Benjamin Roth: The Great Depression: A Diary It's all here, times change people don't
-the endless govt programs that fail to stimulate the private sector
-the ups and downs of the economy, the veterans pension stimulates just as the housing credit did, until of course the money runs out
-Roth is a attorney in Youngstown Ohio who kept a diary regarding the economy from 1930 until WW II breaks out, he is objective, candid, and forthright which is more than we get from Washington DC now or then
highly recommended
One of my do not miss tv shows it the WSJ Editorial Board Report on Fox News Sat afternoon 2 00 PM CST.
Dan Heninger observing the 62% six year raise gratned the Longshoreman suggested this was the start of another 1970s wage price Spiral..
Once a union gets a large settlement like that, others want to cash in. Already the Machinists are striking Boeing. No doubt they think the Govt will not let Boeing fail, yeah well we all thought that about Lehman. Now Boeing is laying off 17,000. If its credit is fruther downgraded it will be lower than investment grade BAA and fall to junk. That eans a lot of funds who must maintain investment grade status will dump Boeing debt. And so the bond price falls and Boeing has to payu a higher interest rate. Ouch.
This is the cycle I alluded to in the previous post. The symmetry of the 39 years is amazing. The rise in ates is underway. The rise in gold and silver is underway. Digital is topping see Oct 11 post. Chart courtesy of my friends at EWI.
The events of the top in 2007 are eerily similar to the present apparent toping formation.
Here is the view of April 2007 to Dec 2008
After holding up through the fall, the collapses really began in late December and then accelerated the rest of 2008.
Her is a daily view of the top in 12007. The market dropped into August, rallied into Oct 11, this past Friday today, and then began dropping. The FED cut a half point then as now.
While regrettably I do not have data into Deceber 2024, here is the pattern s far since April, same time frame
We have the same pattern now as then, a peak in July, a drop into August, and a rally into Oct 11. The same is true for the SPX. The NDX also made a high July 11, fell into August and has rallied since.It has not exceeded its July high but that is certainly possible.
As Twain remarked history may not repeat but it sure does rhyme. We will see if how this similarity plays out. The enthusiasm of today certainly matches the bullish tone back then.
Bonds
The media just thinks interest rates are high now, just wait two years. The big picture is that interest rates bottomed in 1942. They rose for 39 years into 19814. They then fell for 39 years bottoming March 2020. The rise since then has heen rapid. An old adage on Wall Street is that the requirement of a bear market is the total absence today of anyone who has experienced a bear market. The bear I am thinking of is 1972-1982 and specifically 1973-1974, which was a drop of 50% in two years. The female co host on Varney Fox Business was recently astonished at a 1,000 one day drop in the NASD nearly saying that can't happen. She looks to be about 35. Near no one is around today who witnessed 1973-74 unless you just turned 76 as I have.
Since the March low the ten year note yield has moved up in five waves to Fall 2023. Since then we have a one yaer A B C correction and now a rally. Yes as I wrote Friday, the big half point rate cut has seen the ten year yield rise not fall.
Since March 2020 Ten Year Yield
Six month chart of yields
I think C corrective wave bottomed in mid September, not e the rapid rise since. The way to profit from this is to buy TBF a bear bond fund. Otherwise stay in 3 month T bills or TBIL an ETF which does just that and pays monthly.
If i am correct, Wave One lasted from March 2020 to Fall 2023.Wave Two correction lasted from Fall 2023 to
Sept 18, 2024. This rebound should be the start of Wave 3, the strongest of the pattern.
The US is spending one billion dollars every 90-120 days, which is does not have, it is borrowed. Example, the first domed air conditioned stadium the Houston Astrodome, cost $345 M and sat 50,000. Today San Antonio is going to build an outdoor AA Mnor League stadium for $160 M. That readers is inflation and destruction of the dollar. Already there is the
Asian Infrastructure Investment Bank. Its purpose is to dethrone the US Dollar as the world reserve currency, China, no surprise, is behind this venture.See the Oct 11 post from EWI on the switch from digital to commodity investing. As Kevin Hassett put it, the 1970s are back.
This column suggested $78 as a target for crude oil three weeks ago as the price rose above $689. This past week managed $78.47 before falling back. It appears price is attempting to stabilize at the $74-75 level. November gasoline futures have rallied form the $1.90 level to $2.13. There is also some good news for the winter months ahead, at least for the grid providers wise enough to continue using natural gas. In the last few days it has fallen from $3.00 to $2.55.
States that have abandoned natural gas have significantly higher electricity costs. The sun does not shine at night and the wind does not always blow. As always California has the highest electric rates in the nation. Florida which has chosen to rely on natural gas, has lower rates than Texas. Texas has a significant solar and wind component.
Stocks continue to advance, well most of the indexes.The Industrials make a new high at 42,745. Yes the index is overbought. The tech heavy NASD 100 has not taken out its earlier August high. SOX is making a new high at 5817. The Russell 2000 and S &P Mid Cap Indexes have not recorded new highs. It appears the stock rally will continue into next week.
The financial press hails the FED Chair with the equivalent power on the order of King Arthur’s Merlin the Magician or perhaps Lord of the Rings’ Gandalf, the Wizard of the Istari order. Not so fast, the FED merely follows the market rather than leading it. The Fed had to reduce the overnight lending rate by a half percent as 3 Month T Bills were even below five percent. The FED overnight rate was at 5.5% How is that working out? The ten year note yield has risen from 3.6% to 4.1% since that cut. The three month T Bill is yielding 4.5% still below the FED overnight rate. And now the Two Year Note rate is 3.396%, about the same as the Ten Year Treasury. For a short time rates returned to normal with longer rates higher than shorter. Now we are going back towards another inversion. This rise in longer term rates tells us the market, always wiser than the politicians, does not believe inflation has been beat.
As Kamala ducks and dodges questions on her intended policies, evidence of much higher tax rates in her administration abound. One study noted that if all her corporate, capital gains, and ordinary rates were enacted along with high tasx states like California and New York, government would be taking about 50% of all that is produced. It is hard to see a growing economy with those onerous tax rates.
Kevin Hassett Chairman of COuncil of Economic Advisers during Trump, commented we are going to have at least a decade like the 1970s.. this means higher interest rates and higher inflation.
Here is a two hour chart showing the Friday rally and then today's pullback. This is also an example that mood is unremembered, hey on Monday we forgot Friday and that mood can turn on a dime.
A bear market eventually takes the entire market. Here the Utility Index reached its 2022 high and then reversed today. Yes this reflects five waves up but it also reflects the expectation of higher interest rates. Higher rates are not good for utilities which constantly need to finance expansion. the ten year note hjas quickly returned to 4%, so much for the FED controlling inflation.
Last week the think was that the FED (which follows not leads the markets) would cut yet again and further hte stock rally. I saw a piece today what Goldman is calling for a higher close for 224 and 2025. My friends at EWI and I are calling for lower, much lower year end closes. Here is the latest.
Crude oil has soared $12 in the last 21 weeks closing in on my next target of $78. This of course is due to increase wars in the Middle East not to mention Houthi strikes at oil tankers.
WTIC is up $2.86 just today or 3.83%. And the thinking was that the FED cuts to its overnight rate would lower long term rates, think again. Here is the price of the ten year note. Bond prices fall when interest rates rise. Friday its value dropped a good bit and rates rose which makes the day end rally Friday out of synch with the bond market. The ten year not is now back to 4%. So the FED has done nothing to bring down longer term rates, one of several reasons for the market decline today.
The volatility index VIX is up 3% just today, this is the worry index, the more worry the higher it goes.
Here is our line up of bear funds that track at a reverse 1x to the actual fund, in short if the SPX drops 1 %, the SH gains 1%
The top in stock market indexes concluded July 11 with the final high in the NASD 100. Qualitative events since then are confirming worse conditions ahead.
The Longshoreman are not satisfied with a 50% raise over six years, bumped from an original 40% due to White House pressure, instead they demand 77%. The auto industry is in trouble. Inventories are piling up, interest rates have risen, Aston Martin and Tesla warn of lesser expectations. An extended strike will slow delivery of European models not made in the USA.
Levi Strauss cut its earning forecast and is considering selling the Dockers brand. Its stock price dropped 9.8%.
Asian stocks are lower after Iran rained missiles on Israel. And that brings us to the topic of oil prices.
The Organization of Petroleum Exporting Countries OPEC was created in 1960 with five members. The idea was to influence production and maximize profit. Today there are 12 members. I believe OPEC has only been effective in raising prices with the two embargoes in 1973 and 1979. The problem is that there is no enforcement mechanism to ensure the members will abide by a decision to cut production to raise the prices. Most members like Venezuela have nothing to sell other than oil. In the 1980s after oil reached $36. The Saudis became the ‘swing producer.’ When other members did not throttle back production as price was clearly falling, Saudi Arabia did. By 1986 the Saudis were tired of the misbehavior, refused to cut back and price fell from $20 to $12.
Now the Saudi Oil Minister warns that prices could fall to $50 if members do not follow the suggested production cuts. Everyone who thinks a Kuwait Prince is going to cut lifestyle, raise your hand. Last week we observed the price trend is down.
But wait. Now, as mentioned, we have a wider ware with Israel, Iran and its proxies. Earlier in September prices dropped to $656.Now tensions have raised that price to $73.85, up 9% in the last five days., Exxon Mobil has jumped from $111 to $122 in six days while the overall market is falling. Transocean RIG is up 5.6% just today but still trading well below book value.
The next resistance is $78, then $80, and $84. Israel is ignoring Team Biden’s advice on restraint as they are fighting for their very existence. For now, the safer bet is on higher or at least firmer oil prices.
Stock indexes are exhibiting their typical October seasonal weakness. I suspect there is much more involved than just a seasonal weakness. A perfect storm of events is underway. FEMA says there is no money for the Southeast digging out from Helene. The money has been spent on illegal immigrants. What must our enemies think of the US now?
Automakers sold about 3.9 million new vehicles in the U.S. in the July-September period, according to an estimate.Photo: Scott Olson/Getty Images
High new-vehicle prices and borrowing costs are keeping some shoppers on the sidelines, pointing to what is expected to be another lackluster sales year for automakers.
Industrywide third-quarter U.S. vehicle sales fell 1.9% compared with a year earlier, according to an estimate from research firm Wards Intelligence. Most major automakers reported results for the July-to-September period on Tuesday.
, the nation’s largest carmaker by volume, said sales fell 2% in the quarter compared with a year earlier, with the company’s mass-market Chevrolet brand accounting for most of the decline.
Toyota Motor’s U.S. sales fell 5.6% in the quarter from a year earlier, with popular nameplates such as the Rav4, Camry and Corolla posting declines last month.
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U.S. electric-vehicle leader Tesla is expected to report global deliveries Wednesday.
Analysts say the industry’s U.S. sales tally was dented by disruption from Hurricane Helene, which hit the Southeast on the final weekend of September, typically a busy selling period.
Meanwhile, auto executives also were bracing for any impact from a dockworker strike that took effect early Tuesday, shutting down ports from Maine to Texas.
Toyota built up extra vehicle stocks in recent weeks anticipating the work stoppage, said Jack Hollis, operations chief for Toyota in North America.
“They need to get to a solution quickly. It could be damaging to the whole economy,” he said.
The sluggish third-quarter results put automakers on pace to finish the year with U.S. vehicle sales of around 15.7 million—a slight increase from last year, when supply-chain snags were still crimping vehicle output, but still well off historic highs.
Carmakers posted five consecutive years of at least 17 million vehicle sales through 2019. Many analysts and dealers point to affordability as the primary reason why sales haven’t marched back to those levels.
2020'21'22'23'2401234 million
The average new vehicle in the U.S. sold for $44,467 in September, down nearly 3% from last year as automakers and dealers offer more discounts, according to industry tracker J.D. Power.
But that figure is up from about $34,600 at the end of 2019, reflecting years of sharp inflation during the pandemic, when a shortage of computer chips and other car parts crimped vehicle production.
Those prices present plenty of sticker shock for consumers who might be returning to the dealership for the first time in five or six years, said Jessica Caldwell, head of insights at car-shopping site Edmunds.
“This market is still pretty unaffordable,” she said.
John Motroni, a retired television-news producer in San Francisco, said he and his wife were recently interested in Ford’s Maverick compact pickup truck, which starts in the high $20,000s.
But when a San Francisco-area Ford dealer was asking thousands of dollars more than the sticker price, Motroni and his wife decided to keep their 2009 Ford Flex sport-utility vehicle. “We just said, ‘To heck with it,’ ” he said.
The Federal Reserve’s decision to cut the U.S. benchmark interest rate hasn’t yet translated into significantly lower borrowing costs for car shoppers. New-car finance payments averaged $734 last month, up slightly from last year, according to J.D. Power.
In a sign of consumers stretching their wallets, more are turning to leasing to walk away from the dealership with less money out of pocket. Leases accounted for 25% of new-car sales in the third quarter, up from 20% a year earlier, according to Cox.
