JP Morgan reaffirmed their Buy rating on Live Nation Entertainment today. JP Morgan is one of the best analyst firms on Wall Street as evidenced by their often accurate stock ratings. All traders should take note of JP Morgan's ratings on various stocks. I'm not a high enough net-worth individual and so I don't have access to the actual JP Morgan research report but it's not hard to guess what they like about Live Nation Entertainment.
The Transportation ETF XTN outperformed last week's market prediction. The buying across the transports sector was stronger than forecast putting transports into a more supportive role for the S&P 500 last week.
Transports have been under-performing the S&P 500 so far in 2017. Year to date the S&P 500 is up about 12% while the Transportation ETF XTN is up about 10%. Airlines are struggling, trains have improved some, and shippers (UPS, FedEx) are doing ok.
Low gas prices are not good for consumers or the US economy. Remember back in late 2015 and early 2016 when oil prices fell which pushed down the price of gas?
We had headlines in the MSM that lower oil prices were a big boost to consumers and so consumer spending was going to rise. It didn't happen that way.
Gas Prices and Jobs
Lower gas prices mean lower profits for the energy sector which provides good paying jobs for millions of Americans. It's not just direct energy sector companies either. Real-estate in and around major oil fields saw a crushing drop and mortgage default rates surged when oil drilling rigs went idol back in 2015 and 2016.
Lower gas prices are a net loss for the US economy because of the loss of jobs that accompanies the price drop. While we fell for the MSM headlines back in 2015 and 2016, let's not fall for it again. Lower prices at the pump do not result in a meaningful increase in consumer spending.
Gas Prices Pull Down The Stock Market
Lower fuel costs pull down the stock market and not just in the US either but around the world. If oil prices were to average $40 a barrel this year, oil-exporting countries would have to sell upwards of $100 billion in various investments to cover their balance of payments deficits. We know this because it's exactly what happened in late 2015 and early 2016 when oil fell.
It's not just oil-exporting countries that would be selling. Oil is the primary holding of the world's largest sovereign wealth funds. Those oil positions extend margin credit to fund managers who use that margin to buy appreciating assets around the world. When oil goes down, it's like a giant global margin call that goes out and forces fund managers to reduce positions or infuse new money into the fund to meet the margin call.
According to JPMorgan’s estimates, a $40 average Brent price this year would result in the sale of $67 billion in government bonds, $24 billion in equities and another $19 billion in corporate bonds, hedge funds and cash over the course of the year.
Charting margin debt (red line), West Texas Intermediate (brown line), and the S&P 500 (blue line), you can see the effect that oil prices have.
Notice how oil leads both margin debt and by extension the S&P 500.
Not only does the black gold pull down the stock market via the reduction of margin debt, it also results in lower earnings and hence the earnings recession we experienced in 2015. You can see this relationship by charting S&P 500 earnings (green line) over the price of oil and margin debt.
Oil began plunging in 2014 and that drop showed up in earnings about 6 months later. Notice that when oil turned up in February of 2016, earnings again turned up about 6 months later.
Low gas prices are not good for consumers or the US economy. Traders need to watch the price of oil. It's all about the oil. So goes oil, so goes the US economy.
Deutsche Bank may be on the verge of collapse. Last week Deutsche Bank reported Q2 2016 earnings of 20 million euros which is a 98% drop in earnings year-over-year.
In 2015, Deutsche Bank announced its first full year of loss since the 2008 recession.
Deutsche Bank's stock is down -60% over the last year meaning that the bank is close to collapse.
Deutsche Bank's shares now trade for two-thirds less than their tangible book value, a steeper discount than even during the depths of the financial crisis.
Beyond Germany, few stock traders care if Deutsche Bank collapses. The problem with Deutsche Bank collapsing is its enormous derivatives portfolio valued at 42 trillion euros! To put in perspective, the entire EU (all 28 member states) has an estimated GDP value of 14.3 trillion. Deutsche Bank's 42 trillion euro derivatives portfolio is about three times the size of the entire EU!
One might think that with such a high exposure to the derivatives market, Deutsche Bank would have already collapsed. The reason Deutsche Bank has not collapsed is because of something called netting. For every derivative position Deutsche Bank holds, they hold another position in the opposite direction, so they roughly cancel each other out. At least that's what Deutsche Bank is reporting that they are doing. Whether that is true or not remains to be seen. Why would anyone hedge their longs with shorts in a 1:1 ratio? You would never make any money from trading, and you would slowly lose on slippage. The OCC tracks netting on U.S. banks and does, in fact, show that even with netting, net current credit exposure (NCCE) has been rising rapidly since 2014.
When Deutsche Bank collapses, it is going to be the explosion heard around the world, and it will be a disaster many times greater than the collapse of Lehman Brothers in 2008.
US Derivatives Exposure
The big U.S. banks have higher exposures to derivatives than Deutsche Bank. As of June 30, 2016, below are U.S. banks with the largest derivative exposures.
Citigroup has amassed the largest stockpile of interest-rate swaps as they bet on central bank rate changes.
Five U.S. banks hold 93% of all derivatives: Citigroup, JPMorgan Chase, Goldman Sachs, Bank of America, and Morgan Stanley. The total value of these derivatives is $247 trillion (notional).
Morgan Stanley has $31 trillion in derivatives with $1.6 trillion (notional) in credit derivatives. What is scary is that Morgan Stanley is back to speculating in the same credit derivatives market that took down AIG in 2008. I don't think Morgan Stanley necessarily wants to speculate in credit derivatives but with revenue flat the last few years, they may be getting more desperate to prop up their stock price. Morgan Stanley's stock is down more than -25% over the last year.
Most traders in the U.S. don't care about Morgan Stanley's risky credit derivatives portfolio, but they should. Morgan Stanley has more than 15,770 retail brokers managing $404 billion of other people's money (mom and pop savings, retirees, pensions, retirement accounts, etc.cause). Morgan Stanley's risky credit derivatives position poses a huge threat to the investing community in my opinion.
Banks and Financial Firms Will Not Disclose Information Until It's Too Late
If you are waiting for banks and financial firms to disclose risks and even how much they were bailed out from the last time they made risky credit derivative bets, don't.
To survive the 2007-2009 Wall Street crash, Morgan Stanley received an injection of $9 billion from the Japanese bank, Mitsubishi UFJ Financial Group; a $10 billion injection from the U.S. government and over $2 trillion in secret, cumulative, below-market-rate loans from the Federal Reserve. According to data obtained by Bloomberg News following a multi-year court battle to obtain the information from the Federal Reserve, Morgan Stanley’s one-day secret outstanding loans from the Fed peaked at $107.3 billion on September 29, 2008.
The public would have never known about these secret loans shoring up Wall Street’s reckless conduct and hubris and obscene bonuses except for the court battle of Bloomberg News and legislation secured by Senator Bernie Sanders of Vermont requiring a Fed accounting.
Credit Derivatives Exposure On the Rise In the US
The Office of the Comptroller of the Currency reports some scary facts in their most recent quarterly OCC report.
– Insured U.S. commercial banks and savings associations reported trading revenue of $5.8 billion in the first quarter of 2016… $1.9 billion lower (24.9 percent) than a year earlier. [In my opinion, when trading revenues are down, trading divisions take on more risks in a desperate attempt to meet quotas like buying riskier credit derivatives as the data points below confirm].
– Credit exposure from derivatives increased in the first quarter of 2016. Net current credit exposure (NCCE) increased $65.1 billion, or 16.5 percent, to $460.1 billion.
– Notional derivatives increased $12.0 trillion, or 6.6 percent, to $192.9 trillion.
– Derivative contracts remained concentrated in interest rate products, which represented 76.3 percent of total derivative notional amounts.
Measuring credit exposure in derivative contracts involves identifying those contracts where a bank would lose value if the counterparty to a contract defaulted. The total of all contracts with positive value (i.e., derivative receivables) to the bank is the gross positive fair value (GPFV) and represents an initial measurement of credit exposure. The total of all contracts with negative value (i.e., derivative payables) to the bank is the gross negative fair value (GNFV) and represents a measurement of the exposure the bank poses to its counterparties.
GPFV increased by $0.8 trillion (26.6 percent) in the first quarter of 2016 to $3.8 trillion, driven by a 29.9 percent increase in receivables from interest rate and FX contracts. Because interest rate contracts make up 76.2 percent of total notional derivative contracts, changes in interest rates drive credit exposure in derivative portfolios. Declines in interest rates tend to increase exposure. This effect has increased in recent years, as the maturity profile of interest rate derivatives has increased, making credit exposure more sensitive to changes in longer-term rates.
Credit risk exposure increased a whopping 26.6% in Q1 2016. Much of that increased credit risk exposure is coming from bets on Federal Reserve rate hikes. If interest rates go up, credit risk exposure in derivative positions goes down. If interest rates go down, credit risk exposure goes up. In other words, most of the bets in the derivatives market are on interest rates rising. Better hope Janet Yellen doesn't have to lower interest rates!
Credit Default Swaps Dwarf All Other Forms of Derivatives
Credit default swaps dwarf any other form of credit derivative trading.
The notional amount for the 54 insured U.S. commercial banks and savings associations that sold credit protection (i.e., assumed credit risk) was $3.6 trillion, up $206.4 billion (6.0 percent) from the fourth quarter of 2015. The notional amount for the 50 banks that purchased credit protection (i.e., hedged credit risk) was $3.8 trillion, $224.9 billion higher (6.3 percent) than in
the fourth quarter of 2015.
It is interesting that many people are reporting having received a letter from their credit card company informing them that their interest rate is going up from 19.9% to 25% in August 2016. Some people have even reported receiving credit limit increase letters too. How kind of these bankers to go long credit default swaps while raising your credit limit and interest rate to insane levels at the same time.
Folks derivatives are dark financial products that cause excessive risk taking that ultimately leads to disaster. I have little doubt that the next global financial crisis will, at its core, once again involve speculative derivatives betting.
A Black Lives Matter protest is coming to a city near you. You should be afraid.
Civil unrest is on the rise in America. In Dallas, Texas last week, African-American snipers killed five Caucasian police officers protecting protesters at a Black Lives Matter rally.
The African-American gunmen were angry with how many Caucasian cops kill African-Americans. In reality, Caucasian cops kill Caucasian people more than any other race.
Nobody just matters. I know, that's messed up, right? You may have the right to speak, but you don't have the right to be heard. Can you imagine if everyone was forced to listen to everyone else? Nobody would get anything done. If you want to matter in this life, you have to work hard at it. You have to suffer in school, then college. You have to delay gratification while you work at moving up the many ladders in society. You matter to other people by providing value to them. The number of times you will be knocked down are more numerous than you can count, but you always keep pushing on. You have to work, as the Bible puts it, “by the sweat of your brow”. To God, and God alone, we all matter. On carnal Earth, nobody just matters. I know that's a cynical way to look at life but I think it's reality. It's the earthy world of man and woman. It would be awesome if everyone was like Jesus and really acted like everyone else matters, but in reality, about half the country doesn't even believe in Jesus.
Martin Luther King Jr. longed for a world where the color of a person's skin does not matter. According to King, a man should not be judged by the color of his skin, but by the quality of his character. King abhorred violence. Why have some African-Americans gone militant and abandoned Martin Luther King Jr's message? In my opinion, poverty plays the largest role.
Poverty In African-American Communities Has Opened The Door To Dangerous Militant Groups
The unemployment rate among African-Americans is about 10 percent compared to about 5 percent for Caucasians. Poverty in African-American communities has opened them up to the influence of powerful groups and their ideologies. We have seen a similar situation happen with ISIS moving into poverty-stricken countries around the world. When people are without jobs and broke, they are more susceptible to the ideologies of militant groups.
You have armed African-American hate groups, Muslim militant groups, communist militant groups, militant socialist groups, militant environmental groups, and more. These groups are funded by the Tides Foundation, which is funded by George Soros, The Heinz Endowment, Ford Foundation, Rockefeller Foundation, the Pew Charitable Trust, the James Irvine Foundation, Citigroup Foundation, Kellogg Foundation, Hearst Foundation, Fannie Mae Foundation, JP Morgan Foundation, Bank America Foundation, Chase Manhattan Foundation, Verizon Foundation, David & Lucile Packard Foundation, AT & T Foundation, Bell Atlantic Foundation, Citicorp Foundation, ARCO Foundation, US West Foundation, John D. MacArthur Foundation, ALCOA Foundation, Richard King Mellon Foundation, and the Carnegie Foundation.
These Anti-capitalist Private Property Groups Target Businesses For a Reason
You might have wondered about the riots in Ferguson and why African-Americans attacked fellow African-American business owners property. African-Americans also burned to the ground the only grocery stores in the area. At first, it seems silly and illogical to attack the few resources of jobs and food in your community. However, the truth is far more shocking and scary.
When you see rioting and the destruction of private property, that probably means that militant communists or socialists are operating in the area. It doesn't matter if it's an African-American owned business. It's not about the race of the store owner. It's about attacking the concept of private property. The far left believes if you have something that they don't, that's not fair, and you should not have a right to whatever it is you have.
Big grocery stores in inner-city areas that give jobs to African-Americans, they are the enemy because they provide a way for an African-American to get a job, become self-sufficient, and not have to rely on a militant socialist group for support.
One of the primary functions of police is to protect private property. Communist and socialist groups reject the concept of private property, and that is why these armed leftist groups attack police.
The dangerous leftist Black Lives Matter group had these images on its Facebook page:
A war against cops across the country:
A severed pig’s head to symbolize the group’s violent anti-cop rhetoric:
All “pigs” are the enemy:
Burning the American flag:
Start paying attention to the anti-capitalism signs you always see at Black Lives Matter protests:
Opps… CNN was covering a Donald Trump protest and was portraying it as if it was just regular Americans opposing Trump…
No, We Don't Need To Talk To Each Other More
The mainstream media is pushing the idea that we all just need to talk to each other more. Talking to each other is way overrated. There is no talking with these militant leftist groups. They have an ideology that is against capitalism and American life as we know it. It is naive to think you can talk down a militant communist/socialist group any more than you can talk down a Muslim terrorist. The Dallas attack proves this point.
Police tried to negotiate for hours with the African-American sniper who refused to come out. Ultimately, police sent in a robot and detonated a bomb to kill the sniper.
The Rise of Leftist Militant Groups In America Means Greater Risk For Stock Traders
These militant groups have Wall Street, and even the concept of private property, in their cross-hairs. If abolishing private property rights sounds too nutty for you to believe anyone could successfully force on Americans, check out how America is already on the road to socialism:
We have one of the worst President's in American history, President Obama, who has allowed these groups to flourish under his time in office because they helped get him elected. This leftist network of anti-American militant groups played a pivotal role in electing Barack Obama. These militant groups used classic propaganda techniques to make false allegations about Bush (that he lied regarding WMDs, he stole the election in Florida, he knew in advance about 9/11, etc.) and created the impression that Bush and by extension, the Republican party, was corrupt. Obama, of course, was portrayed as the reformer who would save America from this corruption.
Has Black Lives Matter Come To Your City Yet?
There is a good chance that Black Lives Matter activities are coming to your city. If you are not afraid, you should be.
El Paso Police Chief Greg Allen who runs one of the country's largest police departments, had this to say about the militant group Black Lives Matter:
“Black Lives Matter, as far as I am concerned, is a radical hate group and for that purpose alone, I think the leadership of this country needs to look a little bit harder at that particular group. The consequences of what we saw in Dallas is due to their efforts.” ~ El Paso Police Chief Greg Allen
Democrats and President Obama will likely use their power and influence to remove El Paso Police Chief Greg Allen from power after he said this. Even though Greg Allen himself is an African-American, he's a traitor to the leftist agenda and so he will have to go. I expect George Soros and other contributors to the Tides Foundation to pour a lot of money into firing El Paso Police Chief Greg Allen. There are some signs that this has already begun, check out how the mainstream news is reporting the Police Chief's comments:
These militant leftist groups strike at the heart of what we invest and trade in, businesses. After the horrific shooting at a Black Lives Matter protest in Dallas, Texas last week, we can conclusively say that there is a rising movement of violent anti-capitalist groups across America. As traders, we have to be aware of this growing movement and trade it accordingly.