Stocks & Equities

A Look at NYSE Margin Debt and the Market

Posted by Jill Mislinski - Advisor Perspectives

on Wednesday, 3 May 2017 14:01

Note: The NYSE has released new data for margin debt, now available through March.

The New York Stock Exchange publishes end-of-month data for margin debt on the NYX data website, where we can also find historical data back to 1959. Let’s examine the numbers and study the relationship between margin debt and the market, using the S&P 500 as the surrogate for the latter.

The first chart shows the two series in real terms — adjusted for inflation to today’s dollar using the Consumer Price Index as the deflator. At the 1995 start date, we were well into the Boomer Bull Market that began in 1982 and approaching the start of the Tech Bubble that shaped investor sentiment during the second half of the decade. The astonishing surge in leverage in late 1999 peaked in March 2000, the same month that the S&P 500 hit its all-time daily high, although the highest monthly close for that year was five months later in August. A similar surge began in 2006, peaking in July 2007, three months before the market peak.

Debt hit a trough in February 2009, a month before the March market bottom. It then began another major cycle of increase.

The Latest Margin Data

The NYSE has released new data for margin debt, now available through March. The latest debt level is up 1.7% month-over-month. The current level is at another record high. Note the inflation-adjusted version is also at its record high. The March data gives us an additional sense of investor behavior since the start of the new administration.

6d1db7060e2840eff9de986ea84d87ed

…continue reading & 4 more charts HERE

U.S GOLD SCRAP MARKET DRYING UP: Americans Pawned Off Their Best Asset To Go Further Into Debt

Posted by Steve St. Angelo - SRSrocco Report

on Wednesday, 3 May 2017 13:48

After the U.S. economy disintegrated in 2008, due to the Banking and Housing crisis, Americans pawned off a record amount of gold.  How much gold?  Nearly, 32 million oz (1,000 metric tons).  That’s one heck of a lot of gold.   Matter-a-fact, U.S. gold scrap supply at its peak of 160 metric tons (mt) in 2011, was more than any other country in the world, even India and China.

It is quite unfortunate that Americans have pawned off their best asset only to go further into debt.  Thus, enabling them to buy more garbage and trinkets they really don’t need.  This is quite the opposite of Americans who become being extremely frugal and financially responsible after the 1930’s Great Depression.  Today, banks have made it easy for Americans to BUY NOW and PAY LATER.

The consequences of this “Buy now, pay later” economic model is explained in this recent zerohedge article, 45% Of Americans Spend Up To Half Their Income Repaying Credit Card Debts:

First, roughly 50% of Americans have debt balances, excluding mortgages mind you, of over $25,000, with the average person owing over $37,000, versus a median personal income of just over $30,000.

Therefore, it’s not difficult to believe, as Northwestern Mutual points out, that 45% of Americans spend up to half of their monthly take home pay on debt service alone….which, again, excludes mortgage debt.

Because 45% of Americans are paying up to half of their monthly income to pay down credit cards and debt, they can’t use this income to purchase new goods and services.  Thus, a staggering amount of the U.S. Gross Domestic Product (GDP) has been brought forward… thanks to easy credit and credit cards.

And, This is what Americans spent the most money on in the first quarter:

Americans-Q1-2017-Spending-768x483

But that doesn’t mean that Americans stopped spending completely, quite the contrary. According to the BEA’s “goalseeked” models, even as retail sales tumbled, as Obamacare continued to drain disposable income away from other discretionary purchases, Americans – who spent far less on cars, clothing and housing in the first quarter than in Q4 – were scrambling to buy… recreational vehicles!?

When I travel up and down on the interstate where I live, I see a lot of these Recreational Vehicles (RVs), especially on the weekends.  What is even more hilarious, is to see a huge 4X4 truck pulling a large RV, which is also pulling a smaller trailer behind it with two ATV’s on it.  All of these vehicles consume one hell of a lot of fuel.

This sudden motivation for Americans to get into a RV and leave the RAT RACE (for a weekend), makes perfect sense to me.  This is an extremely important indicator showing how Americans would rather go further into debt up to their eyeballs…. just to GET AWAY from it all.   Americans spending a record percentage of their funds on RV’s to escape the insanity, suggests that the economy is getting ready to roll over and fall off a cliff.

Of course, Americans always want to do everything BIG.  So, if you have the money (or credit) and a very large truck, you can pull one of these babies down the highway:

Most of the RV’s I see, have two axles.  However, this one has four axles and more square feet than some small homes in older areas surrounding big cities.   Unfortunately, RV’s will be one of the first items that will go extinct in the United States when the domestic oil industry disintegrates.

Regardless, let’s get back to the drying up of the U.S. secondary gold supply market.

According to the data put out in the GFMS 2017 World Gold Survey, U.S. gold scrap supply fell to a low of 58.7 metric tons (1.9 million oz) in 2016 versus a record 160 metric tons (5.1 million oz) in 2011:

US-Gold-Scrap-Supply-2010-2016-768x550

What is interesting to see in this chart is that U.S. gold scrap supply in 2016 (58.7 metric tons) is nearly two and a half times less than it was in 2010 (143 metric tons) while the gold price was even higher.  Thus, Americans pawned off a great deal more gold in 2010 when the price was lower at $1,225 compared to $1,267 in 2016.  Which means, the U.S. gold scrap supply market is drying up.

This can be more clearly seen in the following chart below:

Not only has the U.S. gold scrap supply fallen 2.5 times from its peak in 2011, it is also less than it was in 2003 when the gold price was 3.5 times less.  Americans pawned 67.6 metric tons (mt) of gold in 2003 when the price was $363 on ounce.  However, with the gold price at a much higher level of $1,267 last year, U.S. gold scrap supply fell to a low of 58.7 mt.

Again, the data implies that the U.S. secondary gold scrap supply market is likely drying up.

As was stated in the beginning of the article, total U.S. gold scrap supply equaled nearly 1,000 mt from 2008 to 2016 (actual figure was 982 mt).   What is even more interesting, is if we compare U.S. jewelry demand versus gold scrap versus China & India.

When the gold price reached a peak of $1,900 in 2011, U.S. jewelry demand was 60.3 mt.  Again, this is the year U.S. gold scrap supply reached a record 160 mt.  We must remember, most of gold scrap comes from recycled gold jewelry.  Which means, Americans pawned 266% more gold than their gold jewelry demand in 2011.

Here are the 2011 Gold figures for the U.S., China & India:

2011 U.S. Gold Scrap 160 mt / 60.3 mt Gold Jewelry Demand = 266%

2011 Chinese Gold Scrap 144 mt / 547 mt Gold Jewelry Demand = 26%

2011 Indian Gold Scrap 58 mt / 667 mt Gold Jewelry Demand = 9%

As we can see, Americans pawned off 266% more gold than their annual gold jewelry demand in 2011, versus 26% for the Chinese and only 9% for Indians.  While some Chinese and Indians were selling their gold jewelry as scrap in 2011, the majority were holding on to it, especially in India.  Of course, this is no secret as India tradition is to build their wealth by acquiring gold jewelry.

Americans are in serous trouble as they have sold off the family’s gold jewels to go further into debt, while the Asians and Indians continue to acquire the yellow precious metal.  When the markets finally crack, very few Americans will be holding gold.  Unfortunately, the majority of Americans will see their highly inflated investments of STOCKS, BONDS and REAL ESTATE collapse while the value-price of gold skyrockets.

 

Check back for new articles and updates at the SRSrocco Report.

Damn the Deficits, Huge Tax Cuts Ahead!

Posted by Peter Schiff - Euro Pacific Capital

on Wednesday, 3 May 2017 13:41

640x-1Donald Trump has made good on one of his most audacious campaign promises by submitting what he describes as the biggest tax cut in U.S. History. For once, at least, this does not appear to be Trumpian braggadocio. It really may be the mother of all tax cuts. But if passed, what may this bunker buster do to the economy? While I have rarely met a tax cut I didn’t like, this one just may be more likely to send the economy into a downward spiral than it is to send up to orbit.
 
As I mentioned in my January commentary, Donald Trump’s big-spending, tax-cutting campaign rhetoric threatened to make him the biggest borrower in presidential history. He comes to office at a particularly vulnerable time for budget dynamics. After contracting by nearly two thirds from 2010 to 2015 (from the mind-bending $1.3 trillion to the merely enormous $438 billion), the Federal deficit started expanding again in 2016, moving up to $587 billion (Govt. Publishing Office, Office of Management & Budget (OMB). Current projections have it going up nearly every year over the next two decades. The Congressional Budget Office expects it to permanently surpass $1 trillion annually by 2021 or 2022. But these ominous forecasts were made well before anyone thought Trump had a snowball’s chance of ever becoming president. Now that he is in the office, those projections will be the floor. The ceiling is anyone’s guess.
 The forecasts assume that the taxing and spending laws in place during the Obama Administration won’t change. The steep increase in projected deficits towards the end of this decade and into the next is largely driven by the retirement of the Baby Boom generation, which will lead to simultaneous increases in entitlement spending and decreases in tax revenue. This brick wall has been hiding in plain sight for decades but the can-kickers in Washington have serially failed to do anything to avert the inevitable collision. 
 
(These forecasts also optimistically assume that the economy never again enters recession, inflation never again rears its ugly head, and that our creditors never get concerned enough about our growing debt to demand a premium for the risk of financing it.)
 
But now that Trump occupies the Oval office, this date with destiny may come much sooner…and she will definitely be ordering the lobster.
 
Before I go negative, let me give credit to Trump for picking the right taxes to cut. He kills the estate tax, an ugly beast that should have been euthanized years ago. Some may see this simply as a gift to the very rich. But legal wizards have long since devised strategies that offer almost complete protection from the death tax. None of these structures offer any real benefit to the businesses these millionaires typically own, or to the economy in general. Killing the tax will cost the government almost nothing, but it will remove tremendous impediments that have prevented family-run companies from growing over generations. He also kills the Alternative Minimum Tax, a complex parallel system of taxation that few understand but somehow manages to ensnare more and more taxpayers every year.
 
Most importantly, he brings down the corporate tax rate from the globally non-competitive rate of 35% to the much more manageable 15%. Taxing corporations has always been a bad way to raise revenue. Corporations, after all, don’t pay taxes, which are simply treated as a cost of doing business. The real costs are borne by customers, who must pay higher prices, and employees, who must suffer with lower wages. But high domestic corporate taxes have hamstrung U.S. corporations and greatly contributed to the decline of American manufacturing. A more competitive corporate sector will shower benefits on all manner of consumers and employees.
 
On the individual tax side, his decisions are much more problematic. Although Trump makes the sensible decision of compressing the seven individual tax brackets into just three (10%, 25%, and 35%), and doubles the standard personal deductions (thereby saving many people from the hassles of itemization), the headline-grabbing component of the proposals has to do with the lowering of the “pass-through” tax rate to the same 15% level that applies to corporations. This means that wealthy business owners, highly paid freelancers, and partners at law firms, medical groups, and management consultancies, will qualify for the 15% rate. This will be a huge windfall to some of the richest people in the country, who typically pay the highest marginal tax rate (currently 39%). And since the top one percent account for nearly 50% of tax revenue, this one provision promises to cost Uncle Sam plenty and to dramatically shake up the corporate landscape.
 
Small business owners and independent contractors will in fact receive the benefit of the 15% pass through rate. But “Mom and Pop” entrepreneurs rarely have income that is high enough to be taxed at the higher rates. These smaller earners will likely be be trading a 15% tax for a 15% tax. All the big benefits will go to the really big fish. Whereas the vast majority of Tom Cruise’s income would have been taxed at the 39% rate, it will now be taxed at just 15%. His taxes will be reduced by nearly 60% from current law. The same holds true, in lesser degree, to lawyers, doctors, and consultants making more than a few hundreds of thousands of dollars annually.
 
Is there any reason that could justify why a hedge fund manager making a million dollars per year should pay 15%, but a full time CEO at a corporation making half that would be subject to the highest marginal rate of 35%? It’s absurd. Now I’m not a big fan of the “progressive” tax system, whereby the tax rate goes up with income. I think a “flat” tax system, in which everyone paid the same rate, would be better. (Ideally I would like to see income taxes replaced by far less onerous and intrusive consumption taxes). But I certainly don’t believe in a “regressive” tax system in which lower-earning citizens pay higher rates than those at the top. But that’s exactly what Trump is trying to do.
 
Given this wide disparity in tax rates, we can assume that the employment landscape will adjust dramatically. We should expect that legions of highly-paid full-time employees will start to form Limited Liability Corporations (LLCs) to work freelance rather than as employees. There are few barriers that would prevent such a shift, and the growth of internet-based work scenarios will continue to break down the traditional barrier between employee and freelancer. Yes, there are some labor rules that seek to separate employees from freelancers, but those rules may be easily circumvented, especially when the reward is so great. Rather than envy the lawyer earning more and paying less, the CEOs of the country will likely incorporate and sell their services freelance to their former employers.
 
This shift will mean that a great many of the country’s highest earners will be paying taxes at the lowest rate. As a result, the reductions in tax revenue would likely be far greater than what is predicted in the standard modeling.  
 
But unlike most prior tax cuts, the Trump version does not even make any attempt to balance the cuts with corresponding cuts in government spending. If Trump’s tax cuts don’t immediately generate sustained 4% growth or more, we may be staring down the barrel of $2 annual deficits. Is this an experiment that we really want to try?
 
But even if the reforms can kick the economy into higher gear, thereby creating higher revenues with lower rates (The Laffer Curve), our current low interest rate environment provides significant obstacles to permit that growth to be sustained. If growth kicks up to the 4% range, the Federal Reserve will have to accelerate its rate increase schedule to keep interest rates in line with GDP growth and to prevent inflation, already above its official 2% target, from running out of control. Plus the markets will also act to adjust interest rates higher due to greater demand for credit and rising inflation. These higher rates will act as a stiff headwind to an economy that has grown increasingly dependent on ultra low rates.
 
But increases in rates would also cost the economy in another way. Our current bonded national debt is ready to surge past the $20 trillion mark. The Trump tax cuts will push it beyond that very quickly. If the Fed raises rates to keep pace with higher growth, then the Government will have to pay much more to finance the outstanding debt. At $20 trillion, every point of increase in interest rates will cost the government $200 billion annually. At that level, if interest rates were at 3.75%, instead of the current .75%, then the Federal Government would have to come up with about another $600 billion per year in interest payments. (That number will be much higher when the debt grows past $20 Trillion).
 
But it’s not just Uncle Sam that is over-loaded with debt. Corporations and households would see their interest costs surge as well with rising interest rates. So what lower taxes giveth, higher interest rates will taketh away.  
 
Consider the housing market. Not only will higher interest rates substantially increase the cost of home ownership (through higher mortgage rates), but Trump’s tax proposals will dramatically increase the cost of ownership for those living in high tax states. Under the proposal, homeowners will no longer be able to deduct property taxes, and a doubling of the standard deduction means a much larger percentage of homeowners will not be able to deduct mortgage interest from their federal income tax. Plus, with the top tax rate reduced from 39.6% to 15%, the mortgage interest deduction will be far less valuable to those higher earners who can still take advantage of it. Higher mortgage rates and lower tax subsidies will increase the cost and decrease the appeal of home ownership. This could lead to a crash in real estate prices, especially in the high end of the market. Falling prices could wipe out what little home equity many Americas have left, and lead to another wave of foreclosures. The losses to Fannie Mae and Freddie Mac could be significant, with the costs falling directly on the Federal government, further driving up annual deficits.  
 
The reality is that years of massive deficits, runaway government spending, artificially low interest rates, and three rounds of quantitative easing, have left the economy so sick that any tax cut large enough to revive it may actually kill it instead. If the Fed tries to keep it on life-support a bit longer by suppressing interest rates with a massive QE4 program, we risk run-a-way inflation and a dollar crisis with economic consequences far more profound than those of the financial crisis of 2008. The only silver lining to this cloud may be that the coming fiscal train wreck leaves lawmakers no choice but to slash government spending. If the real Republican agenda is to starve the beast, its success is assured.
 
Subscribe to Euro Pacific’s Weekly Digest: Receive all commentaries by Peter Schiff, John Browne, and other Euro Pacific commentators delivered to your inbox every Monday!

6 Top Nanotechnology Uses

Posted by Investing News Network

on Tuesday, 2 May 2017 18:29

Optimized-grapheneWhile there’s been plenty of focus on apps and cloud computing in the technology space, advances are also being made in hardware-focused sectors such as nanotechnology. Uses include everything from more efficient drug delivery systems to tiny transistors that allow for smaller and more powerful computer chips.

To be sure, the markets for nanotechnology products and nanotechnology uses are set to grow in the coming years. A report released this past December from Research and Markets states that nanotechnology “is a rapidly growing technology” and the global industry has been forecast to grow annually by 17 percent up to 2024.

Similarly, BCC Research has said that the global nanotechnology market was valued at $39.2 billion in 2016 and should grow at a CAGR of 18.2 percent, in order that the market will reach a believed $90.5 billion by 2021.

Still, for investors just starting to look at nanotechnology stocks, it can be difficult to know where to to begin, as nanotechnology uses are so varied. As a starting point, here’s an overview of six of the top areas in which nanotechnology uses are making a big difference today.

Materials and coatings

…continue reading all 6 uses HERE 

Know When To Hold Your Winners

Posted by Jon Markman's Pivotal Point

on Tuesday, 2 May 2017 14:43

Last week, as the Nasdaq Composite Index crossed 6,000 for the first time, Robert Shiller, a Nobel laureate economist, made the rounds in the financial press.

He’s worried. Valuations are historically high. A crash is coming, eventually, he argues.

With his carefully measured tone and impeccable academic pedigree —  he’s a professor at the Yale School of Management — Shiller is the perfect pundit.

Jesse Livermore, the tenacious trader immortalized in the 1923 investment classic Reminiscences of a Stock Operator, warned about pundits. He hated tips and claimed following them had lost him hundreds of thousands of dollars.

He learned to trust his own analysis. He learned to trust the power of trends and to ignore punditry.

Shiller’s concern is based on something called the Cyclically Adjusted Price-to-Earnings ratio, better known as the CAPE. It’s a valuation model that takes a conservative ten-year average of corporate earnings and divides by the comparable metric for price. And CAPE has reached levels not seen since 1929 and 2000, two dates that send shivers down most investors’ spines.

The rest of the economic story does not help the bulls’ case, either. Those periods were characterized by extremely high levels of Gross Domestic Product growth. In 2000, GDP growth was north of 4%. Last week, GDP was reported at a measly 0.7%.

 

Screen Shot 2017-05-02 at 7.14.46 AMIt’s not the first time in recent years that the CAPE has been high. The ratio pushed near current levels in 1998. At the time, the dotcom era was in full stride. In the ensuing two years, the most speculative stocks became even more dear as prices sprinted higher. For example, adjusted for splits, Amazon (AMZN) zoomed from less than $5 in 1998 to $113 in 2000.

Something like that could happen again. “We’re in an oddball enough mood,” Shiller admits.

The economist explains that President Trump is a game-changing figure, for better or worse, who wants to disrupt the underlying fundamentals of the capital markets. Changing the corporate tax code would be bullish for stocks in the near term.

However, periods of extreme optimism have an ugly common denominator, Shiller notes with a wry smile. They always lead to crashes.

Shiller is right, empirically. However, that information is not particularly useful.

Livermore understood that the most important attribute of a successful investor is the ability to hold winners. He called this “sitting tight,” and it is not as easy as it appears.

Too many investors want to sell winners quickly. They believe stock strength merits selling. Pundits preach everywhere they can find listeners. They construct models. They get on their soapbox on TV. Stocks are up, sell.

Livermore found just the opposite is true. Strength is validation an investor got it right. Investors are wise to learn to embrace this, learn from it.

They are also wise to challenge pundit assertions. Can their claims pass the test of tested scrutiny?

“Not even a world war can keep the stock market from being a bull market when conditions are bullish, or a bear market when conditions are bearish,” Livermore said. “And all a [trader] needs to know to make money is to appraise conditions.”

Understanding market conditions is one of the cornerstones of the information I provide to members. Valuation models alone are rarely useful. You need to know what to buy and when events change that warrant selling.

Our newsletters show members how to identify big trends, find the right stocks, and most important, how to sit tight for the big money. A lot more money is lost waiting for crashes than during crashes themselves.

Best wishes,

Jon Markman’s Pivotal Point

…also from Martin D. Weiss, Ph.D.:

New, Bigger Shockwaves in Europe!