Economics: Latest Dohmen Report
Sean M.
Note: Informational...Political Opinion not reflective of TradCatKnight's. Trump is a Zionist Puppet of the NWO
We produced this issue as a sequel to our long SPECIAL BULLETIN last week because the election marks a very important turning point for investors, for Americans, and for the country. Only three market days have transpired, and thus our evaluation is still tentative. It is not meant to be political, although some of our liberal friends may interpret it to be. Our only ‘dog in the fight’ is the good of the nation, anti-corruption, and a chance for prosperity for the average person. The losing candidate could not have delivered that. At least with Trump, there is a chance. This could be the start of a new era, just as Reagan was. The Trump election is a testament that perseverance against all odds is worth the effort. We congratulate the winner. We have just witnessed a “revolution of the people” against political corruption and cronyism, influence peddling, and attacks against anyone who dared expose that corruption.
Trump promises to “drain the swamp and end governmental corruption.” He is an achiever and always wants to be the best. Look at his buildings! We believe he will also strive to be the best president ever. It’s not just words. He has all the material things. What’s left but to go down in history as the person who saved America. Whether he will be able to achieve that will be seen. Nigel Farage, the British politician who led the BREXIT vote and then predicted that Trump would win, said that Americans were ready to revolt against the Elites just as they did in Britain. He now predicts that this revolt will spread to other European countries.
We have mentioned Mr. Farage many times over the past years as a
voice of reason in Britain and predicted that eventually he would become
British Prime Minister. That may still happen. The people of other
countries are also ready to revolt against their ingrained Establishment
and corruption. People want control over their own destiny. We also see
it happening in Hong Kong, France, Germany, Austria, and Netherlands
among others. Every major establishment group, even the elite Washington
GOP, were against Trump. The media gave Trump over a billion dollars of
free airtime, hoping he would trip himself up, and as late as one week
before the election predicted that Clinton would win by a landslide.
They now fear losing the few viewers they have left. “Cord cutting” by
cable subscribers is accelerating. Thus some of the media now promise
fairer reporting in the future. Arthur Sulzberger, the owner and
publisher of the NY Times, promised that the paper would "rededicate"
itself to reporting on “America and the world” honestly. Imagine, the
NYT promises to be more honest. Trump has accomplished a miracle. Of
course, such promises are easily broken. We say, who cares: we don’t
read propaganda. The media, with its total anti-Trump bias, actually
helped Trump, as did the Elitists in the Republican party. American’s
knew they had to stop these self-serving career politicians. True
Americans, who care about their country, spoke out at the polls, and won
our country back. They get the real credit. This was not as much a vote
in favor of Trump for many people, but a rejection of the
Establishment’s corrupt politics of the past 30 years. For investors,
this may well bring a new era of opportunities. But it will be a bumpy
ride, with the corrupt Left fighting him every step. It happened to
Reagan, but he prevailed. We have to always remember, even when the
protests become very violent, that the majority of Americans outnumber
the hooligans. The Left always preached “tolerance,” “fairness,” and
“coming together.” But that was obviously propaganda. Now we see what
they are really like. Ahead of the election they preached to Trump:
“respect the election.” Now that they lost, they are burning and
destroying private property, organized protest marches in major cities
are becoming violent, and they talk about ‘killing’ people who support
the President elect. Trump had a meeting with the President with
beautiful words from the latter. That was a tipoff that something bad
would follow. Now we see the organized, nation-wide, violent protests
but neither the President nor Clinton are telling their own
“deplorables” to just cool it. Why is that?
What are they protesting anyway? That the US will remain a
democracy and the idiotic ‘political correctness” will end? Many true
Americans, the ones who get up at 6 AM and go to work, now reply to the
hooligans that if they don’t like elections, move to North Korea where
they never have them. But North Korea probably wouldn’t let them in. No
‘open borders’ there. Many of the protest leaders are paid by the same
groups that paid the hooligans who caused fights at Trump events
previously. Just view the clandestine videos taken by the VERITAS
PROJECT on YouTube. The hooligans now have paid jobs...protesting. Yes,
Trump’s promise of creating new jobs is already working. Of course, most
of the protesters have no jobs. Just tattoos, ear or nose rings, and
don’t even know what they are protesting. The protesters in the US may
be the ones who participated in Occupy Wall Street. They don’t realize
that Clinton -- their favorite -- was the candidate of Wall Street,
receiving millions of dollars from those firms. These hooligans are the
product of our Washington- controlled educational system. At colleges,
they now have comfort dogs, and ‘grieving counselors” to help students
cope with the election loss. Has the country really gone nuts the past
eight years? Trump should eliminate our Dept. of Education. While he is
at it, he should also dump the Dept. of Energy. Neither does anything
productive. Instead, they do the opposite. Europe is very upset with the
US election. Being in Europe this summer, we saw that the sentiment was
almost unanimous against him. Europe is very liberal. Finally many
Europeans are now recognizing that their liberal policy of open borders
is a great danger to their countries. But it may be too late. This
magazine cover, below, from Germany’s top news magazine, says, “The End
of the World.” The cover would have been more accurate with a picture of
Angela Merkel who wanted to let one million “migrants” into the
country, who are now raping, killing, and rioting in Germany as a “thank
you” for Germany’s hospitality. If we are right, organized riots in the
streets -- which we predicted several months ago in our WELLINGTON
LETTER - - will become more violent. This is not spontaneous, but
centrally organized. The agenda is to disrupt the inauguration. We
predict it will be moved, or postponed.
If Trump does get sworn in, the goal will be to protest everything
he does and try to prevent him from functioning. He will not have the
typical White House ‘honeymoon.’ We believe that most observers are
somewhat naïve in thinking this is just spontaneous expression of
feelings by some misguided souls. They think that the protesters will
eventually get tired and stop. We disagree. We believe that the protest
leaders now have paying jobs -- inciting riots -- and there is no reason
to quit. The probability is higher that the protests will get more
violent and entire neighborhoods will be in flames. It would be wise to
ask, is there an agenda to have it grow into a national emergency? If
the worst happens, it would remove all the current bullish reasons for
the markets. We prefer to err on the side of caution at this time. A
lost opportunity is not as painful as lost capital. If you have an itch
to get into the markets, you might want to consider a cold shower. Here
is an excellent viewpoint about the protests: https://www.youtube.com/watch?v=1d9lm-T87AQ
THE STOCK MARKET Here is what happened in some of the major markets
right after the results were in. After the initial tumble, where the
DJI was down about 850 points in futures trading overnight, the markets
changed their minds about Trump being a negative factor, and staged an
incredible turn-around. The DJI was up 257 points at the close, or 1.4%.
The best performing index was the RUSSELL 2000, gaining an amazing
3.1%. Japan plunged, with the Nikkei 225 losing a huge 5.3%. It appears
the concern is that trade barriers will severely damage Japan’s
companies. During the day session of Nov. 9, US Stocks were led by
Industrials, Energy and Financials. The Morningstar Biotech industry
index was up a big 8.7%, drugs (wholesale) +8%, heavy construction
+7.3%, and metals fabrication up 7.2%. The latter is anticipation of
major infrastructure projects. We are always skeptical on infrastructure
as it takes years to launch major projects, from conception, design,
bids, permitting, etc. There was a lot of short-covering, and closing
out of hedges, but there was also investment buying as hedge funds
immediately wanted to get exposure in areas that could do well under
Trump’s plan. Copper, European and US regional banks, major banks and
financial firms, money managers, and brokers all had strong gains for
three days. But are these justified? We believe that a sobering up
period will set in.
Money flowed out of technology and higher yield areas, such as
utilities and REITs, and into financials, materials, and healthcare. The
financials and materials accelerated upward. The market is anticipating
that global growth may finally start after years of failure by the
central banks to stimulate the economies with money printing. But is
that a realistic hope? The big bullish factor is that the multi-trillion
dollars of stimuli is stuck in the banks and could now finally be used
to create loans and get the economy going. Again we ask, what will
change the extremely cautious behavior of banks? Only a rescission of
the onerous Dodd-Frank regulation. It could happen, but that will take a
lot of time. The pessimism of some of the biggest hedge fund players
has turned from very gloomy to very enthusiastic literally overnight.
Isn’t it amazing what one person, who was called a clown, can do? The
expectation apparently is that a stronger economy will bring higher bond
yields (lower prices), and a stronger dollar. But normally, a strong
dollar is bullish for bonds as it makes the bonds in the US more
attractive for international money flows. A stronger economy often
brings higher yields, lower bond prices, and a stronger dollar.
Apparently, the market is saying that the demand for T-bonds because of a
strong dollar will not be as big as the forces driving up yields. We
are skeptical right now about this thinking, although that can change
after we know more about Trump’s game plan. Trump has the right ideas
about stimulating the economy, just as President Ronald Reagan did. Yes,
the deficits will increase in the first two years, just as they did
under Reagan. It takes time for the benefits to kick in. In the
meantime, the Establishment will send out its economists criticizing
every one of Trump’s economic plans. He knows that small businesses are
the backbone of the US economy. In the past eight years the White House
Business Council and other committees only included CEOs of the largest
companies, not one small business person. At least Jimmy Carter had a
Small Business Council to represent that group in Washington. I was a
delegate from the State of Hawaii. Economist John Maynard Keynes said
that markets are similar to a beauty contest. The challenge isn’t just
to pick the best looking contestant, but to pick the contestant the
other judges believe is the best looking too.
The markets celebrated the first 3 days after the election as if
Trump were already inaugurated and all his policies had been passed into
law and implemented. Trump doesn’t have a magic wand. There is a very
rough road ahead. The first piece of reality comes in March next year
when the debt ceiling is hit. That will stop any new spending. Poof,
there goes infrastructure spending. We don’t want to rain on the parade,
and of course we wish our favorite candidate great success for the good
of the nation, but the current rally in many stock groups seems
overdone. There will be some sobering up. Remember, the market was far
overvalued before the rally of the past three days. Here is the chart:
The “EV/EBITDA” (blue line) is ‘enterprise value’ divided by the
cash flow. When it is very high, as now -- the highest since 2000, just
before the huge bear market -- it’s not the time to jump into the
market. The PE ratio (red line) is near levels not seen since the
2000-2004 period. But that number is skewed because the earnings are not
GAAP (Generally Accepted Accounting Principles.) All the new bulls
should realize that the stock market and the economy were propped up
artificially by the government and the Federal Reserve. Corporate
earnings have declined for 18 consecutive months, yet some of the major
stock indices are at all-time highs.
As subscribers know, we have shown many charts to confirm the
economic deterioration of the past two years, yet Washington tells us
that things have never been better. Now comes the “return to reality.”
The sobering up period is usually proportionate to the fun you had at
the party. After the Reagan election, all the distortions of the Jimmy
Carter years had to be corrected, including a 21.5% prime rate,
inflation at 15%, etc. That brought a deep, two year recession and bear
market. A bull market usually finishes on a high of bullish sentiment
and a new high in some of the indices, while other broader indices don’t
confirm. That is exactly what the post-election surge has given us. We
haven’t heard one big money manager telling a bearish story. The bearish
divergences are seen in the FANG stocks (Facebook, Amazon, Netflix,
Google). This is very loud warning of a potential trap for the bulls in
the current rally. The idea of big infrastructure spending has propelled
many stock sectors. But it is a fact that infrastructure spending never
produces even a hiccup in the economy. Japan has been doing it for 20
years, and they never got out of stagnation.
The bullish story is just too easy. When everyone believes there is
a “sure thing,” the sure thing doesn’t work out. The currency markets
now are super-important for all the markets. Here is our view:
1. The expectation now of a stronger US economy will be delayed,
probably for 1-2 years. However, for now it is making the dollar
stronger. Furthermore, an expected Fed rate hike in December is making
the dollar more attractive against other currencies.
2. A strong dollar is deflationary for commodities and precious metals. That means “bearish.”
3. A strong dollar is very bearish for the Emerging Markets. First
of all, their exports, mostly commodities, will suffer as dollar prices
rise. Secondly, most of the external debt of these countries is in
dollars, which means that their mountains of debt grow larger in terms
of the local currencies. That’s what is causing the EM to react so
negatively now. 4. A stronger dollar will also be negative for Europe
and Latin America. There will be periods of contrary moves, such as
Japan, where the weak yen may now be considered bullish for Japanese
export oriented companies as the prices of their products in the global
markets decline. The other side of the coin is that the imports of
Japan’s materials rise in yen terms, making manufacturing more
expensive.
5. On the other hand, Trump has said that countries that cheapen
their currencies, in order to get an advantage over the US, will be
punished. That’s a negative for these countries. Yes, it gets
complicated, and correlations change depending on the central bank
policies.
DON’T BE DECEIVED: Seeing the “Kumbaya moment” after the meeting
between Trump and the President in the WH, for us the warning lights
were blinking. Watching the body language, it was clear that it was
aimed at presenting the illusion that all the bad things were now
forgotten, and that everyone would work “together.” Pardon us for being
skeptical. The TV and photo op at the WH was followed by huge,
programmed, violent protests throughout the country, signaling the
agenda of the Left. (That doesn’t mean the Dems, just the extreme,
uninformed and corrupt Left). The media calls it “spontaneous.” Did you
see the videos of hundreds of chartered busses bringing the protesters?
Who pays for those? As investors, we have to consider the possibility
that there is an agenda of planned protests, riots, and escalation
continuing into the inauguration, and possibly thereafter. Those
steering the hooligans will not give up just because the election went
against them. Let’s call it an agenda to ‘sabotage’ Trump. The Left
doesn’t have control of the Senate nor the House. But they can still
sabotage bills in order to make Trump look ineffective. And those bills
will probably be opposed by thousands more protesters in the streets to
give the illusion that the country doesn’t support the new President.
The goal will be to get ‘under the skin’ of the President and make him
lash out. Everything will be done to make him look bad, and that is bad
for America. Hopefully, the voices of true Americans will overcome such a
potential and evil agenda. It will be up to Americans to support Trump
through such difficult times. We know that the above is by far a small
minority view, and that’s why we fear it could be correct.
CONCLUSION: Just because the stock market had a spirited rally for
three days, doesn’t mean it will continue. Everyone, including all the
big hedge fund guys who were against Trump, now agree that the US has
the chance for a new and better future. However, getting from here to
there will not be easy. Betting with your money on the distant future,
especially on results that may not be seen for 1-3 years if then, is
risky. Our 40 years of experience in the markets is that the initial
knee-jerk reactions in any investment market, even when correct, always
see a substantial pullback. If indeed this is like the Reagan
Revolution, the longer term turnaround will offer many opportunities to
get in. We don’t have to rush it right now. The Reagan inauguration was
followed by an assassination attempt, and a severe two-year recession as
the bubbles of the prior Administration deflated. The bubbles are
different now, but they are even bigger in some respects. The Key For
Investors Right Now: Be Patient! A successful investor never fears
missing a boat. He focuses on NOT catching a boat that sinks. Inflation
is getting to be a topic because Trump’s policies are expected to
strengthen the economy. However, he doesn’t have a magic wand to do that
in the first month. It will take months to get any meaningful policy
changes through Congress. Not everything can be done by Executive Order.
In fact, after pro-growth policies are initiated, it takes 9-12 months
for the economy to respond. We agree that, probably later next year,
inflation could rise and become an important topic. However, gold and
the commodity markets are not confirming inflation expectations yet. The
DBC Commodity Index is declining. Of course, that could change after
the inauguration, and we think it may. We will watch this closely. In
the next WELLINGTON LETTER we will discuss this topic further. It is
very interesting.
The chart of the ETF for junk bonds, JNK, has an ominously bearish
pattern. The talk is that the money managers are now in a “risk on”
position after the election, i.e. willing to go into more risky
investments. Well, that would include junk bonds, but the opposite has
happened. That means there is something more important. We believe it is
the fear of an oil glut once again raising fears of a credit market
crisis, just as in January of this year. If that happens, all the
markets will tumble. The JNK is in a bear market, which had a corrective
move to the upside since the February low as oil prices were
manipulated upward, with China filling its strategic petroleum reserve.
This chart says that there are increasing problems in the credit
markets, which are much bigger and more serious than the stock market.
The ETF for T-bonds had a sharp decline as money flowed out of the safe
haven investments into riskier stocks. We believe this decline is
overdone. T-bonds are still the preferred asset for big, safe money.
That’s trillions of dollars world-wide. Once the current enthusiasm
about Trump wears off, reality will return, recognizing that only one
problem has been resolved, i.e. poor leadership, but all the other major
problems in the US and around the world are still there.
Gold has plunged in the aftermath of the election. During the
night, after the election results became known, gold soared over $50. By
the next morning, it had given up all the gains. On Nov. 9, someone
sold more than 85,000 gold futures contracts (over $10 billion). Gold
tumbled from $1260 to $1230. Gold continued to decline the rest of the
day. Silver plunged as well. The miners had big declines. Although the
new talking point now is future inflation, this doesn’t confirm any
inflation fears. We are very cautious on the precious metals complex at
this time. If indeed the markets are now looking for a strong economy
and rising inflation, why did gold and silver plunge? For the long-term,
the prices should rise significantly based on the $13 TRILLION of
credit creation by the global central banks. But another strong decline
to shake out all the new bulls is a strong possibility.
CONCLUSION: There are strange divergences which signal that perhaps
the enthusiasm in the markets of the past three days should be treated
with caution. When everyone is convinced of a bullish story for the
market, or a sector, they are usually wrong. For now, cash is not
trash.
THE OIL GLUT The manipulation of the oil markets and oil inventory
statistics from a US agency may now come to an end as a new government
takes over in the US. That means that the increasing oil glut will
become more evident for all to see. In Europe, the oil glut is already
evidenced by the rush to lease the largest oil tankers at sea, not for
transportation, but as storage bins. The land- based storage facilities
are full. There are reports that European countries are not allowing oil
to be unloaded at ports because there is no place to put it. The major
oil companies in Europe have leased tankers to store 9 million bbl so
far, according to Bloomberg. Bloomberg reports: The glut could get
bigger still, given the region is scheduled to load the most cargoes in 4
1/2 years next month. There are 14 to 16 Aframax-class tankers now
storing crude in the region, Jonathan Lee, chief executive officer of
Tankers International, operator of the world’s biggest pool of
supertankers, said by phone Friday. Standard cargoes are normally almost
600,000 barrels. Lack of on-land capacity to hold the oil is the most
likely cause of the buildup, he said. Remember, the price of oil was
boosted this year to remove the fear that a rush of bankruptcies in the
oil sector would unleash fears of a banking crisis because many banks
are loaded up with energy loans. Furthermore, there are about $230
billion of junk bonds from this sector, which would have caused that
sector to tumble. In order to have a good election environment for the
establishment candidate, it was necessary to have a strong stock market.
Now that the election is lost for those people, and the power has
dwindled overnight, market forces will come to the forefront. And that
is bearish for energy. The oil glut and oil prices may well become the
most important factor for the markets again once the Trump celebration
dies down. That is real money, not just “expectations.” Oil is now at
$44.66. Remember, just a few weeks ago the bulls in the media were
looking for a rise to $60 oil. The IEA, which gave us the surprising oil
inventory withdrawal, which we called “artificial” and other names, now
tells OPEC that it must cut supply if an inventory glut is to be
avoided. OPEC meets on November 30.
THE ECONOMY The dollar was very strong going into 2015 and has been
trading sideways since that time. But the strong dollar made imports
cheaper, which should have caused a rise in imports because of greater
demand from individuals and businesses. What happened? Imports are
declining. Why? The NY Federal Reserve says: “The recent slump in import
growth is primarily a reflection of weakness in other parts of the US
economy.”
Ah, so now they admit the US economy is weak, not strengthening as
the Fed members have been saying. Remember the phrase one member used
about a potentially “overheating” economy? As we have written a number
of times the past two years, big businesses are not putting their cash
flow into capital investments and research, but instead use it for
financial engineering by buying back their own shares in order to propel
the price of their stocks upward. That way, the stock options of the
top executives increase in value. That’s why the huge cash load of $240
billion of Apple doesn’t benefit the company. It’s business now is not
only stagnant, but sales, profits, and market share are all declining.
On the other hand, no other company has done stock buybacks as big as
Apple. So far it appears to be over $130 billion. Why didn’t it use this
capital to expand into other areas instead of being basically a “one
trick pony?” Once the economic trends go fully into the contraction
mode, the huge stock buybacks of most firms will backfire as all the
stock they bought will be held at a big loss. The Trump election could
change the economic weakness and re-stimulate small businesses. That
could accomplish what the $13 TRILLION of central banks stimulus in the
US and Europe couldn’t. Yes, one person -- and the smart people around
him -- can spread positive “contagion.” But it will take time. Trump’s
plan to have a low tax rate on profits US companies hold overseas, once
they bring it back, could bring up to $2 TRILLION back into the US. That
would be a great stimulus in the future. Lowering the corporate tax
rate to 15% would make the US the best “tax haven” for global companies.
Of course, the EU and others would protest. The opposition in Congress
would have fun calling it tax breaks for the “rich.” Term limits for
Washington politicians would give Americans the hope that their
interests would be represented instead of the corruption with the
current career politicians. Conclusion: It took Reagan two years to get
the country turned around. That in itself would be a miracle. But there
it will be a very bumpy ride as everything he does will be a target for
sabotage.
German Trade plunges: Exports in July fell 10% compared to July of
last year (not seasonally adjusted), to €96.4 billion. Imports dropped
6.5% year- over- year, to €76.9 billion. Year-over-year exports to
countries outside the EU -- including the US, Germany’s largest trading
partner in 2015-- plummeted 13.8%. Imports from those “third countries”
plummeted 10.1%. This shows that Germany’s economy, and that of its
trading partners, are having a severe slowdown.
But the media, which is acting as a subsidiary of Washington’s
leadership, mirrors the words of the President that the recovery of the
past 7 years is one of the strongest ever. Actually, it is one of the
weakest in 100 years.