The Ross Rant
Interest rates continue to rise, and are likely to rise further as the huge amount of Treasuries continues to come to market. This is going to get worse. What you need to understand is regardless of the performance of the economy, Treasury needs to sell around $1.0 Trillion of new bonds in the next 90 days, with more trillions to follow. The Fed had been the buyer last year. They are now doing QT, the opposite. As pointed out in an earlier Rant, China, Japan, Saudi have all essentially stopped buying. Therefore, there is a much smaller universe of big buyers. That means rates will have to rise in order to attract sufficient funds to soak up this flood of bonds, especially long dated issues. The downgrade by Fitch, and the potential downgrade by S&P to AA, just push rates higher even though they are essentially meaningless. We had forecast many months ago that the ten would go over 4% and maybe get as high as 5%. That possibility has become more possible now. The primary dealers report that they do not know where they can find buyers for all this issuance. Short dated bills is the most likely source for some now. That means short rates rise further. On the other hand, as rates go higher, stock market investors see attractive risk free yields and sell stocks to buy bonds. My forecast of the SPX going back to 3600- 3700 becomes more possible although not certain. Insurance companies and pension funds see an attractive yield to lock in long term and allocate more funds to Treasuries. Some traders will buy betting that rates will decline next year and they will book profits. I am not sure they are right in that bet. We will see how this plays out, but my assumption is rates go higher regardless of the other economic statistics just due to the volume that has to get sold. This is all going the wrong direction, and Wall St is missing what is really happening, and they are mistakenly raising their SPX forecasts in my opinion. I might be wrong, but I am staying conservative while we wait to see what happens. The bond market is a far better barometer of where things are headed than are the pundits or the stock market. When rates rise this way, stocks decline. The unknown is by how much and for how long.
I believe we will be in recession by late October, and it will last into early24. Maybe not deep, however with consumers out of savings in October, Congress in deadlock over the budget, some banks in a weak position, the ten year over 4%, mortgage rates over 7%, and a massive funding by Treasury underway, and CRE having some real issues, things have the potential to get ugly in the stock market. The leading indicators are down 16 months in a row, they are down more than 4% which has a 100% accuracy of predicting recession over decades. M2 is way down and bank lending is contracting. Stock market multiples are far too high now. S&P is at 23.5x vs an average of 19.6x. There is no way the market goes up from here, and a lot of indexes that say it goes down, and more than a little. Be prepared for a recession by late October or November. What the Fed does then will be unclear since inflation is not yet close to their 2.0% goal. Owning the 2 year at 4.9% might look good if a recession hits. Wall St is way overoptimistic right now. The problem is the government and Fed monetized the deficit and shifted the liability to themselves from consumers in a massive way. That is ended now. The flood of cash into consumer savings is reversed. The party for consumers is over. Near zero after tax cost of capital for real estate and corporations is ended. Municipal bonds will now have to pay real yields just as tax receipts decline. The hundreds of billions of bailouts from Pelosi are ended. Consumers are now stressed and shifting to lower cost goods and services, so pricing power is going away. Margins will shrink as wages rise. We are in a whole new world now.
This becomes a vicious cycle at some point. Even if the Fed stops raising, the bond market will drive rates higher due to the massive funding needs of the Treasury. The higher the ten year goes, the higher mortgage rates go, the slower the housing market, the slower the economy. Commercial real estate declines further as cap rates rise along with rates. Refinancings become more problematic as buildings funded at 3% now have to cover 7% or 8% costs, thus cash flow to the equity is severely reduced, thus values decline further. The same is true for junk bonds. There is estimated to be $1 trillion of below investment grade bonds coming to maturity over the next several months. Upon maturity, a significant number of these weaker companies will not be able to refinance the whole amount and will default, or have to issue more equity at low valuations. This will be happening just as the economy is slowing further. This is not a pretty picture. It is impossible to forecast now how bad this will get, both for CRE and junk debt, but it will be a further drag on banking and financial companies, especially in the shadow banking world. The numbers are not so large as to create a crisis, but it is one more negative for the economy. You do not want to own junk bonds right now. Anything longer than 6 month T bills in my view carries risk of loss. I only buy 3 month bills which now are yielding 5.4%-5.5%. To me that is a very nice risk-free return to have in these uncertain times. It also allows me to roll them as rates go higher. Remember the old Wall St adage- pigs go to slaughter, so better to be risk off now.
The San Fran Fed has released a research paper which says the excess savings of consumers has gone from $2 trillion down to $190 billion, and that will be gone by Oct. That means the rush to travel and spend will end this fall. Adjusted for inflation, retail sales of goods has declined 11 months in a row. Credit cards are getting maxed out and now the excess cash will be gone. Rates on mortgages, auto loans and personal loans will be the highest in decades. You don’t have to be an economist or stock analyst to figure this out.
If you have not noticed, when oil drops below $80 it quickly goes back above $80 the same day. It seems to be a floor being supported by someone big, possibly Saudi. Also note that the SPX PE is now 23.46X. The Dow is at 20X. These levels are not sustainable when T yields are headed up and the prospect of a slower economy next year is being forecast.
So, Trump gets impeached because he asked Ukraine to investigate Hunter Biden bribery. Now Hunter Biden is shown to have been guilty of exactly what Trump claimed in that call. And Adam Schiff is a hero of the left for lying about Russia collusion and leading the false impeachment charge over that phone call, in effect trying to put the president out of office on a false premise. Yet Trump is indicted in GA for alleged leaking false statements about the election exactly similar to Stacey Abrams, Al Gore and other Dems have done in GA. And the Mainstream media thinks this is all fine, and refuses to fully cover the Hunter story and probable bribery of Joe.
China continues to deteriorate. The largest real estate company filed BK. More to follow. Consumers have pulled back, and are not buying apartments like they used to. That cycle is over and now values are falling causing consumers to pull back more as their condo and stock market investments decline. There is also a concern among Chinese that war could be possible based on all the rhetoric out of Beijing which is making consumers more cautious. The Chinese birth rate is now 1.09. That means the replacement population is shrinking, further accelerating the demographic decline. China has had it. It is likely to only get worse for them economically. The booming Chinese economy depended on massive government spending on infrastructure and the massive construction of apartments and other buildings. That has now declined precipitously. Entrepreneurs were encouraged to start and build new businesses. That led to several very large and successful companies. That has ended. The other stimulus was foreign investment which has now nearly dried up. The government is spending huge amounts on military weapons which is not a productive addition to the economic growth the way building new factories is. Add on the major demographic shift now happening with the population in decline and aging quickly. Millions of unemployed college grads is a further drain, and potential for popular dissent. Demand for Chinese products is declining as the western economies slow further, and as foreign companies seek alternative sources of materials and products. Since China imports almost all of its fossil fuels, the rise in those prices raise costs of production just as the economy deteriorates. Taken all together, this becomes a down cycle that they have not been able to stop thus far. How bad it gets is hard to know, but further deterioration in the short term is almost assured. That then becomes a further drag on western economies as Chinese imports also decline and the profits earned in China by international companies decline. It is not likely Xi will attack Taiwan to get the populace to ignore the internal problems. War would just mean the end of any hope of economic recovery for over a decade or more.
The way to think about China is, 40 years ago they began what is their equivalent to the European second industrial revolution. The west had the second industrial revolution from around 1850 to 1914. The industrial revolution was the move from farm to factories, and from making simple things by hand to making complex things by machine. The main difference for China in 1985 was the machines already existed in the west, so they just stole the technology and systems, or they got western companies to bring it to China and take advantage of low labor costs and a huge market in return. So China had its industrial revolution in 40 years, while it took the west from the start of the first industrial revolution in the late 1700’s until 1914. They did it mostly on borrowed funds that now are a major burden. Most borrowing was done by provincial governments that are now broke. Total debt to GDP is now300%. China did raise 800 million people out of abject poverty and illiteracy. The move from farm to cities is mostly done. There is no more money for major infrastructure projects, and most have already been built. The demand for buying an apartment is gone. There are millions of unoccupied apartments now. There are almost no new factories being built now. Unemployment has skyrocketed. The big entrepreneurs like Jack Ma have been chased away. From here they need to invent things themselves, or steal more from the west, which is now onto their game. China is in a whole new phase of the cycle, and with a rapidly declining population, and an adversary relationship with foreign investors and the US and other main countries like Japan, they are not in a good place from here. China will never come close to catching the US GDP. This is Japan 2.0. Only the US continues onward and upward, although if we do not elect someone other than Dems, we will go down the same sewer of massive debt and nil growth.
China moved form a market economy under Deng to an industrial policy economy under Xi. This is the inevitable outcome. The Dems think the answer is the same sort of industrial policy economy.
Watch as the Chinese now start to go after the western auto market with their fleets of inexpensive EVs and hybrids. The US auto companies are now losing money in China, and that is only going to get much worse as the Chinese are now producing good quality low-cost cars. This is looking a lot like the Japanese auto story of decades ago. The rush by GM to be all EV in a few years when the raw materials to manufacture them in volume will not be available, and will be expensive, and the potential entry of Chinese produced cars, is likely to lead to another bankruptcy of GM in a few years. All the money now being invested by the government and private sector in all those battery plants and EV manufacturing, is going to prove to be a bad investment within 5 years or less. If a Republican wins the White House, oil production in the US will ramp up and gas prices will decline, and fossil fueled cars will be as cheap to operate as EVs and cheaper to buy with no more subsidies. If Chinese manufactured cars do come to the US, the big auto companies are in further serious trouble.
Take note, the top songs now are by Jason Aldean and Oliver Anthony. Both are classic American ballads. That is better evidence of where many Americans minds are really are at, and not the media claims of the left. Most people are fed up with the current state of the nation and want to go back to old American values. Boys are boys and girls are girls, and merit, hard work, family and patriotism are what matters.
Deaths from Fentanyl in the past one year was 107,000. Deaths in all of Vietnam were53,000. Deaths in Afghanistan for 20 years was around 2500. But Biden thinks open borders is fine. This is insane policy.
The wildfires on Hawaii were due to the government mandates that the power company had to spend on windmills and solar and not on clearing brush and strengthening wires. This is what the obsession with climate change has brought us.
I was there aboard the other ship in the Gulf of Tonkin incident that nobody knew about. I may be the only person still alive who always knew it never really happened, and was staged intentionally to create an excuse to launch the war. I always knew from early on how it was done with false electronic imaging and signals. I was the only person to be on the phone line when the two destroyer captains spoke the next morning. Neither knew the truth. They had both been fooled. We were later sailing alongside the carrier as they launched the first air attacks and began the war following the incident. This week an official version was released, and they admitted for the first time it never happened, but they are still lying and claiming it was all a mistake. That is a lie. It had to have been ordered by LBJ and likely carried out by the CIA, or naval intelligence, and I saw exactly how they did it, the equipment they used, and the two spooks who carried out the ruse. They and their equipment had been aboard my ship shortly before the incident.
A lot of Silicon Valley young techies moved to Austin. Austin used to be a wonderful city. It is now rapidly becoming San Fran under the CA policies city administration. Defund the cops, no consequences for crime, pander to the homeless, and a series of left-wing laws. They are so short of cops you can call 911 and get put on hold. They kicked out the state police as they “did not share our values”. Crime is out of control.
In CA a mother went to a school board meeting to object to the radical curriculum they had put in place re gender and similar ideologies. She was immediately attacked as a you name it, they claimed she was it, as was her employer, who then fired her. Under CA law she can’t sue people who express an “opinion”. CA has released a new math curriculum for the state. It eliminates AP math and Algebra II because the black students did not score as well in these subjects so to make everything more “equal’ they have gone to the lowest common denominator and will teach to provide “equal justice”. STEM professors have revolted saying the students who want to take STEM in college will not be able to do so because they will not be prepared to do the work. This is what Newsome has bought, on top of pushing reparations, and there is a chance he might be the Democratic nominee. The insanity and ignorance of the left has reached a level that is incomprehensible. If all schools were to follow the CA model we would have a population incapable of innovation and success, and we would collapse as a society and economy.
The September 13 No Labels special session will provide detailed specific information you never heard before about how the Democratic cabal is working overtime to destroy anyone who challenges Biden, or whoever the Dem candidate turns out to be. This will all be fully vetted and verified detailed facts. Not political rhetoric. The attacks on Trump are just a part of the master plan to make sure there is no competition. I sat through over an hour of detailed information which covered names, events and secret meetings, and sources of dark money. This is really detailed evidence of how they intend to get total control of the government, and how they are breaking the law to do so. Everyone, and all your friends and colleagues, need to tune into the Zoom call on September 13 to hear what is really going on behind the curtain with the 2024 election, and why it has to be stopped. Feel free to forward this one Rant to anyone who might want to tune in. Anyone who can help uncover more things that we know are occurring, or who can help spread the word in local media, or who can help with getting No Labels certified in your state, or uncovering what the Dems are doing at the local level, is needed, so your help is important. No Labels needs your help all across the country. If the bad guys win, your life will not be the same. It will end up with Biden/Harris, or Newsome or Michell Obama running the country. Whatever you believe is right about 15 weeks limit on abortion will be ignored, and they will enforce their own late term beliefs. Whatever you believe about secure borders will be ignored and there will be more open borders. Whatever you believe about bail and locking up criminals will be thwarted. Spending will go up more, the economy will struggle. There is a group of former Clinton people who are running these various 501(c)3 and 501(c)4 groups, all funded out of Arebella Group or their affiliates with dark money, like the Soros money. The set up is similar to the Biden family 20 LLCs meant to hide and confuse the money flows. RSVP below. For those not able to attend there will be a recording available from No Labels. Contact liz@nolabels.org to RSVP, or for any follow up from this event. Do not contact or email me as I have no capacity to handle lots of emails. You will just get deleted unless you wish to subscribe, and that is done on PayPal, Ross Rant Publications.
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The Democrat Party has embraced some of the worst attributes/policies of Stalin and Hitler. It is evident the Democrats have gone off the rails and have no interest in unity. Their radical ideas are embraced to create disunity. They are out of the mainstream of the vast majority of Americans believe.
In a word, they are "sick."
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The 2d qtr earnings and sales of NVDA blew past analyst estimates and the stock exploded once again in the after market. SMCI also continued to leap upward.
If and when the market corrects these stocks will be vulnerable and ASML should also react. That said, prospects for them over the next 5 years should be quite favorable so keeping an eye on an entry level would be wise.
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I found the Fox Debate disappointing. The attendees debated/attacked each other and left Biden and Hunter unscathed. Another blown opportunity and I attribute much of that to the questions asked.
By not participating, Trump may have served his interests but not the nation's.
Before the debate I had decided to vote for DeSantis and after the debate I had not changed my mind.
If Trump is the nominee against Biden, only then, will I vote for Trump because Biden is a corrupt disaster.
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