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Weekly Market Update 2-22-17

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FirstandforemostIwanttothankyouforyourpatience.Icaughtanastyviruslastweek.TheendresultwasavisittourgentcareWednesdaynightandbeinglaidoutfortheremainderoftheweek.Again,Iapologizefornotbeingabletopublishourusualweeklymarketupdatebecauseofthissituation.Havingsaidthat,itisnowclearthattheinvestmentworldhascompletelylostitsmindregardingtheUSeconomy.Let’swindbacktheclocks.OnNovember8th2016,DonaldTrumpwaselectedPresidentoftheUnitedStates.Thiseventtriggeredabullishbreakoutforstocks,whichhadbeeninalargeconsolidationperiodforTWO-YEARS.

What,precisely,changedonNovember8th?

Weekly Market Update 2-22-17

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Fundamentally,nothingchangedovernight.Trumpdidn’tpassanynewlawsonNovember9thunleashinganeconomicutopia.Indeed,hedidn’teventakeofficeuntilJanuary202017.SowhatdidchangeNovember8th?Themarket’sexpectationsconcerningtheUSeconomy’sfuture.ThoseexpectationsarethataTrumpPresidencywillsomehowigniteragingeconomicgrowthby:

1) Implementingmajorfiscalstimulusintheformofinfrastructurespending.

2) Implementingtaxreform.

3) RepealingObamacare.Long-term,alloftheseitemsare“onthetable.”Butthemarkethasgonecompletelyoverboardinitsreactiontothem.Let’stakealookateach.Regarding#1,currentlytheTrumpWhiteHousehasyettoactuallypresentaplan.Letthatsinkinforamoment.Themarkethaseruptedhigherbasedonhopeofafiscalstimulusplan…thathasn’tevenbeenformallypresentedyet.This,inofitself,tellsusthemarket’sreactionisoverdone,butlet’sdigdeeper.Priortotakingoffice,aroughoutlineofaninfrastructureplanwaswrittenbyfutureTrumpadministrationofficialssuggesting$1trillioninspendingtorepairroads,bridges,andotherpublicworks.TheplansuggestedthatTrumpwouldbeseekingprivateinvestorsfortheplanoffering$137billionintaxcreditsasincentives.That’sit.Sincethattime,adocumentwascircledtoUSGovernorswithalistofpotentialprojects(variousbridges,airportsandthelike)…butnoactualplanandnoactualprojectshaveformallybeenpresentedorauthorized.

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Sorightoffthebat,oneofthebiggesteconomicpromisesthemarketisexpectingisinfactlittlemorethanhype.ThisisnotacritiqueofTrump(noramIendorsinghimorhispolicies),it’sjustasimplefact…theexpectedfiscalstimuluspackagethatmadestockserupthigherhasyettomanifest.Untilanactualplanispresented,wehavenowayofknowingwhenorhowitwouldbeimplemented.ThebestestimateIcanarriveatisthatTrump’sinnercirclehasnumerousGoldmanSachsalumsandGoldman’sresearchteamhaswrittenthatTrump’sstimulus,ifanyiscoming,willhitin4Q17ifnotearly2018.Again,thisislargelyhyperightnow.Andthemarkethasgonebonkersonit.Regarding#2and#3(taxreformandanObamacareappeal),againtherearefewdetailsforthcoming.

SpeakerPaulRyan(R-Wis.)onWednesdaymappedouttheGOP’s200-daylegislativestrategy,sayingRepublicanswillrepealandreplaceportionsofObamaCarebyspringandtackletaxreformbeforetheAugustrecess.http://thehill.com/homenews/house/316156-ryan-maps-out-gop-time-line-for-obamacare-tax-reform

SoObamacaremightbepartiallyrepealedandreplacedby“spring”and“taxreform”shouldbeaddressedbeforeAugust8th.Thatthemarkethasgonestraightupbasedonthisisastounding…particularlywhenyouconsiderthatPaulRyanisonlyaddressingwhattheHouseofRepresentativeswoulddo(anyObamacarerepeal/taxreformbillspassedbytheHousewouldalsohavetopasstheSenateandthenbesignedbyTrump).AssumingtheusualploddingpaceofCongressionaldevelopments,thismeansthatattheearliestTrumpmightbesigningtaxreformandanObamacareRepealintolawattheendof2017/early2018.So…we’vegotthreemajorTrumpinitiatives,twoofwhichCongresshasannounceditwillworkon(taxreformandObamacareRepeal),oneofwhichremainsupintheair(fiscalstimulus),andnoneofwhichhaveafirmtimelineorfirmobjective.Again,allofthisishype.Thereareneitherconcretetimelinesnordetailsonanyoftheseitems.Thebestwe’vegotis

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PaulRyan’sclaim(whateverthatisworth)thatsomethingwillbedoneatsomepointbeforeAugust8th.Andyet…stocksaregoingstraightupbasedonexpectationsofthesethreepolicies!!!AsIstatedatthebeginningofthisupdate,theinvestmentworldhascompletelylostitsmindregardingtheUSeconomy.AnyonewhoisbuyingstockstodaybasedonexpectationsofTrumpeconomicpoliciesiseffectivelybuyinghypeandnothingelse.Iwanttostressagainthatnoneofmyanalysishereispoliticalinnature.IamNOTsayingIamanti-Trumpnorpro-Trump.AllI’msayingisthatthemarketisreactingtofantasy(therearenoactualplansinplacetoimplementfiscalstimulus,repealObamacare,orimplementtaxreform).Andyet,thisiswhatinducedthestockmarkettobreakouttonewall–timehighs,obtainingitsmostoverboughtstatus(dailyRSI)sincetheMarch’09bottom.

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Regardingthatlastpoint,theS&P500hasaDailyRSIreadingof80.Basedonthismetricthemarketismoreoverboughtthanatanypointsincethe2009bottom.Let’srunthisperiodoftimeoverinourheads.Thismeansthatbasedoneconomicfantasystocksarecurrentlymoreoverboughtthantheywere:

1) AftertheFedannounceda$1.25TRILLIONQEprogram(QE1),suspendedaccountingstandards,andeffectivelybackstoppedtheentirefinancialsystem(2009-2010).

2) AftertheFedannounceda$600billionQEprogram(QE2)inNovember2010.

3) AftertheFedannouncedanopen-ended(meaningthereisnotimelimit)QE3programinSeptember2012.

Putsimply,stockshavereactedmorestronglytoTrumpwinningthePresidency,thantheyhavetosixyearsofthemostprofligateFedmonetarypolicyinhistory.AsIstatedatthebeginningofthisupdate,theinvestmentworldhaslostitsmindconcerningtheUSeconomy.AnyeconomicimpactTrumpmighthavewilloccurthistimenextyearattheearliest.Everythingthatishappeningrightnowisbasedonexpectations.Meanwhile,theREALeconomyisrollingoverintorecession.Governmenttaxreceiptsisperhapsthesinglemostobjectiveeconomicmetricontheplanet.Iftheeconomyisgrowing,businessarebeingstarted,jobsarebeingcreated,andmorepeopleandentitiesareapayingtaxes.However,iftheeconomyISN’Tgrowing,thegrowthrateofthismetricquicklyrollsover.Withthatinmind,considerthattaxreceiptshaveturnednegative(YearoverYear)forthefirsttimesincethefinancialcrisis.Andasyou’llnote,thishasNEVERhappenedoutsideofarecessionin40+years.

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ThatbriefbounceoffthislinewasinducedbytheriseintaxescourtesyofObamacare.Thisbouncewillbeshort-livedaswe’reinamultiyeardowntrendhere(notetaxreceiptsPEAKEDin2010andhavebeentrendinglowereversince).Thisbearsclosewatching,particularlywhenyouconsiderthatweareseeingnumerouswarningsignsthatthecreditcycleisturningatatimewhenwehavereachedpeakmania(similartolate2007).Firstandforemost,thereareindicationsthatweareonceagaininahousingbubble.Homeflippingisback.

Thetrendofbuyingafixer-upper,makingsomerepairsand"flipping"toanewbuyerquicklyismakingareturntorealestatemarkets,yearsafterthetrendfelloutoffashionwithhomebuyers.Morethan6percentofhomesaleslastyearwere"flips",accordingtoanewreportfromTrulia.Therealestatedatawebsitedefinesaflipasthesellingofahomeatleasttwicewithinayear.

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That'sthehighestnumberinadecade,beforetherealestatebubbleburstandthefinancialcrisisof2008.Socouldthehousingmarketflipoutagain?

http://www.cnbc.com/2017/02/05/house-flipping-is-back-with-all-its-opportunities-and-risks.html

Thisishappeningatatimewhenhomeshavebecomeincreasinglyunaffordable.

Outsideofhousing,thereareclearsignsthatthecreditcycleisturning.Firstly,theyearoveryeardelinquenciesoncreditcardloanshasgonepositiveandisbackintorecessionaryterritory.

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Thesameistruefortheyearoveryeardelinquenciesonconsumerloans.

Autoloandelinquenciesarealsobeginningtospikerightastheindustryentersamassivebubble.

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First,delinquenciesamonglower-ratedborrowershaverisentothehighestlevelsince2009.Second,theamountofautoloansoutstandingisgrowingatthefastestpaceonrecordandnowaccountsforabiggerproportionoftotalU.S.householdliabilitiesinatleast14years.https://www.bloomberg.com/gadfly/articles/2017-02-21/deepening-troubles-with-auto-loans-start-to-spread-pain

ThosethreeitemsareinformingusthattheUSconsumerisclosetotappedout.Thisdoesn’tbodewellfortheUSeconomyasconsumerspendingaccountsfor70%ofGDP.MoreworrisomefromamacroperspectiveistheriseinYearoverYeardelinquenciesoncommercialrealestateloans:thismeansbusinessesarecommercialrealestatedevelopersarefallingbehindontheirpayments.ThisusuallyisassociatedwithadropinleasingbybusinessesORbusinessclosingupshop.Ifthislinegoesintothepositive,theUSeconomyisinVERYserioustrouble.

Similarly,thedelinquencyrateoncommercialandindustrialloansspikedupwardslastyear.Ithassincecomedown,butifitturnsbackupwardshereitwillbeanearperfectrepeatofthe

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samepatternwesawin2007-2008.

Putsimply,weHAVEtoholdthatlineorthecreditcycle/businesscyclehasindeedturned.ThiswouldmarkthefirstmoveintoCLEARcontractionsince2008.Movingontothemarkets,havingsaidallofthis,themoveintheS&P500lookscomplete.Thebreakouttotheupsidematchesthetradingrange.Wemighthaveafewmorepointsleft,butthismoveisDONE.

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Thevarious“leaders”areatlevelsofoverboughtI’verarelyseen.There’soverbought…andthenthere’sApple(AAPL).Arewebackin1999?

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Iwouldn’tshortthishere,butHOLYCOW,thatismaniainaction.USSteel(X),whichweareshorting,hasalsoerupted.ThisisperhapsthesinglebiggestexampleofTrumphypeinthemarketstoday(howcanweenteragoldenageofsteelwhentheeconomyisrollingover?).It’sstartingtolookatalotlikethe2014peak,afterwhichXfellby55%.Sowhilewe’redeepintheredhere,I’mnotconcerned.We’lleraseallofourpaperlossesandthensomewhenwemovedownto$20inthecomingweeks.

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I’vesaidthismanytimes,butIamrepeatingithere,keepALLshortsandmarkethedgesSMALL.TheseshouldNOTbecorepositionsforyourportfolio.Ifyouneedassistanceinpositionsizing,pleasereadourreportHowtoBuildaMarketBeatingPortfolioonthePrivateWealthAdvisorywebsite.Moreexamplesofmarketmania…OilhaseffectivelygonenowherefortwomonthsandyetIkeephearingthatit’s“breakingout”and“movingtonewhighs.”

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Similarly,Copper,thecommoditywithaPhDineconomics,isup1.1%sinceearlyDecember.IfGDPgrowthof5%andeconomicutopiaisjustaroundthecorner,shouldn’twebedoingbetterthanthis?

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ComparethistoCopper’sperformancein2005whentheglobaleconomywasroaring:itcamechargingoutthegateandneverlookedback.

Similarly,Copperminers(COPX)seemtohavegottenthememothatmiraclegrowthisnotjustaroundthecorner.

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Bigpicturestuff…The$USDisstagingabounceoffofsupport.Ibelieveit’sadeadcatbounceandwe’rebreakingdownintothatrangeshortly.

ThiswillignitegreaterralliesinEmergingMarketstocks.Ibelievewe’veenteredaperiodinwhichEmergingMarketswilloutperformUSstocks.OncewetakeoutthislinetheperiodofoutperformancebyUSstockswillbeofficiallyover.

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GoldhasbeguntobreakoutinYen(blueline)Euros(redline)andevenDollars(blackline)thoughthelatterislagging.Thenextmajorbullmarketforthepreciousmetalishereandwillbedrivenbyasurgeininflationglobally.IexpectGoldtobeabove$1340beforeJuneandonitswayto$1700within12months.

USTreasuriesareSERIOUSLYoverdueforastrongrallythatwillbringtheiryieldsmoreinlinewiththoseofGermanyandJapan.

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Finally,NaturalGas(UNG)lookstohavebottomed.

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We’redueforasharpbouncehereto$8andchange.ActiontoTake:BuytheNaturalgasETF(UNG)Thisconcludesthisweek’smarketupdate.I’mwatchingthemarketscloselyandwillissueupdatesasneeded.Barringanynewdevelopments,you’llnexthearfrommenextWednesdayinourlongermonthlyissueofPrivateWealthAdvisory.Untilthen…

GrahamSummersChiefMarketStrategistPhoenixCapitalResearch

BestRegards,

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OPEN POSITIONS

STOCKS PORTFOLIO

Pricesasofmarket’scloseon2/22/17.Gainsincludedividends

POSITION SYMBOL BUY DATE

BUY PRICE

CURRENT PRICE

GAIN/ LOSS

Exxon XOM 9/24/14 $95.82 $80.93 -9% RPXCorp RPXC 8/5/15 $15.48 $11.33 -27%

Ambev ABEV 11/25/16 $4.96 $5.91 21%

Cemex CX 11/25/16 $8.07 $8.82 9% EnterpriseProductsPartners EPD 11/31/16 $25.93 $28.51

10%

PeruETF EPU 12/7/16 $33.23 $35.76 8%

UraniumETF URA 6/8/16 $15.49 $17.20 17%

Cameco CCJ 1/4/17 $10.69 $11.41 7%

CoalETF KOL 1/4/17 $12.59 $13.62 8% AgriculturalCommoditiesETF RJA 1/12/17 $6.46 $6.58

2%

EmergingmarketsETF EEM 1/12/17 $36.60 $38.93

6%

ChinaETF ASHR 2/1/17 $24.91 $25.50 2%

CliffsNatResources CLF 2/8/17 $9.52 $11.76 16%

BrazilETF EWZ 2/8/17 $37.58 $40.15 7%

UtilitiesETF XLU 2/8/17 $49.40 $50.30 2%

NaturalGasETF UNG 2/22/17 $6.57 NEW BUY!

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BONDS PORTFOLIO

POSITION SYMBOL BUY DATE

BUY PRICE

CURRENT

PRICE

GAIN/ LOSS

NuveenMuni.Fund NVG 1/2/14 $13.12 $14.49 32% EmergingMarketBonds EMB 11/21/16

$109.82$113.28 4%

LongUSTreasuries TLT 11/21/16 $121.05 $120.31 0%

POSITION SYMBOL BUY DATE

BUY PRICE

CURRENT

PRICE

GAIN/ LOSS

Gold 3/17/10 $1,120 $1,237.00 10% Silver* 3/17/10 $16.23 $17.99 11%

GoldMinersETF GDX 10/5/16 $22.83 $24.33 7% GoldMiningJuniorsETF GDXJ 10/5/16 $37.52 $40.73

13%

SilverWheaton SLW 10/5/16 $22.59 $21.32 -5% SilverStandardResources SSRI 10/5/16 $10.30 $10.96

6%

BarrickGold ABX 10/5/16 $15.54 $19.87 28%

NewGold NGD 10/5/16 $3.88 $3.04 -22%

RoyalGold RGLD 2/8/17 $71.36 $68.83 -4%

PRECIOUS METALS/ MINERS PORTFOLIO

Pricesasofmarket’scloseon2/22/17atmarket’scloseReturnsincludedividends*Averagepriceof$17.50and$14.97

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SPECIAL SITUATIONS/HEDGES/SHORTS PORTFOLIO

POSITION SYMBOL BUY DATE

BUY PRICE

CURRENT PRICE

GAIN/ LOSS

FranceETF(SHORT) EWQ 9/16/16 $23.38 $25.04 -7% ItalyETF(SHORT) EWI 9/16/16 $21.56 $23.48 -9% Russell2000ETF(SHORT) IWM 12/14/16 $135.37 $139.58 -3% FinancialsETF(SHORT) XLF 12/21/16 $23.61 $24.61 -4% USSteel(SHORT) X 2/1/17 $31.33 $40.49 -27%

CASH/ CURRENCIES PORTFOLIO

POSITION SYMBOL BUYDATE

BUYPRICE

CURRENTPRICE

GAIN/ LOSS

EuroTrust FXE 10/5/16 $108.80 $102.50 -6%

Pricesasofmarket’scloseon2/22/17atmarket’sclosePriceincludedividends