Monday Monetary Meltdown – Velocity of Money Crosses a Dangerous Threshold

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How is this a good thing?

Clearly, it's not.  Money is simply not being spent in our Economy and that's not the sign of a healthy economy.  Of course, we've been heading this way for two decades now back from the 90s, where $1 earned would circulate through the economy and average of 2.2 times, generating 3.2 GDP Dollars.  Now the velocity of money is getting close to 1, meaning a Dollar earned only adds one more Dollar to the GDP, for 2 GDP Dollars.

What does that mean?  Well it means that you $10Tn in circulation to have a $20Tn GDP where you used to need $6.25 so 60% more Dollars are needed to create a Dollar in GDP these days.  That means the Fed's policies are 60% less effective and that the economy grows 60% slower – for now.  It also means that, if for some reason, the pace of borrowing and spending pick up, that we could easily send prices rising 100% from where they are now, as money speeds up again.  That would, of course, boost our GDP (so yay!) but it would do so in a hyperiflationary way.  

In the 1990s, to keep inflation under 3%, the Fed raised rates from 3% to 6.5% and in 1978-1980, the Inflation Rate in the US was 9%, 13.3% and 12.5% and the Fed Funds rate was 10%, 12% and yes – 18% in 1980.  That's what the Fed has to do to keep a lid on inflation but that tool is no longer available to the Fed since we are now $28Tn in debt and 18% of $28Tn is another $5Tn we simply do not have so this country would become Greece and suffer a massive meltdown if we tried to use the Fed Funds rate to control inflation.

Well, that's a pretty serious problem because look at this other indicator:  The Loan to Deposit ratio has also collapsed, meaning banks are no longer making money lending it to people – which is kind of the whole purpose of banks.  Instead they make money gambling in stocks and derivatives – just like they were doing before the last banking crisis.  

One of the reasons for this is that the Rich, the Top 0.1%, whose wealth begins at $16M per household, have become so rich that they simply don't need to borrow money anymore and, also, they have nothing left to buy so they don't contribute to the GDP – they simply suck all the money (and fun) out of the economy with their massives, static deposits and, since we don't tax them, the money is permanantly removed from the economy and the Fed has to constantly print more of it just to get some into the bottom 99% which, of course, mostly ends up in the hands of the wealth – further increasing the wealth gap.   

This unfun way to make The Rich richer is then reflected in the lack of business activitiy, since consumer spending by the bottom 99% is 60% of the US economy and that then is reflecting in the historically low Earnings Yield of 2.36% by S&P 500 companies, with 6% being "normal".  This isn't just the virus either because we haven't seen 6% more than a couple of ticks in the past 20 years but 2.36% is downright scary – especially for a market that commands record-high prices for those earnings – 35x those earnings at last count.

Best Trump Paper Towels GIFs | GfycatWe are throwing money at this problem and the money certainly isn't working.  It's about as effective as giving people paper towels to help them recover from record-breaking flood damage – what kind of psychopath does that?  The flood of money in the economy is not getting the economy wet – it's still running dry and the Fed is flooring it with rates near 0% and they can try paying you to borrow money but if you think we're misspending Trillions of newly printed Dollars now – wait until you see the waste generated if they pay Corporations to buy back their own stock!  

This all could be good for the market but bad for the people.  The Fed's back is against the wall and the Dollar is down another half a point this morning and on the way back to the December lows of 90 but bouncing there against a backdrop of weak Q1 earnings could lead us to have a correction that looks a little like Bitcoin this weekend – another ridiculous bubble caused by this ridiculous misallocation of Capital Assets – down 10% in 10 days and now testing the strong bounce line at $58,000:

It's a very light week for Econmic Data with literally nothing of note until Wednesday's 20-Year Bond Auction and then Thursday it's Chicaga & KC Fed Reports along with Leading Economic Indicators and Existing Home Sales with New Home Sales and PMI on Friday.  That puts the spotlight squarely on earnings and we'll see if the average US company can manage to make back more than 2.36% of what you pay for their stock this quarter:

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yodi

This is the message I got this morning from TDA 

Did fill out transfer with IB to transfer shares to IB. Will see what happens, before taking further action

Hello Dieter Kolberg,

Thank you for your message! Unfortunately, we are not able to convert these shares as we do not have access to the Hong Kong market. There are currently only two options:

1. Do nothing. The Executive Order currently doesn't require clients to liquidate these securities, however, clients may have difficulty trading them or holding them in the future and there is no guarantee as to what their future value, if any, will be.

2. Transfer them to a foreign financial institution. 

We understand this is not the ideal answer you're looking for and we truly apologize for the frustrations this has caused. This situation is still evolving and we cannot speculate on future impacted securities or actions that may be taken by the U.S. government, NYSE, the Over-The-Counter market, or other trading partners in the U.S. financial industry. We are keeping a close eye on this situation.

We strive to provide the best in-class service to our clients by making it easy for you. Your opinion and satisfaction are essential. If we have not yet met your expectations, or if you see anything we could have done better, please let us know. 

Thank you for choosing TD Ameritrade, and we hope you have a great day!

Jennifer Montano
Private Client Services 
TD Ameritrade 
700 Maryville Centre Drive, St. Louis, MO 63141-5824
800-400-4078 
privateclientservices@tdameritrade.com

yodi

This is obviously from the CHL saga

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1020

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batman

Utilities. Analyst Sophie Karp notes the majority of the impact on the sector would not come from direct spending, but from fiscal incentives.

American Electric Power (NASDAQ:AEP), Southern (NYSE:SO), Duke Energy (NYSE:DUK), Dominion Energy (NYSE:D), Entergy (NYSE:ETR) and Edison International (NYSE:EIX) can benefit from incremental grid investment initiatives and electrifications trends from an EV tide that will "lift all boats."

Eversource Energy (NYSE:ES), Avangrid (NYSE:AGR), Public Service Enterprise Group (NYSE:PEG), NextEra Energy (NYSE:NEE), Xcel Energy (NASDAQ:XEL), AEP, Sunrun (NASDAQ:RUN), Sunova Energy (NYSE:NOVA) will be helped by the extension of the investment tax credit and the production tax credit further boosting commercial solar and wind.

Public Service Enterprise Group (PEG), Excelon (NASDAQ:EXC) and Energy Harbor (OTCPK:ENGH)would benefit from any concrete federal program to support nuclear energy.

First Solar (NASDAQ:FSLR) may get a boost if solar installers can bypass Chinese tariffs.

 

 

Semiconductors. Analysts John Vinh and Wes Twigg say "expansion incentives would likely be a tailwind for semiconductor equipment demand while easing the capex burden on manufacturers."

Applied Materials (NASDAQ:AMAT), ASML (NASDAQ:ASML), Advanced Energy Industries (NASDAQ:AEIS), KLA (NASDAQ:KLAC), Lam Research (NASDAQ:LRCX) and Teradyne (NASDAQ:TER)would benefit in equipment names.

Analog Devices (NASDAQ:ADI), Intel (NASDAQ:INTC), Micron (NASDAQ:MU), ON Semiconductor (NASDAQ:ON) and Texas Instruments (NASDAQ:TXN) are picks among those with domestic manufacturing footprints.

 

Phil / Infrastructure 

https://seekingalpha.com/news/3678996-best-stocks-for-bidens-infrastructure-plan-tech

KeyBanc Capital Markets outlines the best potential beneficiaries from the White House's $2T infrastructure spending plan.

Vertical Software. Analyst Jason Celino thinks the plan would "accelerate digitization opportunities across the architecture and construction industry."

Bentley Systems (NASDAQ:BSY) gets 60% of total revenue from infrastructure, so the plan could lead to "meaningful multiyear tailwinds."

Autodesk (NASDAQ:ADSK) exposure to infrastructure of 15-20% of revenue and the "completion of its Innoyze acquisition, providing solutions for water infrastructure assets, gives us incremental confidence."

Trimble (NASDAQ:TRMB) has 25-30% of revenue from infrastructure "geospatial, construction, and civil engineering offerings are well positioned."

Communication Services. Analyst Brandon Nispel says the bill "is positive for infrastructure providers (tower operators) and neutral to negative for network providers (wireless carriers and cable operators)."

American Tower (NYSE:AMT), Crown Castle (NYSE:CCI), SBA Communications (NASDAQ:SBAC) are picks in towers, which will be helped by improving investment in wireless networks.

Altice USA (NYSE:ATUS), Cable One (NYSE:CABO), Charter Communications (NASDAQ:CHTR), Comcast (NASDAQ:CMCSA), WildOpenWest (NYSE:WOW) may see a hit to discretionary cash flow due to a higher corporate tax rate.

AT&T (NYSE:T), T-Mobile U.S. (NASDAQ:TMUS) and Verizon (NYSE:VZ) are the most at risk of a corporate tax rate hike, with T and VZ seeing incremental taxes of $1.5B to $2B.

 

rn273

Any thoughts on KT corporation ($KT)? South Korea's largest telecom. Pays out ~3.5% once a year, P/E<11 

rick2006

Batman / BSY – used to really like them, but they got expensive. Would love to buy again on a meaningful pullback. 

Added a T call-spread position heading into earnings. Option premiums are small, and I think HBO max is undervalued/underappreciated. 

Rolled the VIAC long call position to a lower strike (dropped $3 in strike price for a $1 cost). 

pstas

CHL- received the following in response to my email to China Mobile regarding dividend:

Dear Sir,

Thank you for your email. Subject to the approval by shareholders at the 2021 AGM which to be held on 29 April 2021. The 2020 Final Dividend will be paid on or about 20 May 2021.  For ADR shareholder, you are still able to receive the 2020 Final Dividend.

Best regards

Kiwi Lam

saguaro

CHL/ Pstas, Yodi, et al., Thanks for posting what you have learned about CHL. I have some CHL stock and short puts, but haven't yet done anything about them. I've been waiting to hear from people who know more about this stuff than I do. So thanks.