Thursday , May 23 2019
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Gregor Samsa

Gregor Samsa

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Articles by Gregor Samsa

Stress Testing Apple

23 hours ago

Goldman finally getting around to stress testing Apple as the trade war escalates.  They are out today warning Apple is in a world of hurt if China targets the iPhone maker in the trade war.
The U.S.-China trade war could take a big chunk out of Apple’s bottom line if China retaliates by banning its products, according to an analyst at Goldman Sachs.
Analyst Rod Hall said in a note to clients that Apple’s earnings could drop by 29% if the company’s products were banned in mainland China. The analyst cut his price target on Apple to $178 per share from $184, representing a 4.6% downside from Tuesday’s close of $186.60.  – CNBC
Folks, we warned about China’s other nuclear option in the trade war and stress tested Apple more than a year ago (see the re-post below), and, yes, we get it,

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Key S&P Levels

1 day ago

It’s been a while since drilling down on the markets.  We have been concentrating on rebuilding our website to deal with the free riders and honing our web scraping coding skills.  Our economic and market analysis has focused on the major secular issues, which we believe are starting to send tremors through the markets, mainly the shifting of global geopolitical tectonic plates, which, we believe will soon usher in the Big Dipper or bear market.
The Coming Bear Market
Unless Trump and XI can pull a rabbit out their hats at the June 28/29th G20 in Osaka, we are starting to doubt our target of a 3025 peak on the S&P before Ursa Major comes calling.  Unfortunately, the Year of the Rabbit doesn’t come until 2023, and 2019, is, after all, the Year of the Pig.  Ouch!
We have been selling

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Heeee’s Back…Karl, Is That You?

2 days ago

In case you missed it, or don’t read the Drudge Report,  here is the current banner headline:

Should we?  Ah, uh, well…we can’t help ourselves:   YOU HEARD IT HERE FIRST!
In February 2018, we looked at the data of the political preferences of younger voters and wrote the post,

Karl, The Comeback Kid?
Posted on February 20, 2018

By the way, after that post in early 2018, everyone began to jump on the comeback Karl train.
Socialism
Socialism is a trigger word, which will be ubiquitous in the 2020 presidential campaign, is not well understood, is ambiguous, and ill-defined by most who toss it around, and ultimately means whatever you want it to mean to lend support for your politics.
Is Danish and Nordic socialism, or capitalism,  the same as Venezuelan or Cuban socialism?  What

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BFTD: Rare Earth Day 5.0

3 days ago

BFTP:  Blast From The Past
Wow, here is a blast from the past.  Ahhhh, the daze of trading rare earfs!
Watch this one, folks.  It may play big in the trade war with China.
Rare earth minerals could be weaponized by China, which has essentially cornered the market — now accounts for 90 percent of world’s production — which would disrupt many firms in the U.S. tech sector, including Apple.
“There are 118 elements on the periodic table. An iPhone contains about 75 of them,”  so says Gizmodo.

Apple has announced it is moving away from rare earth minerals but we can’t yet find confirmation it has.   The stock is down over 3 percent as we write while the S&P is down about a half percent.
More on China weaponizing Rare “Earfs”,

President Xi Jinping’s visit to a rare earths facility

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The Economy Heads South

8 days ago

Today’s ugly retail sales and industrial production data knocked 50 bps off the Atlanta Fed’s GDP Now forecast for Q2 GDP, now down to 1.1 percent.   That’s a big decline compared to the recent Q1 3.2 percent print, which was deceptively strong as more than 65 percent of the growth was the combination of a big inventory build, an increase in government spending, and a decline in imports.
The move lower in the GDP Now Q2 forecast was exactly as we expected.  Don’t say you were not warned.
In our Monday post,  How Strong Is The U.S. Economy?,  we answered the rhetorical question with the following,
Not as strong as many, including President Trump believes.
GDP growth and even the jobs data, including the unemployment rate, though fairly sunny, look deceptively strong and need a

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Who Pays The Tariffs?

9 days ago

I had some very interesting discussions on social media last night on who is paying for the U.S.-China Trade War.   It was kind of shocking that many didn’t even understand the basic tenets of economics yet have strong convictions held strongly.   Not good in the trading business.
It reminded me of my days teaching frosh economics at the university and encountering the 18-year old ignoramuses who thought they were the second coming of Adam Smith, JMK, and Milton Friedman.  I must now confess, I had a bias to grade these geniuses on a more onerous curve.
Accounting Versus Economic Costs
One of the first principles of economics is to distinguish the difference between accounting versus economic costs.  I would challenge my students at the start of the new semester with the following

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How Strong Is The U.S. Economy?

10 days ago

Not as strong as many, including President Trump believes.

GDP growth and even the jobs data, including the unemployment rate, though fairly sunny, look deceptively strong and need a deeper look, which we have provided for you over the past few weeks.  See here.
How Will The Economy Hold Up As Trade War Escalates?
More important, is the U.S. economy so strong it can withstand an escalation in the trade war with China?
We seriously doubt it and fully expect Trump will be forced to cave on some of his completely unrealistic demands.  We have been consistent from day one: China will never give up its sovereignty by changing the structure of its economy.
Seriously, folks,  do you really think the Middle Kingdom, with all its history and past glory, after climbing back to global

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The Case For Free Trade

12 days ago

The Marxists and Socialists are winning the day, folks.   Apologies for the simpleton buzzwords but they are all the rage these days.
The escalation of the trade war is bad, bad, bad news and could if we are not careful, end in a shooting war.   Many argue that one of the main factors that motivated Japan to bomb Pearl Harbor was the U.S. cutting off of trade, mainly in airplane parts and aviation fuel, with good reason, however, as imperial Japan was running rampant throughout Asia.
No, we’re not suggesting war is imminent but we admonish you to study history.
A potential  Thucydides Trap supersedes all the bluster, posturing, tweets and goes way beyond just trade.
China: Guilty On Some Charges
Yes, China has been a bad actor in many areas, including intellectual property theft,

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Nonfarm Payrolls & Employment Data Diverging

16 days ago

Last Friday’s payroll data blew out expectations with a monthly gain of 263 new jobs yet employment fell again by 103k, the third decline over the past four months.  This is the first time in our database, which begins in 1990, that a positive monthly payroll number had an opposite sign of the employment data in three of four consecutive months.
That should make all of us sit up and listen.

In fact, during 2019 nonfarm payrolls have increased by 820k — nothing spectacular, by the way — averaging 205k per month, which is right on the monthly average since October 2011, all while total employment has fallen by 300k.  What is impressive about the payroll growth is that most believe the pool of surplus labor is becoming increasingly shallow.
Why The Divergence? 
Our priors are that

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Some Background On China Trade Talks

16 days ago

Some perspective from a prior post on President Trump’s predisposition toward free trade.
We hope for a good trade deal and China caves on everything.  We also hope for the end of poverty, world peace, and everyone to self actualize this year but will it happen?
Come on, man, let’s be realistic.  China’s not about to give up it’s sovereignty to Trump.  See our post from yesterday.
In my experience in participating in and negotiating several multibillion sovereign debt restructurings, a good and doable deal is one where both sides win more than they give up yet at the same time both sides are not entirely jubilant with the final outcome.
…in a long-term relationship with the other party, drive for a win-win. Exercise caution driving for a win-lose. People [and Countries] have long

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BFTP: Don’t Say You Weren’t Warned On China Deal

17 days ago

BFTP = Blast From The Past

CHINA SAID TO TELL U.S. SIDE WON’T CHANGE CHINESE LAW FOR DEAL
— zerohedge (@zerohedge) May 6, 2019

Bingo!
Note our comment from an earlier post this evening,
Seriously, folks,  do you really think the Middle Kingdom, with all its history and past glory, after climbing back to global superpower status, is now going to cave and give up some of its sovereignty because Trump demands it?
President Xi already seems to be preparing his population for the worst case scenario, warning of “challenging times ahead” possibly in the event Trump goes ahead with the tariff hikes.  Maybe we are reading too much into it and maybe not. – GMM

U.S. trade negotiators are pushing for “SnapBack”enforcement or leave tariffs in place only if Beijing meets agreed-upon

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Baseball Giants Are Born This Day

22 days ago

Today In 1883: The New York Gothams play their 1st game in franchise history (nice uniforms!) They were renamed the more familiar New York Giants in 1885, and became the San Francisco Giants in 1958. #MLB #SFGiants pic.twitter.com/AxCniXldym
— Baseball by BSmile (@BSmile) May 2, 2019

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No Labor Infrastructure For $2 Trillion Infrastructure Spend

23 days ago

Democratic congressional leaders announced Tuesday after a meeting with President Donald Trump that an agreement had been reached on the price tag for a potential infrastructure plan: $2 trillion.  — CNN

We are reposting and a piece we wrote a few years ago to reiterate our skepticism on a massive infrastructure spend, which apparently resurfaced today as Trump, Chuck, and Nancy reached some kind of agreement on a big deal.   Seriously, are you kidding me, $2 trillion?

Yes, fix the potholes, repair the bridges, modernize JFK and La Guardia, and build out broadband.

If you haven’t noticed, the U.S. has a labor shortage and no more so than in the construction industry.  Moreover, infrastructure labor, what the BLS labels “Heavy and Civil Engineering Construction“,  is

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Q1 2019 GDP = “Stranger Things”

24 days ago

It is always prudent to look under the hood after a big unexpected beat or miss on a major headline economic number.
Never so relevant than Friday’s GDP report, which blew out expectations, and appears right out of Stranger Things.   The 3.2 print was light years away from the beginning of the year panic when many thought the economy was falling off the cliff.   Declining markets almost always cause traders and investors to “retrofit their perception of the  fundamentals” to the price action – e.g.,  “the market’s going down and we are heading into recession…the yield curve is pancaking and signaling recession….the Fed needs to implement an emergency 50 bps rate cut…”   Yada, yada, yada.
Long live the Flat Yield Curve Society!
Do they not yet understand market prices are so

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White House Correspondents Dinner

26 days ago

This is good!  Historian Ron Chernow delivers keynote at tonight’s annual White House Correspondents Dinner, which was boycotted by the Trump Administration.

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More Brexit Polling

26 days ago

More than half the public – 55% – now think it would have been better never to have held the EU referendum given the difficulties of reaching an agreement on Brexit, according to the latest Opinium/Observer poll.
…If a second referendum were held between the options of leaving the EU on the prime minister’s deal or remaining in the EU, 46% say they would vote to remain (unchanged on a fortnight ago) while 34% would vote to leave (down 4%).  – Guardian, April 27th
Confusion reigns as Farage and the Brexiteers will claim victory in the EU Parliamentary elections, which will begin on May 23rd.

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Brexit Party’s Twitter Poll

26 days ago

The  Brexit Party Twitter account, which a follower pointed out is actually parody account, runs a second Brexit referendum poll on Twitter.   The results are nonetheless stunning  by — 76 percent in favor of remaining in the EU.  Of course, it’s not scientific and subject to bias and manipulation but it is in the right direction of the last poll we cited in our post, Remain By A Landslide, which showed Remain running 16 points above Brexit.
Politics are moving into a grand funk this summer both in the U.S. and U.K. and confirms our suspicions of a coming Summer of Discontent in both countries.  The Democrats will have no choice but to soon call for impeachment hearings against President Trump as they struggle with their oath to protect the Constitution post-Mueller Report and the

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World’s Fastest Growing Economies

26 days ago

We have updated the GDP growth rates for the 2019 and the 2020 forecasts and ranked the world’s fastest growing economies in the ginormous table below.  The data are from the April 2019 IMF’s World Economic Outlook.

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Trump Losing Fox News – Summer of Discontent Cometh

28 days ago

Caveat emptor.  The complacency in markets is absolutely stunning as the U.S. slowly drifts into, what could be, the biggest Constitutional Crisis in the nation’s history.
Trump lost the top legal analyst at Fox News today.  This is a major development.
Judge Napolitano told friends in 2017 that President Donald Trump had told him he was considering him for a United States Supreme Court appointment should there be a second vacancy.

Fox News legal analyst Judge Andrew Napolitano is not going easy on President Trump.
In a scathing op-ed and accompanying video published Thursday, Napolitano said that special counsel Robert Mueller’s report on Russian attempts to influence the 2016 presidential election and Trump’s efforts to cover it up showed a clear pattern of criminal behavior.  –

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Non-alcoholic Beers Ready To Roll?

29 days ago

Gotta find a good company or some crafties to bet on.  A good draft frosty without the batteries will satisfy a yuuge overlooked market.
The FT’s Leila Abboud and Al Gilmour put alcohol-free and low-alcohol beers to the test, tasting them against full-strength brews from some of the biggest producers in the industry.
Read more at https://on.ft.com/2VdsyLi
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One Of Our Best Trades Ever – Mike Trout

April 23, 2019

The first time we ever saw Mike Trout play baseball it was like watching the real-life version of The Natural,  and thought someday people will say,
There goes [Mike Trout] the best there ever was in this game – Roy Hobbes, The Natural
Moreover, the dude is such a nice and decent guy.
“What’s nice about it is Mike is such a good person,” Jim Quinn, the former mayor of Millville [Trout’s hometown], told NBC Sports. “You get some of these superstar athletes that have attitudes and aren’t really genuine, but Mike is a genuinely nice guy.” – GOODSPORTS
We began to hoard all things, Mike Trout.

We’re buyers of Mike Trout’s rookie card. – GMM,  September 1, 2012

QE?
We also knew QE was at our back and thought someday the Fed may begin to add baseball cards to its SOMA portfolio,

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The Most Successful “Garage Band” Companies

April 23, 2019

That we are aware of…
AppleSteve Jobs and Steve Wozniak had withdrawn from Reed College and UC Berkeley respectively by 1975. Wozniak designed a video terminal that he could use to log on to the minicomputers at Call Computer. Alex Kamradt commissioned the design and sold a small number of them through his firm. Aside from their interest in up-to-date technology, the impetus for Jobs and Wozniak, also referred to collectively as “the two Steves”, seems to have had another source. In his essay From Satori to Silicon Valley (published 1986), cultural historian Theodore Roszak made the point that the Apple Computer emerged from within the West Coast counterculture and the need to produce print-outs, letter labels, and databases. Roszak offers a bit of background on the development of

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Mueller Report: Hollywood Can’t Make This Stuff Up

April 22, 2019

Wow!   We are still digesting the full redacted version of the Mueller Report.
We only had to get through the first few pages within an hour of its release on Thursday for us to conclude the House Democrats will have no choice but to move on Impeachment.   See our post, Impeachment Market – The Only Market That Matters Now here.
If we could make any investment right now, it would be the media that takes the report and runs with it.  Books, movies, conspiracy theories, and others will use the Mueller Report as the original source for the next 50 years, and beyond.   The Mueller Report reads like a Tom Clancy novel and makes the Bridge of Spies look like a Flintstones cartoon.
We find it interesting that most cannot abstract themselves from the heat of the political moment to

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BFTP: How Sustainable Is Earnings Growth?

April 22, 2019

BFTP: Blast From The Past
We posted the following last May when earnings and the market were all lathered up and on a sugar high induced by the corporate tax cut and weaker dollar in 2017.  Our lack of confidence in earnings growth has been confirmed by the following chart.

We are expecting the S&P to make a nominal new high at around 3025 before the big dipper correction or a bear market.  We posted a plethora of our concerns, including valuations, peak margins, too much public and corporate debt, demographics, tectonic shifts in geopolitics, and domestic politics.   Add to that a bout of political instability coming this summer, the Summer of Discontent,  as the Democrats move to impeach Trump after the revelations of the Mueller Report.   Stay tuned.
How Sustainable Is

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Remain In A Landslide

April 19, 2019

The latest Comres poll revealed that Remain would now win by 58 per cent to 42 per cent of the vote.  – CityAM
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Impeachment Market – The Only Market That Matters Now

April 18, 2019

Taking a break from Holy Week to sift through the Mueller Report.
It is going to be very difficult, in our opinion,  for the House Judiciary Committee (HJC)  not to proceed with impeachment hearings.  If they begin, the Democrats will have the votes in the House to impeach (simple majority), which is a necessary condition but not sufficient for the removal of President Trump from office.  Conviction in the Senate will take 67 votes, thus we estimate it will take 20-22 Republicans votes.
We’re not making a political statement or being partisan but just trying to give our readers a heads up on the results of our brief analysis and how we see it playing out.  The odds of impeachment have gone from around 6:1 to 4:1 in the past two weeks.
We expect the market price at PredictIt to move

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He’s Back!

April 14, 2019

But can he reverse this,

                                  Hat Tip: @PlanMaestro 
and this, 

                        Hat Tip: @PlanMaestro 

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Is Trump Chasing Venezuelan Stocks?

April 14, 2019

Trump’s relentless pounding of the Fed for not pumping the stock market is concerning if not downright scary.  Makes us think he is envious of the YTD  500 plus percent return of the Caracas Stock Market Index (IBVC) and wants Powell to beat it.  Winning is everything even though winning may result in nothing.
More seriously,  the Fed’s independence and credibility are slowly being chipped away by the White House, which is probably setting up the Fed to take the fall for the next crisis or economic downturn. We raised these concerns last July.
Quantitative Tightening had almost no impact on monetary policy, i.e., the Fed directly reducing reserves and tightening credit, but has forced the Treasury to increase the size of its monthly note and bond auctions by $300 billion

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