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Tuesday, February 7, 2023

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Flip Flop Friday – Dollar Rallies Briefly on Trump Statement

What a wild ride the Dollar is having!  

Technically, so far, it's just a weak bounce off the (hopefully) floor at 88 but it's been a week of wild trading in US Dollars as first Treasury Secretary Steve Mnuchin talks the Dollar down (see "Record High Wednesday – Diving Dollar Boosts Equity Markets") and then his boss, Trump, completely negates what he says and promises a stronger Dollar. 

You can see the very quick reaction we got yesterday but then traders remembered it was Donald Trump who promised a stronger Dollar – and it began to sell off again.  Meanwhile, we're long on the Dollar (/DX) here as we think the Fed will indicate they are on a path to tighten further while Draghi and Abe continue to prevaricate.  That's what currency values are all about – your currency relative to someone elses.  The Dollar index itself is measured against a basket of other major currencies – there's no absolute value to the Dollar at all (kind of like BitCoin!).  

We'll see what happens this morning as Trump is giving his Davos speech (8am, EST) and the theme is "America is Open For Business" touting our resurgent economy and, of course, low taxes and lack of regulations.  In fact, just this morning, Trump named BPs lawyer and noted climate foe, Jeffery Clark to head up the DOJ's Environmental Unit and, as the linked article has to note – "No, this is not a headline from The Onion").  At least Clark has experience (though it's in destroying the environment, not protecting it). 

To show how serious he is about trade, Trump's appointment for Deputy Chief of US Trade, G. Payne Griffin, just graduated American University in 2014 with a Bachelors Degree in Economics but, don't worry folks – he was an Eagle Scout, so things should be great.  Hopefully he'll work out better than 24 year-old Drug Czar, Taylor Weyeneth, who just had to resign because he lied on his resume. 

Speaking of the envrionment (enjoy it while it lasts!), Weather.com put together a fantastic article on climate change called "50 States, 50 Stories" which should be read by everyone in America (don't worry, it's has lots of pictures).  It's not all depressing – some of the stories are about what people are doing to fix the environment but it's a nice, deep dive into the issue around the country.

Meanwhile, the President can talk up our economy all he wants to but those pesky facts are still out there.  This morning we just got the Q4 GDP report and it missed by 13% at 2.6% vs 3% expected and that means Trump is certainly missing his 3% GDP claim for the year.  In fact, the average for Trump's first year in office is now 2.52%, so I guess he can still round it up to 3%.  It's certainly not good that GDP has fallen off almost 20% from Q3's high of 3.2% – that's contrary to the economic narrative for sure and really not too supportive of record high markets.  

That means our index shorts (see yesterday's Morning Report) are back on in the Futures and we do have S&P (/ES) 2,850 this morning and Nasdaq (/NQ) 7,000 along with Dow (26,425) and Russell (/TF) 1,610 but, as with yesterday, we favor shorting the S&P and the Nasdaq as they cross below with very tight stops over the lines.  The once-again weak Dollar is supporting the indexes for now but it's not likely to last (China and Japan won't put up with it past this level).  

We're not shy about going back to the well and this is just another one of those ways the rich get richer in ways the poor don't even have access to (Futures accounts).  We discussed our hedges earlier in the week and I would strongly suggest not going into the weekend without any as it may occur to some people that a declining GDP might not support a 12.5% rise in the S&P since the beginning of Q4.

Keep in mind that Q4's GDP was actually BOOSTED by the euphoria over the tax cuts and consumers went out and borrowed their asses off in Q4, raising debt levels to record highs.  Now they are sitting down with their accountants and finding out just how little they are saving in taxes (unless they are in the Top 1%, in which case things are fantastic).  Q4 spending was also boosted by $500Bn worth of huricane repairs and Trump can't warm the Earth fast enough to repeat that stimulus in Q1.  

Image result for us consumer debt 2017Consumer spending jumped 3.8% in Q4, the most in 4 years but again, a lot of it was durable goods – replacing storm-damaged items and the consumers did that on credit-cards, which means they'll have less money to spend in 2018.  PCE Inflation hit 2.8%, and the Core Inflation is at the Fed's 2% target with record low unemployment so, despite the disappointing performance – the Fed has no reason not to go ahead and tighten as planned.

With household debt topping $13Tn (65% of our GDP), we're past the point that collapsed the economy in 2008 with roughly the same Mortgage Debt ($10Tn) and most notably a massive $1Tn increase in Student Loan Debt as college costs have spiraled completely out of control.  Bernie was going to make it free but Trump has let it ride with the average cost of a 4-year college in the US now over $25,000 per year – just the tuition!  

Consumers with a lot of debt and rising interest tend to cut back on spending at some point, so we'll have to take some of these Q4 earnings reports with a grain of salt as far as extrapolating too far into the future that this stimulated spending will continue.  

Have a great weekend, 

– Phil

 

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Good Morning!

I guess Mueller must be on to something big that Trump already tried to fire him! Denied by Trump but even Fox News confirmed it. Can't be fake news then! There is just so much incompetence at every level, it might be better to actually shut down the government.

How propagandist beat science – they did it for the tobacco industry and now it's in favor of the energy companies:

https://www.technologyreview.com/s/610012/the-tricks-propagandists-use-to-beat-science/

This is a well-known problem, and the solution is clear: bigger, more highly powered studies. “Given some fixed financial resources, funding bodies should allocate those resources to a few very high-powered studies,” argue Weatherall and co, who go on to suggest that scientists should be given incentives for producing that kind of work. “For instance, scientists should be granted more credit for statistically stronger results—even in cases where they happen to be null.”

That would make it more difficult for propagandists to find spurious results they can use to distort views.

But given how powerful selective sharing seems to be, the question now is, who is likely to make effective use of Weatherall and co’s conclusions first: propagandists or scientists/policy makers?

A correction could lead to a recession:

http://thereformedbroker.com/2018/01/24/stock-market-reversals-can-cause-recessions-too/

Everyone knew the dot com stocks were overvalued or trading based on nonsense metrics, and we knew it for a long time. But not many people had considered that the companies would run out of money and go out of business. Concerns about valuation turned into concerns about survival, which was a different story. Willoughby’s article changed the whole conversation and, overnight, it was like someone had flipped a light switch on and we all woke up at once, blinking, rubbing our eyes…and selling with both hands.

What makes this apropos to today is the idea that, while there is no recession in sight economically, a stock market reversal could certainly cause one. After all, it was the early 2000 reversal in growth stocks that caused the recession then. So much capital expenditure and consumer spending was being fueled by equity gains that when the gains went away so did all the demand in the real world. It wasn’t the first time that speculative market activity spilled over into the economy with disastrous consequences, and it won’t be the last time.

After-tax incomes adjusted for inflation climbed at a 1.1 percent annual rate; the saving rate decreased to 2.6 percent

Good Morning…

HMNY related. Hopefully, this will pass

Investors eye MoviePass-AMC development

Premarket volume on Helios and Matheson Analytics (NASDAQ:HMNY) is over 103K shares as investors continue to trade vigorously on MoviePass news.

MoviePass walked out the Sundance Film Festival as an indie movie buyer, but Deadline is reporting that some AMC theaters in large cities aren't accepting MoviePass anymore in what could turn into a major development if confirmed.

AMC Entertainment (NYSE:AMC) hasn't been a wholehearted supporter of MoviePass from the start.

HMNY is down 3.7% in the premarket session to $8.60.

Nice move in GILD.

~~ GILD -Gilead Sciences upgraded to Buy from Hold at Jefferies

Sold more Jul $5 KODK puts for a possible $3.90 entry.

FU NASDAQ!!!!!!!

GE looks like fire sale are they going for BKT ? under 16 from somewhat 30???

~~  TRVG -trivago breaks out to three month high.  

amzn almost over 400

nflx approaching 300

tsla 340

wtf???

will this ever reverse to the mean?

Studies / Phil – You make the point of the article, propagandists are favorite to win… Of course it doesn't hurt that we have anti-science party in power!

Phil I have seen something like this with GM that is why I never buy that stock again. First they go BKT and than they open up under the same name and screw all the old investors. So are they going the same way?

Who’s betting on AMZN 1400 and /NQ 7000 pins today? It will be just a coincidence, I’m sure..

/RB is doing it’s Friday thing, what a license to print money, except that once every four weeks the trick fails and I lose what I made the last two weeks. So I win three weeks a month, lose what I made on two of them, still a net gain!

Wow! Phil really gets scientists. Thanks!

WYNN

Wynn Resorts seeing notable weakness amid WSJ story regarding sexual misconduct allegations against Steve Wynn.  

WYNN / Phil – I hope they nail (bad pun?) Steve Wynn! Can't stand the guy although in his defense he made money with casinos which is probably a hard thing to do because a stable genius like Trump could not do it. That Wynn guy must be really, really smart…

Phil –  ...Draghi and Abe continue to prevaricate.  That's what currency values are all about – your currency relative to someone elses.  The Dollar index itself is measured against a basket of other major currencies – there's no absolute value to the Dollar at all (kind of like BitCoin!). 

Get your moment of Zen on… Prevaricate indeed, and Abe shall not tighten, the underpinning for low global rates and dollar carry trades cannot appreciate too much, if it does all hell will brake loose. Since the majority of global transactions and financial instruments are denominated in dollars, when the dollar declines, so does the value of those instruments and ASSETS tied to the dollar.

Why is oil going up when demand is declining with supply and production burgeoning? For commodities transacted in dollars, this leads to a price escalation which has nothing to do with supply or demand of the underlying asset.   Since the dollars being exchanged for the asset are worth less, we want and need more dollars for our asset. For all assets, including equities, the above partially applies subject to price elasticity, substitution and fungibility of the asset class.

But here's the rub… this is not an exhibition of strength or a good type of growth, quite the contrary. The resulting escalation of prices is not based in organic economic growth. No new business, methods or technology, no increase in production, usage of raw materials, labor or real increases in revenues or profits.

China and all parties will claim a rebound based on an increase in imports and exports, GDP, consumer spending, credit, debt, etc. Sure prices go up, there is an increase in dollar volume,  wages remain stagnant or decline, with less buying power, viz. wage and savings erosion. 

The little mice squeak louder and churn the treadmill faster, as the vice squeezes their nuts. There is a name for this deleterious effect, stagflation. Now let's all chant, M-I-C-K-E-Y things are getting better all the time M-O-U-S-E. Annette Spoonajello and Out.

Phil – Dollar "Value" – and I don't mean a fast food Value Menu.

Both dollar indexes anchored to 1973 = 100. Why 1973? Google Bretton Woods.

Trade Weighted US Dollar – Major Currencies – includes the Euro Area, Canada, Japan, United Kingdom, Switzerland, Australia, and Sweden. 

Real Trade Weighted Dollar – Broad – in addition to all the above, includes Mexico, China, Taiwan, Korea, Singapore, Hong Kong, Malaysia, Brazil, Thailand, Philippines, Indonesia, India, Israel, Saudi Arabia, Russia, Argentina, Venezuela, Chile and Colombia.

Sorry bout that 2nd link: Real Trade Weighted Dollar – Broad 

RB/Phil – today's chart looks like the left side of one of Chris Kimble's Eiffel Tower drawings, I bet you can't wait to short again!

UKIP, farcical yet triumphant

~~
 

WYNN

 

Wynn Resorts: Steve Wynn emails statement to the media calling allegations in WSJ story 'preposterous' .

Bought some WYNN at 181. 

Risking about 2 points.

WYNN – Stops up to entry on this 3 point bounce.

Dozens of People Recount Pattern of Sexual Misconduct by Las Vegas Mogul Steve Wynn

Sold 1/2.  Up 4.  Stop at 183.

Out of remainder.  Up 5. 

Whew !

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