What to Watch for this Week
Welcome back from the Thanksgiving Holiday where we saw the S&P 500 rally to 2602 last Friday. Early reports show that Black Friday was indeed a big day for Retailers. I for one visited some small shops to help make their year even better. Christmas is on its way, and welcome to Cyber Monday or week.
We have a big news this week. The significant reports are towards the end of the week and will set the tone for the employment report December 8th. In addition to the economic calendar, Congress has several initiatives it will try to get done before going home for Christmas break. We do not anticipate any passage of a Tax bill this year, but we hope the Congress and the President will be able to craft legislation that will put cash in the pockets of those who get up and work hard every day. At the same time, we hope the reforms on the corporate side will encourage domestic companies to invest more in this country and hopefully encourage foreign companies to build factories here in the USA. If successful, this will expand job opportunities, increase wages, and shrink the trade deficit. We would like to ultimately see a trade surplus, which the US has not seen since the 1970s. If the Federal, State and Local governments are to get back on sound economic footing, the US needs to build wealth here and not ship it overseas.
Since time is running out, tax reform probably gets done sometime next year. If that is indeed the case, will investors care? Will they sell stocks or have they discounted the possibility/probability already. Time will tell. If this turns out to be a typical December, we should see the popular averages rise a bit, but f course there are no guarantees. See Saturday’s article on for more on the Month of the Year Effect.
On a different note, Bitcoin increased its value to over $9000 a coin last weekend, quickly surging to $9600. At last check, the BTC is $9699.01. Bubble or not, it is exciting to see.
Global Spotlight
China is in the news again this morning. The “Chinese” miracle is really a debt-fueled bubble. Money pri9nting by the Bank of China and the banking system overall has encouraged over investment, particularly in real estate and manufacturing capacity. Just like the US, much of that money finds its way into the stock market. After a 60+% run since Q1-2016, Chinese equities are starting to falter.
From our perspective, we think that the monetary environment is tightening even the Bank of China sits on its hands. The trouble with market intervention is that once the government and central banks start down that road, they have to continue that policy and indeed turn up the volume, or the bubble pops. China is not alone in this quandary. Virtually every country finds itself in this situation. The ones that fall first, are the weakest economies, with the most restrictive and controlling regulation. In other words, the collapse starts at the periphery and works its way in. The Middle East and South America are wobbly now. Now the global economy is at risk contagion.
Yield spreads on Chinese corporate bonds are widening, signaling that companies are having a harder time raising debt capital. Investors are finally starting to demand a little bit of risk premium. Will more money printing temporarily solve this problem, or is China heading into a recession. Hard to say, but the more the government tries to outlaw the business cycle, the more fragile this system becomes and the harder they system falls.
Economic Calendar
Here is a list of the U.S. economic events happening this week.
Last Weeks Numbers
Review Last weeks numbers here.
