Harry S. Dent Jr.'s Blog, page 35

What To Do With Your Investments in This Market

It’s a question we’re asking again – have the markets seen their top and this is the crash or is this slide a precursor to a moonshot into 2019 – and, still, markets keep us guessing.

As I’ve explained several times now, there are two scenarios likely. And in today’s video I talk about the one I currently favor.

It may (or may not) surprise you, so have a quick listen.

That said, the markets are in an in-between phase, so what do you do with your investments? I have some suggestions…

And we’re watching January closely. You should too.

Harry

Follow me on Twitter @harrydentjr

The post What To Do With Your Investments in This Market appeared first on Economy and Markets.

Hiking Interest Rates into 2019

Santa was in a bad mood this year. Maybe that was the Fed’s fault…

The stock market hated the outcome of Wednesday’s (December 19) Federal Open Market Committee (FOMC) meeting.

Following the meeting, the Treasury bond yield curve flattened out in disbelief. The Dow Jones Industrial fell about 900 points from its pre-meeting highs – almost 350 points lower on the day.

Remember just a few weeks ago when the long-term Treasury was trying to push above 3.4%?

After Fed Chair Jerome Powell and his crew of monetary policy voters decided on another quarter-point hike of the federal funds rate, the long-term Treasury yield fell below 3% before bouncing back slightly above 3%.

Bond traders seem to be worrying about a global slowdown.

Meanwhile, the Fed has yet to see any evidence of a slowdown and has plans to follow through with up to two more hikes next year. The Committee did drop plans for a third hike in 2019… though that wasn’t enough to soothe markets last Wednesday… or the rest of last week for that matter.

How they end the year is anyone’s guess.

Treasury yields held steady last week, but the 10-year yield ended the week below 2.8% and the yield curve is close to becoming completely flat. In other words, the difference in short-term and long-term yields is negligible and flashing a recession warning sign.

Inflation Update

The Bureau of Economic Analysis released November personal income and outlays figures last Friday.

Personal income disappointed by moving up 0.2% on the month, falling from a 0.5% rise in October. The estimate was for a 0.3% rise in income.

Consumers racked up debt as spending rose 0.4% in November on expectations of a 0.3% rise. October spending was revised up from 0.6% to 0.8%.

The Federal Reserve’s preferred inflation gauge, the personal consumption expenditure index – or the PCE price index – rose just 0.1%, matching the same subdued rise last month. The expectation was for a 0.2% rise on the month.

When you exclude food and energy prices, core prices still only rose 0.1%. On the year, core prices were up 1.9%, as expected.

Consumer spending is outpacing income, which doesn’t bode well for future spending.

Inflation remained muted and will likely fall with dropping energy prices.

The Fed, however, isn’t seeing it that way…

The Fed Outlook

The vote to hike rates for the fourth time this year was unanimously in favor. I fully expected the Fed to hike and I’m not sure why the market seemed shocked.

According to Fed projections, inflation is expected to end 2019 at 1.9%, that’s both with and without food and energy. The PCE is the measure they’re looking at and that dropped 0.1% from the September forecast.

Unemployment is expected to remain low, with the rate staying around 3.5%.

Our economy – as measured by GDP – is expected to grow at 2.3%. That dropped from 2.5% in the September forecast.

So, according to the Fed, the economy should still be doing well enough. Inflation should still be close enough to the established 2% target, unemployment should continue to be historically low, and a couple more rate hikes in 2019 still look to be appropriate.

Powell’s Comments

The Fed Chair’s comments after the conclusion of last Wednesday’s meeting were pretty much in line with the written statement.

He sees economic growth moderating.

But his outlook for 2019 is “pretty positive” overall.

Inflation has continued to surprise him, but he remains optimistic of that magic 2% target level.

Furthermore, Powell said that the current unwinding of the Fed balance sheet has been smooth; a procedure on autopilot. He doesn’t foresee any changes to current $50 billion per month reduction in balance sheet holdings.

According to many analysts and talking heads on the financial networks, Powell’s comments about the balance sheet were the catalyst for last week’s sell-off.

But at this point, it doesn’t really matter.

I believe Treasury bond traders see more future risk for deflation rather than inflation, and recession rather than continued economic growth.

We’ll see how 2019 shapes up and what the Fed ultimately does to respond. Regardless, with Dent Research, you’ll be ready.

Lance

The post Hiking Interest Rates into 2019 appeared first on Economy and Markets.

New Line in Sand for S&P 500

In my video update on Friday, I outlined three strong support levels for the broad markets. For the S&P 500, the support was 2,430. For the Dow is was 22,275. And for the Nasdaq it was 6,300.

I based these on logarithmic (exponential for tracking bubbles) channels.

The S&P 500 broke that support on Friday. The other two indices accelerated their decline and broke their respective supports on Christmas Eve.

That was NOT a good sign, despite the rally today.

The Nasdaq and Dow channels only broke slightly below those support levels, certainly not enough to disqualify them…

But the S&P 500 broke down a bit more critically… Yet the markets are finally rallying more strongly today!

This brings us to the middle of both potentially EXTREME scenarios I’m monitoring:  

Either the markets are going to blow-off big time into 2019 after this deeper correction…  

Or, they’re going to continue to crash into 2021 or later, with more to come near term.  

Unfortunately, right now it could still go either way…

The experts on Wall Street are expecting neither of these two scenarios. They think the markets will be up modestly in 2019 after this correction.

But I still lean towards the “pause-that-refreshes” scenario. That is, a deep correction that ends up in a strong, final blow-off rally into late 2019. History would favor this scenario when a major bubble is peaking.

Here’s the important support just ahead at around 2,300 on the S&P 500…

 

This is the linear channel for the S&P 500, with a classic overthrow top above the channel.

A break much below 2,300 on the S&P 500 would confirm this pattern and be the first signal that markets put in the top in late September, even though the previous January top looked more like a major bubble peak. That would mean stocks could accelerate downward again occurring just a bit later than in past initial bubble crashes.

However, the markets are still at a critical point. The stronger rally today could signal a potential bottom and the rally scenario for 2019… but we’ll see ahead.

We’ll keep you updated. But for now, stick to your chosen strategy, which should have an escape valve and a protection plan against a downturn. Each member of our team – Rodney Johnson, Lance Gaitan, John Del Vecchio, and Adam O’Dell – is watching this situation closely, and sending out alerts as and when necessary. Watch out for their emails and follow their guidance. This isn’t their first rodeo.

Harry

Follow me on Twitter @harrydentjr

The post New Line in Sand for S&P 500 appeared first on Economy and Markets.

Why I Still Believe This Isn’t a Market Crash

Markets have had support at around 2,530 on the S&P 500 and 23,300 on the Dow. Those were the early 2018 low off the last market crash. And they’ve broken through those levels.

But they still have dropped to levels that definitively say the crash has started.

So, I’ve been tracking the Dow versus the 1929 crash (early months) and the Nasdaq versus the 2000 crash. And I’ve gotta tell ya, this turmoil still looks more like a correction than a crash.

I explain what I’m seeing in the charts, and what I’m watching for in today’s video. Watch it now.

Markets yesterday came very close to an important trend level on the S&P 500. But the fact that it didn’t break that long term trend line gives me pause.

Details here.

Harry

Follow me on Twitter @harrydentjr

The post Why I Still Believe This Isn’t a Market Crash appeared first on Economy and Markets.

What’s Driving the Yellow Vest Movement?

The global populist movement is accelerating… and in Europe it’s taking the form of an explosion of yellow vests!

In Zero Hour, I discuss the broad backlash against globalization, with the wage competition and immigration flows it has brought with it in spades since the end of World War II.

The middle class is losing its cherished lifestyle.

It’s worth noting that this isn’t something that will last for a couple of years.

It took decades the last time such a movement took shape (1913 – 1945) to resolve, at great expense to global trade and migration.

Immigration into the U.S. went from the highest ever as a percentage of the population down to near zero in the early 1930s.

Global exports as a percentage of GDP crashed from 15% to 5%. They’re now starting to fall from 30%, down to 15%… maybe even 10% (only time will tell…)!

This trade war with China is a fight for global leadership. China will lose shorter term battles like this one, but it will seek to win the war.

When it comes down to it, ultimately, this is a racial crisis…

Global trade, travel, and the internet have brought us so close together that we now know exactly who we hate, or who is threatening our lifestyles, and it’s making more countries retreat to nationalist policies. America First or Italy First.

A Changing World 

Andy Pancholi and I see the world reorganizing into political entities with more common cultures and values so that we can work our way back into an even stronger globalization trend. But that’ll only be decades from now.

That means America could find some way to split into two or three entities that are largely blue or red, not both!

The West coast and Northeast are clearly more blue.

Most of the Southeast and central are more red.

Italy may follow the U.K. and leave the euro… It could even split into north and south entities, as they are very different economically and culturally.

We see all of this slowly taking shape when we watch the news…

Brexit…

Trump’s presidential election…

And now the major yellow vest protests in France against rising fuel taxes to curb pollution!

What about our dwindling middle-class lifestyles?

The populist revolution has reared its ugly head there too. This occurs as France weighs in as the most taxed developed country in the world, with government taxes at 46.2% of GDP. It’s only 27.2% in the U.S. and 34.2% OECD on average.

And similar yellow vest protests dot the Netherlands, where taxes are a very high 38%. The slogan of the recent 400 Dutch protestors? “The social winter is coming.” Sounds like a social/political revolution brewing to me.

Yellow vest protests have also started up in Belgium, where taxes are at 44.6%.

Two protesting Belgian sisters claimed: “Our children are hardworking people, but they have to pay taxes everywhere. You can’t get housing anymore… The social welfare net we grew up with is gone.”

The Belgium Prime Minister is resigning because he couldn’t form a government with a large enough majority in this very split country.

But even stronger than in even the U.S., everywhere in Europe there is resistance to immigration, especially after the giant refugee wave from Syria and the Middle East in 2015.

Chancellor Merkel in Germany lost enough support that she’s bowing out. Italy has a new far right Five Star/League alliance that has taken over the government and is anti-immigration and anti-EU.

Then there’s Denmark. It’s making it very clear that it has unwanted immigrants. They’re isolating refugees and criminal violators that can’t be returned to their home country on a small, desolate island with infrequent ferries… like a big jail!

Says the Immigration Minister: “They are unwanted in Denmark, and they will feel that.”

Check out this table…

A Gallup Poll shows 750 million people globally state they would migrate out of their country if they could. This chart shows the percentage by major regions.

But immigration is getting tougher almost everywhere, so these desires are going to be increasingly blocked.

It’s no surprise that Sub-Saharan Africa, Latin America, non-EU Europe, and the Middle East/North Africa lead in people’s desire to leave, and these readings have risen since 2012.

It IS a surprise that the number would be at 21% for the EU and even 14% in North America. That number has risen since 2016-17 for us.

But notice the nations where the percentage of people wanting to leave are low. They’re the higher growth regions, with progressing income and opportunities.

Seeing Australia, New Zealand, and East Asia in this group isn’t surprising.

What did surprise me was to see India/South Asia and Southeast Asia there as incomes are still very low. The reason: Those two areas are also the ones my demographic and urbanization trends say have the most potential in the future… for their citizens, investors, and businesses… so why leave?

Harry

Follow me on Twitter @harrydentjr

The post What’s Driving the Yellow Vest Movement? appeared first on Economy and Markets.

This Year’s Lump of Coal? Tesla Stock!

Once again, my wife has dashed my Christmas hopes.

I didn’t want a sky-diving trip, or a hippopotamus. I simply wanted a Tesla Roadster. Preferably, a red, 2010 model. Those cars are streaks of lightning!

But I’m guessing from the size of the presents under the tree that I’ll be disappointed yet again.

Oh well. At least I can console myself with the knowledge that, while I didn’t get the Tesla car I wanted, I don’t hold the stock. That would have been the biggest Christmas dog of them all.

I’ve railed on Tesla as a company in the past…

I love some of their products, which is why I ask, in vain apparently, for a Roadster every year.

I’m not sure I need a Tesla surfboard (yes, that’s a real thing), or even a personal flamethrower (made by Tesla sister firm, The Boring Company). Those are just vanity products.

My dislike for the firm isn’t about the products it makes, it’s about the losses it creates.

Today should be Tesla’s finest hour. The company has several well-known and loved models, and it remains the only serious entry in the electric vehicle market in terms of desirable cars.

And yet, the company barely earned a profit last quarter by using government subsidies for sales and selling zero emission car credits to other car makers.

Oh, and it also plunked out cars at such a rapid pace for its assembly line that quality didn’t just take a back seat, it stayed behind on the factory floor.

Tesla fell six spots in Consumer Reports’ quality rankings this year, dropping from 21 to 27, out of 29.

The fabled Tesla X, with its Falcon doors, has the dubious honor of being among the 10 worst cars for reliability on the market today. You’d better like the way it looks in the service bay and your driveway, because that’s where it will spend a good chunk of time.

Now Tesla faces several headwinds, any one of which could drive the company into a ditch.

The company can’t produce Model 3 vehicles fast enough to ramp up sales, and it looks like the waiting list is dwindling. It’s possible the company will eat through excess demand and will have to produce the lower-priced Model 3 that Tesla touted when the model was first unveiled. Lower-priced models produce lower profits.

And there’s the little thing about the subsidies…

Tesla sold its 200,000th car, which means that the government subsidy of $7,500 for each car sold will be cut in half next quarter, and then eliminated after that. This drives up the cost of every vehicle by $7,500. That might not be a big number on a $100,000 Model S, but it will make a difference on a $50,000 Model 3.

It’s possible the government will extend the subsidy, but that will take an act of a dysfunctional Congress.

But the biggest threat to Tesla isn’t self-inflicted.

The company set out to prove that customers would clamor for a well-designed, smoking-hot electric vehicle. It succeeded. But success brings competition, and it is coming on with a vengeance.

Today, I can drive to downtown Houston and buy the new Jaguar I-Pace in Photon Red for $88,000, which is comparable to the Tesla X.

Early next year, I’ll be able to drive to my local Audi dealership and pick up a new Audi e-tron.

But the one with the most promise in terms of combining cool and electric power is the Porsche Taycan, which should arrive by 2020.

These cars share some common characteristics. Premium brands make them, they perform at high levels, and dealerships support them in sales and service.

That last little bit about dealerships will be Tesla’s Achilles’ Heel.

Without that support network, owners in many locations are left to rely on a patchwork of qualified mechanics. Owners with vehicles out of warranty have few options.

By this time next year, Tesla will be one of several EV options, and most likely not the highest-rated choice. This makes today a great time to stay away from the stock, or even take a short position.

The Chinese government just made that trade even more attractive.

In an effort to make a little headway in the trade war, China announced it would suspend tariffs on American cars. The news boosted Tesla’s stock, since the company sells in China. But competition here at home also means competition abroad. So the recent bounce in Tesla’s stock as the markets dipped should be a great opportunity to exit or buy puts, since I’m not one to sell short.

No matter how you choose to play Tesla, or whether you get involved at all, just remember it’s better to get one of its cars under the tree than shares of its stock.

Rodney

The post This Year’s Lump of Coal? Tesla Stock! appeared first on Economy and Markets.

Inflation? Where? Now What, Fed?

We saw another week of volatility last week. It continues this week.

Equity markets moved violently up and down. Treasury yields crept a little higher.

The November retail sales figures were released. Holiday sales are shaping up to be OK. Not great. Not horrible either.

On the month, sales were expected to be up 0.1% and were up 0.2%. If we exclude autos and gas, sales were up 0.5% on the expectations of a 0.4% rise.

Car sales are falling and consumers don’t have to spend as much on gas since prices are falling. That leaves retail sales a little better than expected. It should give retailers a little hope that the important holiday season won’t be a total bust.

Despite the pleasant surprise in retail sales, stocks traded sharply lower. It looks as though we’ll see more of the rollercoaster days ahead.

Treasury yields also fell as funds flowed to the safety of bonds.

Inflation Drops

Inflation data was updated last week, and it may change Federal Reserve policy down the road because…

Falling energy prices were expected to impact consumer prices in November. They did.

The Consumer Price Index (CPI) was expected to remain unchanged on the month but was expected to drop year-over-year from 2.5% to 2.2%. There were no surprises there either.

Core consumer prices – excluding food and energy – were expected to rise 0.2% on the month and on the year were expected to increase slightly, from 2.1% to 2.2%. Again, there were no surprises.

November wholesale inflation pulled back as energy prices fell. But they were still higher than expected.

The Producer Price Index (PPI) moved up 0.1% on the month. It was expected to be unchanged.

Core inflation – again, excluding gas and food – jumped 0.3% on the expectation of a 0.1% move. On the year, core inflation increased to 2.7%, slightly higher than the 2.6% last month.

Energy prices were down 5% in the month and gasoline fell 14%. But on the year prices were only off by 2.9% and 1.2%, respectively.

Food prices moved higher by 1.3% in November, which followed a 1% jump in October. On the year, it was up a measly 0.4%. Overall, however, on-the-year wholesale prices fell from 2.9% to 2.5%.

Hmmm. Where’s the inflation?

The Fed will meet to decide on the interest-rate policy tomorrow. It’s widely expected that rates will go up another quarter point.

But then what happens next year? Recent speeches by the Fed chair and other officials indicated a likely change in policy going forward. And we’re keeping our eye on it because uncertainty is our bread and butter at Treasury Profits Accelerator.

Lance

P.S. With the craziness in the markets that I started off talking about, Harry has a big announcement to make. He’ll be in touch later this week, so please watch out for that.

The post Inflation? Where? Now What, Fed? appeared first on Economy and Markets.

China’s Last Grand Stimulus Project

I see China as the center of the greatest bubble period in modern history.

The emerging world has been on an urbanization tear, especially since 1980, and China has led the way!

But, it’s not done so with the two proven pillars of democracy and free market capitalism, which have made most of the developed world urban and rich since the late 1800s.

Rather, China is the largest centrally-planned economy in the world. It’s a model that economists drool over, calling it “state-driven capitalism,” but that’s an oxymoron if I’ve ever heard one. It’s a violation of Adam Smith’s “invisible hand.”

Democracy balances the greed and income inequality of capitalism, while capitalism balances the free-lunch, welfare state of democracy. China has removed democracy from the equation and created an environment where unelected politicians have the power to overbuild and over stimulate to please the people and keep power.

And man has China overbuilt!…

22% of condos there are empty, and most never occupied.


Chinese real estate is the most overvalued in the world compared to incomes.


Debt has grown 80 times since the mid-1990s and 50% of it is collateralized by such wildly overvalued real estate.


Basic industries and large state-owned enterprises have massive excess capacity – 20% to 50%.


20% of Chinese bank loans are estimated to be bad, far worse than Italy.


China’s real estate bubble has been estimated to have finally exceeded the Japanese bubble in extremes (and don’t forget that the Japanese property bubble burst 67% in the early 1990s forward).

China’s first great top-down stimulus program was to subsidize and encourage rapid growth of export industries, especially in the 1990s forward. Exports were growing 30% a year for many years.

When that peaked out at 26% of global trade in 2009, China switched to internal growth through massive implicit debt guarantees to build shit for nobody at the local levels.

China’s total debt as a percentage of GDP almost doubled from 171% to 299%, just since the end of 2008.

And SURPRISE!

There’s excess capacity everywhere! Enough for the country to grow and urbanize for the next decade without building anything new.

And those migrant workers flooding in from rural areas… they’re not even trickling in anymore. They’re actually going back to their rural roots and have been since 2014 because city real estate is unaffordable, city pollution is choking, and city traffic is unbearable!

The Belt and Road strangling the East…

In 2013 China launched its Belt and Road Initiative, a $1.3 trillion ($4.4 trillion longer term) commitment to building infrastructures throughout Asia to revive the old Silk Road trading zone, augmented with maritime travel.

That’s right! Overbuild in emerging countries that are already choking on too much debt, to consume some of that excess industrial capacity for cement and steel, etc., and increase trade throughout Asia to offset falling exports since 2008 and the current trade war with the U.S.!

But now many of the 68 partners (with 4.4 billion in population) in this grand project are balking at the debt China is imposing on them for these projects.

Have you noticed that both China and the emerging markets stock indices are down near 30%?

They’re already leading the next debt crisis…

The developed world dominated the debt bubble into 2008, then it predictable crashed and burned.

The emerging countries have dominated since, with cheap dollars and euros printed by central banks to stave off a depression in the developed world. Now, one debt crisis after the other is emerging: Venezuela, Turkey, Argentina, Pakistan, and more to come.

This new silk road is the last thing that China’s top-down, quasi-communist, crony-capitalist government will try to overbuild before the house of cards collapses, led by defaults on loans to partnering emerging countries…

And look out below when China’s real estate bubble blows.

It will be the greatest deflation of wealth in modern history and become the epicenter of a global real estate crash AND the next great reset in stocks and financial assets… similar to late 1929-1932.

My cycles say this great reset starts by September 2019 into January 2020 at the latest.

Are you ready?

Harry

Follow me on Twitter @harrydentjr

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Do You Care If Trump Gets His Wall?

Do you remember Paris Hilton?

How, every day, we were exposed to some news about the Hilton heiress and it eventually became mind numbing…?

President Trump is the Paris Hilton of the day.

However, as tiresome as the constant barrage of news about him, his tweets, and his woes can become, there are important issues at stake.

Like immigration.

Harry has strong views on immigration and the impact it can have on our economy. He believes a healthy immigration policy is necessary for America truly to be great again (at least it’s one of the components). And his research has revealed that the numbers Trump is working with to guide his policy are not accurate at all.

So, we’re watching this showdown between Trump and the Democrats over his wall closely.

What do you think of the issue?

Should President Trump shut down the government to get his border wall?

Yes
No
I don’t care

Let us know what you think, and to see what your fellow readers think about this issue. Or check out our Facebook page… our Twitter feed… or email me at economyandmarkets@dentresearch.com.

This immigration issue is one of many signs of the global revolution Harry believes we’re witnessing today. It’s something he talks about in detail in his most recent book, Zero Hour.

As we head into the last two weeks of the year, we wait with baited breath to see how things in government – and the markets – pan out.

In the meantime, here’s what we talked about this week in Economy & Markets…

Why Has Global Life Expectancy Exploded?

By Harry Dent

Life expectancy at birth was around age 23 at the time of Christ. It stayed between 23 and 26 until 1700. Then it gradually increased to age 31 by 1900. Since then, it has literally exploded. Check out this amazing chart…

Beware the Naked Companies

By Rodney Johnson 

I’m not talking about firms with no clothes, or those in questionable industries. I’m referring to those lofty, pie-in-the-sky estimate companies that are devoid of earnings but command nose-bleed valuations. Those are the guys you’re going to want to avoid in 2019…

Are We at the Peak of Employment and Wages?

By Lance Gaitan

Last week started off with a bang as the markets were encouraged by a temporary truce in the trade war with China. Stocks bounced sharply higher to the news. But it was short lived. Here’s what makes this so concerning…

7 Signs Will Confirm the End is Near for the Market

By Harry Dent

Market volatility is rife. The last few months have not been good for stocks. Is this the beginning of the end? I don’t think so. But we’ll know when we see these seven signs…

What You Need to Know About the December Market Correction

By Harry Dent

The trillion-dollar question right now is: when will this market bubble peak? The reality is that all bubbles go higher than anyone expects them to. But, history does give us a clue…

That wraps us up for this week.

Talk again next Saturday.

The post Do You Care If Trump Gets His Wall? appeared first on Economy and Markets.

What You Need to Know About December’s Market Correction

We’ve been focusing on the trillion-dollar question in recent months, especially since the markets are so volatile now…

And in fact, since Trump’s election, when we turned bullish!

That question: When will this thing peak?

The reality is, all bubbles go higher than anyone expects them to!

But, history does give us a clue, and I share that with you in today’s video. Watch it now…

As I explained earlier in the week, there are seven signs I’m looking for to get a definitive answer about the end of the bubble.

Right now, the market seems to be building a one-year base… and it’s bullish.

The other things about bubbles is that they tend to go out in a very particular way. Listen for the details.

Harry

Follow me on Twitter @HARRYDENTJR

The post What You Need to Know About December’s Market Correction appeared first on Economy and Markets.