November 2019

ECONOMIC WEEK IN REVIEW

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Why did the S&P 500 reach record highs last week in the U.S? 

For the same simplistic reason the mainstream business media gives for when they go down: the U.S.-China trade war. 

This time, it was “positive” news of a partial “Phase-One” deal to roll back tariffs that pushed up equities.

The dollar still remained strong at $98.40. Gold fell yesterday to $1,455 per ounce.

TREND FORECAST: Should gold drop below $1,450, it has the potential to slide to the $1,390 range, which we forecast will be the bottom.

U.S. MARKETS FLYING HIGH

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The S&P 500 has hit record highs, in part boosted by corporate earnings. 

While so far this year 75 percent of the S&P 500 companies posting earnings beat estimates, U.S. company earnings are on pace to post a 2.4 percent decline in the third quarter according to FactSet.

Trading volume, however, is relatively low, and company share buybacks year-to-date are up 25 percent this year, which increased 28 percent in the third quarter.

AMERICANS UNDER WATER

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While the Federal Reserve pumps in trillions of cheap money to keep the White Shoe Boys on the Street gambling, it’s a different game for the average American.

Americans are working longer hours, and with “real” wages trending between low and flat the debt burden gets heavier.

Adding to the debt load is transference of debt from previous car loans onto new car loans. This is negative equity: when car owners owe more than what the car is worth – similar to the housing bubble of ‘08 before it burst.

THE GERMAN NATION’S STAGNATION

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Industrial production in Germany, Europe’s biggest economy, has slipped 4.3 percent in the 12 months to September.

Last Wednesday, the Kiel Institute for the World Economy slashed Germany’s GDP forecast to 0.3 percent for the third quarter. Growth forecasts for 2020 were reduced from 1.6 percent to 1.0 percent, and for 2021, it was 1.4 percent.

Germany's Council of Economic Experts also cut their growth prediction for 2019 from 0.8 to 0.5 percent. 2020's prospects are expected to contract from 1.7 to 0.9 percent. 

THE GREAT STALL OF CHINA

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Despite its slowing GDP of 6 percent in the third quarter, the lowest in 27 years (which is still sizeable compared to the 2 percent of the GDP’s of the U.S. and Europe), China is set to be the year’s best performing stock market.

It should be noted that major manufacturers in China are diverting funds into financial products rather than putting money back into their companies. Thus, core business investments fell 2.5 percent in the first three quarters 2019.

WEWORK’S NOT WORKING

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Either exemplifying the economic slowdown or because the business model is a failure, WeWork is suffering from low-occupancy rates in China.

The vacancy rate in Shanghai was 35.7 percent in October. Shenzhen had a 65.3 percent vacancy, and Hong Kong was at 22.1 percent. Central China had a staggering 78.5 percent vacancy rate.

WeWork has been aiming for at least a 90 percent occupancy rate.

WeWork's building openings slipped to 78.1 percent in October from 79 percent in September. 

UNDERDEVELOPED DEBT JUNKIES

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Last week, the IMF reported that almost half of the less advanced economies in the developing world, with a record high $38 billion in market debt and at risk for falling into debt distress.

Mozambique, the Republic of Congo, and Zimbabwe are among the list of nine countries in debt distress. An additional 24 countries are expected to follow suit, the highest by far since 2010, since records were first kept.

HONG KONG: WEEK 23

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Yesterday was one of the most violent days in the ongoing civil revolt that has paralyzed one of Asia’s busiest and most influential financial centers.

Protesters took to the streets during morning rush hour, spreading out across the city in small groups, blocking commercial thoroughfares, vandalizing buildings, and forcing a number of shops to close.

Calling for a citywide strike, tens of thousands also marched peacefully.

IRAQ: REALLY BAD TO MUCH WORSE

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Citizens continue to risk their lives as they vent their anger over government corruption, lack of jobs, extreme poverty, and a destroyed infrastructure bombed out by the U.S. after its illegal and immoral 2003 invasion.

In addition to the 319 civilians killed since the government crackdown on street demonstrations that erupted in October, some 15,000 have been seriously injured. 

In addition to deadly force on the streets, the government shut down the Internet in an unsuccessful attempt to quell the fervor of the protest movement.