Read the transcript below.by
People are not preparing for the right event. We are in the beginning of a grand solar minimum. The entire sun spot cycle has turned down. Lower highs and lower lows. This is from both NOAA and NASA data.
While people are making fun of Trump’s latest tweet (I get it he’s a ridiculous character), they are missing the bigger picture. I hate pollution as much as the next guy, but Sun > Man.
What this entire video below.
Invest: REIT’s in warm climates, commodities, indoor grow operations.by
U.S stocks are expensive. The Shiller P/E ratio of the S&P is in extremely high territory.
Many analysts are predicting the market is going to drop or crash this year, and it very well may happen.
The only thing that has kept me from believing of a imminent drop is that we have one the most ignored stock bull market in our history. I don’t have people giving me stock tips, the average retail investor has been largely out of this market (until this year that is).
If you notice in the above chart, the S&P volume has finally shot up at the start of 2017. Otherwise known as the Trump trade. I think there is a chance that we may be at the start of a mania phase for stocks. Stocks trade on expectations, and the current expectation is that we will see some massive tax cuts.
If we are at the beginning of a mania phase, then yes we are going to likely see an ugly crash/correction at some point. Here is how to proceed in the market:
- Be aware. Make sure you are paying attention. Not just to lines on a chart, but to what with bills getting past, the EU elections, strangers giving “hot” stock tips, and so forth.
- Hold/Save more cash.
- Obey you stop losses. If you don’t have a sell/exit strategy then do not buy.
- Expect volatility.
So on to the stock pick. This pick will likely make people’s stomach turn. Retail in the U.S has been hit hard. I’m sure you have come across many articles regarding store closures and declining revenue.
Target’s ($TGT) stock is down a lot. The stock had a high of over $80 a share just last year and now trades for $55.75, a sell off of over 30%.
I’m going to tackle some of the risks I see first and get them out of the way.
- Revenues were down in the 4th quarter of last year, and they may continue to go down.
- If we see imports get taxed more heavily or a trade war breaks out, that could really effect Target and other retailers.
- I’m not a fan of the shopping online to pick up in a store model which they are continuing to pursue. Isn’t that just shopping twice?
- The company is putting back $7 billion into it’s stores over the next 3 years. I don’t view this as a bad thing, as it is likely necessary for future growth. But I figure I would note it hear is it will likely cause their margins to drop during this time.
Now for the positive:
- By most metrics the stock is cheap. Forward P/E, Current P/E, Price to Sales ratio is only .45. Price to free cashflow.
- The dividend payout ratio is at 48%. I believe the current dividend is safe at this level.
- Target is still a great store where people love to shop.
- Online segment is growing as well.
Action: Buy Target up to $59
Use a 18% trailing stop or if the stock closes below $52.by
What people haven’t realized yet is that all this political shit is not going to stop. Everyone is too caught up in the moment and chaos. The Clinton side will continue to blame the FBI and Russia for the election and Trump will not stop being a total jack ass. The deep state including the intelligence departments will do what they can to hold onto what they have and keep the war gears grinding.
Confidence is failing. It is no longer a United States. U.S government long term bonds (our debt) has been in a 35 year bull market. This debt cycle is coming to an end as confidence erodes at a faster rate. The two go hand in hand. More on the end of the bond bull market and what it means below.
Within the next 16 years we will likely see at least one state leave the union as capital flows move toward China.
Nobody (including myself) is really understanding the role they are playing in all this.
Trying to find a news source you can consistently trust is next to impossible. If an important item comes out in the news it may take another 20 minutes to scout around to get the complete context, understand how much of it is real and wonder what agenda could be behind the release. Who’s got time for that? It’s a lot easier just to let your emotions flair up.
Going back to bonds. Retries are told to keep the majority of their savings in bonds. The Social Security fund is required by law to be invested in non-marketable securities issued and guaranteed by the “full faith and credit” of the federal government.
Due to bond duration (a bonds sensitivity to interest rates), the 10-year and 30 year government bonds will take a large hit if interest rates move just 2% higher.
Example: “For instance, if interest rates were to rise by two percent from today’s low levels, a medium investment grade corporate bond (BBB, Baa rated or similar) with a duration of 8.4 (10-year maturity, 3.5 percent coupon) could lose 15 percent of its market value. A similar investment grade bond with a duration of 14.5 (30-year maturity, 4.5 percent coupon) might experience a loss in value of 26 percent1. The higher level of loss for the longer-term bond happens because its duration number is higher, making it react more dramatically to interest rate changes.”
The bond losses are going to effect a tremendous amount of people. We are going to soon have a large “Oh shit” moment as Martin Armstrong likes to say.
I’d advise people to do the best they can to check their emotions do NOT align yourself with either Dems or Republicans so you can try and keep a more objective view to see what is unfolding. Easier said than done.
Politicians never admit when they are wrong. They only double down on the bad idea the moved to push. The above is not what I want it to be, but it is the trend. I do not believe there is anything that will stop it.Politicians never admit when they are wrong. The above is not what I want it to be, but it is the trend. I do not believe there is anything that will stop it.by
Watching the British Pound plummet to historic lows and stock markets sharply sell off can be shocking to say the least. People are scared and markets hate uncertainty.
What I find interesting are the pockets of safety that occurred today during the sell off. Other than the U.S. dollar, gold, silver, and U.S treasuries rallying there are a few stocks that are holding there own during the market sell off.
Noticeably the following:
|Hormel Foods Corporation||HRL||2.52%||$35.46|
|Campbell Soup Company||CPB||0.75%||$63.11|
|Reynolds American Inc.||RAI||2.03%||$51.87|
The above is just a small sample of stocks that I came across today. All of them are up except for Tootsie Roll which is down slightly.
What do the stocks above all have in common? They are brands that people know, companies that have been around along time with a great track record. They sell things or offer a service where people keep coming back and show up for more. They all pay a dividend and have done so for years. These are incredible moves as the Down Jones has sold off over 500 points today!
There is safety in stocks, and I while I don’t know what will happen next week or next month I believe we will start seeing a trend into safe stocks and a move away from government bonds.
As I mentioned before, we could still see a drop in stocks including the ones above, and one last push for government bonds. Looking out over the years to come I would rather own safe companies than “safe” long term government bonds.by
Walmart has been in the news a lot lately. The stock has been moving steadily down since it’s 2015 high of almost $90 a share. It recently closed over a 100 U.S. stores and announced it will be placing more money into it’s online operations to compete with Amazon.com. Walmart is now a big hiring company in Silicon Valley.
At first glance it may seem unrealistic that buying Barnes & Noble would help Walmart compete, but the company needs something to desperately draw people to it’s ecommerce website. That something could and should be ebooks. Business Insider points out that B&N has extremely loyal Nook users, however the companies ebook reader the Nook is bleeding the company of cash.
If Walmart owned the Nook it could push other Walmart.com ads to inexpensive Nook readers just as Amazon.com does with it’s Kindle.
Walmart wants developers for it’s website, imagine that it could fold barnesandnoble.com into Walmart.com and expand it’s media library along with all of barnesandnoble.com content and reviews and retain those developers as well. Think about when you go to Amazon.com. What keeps you on the site is content and being able to explore new items that you did not know existed. B&N has the content, they have customer reviews along with “Customers Who Bought This Item Also Bought…”
What about all the book stores? B&N is currently in the process of closing it’s non-profitable stores as sales are down. Can Walmart turn them around? I’m not suggesting that Walmart can change the trend of brick and mortar books stores, but I believe the companies experience and leverage may be able to help manage it’s current operations and reduce costs. The overall strategy of the buyout would not be for the stores, but for the website catalog and the Nook device, the stores would be a bonus as I believe they could be continued to be operated profitably.
Isn’t this all just playing catchup?
Yes. It is. That is the reality. Walmart needs to catchup in one major aspect. Digital content. Right now Walmart is trying to also attract affiliate members just like Amazon’s affiliate program, but Walmart will continue to have issues unless they get that content so that visitors want to hang out longer on their site.
B&N has a market cap of just over $600 million. Walmart pulled in $15 billion of cashflow just in 2015. Even if they paid a premium for B&N it would barely put a dent in their annual cash flow.
The next step after the Nook? Streaming movies programs to draw in more customers. I bet Walmart could pick up the Blockbuster brand name for a song. 🙂 It may be possible that Walmart using it’s stores can come up with a program more desirable than Amazon prime. Time will tell.by
I just sent some money to a friend to pay for my dues for our softball league. I sent it using my phone with the Square App. You may have used this technology before. I was at a bar with some work friends and instead of splitting the check, one person took care of it on his credit card and the others sent him cash for there beers, while one person sent money via Venmo on his phone.
There are now tons of ways to send money via your phone. There is Apple Pay, Google Wallet, Pay Pal, you can now even send money to a friend via Facebook.
We are rapidly becoming a cashless society. It is not stoppable. There are lots of advantages to being able send people money via smart phone. For one it will be much harder to get robbed especially as security improves. It is also extremely convenient.
The downside is the tax man will be able to track everything and could put your transactions in question leaving you to explain why people are sending you money. The government will prefer every cash transaction to be digital. Don’t believe me? “With the passage of House Bill 195 into law, the State of Louisiana has banned the use of cash in all transactions involving second-hand goods.”
You read that right. Cash is now illegal to use at garage sales in the state of Louisiana. I won’t blame you if you get all revelations on me, but I’m not sure what good it will do. In any case what the heck am I getting at here? Oh yeah! Here at Tao Economics we view both yin an yang. When one side gets tilted something else seems to pop up to counter. In the case of government tracking all your banking transactions the counter may just be bitcoin. It is possible to track bitcoin transactions, though you can run your blockchain through a tumbler making it very difficult to track in the sense that no law enforcement will have the time to put together the jigsaw puzzle that makes your transaction. I don’t know if bitcoin will stand the test of time or if something else will take it’s place, but I believe digital anonymous transactions will become easier and more frequent down the road. One last thought on bitcoin, it is much easier to move bitcoins out of the country than it is gold. This is not a knock on gold. Make sure you have monetary insurance in the form of precious metals if you do not, but it may just be worth having some bitcoins as well. Heck Greece found bitcoins be to quite helpful during 30 minute wait times to access a ATM. Or why not combine the two! There is something new out there called bitgold. It combines bitcoin like transactions that are backed by gold.
Cash is not dead yet and it may be vital to keep some good old cash in your home. Multiple financial newsletters I have read recently point out problems of people trying to withdraw large amounts of cash. Many times the bank will not have the cash they want and we are talking in the $2,000 range. What if a crisis hits and there isn’t enough cash to go around? There really isn’t that much actual physical currency compared to all the 1’s and 0’s floating around.
The velocity of money is dead.
The velocity of money is how fast money changes hands and it has never been so low. The chart above shows the extreme, and when something gets extremely lopsided we will eventually see a reversion to the mean. My prediction is that new mobile phone payment systems will increase the velocity and that inflation will eventually pick up again. However, I do not believe the velocity will pick up right away, in fact we could see the velocity taking some time to bottom as deflation is still the bigger threat at the moment.
Bottom line, make sure you have physical gold for monetary insurance and physical cash in your home to get you buy in case of an emergency.
There is no obvious move to make in this market in my opinion. For each asset there are decent arguments for being long and being short.
Lets start with the stock market. The short case is that is stocks have been in a bull market for about 7 years and it needs a break. On the flip side trader stock market sentiment is bearish wish usually means it will keep climbing a wall of worry. Today the stock markets are down and it looks like the S&P is rolling over while trading below it’s 50 day moving avg. Be cautious.
Lets move to the bond market. Bonds are rallying big time today and have been experiencing high volatility since last year. The bearish case for bonds is that that U.S treasuries have been in a bull market for the last 30 years. What goes up for 30 years must be getting close to the end. Right? Plus rates are expected to rise and everyone is now more afraid of deflation than inflation. Usually the opposite happens of what most people expect. If that weren’t enough our debt to GDP ratio is still awful, like WWII awful:
However, as baby boomers retire more of their money will find it’s way to the bond market pushing up demand. And who knows maybe deficits will actually start to shrink? Why are you laughing? 🙂 During a crisis people jump to bonds which makes them difficult to short.
Gold and silver are dropping a lot today much like everything else. The precious metals have been dropping since 2011. I feel the most comfortable buying silver in this market. The gold / silver ratio still favors silver and prices have been dropping for the last four years. I would say the downside is minimal at this point however we may see one last drop in prices be for things reverse. A good entry point to accumulate if you do not have any exposure. I have been using silversaver to buy silver and gold. A great option if you are to lazy like me to make it to the coin store.
Oil is getting crushed again. Fears that Iran will start to export and the China slowdown are smacking oil lower. Check out the forum thread here for some great charts and discussion: http://taoeconomics.com/ss/viewtopic.php?f=1&t=13989
Chevron is paying 4.5% yield! If you have a long term investing horizon I would take the opportunity to buy and re-invest the dividends.
Real Estate: Again, there are some both good pros and cons. On one side inventory is down and rates are low. On the other the economy isn’t growing as before and rates are expected to rise. Real estate prices and value are going to depend on your area so it will be important to pay close attention.
So, what to do with all of these shit sandwiches? Diversify your shit! Seriously, make sure you are exposed to all of the above so that if one goes down it may be offset by the other assets that rise. For stocks, pay close attention to your stops. Hold more cash then usual. If you want to take high risks make sure you have that money set aside and you understand the risks that you are taking and have exit strategy.
Until next time!
The yield on 10-year treasury bonds dropped over 6% this morning as I type. This drop is huge for the bond market and indicates a lot of fear out there. What else do people buy other than treasuries when there is fear? Gold of course! Though gold doesn’t quite seem to be getting the same kind of action at U.S treasuries. Gold is now sitting at $1,241, up $9 this morning.
Next on the block for discussion is oil prices. In case you haven’t been paying attention, oil prices have been dropping… no crashing. Is this a good thing or a bad thing? Well that is kind of tough, as low oil prices usually means world economies are not doing so well… then on the other hand it means prices should be cheaper which is easier on the old wallet.
From the Rude Awakening:
“Maybe China left the building? Maybe the Saudis finally went on the offensive? Whatever the case, the market is tasting sour crude on its lips,” Matt says. “In a sense, we really are seeing the perfect storm in the crude market. Remember, unlike some less-reactive markets, crude oil is highly impacted by supply and demand. To that extent we’re seeing WAY MORE supply, with U.S. shale production and OPEC opening the spigots. At the same time we’re seeing WAY LESS demand in the form of lower expectations from the Eurozone to Asia.”
If gold prices are creeping up and oil prices are melting down that seems like it would bode well for gold stocks wouldn’t it? Cheaper mining costs (oil), and better prices for the metal they sell. Well, at this moment of typing the Market Vectors Gold Miners ETF (ticket GDX) is up over 1%. I would strongly suggest making a list of your favorite gold and silver stocks and wait for a confirmed uptrend. We could be very close to a bottom.