First it was auto the auto parts suppliers getting hammered after O’Reilly Auto announced unexpectedly poor results (duly blamed on “mild weather” and weaker than expected Hispanic spending) and tumbling then most in 5 years, and then it was the retail REITs turn, after channel checks at Prodco Retail Traffic Analytics have revealed that the US consumer continued to hibernate into the July 4th weekend with North American store traffic 8.1% lower in the week leading up to the July 4 holiday weekend, a steeper drop than the year-to-date trend of down “only” 6.6%. In the week ending July 1, with footfall at luxury retailers down 9.7%, and 8.3% weaker at apparel stores, Bloomberg reported.

The justifications for the abysmal results were legion: retail 2Q sales results may be impaired by weak traffic, as consumers still prefer digital, and they swap shopping for travel, dining out, or outdoor recreation. Shopping less in-store continues to hurt retailers’ ability to prompt unplanned purchases.

The companies impacted the most included retailers such as Abercrombie & Fitch, Macy’s, J.C. Penney, Tailored Brands and Nordstrom reported declines in traffic and same-store sales. And since they’re among the tenants of REITs Kimco and General Growth, the the S&P 1500 retail REITs index fell as much as 2.8%, the most intraday in two months, with all 24 members declining: KIM is the worst performer, down as much as 5.6%; while other laggards include PEI, CDR, WRI, CBL, GGP, KRG, SKT, SPG, and MAC

Based on the above, it appears that 2Q retail sales will once again be hurt by overall weak spending even as Amazon continues to wreak havoc among the traditional retail sector. Abercrombie & Fitch, Macy’s, J.C. Penney, Tailored Brands and Nordstrom all reported declines in traffic and same-store sales.

And while many would be first to blame the (near) monopolistic dominance of Amazon in the online retail space, reading between the lines confirms that US households are aggressively shrinking their overall spending basket, as store checks by Retail Metrics throughout the month found continued soft traffic, although the May retail deterioration appears to have stabilized at a low level. This, despite elevated promotional levels at both specialty apparel retailers, and department stores,

Bloomberg adds that while June is typically a quiet month as chain stores transition from summer apparel and seasonal selling to clearance in order to make way for early fall and back-to-school merchandise, June has been extremely eventful month with additional store closures, bankruptcy filings, layoffs, acquisitions, management changes and exploration of strategic alternatives as retail industry undergoes a “broad-based transformation.”

Finally, here are some sellside views:

Wells Fargo:

• June store traffic decreased 4.7%, a modest improvement from -5.1% in May, according to same-store data from ShopperTrak.
• First 4 weeks of June each showed sequential improvement in traffic; however, week 5 fell 7.1%, which dragged down monthly traffic by almost a full point
• Pricing remained under pressure in June, based on Wells Fargo channel work

Bloomberg Intelligence:

• Retail 2Q sales results may be impaired by weak traffic, as consumers still prefer digital, and they swap shopping for travel, dining out or outdoor recreation
• Shopping less in-store continues to hurt retailers’ ability to prompt unplanned purchases
• In the week ending July 1, footfall at luxury retailers was down 9.7%, 8.3% weaker at apparel stores

Based on the just released FOMC minutes, none of this figured in the Fed’s deliberations on when to hike rates next, and when to begin balance sheet normalization.

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Authored by Lance Roberts via RealInvestmentAdvice.com,

“There is nothing wrong with America that the faith, love of freedom, intelligence, and energy of her citizens cannot cure.” – Dwight D. Eisenhower

 

“If we just stick together, and remain true to our ideals, we can be sure that America’s greatest days lie ahead.” – Ronald Reagan

Hope you had a great “Independence Day.” 

---

On Monday, the market was open for a half-day preceding the “Independence Day” holiday, and with the majority of the “human element” on vacation, the markets surged as the “robots” kicked in to “buy the recent dip.”

As I noted in this past weekend’s missive:

“As noted on Friday, the last couple of weeks have experienced a sharp rise in price volatility. While stocks have vacillated in a very tight 1.5% trading range since the beginning of June, there has been little forward progress to speak of. However, notice that support at 2416 has remained solid as ‘robots’ continue to execute their program of ‘buying the dips.’” 

Of course, the problem is what happens when these algorithms begin to reverse and “sell the rallies?”

That is the question I want to explore today which is simply: “how big of a correction is coming?”

For the purpose of this exercise, we will look at the S&P 500 Index as the proxy for the markets and use a Fibonacci retracement measure on a daily, weekly and monthly basis spanning various time frames in the market. The analysis will be run using, for each time frame, the most important previous support levels as the starting point.

A quick explanation on Fibonacci retracements in case you are unfamiliar from StockCharts.com:

“Fibonacci Retracements are ratios used to identify potential reversal levels. These ratios are found in the Fibonacci sequence. The most popular Fibonacci Retracements are 61.8% and 38.2%. Note that 38.2% is often rounded to 38% and 61.8 is rounded to 62%. After an advance, chartists apply Fibonacci ratios to define retracement levels and forecast the extent of a correction or pullback.“

Click the link above if you want more detail.

Daily

On a daily price basis, which is more important for shorter term holding periods, the bottoms in 2014 and 2016 provide the strongest base of price support from which to calculate retracement levels.

A correction to each potential support level would be as follows:

38.2% Retracement = 10.04%

50.0% Retracement = 13.07%

61.8% Retracement = 16.18%

100% Retracement = 26.14% (Official Bear Market)

As noted, it would currently require a loss of nearly 500 points on the S&P 500 just to officially enter bear market territory from current levels. As discussed yesterday, such a negative impact to portfolios should not be lightly dismissed.

A correction of this magnitude would wipe out all the gains in portfolios since 2014 erasing 3-years of advancement towards financial goals.

Assuming a 6% annual rate of return it would require an additional 4-years to get back to even effectively destroying 7-years of an investor’s time horizon. 

Weekly

If we expand our time frame to weekly, the picture changes somewhat. In the following example, the prior market peaks of 2000 and 2008 become critical support for the markets.

A correction to each potential support level would be as follows:

38.2% Retracement = 13.82%

50.0% Retracement = 18.14%

61.8% Retracement = 22.24% (Official Bear Market)

100% Retracement = 36.06% (Average Correction During Recessions)

Don’t dismiss the weekly retracement to previous market peaks. A retracement of 36.06%, as noted, is coincident with the onset of a recessionary drag in the economy. Given the current economic expansion is now the second longest in history, at the lowest rate of annual growth, this is a rising risk to longer-term investors.

A correction of this magnitude would wipe out all the gains in portfolios since 2013 erasing 4-years of advancement towards financial goals.

Assuming a 6% annual rate of return it would require an additional 8-years to get back to even effectively destroying 12-years of an investors total time horizon. 

Monthly

If we step out further using monthly price data, the longer-term investing picture for investors looks exceedingly more risky.

A correction to each potential support level would be as follows:

38.2% Retracement = 26.57% (Official Bear Market)

50.0% Retracement = 35.29% (Average Correction During A Recession)

61.8% Retracement = 43.56% (Less Than The Financial Crisis & Dot.com Busts)

100% Retracement = 70.57% (Welcome To The “Great Depression 2.0)

When looking at monthly data, we get the clearest picture of the risk related to each potential phase of a correction.  As noted above, a correction to the first retracement level would in actuality be little more than a normal bear market within an ongoing bull market trend.

A 50% retracement would be normal for a recessionary contraction. Even a 61.8% retracement would be “less worse” than what was seen during the previous two bear markets.

Even the most outlandish correction back to previous bear market lows would be LESS THAN the 85% correction witnessed by the Dow following the 1929 peak.

My point is that none of the possibilities should be readily dismissed. They have all happened before and some with more regularity than others.

Here is the important point for each correction level noted above if we assume you are expecting 6% annual rates of return and have a finite time to reach your retirement goals.

A 26.57% correction resets portfolios back to 2014 and requires almost 6-years to get back to even. Total time horizon destroyed is 9-years.

A 35.29% correction resets portfolios back to 2000 and requires almost 8-years to get back to even. Total time horizon destroyed is 25-years. 

A 43.56% correction resets portfolios back to 1999 and requires almost 10-years to get back to even. Total time horizon destroyed is 28-years.

A 70.57% correction resets portfolios back to 1997 and requires 21-years to get back to even. Total time horizon destroyed is 42-years.

Conclusion

While some of these corrections MAY seem outlandish to you currently, giving the current exuberance in the markets, they have all occurred at one point or another in the past. Usually, such corrections have generally occurred at about the same juncture where the majority of investors had come to embrace the “this time is different” mantra.

I am not suggesting that any of the above corrections will happen tomorrow, next month or even this year. But I am stating that a correction will come. The analysis above simply tries to assess the magnitude of such a correction AND the consequences of not “managing risk” in your portfolio.

While the idea of “buying and holding” and “robot driven” allocations is certainly appealing in a seemingly “can’t lose” market, the problem for investors is “when” they occur.

Time is the most precious commodity ANY investor has. Disregarding the impact of time horizons when managing your investments can have very negative consequences. 

Just remember, in the market there really isn’t such a thing as “bulls” and “bears.” However, there are those that “succeed” in reaching their investing goals and those that “fail.”

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Stocks are very marginally higher following The Fed's Minutes showing "financial stability concerns" amid "high valuations", bond yields rose less than 1bps and the dollar is up modestly as Gold is being sold…

Some participants suggested that increased risk tolerance among investors might be contributing to elevated asset prices more broadly;

 

a few participants expressed concern that subdued market volatility, coupled with a low equity premium, could lead to a buildup of risks to financial stability.

Ignore it…

Bottom line – oddly quiet… for now.

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While the core focus in the June FOMC minutes was on whether and when the Fed would hike next, and/or being its balance sheet unwind (indicentally, Fed Funds futures now shows odds of another rate hike in 2017 at about 60%), what was perhaps most notable in today’s Minutes was the Fed’s repeat warning about asset prices – something it has cautioned on previously – and the introduction of a warning on low volatility, which the FOMC said could pose “risks to financial stability.” Finally, the Minutes highlighted the biggest paradox facing the Federal Reserve namely the continued easing in financial conditions despite the Fed’s 2 rate hikes so far in 2017.

The sections in question, first on high equity prices:

“in the assessment of a few participants, equity prices were high when judged against standard valuation measures.“

On low volatility as a catalyst to higher financial instability in the future:

“Some participants suggested that increased risk tolerance among investors might be contributing to elevated asset prices more broadly; a few participants expressed concern that subdued market volatility, coupled with a low equity premium, could lead to a buildup of risks to financial stability.”

Finally, on continued easy financial conditions:

“according to some measures, financial conditions had eased even as the Committee reduced policy accommodation and market participants continued to expect further steps to tighten monetary policy.”   

We expect stocks to rise despite these warnings in yet another confirmation that the Fed – at least through its jawboning – has lost control of the market, forcing it to act instead.

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Interested in precious metals investing or storage? Contact us HERE 

 

Why Are Financial Advisors Keeping Quiet About A 25% Risk-Free Return?

Written by Peter Diekmeyer (CLICK HERE FOR ORIGINAL)

 

 

 

American financial advisors have tough jobs. It’s hard to keep clients happy when bond yields are near zero and stocks are trading at historic highs.

 

However, a quick look at the data suggests that there is a simple investment available to nearly 120 million Americans that will enable them to earn 15% risk-free, after tax, and in many cases, much more.

 

Yet, financial advisors are keeping quiet. So are politicians and big bank economists.

 

This column does not provide investment advice. That said, according to one expert, the best financial move most Americans could make would be to pay down their credit card balances.

 

“It seems obvious,” says Edouard Pahud, a Montreal-based financial and management consultant. “However, high current debt levels suggest that many consumers aren’t getting the advice they need.”

 

Pay down credit card debt

The stakes are huge. According to CreditCards.com, the average credit card interest rate was 15% last year. That means paying off a credit card balance equates to a 15% annual return.

 

Better still, paying down debts is risk-free.

 

Creditcards.com figures that the average American between the ages of 18 and 65 has $4,717 worth of credit card debt. At a 15% rate of interest, using a minimum payment level of $189 a month, it would take 10 years to pay that down.

 

Total payments would amount to $22,869, including a stunning $18,155 in interest costs.

 

Worse, says Pahud, those interest costs come in “after-tax dollars”, which means that the real returns related to paying down credit card debt are much higher.

 

“A person in the 40% tax bracket would have to earn an extra $25 for every $15 he wants to pay down on his credit card loans,” says Pahud. “That means his real returns from paying down interest bearing credit card debt are near 25%.”

 

Why aren’t Americans getting the straight goods?

What is stunning is how few financial advisors are explaining this simple strategy.

 

According to the US Census Bureau, 183 million Americans own credit cards. Of these, around two-thirds (say 120 million) carry revolving balances and are thus subject to those high rates of interest.

 

Clearly many financial advisors aren’t doing their jobs. Why that is, is unclear. In today’s busy world, perhaps advisors just assume their clients aren’t carrying credit card balances.

 

Marc Faber, of the Gloom Boom Doom report, suggests that many Americans burdened by credit card debts simply don’t have access to good financial advice.

 

Another possibility is that financial advisors, as a group, are just one example in an entire class of experts who aren’t giving Americans the straight goods.

 

Politicians, economists and teachers also at fault

For example, economists learn about the “Paradox of Thrift” in their first weeks of Econ 101, which states the importance of individuals paying down their debts. But when was the last time a big bank economist said that publicly?

 

Politicians know the dangers of high debt loads too.

 

However Donald “I am a low-interest rate guy” Trump would never risk telling Americans to pay down their debts in a forceful way, as that would hurt his election chances and his real estate business.

 

Trump is not alone. Politicians of all stripes quietly pray that Americans will borrow more, hoping that the resulting spending and economic activity will put voters in a good mood come election time.

 

Perhaps the worst culprits, though, are the nation’s teachers. Today’s high school graduates emerge from 12 years of drudgery knowing essentially nothing about saving and financial management.

 

What else aren’t they telling you?

Given the lousy advice Americans are getting, it’s hardly surprising that the American Association of Individual Investors calculates that two-thirds of clients don’t trust financial advisors to act in their best interests.

 

But there is a lot more at stake than just credit card balances.

 

Because if financial advisors aren’t providing advice about a simple trick that will help earn clients a 15% (and in many cases 25%) risk-free, after-tax return, maybe they are missing other stuff, too.

 

For example, gold bugs complain that mainstream financial analysts don’t give precious metals the respect they deserve.

 

We don’t take a position on this.

 

However, investors would clearly be well-served by asking harder questions of all their experts and leaders.

 

 

Questions or comments about this article? Leave your thoughts HERE.

 

 

 

 

Why Are Financial Advisors Keeping Quiet About A 25% Risk-Free Return?

Written by Peter Diekmeyer (CLICK HERE FOR ORIGINAL)

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Having hiked in June amid gravely disappointing macro-economic data, all eyes are now on the minutes for inflation (weakness blamed on "idiosyncratic factors"), labor market (concerns about "sustained employment undershoot"), balance sheet normalization (Fed "divided" over when to start), and market valuation concerns ("equity market high on standard metrics"). Rate hike odds for Sept (22%) and Dec (56%) were rising into the release.

Additional headlines…

• *FED OFFICIALS DIVIDED OVER WHEN TO START BALANCE-SHEET RUNOFF
• *FED OFFICIALS REPEATED SUPPORT FOR GRADUAL INTEREST-RATE HIKES
• *A FEW FED OFFICIALS SAW EQUITY PRICES HIGH ON STANDARD METRICS
• *FED OFFICIALS NOTED FINANCIAL CONDITIONS EASED DESPITE HIKES
• *A FEW OFFICIALS SAW LOW VOLATILITY STOKING RISKS TO STABILITY
• *MOST FED OFFICIALS BLAMED SOFT PRICES ON IDIOSYNCRATIC FACTORS
• *FED DEBATED PROS, CONS OF SUSTAINED UNEMPLOYMENT UNDERSHOOT

Some of the key highlights from the minutes, first on the timing of the next rate hike, where the FOMC appears split:

"Participants expressed a range of views about the appropriate timing of a change in reinvestment policy. Several preferred to announce a start to the process within a couple of months; in support of this approach, it was noted that the Committee’s communications had helped prepare the public for such a step. However, some others emphasized that deferring the decision until later in the year would permit additional time to assess the outlook for economic activity and inflation."

 

"A few of these participants also suggested that a near-term change to reinvestment policy could be misinterpreted as signifying that the Committee had shifted toward a less gradual approach to overall policy normalization."

On balance sheet normalization:

It was observed that the ensuing reduction in securities holdings would be gradual and would follow an extended period of Committee communications on balance sheet normalization policy, including the information that would be released at the conclusion of this meeting. Consequently, the effect on financial market conditions of the eventual announcement of the beginning of the Federal Reserve’s balance sheet normalization was expected to be limited.

 

Several participants indicated that the reduction in policy accommodation arising from the commencement of balance sheet normalization was one basis for believing that, if economic conditions evolved broadly as anticipated, the target range for the federal funds rate would follow a less steep path than it otherwise would. However, some other participants suggested that they did not see the balance sheet normalization program as a factor likely to figure heavily in decisions about the target range for the federal funds rate. A few of these participants judged that the degree of additional policy firming that would result from the balance sheet normalization program was modest.

On the lack of inflation, which was blamed on "idiosyncratic factors" whatever that means:

"Most participants viewed the recent softness in these price data as largely reflecting idiosyncratic factors, including sharp declines in prices of wireless telephone services and prescription drugs, and expected these developments to have little bearing on inflation over the medium run."

 

"Several participants expressed concern that progress toward the Committee’s 2 percent longer-run inflation objective might have slowed and that the recent softness in inflation might persist."

On unemployment and the collapse of the Phillips curve:

"A couple of participants expressed concern that a substantial undershooting of the longer-run normal rate of unemployment could pose an appreciable upside risk to inflation or give rise to macroeconomic or financial imbalances that eventually could lead to a significant economic downturn."

 

"Several participants expressed concern that a substantial and sustained unemployment undershooting might make the economy more likely to experience financial instability or could lead to a sharp rise in inflation that would require a rapid policy tightening that, in turn, could raise the risk of an economic downturn."

On the failure of the Fed to tighten financial conditions and high equity prices:

"They also noted that, according to some measures, financial conditions had eased even as the Committee reduced policy accommodation and market participants continued to expect further steps to tighten monetary policy."

 

"Corporate earnings growth had been robust; nevertheless, in the assessment of a few participants, equity prices were high when judged against standard valuation measures."

Most notably, however, as Bloomberg Intelligence noted, financial stability concerns appear to be very high on policy makers’ radar and seem to be pushing the Fed’s hand to continue to gradually tighten policy.

Some participants suggested that increased risk tolerance among investors might be contributing to elevated asset prices more broadly; a few participants expressed concern that subdued market volatility, coupled with a low equity premium, could lead to a buildup of risks to financial stability.

As for the balance sheet, a September kickoff for the program is what traders widely expect. Any delay may affect calculations on the next rate hike (expected in December) and it may signal the Fed is worried about roiling markets, which ironically, may roil markets.

"A few of these participants also suggested that a near-term change to reinvestment policy could be misinterpreted as signifying that the Committee had shifted toward a less gradual approach to overall policy normalization."

 

“Several preferred to announce a start to the process within a couple of months,” the minutes showed. “Some others emphasized that deferring the decision until later in the year would permit additional time to assess the outlook for economic activity and inflation.”

Finally, on poor C&I Loan growth, traditionally a precursor to recession.

Commercial and industrial loans outstanding increased in April and May after being weak in the first quarter, al­though the growth of these loans remained well below the pace seen a year ago. Issuance of both corporate debt and equity was strong. Gross issuance of institutional leveraged loans was solid in April and May, al­though it receded from the near-record levels seen over the previous two months.

*  *  *

Since the Fed hiked rates in June, the Treasury curve is flatter, FANG Stocks are down, and gold has been hit hard…

 

September hike odds have tumbled since June but December has risen to 42%…

 

Several Fed members noted "somewhat rich" asset valuations... Indeed, during the history of the stock market, it has only traded at a richer valuation during one period – June 1997 to September 2001 – as the dotcom farce blew and burst. Historical data for the index is available going back to 1881.

 

No matter what The Fed said, they have some large maturities to deal with very soon…

 

Full Minutes below:

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O’Reilly Automotive stock crashed as much as 21% on 7 times its average daily volume, its biggest drop since June 2012 dragging the share price to the lowest since October 2014, after the auto-parts retailer said same-store sales misses forecast for the second quarter.

The miss slammed ORLY peers: Advance Auto Parts plunged 16%, AutoZone tumbled 10%, while suppliers Standard Motor Products, Dorman Products and Motorcar Parts of America also dropped sharpdly.

Investors were disappointment as same-store sales rose only 1.7% in Q2, trailing O’Reilly’s own projection for growth of 3-5%, the company said in a statement earlier.

As usual it was the weather’s fault: retailers blamed weak consumer demand at the start of the year on delayed tax refunds- although how that impacted second quarter results is not clear –  and a mild winter that reduced the need to replace some car parts. O’Reilly’s Chief Executive Officer Greg Henslee said weak consumer demand continued into the second quarter despite signs of stronger sales earlier this spring according to Bloomberg.

“After exiting the first quarter and entering April on an improved sales trend, we faced a more challenging sales environment than we expected for the remainder of the quarter,” Henslee said. “While we are disappointed with our sales results in the first half of the year, we remain confident in the long-term health of our industry.”

O’Reilly’s sluggish sales rekindled concerns that competition from e-commerce could be eroding demand at brick and mortar stores, Consumer Edge Research analyst David Schick wrote in a note to clients Wednesday.  “While our analysis does not see risk of the entire sector going online – we think the threat is meaningful for some categories and is unlikely to fade until visibility improves,” he said.

The huge miss added to concerns tied to Amazon’s expansion into the industry, adding to the selloff in the group.

Industry analysts, such as RBC’s Scot Ciccarelli, said that apart from a mild winter, other possible causes for weak sales could be fewer cars entering peak repair stages of life cycle, less robust spending from Hispanic customers due to political concerns and beefed up competition from Wal-Mart.

As shown summarized below, industry analysts were hard pressed to come up with any positive spin to the disappointing data.

RBC (Scot Ciccarelli)

• Another miss for a sector under heavy scrutiny; “today’s moves imply that we are seeing a complete washout of the sector”
• Expects valuation arguments to accelerate given significant pressure on industry multiples
• Apart from a mild winter, other possible causes for weak sales could be fewer cars entering peak repair stages of life cycle, less robust spending from Hispanic customers due to political concerns and beefed up competition from Wal-Mart
• Sector perform, PT $201 from $280

JP MORGAN (Christopher Horvers)

• A good portion of the same store sales miss represents an industry-wide slowdown caused by the delayed “impact of vehicle age dynamics, mild winters and a softer consumer;” a portion of it is ORLY specific, as DIFM (do it for me) segment is more competitive
• Sees the lateral selloff as overdone; stocks overreacting to ORLY’s pre-announcement; would opportunistically buy AZO and AAP
• Neutral, PT $210 from $295 to reflect weaker sales and EPS outlook

CONSUMER EDGE (David Schick)

• Weaker comp. sales confirming “softer trends persist” narrative and resultant questions around e-commerce competition
• Current headwinds driven by weather, used pricing and higher gas prices with online competition possibly weighing on P/E multiple
• Doesn’t see risk of entire sector going online, but “threat is meaningful” for some categories and is unlikely to fade until visibility improves
• Overweight, PT $310

Assuming that it was not the “mild winter” that was to blame for the steep drop in end-demand, today’s profit warning is just the latest confirmation that at a time when the Fed is actively hiking interest rates, the US consumer remains in the doldrums, and consumer spending continues to recede, suggesting that the next relevant phase for the US economy is not expansion as the Fed hopes, but contraction, also known as recession.

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With Emerging Market bonds suffering sudden and large outflows (after reaching record low levels of risk), IPOs collapsing, and 'no brainer' FANG stocks unable to keep a bid, it appears – despite the hype of a 30-component-index heavily weighted towards financials being near its record highs – that all is not well in the "buy everything.. especially the highest beta crap" investing world in which traders have become so used to existing.

As former FX trader Mark Cudmore notes North Korea could be just the excuse that anxious buy-and-holders need for a period of risk aversion…

Via Bloomberg,

Many risk assets are ripe for a correction from elevated levels and North Korea’s latest provocation provides sufficient excuse for traders to act.

North Korea’s missile tests have been ignored all year, so why is this time different?

Partially because diplomatic solutions are making no progress and so a U.S. military response is becoming more likely.

 

But, more importantly, it’s raising tensions between China and the U.S.

 

That latter point is far more critical in the immediate-term.

 

It comes just ahead of a G-20 that was already expected to be fractious, and in the context of potential U.S.-imposed metal tariffs triggering a trade spat.

Most equity markets are trading close to record highs, but there are suddenly signs of vulnerability: bellwether tech stocks in the U.S. and Asia are getting hurt, while risk-parity strategies are also suffering a setback after a strong run.

There’s a new market narrative that many major central banks are turning hawkish in deliberate coordination. What that really means in terms of actual liquidity reduction still has to be seen. But, after such a good run, the macro backdrop suggests profit-taking may be a tempting option.

I remain structurally bullish: the global economy is growing solidly and, for now, there remains excessive liquidity. But this doesn’t mean there can’t be meaningful pullbacks.

With Asia-related trade tensions the glaring risk from G-20, assets like Hong Kong stocks and the Australian dollar may bear the brunt of any stress.

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Perhaps the single most accurate predictor of the economy has rolled over into recession territory.

We're talking about tax revenues.

GDP growth, unemployment data, ISM surveys… all of these can and are massaged by statisticians to create a rosier picture of the economy than reality. By way of example, we recently noted that 95% of all net job growth since 2008 was in fact created via an accounting gimmick. In reality, the jobs were never created at all.

Tax revenues, particularly corporate tax revenues, are very difficult to fake. Either the money came in the door, or it did not.

If the economy is booming, corporate tax revenues rise as companies generate greater revenue/income, resulting in them paying more in taxes. And if the economy is rolling over, corporate tax revenues plunge as companies close up shop and stop paying taxes.

On that note, take a look at the chart below.

Source: WSJ

As you can see, state and local corporate tax revenues have rolled over in a massive way. If we were to analyze this chart like a stock, you’d see the “uptrend” of growth was completely broken.

Why does this matter?

Because it serves as a clear signal that the US economy is rolling over in a big way. Indeed, the last time we saw state and local corporate tax revenues roll over like this was in late 2007/ early 2008.

We all know what happened to stocks after that. The only difference between then and now is the 2017 stock market bubble is even larger.

A Crash is coming…

And smart investors will use it to make literal fortunes.

We offer a FREE investment report outlining when the market will collapse as well as what investments will pay out massive returns to investors when this happens. It's called Stock Market Crash Survival Guide.

We made 1,000 copies to the general public.

As I write this, only 35 are left.

To pick up one of the last remaining copies…

CLICK HERE!

Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

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