The week began quietly, but a couple of tweets from President Trump about a “phenomenal” tax plan and possible action to help our airlines sent stocks to new record highs on Thursday, February 9, 2017. Bond yields fell early in the week, but yesterday the long-term Treasury yield was back over 3%. With markets hitting new highs it is my opinion that now is not the time to become complacent. Adam O’Dell, Editor, Project V, wrote to subscribers on Friday, February 10, 2017, his market model “flip-flopped – out of ‘buy’ mode and back into ‘sell’ mode.” His system suggests the possibility of increasing volatility ahead. Of course this doesn’t guarantee that stocks will tumble or that volatility will rip higher, but there may be signs that the potential reward of a risk-on position is no longer so favorable at the moment. Now is the time to identify systematic investment strategies that can help participate in upside potential that may also allow for downside protection.
Thanks to Dent Research, provided here is our weekly information roundup ending the week of February 10, 2017. We start each subject with what you hear in the news and finish with what that information means to you. We hope this information will help you separate the noise from the news.
IMF Reports that Greek Finances are Unsustainable... The IMF released two reports noting that Greece won’t be able to pay back its debt in the years to come. The bank also reiterated that it won’t take part in future bailouts unless other creditors forgive some of Greece’s debt.
What it means – Greece is due to receive more bailout money in June and July, but only after it proves that the country is on track with austerity measures. That will be difficult, since the country hasn’t hit a single austerity milestone, as far as I can tell. There’s no doubt that the government has fired public workers and cut pensions, but nowhere near what is required by the bailouts. And you can forget about the public sale of government assets. Per the deal, Greece needs to run a budget surplus of 3% or more so that it can pay down debts. At best, the country is clocking a surplus of 1% to 1.5%.
But what did you expect? This is the same country that repeatedly sues an economist for the “crime” of officially reporting the country’s 2009 deficit using applicable EU laws. Greek politicians label him a traitor who caused the austerity, but every time his case comes to trial he wins… sort of. Every judge has found in favor of the economist, but then allowed more investigation. No one in Greece wants to admit what the rest of the world knows. The country is broke.
Chinese Foreign Currency Reserves Fall Below $3 Trillion… It’s the lowest level in six years.
What it means – Market watchers expected reserves to drop by $1 billion, but instead they fell by $12 billion, taking the total under $3 trillion. The recent decline is small, but it points to a big problem.
Chinese reserves topped $4 trillion in 2015, and so they’ve fallen 25% since then, reflecting the desire of businesses and individuals to get their money out of the mainland. As people trade in their yuan for dollars, yen, and euros, the Chinese government has to use its foreign reserves to make good.
Chinese officials have tried to stem the flow of capital out of the country, but so far all they’ve done is slow it down, not stop it. I think there’s more pain ahead, and the yuan will drop below 7 per U.S. dollar.
TV Maker Vizio Fined for Illegally Tracking Viewers… The company’s smart television would compare what owners watched, like TV ads, with their internet surfing to measure advertising effectiveness.
What it means – Vizio isn’t the only company that does this. The problem was that it tracked viewers automatically without asking for permission. Other manufacturers ask for permission during initial setup, although many times the permission is worded in an obscure way.
If you’re creeped out by this, join the club. But understand it will only get worse. Products like Amazon Echo and Google Home listen to everything said. They must, because they are always waiting to record the words that are directed to them.
Vizio claims it never sent personal information along to advertisers. But, then again, this is the company that clandestinely collected information.
Republican Luminaries Call for Carbon Tax… George Baker and others outlined their proposal for a carbon tax that would include a dividend to consumers.
What it means – The goal was to put a pro-market, pro-growth proposal on the table that addressed global warming. The proposal is at odds with other carbon tax plans because this one calls for monies raised to be sent back to consumers. Other plans call for the government to use tax revenue on clean energy initiatives.
As far as carbon tax plans go, this one is better than others, but the things that make it better also make it ripe for distortion. What government would allow all of that cash to pass by without taking a bit… and then a bit more? And what government wouldn’t use the funds for income redistribution or social engineering?
City College of San Francisco Offers Free Tuition to All Residents… Using tax revenue from a fee on all real estate transactions over $5 million, the city will reimburse the local college for all resident tuition.
What it means – I understand the sentiment of free education, but the irony is striking. One of the least affordable cities in the nation is offering free tuition to residents, which by definition means a bunch of wealthy people. Without the “assistance,” most of these folks will attend college anyway.
A better approach might be for San Francisco to use its tax revenue to pay the college tuition of kids in nearby Oakland, or some low-income city in the Bay Area. But that’s the beauty of the federalist system. If San Franciscans want to use their own tax funds to pay tuition for locals, that’s their business.
This will make you chuckle. German Blog Der Postillon Offers Border Wall From Ikea… Noting public criticism calling Trump’s proposed wall with Mexico too expensive and complicated, this blog outlined a (fake) product from Ikea that fits the bill.
What it means – At a mere $9.9 billion, the wall product includes 471,612 partitions, 3,772,896 screws, and one hex key to put it all together! As noted in the 12,000-page instruction manual, sections can be added or subtracted as desired by the owner.
It’s not exactly financial news, or news of any kind, but it’s still funny.
Next Week – The week of February 13 includes reports on inflation, retail sales, and housing starts.
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