Tuesday, May 20, 2014

Summary:

This morning nearing the opening of the USA stock market, asset classes are mixed.  DOW e-mini is down 18 points (as I write).  ES mini is down 2.25.  NQ mini is down 2.25 points.  While that may suggest a lower opening, I believe it would be better to interpret this as indecision in overnight trading after 2 days of up (after 2 days of large down moves).

Gold and Silver are both down. 

Dollar Index is up. IMM futures Positions reports are very volatile (choppy), and they have not shown a true long-term trend in any currency for a long time.  There is speculation that the UK is entering an upward trend in inflation.  Does that mean a interest rate hike is in the near future?   As usual, some say yes - a rate hike; some say no, the UK will follow the ECB.  Well, if we look at the CPI print this morning, it would suggest inflation will remain just below BOE's target rate of 2% for the foreseeable future.  

ICSC Goldman Retail Sales was down -1.3% over last week, but it is up Y/Y.  The drop W/W was blamed on the weather.  Good grief  Redbook also shows that retail sales are slowing, but Y/Y is trending up.  ICSC is considered a more reliable indicator than the Redbook. 

Retail Sales is about the only major economic report today.  

Unless some surprise happens somewhere, the USA stock markets will tend to chop I think.

If the USA Economy is so strong, then why?

·         Why do we need to keep interest rates near zero? 

·         Why is the labor participation rate going down, and why did it reach a 36 year low?

·         Why is McDonald's reporting sales are down in the USA (while sales are increasing overseas)?

·         Why is real disposable income in the US experiencing the largest Y/Y drop since 1974? 

·         Why does Time report that 56 % of all USA citizens have sub-prime credit?

·         Why since Obama took over the Whitehouse, the number of people on food stamps has gone from 32 million to 47 million (and growing)? 

Dr. Yellen says there is much work to do to improve the economy.  On the other hand President Obama keeps telling everyone how much better the economy is.  His State of the Union message in January 2014 tells that story over and over. 

FACTA

Several people that read my newsletter have asked me about FACTA (again).  FACTA is the Foreign Account Tax Compliance Act which was added to the HIRE act (known as the jobs bill).

First the jobs bill has had no reportable positive effect on jobs; irrespective of what President Obama has shouted from the roof tops. 

FACTA had the best intentions, but like many Democratic programs since President Obama's reign, the unintended consequences  are many and severe.  The intention was to go after the tax cheats who hid money in overseas accounts.  Given the huge deficits, it was sensible for the government to go after the "cheats". 

One of the problems, however was FACTA is not directed at tax cheats.  It is directed at overseas banks.  We just saw with the Credit Suisse settlement how the US government is going to play out taking on the foreign banks.  Basically, banks and businesses overseas will have to do a huge amount of paper work to comply with IRS regulations for USA citizens.

In effect, FACTA has placed a very heavy burden on Foreign Companies, and rather than deal with the change, they have often just decided to disinvest from US securities and US dollars. 

As usual Congress does not know what it is doing, and the Bureaucracy who really writes these things, is not thinking through the ramifications enough.  As usual since this Whitehouse Administration, the laws being passed are not thought through. Bad execution; even if most of us can agree with the intent. 

I do not believe that the end of the USA crowd is right.  They are doom and gloom trying to sell their newsletters.  Fear sells after all.  I think the dollar will lose ground because of FACTA.  But the dollar is not going to end; the USA is not going into chaos; nor is the USA going to collapse.  If the dollar loses its trade status in international trade, then the USA dollar will collapse, and likely take the USA with it. That collapse will not be directly related to FACTA.

China has its own economic problems, but Russia is trying everything it can to destabilize international trade in dollars.  They seem to believe they can do this by sending energy to China instead of Europe. 

China and Russia's moves to destabilize international trade, forcing countries to use Yuan or a basket of currencies instead of the US dollar is much more dangerous to the Dollar and USA economic stability than FACTA.  However, I could be wrong, but I'm very tired of hearing about the end-of-America.  BS... 

The thing for the USA citizen to worry about is the racial hatred in the streets that seems to be building to some boiling point.