Macroeconomics of Rising Interest Rates

The prospect of a Federal Reserve rate hike is driving up the US dollar. The rising US dollar has a significant impact on the US economy and thus stock market. It’s important that traders understand the implications of a rising US dollar from a macroeconomic perspective.
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Question On Dividend Paying Income Fund

Albert writes, “Hi Lance; you had another great show tonight. A couple of questions if you don’t mind. First is, I read on your website that you think STM might be a good long term trade. Aside from margin issues (if one doesn’t buy on margin), do you think it’s still a good long-term stock even though it jumped up 17% on bad earnings?

Second, you said you temporarily jumped into a dividend paying income fund. I take it those still have downside risks? And if interest rates start to rise those type of funds would not be good to stay in? Thanks.”

Hi, Albert. I think STM is a good long term hold for several years but watch out for share dilution and stick with a stop loss.

You are correct about dividends and rising rates, so you want to stay away from bond income funds IMO. I like a dividend player that would
invest in something like small businesses with significant growth potential. The growth of small businesses can outpace the growth of inflation and rate hikes. The danger is if rate hikes negatively impact the economy, aren’t small businesses the most susceptible and likely to crash? Yes, but what do we know about this rising rates environment? Rates will be raised unbelievably slow (think Fed dot plot) so even moderate growth from small businesses will easily outpace the rate hikes.

Dividends also keep a lot of short sellers out of the stock because if anyone is short the stock, they must pay the dividend (as opposed to collecting the dividend if long the stock).

A really good website to research dividends is https://www.dividend.com

There’s a Halloween special sign up right now where you get 20% off for a one year Premium membership.

After you sign up, go to the monthly dividend payers section.

You can research high-income monthly dividend stocks. There’s energy, gold, silver, and so on. My preference is something that can outpace coming inflation and hence tied to the growth of small businesses.

I will be talking more about my favorite dividend stock next week.

Thanks Albert for your kind words about the show. Your kind words mean so much.

Guess Who Is On Trump’s Economic Team, SWEET!

Do you remember when the WSJ, CNN, CNBC, NBC, ABC, CBS, Bloomberg, Forbes, and Reuters ran stories at the start of the year about how no one even knows who was advising Trump on economic matters? They even went as far to say that Trump had no support of any economists.

That never sat right with me. I saw what Trump was doing at every level and how it would impact GDP. For example:

Border security = Eliminate illegal workers from coming into this country and competing with American citizens for jobs. Macroeconomic impact of illegal immigration discussed here. The mainstream media tried to convince the public Trump was a racist, bigoted, xenophobe who will send the police around knocking on doors to check your citizenship status.

Eliminate sanctuary cities = Eliminate sanctuary cities as they create lots of inefficiencies in the US economy including the murder of working Americans. Macroeconomics of rent control which is just one negative economic impact of sanctuary cities here. The mainstream media told everybody that Trump was a rich elitist Nazi who was attacking poor people who came to America for better opportunities and that illegals have only killed a few Americans.

Renegotiate international trade agreements = Look at all international trade agreements and renegotiate them so that they are fair to America and its workers. Penalize currency manipulators like China and Mexico. Increase exports and reduce imports as imports subtract from GDP. Macroeconomic analysis of trade deficits here and also here. The mainstream media tried to scare everyone into thinking that Trump was bringing in dangerous “nationalism” and that Trump will start a trade war which will crash the economy and stock market.

Significantly reduce refugees = Block all refugees coming from Syria and other Muslim countries if we cannot do a background check and make sure they are not radical Muslim terrorists coming to America to kill Americans. Terrorist attacks are bad for the economy and stock market. The OPEC cartel has been illegally manipulating the price of oil for decades (although Game Theory explains why they haven’t been too successful at it). Make OPEC countries take care of their neighborhood with all their ill-gotten gains over the years. Establish safe zones in Syria and elsewhere for Muslim refugees. A macroeconomic analysis of the OPEC cartel is discussed here. The mainstream media stirred up Muslims and other races by claiming Trump was a xenophobic racist on the order of Hitler and that he has a vision of a “white” Klu-Klux-Klan America.

Lower taxes = Lower taxes and institute supply side economics like Reagan did during the 80s. Higher taxes result in an increase in deadweight loss. Lowering deadweight loss will improve efficiencies in the economy and lead to both greater demand and supply. A macroeconomic analysis of taxation is here. The mainstream media stirred up class-warfare claiming that everybody should “pay their fair share” when it comes to taxes and that Trump’s tax plan will just allow the rich not to pay their fair share.

End ObamaCare = ObamaCare is a big tax on businesses. ObamaCare passed because Obama and Democrats lied to Congress and the American people about who was going to pay for it. It takes from the value producers and job creators, and gives to illegal immigrants and lower value producers, causing inefficiencies and disincentives in both hiring and working. Worse, it has lowered the quality of healthcare for everyone with long waiting lines and more doctors not accepting new patients. A macroeconomic analysis of ObamaCare is here. The mainstream media told everyone that Republicans just want to take away your healthcare so that they can get even richer.

Guess Who Is On Trump’s Economic Team?

I had to ask myself, was I just biased towards Trump and was I just twisting Trump’s positions into macroeconomics because I support him for President?

Fox News showed who is on Trump’s economic team. You won’t believe this. Dr. Peter Navarro is on Trump’s economic team, my favorite professor that I talk about here!

It now makes sense why I so clearly saw what Trump was doing while so many others did not. My economics professor is advising the Trump team! LOL.

Papa Giorgio posted a recent audio interview on Talk Radio with Peter Navarro:

MSNBC which supports Hillary Clinton had Peter Navarro on under the pretense of a serious talk about the economy. MSNBC then tried to talk about everything but the economy and trap Peter Navarro. Check out this heated exchange:

Folks, I don’t think Trump is going to win the Presidency. Most Americans are just not smart enough to understand economics. All they understand is that Hillary Clinton gives them a free iPhone and $1,500 to cause violence at Trump events. But I could be wrong. I never thought Trump would make it past Jeb Bush or Ted Cruz and he did.

Macroeconomics Of Rent Control

California, New Jersey, and New York have the most cities with rent control. Sanctuary cities in California like San Francisco and Los Angeles have some of the toughest rent controls. Rent controls hurt the local economy and make rental unit availability worse. Aggregate deadweight loss from rent controls across the country negatively impacts the US economy and hence stock market. Let’s examine what happens with rent control from a macroeconomics perspective.

In a free, non-rent controlled market, the price of rent is established by the market where the supply and demand curves cross.
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Inflation Expectations On The Rise Shifts Aggregate Demand Outward

Inflationary expectations are the expectations that consumers have concerning future inflation. If buyers expect higher prices in the future, they increase their demand in the present. This shifts the aggregate demand curve outward (to the right) which is good for the economy. For example, if the price of a house is expected to be higher next year, consumers decide not to wait, but to buy now. The increase in inflationary expectations causes an increase in consumption expenditures and subsequently an increase in aggregate demand.
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Great Panther Silver Exploding Twiggs Money Flow

Holy Miss Moly! Great Panther Silver ripped higher today on heavy volume at 1.62 million shares. The Twiggs Money Flow has exploded higher.

Great Panther Silver broke above its 50-day moving average today and all its speed lines. The next resistance is the 150-day moving average at $1.42. If we get a break above $1.42 tomorrow, we’re going to $1.50, and if $1.50 is broke, it’s all the way back up to $1.60.

Zacks is pumping GPL hard on Yahoo Finance with this article on October 19, 2016 entitled Why Great Panther Could Shock the Market Soon. Zacks hit the pump hard again today, October 25, 2016, with this article entitled 5 Top-Ranked Stocks with Rising P/E for Blowout Gains.

The short interest in GPL is starting to unwind. Previous short interest was 2,847,000 shares. The most recent short interest is 2,688,300 or a -6% decrease in the short interest in GPL. Only 1.64% of the float is short with days to cover of 2.8. While I’m not suggesting a big upward move from a short squeeze, more short sellers are covering their positions in the $1.40 area than are taking new short positions.

GPL is set to announce earnings on November 2, 2016. We will have to see if GPL runs up ahead of earnings.

Disclosure: I will be taking a long position in GPL at market open on October 26, 2016.

US Jobs and Holiday Hiring Stronger This Year

Temporary holiday season hiring in the US is stronger this year than in previous years. Employers having a higher demand for temp workers for the holiday season is a bullish signal for the US economy.

The WSJ writes

“Five years ago we could find a lot of professional-level people that didn’t have a job,” said Kelly Purves, vice president of BevMo human resources. “Now there’s a lot less people in that position.”

I don’t think that stronger holiday season demand for temporary workers is going to impact whether the Federal Reserve hikes rates in December. I think the bigger news is just how tight this labor market is. I’m hearing more and more from employers that it’s hard to find good help these days. Anyone who wanted a job and has talent has already been hired.

Ryerson Holding Corporation Massive Twiggs Money Flow Divergence

A massive divergence has formed on the chart of Ryerson Holding Corporation. We have three months of a down trending stock while the Twiggs Money Flow has been uptrending.

We also have recent insider buying.

This stock is looking good as we wait for a pop. Resistance is at the 50 day moving average line at $11.05. If we get a break above the 50 day moving average, I think we run to the 150 day moving average at $11.80.

Disclosure: I do not hold any position in Ryerson Holding Corporation.

Editas Medicine Rising Twiggs Money Flow

Editas Medicine has an explosive Twiggs Money Flow on the chart.

Editas Medicine is a risky biotechnology stock with no P/E.

The catalyst is none other than the Biotech Discovery of the Century. Yeah, that sounds like major hype and maybe somebody is drinking the Kool-Aid. Nevertheless, the chart looks pretty sweet with the rising Twiggs Money Flow.

Disclosure: I do not any position in Editas Medicine.