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Money Daily has been providing business and financial market news, views, and coverage on a nearly continuous basis since 2006. Complete archives are available at moneydaily.blogspot.com.
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Stocks Set Up for Worst Weekly Loss Since March Banking Crisis; Bond Market Implosion Imminent Friday, August 18, 2023, 9:16 am ET For the third straight session, stocks took it on the chin Thursday, even as retailers Home Depot, Target, and Walmart had reported mixed results and tepid outlooks, the latter, Walmart, blowing away quarterly estimates only to see its stock hammered down in the open market Thursday, losing more than two percent on the day. Walmart's message during its conference call was for caution entering the fall and winter, as their data indicated consumers close to being tapped out. Similar sentiment was offered by Home Depot and Target. Across the retail landscape, companies are stressing over the lack of discretionary spending, noting that consumers are purchasing mostly essentials, such as groceries, many of them paying with credit cards. Overarching the malaise in the stock market is a palpable threat of global currency crises, the BRICS summit next week (August 22-24) paramount of concerns. Rumors regarding the possible launch of a gold-backed trading currency have been widely circulated, pressing the issue of de-dollarization and the decline of the US dollar as global reserve currency. Adding to the smoldering investor panic is the empirically-proven historical fact that September is the worst month for stocks. Since 1950, the Dow Jones Industrial Average (DJIA) has averaged a decline of 0.8%, while the S&P 500 has averaged a 0.5% loss during the month of September. Interest rates, with the 10-year note yielding 4.30%, the highest since 2007 - notably, at the onset of the sub-prime financial crisis - are sending shock waves throughout financial markets, German Bunds and British Gilts soaring in recent days. If those concerning issues weren't enough to cause investor angst, politicians in Washington, DC, are beginning to sound more bellicose concerning upcoming negotiations over fiscal 2024 spending, threatening a government shutdown at the end of fiscal 2023, September 30. With those issues in hand, the Dow has plummeted 802 points this week through Thursday's close, the S&P is down 327 points, while the S&P 500 has shed 93, all of those figures producing greater than two percent downsides. The NYSE Composite is down 409 (2.53%) and the Dow Jones Transportation Average is reeling, down 566 points (3.50%). If Friday continues the weakening trend, this will be the worst week since the banking crisis in early March triggered massive declines on all indices. Losses for the month of August are even more severe. In terms of the Dow Jons Industrial Average, the loss since July 31 is 1,165 points, over a span of just 13 sessions, making Friday's options expiration look like a looming bloodbath, with the bulk of investors completely wrong-footed and blind-sided by the sudden declines after a jubilant July when the Dow recorded 13 straight positive closes. Overnight, Asian stocks were again lower across the board, with European stocks following the trend, major indices shedding in excess of one percent in early afternoon trading. US stock futures are falling fast. Oil is lower, gold and silver continue to be beaten down. With a half hour to Friday's opening bell Dow futures are off nearly 200 points; NASDAQ futures down 138; S&P, -30. Suggested levels which Money Daily released on Tuesday, have already been breached to the downside or are close to breaking down.
Those levels are: The sell-off is clearly signaling structural, long-term damage dead ahead. In other words, this is just the beginning of what has the distinct look of a severe correction or crash which could send stocks to levels below those of late summer and early autumn of last year.
At the Close, Thursday, August 17, 2023:
Thursday, August 17, 2023, 9:08 am ET After Target's (TGT) somewhat mixed results from Wednesday, Walmart knocked it out of the park with fiscal 2024 second quarter net revenue of $161.6 billion versus $159.7 billion expected and adjusted diluted EPS of $1.84 against expectations for $1.70. Same-store sales rose a whopping 6.30% as customers poured in the global giant, purchasing lots of food and trinkets. Despite the strong beat, the stock is trading slightly lower in the pre-market, probably due to already-high valuation metrics. At a price of 160 - about where WMT should open Thursday morning, the stock's p/e ratio is a lofty 25.15, which is just a bit high (about 16 would be suitable) for a company as mature as Walmart. Another negative is the dividend yield of 1.425%, based on the declared dividend of $2.28. The company needs to increase the dividend at the risk of impoverishing the already-ultra-wealthy Walton family. Another worry is that with the emphasis on groceries as Walmart's mainstay for profitability, analysts would like to see a better product mix leaving the store. Concerns that the American consumer is tapped out is being verified by the lack of growth in electronics, housewares, and home decor. Being the world's largest purveyor of household staples, Walmart's product mix is about as plain Jane as possible, leaving growth prospects a function of market share, which the company is apparently well-entrenched, canabalising what remains of the retail space. Keeping in mind that Target was up six to eight percent pre-market, but ended the regular session Wednesday with a gain of just under three percent, it would appear that the distribution (profit-taking, selling) phase begun in August is accelerating. Target is pointing lower in advance of the opening bell. Elsewhere, many eyes are focused on China, which is on the verge of deflation, according to Western media. There is probably a good amount of truth to the fear of China's property market imploding, but that's a condition that could turn into a general contagion, affecting bond prices globally. China's largest property developers have been defaulting on obligations for well over a year, starting with the Evergrande blowup last year. The bond bust is headed straight at China's burgeoning "shadow banking" sector, where a number of investment products are failing to deliver. The timing of a China meltdown is suspect, however, as the BRICS summit fast approaches and Western nations fear what may come out of the August 22-24 conference, which, coincidentally, dovetails with the annual Jackson Hole confab, August 24-26. This has all the makings of a global economic shake-up, as this year's theme for the Jackson Hole symposium is an ominous, "Structural Shifts in the Global Economy." It's almost as though the world's elite financiers are telegraphing monumental change in the global order. Whatever comes from the BRICS and Jackson Hole conferences, the effects are not likely to be immediate, though some panic in bond markets may be the initial response. Longer term outcomes of deflation and possibly a return to gold standard currency will take years to develop and not before considerable chaos in finance, politics, and social structures. There may be already developing a bond market rout, as early trading on Thursday indicates the 30-year Treasury yield rising by as much as seven basis points to 4.42%, exceeding last year's high, and the highest level since 2011. It was below 4% as recently as July 31. The US 10-year yield exceeded 4.30%, the highest level since 2008. The equivalent 10-year UK yield jumped to a 15-year high, while the German 10-year bund neared its highest level since 2011. Inflation has not been defeated, and risk managers are scrambling for better protection. Expect the general environment to become intolerable as the week comes to a close and get even more maddening as the BRICS and Jackson Hole conferences take center stage next week. Advice being doled out is along the lines of "buckle up," and "gird your loins." Yeesh!
At the Close, Wednesday, August 16, 2023:
Wednesday, August 16, 2023, 9:42 am ET Something is off. Way off. Wednesday morning, retailing giant Target (TGT) reported revenue and earnings for their fiscal third quarter, ending July 29. Despite suffering backlash from customers during their June "Pride Month" promotion, which featured all sorts of "woke" and "trans" clothing items that were eventually moved from the front of many stores to the rear, or, in some cases, completely removed from shopping areas, Target handily exceeded earnings forecasts. Despite what many assumed would dent sales, revenue, and profit in the period, Target blew away estimates and recorded one of the best year-over-year performances in the retail space this year. Target earned $835 million, or adjusted earnings of $1.80 per share, in the quarter that ended July 29. That compares with $183 million, or 39 cents per share, in the year-ago period. What is absent in the euphoria - shares of Target are up more than eight percent pre-market - is the fact that the second quarter of 2022 was one of the worst in the retailer's history, so the comparables are against extremely light numbers. There's an asterisk attached to those "adjusted earnings" which reads thusly: "Adjusted EPS, a non-GAAP financial measure, excludes the impact of certain discretely managed items." Discretely managed items? What could those be? Target won't say, though they were kind enough to supply information in a footnote about adjusted EPS. Here's what they said: "Third quarter and full-year 2023 GAAP EPS may include the impact of certain discrete items, which will be excluded in calculating Adjusted EPS. In the past, these items have included losses on the early retirement of debt and certain other items that are discretely managed. The Company is not currently aware of any such discrete items." What's intriguing is that if the company is unaware of any "discrete items" why bother reporting adjusted EPS, rather than stick with GAAP in the first place. Something is being hidden, though not quite in plain sight. In the fiscal first and second quarters of 2023, Target surpassed estimates as it rebounded from a tough 2022. First quarter EPS was $1.89, second quarter, $2.05, making the current quarter's $1.80 per share a sequential decline. This is where it gets more interesting. Target cited inventory at the end of the second quarter 17% lower than last year, reflecting a 25% reduction in discretionary categories like fashion and home furnishings. Comparable sales ‹ those from stores or digital channels operating for the past 12 months ‹ fell 5.4% in the latest quarter. So, the company slashed inventory, sold off merchandise at bargain prices, and, despite comparable same store sales declining, managed a huge profit for the quarter, but, but, but, management cut guidance for the remainder of the year, from $7.75 to $8.75 down to $7.00 to $8.00 per share. That means Target should return EPS of $1.26 to $2.26 in their final fiscal quarter of 2023, leaving plenty of headroom and ample opportunity to the the "adjusted EPS shuffle" once again. Should the company come in at the low end of that guidance, shares will take a hit. If they hit in the upper range or beyond, it's party time, again. It should be pointed out that Target has been struggling, though their recent quarterlies don't reflect that. On the other hand, they've slashed forward guidance, creating some cross-currents in analyzing the stock. The idea that they choose to report adjusted EPS when there's nothing there of notoriety, raises more red flags. The stock is down this year, hitting a high of 181 in February. It's been mostly downhill since, closing Tuesday at 125.05. The pre-market boosts suggests it will open around 134. That, friends, is still down. Another amusing aspect of this saga is that as Target's quarter was released, stock futures continued to fall out of bed. Earlier, S&P futures were up $12.75, with Dow and NASDAQ futures also reaching high points in the wee morning hours. Target's release didn't halt the blood-letting in futures, though, judging by reaction in the pre-market, it should have. In any case, running late here, as the opening bell is about to be rung. Dow futures are -50; NASDAQ, -30; S&P, -7. Something's not right. The odor is palpable. Things appear about to get quite messy.
At the Close, Tuesday, August 15, 2023:
Tuesday, August 15, 2023, 9:22 am ET As duly noted in the Weekend Wrap, the major indices are down so far in the month of August. With CPI and PPI reported last week, no FOMC meeting until September, congress largely on vacation (many wishing they would stay away permanently), and a coming budget battle and potential government shutdown on the horizon, this may be an opportune time to consider bailing or hailing, as stocks seek direction. Levels to watch, upside and down are as follows:
Dow: upside: 35,473 (August 7 peak, below July 31 level); downside: 34,408 (support) Anything above or below those price levels should be considered strong signals for either buying or selling, though the sell side appears to have the recent edge. Monday's melt-up on the averages was constructed of mostly hot air and short-term bets with a big options expiration day coming on Friday. If Monday's results were like a past performance on the racing form, a line would be drawn through them, they're that insignificant. Home improvement big box Home Depot (HD) reported an earnings beat early Tuesday but warned on future earnings, lowering their estimate on 2023 revenue and profits. The company reported a 7.9% earnings decline to $4.65 per share on reduced revenue of $42.92 billion. Though lower than the same period a year ago, fiscal third quarter numbers beat estimates of $4.45 per share and revenue of $42.19 billion. In the year-ago period, revenues were $43.79 billion, with EPS coming in at $5.05 per share. The decline compares well with many other companies that have reported lower revenue and EPS as compared to a year ago, a trend that bears close inspection. Stocks should be lower since their performances (fundamentals) are sliding. Target (TGT) reports on Wednesday, while Walmart (WMT) reports Thursday. Home Depot rival, Lowe's (LOW) reports on Tuesday, August 22. The Commerce Department reported a gain of 0.7% on retail sales in July over June, though analysts are shading the number, indicating that Amazon's Prime Day was a large contributing factor. Additionally, the figurs are nominal, not adjusted for inflation, which was up 3.2% on the month. Government numbers are generally well-massaged for political punch and should be regarded as more noise than substance. The news brought stock futures up a bit off early morning lows, though not significantly. Overnight, China cut some key interest rates in hopes of staving off a recession. Asian stocks were mixed. European stocks tumbled early in the day, but are off their lows and rising in mid-afternoon trading. With a half hour to the opening bell in New York, Dow futures are off 274; NASDAQ, down 86, S&P futures off 30 points.
At the Close, Monday, August 14, 2023:
Sunday, August 13, 2023, 12:55 pm ET
The US sent Secretary of State Antony Blinken and Treasury Secretary Janet Yellen to China, with laughably nil results, eventually getting 100-year-old Henry Kissinger out of bed to meet with Chinese officials. Whatever ideas the Washington delegations brought to bear, China is having none of it. Their continued participation in affairs anathema to US interests around the world has not missed a beat. Hoping she would stay there, VP Kamala Harris was recently dispatched to Africa. Leaders of the few countries she visited laughed her off and sent her packing back to DC. Apparently, they don't want her either. Darn. After Russia held a successful conference with African leaders, parties of the European Union tried in vain to reunite with sub-vassal states of South America. Those overtures were likewise rejected by the southern continent's continued distancing from Western alliances. Through the usual proxies, White House resident Biden made overtures to Iran, swapping some US prisoners for Iranians while also freeing up some $6 billion of Iran's own money that the US had confiscated under sanctions. Previously, Washington invited India's Prime Minister, Narendra Modi, for a sit-down with Biden and others, promising increased trade on very friendly terms. Modi shook hands and nodded agreement to Washington's largesse, since they would have given half the Treasury away were he to side with the US, EU, and UK on the Ukraine question. He didn't, nor did South American nor African leaders. Just last week, Deputy Secretary of State Victoria Nuland (yes, of "F the EU" fame) visited Niger in the wake of their military coup. She returned quietly to the US with few comments, indicating that her mission was a failure, her message falling on deaf ears. None of this has been effective at all in derailing or even slowing the rush of de-dollarization nor the influence of China and Russia with a wide array of foreign nations, cementing alliances and increasing cross-currency trade, elbowing out the dollar and euro. Not only are the US, UK, and EU nervously approaching the BRICS summit, but there's growing evidence of economic decline everywhere. Goldmoney's Alasdair Macleod puts matters into perspective in his most recent research article, "Beware the Great Unwind." This essay gives a generous overview of the impact of fiat currencies on economies and makes a stunning case for a return to a gold standard. It is highly suggested to be read carefully. On the topic of apparent decline in Western societies, according to a recent survey by Bank of America [PDF], 401k participants are raiding their retirement savings at increasing rates. In the second quarter ended June 30, the survey found the number of 401k holders taking hardship distributions was up 12% compared to the first quarter and up an alarming 36% from the second quarter of 2022. What's possibly worse and even more poignant is the decline of contributions, down 23% from the first quarter, and the 13.9% of participants with at least one loan in default. The study confirms suggestions that the US economy is at stall speed at best and standards of living are being further eroded by inflation, a proxy for lessened purchasing power of the fiat dollar. July CPI and PPI figures released Thursday and Friday were further indications that the Fed's efforts to confront and control inflation have not been completely successful and that better efforts may be needed in months ahead. Maybe the Biden, Yellen, and Blinken can resurrect some of Gerald Ford's Whip Inflation Now (WIN) buttons from the 1974 (Hey, don't put it past them. Nothing is too stupid for these open-mouthed, slack-jawed dunces.). Stocks The major indices were mixed, with the Dow and NYSE Composite up, the NASDAQ and S&P down. With earnings season about wound up, expect stocks to churn like the Dow has been for the next week and possibly head lower as the fateful BRICS summit approaches. Taking a somewhat longer view of things, since July 31, all of the majors are down. August usually means that congress is in recess, though this summer, there are still some working on Joe and Hunter Biden investigations and various other outrageous activities. Stocks are taking a breather after a raucous July upswing. The Dow has lost less than 300 points over the span of nine trading sessions, proving that it's far easier to influence 30 stocks than 500 or thousands of them. The S&P is down sharply, from 4,588.96 on July 31 to its Friday close of 4,464.05, a drop of 2.72%. The NASDAQ has taken a bit of a beating, falling from the July 31 level of 14,346.02 to 13,644.85, a hit of 4.89%. Who could have suspected that tech stocks were overvalued? Who? The NYSE Composite closed at 16,427.29 on the 31st of July. Friday's close was 16,143.38. Similar to the Dow, it wasn't hurt much. Overall, however, August is not faring well for the buy and hold or buy the dip crowd. Even the Dow Transports were down for the week and the month.
If the bond market (or Jerome Powell) was a doctor, it would be holding a very, very large hypodermic needle full of usury-high interest rates, saying "this is going to hurt." That's no joke. The interest rate hiking regime since March, 2022 is crippling the US economy. Sure, inflation has been somewhat tempered, but, at the cost of doing business, paying off credit card balances, mortgage rates, auto and personal loans. According to bankrate.com, the average interest on credit cards is 20.60%. That's the AVERAGE. And it's a record. The mortgage interest rate (30-year fixed) is 7.46%, but, hey, you can refinance at 7.54%! Business loans are available, but the best rates go to wall Street first. Small businesses will have to jump through a series of hoops, including income disclosures, years in business, FICO scores of principals over 660 and more to get rewarded with working capital or lines of credit at 6-9% or higher. Yield on the benchmark 10-year note jumped to 4.16% by week's end, with the signal pointing to higher rates for months, if not years ahead. Spreads on 2s-10s remained at last week's level of -73, while the full spectrum (1-month out to 30 years) continues to advance, to -127, from -133 last week due to the 30-year advancing six basis points while the 1-month steadied. Buyers are demanding premium yields for risk, a trend that does not appear to be abating any time soon.
Oil and gas exhibited increased pricing through the week, with WTI crude ending the week at $83.04/bbl. and the US national average for a gallon of unleaded regular gasoline leveling off at a robust $3.83, though prices in some individual states rose alarmingly. WTI finished the week of August 4 at $82.64, so the gain this week is a marginal one, making the chances good that oil and gas at the pump prices will continue to advance higher into the US Labor Day holiday. A prisoner swap between Iran and the US caused some market panic, sending WTI down close to $80, early in the week as the US agreed to release $6 billion of Iranian reserves that had been frozen via sanctions which have been in effect for decades. The $2 billion per US prisoner was obviously seen as a bargain by the blinkered Blinken State Department and, of course, Treasury and FJB. Initial reports by various media propagandists (the usual crowd: Bloomberg, Yahoo, CNBC, et. al.) framed the deal as indicative of the US easing off on Iran and allowing their oil to be freely traded. Obviously, that was far afield from the truth that Iran has been selling its oil to China and elsewhere for years, and doing so in currencies which are decidedly non-dollar, non-euro, sticking a finger in the eye of US diplomacy. The decline in the oil price was short-lived, sending the price as low as $79.95 by early Tuesday morning. By the afternoon, the price was above $83, and continued higher, peaking on Thursday at $84.83. US government officials are becoming increasingly desperate in very obvious ways. According to gasbuddy.com, Mississippi remains the cheapest place to buy gas, now at $3.30, followed by Louisiana ($3.40) and Alabama ($3.41). Texas and Tennessee are both at $3.45, Prices are escalating quickly in Georgia and North Carolina, both hitting $3.60. Florida, the Southern leader, is at $3.71, though that number is nine cents lower than last week. California continued to ramp higher, with gas now averaging $5.13 a gallon, followed by Washington ($5.00). Oregon ($4.67), Nevada ($4.34), Utah ($4.07), Idaho ($4.03), Arizona ($4.02), and Illinois ($4.14) increased the number of states above $4.00 to eight. Closing in are Montana ($3.98), and Colorado ($3.92). In the Northeast/Midwest region, beyond Illinois, the highest gas prices are in Pennsylvania ($3.90) and New York ($3.88). The lowest prices in the region can be found in Kentucky ($3.55) and West Virginia ($3.58). Ohio popped 23 cents over the week to a recent high of $3.67.
This week: $29,352.80 Bitcoin got a bit of a boost this week but increasingly appears to be dead money. It will be interesting and maybe instructive to see bitcoin's reaction to the BRICS summit.
Silver:Gold Ratio: 84.05; last week: 81.76 Per COMEX continuous contracts:
Gold price 07/14: $1,959.30
Silver price 07/14: $25.16 Gold and silver were beaten down without mercy through the week, with silver crushed both Monday and Tuesday. Gold was stepped down more gradually, but each of the PMs ended the week close to their low points. Relentless suppression of gold and silver by the LBMA, CME Group, and COMEX traders, assisted by the US Exchange Stabilization Fund (see below) have weakened precious metal prices in advance of the BRICS summit (8/22-24).
The Exchange Stabilization Fund (ESF) is an emergency reserve fund of the United States Treasury Department, normally used for foreign exchange intervention. It consists of three types of assets: U.S. dollars, foreign currencies, and Special Drawing Rights (SDRs), which is an international reserve asset created by the International Monetary Fund. The ESF can be used to purchase or sell foreign currencies, to hold U.S. foreign exchange and Special Drawing Rights (SDR) assets, and to provide financing to foreign governments. All operations of the ESF require the explicit authorization of the Secretary of the Treasury ("the Secretary"). The Secretary is responsible for the formulation and implementation of U.S. international monetary and financial policy, including exchange market intervention policy. The ESF helps the Secretary to carry out these responsibilities. By law, the Secretary has considerable discretion in the use of ESF resources. The legal basis of the ESF is the Gold Reserve Act of 1934.
Partially outlined on the Treasury Department website: Consistent with the obligations of the Government in the International Monetary Fund (IMF) on orderly exchange arrangements and an orderly system of exchange rates, the Secretary Š, with the approval of the President, may deal in gold, foreign exchange, and other instruments of credit and securities. Essentially, the ESF, via Secretary Grandma Yellen, with tacit authority from the bonehead in the White House (FJB), can manipulate and influence markets worldwide. There should be little doubt that the ESF, along with their allies in London, Tokyo, Ottawa, Canberra, Brussels, and anywhere fiat currencies are promoted and promulgated, will continue intervening in markets - especially gold (and silver) - until and probably beyond whatever the BRICS summit of August 22-24 announces pertaining to a trading currency, establishment of gold-backed money, or any other dollar-negative agreement they outline. Price suppression in precious metals has always been a feature of criminal financial operations overseen by the World Bank and IMF. Finance ministers of nations around the world have only recently awakened to the one-sided nature of these international institutions and have begun to revolt. The February, 2022 freezing and confiscation of billions of dollars in Russian reserve assets was the wake-up call. Actions by the BRICS and other non-US-aligned organizations, such as the Shanghai Cooperation Organization (SCO), Association of Southeast Asian Nations (ASEAN), the Pan-African Free Trade Area (AfCFTA), China's well-advanced Belt and Road Initiative (BRI) and others have since advanced their goals of de-dollarization and bi-lateral trade, threatening the reserve currency status of the US dollar, and with it, the fates of the pound, euro, yen, and Swiss franc. There's little doubt that the anti-BRICS, anti-Russia, anti-China rhetoric will be fully amped up as the BRICS summit approaches and will continue afterwards. There's a good chance that trading in precious metals and other valuable commodities will undergo some hopefully positive changes via the summit, now a mere 10 days away. Here are the most recent prices for common one ounce gold and silver items sold on eBay (numismatics excluded, free shipping included):
The Single Ounce Silver Market Price Benchmark (SOSMPB) fell by $2.10 over the course of the week, to $34.83, from the August 6 price of $36.93 per troy ounce. This represents the lowest price on the SOSMPB in nearly six months ($33.01, February 26).
Mention of the BRICS summit throughout this missive was not by accident. People need to pay very close attention and understand the significance of international developments. That's all for now. The warnings have been issued for the past two decades. Only the turly ignorant or mentally handicapped will be blind-sided.
At the Close, Friday, August 11, 2023:
For the Week:
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With the highly-anticipated BRICS summit just over a week ahead, there are growing and obvious signs of nervousness in official circles, not the least of which emanating from the US State and Treasury Departments, which have been on a charm offensive for the past few months.
