All comments are on hold until after the election November 8th. Until then, all below is applicable.
Deutsche Bank (DB) bonds dipped to the lowest level since a market wide decline in February, as a potential 14 billion-dollar bill to settle the US Justice probe into mortgage back securities, worried investors. The bank has a $2billion, 6 percent tier 1 bond that have fallen to $.72 on the dollar. The Justice Department probe may lead to a capital shortfall even if the bank is able to negotiate a smaller settlement. A capital gap could force the bank to sell new stock or default on bond payments. The bank is among the worst capitalized lenders in Europe and we have called it the canary in the mine. The stock and $12.73, is only $.25 above its all-time low of $12.48.
The US stock markets continue to edge up and making new highs! However, Bank stocks, particularly European bank stocks, are close to new lows. I expect Deutsche Bank to make a new low of 12.48, and after the election to default on its bonds. A clue to the market’s weakness is retails store closings and the reluctance of the Dow Transports to confirm new high
Sorry I haven’t written much lately. Nothing much matters until after the election. Everything seems to be on hold until then A Goldilocks market. Neither too hot nor too cold. US stocks are at all-time highs, with most Banks close to all time lows. The likelihood of a Trump presidency seem likely, but the possibility still looms as a possibility, which I believe would be instantly devastating to the US and world stock markets. The economy continues to be lack luster, hardly growing in the first half of 2016
7/23/16 Investors are very bullish even though the headlines are showing geopolitical risk at a record high, strife in the European Union, a coup attempt in Turkey, tensions in this South China Sea, numerous terrorist attacks and rhetoric from a presidential candidate giving authoritarianism a full embrace. Investors seem convinced that economic prosperity and good corporate profits are just ahead of us. However, for the past four quarters earnings-per-share the S&P 500 have been falling by about 12% per the year prior. The falling dollar and cheap energy prices are hurting earnings. For instance, Coca-Cola’s global sales have risen in local currency terms, but have declined in dollars for the last two years. Dollar and oil prices have probably stabilized. The economy seems to be growing just fast enough to keep demand for products moving without much inflation. (Harley any growth for the first two quarters of 2016). A Goldilocks economy. Wages and labor costs have been rising at only an annual rate of only 2.3%. However, there is now pressure for wages to grow faster. A 5% rise in wages could lower profits by about 15%.
The biggest risk in the market seems to be coming from a political climate that is frighteningly uncertain. Hillary Clinton has promised to put pressure on drug pricing which encompasses 14% of all profits the US. Donald Trump seems to be pursuing an agenda of global trade protection, large tax cuts, an expensive wall, restructuring projects, the deportation of 11 million consumers and workers, major punishment of corporations that are US-based and want to leave the US Or have already left the US. In addition, HE is basically willing to scrap the NATO agreement. Markets don’t like uncertainty.
So where is the buying coming from?? US corporations are using my earnings and low interest rates to buy back $165 billion a quarter of their own stock. In addition, Citicorp analysts have said that the Central Bank’s worldwide are buying stock, to prop up a sagging worldwide economy.
For the following reasons below, I believe this is a bubble that is being held up by corporate buy- backs, excessive Central Bank buying (don’t fight the Fed) and political considerations to keep the bubble fully blown during this US election period. I don’t think the markets will hold up that long, which will be good for Trump and bad for the world!
1) The US MARKETS ARE making new highs. Now, everything is OK again? Sure! A Citigroup analyst has reported buying is coming from Central Banks. They are creating a fantasy that all is OK, before the US election. The BEAR MARKET decline may take longer to develop than I first thought and I am extending my 2016 FORCAST TO 7/4/2017. See below
2). Retail stocks such as Macy’s, Disney and Sears are having trouble with their earnings. Store closings are commonplace today as people are buying online. This is not good for profit margins or employment. The economy could be stimulated with a backlog of infrastructure spending. Not a chance with this Congress.
3). Gold is making new highs; while the 10 year treasury WENT TO 1.37% is a new low. Now 1.68%.That is where the money is going. This means that INDIVIDUAL investors are very cautious.
4). Donald Trump, the nominee of the Republican Party, continues to blurt out dangerous statements. He recently said, “Why worry about Debt, we can print money.” That’s true, except that excessive printing of money turns into hyperinflation. If you don’t know the history of the Weimar Republic in Germany you are likely to repeat history’s mistakes. Besides, it’s the Federal Reserve’s job to monitor monetary policy. Of course a dictator, can easily appoint flunkies at the Federal Reserve, which he could control. The market dislikes uncertainty and instability. The possibility of the Trump presidency, however unlikely, is still un- stabilizing to the markets. His quote of “fight fire with fire” will mean more meaningless and expensive wars~! His comments on NATO are based on financing, not commitment or global strategy. This will encourage Putin.
5).I believe most of buying has occurred because of Central Bank stimulus, continued low interest rates (-0% some places) and corporate stock buybacks in the last 12 months are a record $600 billion. If it were not this stimulus, I believe the market would be down some 20% at this point. Companies are not investing in production or innovation. this is bad for employment and the economy.
6). The middle class continues to take it on the chin. According to recent data between 2000 and 2014, the middle class shrunk from 55% to under 51%. It’s probably now below 50%. An economy based on consumer spending of the middle class, like the United States, cannot grow without a healthy middle-class. International corporations do well for a while, as they are now. But eventually, I feel the present economic environment will lead to a deflationary economy, which will hurt all economic levels.
7). If commodity prices and companies engaged in retail sales continue to suffer, their bonds will eventually suffer and therefore the banks that are holding securities will suffer. 2008 all over again, only this time no government bailout! The ‘canary in the mine’ Deutsche Bank at 14.35 is down from its recent high of 19.46 and above its recent low at 12.60, Also see weak charts of BCS, CS, HBC.BE, BNP.PA WHY IS THE US MARKETS MAKING NEW HIGHS AND THE BANKS MAKING NEW LOWS? BECAUSE OF, I BELIEVE CENTRAL BANK INTERFERENCE, WHICH WILL STOP AFTER THE ELECTION. CAN NEW HIGHS LAST UNTIL THEN?
8). China continues to show lackluster economic growth. China’s rate of loans is far above the rate of money supply growth. Right now, China is using its currency to buy as many companies in the West as it can, while it can. Just as has happened to Japan in the 1990s, we expect the same deflationary scenario to begin to occur in China. . In China, for example, has $1.3 trillion of corporate loans, one seventh of the total are owned by companies whose profits don’t cover their interest payments, a problem that could trigger banks losses equal to 7% of gross domestic product.”
9). The central banks have done everything they can to stop inflation in Europe and in the United States with the results that many corporations in Europe are issuing bonds and financing them at close to zero interest rates. What this means, is that central banks cannot stop deflation. Rick Santelli of CNBC says “nobody says anything good about negative interest rates.” Central banks are helpless to stop deflation.
10). I continue to believe that economic growth in the United States is being slowed by all the income growth going to the top 1%. A recent Economist Magazine showed the upper 1% standing on top of their money with the guarded by barbed wire fence around, with the title WINNERS TAKE ALL. This is a lose, lose policy for everyone, where all boats will sink.
11) Brazil and Petrobas its oil company($500 Bil debt) are going bankrupt because of corruption. What will happen to its Bonds that the banks hold?
12) Cyber theft at the banks can’t be stopped. $80 billion, another attack right after that. Soon there will be no confidence in on line banking.
My forecasts for next 12 months TO JULY 4TH 2017 call for the Dow Jones Industrial average to be as low as 14,688 to 12,000, the NASDAQ to be as low as 4,000 to 3,000 and the S&P 500 to be as low as 1,560 to 1,400 because (See previous market letters)
| Current 9/20/16
|Foretasted Trends||DJIA||NASDAQ||S&P 500|
|Long Term||Bear Market||Bear Market||Bear Market|
|Breakout Points||DJIA||NASDAQ||S&P 500|
|Short Term Up (Resistance)||18,722||5,287||2,193|
|Short Term Down (Support)||17,140/||4,594||2,001|
|Int. Term Up (Resistance)||18,722||5,287||2,193|
|Int. Term Down (Support)||16,865 15,484 /15,370 /14,688/ 13,377||4,267/4,209/3,986/3,294||1,850/1,560|
|Long Term Up (Resistance)||18,722||5,287||2,193|
|Long Term Down Fibonacci Support||50%12,000
2008 LOW 6,627
2008 LOW 1,204
2008 LOW 666
|10 Treasury L0W 1.37^ NOW1.68%||Gold 1,316||Oil 26.59 low Now 43.38|
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Carl does not offer investment advice, but merely his own personal opinion. This report has been prepared from original sources and data we believe reliable but make no representations as to the accuracy or completeness. Carl, his affiliates and subsidiaries and/or their officers and employees may from time to time acquire, hold or sell a position in securities. Past performance is no guarantee of future success. Upon request, we will supply additional information. CarlBis@aol.com