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KING DOLLAR

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All bow before king dollar. Those who know me can testify that I have been a dollar bull for a long time. See, I am bullish on something. 

In fact, I have been advocating for a long time that the US Dollar is one of the best and the most undervalued investments out there. While most people run around screaming inflation and predicting destruction of the US Dollar the reality is quite different.

Yes, the FED is printing or creating a lot of dollars out of thin air. However, those are not real dollars. They are creating credit which is a completely different animal. At the same time there aren’t that many real dollars out there (well, relative to the overall money supply …including credit). 

So, what happens when there is a credit crunch and people need real money to repay the loans? You have guessed it, the value of the dollar goes through the roof.

USD Chart 

Now, this has been an easy and risk free investment strategy I recommended to my parents over 13 years ago.  I simply told them to accumulate/save as many US Dollars as they can and invest them in short term  T-bills and a few other risk free financial instruments. They have and so far they have done very well.  How well?

US Dollar Accumulation & Risk Free Investments:  +67% compounded over the last 13 years.  

While over the same period of time…..

DOW:  +15%

S&P:  +10%

NASDAQ:  -28%

Not bad if you ask me.  Particularly considering the fact that there is absolutely no risk involved and they are not managing an active portfolio. Well, it’s so easy and stress free that they are not managing anything at all.  I will continue to maintain this position for my parents for at least another 3 years.  That is until 2016 stock market bottom and initiation of inflationary environment.

I recommend you do the same. The US Dollar Index looks good from both technical and fundamental perspective. While it doesn’t really matter if you live in the US, any index appreciation gives you that much more for your buck. 

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Shrinking US Trade Deficit

BusinessWeek Writes:  A Shrinking U.S. Trade Deficit—Brought to You by Fracking

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Almost entirely on the back of stronger exports, last week the U.S. Commerce Department revised upward its economic growth estimate for the second quarter, from 1.7 to 2.5 percent. Exports from April to June grew at their fastest pace in two years, pushing down the U.S. trade deficit to 2.7 percent of gross domestic product. That’s less than half what it was at its peak of around 6 percent of GDP in late 2005.

Most of the boost in exports came from tangible stuff sold abroad: goods, rather than services. The biggest among them were petroleum products refined from all the crude oil the U.S. is producing—unlocked by fracking. Through June, the U.S. has exported an average of 99 million barrels of petroleum each month over the past year. That’s roughly quadruple the amount the U.S. was exporting a decade ago.

The story of the shrinking U.S. trade deficit is essentially the story of the U.S. oil boom. The last time the U.S. came close to balancing out the trade deficit, at least in terms of its share of GDP, was just after a recession ended in 1991. To feed the broad expansion that followed, U.S. oil imports grew by more than 130 percent over the next 15 years, from 192 million barrels a month in early 1991 to a peak of about 455 million barrels a month in the summer of 2006.

Read the rest of the article here

 

Finally, some good news for a change.  It would be nice to see America become energy independent over the next few decades. Not only is this great from a financial point of view, but a welcome news from a national security perspective. 

I see energy sector as a growth industry over the next few decades. At the same time, investment thesis in this industry is somewhat complicated.  My work clearly shows that the global economy is about to fall into another deep recession or worse. As that happens energy consumption should significantly decrease leading to much lower oil prices.  While international conflicts in the middle east can play a role in destabilizing the market once again and driving prices higher, I wouldn’t worry about it too much. Anything conflict in this area is likely to be short lived.

As fracking technology improves and production yields increase, expect a lot more oil on the world market.  I don’t think I have to tell you what happens when supply increases and demand goes down. A welcome news for the US Economy indeed. Unfortunately, given massive imbalances due to credit finance expansion over the last few decades, it will be of little help to the overall struggling US Economy.

Nevertheless, if you are able to pick winning companies in this sector, they should appreciate significantly. 

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Plenty of Jobs, but Not For You

Yahoo Finance Writes: Plenty of Job Openings, but Not For You

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At the end of 2004 the ratio of job openings to workers was about the same as today, but the unemployment rate has moved from a tame 5.4% back then to a painful 7.4% today. So why aren’t job hunters snagging those positions and driving down the unemployment rate, as they did in the past?

The “skills gap”

It seems increasingly likely that many people simply don’t qualify for jobs that are open, which highlights the “skills gap” that seems to be developing as laid-off blue-collar workers compete for jobs in a digital-information economy. Manufacturing has lost nearly 2 million jobs since 2006, for example, and while there’s been a modest recovery during the past two years, the odds of reaching the earlier employment peak seem remote. In construction, the real-estate recovery has brought back some jobs, but there’s still another 2-million-job deficit compared with prerecession levels.

Overall, there are about 4.4. million job openings, according to Labor Dept. data. That works out to 2.8% of the labor force, the same as it was at the end of 2004. With 11.5 million Americans looking for work, you’d think they would quickly grab all the jobs that are open.

Read The Full Article Here

Based on my research I do not see how the employment situation will improve any time soon. If anything,  I believe that unemployment is being under reported throughout government data.  There are just way too many people who are working part time jobs, but who would like to find a full time job.

From a macro economic perspective I do not see anything that would change or reverse this trend. Quite the opposite. With upcoming US Recession, decline in the stock market and continuation of credit defaults, I do not see how the employment situation can improve.

On top of it all you have multiple other trends such as outsourcing and robotics that are taking jobs away.  As such, I expect the employment situation to remain the same in the best case scenario or deteriorate significantly if the US economy slips back into the recessionary environment as I anticipate.  Bottom line is, if you have a full time job……treasure it. 

If you can, please share our blog with your friends as we try to get traction. Gratitude!!!

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American Prosperity Now Depends On Attacking Syria?

The Exchange Writes: Hesitation on Syrian Strike Threatens Economic Recovery

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President Obama’s vacillation on Syria—first delaying military action and then booting the decision to Congress—poses grave threats to U.S. prosperity.

Imminent military action, especially in the Middle East, instigates fears of shortages and panic in oil markets. Two years ago, oil prices jumped to more than $110 in anticipation of the U.S. action in Libya but then subsided when the worst did not happen to oil supplies.

With mounting evidence that Syria used chemical weapons, oil prices again jumped, and a prolonged debate in Congress could push gasoline above $4.00. That would dent Detroit’s resurgent auto sales, shelve investment decisions across manufacturing, and weigh on already flagging new home sales.

Should the Congress approve military force, Iran could attack Israel or cut back on oil production, permanently pushing up prices. However, once U.S. strikes begin, if those consequences don’t materialize, oil prices should fall back.

The article continues….

The president exacerbated near term fears by first vacillating after Syrian President Assad crossed his red line, and then asking Congress to vote the week of September 9.

Had Obama acted quickly on his own authority, or at least called Congress back into session immediately, the period of uncertainty would have been cut from at least a month to one week.

Extended uncertainty can wreck havoc on investment and consumer spending, and potentially tank the economy.

They behave so badly, despite U.S. protestations, because from Obama is viewed as weak and naïve. By leading from behind internationally and failing to act forcefully against protectionism that harms American workers, he has emboldened those nations’ to give lip service to international rules and then do whatever they please.

Meanwhile, the U.S. recovery drags along at a paltry 2 percent, while China grows at 7.5 percent, and Japan and Germany recover.

If the liberals and Tea Party block U.S. military action, that vote will mark the end of the United States of America as a prosperous nation with the resolve to lead.

Read Full Article Here

So, there you go folks.   This is one of the dumbest things that I have ever read. Apparently American prosperity and economic growth doesn’t depend on innovation, hard work, fiscal discipline and sacrifice that have made this country so great, but now depends on bombing Syria back into the stone age.  

The scary part is, this is normal and legitimate thinking for millions of Americans today. Maybe they are onto something. While at it, perhaps the US should bomb the rest of the countries as well. Just imagine how much economic growth and wealth it will bring to our nation. Plus, it will show everyone once and for all how much resolve we truly have. Crazy!!!  

If you can, please share our blog with your friends as we try to get traction. Gratitude!!! 

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WARNING!!! Is The Philippine Economy/Stock Market About To Collapse?

Philippine Inquirer Writes: PH “different” from troubled Asean peers, say report

 

The Philippines, Southeast Asia’s fastest-growing economy, can differentiate itself from its regional peers that are grappling with slowing growth and deteriorating external balance sheets, based on a common theme cited by international researchers in the past few days.

Although election spending was a factor behind the better-than-expected 7.5-percent gross domestic product (GDP) growth of the Philippines for the second quarter, a pace matched only by China, some of the reports cited some downside risks

“The local economy’s resilience in the face of external turbulence reinforces our view that the Philippines is somewhat differentiated from its peers not only by having a structural current-account surplus but also by having local growth drivers, mainly public spending and private investments, to lean on. The latter may be traced to local economic authorities’ ability to pursue accommodative policies given a benign inflation outlook and manageable public debt,” New York-based think tank Global Source said in an Aug. 30 commentary written by Filipino economists Romeo Bernardo and Marie-Christine Tang.

In a separate research, Credit Suisse said: “We think the Philippines offers the best macroeconomic prospects out of the Asean-4 economies,” referring to the four emerging markets of Southeast Asia that also included Thailand, Indonesia and Malaysia.

Read the rest of the article here

As of right now the Philippine economy is in a very dangerous situation. I say dangerous by simply relying on the Philippine Stock Exchange (PSEi) stock chart.  The chart looks horrific. It looks as if it is about to break down to the downside ………BIG TIME. 

From a purely technical perspective, if it breaks down below 5,700 level, the Philippine economy and the Philippine stock market is in huge trouble. There is no support of any kind until it reaches down to about 4,000 level.  From my experience,  I would put a chance of a breakdown here and a subsequent significant decline at about 80%.

philippines-stock-market

 Better chart here: http://www.bloomberg.com/quote/PCOMP:IND

What does all of this technical mambo jumbo means for average people. The stock market is a leading indicator. If the Philippine stock market breaks down as I anticipate above,  the Philippine economy will follow and slow down significantly.

The fundamental picture supports this thesis as well.  Due to an upcoming economic slowdown in the US, rising interest rates and a recent (substantial) move in the Philippine Peso, I would anticipate the Philippine Stock Market and the Philippine economy to break to the downside soon. Unfortunately, that would lead to either a significant slow down or even a recession in the country. 

If you can, please share our blog with your friends as we try to get traction. Gratitude!!!

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US Real Estate At A Turning Point. Act Now.

Bloomberg Writes: One Number to Explain a Confusing Housing Recovery

Housing-Decline-225x300

 

Reading the tea leaves in the housing market can be a confusing task.

Today we learned that pending home sales fell in July. Last week the news was that new home starts are down, too. But at the same time, serious delinquencies have hit a five-year low. For those of you who want a big picture view to gauge what’s going on, Trulia has a number for you: 64 percent. That’s how close the housing website says the market is to being back to normal.

To calculate the all-in stat, Trulia’s chief economist, Jed Kolko, combines three main factors: construction of new homes, sales of existing homes, and homes that are delinquent or in foreclosure. He then sees how far those those stats have come from the bottom of the market to a “normal,” prebubble pace. Existing home sales are the closest to normal, up to 94 percent of the original pace. But builders are putting up new homes at less than half the regular rate. Foreclosures and delinquencies, on the other hand, have fallen enough to make up more than half of the ground they lost in the downturn.

The results put the market in what Kolko calls the third phase of the recovery. The first stage started in 2009, when the sales and construction bottomed out. The second stage began in 2012, when home prices reached their low point. And this third phase, Trulia says, began this spring, when tight inventories loosened and mortgage rates started to rise.

At this point, the main issue holding the market back from fully recovering is household formation, or as Kolko puts it: “When young adults finally start moving out of their parents’ homes.” That in turn would spur the construction and sales of new homes and push the market closer to a full recovery.

Listen, there is no confusion at all. This is how the bear market works. First, a significant leg down (2006-2009) in real estate followed by a rebound (2009-now). The rebound acts as a “Trap” of sorts that reassures investors that the market is much better now and is about to recover. When everyone is sucked in, the trap is set and the market (Real Estate Market in this case) begins a massive leg down.

What you are seeing now and why a lot of people are “confused” is the topping out and a reversal process in the real estate market. In simple terms, watch out below. The US Real Estate Market is about to crater big time over the next few years. Don’t be in it, unless you have to. 

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3 Reasons Bond Investors Should Worry

CNBC Writes: Pimco: 3 reasons bond investors should chill

 

Bond investors are sweating bullets. In 3½ months, the 10-year yield has risen from about 1.6 percent to over 2.9 percent, before cooling off in recent days. And on Thursday, bond expert Jeffrey Gundlach made the case that the 10-year yield could reach 3.1 percent by end of the year.

As yields rise, bond prices fall, so the move in yields has been very painful for those who have owned bonds, and investors are heading for the exits. Bond funds saw outflows of $36.5 billion in the first 22 days of August, according to TrimTabs. Bond giant Pimco saw $7.4 billion worth of outflows in July alone, and double that in June.

But Tony Crecenzi, Pimco executive vice president, market strategist and portfolio manager, believes that the bearishness has gotten overdone. On CNBC’s “Futures Now” on Thursday, he made the case that “yields will move lower from here,” and he provided three reasons why.

1: Economic fundamentals don’t support these yields

Crescenzi said that yields could rise a bit more due to technical reasons, but the fundamentals don’t support it.

After all, “what’s priced into the bond market is the idea that the economy, in 2014, will accelerate,” Crescenzi said.

But he throws cold water on the rosy economic picture that some are drawing. “Bond investors will begin to reassess whether or not the optimistic forecasts, including the Fed’s own forecast, will come true.”

Indeed, many have questioned the accuracy of the Federal Reserve’s forecast for 3 to 3.5 percent GDP growth in 2014. On Tuesday, Krishna Memani, OppenheimerFunds’ chief investment officer of fixed income, said on “Futures Now”: “The economic growth that we’re looking for in the Fed’s forecasts is probably a bit overstated,” and for that reason, he, too, sees rates dropping.

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2: Inflation is not coming back

While Gundlach compared the recent rise in rates to the rate rally in 1994, Crescenzi said the present situation is markedly different.

“What 1994 was about was the last big battle against inflation expectations,” Crescenzi said. “When the economy began to accelerate from the 1991 recession, people started to say, ‘Well hey, more growth means more inflation. Why can’t the inflation rate get back to 4 and 6 percent again?’ Then Alan Greenspan came in and stomped on the bond market with big rate hikes to say there isn’t going to be an inflation acceleration like there used to be in the ’70s and ’80s.”

Because “that inflation battle has been fought,” the Fed doesn’t need to hike rates in order to tamp down the rate of economic growth and thus reduce inflation, according to Crescenzi. That means that a full repeat of the 1994 bond catastrophe-in which yields rose nearly 2 percentage points in three months-is unlikely.

3: Investors are misreading the Fed

Crecenzi believes there’s an “80 percent chance” that the Fed will begin to taper its qualitative easing program in September. But he thinks investors are misreading when the Fed will raise their Federal funds rate.

Again, because the Fed doesn’t need to worry about inflation expectations getting out of hand, Fed Chairman Ben Bernanke has no need to hike short-term rates as Greenspan did. “Unlike 1994, there won’t be rate hikes to reinforce the rise in interest rates,” Crescenzi said. So according to Crescenzi, “there won’t be a rate hike until 2015 and the earliest, and we think 2016.”

Any rise in rates would be investor-directed, then-and since the economy will not be as good as investors expect, he does not expect to see rates get pushed higher.

In fact, by the end of the year, this bond guru sees rates falling back to the low to mid 2s on the 10-year.

The points outlined in the article above are important and must be addressed. As I have mentioned in my previous article  “The Most Important Financial Story No One Is Talking About”  interest rates on a 10 Year T-Note have increased 100% over the last 12 months. That is a huge move. Should the investors be worried? I think so. Let’s take a look and take away their argument.

1. Economic fundamentals don’t support these yields: Oh yes they do. I don’t think the market is pricing in growth, I think the market is pricing in upcoming defaults and beginning of an inflationary environment.

2. Inflation is not coming back: That is kind of a definitive statement. My work is showing that inflation is just around the corner and will start to accelerate in 2016. I think the bond market is starting to price that in as well.

3. Investors are misreading the Fed: This is not about the Fed. This is simply following the market and trying to determine what the future holds. The Fed has an imaginary control, not a real one.

The bottom line is this. As I have indicated in my previous post I believe the interest rates have bottomed in July of 2012 and are now starting their multi decade climb higher. Yes, the rates are likely to decline here (pull back) only to resume their climb upwards within a short period of time. Of course, this will have huge negative consequences on the overall economy, the stock market and real estate.  

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Should McDonald’s Share Billions in Profit With Fast Food Workers?

Daily Ticker Writes: McDonald’s Should Share Billions in Profits With Fast Food Workers: Labor Organizer

 

When 250,000 people marched on the National Mall 50 years ago they demanded among other things a hike in the minimum wage from $1.25 to $2 an hour. Today thousands of fast food workers are holding a one-day strike in cities across the country, demanding a wage of $15 an hour. That’s equivalent to the $2 an hour protestors called for in 1963, after adjusting for inflation.

Fast-Food-Workers-Strike1

Organizers report that workers have walked off their jobs in 60 U.S. cities today, including New York City where 500 striking workers took over a McDonald’s at 5th Avenue near 34th Street, and the Empire State Building.

In addition to a $15-an-hour wage, protestors want the right to form a union without intimidation or retaliation from their employer.

Kendall Fells, the organizing director of Fast Food Forward, which is overseeing the New York City campaign, tells The Daily Ticker that these workers are not demanding that Congress raise the minimum wage but that the companies that employ them pay a living wage.

Read the rest of the article here:

What is happening to American capitalism? Why does everyone want a handout and/or a bailout. Why should you earn $15/hour when the market is only willing to pay $7.25/hour.  Why should corporations share profits with workers when the shareholders (the real people who took the risk) are left behind?

At least for now, corporations like McDonald’s should not worry about any traction in this movement. At the same time, these companies should

1. Fire striking workers.

2. Replace them with robots. Which is already starting to happen.

As for  the workers in question. Do yourself a favor and get a better skill set, a better job and a better pay. Any excuse that limits you ability to do so, is just that, an excuse.  Stop being lazy, get off your ass and do what you need to do in order to improve your life. 

If you can, please share our blog with your friends as we try to get traction. Gratitude!!! 

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Chinese Revolution…..Coming Soon?

Reuters Writes: Ditch the stats: China retailers don’t buy signs of recovery

 

HONG KONG (Reuters) – If things are really starting to look up for China’s economy, as a recent spate of better-than-expected government data seems to suggest, nobody appears to have told its biggest retailers.

A Reuters review of first-half earnings showed that more than 20 Chinese companies selling everything from footwear to food were not convinced the economic slowdown had bottomed out, and neither were their traditionally thrifty customers.

“The reality behind the numbers is gloomier,” said leading footwear retailer Belle International Holdings Ltd as a raft of data, supported by government statements, indicated the world’s second largest economy may be stabilizing after two years of slumping growth.

“There are uncertainties in future prospects as the economy is struggling with a difficult transition involving structural rebalancing and revamping the growth model,” said Belle, which has a market value of $11.6 billion and manages more than 18,000 retail outlets across 360 Chinese cities.

“As a defensive reaction, consumers are becoming more inclined to save and less willing to spend,” it added.

Economists have long doubted the accuracy of official economic data and this skepticism has increased as China plots a course towards consumption-led growth. The official retail sales measure, for example, counts a sale from when an item is shipped, rather than when it is actually sold.

The latest data, however, supports retailers’ complaints.  Read the rest of the article here

Listen, Chinese story is fairly easy to understand. Most of Chinese economic growth over the last decade came from massive infrastructure and real estate misallocation.  I say misallocation because there are literally empty cities in China.  If you haven’t already please watch this excellent report by 60 Minutes Here.

Now it is too late. China is left with huge misallocation that cannot just be dismissed. They must collapse. As the US Market slows down and shifts into recessionary environment over the next few years, as European Union continues to drag its feet in its own dysfunctional economic disaster,  I would expect Chinese export based economy to slow down significantly.

The most important question here, is what happens to the Chinese government when property prices finally collapse in China and Chinese families lose all of their multi-generational savings (something that every Chinese believes is impossible).  Of course, as financial professionals we must always look at the other side of the trade when 99% believes otherwise.

I believe we are in for some fireworks in China and fairly soon.  Within the next 5 years.  In fact, I believe we are in for a revolution in China as the government losses control.  One thing is for certain, it will be exciting to watch. 

If you can, please share our blog with your friends as we try to get traction. Gratitude!!! 

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The Secret Behind Upcoming European Union Breakup

Map-of-Europe

Bloomberg writes: German Jobless Unexpectedly Rises Even as Economy Grows

German unemployment unexpectedly increased in August for the first time in three months even as Europe’s largest economy expands.

The number of people out of work increased by a seasonally adjusted 7,000 to 2.95 million, the Nuremberg-based Federal Labor Agency said today. Economists predicted a decline by 5,000, according to the median of 25 estimates in a Bloomberg News survey. The adjusted jobless rate stayed at 6.8 percent, near a two-decade low.

The economy in Germany, which faces elections next month, is forecast to slow after growth was bolstered last quarter by a rebound from a colder-than-usual winter that curbed output. While the euro area, the nation’s largest export market, has emerged from its longest-ever recession, some companies are still cutting jobs as countries in the periphery of the region struggle to recover.

“If data that signal the economy will gather pace in the second half of the year are to be believed, there’s a good possibility that employment will increase and unemployment will drop next year,” said Jens Kramer, an economist at NordLB in Hanover. “In the euro area, there’s at least hope that the worst is behind us.”

I think the best way to look at Europe at this point in time in from Macro Economic perspective. 

Obviously Germany is by far the strongest economy in the region and the only reason European Union hasn’t collapsed yet. The rest of the countries there are in a big time mess. 

I do not believe the worst is yet over for Europe. Not by a long shot. The only reason you are seeing an improvement and better data coming out of Germany is the same reason you see it in the US. Massive amounts of liquidity in the system. 

What is quite shocking is how weak the recovery has been in the European Union region even though record amounts of capital were deployed to sustain it.

What will happen next is quite simple. 

As interest rates continue to increase on the global scale, as the US Stock market begins to go down, as emerging markets continue their decline….there won’t be any reason for European Union to recover. As a matter of fact, quite the opposite. As all stimulus disappears, expect most of the European Union to fall back into a depression environment.  

An eventual break up of the European Union is not out of the question. As a matter of fact, I would be surprised if it doesn’t happen over the next 5 years. 

If you can, please share our blog with your friends as we try to get traction. Gratitude!!!