I update each Saturday with my view of the stock market for the next few weeks. The monthly “Long Term” update will be on a Wednesday soon after the 15th of each month, and this supports investors who want to buy and hold, but want to sell to avoid the bulk of a crash, and buy back in for most of the next bull market. You can always scroll down a few weeks and find the latest “Long Term” update.
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This is posted Thursday afternoon as I will be busy this weekend. I may be late next weekend but I should have something up at least by Monday.
Business investment is picking up sharply based on capital goods orders which highlight a very favorable durable goods report. Durable orders jumped 2.2 percent in September which is right at Econoday’s high estimate. September new home sales surged 18.9 percent to a 667,000 annualized rate. This is the largest percentage gain in nearly 28 years. Initial jobless claims rose 10,000 in the October 21 week to 233,000 which is just below Econoday’s consensus.
Everything looks good for a slow to moderate growth picture.
N Korea remains an issue.
To China, for an interesting view:
“Oct. 24, 2017 – China is looking to make a major move against the dollar’s global dominance, and it may come as early as this year.
The new strategy is to enlist the energy markets’ help: Beijing may introduce a new way to price oil in coming months — but unlike the contracts based on the U.S. dollar that currently dominate global markets, this benchmark would use China’s own currency. If there’s widespread adoption, as the Chinese hope, then that will mark a step toward challenging the greenback’s status as the world’s most powerful currency.
China is the world’s top oil importer, and so Beijing sees it as only logical that its own currency should price the global economy’s most important commodity. But beyond that, moving away from the dollar is a strategic priority for countries like China and Russia. Both aim to ultimately reduce their dependency on the greenback, limiting their exposure to U.S. currency risk and the politics of American sanctions regimes.
The plan is to price oil in yuan using a gold-backed futures contract in Shanghai, but the road will be long and arduous.
“Game changer it is not — at least not yet,” said Gal Luft, co-director of the Institute for the Analysis of Global Security, a Washington based think tank focused on energy security. “But it is another indicator of the beginning of the glacial, and I emphasize the word glacial, decline of the dollar.”
Beijing faces skeptical global oil markets and global perceptions it exerts too much state control. Those factors will hinder its drive to build a viable oil pricing benchmark that’s able to compete with more established benchmarks like West Texas Intermediate or Brent (both dollar-denominated).
The architects of the “petro-yuan” face an uphill struggle in dislodging the “petrodollar” and, with it, more than four decades of U.S. dollar-priced oil. Attracting interest from entrenched and active markets in Europe, the U.S. and the Middle East — used to price more than two-thirds of the world’s oil worth trillions of dollars – poses another major challenge.”
My personal opinion is that we won’t see another global war like WW II again; our killing and destruction technology is simply too good. Large scale warfare does not pay anymore.
Economic warfare is how nations will vie with one another. A strategic advantage of the US in the global economy is that the US dollar is the world’s reserve currency. People have long trusted the US to manage their own financial affairs reasonably well, and when necessary to consider the US taking a currency hit if it is advantageous for the world economy. Witness the US mortgage and financial crisis and it is easy to question whether we manage our financial affairs reasonably well. The huge annual budget deficits further erode that assumption.
A characteristic of a global reserve currency is that there be enough of it in circulation to meet the global demand for its usage. There are only 3 candidates, the dollar, the Euro, and the yuan. When looking at the southern European economies it is doubtful that the Euro can ascend to reserve currency status. The yuan might, but it will take time for many nations to believe the Chinese manage their affairs reasonable well (even in a financial crisis, which we have not seen). It is also questionable if they will act in the world’s interest to their detriment if the global economy needed it.
This is not going to change overnight. The point is that things that have been set in concrete for 70 years can change.
Again, these remarks are through Thursday afternoon after the close.
After breaking above the channel we have been in for a few months, the S&P is taking a small breather. Will it turn in to something more serious? We’ll see.
Technically, the market has come down from its heavily overbought with the RSI (top of chart) at 62 which is still almost in overbought territory. MACD at the bottom of the chart has turned down in a negative pattern, raising the possibility that there is more selling to come in this pullback. However we just saw in the latest Long Term monthly update that the bull market remains intact, so it is time to start working on your buy list for when the selling stops.
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Rich Comeau, Rich Investing