Click Here to Download This Full Report
(Article from Jordan Wirsz)
Weekly Summary Report
February 26, 2016
By Jordan Wirsz
Lots to talk about this week in the Savant Report, but if you don’t mind, I’d like to “toot my own horn” for a brief minute. This week, we made national news with the announcement of two things:
1. Another Savant Company has been added to our growing brand. See details at: http://www.prweb.com/releases/2016/02/prweb13236187.htm
2. We formally announced the “Buffalo Plaza” development, Savant’s newest retail shopping center. See details at: http://savantinvestments.com/news13-savant-investment-partners-unveils-stunning-class-a-retail-development.html
We have a fantastic team at Savant who continues to be the backbone of our success, and I am eternally thankful to each of them who continue to make Savant a great success. Especially, a big thanks to Cat Savello, our marketing director and design specialist who is responsible for these beautiful reports that you get each week, and so much more. Thank you Cat!
Now on to the market news:
Lets start with the big news that Q4 2015 GDP was revised UP to 1.0% flat today, from the previous number of .7% and the analyst’s estimates of a negative revision to .4%. Truthfully, I continue to see more and more evidence that these “professional” opinions are completely worthless and good for nothing but confusing the markets. On top of it, it proves to me that the government numbers are worthless. Moreover, I have 0% faith in the legitimacy of the government numbers, especially when its election year! Should you trust these revised GDP numbers? Absolutely not…
Here is the scoop. Today, the S&P “leapt out of bed” and ran 20 points on the news of the revision. How do you make a 1% annual GDP look like good news? Have expectations of .4%, that’s how! Then the market quickly realized what they were excited about, and a sell-off ensured, ending the day down. For this little relief rally that we have had, that pattern is known as a “key reversal” and very likely an indicator of a short term top. Perfect, time for me to sell short again, which I intend on doing Sunday night or Monday morning in the futures markets.
The news that we have had coming to the headlines is simply not indicative of an environment ready to continue a bull market run. If anything, the headlines create more confusion and capitulation that fuels the volatility.
Let me be perfectly clear, I do NOT believe this is the time to get all “bulled up” and ready to buy in the market. Although the transport sector has now had a 6th straight winning week, the rest of the market has not been so lucky. Really, that’s due to low energy prices. If you look at the energy sector, Q4 earnings were down 75-78% off of peak earnings, which is, as Donald Trump would say, “YUUUUGE!” You must consider the global implications of low energy prices, the high U.S. Dollar, and the collapse in commodities along with pretty low inflation. One revision up in GDP and a quick rally in the equity markets is NOT enough to turn the tides. I want to caution all of my readers to take your stance on where the markets are, and stick to it. If you’re bullish, stay bullish. If you’re bearish, stay bearish. But changing your mind in the midst of this volatility will take your head off. These “Wall Street analysts” and “experts” change their minds more often than their change their underwear, and you can quite easily get caught in the bearish and bullish traps that are set by rapidly changing sentiment.
Keep in mind, DE-flation is now happening all over the world in real terms. The 5 year German bond hit record low yield in negative terms this week:
Slovakia has now recorded real DE-flation:
Meanwhile, these countries in the Eurozone have been expanding credit into a deflationary environment, which is what the government wants to do to try and STOP the deflation and find some stable footing for inflation.
I realize that many, but certainly not all of our readers are in the U.S. – you might ask why it is important to see what is happening around the world. The reason why is because there are great proxy indicators for our own economy. One of which is the industrial production of Switzerland, which closely follows the economic cycle here in the U.S. Well, guess what just happened to Switzerland’s industrial production? It went negative:
Here is a helpful indicator of US industrial/construction activity: shipments of heavy duty trucks in the US. Clearly this indicator is responding to the current uncertainty.
These charts are things to pay attention to…something to study, and ponder when considering where we are in the market cycles. Would I be bullish on equities with negative signs all around us? No, not particularly. Even if I missed a great rally in equities, I would think I am the wiser for being on the sidelines than taking the risk being in the market at a risky time and potentially a short to medium term top.
The energy markets continue to churn stomachs all over the world. This week, however, we finally got some indication that U.S. domestic production of crude is slowing, which will hopefully put a negative production curve fear into the market and start propping prices up a bit:
More bad news from the North Dakota shale revolution this week:
The high cost of production coupled with the high cost of shipping the oil is crippling the region economically. The North Dakota market is taking it on the chin from two areas….oil, and agriculture, both suffering huge losses and tough market conditions. Really, the only good news from the energy markets is that we keep stacking on more gasoline in storage and hopefully the price of gasoline will continue to drop dramatically, which will fuel some additional consumer spending here in the U.S.
Many traders know that a measure of intrinsic value in an asset class is often comparing it against gold. There are lots of analysts that use this as one of many measures for analyzing times to buy and sell an asset class. What is interesting, particularly so at present time, is the oil to gold ratio, which shows an incredibly oversold condition in oil vs. gold. The only way to fix this ratio is either gold has to drop, or oil has to rise…and I tend to believe it will be the latter:
As I indicated in previous issues, I believe we have very well seen the bottom in the price of oil. This is good news, but its not great news, because I’m not putting any time table on the price of oil returning above the cost of production in Canada or fracking regions in North America. The bottom line is that we may seriously see some time put behind us before we return to the “good ole days” of $80-100 oil. But the days of mid to high $20’s in oil is likely behind us. Now a new floor may be in place. The period of time we stay low will ultimately decide how bad it will get for the oil companies, when sustainability becomes the question. When the headlines start to debate the future of the big boys in oil production and whether they can sustain long term with low oil prices, is precisely the time I want to start buying their stock. Still, I think we are a quarter or two away from that point.
Now turning to the U.S. real estate market, where I think we will be blessed to have buying opportunities in 2016 and 2017. U.S.
New home sales were below consensus last month, echoing the weakness that I have been forecasting:
The next chart is one that housing bulls will throw at you, saying the reason for low sales numbers is the low inventory numbers, see below:
My issue with that conclusion is that if the two were really tied today, and demand remained high, then prices would be skyrocketing. But they aren’t, which tells me that it is true market weakness, not necessarily a low supply issue keeping new home sales number down. (leave it to the “experts” to come up with that conclusion).
One interesting chart is the year over year sales at Home Depot. Take a look at the below chart, which indicates that there is an increase in home repair spending, meaning that people are opting to remodel or fix-up versus buy new. This is actually quite a good thing, considering the aging homes throughout the U.S.
Now lets take a quick look at China – I believe this one chart will say it all:
China is doing all it can to fiscally stimulate itself by continuing to borrow and spend, while the deficit grows at a rapid, staggering pace.
An interesting measure of consumer financial health is how much they pay attention to their utility bills, and whether using is trending up, or down. Well…
The big issue still remains the capital outflows from China, which are a massive $100 billion per month.
The bottom line is that we continue to face major challenges with the equity markets, commodity markets, and global economies. The chances of a U.S. recession are rising by my measure, and many other “experts” who are watching the trends remain in very bearish modes.
As states earlier, I’m contemplating a short position in the S&P futures Sunday night or Monday morning, and waiting for the inevitable shot down that I believe we are heading towards. With the information flow in today’s world and the sheer number of headlines, the markets are extremely tough to time. So, in my mind, you have to invest and trade for the longer term, and take profits trading whenever they arise. With so many headwinds facing us, keeping some powder dry for the right opportunity is a great idea…if you have access to opportunities.
Until next week,