquidity to get it back to the 93-93.50 level. However, lower would be better for everybody around the world as that would be a catalyst for higher commodity prices.
Very curious that gold rallied, while the DXY was getting stronger, but sold off as DXY got weaker-DXY down net/net for the day. Gold made a 2 yr high, but looks to have made a blow off top. Silver looks more interesting to me-I will be looking for silver stocks to buy in the coming days-especially if silver continues to fall while the DXY is falling.
Hopefully, you still have "core" shares in some gold/silver stocks above and beyond "trading shares"-because for the next few days gold/silver moving higher. GFI is the only one I would chase now-perhaps if the FED dissappoints a few weeks-sending the DXY higher-there will be opportunities.
If you watch the "Chronicles of Riddick" the political statement of that movie is that the necromongers of the movie, by their actions and words ("convert or die"), are today's trouble making religion-that if spelled out by its proper name would be censored by this venue.
For over a year, I have been posting that macro-econ data was weak and/or going to get weaker. This would eventually prompt the FED to be forced to ease. The catalyst, for my view, started the middle of 2014 when the FED started tightening by virtue of balance sheet and monetary base declines and other liquidity draining actions that made the $ scare vs other currencies-sending the DXY up. Today the "public" capitulation started with the FED noting recent job weakness and "headwinds" that are proving to be more than temporary. Still, the proof will come when the weekly monetary aggregates turn up in sufficient size and duration to get the DXY down and commodities up.
I view recent bond bullishness to be eventually bullish for stocks as, at the margin, bond money is going to be looking for positive returns from stocks vs $10.5+ trillion bonds are yielding less than 0. In the interim, gold/silver should continue to get a bid as that market, along with the stock market, anticipate the FED will have to ease.
Of course, another major question, that Europe will have to answer in the coming months and years is, "Is Western democracy and culture consistent with increasingly larger "necromonger" populations?"
I have in many prior comments said "no". In addition, WWIII is occurring between necromongers and with western world-as was my prediction several years ago. Unfortunately for the west, the vast majority of western leadership is asleep to this war.
Forgot to add:
3)From a macro-economic and investor's point of view, what does $10+ trillion in negative yielding government bonds mean and/or what are the implications?
1)Macro economic weakness
2)Central bank policy excesses
3)A "green" light for governments to borrow and spend more, such that the new supply of bonds pushes prices lower and yields up to eventually eliminate all negative yielding debt
4)Financial over regulation forcing insurance companies, pensions and other fiduciaries to buy "low risk" government debt
My current view is all four of the above, but "3" is very bullish for stocks.
1)The FED and other central banks are trying to engineer higher levels of inflation and GDP, otherwise known as nominal GDP to enable job, profit growth and ease the ability of all debt issuers to service their debt-included in that last group would be pension plans making good on their promises. This issue is, if the central banks are successful, then interest rates must rise-the FED itself was forecasting that they were going increase the FF rates 4 times (100 BPS) this year after the Dec 2015 FF rate increase. Well, with $40 trillion in bonds outstanding in the US, a 100 BPS increase in rates would lead to a $2.4 trillion loss on those bonds. Not a "loss" the market would take well, hence the sell-off in stocks in Jan/Feb of this year. If interest rates would to go up 100 BPS worldwide, the loss on bonds would be $5-8 trillion.
Bottom line, higher inflation and normalizing interest rates would be a disaster for unhedged and levered bond holders. They would be forced to sell other assets to cover their bond losses-setting up a self reinforcing negative sales loop.
2)The BOJ is buying 40-50 trillion more Yen each year than the government of Japan is issuing. At the current rate, all external Japan government debt will be owned by the BOJ by the early 2020s. What will Japan do then, as decades of deficits will be financed by the central bank vs interest bearing debt? With the BOJ, just defacto, issue a perpetual non-interest bearing loan to finance all deficits? If hyperinflation is not caused, what will be the moral hazard be as other governments will think about monetizing all of their government debt as well? Government officials will rejoice worldwide as the holy grail of deficit spending financed by central bank monetizing cures all:
1)Deficit spending limits
2)Unemployment issues as it relates to too little aggregate demand
Sounds to good to be true, as what will be the value of those countries currencies be over time?
Various research reports suggest that AT&T is determined to be first with 5G networks vs playing catch up to VZ when it came to 4G LTE networks-some of this research suggests trials will start late this summer. If so, PCTI will benefit, starting the 2ndH of 2016, with scanner sales to monitor these emerging networks. Of course, wide adoption probably won't occur until later in 2017 and for the next several years thereafter. My point being though is "news" of 5G networks going into trial will have the "market" looking for "plays" that will benefit from this multi-year process.
Mgt is on record that they expect sales to double in the next 5 years. Even if they they undershoot by 1/2, 50% is still 7% CAGR-which the market should value at least 1 PSR for the business. With the liquid part of the balance sheet worth $3.40/share, 1 PSR for the business would add $7.50 to the stock price (2017 sales of $122 million)-for a total stock price of approx $11.00.
Downside risk of PCTI is minimal (maybe 5-10%) given its dividend yield and the value of its liquid assets vs its market cap. Upside is 2-4X depending how well mgt performs. Of course, that is the ultimate question as mgt has not net/net performed in recent Qs. The "market" is ultimately efficient and will take the company away from mgt to the benefit of current stock holders vs today's very low stock price cost basis.
From a legal point of view, probably won't go any where, but a "back door" attempt to put PCTI into play. So, net/net bullish.
Forgot to list, within the JOLTS number, openings for professional services (higher paying white collar jobs) was down 274,000. This coincides with weak BLS jobs report for temp jobs- which have been down 2 of the last 3 months.
One can draw the conclusion, that in addition to mining (natural resource) and mfging jobs on the decline, white collar job growth has slowed considerably and/or on the decline.
Other macro-data, not from the government, shows that the economy is rolling over:
1)World bond prices making record low yields daily-now below 60 BPS
2)US 10yr -2yr bond now at new 9 year low around 90 BPS
3)Copper at 6 month low
4)Y/Y federal tax receipts falling to 0% vs over 4% earlier in the year
5)Lumber prices below $300
6)JOLTS April hires were at a 8 month low
7)JOLTS difference of hires vs separations was 104,000 a 4 year low
8)Online measures of job openings for May approx 2.3 million vs Dec 2015 peak of approx 2.8 million
Implications: with a time lag, policy responses will be more fiscal and monetary stimulus-the most important will come from US, European, China fiscal stimulus and if the world economy is going to get a miny boomlet-the FED.
For me, still not all in as waiting for FED to "ease" more aggressively-in addition to M2 up 9%. I also want to see: balance sheet and monetary base growth which continue to be down y/y.
FED's labor market condition's index print for May was -4.8 a seven year low. The last 3 months have been: -2.1, -3.4, -4.8 vs last December's 2.9. Clearly the "jobs" picture has gotten worse, but this is because of the relatively stingy FED last year when a strong $ (DXY) hurt exporters, hurt business that compete against imports and kept commodity prices too low.
With the weaker DXY, since mid FEB (net/net) those above have been helped. Still a DXY below 92.50-93, a major resistance area would become extremely bullish for stocks and commodities.
So far this year, money has come out of stocks and into bonds-if I am correct that will reverse as the FED's relatively easing policy, contributing to a weaker DXY, starts to kick in to get US and world GDP stronger by the 2ndH of 2016. Fiscal stimulus, around the world, will contribute to this bullish scenario.
I'm still buying PCTI in the mid $4.40s along with other companies that are participating in wireless and wireline broadband build out.
Of course, it has been my view the BLS has been overstating job growth for years as faulty assumptions (overly optimistic) about the birth/death model of business formation.
As we witnessed, interest rates went down-worldwide-now there is over $10 trillion in negative yield government debt and $380 billion of negative yield corporate debt. The DXY crashed from approx 95.50 to 94.15 and gold/silver gapped up.
it is my view that, with a time lag, there will be more fiscal stimulus by western governments, and the FED will have to become more dovish by supply more liquidity.
Bullish for tech as weaker $ and broadband buildout, both wireless and wireline, will continue. Confirming evidence came from DY, CIEN and AVGO in recent days.
JPM, in recent days, warned vehicle sales have peaked and auto loan paper is now a very risky business as delinquencies are rising and valuations of used cars are falling.
Going back a week or so ago, I made the comment that Royce was just about done selling their position in KTCC-which had been an overhang on the stock just about all year. Since that post KTCC is up greater than 10%.
My technical indicators are suggesting that whomever has been the overhead supply on PCTI is just about done as well. Whether it is a change in mgt-in the case of Royce-or the end of Q window dressing finishing early, PCTI is coiled spring.
B Riley conference call. PCTI mgt made two projections that caught my attention.
1)Services revenue will increase in 2017 to the $17-$20 million range up from $13 million in 2016.
2)Revenues will double in the next 5 years.
According to my calc, that would be CAGR of 14%. Obviously, the proof will be in the performance over time. Still, PCTI is in attractive businesses that are growing and will continue to grow as wireless applications grow. If PCTI does grow revenues to $200 million, over the next 5 years, the "market" would most likely assign a 2 PSR valuation. Price implication for the stock-close to $20.
Chinese Transport Ministry reported RR car loadings for April were down 4.5% y/y. In the 1st Q RR car loadings were down 9.4%. In my view, their economy is still having trouble, which increases the odds that China will continue to devalue their currency vs the $.
RR car loadings of vehicles, for the week end 5/21, up 2.1% y/y-1st upweek after 2 down y/y weeks.
On the other hand, Markit PMI (services for May) was 51.2 vs expectations of 53 and vs 52.8 for April. Commentary was that weak Markit PMI data for both mfg and svs implied 2nd Q GDP of less than 1%-current consensus is around 2.5%.