Tag Archives: trade war

Trump’s Trade War Dilemma And Gold

If the “risk on/risk off” stock market meme was absurd, its derivative – the “trade war on/trade war off” meme – is idiotic.  Over the last several weeks, the stock market has gyrated around media sound bytes, typically dropped by Trump,  Larry Kudlow or China,  which are suggestive of the degree to which Trump and China are willing to negotiate a trade war settlement.

Please do not make the mistake of believing that the fate the of the stock market hinges on whether or not Trump and China reach some type of trade deal.  The “trade war” is a “symptom” of an insanely overvalued stock market resting on a foundation of collapsing economic and financial fundamentals.  The trade war is the stock market’s “assassination of Archduke Franz Ferdinand.”

Trump’s Dilemma – The dollar index has been rising since Trump began his war on trade. But right now it’s at the same 97 index level as when Trump was elected. Recall that Trump’s administration pushed down the dollar from 97 to 88 to stimulate exports. After Trump was elected, gold was pushed down to $1160. It then ran to as high as $1360 – a key technical breakout level – by late April. In the meantime, since Trump’s trade war began, the U.S. trade deficit has soared to a record level.

If Trump wants to “win” the trade war, he needs to push the dollar a lot lower. This in turn will send the price of gold soaring. This means that the western Central Banks/BIS will have to live with a rising price gold, something I’m not sure they’re prepared accept – especially considering the massive paper derivative short position in gold held by the large bullion banks.  This could set up an interesting behind-the-scenes clash between Trump and the western banking elitists.

I’ve labeled this, “Trump’s Dilemma.” As anyone who has ever taken a basic college level economics course knows, the Law of Economics imposes trade-offs on the decision-making process (remember the “guns and butter” example?). The dilemma here is either a rising trade deficit for the foreseeable future or a much higher price of gold. Ultimately, the U.S. debt problem will unavoidably pull the plug on the dollar.  Ray Dalio believes it’s a “within 2 years” issue. I believe it’s a “within 12 months” issue.

Irrespective of the trade war, the dollar index level, interest rates and the price of gold,  the stock market is headed much lower.   This is because, notwithstanding the incessant propaganda which purports a “booming economy,” the economy is starting to collapse. The housing stocks foreshadow this, just like they did in 2005-2006:

The symmetry in the homebuilder stocks between mid-2005 to mid-2006 and now is stunning as is the symmetry in the nature of the underlying systemic economic and financial problems percolating – only this time it’s worse…

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The commentary above is a “derivative” of the type of analysis that precedes the presentation of investment and trade ideas in the Mining Stock and Short Seller’s Journals. To find out more about these newsletters, follow these links:  Short Seller’s Journal  information and more about the Mining Stock Journal here:   Mining Stock Journal information.

The Trade War Shuffle And The Fukushima Stock Market

The market is already fading quickly  from the turbo-boost it was given by the announcement that China and Trump reached a “truce” on Trump’s Trade War – whatever “truce” means.   Last week the stock market opened red or deeply red on several days, only to be saved by a combination of the repetitious good cop/bad bad cop routine between Trump and Kudlow with regard to the potential for a trade war settlement with China and what has been dubbed the introduction of the “Powell Put,” in reference to the speech on monetary policy given by Fed Chair, Jerome Powell, at the Economic Club of New York on Wednesday.

It’s become obvious to many that Trump predicates the “success” of his Presidency on the fate of the stock market. This despite the fact that he referred to the stock market as a “big fat ugly bubble” when he was campaigning.  The Dow was at 17,000 then. If it was a big fat ugly bubble back then, what is it now with the Dow at 25,700? If you ask me, it’s the stock market equivalent of Fukushima just before the nuclear facility’s melt-down.

Last week and today are a continuation of a violent short-squeeze, short-covering move as well as momentum chasing and a temporary infusion of optimism. I believe the market misinterpreted Powell’s speech. While he said the Fed would raise rates to “just below a neutral rate level,” he never specified the actual level of Fed Funds that the Fed would consider to be neutral (neither inflationary or too tight).

I believe the trade negotiations with China have an ice cube’s chance in hell of succeeding. The ability to artificially stimulate economic activity with a flood of debt has lost traction. The global economy, including and especially the U.S. economy (note: the DJ Home Construction index quickly went red after an opening gap up), is contracting. Trump and China will never reach an agreement on how to share the shrinking global economic pie.

While Trump might be able to temporarily bounce the stock market with misguided tweets reflecting trade war optimism, even he can’t successfully fight the Laws of Economics. His other war, the war on the Fed, will be his Waterloo. The Fed has no choice but to continue feigning a serious rate-hike policy. Otherwise the dollar will fall quickly and foreigners will balk at buying new Treasury issuance.

For now, Trump seems to think he can cut taxes and hike Government spending without limitation. But wait and see what happens to the long-end of the Treasury curve as it tries to absorb the next trillion in new Treasury issuance if the dollar falls off a cliff.  Currently, the U.S. Treasury is on a trajectory to issue somewhere between $1.7 trillion and $2 trillion in new bonds this year.

Despite the big move higher in the major stock indices, the underlying technicals of the stock market further deteriorated. For instance, every day last week many more stocks hit new 52-week lows than hit new 52-week highs on the NYSE. As an example, on Wednesday when the Dow jumped 618 points, there were 15 news 52-week lows vs just 1 new 52-week high. The Smart Money Flow index continues to head south, quickly.

For now it looks like the Dow is going to do another “turtle head” above its 50 dma (see the chart above) like the one in early November. The Dow was up as much as 442 points right after the open today, as amateur traders pumped up on the adrenaline of false hopes couldn’t buy stocks fast enough. As I write this, the Dow is up just 140 points. I suspect the smart money will once again come in the last hour and unload more shares onto poor day-traders doing their best impression of Oliver Twist groveling for porridge.

Silver, Trump’s Trade War, Mining Stocks And The Fed’s Gold

If you have gold, you have money – If you don’t have gold, you have a problem – Alisdair Macleod

With the massive net short position in both gold and silver Comex paper precious metals, offset by the historic net long position of the “commercials” (banks, mining companies, users, hedgers), numerous rumors are swirling around the precious metals market. For certain, the availability of physical gold bars in London that can be delivered to the large eastern hemisphere buyers who demand delivery is growing tight.  Apparently the retail silver coin/bar market is starting to feel supply strains.

Miles Franklin’s Chris Marcus invited me onto this podcast to discuss the precious metals markets, mining stocks, Trump’s Trade War and the status of the gold held in custody by the Fed on behalf of the American public:

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If you are interested in ideas for taking advantage of the inevitable systemic reset that  will hit the U.S. financial and economic system, check out either of these newsletters:  Short Seller’s Journal information and more about the Mining Stock Journal here:  Mining Stock Journal information.

WTF Just Happened? Stock Market Ignores Escalating Trade War & Spent US Consumer

Every month Government, corporate and household debt hits a new all-time high. The entire financial system is heading down an unsustainable path of debt issuance. The delinquency rate for auto and credit card debt is already at levels last seen in late 2008. The only reason the banks are not on the ropes – yet – is because they are still sitting on most of the liquidity the Fed injected into the banking system from 2009 to 2015.

This “slush fund for a rainy day” has been declining. As this money flows into the economic system, it’s starting to ignite inflation. Even the monthly Government-generated CPI and PPI reports, which are highly manipulated to minimize the true inflation rate, are starting to show rising inflation. Of course, with wage growth stagnant, the average household disposable income level is dwindling rapidly, which is why the personal savings rate is at a historically low level and revolving credit use is at an all-time.

Consumer sentiment has been trending lower off a recent peak. While the media puppets explain that trade war headlines are weighting consumers expectation, in truth consumer sentiment is falling because the average household is suffocating from the crushing weight of debt and a diminished ability to service that debt because real disposable income is declining. In most areas, home prices are falling. In fact, the home buying sentiment component of the U of Michigan sentiment survey is at its lowest level since 2008.

In this episode of WTF Just Happened?, we discuss these issues plus whether or not gold is forming a tradable bottom here (WTF Just Happened is a produced in association with Wall St. For Main Street – Eric Dubin may be reached at  Facebook.com/EricDubin):

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I recommended Arizona Mining in May 2016 at  $1.26 to my Mining Stock Journal subscribers.  It was acquired for $1.3 billion, or $4.65/share.  My subscribers and I are making a small fortune shorting homebuilders plus this week’s issue features an idea that is the ultimate contrarian play.

Visit these links to learn more about the Investment Research Dynamic’s  Mining Stock Journal and Short Seller’s Journal.   

Complete Idiocy Engulfs The U.S.

William Shakespeare at his creative pinnacle could not have written this screenplay:

The first time I watched this I thought it was a joke – product of National Lampoon. Then the reality of it hit me like a ton of bricks. Is this really a productive use of Congressional time? The entire U.S. system is hurling toward a debt-induced financial and economic apocalypse. At the same time the Deep State, using Trump as its hand-puppet, is alienating the U.S. from the EU/NATO, this country’s last remaining allies.

The “trade war” is nothing more than the Deep State’s set-up for a military war. The dollar is being removed by China as the reserve currency, which will in turn take away the power enjoyed the elitists running the U.S. since Bretton Woods. If you are unsure how this story ends, take another look at history.

The election of Trump – a narcissistic baboon with a business track record littered with bankruptcies – is the epitome of defining deviance down. J. Edgar Hoover would have salivated at the prospect of having a President with the personal background of Trump. Anyone who still believes Trump controls of the Presidential decision-making process is hopelessly naive. Rather than “draining the swamp,” the swamp monsters – aka “The Deep State” – have taken control of the Oval Office.

One can only wonder if Hillary Clinton intended for her “the Russians hacked the election” during the Presidential debates to mushroom into the full-blown DC political circus that seems to captivate the public. To be sure, it’s Deep State propaganda at its finest designed to deflect the pubic’s attention away from the fact that corporate and banking elitists are systematically sweeping the last crumbs of public wealth off the table and into their pockets.

Orwell Chuckled, Atlas Shrugged

“WAR is a racket…It always has been.A racket is best described, I believe, as something that is not what it seems to the majority of the people. Only a small ‘inside’ group knows what it is about. It is conducted for the benefit of the very few, at the expense of the very many. Out of war a few people make huge fortune.” – US Marine General Smedley Butler. General Butler

My friend and occasional co-author, Paul Craig Roberts, wrote an compelling Fourth of July essay to give us all something to think about as the political and corporate elitists tighten the noose around our collective necks:

July 4, 2018, is the 242 anniversary of the date chosen to stand as the date the 13 British colonies declared independence. According to historians, the actual date independence was declared was July 2, 1776, with the vote of the Second Continental Congress. Other historians have concluded that the Declaration of Independence was not actually signed until August 2.

For many living in the colonies the event was not the glorious one that is presented in history books. There was much opposition to the separation, and the “loyalists” were killed, confiscated, and forced to flee to Canada. Some historians explain the event not as a great and noble enterprise of freedom and self-government, but as the manipulations of ambitious men who saw opportunity for profit and power.

For most Americans today the Fourth of July is a time for fireworks, picnics, and a patriotic speech extolling those who “fought for our freedom” and for those who defended it in wars ever since. These are feel good speeches, but most of them make very little sense…

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Insane Valuations On Top Of Insane Leverage

The recent stock market volatility reflects the beginning of a massive down-side revaluation in stocks. In fact, it will precipitate a shocking revaluation of all assets, especially those like housing in which the price is driven by an unchecked ability to use debt to make the “investment.” This unfettered and unprecedented asset inflation is resting precariously on a stool that is about to have its legs kicked out from under it.

The primary reason the U.S. is now holding a losing hand at the global economic and geopolitical “poker table” is that this country has been committing too many sins for too long for there not to be a price to be paid. With bankrupt Governments (State and Federal), a bankrupt pension system, a broken healthcare system, all-time high corporate and household debt levels and a broken political and legal system, the U.S. is slowly collapsing. This is the “perfect storm” for which you want to own plenty of gold, silver and related stocks.

Eric Dubin and I are producing a new podcast called, “WTF Just Happened?” The inaugural show discusses the topics mentioned above:

“WTF Just Happened?” w/ Dave Kranzer and Eric Dubin is produced in association with Wall Street For Main Street       –       Follow  Eric here: http://www.facebook.com/EricDubin

Why I Just Shorted IBM

IBM stock has spiked up Friday, yesterday and today because the Company released Q4 and full year earnings which “beat” the Street estimates  – by design and by the heavy application of GAAP earnings management.

But here’s the facts:   1)  Revenues year over year for the full year dropped 5.9%;  quarter over quarter they dropped 1.3% ; this was the 5th year in a row of annual declines and the 19th quarter in a row of year over year quarterly declines; 2) gross and operating margins continue to shrink;  pre-tax earnings (this is important) plunged, literally plunged, 22.7% for 2016 vs. 2015;  3) long term debt increased 3.5% year over year – it was 43.4% of revenues in at the end of 2016 vs. 40.8% of revenues at the end of 2015;  4) cash generated by operations (from the statement of cash flows) plunged 49.3% in Q4 2016 vs. Q4 2015 – it dropped 2.3% for the full year (see below for significance);  5) despite the heavy application fo GAAP management, net income dropped 10% in 2016, with a small quarter over quarter net income gain of 1%, which would have been a decline if IBM had not applied subjective GAAP manipulations.

With regard to IBM’s liberal application of GAAP earnings management techniques, the Company arbitrarily applied a 9.6% “effective” tax rate in Q4 2016 vs. the 12.5% utilized in Q4 2015.  The Company claimed a 3.6% GAAP tax rate for 2016 vs. 16.2% in 2015.   Manipulating the “effective” GAAP tax rate is the very first lesson taught in any high quality forensics accounting class.  I give IBM an A+ for its maneuvers in this regard.   But the “devil in the details” and fact that the cash generated from operations plunged 49% quarter over quarter should raise a huge red flag for any financial analyst (Wall Street pimps of course will turn a blind eye to that glaring financial “tumor”).

The stock popped today on IBM’s announcement that hit would hire 25,000 people in the U.S. in an obvious maneuver to avoid the stock-deadly “Trump tweet.”  However, the Company has continued to maintain on analyst conference calls that the hiring is part of its normal operations and should not be differentiated from its cost-cutting layoff plans.  But the hedge fund algos only care about the 25k hiring headlines.

Interestingly, IBM heavily promoted the success of its cloud business and artificial intelligence business, the revenues from which increased 13% in 2016.  But this business can not be very profitable, otherwise IBM’s gross, operating and pre-tax net margins would not have dropped.  This achievement is less than dubious.

Additionally, 20% of IBM’s revenues are derived from its global business services unit.  As Trump escalates the trade war with the rest of the world, specifically China/Asia, this unit’s revenues, which dropped 4.1% quarter over quarter, will get hit even harder.

IBM is an American corporate dinosaur that is dying a slow, painful death from terminal business cancer.  The Company has done well to survive this long.  Amazon and Oracle have ignited a pricing war in the cloud space that will eat IBM’s cloud business alive.    The cloud business is quickly become a highly commoditized product with no limit to capacity constraints and almost zero pricing power or real product differentiation. It’s quite similar to the fiber optic business that soared then crashed and burned last decade.

IBM’s current legacy, like most large corporations – US corporate debt has tripled since 2006 and is at record levels – is issuing debt to buy-back shares and skimp on payments into its pension in order to generate GAAP net income.   It’s an American tragedy in the making.    The stock market is historically overvalued now and is set up for a big sell-off, which I believe will occur this year.  While the Dow and SPX have been flirting with record all-time highs, IBM sits 18.6% below its all-time high reached in 2013.   It was IBM’s turn to be used as prop for today’s Dow rally, as IBM has been one of biggest contributors to today’s Dow gains.  As I’ve shown above, there has been zero fundamental factors behind IBM’s stock move over the last three days.

This is the type of analysis that accompanies my weekly Short Seller’s Journal.  If you would like to try it, you can subscribe using this link:  Short Seller’s Journal subscription. I provide my own market analysis in which I remove “alternative facts” from the weekly economic reports.  I also provide short-sell ideas, including suggestions for using options.