Friday, August 25, 2023
How to Make the Most of Today's Market, 25 AUGUST
Stocks have enjoyed a very positive run this year. Driving this shift, in sentiment, appears to be optimism about Fed policy and a corporate earnings picture that is far better than many feared.
Many in the market justifiably see the Fed moving towards concluding its extraordinary cycle in the next few months. Improved visibility on this front has prompted many in the market to buy quality stocks at discounts. This narrative is sanguine about the Fed, sees inflation as steadily heading in the right direction and views nothing egregious with valuations, given improved visibility for interest rates and a stable earnings outlook that has smoothly adjusted lower.
Market bears see this emerging optimism in the market as without a solid basis and view the positive stock market gains of recent days as nothing more than a bear-market rally in a long-term downtrend. This line of thinking sees inflation as far ‘stickier’, which requires the Fed to continue tightening for a while. Valuation worries also figure prominently in the bearish view of the market.
The interplay of these competing views will determine how the market performs in the coming months and quarters. To that end, let’s examine the landscape of bullish and bearish arguments to help you make up your own mind.
Let's talk about the Bull case first.
Inflation & the Fed: The outlook for inflation and what that means for the path of interest rates and economic growth represent the biggest points of difference between market bulls and bears at this point in time. The bulls see favorable developments on the inflation question, with the steadily decelerating trend of the last many months as confirmation of progress towards the Fed’s goal. We saw proof of this in the internals of the recent Q2 GDP report and consensus expectations for the coming periods.
It is hard to argue with the bulls’ view that the heightened post-lockdown demand in a number of product and service categories was bound to eventually normalize, with its attendant beneficial effect on prices. Related to the above argument are favorable developments on the supply side of the equation and reversal of China’s zero-Covid policies, with continued disruptions caused by the war on Ukraine partly offsetting the gains.
With interest rates already at or past the neutral level, investors are looking at incoming economic data through the prism of what it tells them about inflation and growth. The market correctly sees the Fed’s July 26th rate hike as effectively concluding this tightening cycle even though the central bank can’t publicly acknowledge it.
In other words, we are at the ‘pivot’ stage already, without the Fed explicitly telling us in so many words. After the July 26th hike, they will be 25 bps away from their indicated peak rate, meaning at most one more increase at the following meeting.
The stock market optimism in recent months, that has been reinforced by the reassuring Q2 earnings results, is likely an early attempt to do just that.
Continued . . .
The Economy’s Strong Foundation: The seemingly strong Q2 GDP report notwithstanding, the U.S. economy’s growth trajectory has shifted gears in response to the combined effects of aggressive Fed tightening, the runoff in the government’s Covid spending and some lingering logistical bottlenecks. This is beneficial to the central bank’s inflation fight, particularly the demand-driven part of pricing pressures, as we saw in the decelerating trend in the Q2 GDP report’s price deflator reading.
Many in the market are legitimately concerned about recession risks as a result of the unprecedented Fed tightening. While such risks are undoubtedly real, a recession is by no means the only, or even most likely, outcome for the U.S. economy. Underpinning this view is the rock-solid labor market characterized by strong hiring and a record low unemployment rate. It is hard to envision a recession without joblessness.
The purchasing power of lower-income households has likely been eroded by inflationary pressures, as confirmed by a number of companies during their earnings calls. But household balance sheets in the aggregate are in excellent shape, with plenty of savings still left from the Covid days. This combination of labor market strength and ample savings cushion should help keep consumer spending in positive territory in the coming quarters.
While questions remain about the economy’s growth trajectory over the next few quarters, estimates for the current period (2023 Q3) have been going up lately and currently represent a modest acceleration from the first half’s pace.
All in all, the strong pillars of the U.S. economic foundation run contrary to what are typically signs of trouble ahead on the horizon.
Valuation & Earnings: Tied to the economic and interest rate outlook is the question of stock market valuations that still remain attractive after the gains in the first half of the year.
The S&P 500 index is currently trading at 20.1X forward 12-month earnings estimates, up from 15.5X at the end of September 2022, but down -12.1% from the peak multiple of 24X some time back. It is hard to consider this valuation level as excessive or stretched, particularly given aforementioned optimism on the Fed front.
Granted there are parts of the market that have gotten rerated as the full effects of the Fed’s tightening cycle have diffused into the economy, resulting in cooling consumer and business demand and moderating economic growth. But not all sectors are exposed to the Fed-centric negativity in outlook to the same degree, as sensitivity to interest rates and the macroeconomy are much bigger drivers for some sectors than others.
We have been seeing this bifurcation in earnings outlook in recent earnings reporting cycles, including the ongoing Q2 earnings season, with operators in the at-risk sectors unable to have adequate visibility in their business. But there are many other companies that continue to drive sales and earnings growth in this environment.
We have seen many of these leaders from a variety of sectors and industries, including Technology, come out with strong quarterly results in recent days.
Contrary to fears ahead of the start of the Q2 earnings results, the actual results are turning out to be fairly stable and resilient. Earnings estimates came down steadily after peaking in April last year. The latest development on the revisions front has been a notable stabilization since the start of Q2, with estimates for a number of key sectors including Technology actually reversing course and starting to go up again.
While it is reasonable to expect some further downward adjustment to estimates for macroeconomic reasons, the overall earnings outlook is now largely in-line with the economic ground reality. In the absence of a nasty economic downturn, the earnings picture can actually serve as a tailwind for the stock market in an environment of diminishing Fed uncertainty.
Let's see what the Bears have to say in response.
Endemic Inflation & Fed Tightening: The recent Q2 GDP report showed that the U.S. economy was still far too strong to ease the Fed’s inflation worries. While a big part of the strong ‘headline’ GDP growth number was due to factors that tend to be volatile, the report nevertheless showed plenty of strength in household and business spending.
The decline in inflation readings in recent months has resulted from pullback in commodity prices, the easing of logistical bottlenecks and moderation in demand for the ‘goods’ part of the economy. The much tougher part of the inflation fight is on the ‘services’ side of the economy. Given ongoing trends in wages, inflation is likely a lot stickier than most people assume.
Many in the market believe that the Fed’s tough policy stance last year was meant to counteract the damage to its inflation-fighting credentials as a result of its earlier ‘transitory’ narrative. Given this, the central bank simply can’t afford to declare a premature victory and risk the inflation scourge to reemerge.
The Valuation Reality Check: A big driver of the stock market’s earlier bull run was the Fed’s ability to flood the market with liquidity. The central bank achieved that by keeping interest rates at zero and buying a boat-load of U.S. treasury and mortgage-backed bonds that expanded its balance sheet to almost double the pre-Covid size.
Fed tightening and the associated higher interest rates have a direct impact on the prices of all asset classes, stocks included. The ‘higher-for-longer’ view of interest rates in light of much stickier inflation means that investors need to adjust to an extended period of above-average interest rates.
Everything else constant, investors will be required to use a higher discount rate, a function of interest rates, to value the future cash flows from the companies they want to invest in. This means lower values for stocks in a higher interest rate environment.
The Growth Question: Since Fed rate hikes work with a lag, the central bank’s aggressive tightening moves since March 2022 likely haven’t fully seeped into the economy.
Current projections of GDP growth for this year assume that the Fed is successful in executing a ‘soft landing’ for the U.S. economy. This favorable view has been strengthened by resilient GDP growth readings even as inflation has steadily come down.
There is no basis for us to doubt this confidence in the central bank’s abilities, but we shouldn’t lose sight of history that tells us that economic growth typically falls victim to the Fed’s inflation-fighting efforts.
A handy metric to keep an eye on for growth outlook is the spread between the 2-year and 10-year treasury bond yields. Inversion in this metric, as is the case at present, will suggest the need for reigning in growth expectations.
Where Do I Stand?
I am very skeptical of the bearish Fed tightening outlook and see this scenario as nothing more than a worst-case or low-probability event.
My base case all along, saw the Fed moving from the then ‘stimulative’ policy stance to one that was only modestly ‘restrictive’. Following the already implemented rate hikes, the level of interest rates is at the ‘neutral’ policy level already, when Fed policy is neither ‘stimulating’ nor ‘restricting’ economic activities.
Estimating an accurate level for ‘neutral’ policy is very difficult in real time, but most analysts believe that we will be getting into ‘restrictive’ territory after the July 26th hike.
While the Fed has left another rate hike as a possibility, we think they are most likely done tightening at this stage, particularly if incoming data continues to show progress on the inflation front. This appears to be the most plausible scenario given the risks to growth as a result of premature tightening, a threat to the Fed’s second ‘full employment’ mandate.
The positive momentum in the stock market in recent months reflects this interpretation. The resulting stability in financial conditions and interest rates should keep the economy’s growth trajectory in place, admittedly at a moderate pace.
Regular readers of my earnings commentary know that the earnings picture continues to be resilient, with the steady downward revisions to estimates since the April 2022 peak having brought them in-line with the economic ground reality. In the coming months, the market will start looking past this year’s moderating earnings growth picture to the eventual recovery on that front.
The market’s recent positivity reflects a growing convergence to our favorable views on the Fed and the growth questions. We don’t envision these questions to be put to rest next week, but we do see investors eventually coming around to our view of inflation, earnings and the much more positive times ahead after a short period of volatility.
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Iranian Foreign Ministry: Iraq releases significant portion of frozen funds, 25 AUGUST
Iranian Foreign Ministry: Iraq releases significant portion of frozen funds
Shafaq News / The Iranian Foreign Ministry announced on Friday that Iraq has released a substantial amount of Iranian funds that were previously frozen. This move comes as part of an agreement reached between Tehran and Washington, mediated by a third party, which involves the release of Iranian prisoners and the unfreezing of funds.
Ali Bagheri Kani, the Political Assistant to the Iranian Foreign Minister, stated to the the semi-official "Mehr" news agency that, in addition to South Korea, a substantial portion of Iran's funds was also held in Iraq.
He elaborated, "Our agreement with the American side to release Iranian funds frozen in South Korea triggered discussions about the release of Iranian funds in Iraq. The process of their release has already commenced."
Kani went on to detail, "Over the last three weeks, we have successfully unlocked nearly seven times the total funds we utilized in Iraq for economic activities last year. We anticipate this momentum to expedite further."
Earlier this month, official Iranian sources disclosed the intricacies of a mediated agreement between Tehran and Washington, involving a prisoner exchange and the release of Iranian funds frozen in South Korea and Iraq.
A source familiar with the accord reported to Iran's official news agency "IRNA", "The terms of this agreement stipulate the liberation of five American prisoners in exchange for the freedom of five Iranian detainees in the United States."
The source provided insight, noting that "in addition, approximately $6 billion of Iranian assets frozen in South Korea are set to be released, along with a substantial share of Iranian funds held in Iraq's TBI Bank." The source further indicated that "the preliminary stages for the unfreezing of Iranian assets in European financial institutions are already underway."
Furthermore, Prime Minister Mohammed Shia Al Sudani disclosed on July 11 that ongoing negotiations with the US aim to settle Iran's outstanding payments for gas imports from Iraq. The sum totals 9.25 billion euros.
Al Sudani revealed Iraq's contribution, stating, "We have already disbursed around 1.842 billion euros within the first seven months of the current government term, per our agreed-upon mechanism."
Moreover , PM Al Sudani informed that a joint delegation from Iraq's central bank (CBI) and the Iraqi Trade Bank embarked on a mission to Oman, working towards a consensus on the transfer of these funds to Oman, in coordination with the US Treasury.
Al-Fateh: America is looking for pretexts to impose hegemony on Iraq, 25 AUGUST
Today, the representative of the Al-Fateh Alliance, Muhammad Karim, stated that the US administration is seeking pretexts to take control over Iraq, particularly regarding the dollar currency. According to Karim, the US is looking for ways to impose hegemony and control over Iraq by making decisions related to the dollar currency. This is a concerning development that must be monitored closely.
Karim stated that America seeks to maintain control over Iraq and create pretexts for hegemony, as seen with the dollar and oil revenue.
“American practices are really trying to control Iraq’s finances,” he remarked. “They’ve even failed to impose sanctions on certain Iraqi banks in the past without giving the government the authority to take action against them.”
He mentioned that there is an ongoing attempt by the US to exert control over Iraq’s exchange rate by leveraging Iraqi funds that are deposited in dollars for oil imports. According to him, the US is using the dollar as a means to dominate, control, and manipulate the exchange rate in Iraq despite the fact that these funds belong to Iraq.
BRUCE'S BIG CALL, 25 AUGUST
Bruce’s Big Call Dinar Intel Thursday Night 8-24-23 REPLAY LINK Intel Begins 1:25:35
Transcribed By WiserNow
Welcome everybody to the Big call tonight. It's Thursday, August 24th and you're listening to the big call. Welcome everybody, wherever you're tuned in from and we love you and we're glad you're here. We look forward to having a great call tonight. And I look forward to bringing you guys the latest best intel that we have to date.
All right, let's talk about Intel and let's see if we can find out where we are - what's going on and where we stand right now.
Well, we did hear from some of our bondholders today, a little later this afternoon. And it's looking like what they're getting from sources in Switzerland, that things are moving along where they should be getting notified tomorrow and have funds either tomorrow or Saturday.
So that's good - good for bondholders to get their access to funds. That's sort of something we've been keying off under tier four to see what happens with tier three. The last time we talked we had ourselves going before the bondholders went -
Now I'm thinking it might be a little more parallel - it might be similar in terms of when we all start.
The information that we are getting about tier four is that we should be notified Saturday, or this is another source that either Saturday or Monday at the very latest. Meaning we get the toll free numbers either Saturday or Monday At the very latest.
Now there was something that occurred tonight, six o'clock central time, which I don't know why we put in central because it was an East Coast thing in Atlanta for President Trump was arraigned and I heard even before the big call that that would not really amount to much.
And what I did here was that within 24 hours of that, let's call it so arraignment - Today we will be getting the RV started. And that would be tomorrow night at seven. So there's a possibility something could come out even tomorrow or tomorrow evening.
But we know certain people are telling me that we need the public to see the political movement, the political change that is imminent, to take place on mainstream media - for the Chinese to feel comfortable releasing everything - they're not comfortable with the current administration.
So will this February least once something is made mainstream, very possible, and it's very possible that happens by Saturday or by Monday - So this is really interesting time for us to witness this.
And I don't know what else to say other than we're either waiting for that to take place which is imminent. Or we’re not - We have sources that are saying that's not a factor.
It's not this political change does not have to take place for this to be released. So some say yes, some say no -- I will say that we need to see that take place - I believe that - I believe it is so close that it will happen by the weekend or by Monday at the very latest. Monday is the 28th and I think there's a lot that can happen in the next couple of days.
Even President Trump said on a Tucker Carlson, Tucker Carlson interview. He would be busy that night and the next day and then we would be busy for the next three days. So I don't know exactly how we're going to take that. But we'll take that and we'll look to see what that does for us and how that comes about.
Now - I've been looking into what is happening over in Lahaina on Maui - And you guys know I've mentioned that we want to incorporate that as part of rebuild America and try to get help to those people. We know the white hats are currently delivering water and food - from helicopters - And they have food and a number of tons of water that were hopefully gently dropped in the area for the citizens or residents.
It's a complicated situation. But I think if we get to the bottom of it, we're already planning on how to get supplies there by barge - To the island to stage building materials and so on in a couple different areas . And we're you know, we already have a provider of steel we're in touch with so there's quite a bit that is sort of pre planning right now
See how quickly we can assemble a team which we've got some people that are interested in helping with that - assembling a team to look into and just check out what needs to be done - What the situation is - doing some research and finding out where everything stands. So that's something I'm looking forward to being a part of and helping to execute as part of rebuild America.
I know the BRICS conference was to end today and I believe it did. We know they had seven I believe six additional countries that they absorb into the BRICS consortium - and the BRICS has put together primarily as an alternative to the Fiat US dollar and I know there are 20 or 30 some odd I believe, I don't even know what the number is. It's like 35 or 37 countries that are already part of the BRICS Consortium.
But we have the plan is for all of Africa, which is a lot of different nations to be part of the BRICS. And I think they're gonna end up being a very large currency block if you will. I do not expect a BRICS currency.
But we expect each of the countries that are admitted into the BRICS to have their own asset backed currency. A lot of them are gold backed already -
And I believe they need to have asset backed currencies. They need to mint and print. They need to mint coinage, new coinage and they need to print new currency that is asset backed - just like we're doing and what we already have, with the USN - United States Treasury note currency, the so called banknotes those have been printed for a few years now.
They are definitely in the redemption centers. And they're probably in most if not all tier one and tier two banks in the vaults maybe in the teller drawers I don't know, in every case, but you know, that's something that should be brought out as part of the NESARA - the fact that we have an asset backed currency again.
And the fact that the dollar if you think it's strong now and it was with nothing backing - Imagine having it backed by gold and other assets, and just how strong it's going to be as the world as a world dominant currency with other BRICS nations currencies as well.
So everything in Iraq yesterday we heard had a much higher rates in Iraq on dinar - I say, much higher - And that's really good news.
And we know that they even intend to offer those of us even who has zim - a higher dinar rate. Iraq wants us to have a high rate on the dinar - and it will be - and I'd love to tell you what I know about it, but just suffice to say that higher than we thought it would be, And that's a good news.
And then I think the dong is going to come in with a very, very, very high rate as well. compared to what certain people have said it was coming in at. We know it's much higher because we know what the bank screens are telling us.
But the good news is, this looks like it is imminent and it is coming in a matter of days. But one source said from Thursday all the way to Saturday. Now the source today gave me Saturday or Monday at the very latest - And then we'll see what happens is as a result of the arraignment -
I'm gonna say that's what happened. Today. That's why they were able to say 24 hours after six o'clock Central tonight the RV could start - So - you've got that.
Now. I appreciate what everyone has done to stay with the patient. It has really been good for our patients. It's been an example of long suffering. I know a lot of people have counted on this for a long time. And you know we all have Look forward to it and we look at it and then we can get back inside and just give a sigh of relief that we have it and that we're moving forward with our projects
So looking forward to it. Let's keep an eye out for emails.
We'll have it for future calls. If we do any more. We will be some podcast type calls. Not so many live calls. I don't think we'll do really any more live calls. But if we do some podcasts and you're gonna want to hear what we're doing, or what we're doing about Lahaina what we're doing about rebuild America, what we're doing about the veterans, some good ideas. so we're going to be putting all those together and I'll be speaking to you guys in the form of a podcast, getting the link in the email that you can listen to.
That's really everything I've got for tonight so far. So let's see where this takes us through the weekend. Today is Thursday, and we're looking for some action, possibly tomorrow evening. It's not Saturday, or the word is Monday at the very latest. So let's see how that comes about. Let's see what happens with that.. Thank you for listening all over the globe. We appreciate you.
Announced that Washington is ready to help Baghdad, 25 AUGUST
Announced that Washington is ready to help Baghdad
WASHINGTON IMPOSES ITS AUTHORITY ON IRAQI OIL REVENUES, 25 AUGUST
WASHINGTON IMPOSES ITS AUTHORITY ON IRAQI OIL REVENUES