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Which Way Wednesday – Waiting on Q3 GDP

Pay no attention to that dip behind the curtain! 

On Friday we talked about how leading Economorons were way off base in their Q3 forecasts and now the consensus has dropped way down – back to 3.4% for tomorrow's report, which is only a little higher than the Fed's 3% forecast butthat hasn't caused them to change their Q4 forecast, which is still predicting 6.2% – about where Q3 was predicted to be as recently as a month ago.  

It would be nice just to say "so we don't pay attention to them" but, as Keynes said: ""The ideas of Economists and Political Philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood."  These idiots are the people who steer the conversation – they are the ones who set the agenda for borrowing and spending based on their predictions about what will have what effect – AND THEY HAVEN'T GOT A CLUE!  

We make fun of primative cultures who ask the village "wise man" for avice on planting crops, etc. but I bet those guys weren't wrong 80% of the time or they'd be run out of town.  In America we give them TV shows! We run our entire economy based on the advice of people who routinely miss their projections by 100% and more…

And don't get me wrong, predicting is hard.  A month ago I predicted the S&P 500 would top out at 4,500 and it topped out at 4,550 on September 3rd but yesterday we finished at 4,352, so I don't feel too bad and 1% is a lot less than 100%.  Of course, I'm not casting bones or reading tea leaves like most economists and I'm certainly not looking at charts (I do use them to illustrate) – I'm just using math – and the Fabulous 5% Rule™.

We did the math back on August 24th and that told us to look for a correction to 3,750 on the S&P 500 and that's still down 600 points (13.7%) from where we are now.  In the shorter run, we'll look for bounce lines to see if we can shake off the correction for another month (which only makes it worse when it comes) and, since we topped out at 4,550 and our low (so far) has been 4,300, that's a 250-point (5.5%) drop and our 5% Rule tells us to expect 20% (of the drop) bounces so those would be 50 points to 4,350 (weak) and 4,400 (strong) and we have to hold strong through Friday or the correction is very likely to continue next week.

  • Dow 35,500 to 33,600 was a 2,000-point drop so the bounce lines are 34,000 (weak) and 34,400 (strong)
  • Nasdaq 15,700 to 14,740 was a 960-point drop so call it 200-point bounces to 14,940 (weak) and 15,140 (strong)
  • Russell 2,350 to 2,150 was a 20-point drop so 40-point bounces to 2,190 (weak) and 2,230 (strong) 

That's how we track our bounce lines – no chart required.  Very simply, more red than green is bad and extreme cautioun is required – like driving under a yellow flag at Indy.  

 


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  1. hi phil, the russel numbers dont look right in post.


  2. Good morning!

    Russell/Tommy – Thanks, fixed. 

    • The U.S. stock market bounces up from Tuesday's dip as 10-year Treasury yield moderates, with the most strength coming from the Communications Services and Information Technology sectors.
    • The 10-year Treasury yield slips 2 basis points to 1.52%, after touching as high as 1.56%.
    • The Nasdaq rises +0.5%, the S&P 500 +0.4% and the Dow Jones +0.4%.
    • "The only game in town right now is going to be equities until those yields go up more materially and people can earn something in fixed income," Thomas Hayes, managing member at Great Hill Capital LLC in New York, told Reuters. "There's nothing to compete with equities and that's why you're seeing every 3% to 5% dip bought."
    • Crude oil falls 0.4% to $75.02 per barrel.
    • Among S&P 500 industry sectors, Consumer Discretionary and Energy lag the broader markets.
    • Across the Atlantic, equities are also rising, with the Stoxx Europe 600 gaining 0.8%.
    • The U.S. dollar index rises 0.3%
    • Retailers are likely heading into a record-breaking holiday season with digital sales projected to reach $1.2T globally says Salesforce (NYSE:CRM). "While last holiday was defined by the last mile, this year is expected to be dominated by the first mile," said Rob Garf, VP and GM of Retail, Salesforce. "With persistent global supply chain disruptions, retailers must draw consumers to their online and physical stores early in the season to fulfill demand and capture holiday spending." Customers are expected to begin their shopping early to avoid product shortages as online catalogs are predicted to shrink 5%.
    • Digital growth is expected to be driven by a 20% rise in consumer prices despite online global (-2%) and U.S. (-4%) orders falling, according to Salesforce (CRM). Costs of goods sold for U.S. retailers is projected to increase $223B from last year due to manufacturing limitations, higher logistics costs, and labor shortages.
    • On the bright-side, Salesforce believes supply chain improvements and fewer orders will result in only 4 million packages being delayed compared to 700 million last year.
    • In a move consistent with Salesforce's recommendations, Target (NYSE:TGT) unveiled its new Holiday Price Match Guarantee program and Target Deals Days promotions Wednesday.
    • A new report by the Wall Street Journal (WSJ) has found that Facebook (NASDAQ:FB) was planning for years to build up marketing efforts targeting pre-teens.
    • Citing internal documents, the WSJ found that multiple teams were working on plans to create more products and conduct research around pre-teens as potential users. One team was set up with a three-year goal to develop specific products for the demographic. A presentation cited by WSJ also explored ways to engage children during playdates and noted wariness among parents towards the idea.
    • Another document showed that Facebook had been working over the past five years to design products appealing to pre-teens, and research potential products that could resonate with children aged 10-12 years. Internal documents suggested that Facebook was exploring strategies to compete with Snapchat (NYSE:SNAP), which it said had a "growing preteen following".
    • The report is the latest in a series of recent controversies surrounding Facebook and the vulnerabilities of pre-teens and children to social media.
    • Facebook's Messenger Kids, launched in 2017, was its first play into the demographic, in the hopes that children would adopt its other platforms. It was also working on an "Instagram Kids" product for under-13 children, but has paused work amid recent flak from industry observers and regulators. Current federal privacy regulations prevent this vulnerable demographic from legally using Instagram.
    • Earlier in the month another WSJ report found that Facebook was aware of potential toxic effects of Instagram among teenagers. The social media giant has been pushing back against this report and is now readying a release of some of its own research on the network's influence ahead of Senate testimony this week.
    • Sherwin-Williams (NYSE:SHW) -3.4% post-market after lowering guidance for Q3 and FY 2021 earnings, citing worsening raw material availability constraints and pricing inflation.
    • The company no longer expects to see improved supply or lower raw material pricing during Q4, causing it to forecast Q3 net sales to come in flat to slightly lower compared to the $5.12B in revenues in the year-ago quarter.
    • Suppliers are reporting that the impacts of Hurricane Ida are more severe and will be longer lasting than previously expected, and production of several key resins, additives and solvents has been pushed out past late September.
    • For the full year, Sherwin-Williams now forecasts sales to rise by a high single digit percentage, with adjusted EPS of $8.35-$8.55, well below $9.21 analyst consensus estimate.
    • For Q3, Sherwin-Williams sees adjusted EPS of $2.00-$2.10, far short of $2.46 consensus.
    • The company also agrees to acquire Specialty Polymers, a maker of polymers used in architectural and industrial coatings and other applications, for an undisclosed sum
    • Micron Technology (NASDAQ:MU) has fallen 3.1% after hours following its fiscal fourth-quarter earnings report - where it topped expectations but issued sharp downside guidance for the current quarter.
    • Revenues rose 36.5% to $8.27 billion, and gross margin jumped again, to 47.9% (up from last quarter's 42.9% and a year-ago 34.9%).
    • Operating income rose to $3.07 billion, more than doubling the prior-year $1.3 billion, and operating margin rose to 37.1% from last quarter's 31.9% and a year-ago 21.5%.
    • Attributable net income also more than doubled, to $2.78 billion from $1.229 billion.
    • And operating cash flow rose to $3.88 billion, from last quarter's $3.56 billion and a year-ago $2.27 billion.
    • But guidance for fiscal Q1 revenue of $7.45 billion-$7.85 billion was well short of consensus for $8.49 billion, and EPS forecast at $2.00-$2.20 trailed expectations for $2.48.
    • The company is expecting a strong fiscal year but "In the near term, our FQ1 bit shipments will decline modestly in both DRAM and NAND from very strong levels in FQ4. Some PC customers are adjusting their memory and storage purchases due to shortages of non-memory components that are needed to complete PC builds," CEO Sanjay Mehrotra says.
    • The company expects that PC customer adjustment to be "largely resolved" in coming months, and warns of ongoing constraints in the supply chain for certain integrated circuit components.

    • Dan Niles, founder and portfolio manager at Satori Fund, said Tuesday that rising rates and a pandemic-related hangover will weigh on tech stocks.
    • However, he told CNBC that Google-parent Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) remains an attractive investment, as the high quality of its underlying businesses makes it "one of the few exceptions to that rule" to avoid tech.
    • On tech in general, Niles argued that higher interest rates disproportionately hurt stocks with high projected growth rates by small or non-existent current earnings. He noted that this dynamic appears in a sizable chunk of the tech space.
    • The Satori Fund founder also contended that many tech stocks received a boost during the pandemic, with the rise of trends like e-commerce and streaming. He asserted that growth in these areas would likely slow now that the economy is undergoing a post-COVID reopening.
    • As to Google, Niles said the company avoided these red flags for the overall sector. He pointed to the company's already robust financial figures, which continue to show high growth rates. At the same time, Niles highlighted the fact that GOOGL was hurt by the pandemic, when companies slashed their advertising budgets.
    • "[Alphabet] is growing revenues in the high 30% range year-over-year, it's trading at below-market multiple and they also benefit from the economy's reopening," he said.
    • Looking to other parts of the market, Niles said that online betting represents another potential strong spot for the market.
    • "This is a space that should grow 30% a year for the next several years," he predicted.
    • To look at GOOGL's performance compared to the overall tech sector, look at the year-to-date action in the stock versus the iShares U.S. Technology ETF (NYSEARCA:IYW).
    • GOOGL has posted an advance of nearly 61% so far in 2021. This far outstrips the 25% gain seen in the IYW and the 20% rise posted by the S&P 500:

    • Renominating Jay Powell to lead the Fed is not worth the risk, says Senator Elizabeth Warren, calling him a "dangerous man." Warren is speaking as Powell testifies to the Senate Banking Committee.
    • Powell's term atop the central bank expires early next year, and he's thought to be cruising toward renomination by the Biden Administration. Cracks have appeared lately though, with inflation taking a big toll on consumer confidence, and trading scandals which forced the resignations of two regional Fed presidents yesterday.
    • Waiting in the wings is thought to be current Fed governor and former Obama Treasury official Lael Brainard. Jim Bianco notes that Powell's odds for renomination have dipped to 75% from 90% two weeks ago. Brainard's odds have risen from nill to 25%.
    • More on Powell (and Yellen's) Senate testimony is here.

     

     

    • "It is imperative that Congress address the debt limit," Treasury Secretary Janet Yellen asserts during her testimony to the Senate Committee on Banking, Housing, and Urban Affairs.
    • She urged bipartisan action on the issue and warned that if no agreement is reached to lift or suspend the debt limit, it would be the first time in history that the U.S. defaults on its debt and would "be disastrous."
    • Federal Reserve Chairman Jerome Powell, in his statement, said the economy is still a long way from meeting its maximum employment goal.
    • Developing… check back for updates.
    • Earlier, Yellen said the Treasury is set to exhaust its extraordinary measures by Oct. 18.
    • Powell released his prepared testimony on Monday afternoon, U.S.'s 5.2% unemployment rate is understated.

    • Peloton Interactive (PTON -3.3%) swing lower after Amazon announced today at a hardware event that it is launching a service called Halo Fitness.
    • Amazon's new $79.99 Halo View product includes a color AMOLED display and a year's worth of the Amazon Halo Fitness membership, which includes access to the tracker’s full analytics package. A separate service called Halo Nutrition is also on the way.
    • Fitness sector watch: Lululemon (LULU -2.9%), Planet Fitness (PLNT -0.3%) and F45 Training Holdings (FXLV -1.3%) also took smaller turns lower near when the AMZN announcement was made. Meanwhile, Xponential Fitness (XPOF +2.1%) is a notable outperformer on a down market day.
    • Read more about the Amazon event today.
    • There are sharp losses across the electric vehicle sector with rising interest rate, Fed tapering and supply chain fears rolling over the broad market.
    • Hyzon Motors (HYZN -19.7%) is in a class by itself after the stock was targeted in a short seller report.
    • Notable decliners include AEye (LIDR -15.4%), Volta (VLTA -6.0%), HyreCar (HYRE -7.5%), Romeo Power (RMO -9.3%), Canoo (GOEV -6.1%), XL Fleet (XL -6.5%), Li-Cycle (LICY -5.9%), Nikola (NKLA -6.5%), Ayro (AYRO -5.2%), Lucid Group (LCID -5.1%), Fisker (FSR -4.0%), Li Auto (LI -3.6%) and Nio (NIO -4.5%).
    • Tesla (TSLA -1.5%) is faring better than most after Piper Sandler said it expects the automaker to post its strongest quarter ever. Meanwhile, Ford Motor Company (F +1.6%) is solidly in positive territory after the automaker reiterated its EV commitment.
    • Two of the only gainers on the rough trading day are ChargePoint Holdings (NYSE:CHPT) +2.37% and EVgo (NASDAQ:EVGO) +0.77% as investors hold out hope that the infrastructure legislation will favor EV battery charging specialists.

  3. Good Morning.


  4. oil is pretty big build


    • The Senate could vote as soon as Wednesday on a bill that would keep the government running into early December, Majority Leader Chuck Schumer said.
    • If Congress doesn't pass an appropriations measure before midnight Thursday, federal funding will lapse, forcing a government shutdown.
    • In addition to providing funding to keep the government running into the new fiscal year, which starts on Friday, the proposal would include money for hurricane relief and Afghan refugee resettlement. The bill would require support from all 100 senators, CNBC reported.
    • "We can approve this measure quickly and send it to the House so it can reach the president's desk before funding expires midnight tomorrow," Schumer said, according to CNBC.
    • The government funding measure, though, is separate from the debt ceiling issue. On Tuesday, Treasury Secretary Janet Yellen told Congress that the U.S. will exhaust its options for paying bills at about Oct. 18 unless lawmakers increase or suspend the debt limit.
    • Democrats have been urging a bipartisan effort to either increase or suspend the debt ceiling, while Republicans say the Democrats, who hold a majority in both chambers, should do it by themselves.
    • While the House passed a bill that would fund the government and suspend the debt ceiling, Republicans blocked it in the Senate on Monday. On Tuesday, Republicans also blocked a motion that would have let Democrats boost the debt limit with a simple majority vote.
    • Previously, U.S. Treasury set to exhaust extraordinary measures by Oct. 18, Yellen says
    • Dear readers: We recognize that politics often intersects with the financial news of the day, so we invite you to click here toclick here to join the separate political discussion.
    • Retail stocks are outperforming the broad market as the focus turns back to strong consumer spending trends and the ability for some companies to leverage down higher shipping, labor and commodity costs.
    • Apparel retail stocks Gap (GPS +5.6%), Torrid Holdings (CURV +1.2%), Urban Outfitter (URBN

       
      32.04
       0.39 1.23%

      Urban Outfitters, Inc. engages in the retail and wholesale of general consumer products.
      52 Week Range
      20.59 - 42.10

      Market Cap.
      3.13B

       +1.7%) and Abercrombie & Fitch (ANF +2.1%) are off to a strong start.

    • Specialty retail stocks TravelCenters of America (TA +6.7%), Dollar General (DG +1.4%), Big Lots (BIG +1.4%), Children's Place (PLCE +2.2%),  Build-A-Bear Workshop (BBW +2.0%) and Lands' End (LE +1.8%) are also early gainers.
    • The grocery store sector is strong again with Sprouts Farmers Market (SFM +3.3%), Albertsons Companies (ACI +2.5%) and Kroger (KR +1.9%) in positive territory.
    • Retail giants Target (TGT +1.6%) and Costco (COST +1.8%) are also solidly higher, while Dollar Tree (DLTR +15.5%) is outpacing everyone after dialing up some more buybacks and raising some price points.
    • United Airlines (NASDAQ:UAL) CEO Scott Kirby said Wednesday that the response within the company to its vaccine mandate proves that the policy works.
    • In an interview with CNBC, Kirby also reported that bookings are "absolutely" starting to come back, with business bookings reaching their highest level since June.
    • "We appear to have bottomed out. Getting everyone vaccinated is important for continuing that recovery," he contended.
    • On the vaccine mandate, Kirby said he "feels bad" for the 593 workers that will lose their jobs for not complying with the requirement but that he's also "proud and gratified" by its ability to reach a 97% vaccination rate.
    • Kirby reported that its compliance rate was 99%, excluding the employees who have applied for a religious or medical exemption.
    • The United CEO also offered advice to other business leaders considering a vaccine mandate: "Just do it."
    • He argued that by aggressively pursuing the policy, United has set itself up for the future and put the issue "in the rearview."

    5MB build vs 4.8Mb draw expected – should put a bit of pressure on crude:
        

  5. Gold and silver getting killed again:

     

    Also, in case you missed this from the end of yesterday's post:

    Good morning, everyone. Here is the link to today's webinar…

    https://attendee.gotowebinar.com/register/9183174309769908752

     


    • The world's leading cryptocurrency, bitcoin (BTC-USD +1.6%) holds its ground over $42K, but it's still off by 10% in September — the biggest decline since May — and the same month where the stock market (SP500) also started to get a bit choppy, according to CoinDesk 20 data.
    • Much of the selling in BTC this month came from new investors as "older market participants are sitting tight on their holdings, shown by the average lifespan of spent outputs declines," according to Blockware Intelligence's newsletter from Sept. 17.
    • China's ban on crypto transactions and mining, as well as the Federal Reserve's asset tapering set to begin as soon as next quarter, shouldn't be much of a bother to the price of BTC. Historically, BTC generates the biggest quarterly gains in the October to December period, analysts told CoinDesk.
    • Still, a selloff in stocks could weigh on the token as "bitcoin's 90-day correlation with S&P 500 has increased considerably during this [September] risk-off period," crypto exchange Luno said in its weekly research note, according to the CoinDesk article. "Although bitcoin has many similar characteristics as gold, it still behaves as a risk-on asset and highly correlates to the stock market during market turmoil."
    • On a M/M basis, bitcoin (BTC-USD) (-15.8%) and the S&P 500 Index (SP500) (-3.4%) both dip as of Tuesday's stock market close, according to the chart below. BTC still leads on a Y/Y basis, up more than nine-fold over the S&P.
    • Securities and Exchange Commission Chairman Gary Gensler is a regular critic of the digital asset space, saying crypto is "rife with fraud, scams, and abuse," so long as the emerging industry remains unregulated.
    • Now, traders await the SEC's final verdict on several BTC exchange-traded fund applications and its first response on futures-based ETFs.
    • "We will see action in the market running up towards" VanEck receiving its final verdict by Nov. 14, as well as other funds shortly after, according to an Arcane Research's weekly note from Sept. 28 cited by CoinDesk.
    • In August, AdvisorShares filed for a bitcoin futures ETF, following other issuers including Galaxy Digital, VanEck, Valkyrie and Invesco.
    • The usual crypto names are mostly in the green in Wednesday morning trading: Riot Blockchain (RIOT +0.3%), SOS Ltd (SOS -2.1%), MicroStrategy (MSTR +1.7%), Coinbase (COIN +1.0%), Marathon Digital (MARA -1.9%), Hut 8 Mining (HUT +1.0%), Silvergate Capital (SI +4.4%).
    • Previously, (Sept. 24) bitcoin could rally after September options expiry, but then China clamped down.
    • State Street Investor Confidence Index105.9 in September vs. 109.9 in August (revised).
    • North American ICI falls to 106.1 from 110.5.
    • Asia ICI to 97.7 from 98.5.
    • European ICI to 95.6 from 104.8.
    • “Investor confidence was marginally weaker in September, although despite the drop the Global ICI remained near its highest level in 3-years,” commented Marvin Loh, senior macro strategist at State Street Global Markets. “However, all three regions contracted from strong results in the ICI reported in August, with Europe falling 9 points, while North American and Asia both declining by low single-digits. Resurgent infections from the delta variant has resulted in lowered growth expectations globally, although the economic backdrop continues to look attractive for above trend growth in 2022. Additionally, numerous central banks, including the Fed, have indicated that they will slow asset purchases in the coming months, with some expected to wind down their QE operations by mid-2022, which may provide an ongoing headwind until the timeline for rate hikes becomes clearer.”

    Europe took a major dive!



  6. Phil/cannabis – what is your take on the proliferation of start ups in the space? Most seem to be building grow facilities which will help them control quality. Seems like the grow facilities will grow better product than an outdoor farm, but when do we see overcapacity? Can a multitude of brands develop and survive like in consumer products? With legalization rolling out and public acceptance seems like we do have strong growth ahead at least for the next severl years. Thanks.


  7. Cannabis/Seer – It's a crowded space and, as noted, anyone can get in so it's more of a branding issue and that's a very expensive proposition to build.  The silly laws means people can't really scale up so it's 1,000 mom and pop operations competing with multi-state public operations that also can't scale.  It's like the early days of liquor without the mob (so far).  Yes there is great growth but who will win is like picking which turtle will make it to the sea without being eaten. 

    Democrats in Washington were working to both avoid a government shutdown and salvage President Biden’s domestic agenda, with the Senate preparing to take up a short-term funding patch. 5 min read

    Powell Says Supply-Chain Bottlenecks Could Lead to Somewhat Longer Interval of High Inflation

    The central bank chairman said he still expects prices to come down on their own, adding it is “very difficult to say how big the effects will be in the meantime.”


  8. Phil/Cannabis – Thanks. Is the inability to scale the difficulty of operating in multiple states at once in addition to the number of states where it is still illegal?


  9. Here is the link to the replay of this week's webinar.

    https://youtu.be/oUPw-cW_-CY


  10. Yes, you can't sell what you grow in one state in the state next door – even if they both are legal states.  You can't even take seeds across state lines.