Author: s4k

The North Korean “Threat”

Trump wants a sit down with Kim Jong Un. This sent the neocons into hyper drive. They never met a war they didn’t like. They figure since the other US wars are going so great, we should add another one.
The idea that North Korea is a threat is absurd. Yet it has been catching headlines for over a decade. It is reminiscent about the Soviet Union “threat”. The Soviet Union was a basket case. Their economy was a disaster. Yet the US government thought the Soviet Union was an economic power house until the day before it dissolved.
If you pay close attention to South and North Korea government officials from non-US media outlets you will realize that North Korea is not a threat. The idea that North Korea will attack South Korea or the US is silly. The South Korean government actually sent humanitarian aid to North Korea when the United Nations put sanctions on North Korea.
Predication: Before this century is over North and South Korea will unite into one country.

So You Want to Get Rich?

How do you get rich? “Buy low and sell high.” That is a wall street adage. It happens to be true. It sounds easy. Few investors do it. Investors love to buy at the top and sell at the bottom. In short, they can not control their emotions. If you are buying the SP500 or Dow, you are not buying low. You are buying stocks that are over valued. I don’t think the bull market in stocks (SP500 & Dow) is over. I own stocks. You can check out the performance tab to see for yourself. I think they will become more expensive.
While you are over there take a look at the worse performers. They are the resource shares. If you were to take them away you would have an open profit of 10.6% in the stock portfolio. They have gotten cheaper. This is typical when you buy depressed stocks. They tend to get cheaper. They tend to stay cheaper a lot longer than can be imagined. So how cheap are they?

Above is the HUI to Gold ratio. The resource/mining shares have not been this cheap since 2001 relative to gold. This is called “buying low”. How will you know when you should sell? Easy. Flip the chart.
This is called “selling high.”

Let me tell you what FNV did in 2017:
1) $675 million in revenue- a new record and a 10.6% increase year-over-year.
2) $516.1 million adjusted EBITDA- a new record.
3) $194.7 million of net income- a new record.

Most investors will wait until the resource shares get expensive. They will go higher and higher. Than, at the top, they will want to buy. This never ceases to amaze me.

SP500 Trend Lines and Resistance

Looking at the SP500, I see the following:

Let us see if the the market ignores the downward trend line. Resistance is at 2785. A break above this will be a good sign that the correction is over and new highs will be coming. Support is at 2675 and 2590. Price action today and all next week will give some indication about the current correction.

Temporary Tariff Exemption

Less than 24 hours after the last post, I read that Trump is going to extend a 30 day exemption for Canada and Mexico. No doubt, he will use this as a bargaining chip for renegotiating NAFTA and bring the key players to the table. I don’t believe Canadian and Mexican leaders will cut off their nose to spite their face. Trump also left the door open for other leaders.
A deal will be struck and the “trade war” headlines will go away.

The Market and a Trade War

This bull market is over nine years old. The data suggest that a recession is not on the horizon. This correction will end and the market will go on to make new highs. How long and how low the correction goes on is yet to be seen. The next few weeks will be telling for me as I watch the price action. As I have been saying for the last few weeks, you should accumulate stocks during this correction.

A world trade war will definitely hurt the stock market and the global economy. However, I do not believe a trade war will occur.
It should be remembered that the headlines of “TRADE WAR” and current panic surrounding the market were started by Trump. This is part of Trumps negotiating style. Trump sends out his tweets to catch headlines and attention of key players. Than at the table he walks back a lot of his rhetoric. He is obsessed with renegotiating NAFTA. I suspect he wants his “brand” on the trade deal.
It should also be remembered that the tariffs themselves are tiny. They only effect a small slice of the US imports. Now if this snowballs into other countries putting tariffs on US products and a tick for tack mentality takes place, things can get out of hand quickly. I do not believe this will happen. The rest of the world will come to the table and a deal will be agreed upon.

Like all other corrections in this bull market, it will end. The “TRADE WAR” frenzy will vanish from the headlines. Looking in the rear view mirror this correction will be remembered as a buying opportunity.

 

Buybacks to Further Boost Stock Prices

J.P. Morgan notes:
“There is room for further upside to our buyback estimates if companies increase gross payout ratios to levels similar to late last cycle when companies returned >100% of profits to shareholders (vs. 83% now). Corporates tend to accelerate buyback programs during market selloffs.”

SP500 companies are expected to buyback $800 billion dollars this year due to strong earnings and the new tax law. This will add further upside pressure on stock prices.

Gary Cohn Resigns

Gary Cohn has resigned. This was becoming more predictable each day due to his opposition to tariffs. This will leave the tariff crowd in the white house in full control. Apparently, under current law, the president can unilaterally impose tariffs. Congress has the power to stop it. Whether or not they will act on this power will probably depend on how far Trump goes. My feeling is if Trump begins to stretch his power to far congress will act. Either way the market gaped down.

Update on the Feds Unwind

The federal reserve is unwinding its balance sheet. As I said here, this is not going to be a head fake. Total assets are back to where they were in mid 2014.

It will be interesting to see how this plays out. There is no historical guide, so to speak, since something of this magnitude has never been done in the history of mankind. The easy part is loading up the balance sheet and buying MBS and treasuries. The hard part is reversing this policy without destroying the economy.
Let me be clear. I think the Federal Reserve is evil and should be abolished. Having said that, I don’t understand why they are doing this. ‘If it’s not broke don’t fix it’ would be my motto. They should just let their securities mature and not reinvest.