Economy:
China's Commerce Ministry: "“If the U.S. would like to keep on negotiating it should, with sincerity, adjust its wrong actions. Only then can talks continue.” China says trade talks can't continue unless US addresses actions (5/23/19)
Here is Donald's same day response to that statement: “It’s happening, it’s happening fast and I think things probably are going to happen with China fast because I cannot imagine that they can be thrilled with thousands of companies leaving their shores for other places.” Trump predicts 'fast' trade deal with China-Reuters Maybe a deal will be announced next week assuming you are still paying attention to Donald's B.S.
Donald also stated that he can "imagine" Huawei could possibly be included "in some form or some part of a trade deal". Trump on Huawei So is Huawei a national security threat or is Trump just making that up as a bargaining chip in the trade negotiations?
China says U.S. demand on its state-owned enterprises is 'invasion' on economic sovereignty-Reuters China is not making sounds of subservience to the Duck.
When and if the tariff war with China accelerates and turns nasty, and it becomes obvious that no deal is in sight, will the Stock Jocks continue to believe Donald when he assures them everything will soon result in the most "beautiful" deal for the U.S. since the nation's founding?
New-home sales slump 7% in April after reaching the best level of the cycle - MarketWatch (still 7% above the year ago number)
Durable goods orders fell 2.1% last month. April 2019 Durable Goods
Markit reported that its U.S. manufacturing PMI fell to almost a 10 year low in May with its U.S. service PMI falling to a 38 month low. US manufacturing activity dives to more than 9-year low on trade war worries, survey shows
JP Morgan slashes second-quarter GDP forecast to just 1%
The Atlanta FED's model is currently predicting 1.3% real GDP growth for the current quarter. GDPNow - Federal Reserve Bank of Atlanta
The New York FED's model currently estimates second quarter GDP at 1.4%. Nowcasting Report - FEDERAL RESERVE BANK of NEW YORK
The key question in the coming months will be whether an all out trade war with China will hit when the U.S. economy is already moving closer to zero percent real GDP growth.
Fed minutes from May meeting: No rate moves are coming 'for some time'
China's Commerce Ministry: "“If the U.S. would like to keep on negotiating it should, with sincerity, adjust its wrong actions. Only then can talks continue.” China says trade talks can't continue unless US addresses actions (5/23/19)
Here is Donald's same day response to that statement: “It’s happening, it’s happening fast and I think things probably are going to happen with China fast because I cannot imagine that they can be thrilled with thousands of companies leaving their shores for other places.” Trump predicts 'fast' trade deal with China-Reuters Maybe a deal will be announced next week assuming you are still paying attention to Donald's B.S.
Donald also stated that he can "imagine" Huawei could possibly be included "in some form or some part of a trade deal". Trump on Huawei So is Huawei a national security threat or is Trump just making that up as a bargaining chip in the trade negotiations?
China says U.S. demand on its state-owned enterprises is 'invasion' on economic sovereignty-Reuters China is not making sounds of subservience to the Duck.
When and if the tariff war with China accelerates and turns nasty, and it becomes obvious that no deal is in sight, will the Stock Jocks continue to believe Donald when he assures them everything will soon result in the most "beautiful" deal for the U.S. since the nation's founding?
New-home sales slump 7% in April after reaching the best level of the cycle - MarketWatch (still 7% above the year ago number)
Durable goods orders fell 2.1% last month. April 2019 Durable Goods
Markit reported that its U.S. manufacturing PMI fell to almost a 10 year low in May with its U.S. service PMI falling to a 38 month low. US manufacturing activity dives to more than 9-year low on trade war worries, survey shows
JP Morgan slashes second-quarter GDP forecast to just 1%
The Atlanta FED's model is currently predicting 1.3% real GDP growth for the current quarter. GDPNow - Federal Reserve Bank of Atlanta
The New York FED's model currently estimates second quarter GDP at 1.4%. Nowcasting Report - FEDERAL RESERVE BANK of NEW YORK
The key question in the coming months will be whether an all out trade war with China will hit when the U.S. economy is already moving closer to zero percent real GDP growth.
Fed minutes from May meeting: No rate moves are coming 'for some time'
Farmers are hurting, but they still support Trump and his trade war
Who deserves the blame for U.S. firms moving production out of the U.S. to foreign countries that can manufacture the same product cheaper?
Are American consumers willing to pay substantially more to have the products manufactured in the U.S.?
Will rising product prices cause a non-temporary upturn in inflation, inflation expectations and interest rates that absorb more disposable income that would otherwise be available to fund consumer purchases?
Will lowering China's export to the U.S. mean a more balanced trade deficit for the U.S. or will manufacturers simply relocate production to other countries capable of producing the same goods as cheap or even cheaper than China? If that happens, the U.S. trade deficit caused by imports would not change much, if at all.
Who deserves the blame for U.S. firms moving production out of the U.S. to foreign countries that can manufacture the same product cheaper?
Are American consumers willing to pay substantially more to have the products manufactured in the U.S.?
Will rising product prices cause a non-temporary upturn in inflation, inflation expectations and interest rates that absorb more disposable income that would otherwise be available to fund consumer purchases?
Will lowering China's export to the U.S. mean a more balanced trade deficit for the U.S. or will manufacturers simply relocate production to other countries capable of producing the same goods as cheap or even cheaper than China? If that happens, the U.S. trade deficit caused by imports would not change much, if at all.
Singapore narrows 2019 GDP forecast, as Q1 logs 1.2% growth - CNA (slowest growth in a decade)
Trade war forcing China to 'rethink economic ties' with the US
The following article is just more "Fake News" from the radical left wing media. Tump's China tariffs hike will cost typical U.S. family $831 a year, Fed economists say - CBS News This study only includes the tariffs now in effect. Honest Don has assured us repeatedly that China pays the U.S. tariffs. The fact that this estimate comes from the FED is just more proof in TrumpWorld that everyone is out to get him.
This looks like another salvo that will accelerate the trade wars. New rule would let U.S. companies sue foreign rivals over currency weakness - MarketWatch
Trade war forcing China to 'rethink economic ties' with the US
The following article is just more "Fake News" from the radical left wing media. Tump's China tariffs hike will cost typical U.S. family $831 a year, Fed economists say - CBS News This study only includes the tariffs now in effect. Honest Don has assured us repeatedly that China pays the U.S. tariffs. The fact that this estimate comes from the FED is just more proof in TrumpWorld that everyone is out to get him.
This looks like another salvo that will accelerate the trade wars. New rule would let U.S. companies sue foreign rivals over currency weakness - MarketWatch
+++++
Markets and Market Commentary:
The ten year treasury yield has now inverted with all of the treasury bills (1 month to 1 year):
For maturities between 1 month through 10 years, the highest yield comes from the 6 month treasury bill. Daily Treasury Yield Curve Rates
The probability that the Fed will cut the FF rate by at at least .25% on or before its January 2020 meeting is currently at 83.8%. The probability of at least a .5% lower FF range by that meeting is currently at 47.4%.
Bonds, Not Stocks, Reflect The State Of The Economy The article mentions that 43.6% of S & P company revenues originate from foreign markets, and growth outside the U.S. is slowing.
Trade war's 'wall of worry' will spark a stock rally: Market bull When looking at major market indexes, there is IMO no wall of worry over trade to overcome since none is being expressed in current index levels.
Bond market is signaling recession, rate cuts and unending trade war The Bond Ghouls are wearing their Halloween masks early this year.
The ten year treasury yield has now inverted with all of the treasury bills (1 month to 1 year):
For maturities between 1 month through 10 years, the highest yield comes from the 6 month treasury bill. Daily Treasury Yield Curve Rates
The probability that the Fed will cut the FF rate by at at least .25% on or before its January 2020 meeting is currently at 83.8%. The probability of at least a .5% lower FF range by that meeting is currently at 47.4%.
Bonds, Not Stocks, Reflect The State Of The Economy The article mentions that 43.6% of S & P company revenues originate from foreign markets, and growth outside the U.S. is slowing.
Trade war's 'wall of worry' will spark a stock rally: Market bull When looking at major market indexes, there is IMO no wall of worry over trade to overcome since none is being expressed in current index levels.
Bond market is signaling recession, rate cuts and unending trade war The Bond Ghouls are wearing their Halloween masks early this year.
US-China trade war will get worse before it gets better, says expert
Nordstrom Is Just One of the Stocks Signaling Trouble for Apparel Retailers
I am close to a lock down mode on new individual stock and bond purchases. The exceptions will be primarily new purchases of CDs and treasury bills maturing within 12 month and small ball purchases of stock ETFs using the small ball purchase restriction. I will discuss a stock purchase in the next post.
From my perspective, and given my strong preservation of capital objective, the risk of losing capital currently appears out of balance with the potential rewards.
I will be better able to assess the risk/reward balance soon enough.
If I am right, far better risk/reward opportunities will exist within that 12 month period. I will have plenty of cash reserves to take advantage of any such opportunity.
Nordstrom Is Just One of the Stocks Signaling Trouble for Apparel Retailers
I am close to a lock down mode on new individual stock and bond purchases. The exceptions will be primarily new purchases of CDs and treasury bills maturing within 12 month and small ball purchases of stock ETFs using the small ball purchase restriction. I will discuss a stock purchase in the next post.
From my perspective, and given my strong preservation of capital objective, the risk of losing capital currently appears out of balance with the potential rewards.
I will be better able to assess the risk/reward balance soon enough.
If I am right, far better risk/reward opportunities will exist within that 12 month period. I will have plenty of cash reserves to take advantage of any such opportunity.
+++++++
Trump:
Donald is now calling himself the "Extremely Stable Genius". 'Trump: I am an"Extremely Stable Genius"
Donald decided to take his marbles and go home unless Nancy and the other Democrats start being nice to him: President breaks off infrastructure discussion after Pelosi’s ‘coverup’ remark - MarketWatch
Trump and his party were never serious about addressing the nation's infrastructure needs anyway.
Trump's pursuit of infrastructure deal hits GOP roadblock | TheHill;
Senate Republicans really don’t want to raise taxes to pay for an infrastructure plan - Vox
The GOP's priority has already been achieved with massive tax cuts for corporations and wealthy individuals who will return the favor with generous campaign contributions.
Republican infrastructure plans have generally been woefully underfunded and significantly reliant on spending by private companies who would then charge the public for access, spreading the actual cost to lower and middle income households. Trump’s infrastructure plan is a private, expensive bridge to nowhere | TheHill (1/31/18) User fees tied to new infrastructure projects are just another surreptitious way to silently tax those who are less able to pay rather than to raise the taxes on the GOP's super rich donors.
ASCE's 2017 Infrastructure Report Card | GPA: D+
Donald is now calling himself the "Extremely Stable Genius". 'Trump: I am an"Extremely Stable Genius"
Donald decided to take his marbles and go home unless Nancy and the other Democrats start being nice to him: President breaks off infrastructure discussion after Pelosi’s ‘coverup’ remark - MarketWatch
Trump and his party were never serious about addressing the nation's infrastructure needs anyway.
Trump's pursuit of infrastructure deal hits GOP roadblock | TheHill;
Senate Republicans really don’t want to raise taxes to pay for an infrastructure plan - Vox
The GOP's priority has already been achieved with massive tax cuts for corporations and wealthy individuals who will return the favor with generous campaign contributions.
Republican infrastructure plans have generally been woefully underfunded and significantly reliant on spending by private companies who would then charge the public for access, spreading the actual cost to lower and middle income households. Trump’s infrastructure plan is a private, expensive bridge to nowhere | TheHill (1/31/18) User fees tied to new infrastructure projects are just another surreptitious way to silently tax those who are less able to pay rather than to raise the taxes on the GOP's super rich donors.
ASCE's 2017 Infrastructure Report Card | GPA: D+
Donald hires only the very best people to cabinet posts, or so he has told us many times. Unfamiliar with foreclosure term, HUD chief Ben Carson thinks congresswoman’s question is about Oreos - MarketWatch
Government audit: Carson’s $40K office purchases broke law - The Washington Post Breaking the law is what the best people do in TrumpWorld.
Putin put Trump at disadvantage, Tillerson reportedly tells House panel - MarketWatch The Extremely Stable Genius does not have to prepare for meetings with Putin and other foreign leaders given the vast store of knowledge in his gut. Putin out-prepared Trump in key meeting, Rex Tillerson told House panel - The Washington Post
In response to Tillerson's mild criticism, the Extremely Stable Genius said that his former Secretary of State was "dumb as a rock".
Yes, Putin will vouch for you Donald. Putin will also tell us that you are an "Extremely Stable Genius", the most informed and intelligent President that the U.S. has had or could ever hope to have. No doubt Donald spent hours reading briefing books and patiently listening to expert's advice before meeting with Vlad.
After Nancy Pelosi suggested that Donald's children needed to do an intervention, Don said Nancy was the "crazy" one.
Donald declared yet another national emergency in order to bypass Congressional authorization of arm sales to Saudi Arabia and UAE. Defying Congress, Trump sets $8 billion-plus in weapons sales to Saudi Arabia, UAE - Reuters
The use of "national emergency" declarations to circumvent Congresses constitutional powers is just one of many clear manifestations of Donald's strong authoritarianism, laced and thoroughly permeated with vituperative demagoguery lacking factual foundations.
In response to Tillerson's mild criticism, the Extremely Stable Genius said that his former Secretary of State was "dumb as a rock".
Yes, Putin will vouch for you Donald. Putin will also tell us that you are an "Extremely Stable Genius", the most informed and intelligent President that the U.S. has had or could ever hope to have. No doubt Donald spent hours reading briefing books and patiently listening to expert's advice before meeting with Vlad.
After Nancy Pelosi suggested that Donald's children needed to do an intervention, Don said Nancy was the "crazy" one.
Donald declared yet another national emergency in order to bypass Congressional authorization of arm sales to Saudi Arabia and UAE. Defying Congress, Trump sets $8 billion-plus in weapons sales to Saudi Arabia, UAE - Reuters
The use of "national emergency" declarations to circumvent Congresses constitutional powers is just one of many clear manifestations of Donald's strong authoritarianism, laced and thoroughly permeated with vituperative demagoguery lacking factual foundations.
++++++++
1. Canadian Reset Equity Preferred Stocks:
1. Canadian Reset Equity Preferred Stocks:
A. Bought 100 EBGEF at U.S.$20.10:
Quotes:
This Enbridge cumulative reset preferred stock is priced in U.S. Dollars on both the Toronto exchange and in the U.S. Grey Market:
Quotes:
This Enbridge cumulative reset preferred stock is priced in U.S. Dollars on both the Toronto exchange and in the U.S. Grey Market:
Enbridge Inc. Cumulative Preferred Series 5 (U.S.: OTC)
Some brokers may charge a special fee for Grey Market orders. The market is "dark" in that bid and ask prices are not displayed. Fidelity will not permit its customers to buy online any stock that is currently or may be a floater. Try buying AEB or METPRA online at that broker. Those equity preferred stocks have not paid a dividend based on their floating rate provisions since their minimum 4% coupon have always been the greater number.
Security Description: This is a U.S.$25 par value Canadian reset equity preferred stock. As with other Canadian reset equity preferred stocks, this one paid a fixed coupon and then transitioned to a floating rate that resets every five years.
The initial 4.4% fixed coupon period started in September 2013 and ended on 2/28/19. Effective 3/1/19, the coupon reset at a 2.82% spread to the five year U.S. treasury note.
The next reset will occur on 3/1/24.
On each five year reset date, Enbridge has the option to call at par value and the owner has the option to convert to the Series 6 preferred stock that pays a 2.82% over the U.S. 3 month treasury bill, reseting quarterly. (see below)
Prospectus Excerpts:
Basic Terms:
Definitions:
Owner's Right to Convert on Reset Date:
Recent Reset: As with other Canadian resets, a fixed coupon was initially paid. The quarterly fixed coupon penny rate was $.275 (.044 x. $25 par value = $1.1 annually 4 quarters = $.275)
When the coupon reset for five years effective for the 2019 second quarter, the new quarterly penny rate was $.33596 or a 22.17% increase.
Last Ex Dividend Date: 5/14/19 (shortly after purchase)
Dividend Yield at a Total Cost of $20.1 = 6.69%
Link to all ENB Preferred Shares and Hybrid Securities - Enbridge Inc. (prospectuses are linked)
I have traded Enbridge cumulative preferred stocks.
I also currently own 100 shares of ENBPRP:CA: Item # 4.A. Bought 100 ENBPRP:CA at C$16.5 (3/20/19 Post) Realized gains on that one currently stands at US$2,064.32.
I also have a small position in the ENB common shares subject to the small ball purchase restriction.
The lowest price lot was purchased at $29.95 (3/20/18). The stock went ex dividend for its quarterly distribution on 5/14. I am reinvesting the dividend. I will consider liquidating the position at greater than $40.
Last Friday's Closing Price: ENB $37.47 +$0.48 +1.30%
Enbridge recently reported first quarter earnings that beat expectations:
Enbridge Inc. Reports Strong First Quarter 2019 Results
Enbridge Inc. (ENB) CEO Al Monaco on Q1 2019 Results - Earnings Call Transcript | Seeking Alpha
B. Added 50 PPL.PR.C at C$17.23:
Quote: Pembina Pipeline Corp. Cumulative Preferred Series 3 Stock (Canada: Toronto)
Closing Price Last Friday: PPL-PC.TO C$17.08 +C$0.11 +0.65%
The last ex dividend for the quarterly distribution was on 4/30/19 (after the 100 share purchase referenced below)
The five year reset occurred on 3/1/19. The new coupon is 4.478% paid on a C$25 par value.
The yield on my 150 share position is now at 6.38% based on my total cost of C$17.56 per share.
This brings me up to 150 shares. I have nothing to add to my previous discussion. Item # 1.A. Bought 100 PPL.PR.C. at C$17.7 (3/23/19 Post)
Some brokers may charge a special fee for Grey Market orders. The market is "dark" in that bid and ask prices are not displayed. Fidelity will not permit its customers to buy online any stock that is currently or may be a floater. Try buying AEB or METPRA online at that broker. Those equity preferred stocks have not paid a dividend based on their floating rate provisions since their minimum 4% coupon have always been the greater number.
Security Description: This is a U.S.$25 par value Canadian reset equity preferred stock. As with other Canadian reset equity preferred stocks, this one paid a fixed coupon and then transitioned to a floating rate that resets every five years.
The initial 4.4% fixed coupon period started in September 2013 and ended on 2/28/19. Effective 3/1/19, the coupon reset at a 2.82% spread to the five year U.S. treasury note.
The next reset will occur on 3/1/24.
On each five year reset date, Enbridge has the option to call at par value and the owner has the option to convert to the Series 6 preferred stock that pays a 2.82% over the U.S. 3 month treasury bill, reseting quarterly. (see below)
Prospectus Excerpts:
Basic Terms:
Definitions:
Owner's Right to Convert on Reset Date:
Recent Reset: As with other Canadian resets, a fixed coupon was initially paid. The quarterly fixed coupon penny rate was $.275 (.044 x. $25 par value = $1.1 annually 4 quarters = $.275)
When the coupon reset for five years effective for the 2019 second quarter, the new quarterly penny rate was $.33596 or a 22.17% increase.
 |
| Excerpt from Enbridge Website |
Dividend Yield at a Total Cost of $20.1 = 6.69%
Link to all ENB Preferred Shares and Hybrid Securities - Enbridge Inc. (prospectuses are linked)
I have traded Enbridge cumulative preferred stocks.
I also currently own 100 shares of ENBPRP:CA: Item # 4.A. Bought 100 ENBPRP:CA at C$16.5 (3/20/19 Post) Realized gains on that one currently stands at US$2,064.32.
I also have a small position in the ENB common shares subject to the small ball purchase restriction.
 |
| Average Cost Per Share = $34.07 |
Last Friday's Closing Price: ENB $37.47 +$0.48 +1.30%
Enbridge recently reported first quarter earnings that beat expectations:
Enbridge Inc. Reports Strong First Quarter 2019 Results
Enbridge Inc. (ENB) CEO Al Monaco on Q1 2019 Results - Earnings Call Transcript | Seeking Alpha
B. Added 50 PPL.PR.C at C$17.23:
Quote: Pembina Pipeline Corp. Cumulative Preferred Series 3 Stock (Canada: Toronto)
Closing Price Last Friday: PPL-PC.TO C$17.08 +C$0.11 +0.65%
The last ex dividend for the quarterly distribution was on 4/30/19 (after the 100 share purchase referenced below)
The five year reset occurred on 3/1/19. The new coupon is 4.478% paid on a C$25 par value.
The yield on my 150 share position is now at 6.38% based on my total cost of C$17.56 per share.
This brings me up to 150 shares. I have nothing to add to my previous discussion. Item # 1.A. Bought 100 PPL.PR.C. at C$17.7 (3/23/19 Post)
2. Short Term Bond/CD Ladder Basket Strategy:
$8K in adds
Short term bank CDs are now offering higher yields than treasuries maturing at the same time. For those who own treasuries and CDs in a taxable account, and who live in a state that taxes CD interest payment, the after state income tax yield may be higher for the treasuries even though the coupon is lower than the comparable maturity CD.
$8K in adds
Short term bank CDs are now offering higher yields than treasuries maturing at the same time. For those who own treasuries and CDs in a taxable account, and who live in a state that taxes CD interest payment, the after state income tax yield may be higher for the treasuries even though the coupon is lower than the comparable maturity CD.
A. Bought 2 Reliant Bank 2.4% CDs (Monthly interest payments) Maturing on 2/28/19:
Issuer: Operating subsidiary of Reliant Bancorp Inc. whose headquarters is in Brentwood, TN.
Reliant Bank Reviews and Ratings - Bankrate.com (rated 4 stars on safety scale out of 5)
10-Q for the Q/E 3/31/19
2018 Annual Report
B. Bought Two 3 Month Treasury Bills at Auction Maturing on 8/15/19:
IR = 2.4114% (gradually declining)
Auction Results:
C. Bought 3 Metabank 2.45% CDs (monthly interest payments) Maturing on 8/31/20:
Issuer: Operating bank of Meta Financial Group Inc. (CASH)
CASH Analyst Estimates
Meta Financial Group Announces Results for 2019 Fiscal Second Quarter
Issuer: Operating subsidiary of Reliant Bancorp Inc. whose headquarters is in Brentwood, TN.
Reliant Bank Reviews and Ratings - Bankrate.com (rated 4 stars on safety scale out of 5)
10-Q for the Q/E 3/31/19
2018 Annual Report
B. Bought Two 3 Month Treasury Bills at Auction Maturing on 8/15/19:
IR = 2.4114% (gradually declining)
Auction Results:
C. Bought 3 Metabank 2.45% CDs (monthly interest payments) Maturing on 8/31/20:
Issuer: Operating bank of Meta Financial Group Inc. (CASH)
CASH Analyst Estimates
Meta Financial Group Announces Results for 2019 Fiscal Second Quarter
3. Intermediate Term Bond Ladder Basket Strategy:
A. Sold 2 Autozone 3.25% SU Maturing on 4/15/25:
Profit Snapshot: +$4.04
Item # 1.C. Bought 2 AZO SU at a Total Cost of 99.738 (7/3/17 Post)
This purchase was a less than an optimal buy. The ten year treasury yield on the day of purchase was 2.19%.
FINRA Page: Bond Detail
Sold at 100.040
YTM at 100.040 = 3.242%
A. Sold 2 Autozone 3.25% SU Maturing on 4/15/25:
Profit Snapshot: +$4.04
Item # 1.C. Bought 2 AZO SU at a Total Cost of 99.738 (7/3/17 Post)
This purchase was a less than an optimal buy. The ten year treasury yield on the day of purchase was 2.19%.
FINRA Page: Bond Detail
Sold at 100.040
YTM at 100.040 = 3.242%
This is the first intermediate term bond that I have sold in several weeks. The sell was a snap decision based on my disgust that this bond maturing in almost 6 years barely had a 3.24% YTM.
I am looking through my bond portfolio for corporate intermediate term maturities that were bought when the ten year treasury yield was lower than now. I am likely to sell them into the ongoing bond rally.
Autozone recently reported better than expected earnings. AutoZone 3rd Quarter Same Store Sales Increase 3.9%; EPS Increases 19.2% to $15.99
I am not currently concerned about the credit risk and will consider buying this bond back when and if there is another interest rate pop that takes the 10 year treasury yield back over 3%.
I am looking through my bond portfolio for corporate intermediate term maturities that were bought when the ten year treasury yield was lower than now. I am likely to sell them into the ongoing bond rally.
Autozone recently reported better than expected earnings. AutoZone 3rd Quarter Same Store Sales Increase 3.9%; EPS Increases 19.2% to $15.99
I am not currently concerned about the credit risk and will consider buying this bond back when and if there is another interest rate pop that takes the 10 year treasury yield back over 3%.
Disclaimer: I am not a financial advisor but simply an individual investor who has been managing my own money since I was a teenager. In this post, I am acting solely as a financial journalist focusing on my own investments. The information contained in this post is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sell of securities. Nothing in this post is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. A failure to perform due diligence only increases what I call "error creep". Stocks, Bonds & Politics: ERROR CREEP and the INVESTING PROCESS Each investor needs to assess a potential investment taking into account their personal risk tolerances, goals and situational risks. I can only make that kind of assessment for myself and family members.
You listed a bunch of slowdowns and cautionary data. Is there positive data happening too? I haven't read FG's latest yet (he usually finds the positives if they're out there.)
ReplyDeleteThe slowdown data is an impressive array at this point.
It sounds like the bond ghouls are at the other extreme, and taking it too far?
""will be better able to assess the risk/reward balance soon enough. ""
What are you looking for, that helps with assessing?
On inversion, I'm curious to see what articles are out there about it now. If they are dismissing it as nothing to think about and this time is different, that will be telling about the euphoria stage setting itself up.
Land: I mention positive data in my bi-weekly posts when I have it. Some would interpret the new home sales data as a positive, which I mentioned, when looked at from a year-over-year perspective. Auto sales have probably peaked for now, but have not turned down yet in a worrisome way.
DeleteThe two most important long term positives have been and continue to be both low inflation and interest rates and predictions that those conditions will last a long time. Job and wage growth remain positive.
There will be cyclical slowdowns in an economic expansion and the current expansion starting in June 2009 has had several.
The question which is hard to answer in real time is whether a slowdown is the pause that refreshes or the start of a recession.
The trade war has the potential to turn the slowdown that is now evident into a worldwide recession.
My major concern is that the trade war will accelerate when the economy is in a slowdown mode.
Having defined the major concern, I will be looking for data points that fit into those parameters.
I will not be paying any attention to Donald's B.S. but looking at what is actually happening in the trade negotiations and the economy to the extent that publicly available information is available on those two general topics.
I would emphasize again that I have no financial reason to take risks. So when I identify dangers, my response is to move the soft tissue back into the shell, going into my full turtle mode, and just wait for the dangers to pass or, reverting back to baseball analogies, a "fat pitch".
""I mention positive data in my bi-weekly posts when I have it.""
DeleteThat's what got my attention. This had less positives than usual, so this moment stood out as more negative than it's been.
I keep forgetting about rates and inflation as important positives.
A slowdown can still create better entry points, too. Since I need to stay invested, that's a factor for my portfolio. Even though you are in preservation mode, avoiding a recession is important to look out for.
Jobs is a trailing indicator if I remember correctly, so almost ignorable except during recovering from a recession.
I don't know how to use housing or auto as indicators. Housing was critical after the last crisis based on housing. Now it seems worthwhile because it sparks so much other spending (to build, furnish, sell, community services upgrades,) but seems overall less critical.
The VIX is in stable phase. Yet, it's spiked more than usual for a stable phase. Not sure what to do with that info, but notice it.
Land: I would still say that the positives currently outweigh the negatives but the negative ones are gaining ground and potentially major negative ones are clearly identifiable and will or will not happen relatively soon.
DeleteThe main positives are inflation, interest rates, job and wage growth; government deficit spending (about $1 trillion annually by the U.S. government alone-pay the piper later); and the tax cuts that enable public corporations to pay higher dividends and to buyback stock without using debt to finance those activities.
A possible collapse in the China trade negotiations is not some far off event, but could happen within the next 30 or 60 days.
The next move is up to Donald. China is drawing a number of lines in the sand.
Does the Teflon Don cave to China's unwillingness to change on issues viewed as important by the U.S.. and conclude a somewhat favorable to U.S. trade deal or does he decide to apply more pressure with 25% tariffs on the remaining exports? With the later option, the ball is back in China's court as to what they are either willing to give up or turning up the heat on Donald with a variety of retaliations measures that go beyond increasing tariffs.
Another option is a cease fire lasting long enough for the economy to pass through a slowdown phase without a recession. An acceleration of the trade war could easily be the spark that turns a worldwide slowdown into a recession.
I do not see any need to predict the outcome now or to stick my neck out in hope that everything will work out just fine. We will know soon enough one way or the other, and I can then make more informed asset allocation decisions.
It is important to keep in mind that the 2019 first quarter U.S. GDP is being distorted up by one time factors with over 50% of the GDP increase due to the temporary items likely to quickly reverse and turn into negatives.
The second revision to the first quarter GDP estimate is due next Thursday.
There is a monthly consumer spending and income report due next Friday which is probably more important since consumer spending is the key and was weak during the first quarter.
I see. There's positives. Some international slowdown. It'd all be fine and look like it was going to work itself out ... or take a while to become a problem.
DeleteAnd the fly in the ointment is trade deals.
I'd bet pretty strongly that Trump will back down. He won't word it that way. He'll have a huge win, the winnest win ever, bigliest like we've never seen. But when collapse is near, he seems to hear that cry from his advisors. (Are they advisors? Is that the right word?)
So if my bet is correct, I should buy into big panic moments to come, unless it looks like a more permanent problematic reaction by Trump. Like you've said, best to wait since it's short term... to see what unfolds on this factor. Also on how deep the slowdown is.
Land: Trump will back down when cornered, just like other bullies, and will then claim a victory when he has actually caused far more harm than good. Donald will never be straight or truthful.
DeleteHis two most recent and high profile retreats involved his government shutdown in order to secure funding for the wall and the agreement recently reached with Canada and Mexico to remove the steel and aluminum tariffs. On the later, he demanded that those countries agree to quotas.
When Canada and Mexico retaliated with their own tariffs and refuse to budge on Donald's quota demand, the Duck folded, receiving what he could have gotten IMO without launching a tariff war that lasted for about a year. Donald justified imposing tariffs on steel and aluminum exports from Canada and Mexico on "national security" grounds.
Even with his NAFTA renegotiated agreement, which is properly called NAFTA 1.1 rather than a meaningful overhaul, he backed down.
The problem, as I see it, is that he can get away with backing down on some matters or putting lipstick on the revised NAFTA agreement which will have no meaningful impact, but the China trade negotiation is too high profile for those tactics.
If he backs down now on his China demands, it will look weak to a lot of his supporters and that weakness will not go unnoticed which is what happened with Canada and Mexico.
Some kind of cease fire may be the best near term option that is realistic.
Cease fire could be a real option.
ReplyDeleteTrue that this is more high profile. Some of his followers will be bothered. Most don't seem to be engaged with policies themselves.
Another factor to backing down, is his sociopathic style belief that he will always been seen as good, and as coming out on top. He will believe he can snow people. He's very sure of that. So that increases chances that he will back down, even if high profile, because he believes his own self-hype that he can snow and cover for a backdown.
His followers won't see it as weak. They do believe him, and whatever he blames.
I have published a new post:
ReplyDeletehttps://tennesseeindependent.blogspot.com/2019/05/observations-and-sample-of-recent_29.html