MARKETS

—–Futures are down another 500 Dow points tonight as the U.S. declared China a currency manipulator, intensifying and escalating the “trade war!”—–
—–If the market opens down 500, that will be almost 2,000 Dow points since the president changed his stance on tariffs. We doubt he expected this.—–
—–Lael Brainard, a fedhead who happens to chair the financial stability committee at the fed has already stated they are watching markets. The people that were one of the main causes of 08 and have enabled the massive debt and leverage we are seeing now have a committee on financial stability. Fill in the joke.—–
—–If we deem China a currency manipulator, what about the other 729 rate cuts in the past 10 years? What about our central bank taking rates down to 0% for 8 years and printing $4-5 trillion? China is indeed a currency manipulator. So is everyone else.—–
—–The market is in somewhat of meltdown mode. We worry about the massive leverage and the one-sided trade in the system that has been enabled by the easy money from our central bank. It is this leverage that magnify losses.—–
—–We expect a 1/2 point cut in rates at or before the next fed meeting. We would not be surprised if we get a leak of this in the next couple of days and we would not be surprised if Powell does the cut beforehand. We are not sure this will help but know it has helped for a long time.—–
—–We believed the president would roll back the proposed tariffs because the market dropped but we think China’s move just boxed the president in. Except for a market being very oversold and sentiment becoming decidedly bearish, we don’t have much in the way of good news. The big cap indices gapped through support and continued down like a hot knife through butter. Foreign markets are being crushed. Leading stocks are imploding. Rates continue to plunge as gold moves higher. We will know a lot more when we see what any bounce looks like and where any bounce comes from. Otherwise, you know the drill.—–

OVERNIGHT NAUSEA

BY GARY KALTBAUM- AUGUST 5, 2019

—-For months, we have had the same thoughts on the China trade issue.—-
—-All evidence in, China is not just going to lie down and play dead.—-
—-China does not have elections.—-
—-The Chinese government are bad players but tariffs are not the answer. Vigorous negotiations outlining the benefits of free trade is a part of the answer.—-
—-Tariffs are paid by the importer and often passed on to the consumer. (Regardless of what the president and Navarro tell you!) If tariffs are so marvelous, why did the president use $28 billion of our tax dollars to pay off the farmers? Tariffs suck!—-
—-Continued back and forth on tariffs creates instability and uncertainty. There is just no way businesses can plan on supply, demand, man power,  expenses, profits or the next day as the president has changed his mind too many times.—-
—–While many here as well as the administration believe China is the weaker country, the problem is that its not what we think, it’s what they think.—-
—-China must cut a deal. NOT!—-
—-We do not want to get to the point where a certain middle finger is shot back.—-
—-OVERNIGHT, THE FIRST MIDDLE FINGER WAS INDEED, SHOT BACK.—-
—–First, China has been reported to ask state buyers to halt U.S. agriculture imports,—–
—-And:—-
—-Futures are getting smoked this morning as foreign markets lead the way down. The yuan broke 7 as China let their currency float down even though China says they have no interest in using their currency as a trade deal. Yeah, that’s the ticket! 7 is a key psychological level. No one expected the latest trade talks to bear fruit just yet but no one, including markets, expected President Trump to again change his stance by hitting China with a 10% tariff on everything under the sun. We do not think it is the 10% that is causing the problems. We think it is the uncertainty of minds being changed as the wind blows. By the way, this goes for both sides. We also suspect this move is to take the ever escalating Hong Kong situation off the front pages as nothing good is happening over there right now.—-
—-And now the president is out this morning slamming the move out of China.—-
—-We suspect you are going to hear some rumblings out of the Eccles building if markets continue to swoon. You know what that means? Another rate cut, possibly before the next meeting? We also have to believe the great market watcher in chief is going to think twice as every 100 Dow points will matter come November 3, 2020. Watch for the rumblings of another pivot.—-
—-Big-cap major indices will open markedly below the all-important 50 day moving average. Before this latest episode, many areas around the globe were already fragile. Fragile just became more fragile.We take no solace in telling you this is some real serious s–t! After all, it’s only the two largest economies in the world totaling close to $35 trillion. Lastly, there continues to be a ton of leverage and a gargantuan one-sided trade out there. You know what that potentially means!—–

MURDERS AND MARKETS

—–Here is your next week. The left and the national media blame Trump for the murders. The right blames it on mental health. Lots of whining and complaining from both sides before the bodies are even removed from the crime scene. On about day 8, this will be all but forgotten until the next tragedy. But until then, it will be back to elections and re-election. You expect anything more from 535 people who through the years have put the tax payer on the hook for $22.5 trillion and counting? You expect anything from the administration? We don’t! We would love to be wrong but we bet on horses by their past performance. All our thoughts and prayers to those affected.—–
—–It used to be that markets were great at telegraphing the future. Markets would go on their merry way to the upside and would then top a few months ahead of recessions. As markets wound their way through the downturn, the fed would start to lower rates. After a few rate cuts, markets would start looking at the light at the end of the tunnel and start to bottom. Bottoming would be a process but eventually turn back up again. During the late innings of the bear phase, a keen eye and hard work can see which names held up best during the last leg down. Those names would start building the stair steps upwards before the market bottomed. Thus, we can find the relative strength. We know by precedent that many of these names will lead when the next bull market resumes. Thus the motto: “it is easiest to isolate strength when the market is weak!” These names would quietly and without fanfare rally towards new yearly highs but are held back by the market. This is called the base building. They want to go higher but the overall market weakness does not allow it just yet. They become what we call “coiled springs!” They build up energy and pressure, just waiting to shoot out of a cannon once the market allows it. Some call this trying to keep basketballs under the water. And then markets bottom. How do we know markets are bottoming? The first thing to happen is these new leaders indeed shoot out of a cannon. The basketballs indeed jump out of the water. This is the first clue. But we then start to get a series of up days on heavy volume and pullbacks on light volume. We start to see the stair steps heading up as the market finally makes a series of higher lows and higher highs. But most importantly, more and more names break out to new highs as points continue to be put up on the scoreboard.—–
—–We just gave you the road map to how things worked for a very long time. Unfortunately, it just ain’t that easy any more. Central banks have interfered beyond any comprehension, both here and around the globe. They have made it the norm to step in front of any market downdraft with easier money. They do not even pretend any more what their goal is. As we have explained, just look at the past two lows. They coincided with two pivots from our central bank. Both times, the excuse was worry over the economy. But economic numbers and employment numbers kept coming in with decently good numbers. What is the common denominator? Both times we were in the midst of bearish action.—–
—–But we now have to add another fly in the ointment, that being President Trump. Leave no doubt he is tweeting and setting policy by market moves. We have watched this for months. We have watched how he says the fed is independent and then rips them to shreds. We have seen proposed tariffs cause market corrections only to see those proposed tariffs magically disappear because of the market correction. Mexico tariffs out of the blue….markets drop…Mexico tariffs disappear. European auto tariffs? Gone 4 days before they were supposed to start without any negotiation. China tariffs? How many times have there been threats only to see the threats go away? The latest being the G-20 meeting. This brings us to our point.—–
——Again, out of nowhere, with absolutely no warning, the president announces 10% tariffs on everything coming from China. Markets swoon. But that’s not the problem. The problem is that our expectation is that any further market drop will get the president changing his mind again. Again, policy dependent on markets. Frankly, we wouldn’t be surprised if these new tariffs are taken off in just days. This is how much we trust right now. We never, ever, ever had to deal with something like this. The fact we believe there is very little chance this latest tariff proposal will not happen tells you everything you need to know.—–
——No longer are markets on their own. They are being run by central banks and now being run by a president’s whims. It is not a reach to say all the losses the market just incurred could be recaptured overnight on just another tweet. We used to be able to say “when all is said and done, markets will do what they want to do!” We can no longer say this any more. We just hope that this constant interference does not lead to dislocations. Unfortunately, we think it a gimmee that eventually, markets are going to shoot back a certain finger at all this nonsense but don’t know when.—–
—– Fast forward to now. Under normal circumstances:—–
—–A bunch of stuff  looks toppy, topping or topped. A bunch of leading names have broke the all-important 50 day average on volume. Big names like AMZN, NFLX smacked on earnings and even AAPL off the latest Trump move has buckled. Foreign markets act terrible. Small and mid caps have lagged for months. The transports have been lagging for months also. The good news is the big 4 that have led, the DOW, S&P, NASDAQ AND NASDAQ 100 all held the 50 day average on Friday as markets rallied decently off the lows. To be blunt, if the leading indices break those levels, get the fork. At the very least, things are now a tougher proposition as we head into what are normally a couple of weaker months. But again, these are not normal times as we know Powell is watching and the president is watching. We really do believe another 500-1,000 points down get the tariffs going bye-bye or Powell throwing a little more “insurance” at the markets with a cut before the next meeting.Welcome to our world.—–
—–And lastly, the longer term worries.—–
—–This latest fed cut was number 729 global central bank cuts since Lehman…yet many areas around the globe have either flat-lined or worse.—–
——The German 30 year yield is now negative. Not sure we need to repeat that. The 10 year yield is -0.5%. Just wondering what this means. Germany is supposedly the engine of Europe.—–
—–Our 10 year is down to 1.855% and the 30 year at 2.391.—–
—–The bad guys and girls just raised federal spending again…simply sticking another gigantic middle finger back at the tax payer. Notice how many are retiring? We would get the hell out of Dodge also if we were in their shoes.—–
—–And now, central banks are going easier again, enabling all this, what should be criminal activity to continue.—–
—–Our motto stands. We have never been more optimistic on the people of this country. We have never been more pessimistic on the people that were elected to run this country.—–

POLICY BY MARKET MOVES

——On Fox Business Network’s “Bulls and Bears’ last night, I stated businesses don’t even know if the president changes his mind on the new China tariffs by September 1st as he changes his mind on a whim. We also know he changes his mind depending on market moves.—–
—–We were going to wait to write this weekend about the debates and about these new tariffs but we just received this:—–
—–Senior Trump administration official: “President Trump is open to delaying tariffs if China takes positive action, but prior talks did not go “well enough!”—–
—–This coming the next day after more proposed tariffs. Sybil anyone?—–
—–Futures rallied off of this but heading back down. This tells us what we already knew. Markets go down…no tariffs. Markets hold up or go up…hmmm, let’s propose new tariffs. Kids, this is nuts. Setting important policy based on markets is plain nuts. Eventually, markets are going to stick the middle finger back at all this uncertainty. Leave no doubt the president saw the market reverse down over 500 points yesterday and told his people to go out and make this statement in order to calm markets. Leave no doubt if markets continue to swoon, we will get a “just kidding” before September 1st in order to stop the bleeding. In fact, we guarantee you that if markets continue lower, he will pivot for the tenth time. The president did it with European auto tariffs. He did it with Mexico tariffs. He has done it several times with new China tariffs. But we think the market may be getting weary of all this nonsense.—–
——But that’s Wall Street. What do you tell the thousands of companies representing the thousands of products. They cannot plan on supply. They cannot plan on demand. They cannot plan on expense. They cannot plan on profit. They cannot plan on man power. They cannot plan on anything. In fact, the only thing they can plan on is the vertigo they are getting from these continued market-induced flip-flops.—–
—–For a man that says he is all in with the businesses of this country, he is now doing a great job of adding massive unnecessary uncertainty onto the shoulders of the businesses of this country. And the next tweet is?—–

PRE MARKET

The president puts on new tariffs after taking off new tariffs…for the umpteenth time. This morning, the president sends out an administration official to say they can get rid of the tariffs they have not put on yet if China does better. This decision making by markets is going to crater markets. It is obvious that again, the president changed his mind because the market swooned off his news yesterday. Again, eventually markets are going to throw up their hands and give up.

We have no clue as to the next tweet but we do not some decent technical damage has been done.  BUT AGAIN, WHAT’S THE NEXT TWEET?

We are beside ourselves.

PRE MARKET

Tough day yesterday. Hey…markets do go down. It is just one day but there was subtle distribution in past couple of weeks.

First off, we love corrections because it is easiest to isolate strength in corrections. But of course, no one likes markets going down.

The best guess is we have some price and time before market can resume its uptrend. Not a big deal but we must watch if it worsens. We will watch the 50 day average for the major indices. We will watch the leading growth names. We will watch to see how many names break support and how many just sit. There is no way of taking one day and think the end of the world is at hand.

BYND actually does their secondary $36 below market price. Not sure we have seen something like this before. You know what we think of that valuation.

Still plenty of strong reactions to earnings. Just today BAND, FIVN, SPWR, SHOW, W. Yesterday…CDW, ENPH, PAYC and others like CMG, CRWD, GOOGL, RNG, SNAP, SBUX, TWTR.

We will have our review of the debates tonight or tomorrow.