As we rapidly approach the end of 2018, it is time to let you know what we are seeing as well as thinking on any number of subjects. As you know, we really do believe price talks, markets talk, and we must listen. Here is a snapshot of our Wall of Worry list.
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For those continuing to say fundamentals are fine, Germany and Japan just announced their economies are contracting, even though both are still printing money and have negative rates. There is no ammo left. On top of that, estimates for U.S. GDP just dropped to 2.4 percent from 3 percent, as tracked by the Federal Reserve Bank of Atlanta’s GDPNow. We recently told you the norm going forward will be lowered expectations. Markets seem to know this.
The main cause of the recent protests in France is not only about a scheduled 25 cent per gallon increase in gas taxes, but also the elimination of a wealth tax put upon the country by the last socialist who ran the show by the name of Hollande. Of course, President Emmanuel Macron already has backtracked on the tax with our expectation that the wealth tax will come back. Not sure this will appease as Macron is polling just below root canal. But the real story is a $49 per gallon tax. What? You haven't heard of this? From Forbes: "If Paris streets burned over a proposed 25 cents per gallon climate change tax, imagine the global conflagration over a $49 per gallon tax. That's what a U.N. special climate report calls for in 12 years, with a carbon tax of $5,500 per ton of carbon dioxide - equal to $49/gallon of gasoline or diesel." Follow the money!
We believe we have heard several different stories coming out of the administration on the arrest of the Huawei chief financial officer. We repeat: nothing happens by accident and to believe nobody knew about this in the administration? We continue to believe tariffs suck and this whole trade thing has been mishandled. It seems we are hearing different stories from different people. Yes, we know China is a bad player but what happened to the greatest negotiator of all time, President Trump and the "Art of the Deal”? Companies cannot plan when they do not know costs and expenses or what they can charge. Trust is usually part of negotiations and not sure there is any from each side.
The morons/crooks/charlatans brought out about 2,500 names including the Potcoin from Dennis Rodman and a coin from Venezuela. Most are down sharply with many already turned to dust. This is one of our proudest calls, as we yelled and screamed back when these coins were having their final ridiculous run that they will all "turn to dust," and to dust they are going. We believe the only reason bitcoin, off more than 80 percent from the highs of late 2017, is not down further is because it is now held in a few big hands. If they sell, they kill each other. Thus you are seeing what we call the slow death.
Apple & Facebook Slowing?
Both industry innovators which may be seeing a slowdown.
Just last week, Apple posted a banner on top of its website advertising the new iPhone XR for $449 if you trade in the 7 Plus. The XR usually sells for $779. They also started offering a promotion boosting the trade-in value of other older iPhones. Maybe price does matter as suppliers continue to cut their numbers and Apple’s stock continues to swoon, down more than 25 percent through the fourth quarter.
A recent survey found 44 percent of Facebook users between 18-29 years of age say they've deleted the app from their phone in the last year. Sales and earnings have had a serious deceleration in recent quarters.
Rising Corporate Debt:
Enabled by the dolts at the Federal Reserve, corporate debt is up approximately 86 percent since 2007. About 25 percent of junk rated issuers are now rated at B- or lower, up from 17 percent four years ago and the highest level since 2009. Remember what we have been saying for years. Easy money creates dislocations in price and yield, and almost always ends badly when things normalize.
Fed in Damage Control
Let us repeat. Fed Chair Jerome Powell said this in 2012: "Investors really do understand now that we will be there to prevent serious losses." You are now seeing what he meant over the past two weeks. If they actually raise rates one more time next week, we expect more language to come out trying to do one thing -- defend the markets. So far, markets have stuck a certain finger back at him and his now-dovish yapping, a complete 180 from just a few weeks ago. It is also no accident that a couple of other Fed heads came out in the past couple of days, one saying we should be getting close to the end and the other amazingly saying the Fed shouldn't even raise rates next week.
The taxpayer's interest tab in 2018 is about a measly $523 billion. That's $523 billion not going toward roads, bridges, highways, the poor, the elderly, the indigent and children. Yet, there is still talk about the need for infrastructure money and money for a wall when all these people created all this. And don't get us started on Obama's $800 billion stimulus for "shovel-ready” jobs. We know the only thing that got shoveled. But don't worry. Many of the same people who brought us to $22 trillion of debt are still in power. They promise to fix the problems of this country.
Gary Kaltbaum is a registered investment advisor with more than 30 years of experience in the markets. He is owner and president of Kaltbaum Capital Management, a financial investment advisory firm headquartered in Orlando, Florida. He is a Fox News Channel Business Contributor regularly appearing on Fox News Channel and the Fox Business Network. Gary is the author of the book “The Investors Edge” and is also the host of a nationally syndicated radio show with the same title “Investors Edge” which is broadcast on numerous stations across the U.S.