Democrats and Media Hype US Durable Goods Report

Mainstream media groups (yes that includes Fox New) are putting a positive spin on economic reports on the US economy. This positive spin provides support for Hillary Clinton, and Democrats claim that they’ve managed the economy so well. As traders, you have to be aware that this is going on so that you minimize losses in your trading account.

The latest example of this is the Durable Goods Orders report released on September 28, 2016. Durable goods orders came in at ZERO percent for the month of August. Here is how Reuters reported the weak durable goods orders number.

Reuters is showing a picture of a consumer presumably shopping for large consumer items like washers and dryers and then reporting that durable goods orders are up for the third straight month. The economy must be strengthening in the second half of 2016, right? Wrong. If you look at the larger trend of year-over-year change, things are far worse than the Reuters report on durable goods orders suggests.

The longer term trend chart above would have been a much more valuable picture to use instead of the consumer shopping near washers and dryers picture.

Worse, capital goods shipments are in a terrifying free fall.

Don’t get me wrong. Positive economic spin is not about Democrat bashing. I have little doubt that if it was a Republican administration, you’d have media groups doing the same thing. The larger point is that be aware of heavy spin right now when it comes to reports on the US economy as we head into the Presidential election. Your trading account just might depend on it.

Hurricane Stocks On As Tropical Storm Matthew Heads For Central Caribbean Sea

The US National Hurricane Center just reported that tropical storm Matthew is heading for the Central Caribbean Sea. The tropical storm is moving west at 15 mph with max sustained winds of 65 mph.

Quanta Services provides infrastructure contracting services to the electric power, gas, telecommunications and cable television industries. After a big storm or flood, they are the emergency response team that will be the first on-site to repair down power lines and broken pipes.

Vulcan Materials produces construction aggregates such as crushed stone, sand, and gravel used in nearly all forms of construction. The thing I like about Vulcan Materials is that public spending will likely increase no matter who wins the Presidential election and that should bode well for construction materials providers like Vulcan.

I also like the Shooting Star pattern on Vulcan which means the stock is likely to pullback which would make for a better entry than Quanta Services.

For a shorter term swing trade, I like Generac Holdings Inc. which is a designer and manufacturer of power generation equipment and other engine powered products.

Notice the beautiful swings on Generac Holdings in the chart below.

Disclosure: I do not hold any position in PWR, VMC, or GNRC.

Terrifying US Pension Fund Charts

Pension funds in the US could be close to a collapse. There is an estimated $1.9 trillion shortfall in U.S. state and local pension funds because of low-interest rates and a sideways US stock market. Even stocks falling overseas is a problem for pension funds.

Credit Suisse published the chilling chart below on the funding gap at the largest 100 US pension funds.

Bloomberg writes

Pensions count on annual investment gains of more than 7 percent to cover much of the benefits that come due as workers retire. But public plans had a median increase of 1 percent for the year ended June 30, the smallest advance since 2009, when they lost 16.2 percent, according to the Wilshire Trust Universe Comparison Service.

Now it seems like there is a run on the Dallas Police and Fire Pension as employees try to claim benefits before the system becomes insolvent.

Pension funds are starting to drop hedge fund investments. Turn To 10 writes

Rhode Island plans to scale back its investments in hedge funds by more than $500 million over the next two years, and reallocate those funds to more traditional investments with lower fees.

Pension funds like Rhode Island are starting to be more defensive and are hunkering down. The problem though is that defensive US Treasury bonds mean way below 7 percent returns which means more shortfalls in funding are coming.

There’s no way pension funds can stay above water in an environment with low-interest rates and with equity markets at valuations that are sky high.

But wait, Democrats say everything is good, just look at consumer confidence that came out this week at 104.1.

consumer-confidence

There is massive offshoring of good paying US jobs, stagnant wages, soaring costs of health care and education, contraction in manufacturing, falling retail sales, and consumers pensions are dangerously close to collapse. Meanwhile, consumer confidence is hitting multi-year highs? Consumer confidence is starting to look like just another tool of public manipulation that’s out of touch with reality on the street.

With So Much Debt In the US Economy, Is It Even Possible To Grow Faster?

The US national debt just broke above $19.5 trillion. Both Democrats and Republicans are to blame, but it is important to note that President Obama and Democrats increased the national debt more than all President’s before combined.
Continue reading “With So Much Debt In the US Economy, Is It Even Possible To Grow Faster?”

Mexico Devalues Peso To Dominate Auto Production In North America

Mexico is devaluing its currency to gain a huge advantage in international trade. Democrats and the Obama Administration have done nothing to stop it.

Like most economists, I am for free trade; however, free trade today is not Adam Smith or David Ricardo envisioned hundreds of years ago. The classical concept of free trade works because of comparative advantage. The idea is that because of Colombia’s unique topography and economy, it can produce a higher quality coffee bean using fewer resources than the US. The US can produce higher quality machinery using fewer resources than Columbia. The US and Columbia can then trade coffee beans and machinery to which it is beneficial for both countries. Each country has different goods it can produce with a comparative advantage over other countries. These countries then engage in international trade, and it raises the living standards of all countries. Honest, comparative advantage is what Trump refers to as “smart trade.” Today that is not what is happening with international trade.
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Warning Sign: US Auto Loan Delinquencies Rising

There is $1.103 trillion in outstanding auto loan debt in the US which is the highest level ever recorded.

We know that the economy has been slowing for a few years now so how could so many people still be taking out auto loans? If we overlay auto sales and auto loan debt, we learn that more people are not taking out more auto loans, at least not since August of 2014.

Auto sales peaked in August of 2014. In 2015, car sales chopped out and slowly faded down; however, in 2016 we’ve seen a rapid plunge. What explains rising auto loan balances as car sales are falling is rising delinquencies.

As of Q2 2016, there was about $21 billion in auto loans delinquent by 30 days. The delinquencies started to rise in Q1 2015 as evidenced by the auto loans delinquent by 90 days (red line) in the chart below.

If we zoom out the chart, we can see that auto loan delinquencies rise right before a recession.

Government Spending and the Crowding Out Effect

The velocity of money has hit the lowest level ever recorded as I wrote about here. I believe the crowding out effect is at least partially to blame for the slowdown in the velocity of money.

President Obama has run the national debt up to nearly $20 trillion, more than all President’s before him combined. This expansionary fiscal policy has crowded out private sector investment.
Continue reading “Government Spending and the Crowding Out Effect”

3% GDP Growth For Q3 – What a Not Funny Joke

Both the Fed and Wall Street analysts are forecasting a 3% GDP growth rate for Q3. After yesterday’s release of many economic reports, I would put the GDP growth rate for Q3 at 1.5% at most. Let’s look at yesterday’s economic releases on the charts.

The NY Empire manufacturing index came in at -2%. That number is -84.53% lower than a year ago.

All the major components of the Empire manufacturing index are contracting.

The Philly Fed survey beat, coming in at 12.8 which is an increase of 455.6% from a year ago.

However, employment is still contracting.

Industrial production fell by -1.1 percent for the 12th straight month of contraction.

The Daily Shot makes the observation that the improvement early this summer was in part helped by utilities cranking on all cylinders to keep the air conditioners around the country running. As that contribution subsidies, we are back to the downtrend from the Spring.

Here is the manufacturing component of the US industrial production (year-over-year).

US retail sales fell in August and are continuing to slow.

Inventory growth continues to slow just like retail sales.

Most of the charts above, I went back five years on the data. Let’s look at what the S&P 500 has done over the last five years and compare performance.

The S&P 500 is up nearly +90% over the last five years while the U.S. economy fundamentals have deteriorated over that same time frame. Folks, that’s the Federal Reserve’s monetary policy propping up the stock market and creating a huge bubble in securities.

Oil and Gas Company Default Rates Surge Higher

Watch out for investing in high yield corporate debt. U.S. default rates are surging higher and breaking away from the rest of the world.

The U.S. has more oil and gas firms that are financed by the high yield bond market than anywhere else on the planet. The S&P calls these oil and gas companies the “weakest links.”

Accommodative Federal Reserve policy (ultra-low interest rates and lower lending standards) caused a lot of borrowing by smaller oil and gas companies profiting from the shale oil boom. When the price of oil crashed, S&P downgraded the credit rating on lots of that debt to B- and lower.

Now you see why many oil and gas executives are using the mainstream financial media to disseminate fantastic stories of oil production cuts by OPEC members. The goal is to jawbone the price of oil higher. No one is going to cut production when oil prices are this low because they have to produce more to make up for the budget shortfalls caused by the lower price of oil. Remember the law of man: when things get bad enough, it’s every man/country for himself.