YOUGHAL, IRELAND – Two newsworthy things happened on Friday.
As to the first, we were right after all. Mr. Trump isn’t going “Full Retard” in his trade war. At least, not with Mexico. His dramatic declaration of an escalating tariff… until the flow of illegal immigrants “STOPS”… must have been just another of the showman’s stunts.
Stir up a fake fight… make a fake “deal”… and declare a fake victory.
A Great Deal
Here’s The New York Times:
The deal to avert tariffs that President Trump announced with great fanfare on Friday night consists largely of actions that Mexico had already promised to take in discussions with the United States over the past several months, according to officials from both countries who are familiar with the negotiations.
Friday’s joint declaration says Mexico agreed to the “deployment of its National Guard throughout Mexico, giving priority to its southern border.” But the Mexican government had already pledged to do that in March during secret talks in Miami between Kirstjen Nielsen, then the secretary of homeland security, and Olga Sanchez, the Mexican secretary of the interior, the officials said.
Over the weekend, Mr. Trump also tweeted – twice – that the deal included large food purchases:
MEXICO HAS AGREED TO IMMEDIATELY BEGIN BUYING LARGE QUANTITIES OF AGRICULTURAL PRODUCT FROM OUR GREAT PATRIOT FARMERS!
Neither Mexicans nor Americans could find any trace of this in the deal they negotiated. Nor is it obvious how Mexicans buying U.S. farm output would reduce illegal immigration… or why, if it made economic sense, they weren’t already buying food from the USA.
Countries don’t generally buy food anyway; companies buy food to sell at a profit. And farmers don’t grow corn as a patriotic act; they grow it to earn a living.
Apart from that, it was a great deal!
[Donald Trump and Elizabeth Warren both have the same idea: that the economy is meant to serve the politicians and whatever cockamamie election strategy they come up with. More tomorrow…]
So, south of the Rio Grande, things are going back to the way they were, with the illegals still making their way across the border while Mexico “works really hard” to do what the U.S. has been unable to do – stop them.
Meanwhile, north of the river, things are bumbling along in the same direction – towards another great fake-out.
The employment numbers came out on Friday… and they were miserable. The “greatest economy ever” added only 75,000 jobs last month, well below the expected 185,000.
So far, the Trump economy has added an average of 25,000 fewer jobs every month than were added during the previous administration.
But the labor report was not at all surprising. For weeks, a recession has been stalking the economy. New housing construction, house prices, debt delinquencies, final consumer sales, bond yields – all point to a slowdown.
Nobody lives forever. And no expansion is eternal. And when you’re the world’s oldest person, it is probably just a matter of weeks until the hearse shows up.
The punky employment numbers are a sign of normal aging. They are nothing to be alarmed about. But what happened after the numbers came out was ghastly.
Last week, we looked at the growing gap between Main Street and Wall Street. We looked at several indicators – household wealth/GDP, Wilshire 5000/GDP, labor/Dow – and saw that there has never been so much distance between the two.
How did it happen? The feds created fake money and lent it out at fake rates. This money went overwhelmingly into Wall Street – the financial economy – not into the Main Street economy.
The federal funds rate is for overnight loans. It supports the short end of the yield curve – including call money and short-term bills and notes.
But you can’t build a factory or a house, start a business, or develop a new technology with hot money. Because real output takes time… and long-term finance.
Hot money is only useful for speculators. They can use it to take leveraged positions in stocks and bonds – where they know they can unload them and get out at a moment’s notice.
For them, the most important thing is the cost of “carry” – the interest rate on their borrowed money. And as the economy weakens, they become bolder, betting that the Fed will cut interest rates again, making their cost of carry negative.
So, instead of selling stocks because a recession will make Main Street businesses less profitable, they bought them. The Dow closed up 260 points.
It may all be fake, they reason – Wall Street prices, trade wars, interest rates, employment numbers, and inflation rates.
But it’s getting even fakier. So, Party On!
MARKET INSIGHT: THE IPO FRENZY CONTINUES
By Jeff Brown, Editor, Exponential Tech Investor
Of course, Uber was the headliner. The company raised $8.1 billion in its IPO last month. But there are many other tech IPOs hitting the market right now.
In fact, U.S. IPOs raised more money last month than they did from January to April combined.
As you can see, U.S. IPOs raised $15.2 billion last month. That’s the most since September 2014 – when Alibaba raised $25 billion single-handedly.
That means the 2019 IPO frenzy is upon us…
And make no mistake, this trend is much bigger than just Uber and Lyft. There is a backlog of technology deals right now because companies are staying private for longer. That’s thanks to venture capital funding.
As a result, there are hundreds of private “digital first” tech companies ready to IPO this year. These are companies that were born in the ashes of the 2001 dotcom bust… and remained private a long time to season and mature. This is the year their potential will be unleashed on the market.
But please, do not follow the herd in chasing these IPOs out of the gate. Here’s why…
The top tech IPOs are backed by venture capital (VC) firms. Those firms typically cannot sell their shares until six months after the IPO. That’s called the lockup period.
For that reason, we often see heavy selling around the time that a lockup period expires, which drives down the share price.
That’s when the best IPOs become undervalued. And it creates a fantastic buy window for savvy tech investors. I call this the “Magic Window.”
In many cases, you can buy the best tech stocks below their IPO price if you wait for the Magic Window to open. And that’s often the easiest path to triple-digit gains in the tech market.
– Jeff Brown
P.S. This Wednesday at 8 p.m. ET, I’ll be sitting down to have a frank conversation about the future of technology…
You see, I believe we’re at an inflection point. In the next few years, technologies like genetic editing, artificial intelligence, and augmented reality will change our world and our lives in ways we can’t imagine. Of course, investors stand to make a small fortune. Want to know more? Then please join me this Wednesday. Go right here to save your spot.
Fed Weighs Delaying its “Dot Plot”
The Federal Reserve’s “dot plot” offers investors a sneak peek at where its policy is heading – and whether it might cut rates. But Fed chair Jerome Powell thinks the financial world puts too much weight on the preview. And now, the Fed might change the process altogether.
China Targets Tech Companies in Trade War
The Trump administration’s ban on cell phone maker Huawei is forcing China to change its strategy in the trade war. The Chinese government is now targeting firms like Microsoft and Dell. And it recently issued them a warning…
The Technology of Chaos
The “sci-fi” technologies of tomorrow aren’t decades away. They’re being developed right now. Everything from how we think… to how we’re born… and what it means to die will change in ways we can’t possibly predict. These technologies offer the potential to solve society’s problems… or they could cause mass chaos.
Today, one reader tells us that it’s not just the U.S. that failed to take the punchbowl away from the bankers and speculators when the party got out of hand…
I would agree that the “punchbowl” is the current cause as no one had the political will or economic foresight to take it away. The perceived crisis that Bernanke responded to was an existential one. So he and the Fed put out the fire before it consumed the banking system. His successors forgot to take it away, and therefore, its usefulness is now compromised.
I spent a great deal of time in countries where taxes and the value of their currencies got out of hand. It was very unpleasant for the economies (read: people) of the U.K. and Sweden.
Sweden lied about its unemployment rate as it was an “embarrassment,” but in effect, a whole generation never worked at all, as the Swedes didn’t count the unemployed receiving unemployment insurance as being unemployed, right out of Catch-22. Both countries levied wealth taxes, which chased the wealthy out of their respective countries. Recent history demonstrates that a wealth tax doesn’t work. The punchbowl can work if the minders remember to take it away when it’s no longer needed and empty. What do you think the reaction would have been to the susceptible large banks that would have failed? In my opinion, we would have seen a generation of Americans unemployed.
– Julian C.
Meanwhile, another reader claims Mr. Market isn’t always as reliable as we say he is…
I would never accuse you of being a market fundamentalist. But you do seem to expect markets to do what they have never done. Markets are usually lagging behind events in the real world. They are often crooked or manipulated. They do not actually innovate or necessarily push innovation. We would not have the internet and all that it has brought us if we had relied on “the market.” It took intervention from, yes, the government in that case, and in so many areas of innovation, that is true, too.
Competition is not confined to companies. It just as much stimulated the Renaissance artists to outdo what their compatriots had done. Companies are often only too willing to play at it but do little real research and development, especially when there is no obvious immediate return on it. Yet most scientific advances do not have obvious financial returns. The market is not something to be relied on. It’s an indicator, not a guide, and certainly not a visionary.
– Richard C.
IN CASE YOU MISSED IT…
Bill’s go-to tech expert, Jeff Brown, has agreed to pull back the curtain on four early stage technologies that could change the world…
This Wednesday, June 12 at 8 p.m. ET, Jeff will reveal all the details during his first-ever “Early Stage Tech Summit.”
He’ll also reveal the four small-cap tech companies that have the potential to 10x your money. You can attend, for free, by reserving your spot here.