Peter Schiff: If You Don’t Know You’re In A Bubble, You Don’t See The Pins

Authored by Mac Slavo via SHTFplan.com,

A potential catastrophe could occur when the current economic bubble bursts and Peter Schiff has been warning of this for a while now. The signs of economic distress are finally showing up as global markets tumbled Tuesday with European stocks touching a two-year low while United States equity futures are deep in the red.

Stocks took a nosedive on investors fears of political antics such as the trade war and rising interest rates.

Before the U.S. market opens several major companies will report results, including Caterpillar (CAT), McDonald’s (MCD), Lockheed Martin (LMT), United Technologies (UTX), 3M (MMM), Verizon (VZ), and Harley-Davidson (HOG). Results out of Caterpillar will be most closely watched with investors looking for any signs of inflation pressures, trade tensions, or a slowdown in economic growth out of the industrial giant, which is often seen as a bellwether for the global economy. –Yahoo Finance

In the past eight days, $4 trillion has bee wiped off from what had been record high values. According to NBC News,  Europe’s main markets started down as much as 3 percent and shares tumbled in Asia after a wild day for U.S. markets. Two days of steep losses have erased the U.S. market’s gains from the start of this year, ending a spate of record-setting calm for stocks.  The Dow Jones industrial average closed down 1,175 points on Monday, as the market bet on more interest rate hikes, the same day that a new Federal Reserve chairman was sworn in.

On Tuesday, Taiwan’s main index lost 5.0 percent, its biggest since in 2011 and Hong Kong’s Hang Seng Index dropped 4.2 percent. Japan’s Nikkei dived 4.7 percent, its worst fall since November 2016, to four-month lows. Australia’s benchmark S&P ASX 200 slid 3.4 percent, South Korea’s Kospi declined 2.4 percent and the Shanghai Composite index was off 2.2 percent. –NBC News

Last week, many in the mainstream media talked about the trade war, the situation in Italy, and the tensions with Saudi Arabia over the murdered journalist, linking those situations to a sliding market. But Peter Schiff had a different explanation, according to Seeking Alpha, and that is: we’re in a bear market.

“The market probably would have fallen even if none of those things happened. You know, when you’re in a bear market, and I think there’s a very good chance we are in a bear market, you don’t need an excuse for the market to go down. The market just goes down. It’s just that when people don’t know they’re in a bear market, they’re always looking for excuses. They can’t accept reality.” -Peter Schiff, Seeking Alpha

Schiff has been warning of a market collapse for quite some time, and he said it could very well be upon us.

“Now all of a sudden, finally, after all of these years, things are happening, which are screaming, ‘Ah-ha! Right, I’ve been right.’ Here this stuff is now happening, that I’ve been forecasting – these are the sure signs that the collapse is near.

Yet, the mainstream is completely oblivious because they have no idea there’s a problem. If you don’t know you’re in a bubble, you don’t see the pins. I’ve been calling this bubble for a long time and finally, it’s pin, pin, pin, right? And nobody sees it.” – Peter Schiff, Seeking Alpha

Schiff – for once – is not alone:

“It is a source of some concern that asset valuations are so high,” outgoing Federal Reserve chair Janet Yellen told CBS News, highlighting price-earnings ratios in equities.  Yellen appeared to be sounding the alarm on stock prices urging caution. But most economists have foreseen this kind of a market drop.

“Everybody knew this was coming – stocks are close to record valuations and it was a matter of when it was going to happen, not if,” said Dan North, chief economist at Euler Hermes North America. “I would expect that at this point, it’s probably sentiment-driven and we’ll get a rebound.

David Kelly, the chief global strategist for JPMorgan Asset Management agrees with North’s assessment.  “It’s like a kid at a child’s party who, after an afternoon of cake and ice cream, eats one more cookie and that puts them over the edge,” Kelly said.

But, Peter also took on this notion that the Fed is raising interest rates “for the right reasons.” They are doing it because the economy is improving. They always think that though. That’s what they do – they raise rates when they think the economy is strong. But Peter said they are about to find themselves in a position where they have to raise rates when things are tanking.

They’re going to have to raise interest rates into a weak economy. In fact, they’re going to have to raise interest rates into a financial crisis, into a depression. And if they don’t do it, we’re going to have something even worse. We’re going to have hyperinflation. That is the box, unfortunately, the Fed has placed itself in based on years and years of this monetary policy.”

 

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WTI Slumps Back To A $65 Handle After Huge Crude Build

Having rebounded modestly back off a $65 handle intraday after OPEC/Saudi production comments, all eyes are now on API tonight which printed a huge 9.88mm barrel inventory build (biggest since Feb 2017) sending WTI back to a $65 handle.

Saudi Energy Minister Khalid Al-Falih said OPEC and its allies are in “produce as much as you can mode.”

 

API

  • Crude +9.88mm (+3.7mm exp) – biggest since Feb 2017

  • Cushing +971k (+1.5mm exp)

  • Gasoline -2.8mm

  • Distillates -2.44mm

After last week’s surprise crude build (for the 4th week in a row), API has some catch up to do to DOE data and catch up it did reporting a massive 9.88mm barrel build…

 

WTI was hovering around $66.30 ahead of the API data and dropped back to a $65 handle on the print…

“There are several reasons for the slide in crude oil, chief among them is it’s a risk-off day across all financial markets,” said Bob Yawger, director of the futures division at Mizuho Securities USA. “You’re seeing people flee the commodities and equities space to most likely put their money in safe haven.”

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Earnings Wreck Continues: Texas Instruments Crashes After Slashing Guidance

After disastrous guidance from 3M, which was promptly downgraded to 2M by the market, and ugly commentary from CAT which while beating expectations warned that “manufacturing costs were higher due to increased material and freight costs,” adding that “material costs were higher primarily due to increases in steel prices and tariffs”, moments ago semiconductor icon Texas Instruments became the latest company to sound a loud alarm on peak earnings.

In its just released earnings report, Texas Instruments not only reported Q3 earnings which missed on revenue of $4.26BN (below consensus $4.30), as analog revenue grew 8% and Embedded Processing declined 4% from the same quarter a year ago, while EPS of $1.58 beat the $1.53 consensus estimates (thanks to a 18% tax rate), but more importantly slashed Q4 revenue guidance, which is now expected in the range of $3.60 billion to $3.90 billion, below the $4 billion estimate, and Q4 EPS in the range of $1.14 to $1.34, also well below the $1.38 estimate.

The company did not provide details on why it is cutting its guidance but the market did not care and clobbered TXN stock after hours, sending it to 12 month lows.

The silver lining: like most of its peers, TXN has returned more cash than it generated to shareholders:

Free cash flow for the trailing 12 months was $5.9 billion, or 37.5 percent of revenue… We have returned $6.2 billion to owners in the past 12 months through stock repurchases and dividends.

Meanwhile, in what is surely just a coincidence, the Semiconductor index is back to where it was during the peak of the dot com bubble…

 

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Trump’s Trade War Means American Companies Are Making Less Money on Cars and Trucks

Just weeks after President Donald Trump took office, Ford Motor Company flattered the jobs-obsessed chief executive with the announcement that it would invest $850 million to upgrade a Michigan plant amid plans to bring production of two pick-up trucks, the Ford Ranger and the Ford Bronco, back to the United States.

The plans were already in place before Trump was elected, but that didn’t matter much to Trump. “Big announcement by Ford today,” Trump tweeted on March 28, 2017. “Car companies coming back to U.S. JOBS! JOBS! JOBS!”

Less than a year later, the Trump administration thanked Ford by announcing plans to impose 10 percent tariffs on imported aluminum and 25 percent tariffs on imported steel—tariffs that Ford executives say will cost the company more than $1 billion over two years.

The broad-based steel and aluminum tariffs imposed earlier this year have fallen off the front page amid the Trump administration’s continued escalation of a trade war that’s now more focused on Chinese-made items like electronics, home goods, and industrial imports. But this week brought a fresh reminder of the economic pain that the higher import taxes on steel and aluminum continue to cause for American industries that require those raw materials to build other products.

Companies that build cars, trucks, motorcycles, and other vehicles have been particularly hard hit—as investor information released this week by Ford, as well as heavy by machinery builder Caterpillar and motorbike-maker Polaris, demonstrate.

“U.S. steel costs are more than anywhere else in the world,” Joe Hinrichs, Ford’s president of global operations, told Bloomberg earlier this week.

After rocketing upwards in the months after Trump announced the new tariffs on steel, American-made steel has seen a mild drop in price but remains significantly more expensive than steel from other regions around the globe. The tariffs on imported steel have allowed domestic steelmakers to increase prices, and greater demand for domestic steel has further fueled the price increase (though there is still little to no evidence that American steelmakers are expanding production or hiring more workers).

Some American manufacturers are trying to avoid taking a hit on those higher prices by forcing suppliers to eat the cost of tariffs, though it’s not clear how successful that strategy can be over the long term. That’s what Polaris, a Minnesota-based maker of snowmobiles and motorbikes, has been trying to do, according to investor information reported this week by Bloomberg. Even so, the company estimates that tariffs have cost it about $40 million this year, and Polaris’ stock price has fallen by 31 percent since January.

Heavy machinery builder Caterpillar estimated this week that tariffs added $40 million to its raw materials cost, and announced that it would have to increase prices next year to keep up. The news caused the company’s stock to drop sharply Tuesday, and it has now lost about 30 percent of its value since January.

None of this should come as much of a surprise, since the one-and-only goal of tariffs is to increase the price of imported goods in order to give domestic producers a competitive advantage. The problem, of course, is that there are many, many more American businesses that consume steel and aluminum—and it’s those businesses that pay for the cost of tariffs, even if Trump continues to push the fallacy (as he did again in a tweet on Tuesday) that other countries somehow bear those costs.

Yes, billions of dollars are flowing into the Treasury because of tariffs. But as the latest earnings reports and comments from Ford, Polaris, and Caterpillar readily indicate, those dollars are being drained out of American companies—the very companies that are providing the blue collar jobs that Trump likes to tout.

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US Plunge Protection Team Rescues Market As Global Stocks Turn Red For 2018

The message to the bears today…

Global Central Bank balance sheets have never fallen this much (almost one trillion dollars in six months)…

 

No National Team last night in China… did not end well…

 

European stocks extended yesterday’s losses…

Saudi Stocks rolled over today after another buying panic at the open…

 

Global equity markets are now negative for the year…

This is the worst start to a year since 2011.

As the US markets start to catch down to the rest of the world…

 

BTFD!!! So last week it was Saudi’s Sentiment-Savers, Monday of this week was China’s National Team, and today was NYFRB’s Plunge Protection Team…Nasdaq even briefly managed to get into the green (after being down 2.75% in early trading!)

 

Futures show the fun and games best…

 

It’s been an ugly month that got a lot worse today before the panic-bid…

  • Small Caps lowest since April down 12.5% from highs.

  • Dow Transports lowest since April – down 11.7% from highs.

  • Nasdaq  lowest since May – down 8% from highs.

  • S&P lowest since May- down 7% from highs.

  • Dow lowest since July – down 6.5% from highs.

 

Small Caps went red for 2018 intraday today…

 

After the first hour which saw nothing but selling (no positive TICK until 1030ET), markets began to accelerate with huge positive TICKs in the last hours…before some serious late day selling hit…

 

And in case you wondered – yes it was a giant short-squeeze…

 

VIX was monkeyhammered back down to spark some momentum in stocks (but the VIX term structure inverted further on the day)

 

The Dow ramped all the way back to its 200DMA but none of the other majors did…

 

FANG stocks were miraculously bid back into the green…

 

Tilray – the pot stock – is today’s best example of utter idiocy – it was down 18% at the open and ramped all the way green…

 

Materials and Financials are 2018’s biggest losers for now (followed closely by Communication Services)… Tech leads….

 

Financials hit 13-month lows today, confirming the massive double-top…

 

Semi stocks massive double-top looks set with SOX hitting a 12-month lows today…

 

And while the fallback excuse that everything is still awesome is that credit markets are still tight – things are starting to crack in the junk bond space with spreads spiking back to 5-month highs…

 

Treasury yields staged a v-shaped recovery on the day but did end lower…

 

5Y yield dropped back below then ripped back above 3.00%..

 

Meanwhile the short-end of the rates curve is starting to price out Fed hikes…

 

The Dollar ended the day lower, fading notably after China closed…

 

Offshore Yuan was modestly lower on the day (after a lower fix)…

 

 

Despite a modest dollar drop oil was pummeled and PMs managed gains…

 

WTI Crude futures crashed today (to a $65 handle at the lows) after OPEC headlines squeezed spec longs…

It tested down to its 200DMA and bounced

 

But Silver and Gold spiked and held gains even as stocks were levitated…

 

Gluskin Sheff’s David Rosenberg highlighted the chart of the day showing American firms never having found it so hard to find qualified (or drug-free willing workers who are ready to step off welfare)…

Finally, with President Trump’s approval rating at record highs, will that mean another leg higher for the dollar?

And given President Trump’s hate of a strong dollar, will be pushing for a lower approval rating?

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Brady: Trump’s 10% Tax Cut To Be Advanced Only If Republicans Retain Control Of House

If there was any doubt what was the purpose behind Trump’s unexpected proposal for a 10% tax cut unveiled over the weekend, moments ago House Ways and Means Committee Chairman, Kevin Brady, essentially explained that it is motivation for republicans to come out and vote in the midterm elections, because while work on the proposed tax cut will begin in the ‘coming weeks’ it will only be advanced if republicans retain control of the House and Senate. In other words, if Democrats win the House – as most now expect – no tax cuts for you…

  • HOUSE WAYS AND MEANS COMMITTEE CHAIRMAN BRADY SAYS WORK ON TRUMP 10% CUT TO COME IN `COMING WEEKS’
  • BRADY SAYS WILL WORK WITH WHITE HOUSE OVER COMING WEEKS TO DEVELOP PLAN FOR 10 PCT TAX CUT FOR MIDDLE CLASS FAMILIES
  • BRADY SAYS TAX CUT PLAN “TO BE ADVANCED” IF REPUBLICANS RETAIN CONTROL OF U.S. HOUSE AND SENATE IN NOVEMBER 6 ELECTIONS

Separately, Trump told reporters at the Oval Office that his proposal for a 10% tax cut for the middle class would be “net neutral” because the administration is “doing other things.”

The president explained that the move won’t impact corporate taxes, and refused to acknowledge that the original tax cut was unfairly benefiting wealthy.

Ultimately the point is moot: according to the latest online odds from PredictIt, the probability of republicans holdings the House is about 37%.

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Obama Calls Trump “Tin-Pot Dictator”, Takes Credit For “Economic Miracles”

Former President Obama lashed out at Donald Trump on Monday at a University of Nevada, Las Vegas rally, calling the President a “tin-pot” dictator while attempting to take credit for the economic progress made under Trump, reports BuzzFeed

Speaking to a gymnasium of 2,000 people on the same night Trump stumped in front of roughly 19,000 for Ted Cruz in Houston, Obama – who referred to himself 92 times in 38 minutes – “spent much of his speech on a long defense of his own presidency,” saying: “When you hear all this talk about ‘economic miracles’ right now, remember who started it.” 

“That is not how America works. That is how some tin-pot dictatorship works,” Obama added, two years after he spied on the Trump campaign using a sham dossier paid for by Hillary Clinton. 

Obama suggested in 2016 that Trump would require a “magic wand” to bring jobs back to America. “Well, how exactly are you going to do that? What exactly are you going to do? There’s no answer to it,” Obama said during a PBS town hall.

BuzzFeed reports that Obama “didn’t come to Nevada to make news,” because “He’s said to be afraid his presence would backfire, give Trump a foil, and energize the Republicans who Democrats hope will stay home in November.”

The voters here were happy to see him. The vintage hip-hop act Salt-N-Pepa opened up by dedicating the song “Whatta Man” to Obama. The young Nevada Democratic Party chair, William McCurdy, couldn’t contain his excitement: He’d never met Obama before, he said, and stressed that the former president’s role was to “rally [the] voters.”

That rallying is, in Nevada, very focused on young Latinos, who make up the Democrats’ edge here — if they vote. The headliner to that effect was the reggaeton star J Balvin. –BuzzFeed

“If we can’t find a way to activate the largest and fastest-growing demographic in this country, there’s no way we can take our country back,” said actor America Ferrera. 

Nevada Republican Senator Dean Heller seemed doomed a little over a year ago after he openly opposed Donald Trump in 2016, stating that he was “100% against Clinton, 99% against Trump,” (admitting nine months after the election that he voted for Trump). 

“The current senator — he doesn’t seem to be willing to stand up to this,” said of Heller, avoiding mentioning the senator by name, adding: “He just goes along — even when you get a sense that he knows it’s not right.”

That said, Heller now embodies “everything going right for the party of Trump,” according to BuzzFeed. 

Heller embodies his party: The senator flirted with independence, and Trump openly threatened him into supporting the unpopular attempt to repeal Obamacare. Then Heller spent time with Trump after the 2017 Las Vegas shooting, and found his way back into the president’s good graces. He has stopped criticizing the president, started voting with him, and been rewarded by political support.

Everything you touch turns to gold,” Heller told Trump the other day. –BuzzFeed

Add Heller to the list of “Never-Trumpers” to come around over the last two years.

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Survey Reveals What Really Scares Americans: #1 On The List May Surprise You

Authored by Mac Slavo via SHTFplan.com,

Every year, Chapman University conducts a Survey of American Fears. The annual survey provides an in-depth examination into the concerns of average Americans, tracking changes and trends over the years.

The survey asks participants about topics including government, health, environmental concerns, disaster preparedness, the paranormal, and personal anxieties.

What’s the number one thing Americans fear?

For the fourth year in a row, that dishonor goes to government corruption. That fear far exceeds any other that was asked about in the survey. In 2018, 73.6% said they fear corrupt government officials. In 2017, it was 74.5%, and in 2016, 60.6%.

Image credit: Chapman University

“It is worth noting that the fears regarding corruption and the environment have increased significantly following the election of President Trump in 2016 and all top 10 fears continue to reflect topics often discussed in the media,” said Christopher Bader, Ph.D., professor of sociology.

Pollution of oceans, rivers, and lakes, polluted drinking water, money worries, and loss of loved ones also are of high concern.

Here are some of the other fears Americans have:

  • Cyber-terrorism: 52.5%

  • The US being involved in another world war: 51.6%

  • Islamic extremists: 49.3%

  • White supremacists: 49.3%

  • Economic/financial collapse: 49.2%

  • Identify theft: 46.6%

  • Corporate tracking of personal data: 46.3%

  • Government tracking of personal data: 46%

  • Widespread civil unrest: 43%

  • Nuclear weapons attack: 42.9%

  • Random mass shooting: 41.5%

  • The collapse of the electrical grid: 39%

  • Pandemic or major epidemic: 38.6%

  • Government restrictions on firearms and ammunition: 37.8%

  • Nuclear accident/meltdown: 36%

For the full list, click here.

The survey also explored the reasons people do not evacuate when a disaster is heading their way. The most commonly cited reason by 43% of Americans is that they want to protect their homes from looting. “Tragic overconfidence” and “Pets” followed with 34% each. You can read the full report here: Fleeing Death: Disaster Evacuations in America.

As for political division, the survey revealed something that concerns the researchers: “What frightens Republicans the most doesn’t even register for Democrats, and vice versa. We see that bifurcation increasing, and that frightens me,” Bader said.

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Netflix Prices $2BN Junk Bond Offering, Forced To Offer Higher Yield As Some Investors Get Cold Feet

When we reported yesterday that Netflix is looking to prefund two more quarters of cash burn – which hit $860BN in Q3 – by issuing another $2 billion in junk bonds, just six months after the company issued an upsized $1.9 billion in 5.875% bonds in April, we expected that the bond market may demand a pound a flesh and Netflix would be forced to pay as much as a 7% coupon on the new issue.

It wasn’t quite that bad, but investors certainly did not roll out the red carpet either.

According to Bloomberg, the world’s largest paid online TV service had to offer yields “at the high end” of its price expectations – the first time it has had to do so in its history. Specifically, Netflix priced $800 million of bonds at a yield of 6.375% and 1.1 billion euros ($1.26 billion) of notes for 4.625% on Tuesday.

While not dramatically higher than initial price talk, the company had come to market with an offer of around 6.25% for the US and 4.5% for the European notes. The deal was marketed briefly, hitting the market on Monday before today’s pricing with some investors expressing concerns about buying longer-dated debt as rates rise, according to Bloomberg.

While for resolute yield chasers the bond deal would have been a great deal no matter the yield, for investors growing concerned about higher interest rates and a turn in the credit cycle over the next years, the deal’s long-term maturity was a reason for concern, if certainly not a dealbreaker. Additionally, the new debt is structured as a 10.5-year non-call for life, which while good news to investors seeking to lock in duration at today’s terms for over a decade also means the company can’t buy it back.

Some investors – those crazy enough to be worried about fundamentals – reportedly passed due to the company’s growing debt load which pro forma for this deal will rise above $10 billion..

… and its record high cash burn.

What is notable about today’s deal is that as Bloomberg notes, Netflix has traditionally sold debt at yields that were at or lower than price talk, and while hardly a daylight robbery, today’s deal priced half a percent higher than the company’s last offering in April, in part because underlying Treasury yields were lower as we noted yesterday.

In an amusing twist, just before Netflix announced the new debt offering, S&P upgraded the company’s credit rating to BB- last week, saying the streaming leader should see its revenues and profitability grow in 2018 and 2019.

Morgan Stanley, Goldman Sachs Group Inc., JPMorgan Chase & Co., Deutsche Bank AG and Wells Fargo & Co. managed the sale according to Bloomberg.

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