ISM NUMBERS

—-This morning, the ISM Manufacturing index for August came in at 49.1%. Estimates were for 51.3%. It is important to note that the  line between expansion and contraction is 50.0%. This reading ends a 35 month expansion and is the lowest since January of 2016.—-
—-Our thoughts:—–
—–We have believed we were in slowdown mode. Our expectation was for the mid 1s for GDP. We may have been too generous. We say this for several important reasons.—–
——The New Orders Index plunged to 47.2% from 50.8%.—–
——The New Export Orders Index decreased to 43.3% from 48.1%. This is the lowest reading since April of 2009. (trade worries?)—–
——Notice the word ‘NEW!” New is what drives future growth. The Employment Index also fell to 47.4% from 51.7%.—–
——Could these numbers be fleeting? Of course they can be fleeting. By itself, it is just one number but when we see the engine of Europe,  Germany contracting, Asia slowing with Japan hardly budging, moronic trade wars not only continuing but escalating, massive debt and massive deficits, these numbers must give pause.—–
—–Markets have sold off a bit off of the news. Just don’t blink! Markets had already been fragile. (Read our morning report again!) The good news is the recent support of the past 4 weeks still holds. It will need to. We already knew the fed was going to lower rates at the next meeting. This may push them to a bigger number. After all, the 10 year is now at 1.447% as we write this. And we repeat, we believe they do not want to but if the lows of the market do get taken out, we expect a rate cut before the meeting. Will lower rates again get markets on the move again? It’s been working decently for 10 years. Next time? —–

—-The Institute of Supply Management (ISMManufacturing Purchasing Managers Index (PMI) Report on Business is based on data compiled from monthly replies to questions asked of purchasing and supply executives in over 400 industrial companies.—–

WEEKEND NOTES

—-Back in the states. Looks like Florida dodged a huge one. We have personally been in many hurricanes. We were just north of Andrew but went down to help the next day. Parts of south Miami were destroyed. We think this could have done the same. That said, we cannot forget what is happening in some of the islands. Imagine 24 hours of 150 MPH winds ON AN ISLAND! —–
—–Yeah, we know markets rallied off of who knows what last week but we must tell you, not thrilled.—–
—–The big 4 majors (DOW, S&P, NASDAQ, NDX) remain below the 50 day average while small and mid-caps are not even close. We can say the same thing about the transports, financials, foreign markets and many other areas. So underneath the surface, the market is not nearly as strong as the recent rally into resistance by the 4 majors.—–
—–We also have to add a few other things that are less than thrilling:—–
—–The strongest areas are utilities, reits, consumer staples, housing-related and gold/silver. All defensive areas. We always worry when these areas lead because when the market goes defensive, it buys up defensive. Housing-related, reits and utilities should be obvious as rates continue to plunge. Consumer staples are defensive, recession-resistant and of course gold/silver is an “anti-market” play.—–
—–As far as the trade issue, we are tired of it. We are winded. We continue to believe all should just shut up, get into a room and do anything but looks like that will not be the case.  —–
—–The fed will be lowering rates this month. There is a big fight going on whether there should be 1/4 or 1/2 point. We do not think it matters one bit to the economy, only to markets. The 10 year is already at 1.5%, doing its job. The fed would just be catching up.—–
—–Rates continue to scare the heck out of us. One must ask what is going on where investors would buy negative yielding paper. We know one part of the answer is greed in that they think rates will just go more negative but overall,  we must ask WHAT THE HECK IS THE MARKET SAYING?—–
—-Lastly and again underneath the surface, not so great:—–
—-DOW trading where it was January 2018. The S&P up just a wee bit from that time.——
—–The NASDAQ/NDX  trading where they were about a year ago.—–
—–The TRANSPORTS are trading where they were 23 months ago and are down double digits from the highs.—–
—–The RUSSELL 2000 is trading where it was 2 years ago and is also down mid-teens off the highs.—–
—–The big banks are trading where they were 2 years ago with the regional banks are trading where they were back in December 2016.—–
—–We saw one big outfit saying time to buy stocks. We say the internals must improve in order to get a good move from here. We are open to all outcomes. —–