US economy still booming in 2018 Q4 despite naysayers

Late post, since I am trying to solve my Twitter dilemma.

The feds announced Thursday morning that US economy grew at a 2.6% rate for the 4th quarter, defying all the recession hawks panicking stocks at the end of 2018.

The growth was a surprise to the upside as doom and gloom Wall Street analysts were looking for 2.0% growth at best. Like some of the news organizations that skew the news to their agenda, if Wall Street was looking for 2% growth, then how could they have been concerned about recession.

The Obama administration would have celebrated 2% growth most quarters during its eight years of economic malaise. As you can see from the market reaction since the dramatic year-end sell off, investors were not buying the news Wall Street was selling.

“The reading adds some reassurance after the near-panic in financial markets in 2018’s closing weeks, as the stock market bottomed on Christmas Eve and has roared back since then,” said Bankrate senior economic analyst Mark Hamrick.

On a year-over-year basis, 2018 GDP rose 3.1%, the highest print since 2005, certainly something President Trump will ballyhoo once he gets back in this hemisphere after cutting short his meeting with North Korean leader Kim Jong Un in Vietnam.

Corporate R&D lead the way with spending soaring 3.5% annualized in Q4, climbing 9.9% over the last year.

Corporate R&D spending now represents 2.3% of US GDP, an all-time record. Rising R&D spending signals increased productivity growth in the near future as new processes are generally aimed at reducing costs on manufacturing or systems services.

“If secular stagnation is a thing, US firms are fighting like hell to avoid it,” according to Renaissance Macro’s Neil Dutta latest note.

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Chinese Apple news is hard to digest

So as I wrote yesterday about the Trump Administration’s hard-line on tariffs with China and its muted effect on US firms.

Well Apple CEO Tim Cook gave the company’s first earnings warnings for the this quarter. Cook cited the slowing Chinese economy, the strong dollar and other economic headwinds. Cook neglected to mention directly that the company is having big troubles trying to sell iPhone models retailing for more than $1,400.

Apple makes good products, but the product line is limited. If you keep bolting new gear onto an older product and jacking up the price, then you will see consumers uninterested in these upgrades.

As my son — soon to be a finance graduate — cited Wednesday night when we were discussing this said: “Apple walks the fine line between utility and luxury,

Well clearly the luxury aspect is suffering since the high-end models are not selling and consumers are keeping their older phones much longer — cracked screens or not.

As the Chinese economy repositions itself an equal trading partner without all the beneficial pricing power it enjoyed from lopsided trade agreements over the last 30 years there will be some pain. But that certainly is better — in the long run — than continuing the status quo.

Maybe the Chinese economy has taken a step back in its progress and many can’t afford $1,400 iPhones or even a $1,000 model. That’s on Apple to come up with a different plan or product for the market.

While I see this as an Apple problem, the stock market will sell off roughly 300 Dow points again on the open Thursday morning on the earnings warning.

I recall something about a butterfly flapping its wings over the Yangtze River and Wall Street feels the storm. It should be short-lived however.

Dark forces in the stock market

What we are witnessing in the stock market is unprecedented with moves mostly lower, but with a record-breaking break out to the upside on Wednesday.

The 1,086 point move on the Dow was the highest point move ever. The question Tuesday morning is why will we give back more than 400 points to the downside?

These moves and the huge slide before Christmas feel like a tug of war between two factions.

One with a need to damage the economy along with President Trump’s claims that he is succeeding where his predecessor failed.

The other side is somewhat muted in its response to this highjacking of the markets.

How else do you describe the latest moves?

Fed chief Jay Powell appears to be in with the first camp. How else to categorize four rate rises this year while enjoying full unemployment without finding inflation in the couch cushions.

In all my years of market watching I have no other idea of what we are witnessing in the markets. The moves are unprecedented, so therefore a new thought n the cause is needed.

The dark forces in the market are attempting to take the economy into recession through cratering consumer confidence by taking the wealth effect away from Americans. Next will be to repeal the tax cut in the House in 2019.

With these initiatives the Democrats feel they have a better shot of gaining the White House in 2020. It’s a nefarious plan backed by Democratic money in the markets.

Let’s see who will ultimately will win the war for hearts, minds and wallets.

Connecting the dots on global arrests

The global arrests of seemingly disparate individuals and international probes of banking corporations have been adding up over the last two weeks to show a more common thread.

Deutsche Bank and Danske Bank have been at the center of these financial probes with investigators seizing hordes of documents.

A global money laundering operation appears to be investigators’ focus. Illegal dealing with Iran and Russia outfits — despite sanctions existing to bar the banks from doing business with these rogue actors — is the initial reason for these probes.

Now it appears the individuals on the other side of the dealings are very well-known American and European billionaires working at the urging of once powerful political leaders from the EU and US.

We will have to wait until Dec. 13 for US Attorney John Huber’s congressional update of his Clinton Foundation investigation. His testimony was pushed back due to the funeral of ex-president George HW Bush.

On Wednesday Sabrina Meng, CFO and daughter of the founder of Huawei, the Chinese telecommunications giant, was arrested in Vancouver at the urging of the US Justice Department. The feds allege Huawei was dealing with Iran violating the sanctions.

That’s the initial charges, but it probably goes much deeper.

We also have Saudi leader Prince Mohammed bin Salman’s troubles appear to be wrapped up in this global financial upheaval. Whether he gave the order to kill Jamal Khashoggi as the initial charges have been made, will probably never be prosecuted and if charged will not be prosecuted.

Look at the fear and loathing in the stock market. The Dow plunges 800 points on Tuesday and appears to be looking at shedding another 500 points on Thursday’s open.

I am not buying the China tariff war as the culprit for this sell off. It appears that large selling by institutional investors, which cater to moneyed individuals. There appears to be a great need to be liquid at this time. The economic numbers being put out by the feds do not warrant a fear or panic in the market.

With great change, comes some pain and we may be at the beginning of something huge about to break.

A US economic snapshot in the middle of 2018 — not all is well

Let’s take a quick look at the US economy and where it may be headed in the near term.

While unemployment is said to be very low, the rate is still artificially low due to the uncounted Americans no longer in the workforce because of chronic joblessness.

Producer and consumer pricing are rising — not because of tariffs as the left will cite — due to the excessive capital washing out of the stock and bond market. The stock price run up over the last three years was engineered by the Federal Reserve’s quantitative easing capital finding safe haven in stocks and bonds.

Now that capital is exiting the security markets and finding better treatment with private equity firms that are buying out manufacturing and consumer brand companies, which drives up prices in order for the new owner — the PE firm — to make money from the investment through putting the brands deeper into debt to make special payments to them.

So this capital is not from the average American, but the repercussions are being felt by these average Americans through higher prices. Look at the biggest PE firms raising record amounts for new funds.

Taking a quick look at the US bond market to see where the real problems are. The difference in return rates between lending Uncle Sam money over 2 years versus 30 years.

The 2-year return is 2.61%, the 30-year interest rate is 2.96%. The delta between these two 0.35 percentage points return over 28 years. This is what is called a flat yield curve, since the interest curve is very shallow.

In the environment of the bond market capital is not treated well at all with artificially low returns, so this is pushing additional big money out of the public capital markets and into the private funding markets.

What is the down side of this move? Look at the number of bankruptcies in the retailing sector over the last year. These stores: Toys R US and a dozen or so women’s apparel stores are all closed or limping along because these companies were so leveraged up on debt that they could not pay off their huge debt levels imposed on them by their private equity owners.

But don’t worry about these PE firms because they took their money upfront and more than likely owed some of the companies bonds, which were paid off in the bankruptcy.