This Week in Barrons –
1-1-2017:
“Cheers to the new year and another chance for us to
get it right.” … Oprah Winfrey
Thoughts:
Happy New Year! Along with the celebration, we learned that:
- George Washington University history majors are NO LONGER required
to take a U.S. history course. The
History Department Chair explained: “As a result of declining interest
and enrollment, we've decided that a reduction in course requirements
answers that problem, gives us a new way to recruit students, and better
reflects a globalizing world."
In many ways, this
reinforces my belief that some College majors have simply become sandboxes
for kids that have grown too big to play on swing sets.
- President Barack Obama created the
‘Ministry of Truth’ by signing a $611B military authorization. Hidden within the massive appropriation
was a provision that funds the Center for Information Analysis and
Response – dubbed the ‘Ministry of Truth’.
The center’s responsibilities include:
- “Countering propaganda and
disinformation as defined by the center,
- Using covert or clandestine special
operators and agents to influence targeted populations,
- Paying select members of academia and
journalism to proactively promote fact-based narratives and policies, and
- Exposing and refuting foreign
misinformation and disinformation - as defined by the center."
- In a nut-shell the new authorization will (according to Aaron
Kesel): “Allow our government to crack down with impunity against any
media outlet it deems to be promoting propaganda. It provides substantial amounts of
money to fund counter propaganda, and makes sure that the government's
approved stories drown out alternative media and journalists who question
the status quo. Welcome to
1984."
- The tone of next week’s CES (Consumer Electronics Show) in Las
Vegas is expected to shift back to software. From augmented reality to the Internet
of Things to autonomous cars to robotics to wearables and smart energy –
hardware is but a tool used to power the software experience.
- Forecasters believe that integrating more augmented reality into
our lives will pick up where virtual reality failed.
- Tesla and Uber are clearly at the forefront of autonomous vehicle
development. Hopefully 2017 brings
Detroit and Silicon Valley closer to integrating than colliding.
- Wearable devices will begin to focus on health and fitness
benefits.
- Ai has the potential to usher in a resurgence in productivity with
both menial and complicated tasks being handed off to machines.
- Cloud computing, data centers, and power-chips will continue to be
the backbone of our increasing connected and bandwidth constrained
environment.
Yes Oprah, we have yet “another chance to get it right.” But as I age, I am finding that the
destination does not get any clearer.
The Markets:
In an uncertain environment,
the one element on which I can be certain – is that 2017 will NOT be like
2016. The November election brought an
end to the longest ‘Nanny State’ on record.
We finally chose growth over increased regulation and taxation, and we
chose risk over political correctness and participation trophies. In 2017, a businessman President will be
surrounded by a business cabinet that dislikes regulation. While this will make our markets more free
and capitalistic – it is not without risk.
Decreased taxes and regulations will increase volatility in economic
growth, interest rates, and profit margins.
We may even return to an environment where companies actually fail and
go out of business. The graphs below
show 2 things: (a) Our economy is approaching a necessary correction /
recession, and (b) Our wages continue to decrease while our educational costs
rise.
A couple Wall Street and CW
predictions for 2017 are:
-
The S&P 500
will grow by less than 5%,
-
With U.S.
Consumer Confidence surging to its highest level in 15 years – GDP growth will
be less than 1.5%,
-
With record high
levels of investor confidence – total investor returns will be a NEGATIVE 10%,
and
-
Using Warren
Buffett’s valuation measure (the graph of Total Market Capitalization to US GDP
growth above) – the U.S. is poised for an early 2017 recession producing
NEGATIVE returns.
As the above graph suggests,
2017 will be all about the U.S. dollar.
The dollar is moving higher relative to other currencies based upon
Trump’s pro-business policies leading to strong economic growth. Two elements of a strong dollar are worth
exploring:
- Our Debt: The 2008 crash
exposed the U.S. consumer as one who would rather purchase than earn. In 2008, we ran out of available credit
and could no longer finance our debt. Currently the majority of our
population has limited access to credit.
Combine this with wage stagnation and you have a tough recipe for
growth. With interest rates
continuing to rise and wages remaining constant – J. Q. Public will have
less disposable income. And how do
we ever expect emerging markets to re-pay their debts (in U.S. dollars) –
when the value of our dollar continues to rise?
- Our Demographics: The U.S. population growth rate has slowed to
1.84 children per woman – below the ‘replacement rate’. This means that our population is dying
faster than they’re being born. Ironically
it’s our immigration policy (including illegals) that is offsetting our
population decline. The majority of
our immigrants are low-skilled with limited income and credit
availability, and it’s the high-end skill set that is not being replaced. This places the burden of consumption,
credit, and growth squarely on the shoulders of the millennial generation.
Over 50% of the revenue from
S&P 500 corporations is export focused.
Therefore, a strong export ability is a requirement – which (in turn)
depends upon export pricing power.
Regardless of Trump’s policies, if the dollar remains strong – foreign
nations will seek alternatives to expensive U.S imports. That will lead to weak economic growth and
companies making tough, bottom-line decisions. Trump will face his first
foreign trade deals in early 2017, and how those go will determine the tone
going forward on exports and the dollar.
The world wants the U.S. to
continue to produce, grow, and consume.
In order to achieve that goal, we will need to move from CONSUMING to
PRODUCING. And while Trump is a
citizen’s ‘breath of fresh air’, he needs a weaker dollar in order to become
the world’s producer.
TIPS:
-
The GDX gained
almost 7% last week (as we thought that it might) – so we’re heading into the
New Year on a winning streak.
-
As the market
tries for DOW 20,000, this week will show us a stall and potentially a market
retracement. 4th quarter earnings may
show some strength, but the strong dollar has already brought out a series of
warnings from companies concerning their estimates for future growth.
-
In terms of
precious metals:
o
The Muslims have
been granted the religious freedom to use gold as an investment vehicle. The Islamic council will make this effective
the first week of January, and it will be interesting to see if the metals will
run higher over the next 8 weeks.
o
Lamoureux &
Co. believe that “Both gold and silver will go down for the first half of 2017,
and then move into a new bull market that will last well into 2020.”
o
China has
surpassed the U.S. in oil consumption.
Saudi Arabia, Iran and Russia have joined together to sell oil to China
in Yuans (instead of dollars) via the newly minted Shanghai Gold Exchange. China is paying their bills in Yuans – but
immediately cycling the Yuans through the Shanghai Gold Exchange in order to
make actual payment to Saudi Arabia, Iran and Russia in physical gold. None
of those 4 nations want any more U.S. paper, but GOLD (it seems) makes no
enemies.
Finally, I wish everyone a
happy and healthy new year. If you have
your health, a roof over your head, something to eat, and friends and family to
share it with – the year will be just fine. Happy New Year.
To follow me on Twitter.com
and on StockTwits.com to get my
daily thoughts and trades – my handle is: taylorpamm.
Please be safe out there!
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