While the political parties continue to play 3 Card Monte with our lives, in the 675 days of the Mueller investigation, let us remind you that over that time, over $2 trillion has been added to OUR debt while over $1 trillion of our tax dollars went to pay interest on the debt they have all created throughout the years. The budget deficit set an all-time February record of $234 billion. AND not one of these miscreants give a crap as all they care about is going after each other in order to be re-elected.
There is currently a lot of talk about interest rates. It is being noted that short-term rates are now above long-term rates here in the states. We are being told that normally, this presages recessions. Before we give you those facts, just remember we have already been reporting to you that parts, if not all of Europe are contracting. Japan is contracting and we are in a definitive slowdown. Some facts:
In advance, we thank the many outlets we use to gather these facts.
There are 18 countries with negative bond yields. This is amazing in light of the fact we are supposedly in the 10th year of a global economic expansion. It may be telling us things are worse than thought as normalized rates would be trouble. Germany’s 10 year yield, amazingly, just went negative. Germany’s manufacturing PMI dropped to a woeful 44.7 in March. That’s a drop 14 out of the past 15 months. Germany’s manufacturing orders index dropped to 40.1, a level not seen since 09.
France’s manufacturing PMI just went into contraction at 49.8. Services PMI lower at 48.7.
Japan’s manufacturing PMI at 48.9. New orders dropped further.
In the past, Bernie Sanders has called for the nationalization of the energy, electric and telephone utilities, drugs, banks, factories and as he put it, “other major industries!” Just had to interject that.
U.S. rates futures now imply a 54% chance of fed cutting rates by December. Glad they have been listening to us. We think it a lot sooner…especially if rates keep heading lower on the long end.
The U.S. now joins Canada and Mexico with an inverted yield curve. Here is an important note. The average fed funds rate at prior inversions was at 6.2%. Current rate is 2.5%. This is a record low for an inversion. The prior low was 2.94% from 1956. The 1 month yield is higher than the 10 year for the first time since August of 07.
If Japan and Europe are going into recession, be afraid. Be very afraid as it would be happening while their rates are still negative.
1+1 certainly =2 as part of the best performing sectors in the past year are real estate and utilities, the 2 areas that benefit the most from plunging rates. Recent new highs are laden with these groups as well as muni-bond funds.
We can give you all kinds of stats on whether inverted yield curves lead to recession as many are arguing for and against. Many against state the inversion needs to stay for a period of time. Let’s just say it has a pretty darn good record and with many areas around the globe already having issues, one must have a question on whether the U.S. will be immune. We have been stating that if you just watched the bond market, you would think recession but if you just watched the stock market, you would think we were accelerating. (more on that when we talk markets)
Bernie Sanders quote from 1974: “Nobody should earn more than a million dollars!” He advocated a 100% tax rate above this level. Just had to interject that.
As the yield curve inverts, bank stocks, regional bank stocks and other financial stocks did what amounted to a cliff dive this week. The bank index was down 10% in four days. Paying out short and lending long in this environment is like betting on the Knicks….not good.
Speaking of markets, if you watched, read and listened to us late in the week, we talked about a melt-up in Tech. We stated it was this kind of froth that often leads to pullbacks. But that is not the real story. The real story is the bludgeoning in everything financial but also the narrowness that the market is now showing again. In fact, we have listed many areas that are downright bearish while some of the major indices kept moving up.
On top of the financials:
FOREIGN MARKETS while better, have not been nearly as strong as the U.S. and now starting to see a few areas rolling over.
ENERGY and COMMODITIES still not happening. STEEL names are at new yearly lows. (Thought those tariffs were supposed to help!)
RETAIL remains weak. Some names are very weak.
TRANSPORTS act terribly. Even the stronger names getting in some trouble. AIRLINES the worst of.
MANAGED CARE real weak. UNH is in the DOW.
BOEING (BA) used to be the strongest name in the DOW. Now it remains the weakest. One of our 5 worries came to fruition late in the week as one airline cancelled orders.
FERTILIZERS, AUTOS, MEDIA, HOUSING, HOUSING-RELATED, TRUCKING,MACHINERY, AIR FREIGHT and a bunch of other areas not acting well.
The RUSSELL 2000 (SMALL-CAPS) and the MID-CAPS continue to under-perform badly.
Thrilled yet? We are just reporting the news. We know some of the major indices have been persistent but this week saw deterioration while TECH, for lack of a better description) melted up. That may have changed on Friday. Friday is only one day. We are well aware but think a possible wake up call as the melt down in financials may have just trumped the melt up in tech. Some of the leading tech names were hit hard. More to come.
Bernie Sanders now is worth millions, has 3 mansions and flies on private jets.