The major news for the week, is the downward trend in the global equity markets including the United States. It is being caused by a combination of surging debt, declining corporate profits, banks and financial instability, slowing global economic growth and the likelihood that the United States will raise interest rates at the end of December.
Two other big factors including the anxiety over the upcoming Brexit (the United Kingdom leaving the European Union) and the uncertainty concerning the upcoming presidential election in the United States.
The concern among global investors is the major central banks will hit the brakes on any further stimulus. Slightly better economic data from the United States, puts the likelihood of a hike in interest rates there at 72%. The Federal Reserve decided this week to leave rates unchanged for the month of November.
World investors have raised cash levels to a 16 month high, on fears of increased market instability and recession in Europe, Asia and the United States.
Total global debt now stands at a dangerously high level of $152 trillion USD (United States Dollar) It is also increasing rapidly in an environment of low, zero and negative interest rates.
Despite the repeated agreements to freeze or reduce crude production within OPEC (Organization of the Petroleum Exporting Countries), output is still continuing to rise.
September saw an increase in oil production, up 220,000 barrels a day from the month before. Total production was recorded at 33.39 million barrels a day. OPEC crude output is now at the highest level in eight years.
There are no definite agreements with non-OPEC producers namely Russia, to agree to a production limit at this time.
Crude oil prices are now below $44 USD in the United States and below $47 USD in Asia and Europe. Prices have fallen 9.5% for the week, the largest loss since January.
Final levels of crude production for individual countries,are to be worked at the meeting of OPEC in Vienna, Austria later this month. If an agreement is made, it will be the first time the cartel has been able to agree to output cuts since the financial crisis.
Another ongoing event is the drop in price for precious metals over the last few weeks. Gold had been slowly dipping in price, since reaching a high of $1,370.80 USD in August. A major set back took place a month ago. The price dropped to $1256.90 from $1326.00, a decrease of $69.10 USD (5.50%) It was a drop of 9.06% from the recent high.
This week gold is listed for $1302.70 from $1273.90 USD last week, an increase of 2.26%. Gold prices in 2016, are up +20% in 2016.
The price for silver decreased to $18.44 USD from $19.43 USD over the past 5 weeks, a $0.99 USD dip which is an 5.37% decline for the period.
The Prime Minister of Canada has finally signed the free trade agreement with European officials. The deal will remove 98% of all tariffs. The hope is that it will increase trade between the two sides by $12 billion USD annually.
Global trade is experiencing the weakest rate of growth since 2007. Protectionist policies are on the rise and progress on two leading trade treaties have stalled.
Political support for the Trans-Pacific Partnership and the Trans-Atlantic Trade and Investment Partnership is declining in both Europe and the United States. These trends are ominous signs for world equity and bond markets.
In the United States presidential election, former Secretary of State Hillary Clinton had been ahead in the polls for months. Now that investigations by the FBI (Federal Bureau of Investigation) of Mrs. Clinton have made national news again, the political race between her and businessman Donald Trump has tightened considerably.
Although still difficult, Mr. Trump now has a path to victory in the Electoral College.
Medical insurance policies sold through what is known as Obamacare, are expected to see an average of a 25% increase in price for 2017. The state of Arizona is to witness the largest increase at 116%.
Deductibles are soaring as well and 57% of all doctors now say they will no longer accept medical insurance from the exchanges. These issues have now become part of the election debate.
All 3 market exchanges in the United States (U.S.) saw a downward trend for most of the week. The Dow Jones Industrial Averages is now below 18,000 from between 18,200 and 18,300 last week. The Standard & Poor 500 & the NASDAQ composite, both has similar results.
All 3 major indices have been down for the week. The Standard & Poor 500 (S&P 500) is down for 9 consecutive sessions. This has not occurred since 1980. The composite is down 1.8% this week. The Dow Jones Industrial Averages (Dow) has lost 1.3% for the week and the NASDAQ 2.6%.
Year to date, the major indexes have advanced the following. The Dow is still up about 4.56%, the S & P 500 has increased 2.97% and the tech heavy NASDAQ, has advanced about 3.7% since January 4th.
There now has been five business quarters of declining corporate revenues and profits.
The U.S. October report indicated that 161,000 new jobs were added, somewhat lower than the 175,000 that was expected.
The official unemployment rate dipped to 4.9%, the real rate (U6) being 9.5%. Labor participation dropped 0.1% to 62.8%. This is because 195,000 potential workers have left the job market.
In a closer look at the October report, there were 90,000 new part time jobs and a loss of 103,000 full time jobs.
The United States has now lost 1.5 million manufacturing jobs in 8 years. A total of 9,000 jobs in the sector, were lost in October alone.
The United States trade deficit has reached an 18 month low at $36.4 billion USD. It declined by 9.9% in September, due to rising exports and a decline in imports. Domestic demand is slackening for foreign goods.
In South Africa protests are rising, which are calling for the resignation of President Jacob Zuma. He is being accused of corruption and political mismanagement.
Markit’s manufacturing PMI (Purchasing Managers Index) for the Euro-zone rose to a 30 month high of 53.3 last month. Although it was below the original estimate of 53.7. This is still above the September rate of 52.6. The figures indicate that the Euro-zone is continuing to experience, sluggish business and economic growth.
Euro-zone economic growth remained steady in the 3rd quarter at 0.3%. This would indicate a 1.6% rate of growth for the year.
In the United Kingdom, the high court has ruled that the government cannot start negotiations to leave the European Union (EU) without a vote from Parliament.
President Putin from Russia, is moving to strip Microsoft software from all government firms and offices.
The Mexican central bank has already developed a contingency plan, in case of a Donald Trump victory in the U.S. elections. Financial authorities are expecting financial and economic repercussions, from a Trump Administration.
Venezuela is in a crisis, both economically and politically. With the economy in a tailspin and near collapse, there are a series of meetings taking place, between the ruling government and the opposition.
Ever larger public demonstrations have taken place against President Maduro, due to runaway inflation and consumer product shortages throughout Venezuela.
The Venezuelan bolivar has dropped to beyond 1,500 per USD on the black market. This was a result of a 19% depreciation, of the exchange rate last week.
Saudi Arabia has threatened to increase output, to depress oil prices even further, unless Iran also agrees to production cuts in crude. The kingdom could ratchet up an additional 500,000 to 1 million or more barrels a day. This would bring total Saudi production from 10.5 million barrels, to as high as 12 million barrels daily. Oil prices would collapse under these conditions, considering the present global glut in supplies.
Iraqis and Kurdish forces with the assistance of the United States, are now within 4 miles of the city of Mosul. It is the second largest city in Iraq. Once retaken, it virtually ends the ISIS ( Islamic State of Iraq and Syria) control over northern Iraq and signals the end of the short lived caliphate.
Turkey is growing increasingly authoritarian as President Erdogan consolidates power. This explains the arrest and detention of 13 political leaders, of its largest pro-Kurdish party on terrorist propaganda charges.
The Turkish government has discharged an additional 10,000 civil servants, bringing the total to over 100,000 since the failed July coup. These former public workers are accused of being sympathetic, to those who worked to overthrow the government.
These kind of activities along with the detention of journalists and the reinstatement of the death penalty by Turkish authorities, have created a backlash in Europe. Plans to introduce visa free travel to Europe for citizens of Turkey in 2017, are likely to be put indefinitely on hold.
The National Bank of Egypt has decided, to float their national currency and raise interest rates by 300 basis points this week. This was done to re-balance the currency market and help the country secure a much needed $12 billion USD loan from the IMF (International Monetary Fund).
Egypt has also pledged to abolish the priority list for imports and phase out monetary financing of the national budget deficit.
Russia has publicly stated that any resumption of peace talks on Syria, will be delayed for now.
Tensions between India and Pakistan are rising on the long disputed border. There have been a number of deaths reported by the use of small weapons fire. It matters, because both nations have nuclear capability in weaponry.
The president of South Korea has become engulfed in a scandal involving cronyism. The country is already reeling economically from the collapse of Hanjin Shipping, the recall of the Samsung Note 7 and the head of the Lotte Group who has been indicted for embezzlement.
There is increasing evidence that the economy of China is stabilizing. The official PMI came in at 51.2 for October, which ended 2 months of virtually flat readings.
The Reserve Bank of Australia has decided to keep interest rates unchanged this week at 1.5%.
The Bank of Japan left rates unchanged this week. Bond purchasing was kept at a constant rate as well.
Industrial output in Japan remained unchanged for the month of September. Retail sales for last month dropped 1.9% from a year earlier. Consumer demand remains a major drag on economic growth.
The week began with the announcement by General Electric, that it was merging its oil and gas business with Baker Hughes. General Electric will own 62.5% of the new company, which will have an estimated combined revenue of $32 billion USD. Deal expected to close in middle part 2017.
CenturyLink has agreed to buy Level 3 Communications for about $34 billion USD, including debt. The cash and stock transaction will create a more formidable competitor, in the market for business telecommunications services.
Takata is preparing for a possible bankruptcy filing in the United States. The company is suffering from the massive recall of car air bags. Takata has seen 4 consecutive years of losses.
The credit agency of Fitch has now placed Deutsche Bank debt, in negative rating for investors. Fitch believes the largest bank in Germany, will have difficulty in restructuring its portfolio, due to poor economic conditions in Asia and Europe.
ChemChina extends its $43 billion USD offer for Syngenta, while it works to gain European Commission approval for the transaction. If the deal moves ahead, it will be the largest Chinese foreign investment in a buying a company ever made.
American West Texas Intermediate (WTI) has decreased in price from $49.39 USD last week to $43.91 USD today, a decline of 12.48%. International Brent during the same period, went from $50.18 last week to $45.45 USD today. This would be an overall decline in price of 10.41%.
American priced and Brent crude oil are both at 1 month lows, but still up about +20% in 2016.
The Investment Newsletter had 12 target fills to report this week, and 0 early stock target fills.
Wayfair $W -2.99% at $33.16 bought short on 05/25/16 for $39.99,Long Term Target Fill on 10/28/16 at $33.49, a 20.01% return. (came in after posting of Newsletter last Friday)
Yum Brands $YUM +0.42% at $62.30. Bought short at $69.99 on 01/27/16. Short Term Target Fill on 11/01/16 at $63.63, a 10% return.
Office Depot $ODP -2.57% at $3.05. Bought short at $3.69 on 05/16/16 Long Term Target Fill on 11/01/16 at $3.07, a 20.20% return
GameStop $GME -2.33% at $23.42. Bought short on 02/16/16 for $26.99. Medium Term Target Fill on 11/01/16 at $23.47, a 15% return.
Chipotle $CMG -1.16% at $356.35. Bought short on 07/13/16 for $409.99. Medium Term Target Fill on 11/01/16 at $356.50, a 15% return.
Under Armour $UA -3.46% at $30.06. Bought short on 01/13/16 at $72.99. Long Term Target Fill on 11/01/16 at $30.41 following earlier stock split, a 20% return.
Yum Brands $YUM -2.18% at $60.69. Bought short on 01/27/16 at $69.99. Medium Term Target Fill on 11/01/16 at $60.86, a 15% return.
GameStop $GME -11.16% at $20.93. Bought short on 02/16/16 for $26.99. Long Term Target Fill on 11/02/16 at $22.49, a 20.01% return.
Fossil $FOSL -4.47% at $24.49. Bought short for $27.29 on 05/23/16. Short Term Target Fill on 11/03/16 at $24.81, a 10% return.
Fossil $FOSL -6.97% at $23.10. Bought short for $27.29 on 05/23/16. Medium Term Target Fill on 11/04/16 at $23.73, a 15% return.
Rosetta Stone $RST -1.91% at $6.80. Bought short for $8.19 on 08/09/16. Long Term Target Fill on 11/04/16 at $6.82, a 20.09% return.
Pengrowth Energy $PGH -6.87% at $1.31. Bought short for $1.55 on 08/04/16. Medium Term Target Fill on 11/04/16 at $1.29, a 15.67% return.