FRANCE ELECTION, TRUMP TAX AND PRECIOUS METALS

The French Election is over and Macron seems to be the media's favourite to win in the Second Round. Will Le Pen stage a come back? In 2016, Remain was in favour to win vs Brexit and so was Hillary vs Trump. I still believe it could go either way and what's going to happen in the coming weeks could determine that.

On the back of the Macron's victory gold was smashed by almost US$20 in the early hours of trade but clawed back by the end of the day to end about US$12 lower. US$ fell as the Euro gained strength. In the next two to three days gold could be trading on the low side due to the expiry of options.

However with Trump unveiling a corporate tax cut of 20% from 35% to 15% effectively, the market optimism will quickly vanish as this would add US$2T in debt over the next 10 years.

Not only that, there is no backstop to the fall in tax revenue which the Freedom Caucus will not support and the Democrats, who are pro-company tax will also not support. So it is likely to be a grand plan by Trump but will be DOA (dead on arrival) when it comes to Congress.

Trump is also not giving in to scuttle his border wall in order to prevent a government shutdown on Friday which was what the Democrats demanded in order to continue to fund the government.

So despite some early of the week pressure on gold, as the fallout in the tax and funding unveil themselves, gold could be some upside, which could erase the downside on the miners at the beginning of the week as well.

Silver was hardly affected all through the day. More importantly some supply stress is anticipated as Peru which is the third largest producer saw production dropped by more than 10% in the most recent data, suggesting that the silver on the top surface have depleted significantly and without a further rise in price, going deeper to extract silver will not be cost efficient.

MARGIN DEBT AT DANGEROUS LEVEL

According to the NYSE total margin debt in February stands at US$528B!

But that excludes other 'shadow' financing which is offered by other fin-tech companies to clients who can pledge against their securities as collateral. According to Zerohedge, this could amount to another US$250B.

Taken together, the potential of margin debt is a whopping US$778B!

On top of that, I previously covered that public and corporate pension funds have bet trillions of US$ in the US stock market.

A significant correction or fear of recession (which all economic indicators are pointing to) could manifest into a massive sell off as public and corporate pension funds exit and margin calls escalate.

If you look at the chart, you can see how margin debt has grown exponentially when compared to the growth in the S&P index.

This is a nightmare unfolding in slow motion.

INDIA IS BUYING MORE GOLD THAN EXPECTED

For those who think that India's demand for gold has been crimped by the government's war on cash. Here' the chart that shows India's gold import skyrocketed in February and that's excluding the black market which some say could even be more.

Meanwhile China continues to buy gold at a steady pace. Hong Kong is often touted as another entry point for gold passing into China.

Gold price has stabilised and no matter what the Fed says about raising interest rate, they are already behind the inflation curve. And that's is why gold will continue to shine because real interest rate after deducting inflation is negative.

Real interest rate will stay negative as long as the interest rate is behind the inflation curve.

The only way to get ahead of inflation is to raise the interest so high that it defeats inflation. But that comes with a price. With total US debt at US$68T and government debt of US$20T, such an environment will collapse the government, corporations and households.

So that is why I think the Fed will not raise rate aggressively because they can't afford to. Signs of stagflation are very real. Consider this. Q3 2016 GDP was 3.5%. Q4 2016 GDP was 2.1% and Atlanta GDP now puts it at 0.9%. But inflation is creeping up and has surpassed 2.0%.

So to boost the economy, the Fed will not raise rate aggressively and if economy goes into recession rest assured there will be a QE4.

Then what follows will be a hyperinlfation.

Meanwhile stay protected by acquiring physical gold and silver buying miners and related ETFs.

WALL STREET'S SMOKE AND MIRRORS

During the Presidential Elections campaign, all the bankers were saying how bad Trump will be for the economy. then Trump got elected and in the wee hours the Dow fell by almost 800 points. Just as quickly the bankers changed the narrative saying Trump's plans will reflate the economy and GDP could grow 3% - 4% under Trump and of course since that day all the indices have been reaching record levels. Never mind the fact that all other hard economic data were pointing to a weakening economy.
In the past week, despite having a majority representation in the House, the Republicans failed to repeal and replace Obamacare. The stock market tanked, and within hours the bankers quickly changed the narrative that the healthcare vote was not important because what Wall Street wants was the tax reforms. And since healthcare was out of the way,, the administration can now focused on tax reforms. And the stock market rose
Never mind that the healthcare plan carries with it tax credits which was part of the overall tax reform plan.
Never mind the fact that despite the majority in the House, the Republicans failed to reach a consensus.
Never mind the failure of the healthcare plan would also result in a failure to save the government approximately US$500B
Never mind the fact that the US debt ceiling suspension has expired and the government will run out of cash by end of April. And thus far no one has even consider the Democrats' threat that they will force a government shutdown unless Trump withdraws the ban on immigration from certain countries and stop building the border wall. The Freedom Caucus from the Republicans will likely oppose raising the debt ceiling.
Never mind that unfunded liabilities in pension funds all across the US has now reached US$1.9T vs just US$292B in 2007.
Never mind the rising delinquencies in Student and Auto Loans, both of which carries total loan amounts of more than US$1T each.Never mind that the Border Tax proposed by Speaker Ryan will add to inflationary pressure among the consumers. Retailers are already falling like flies across US. Why should US consumers buy from US based retailers if the Border Tax is sure to raise prices even more? They might as well buy online from overseas retailers. I expect to see more layoffs from the retail sector if the plan pushes through.
Never mind that the powerful Koch Brothers and US retailers are against the Border Tax. Should the Border Tax fails to garner any votes just like the healthcare plan, then the government will also fail to realise an extra US$1T in tax receipts. So how will the government finance the US$1T infrastructure plan? I would expect another major sell off.
And lastly, never mind that the the divergence of hard data vs soft data has never been wider (See chart. Source: Zerohedge)

IT NOW TAKES US$4 OF DEBT TO CREATE US$1 OF GDP

Student Loans have reached US$1.3T. Back in 2007, subprime mortgage reached US$1.3T as well.
The difference between the two? Subprime mortgage is backed by real estate as a collateral, but student loan? It is not backed by anything at all, save the US government guarantee. Lately the number of delinquencies have risen past the 10% level. Eventually it will require yet another government bailout.
Meanwhile used cars value has been collapsing which prompted a number of auto financing companies to warn of impending fall in earnings. By the way, auto loans too have moved past the US$1.0T mark.
It just need a sequence of events, one after the other before the house of cards built on endless supply of debt will fall and fall hard.
In the most recent research, it now takes US$4 of debt to grow the economy by US$1. How crazy is that?

PRECIOUS METALS RISE, STOCK MARKET TANKS, USD FALLS BELOW CRUCIAL 100 LEVEL

Precious metals proved their resilience as the stock market tanked and USD fell below the important 1.00 level. This is why it is important to own precious metals, especially in a scenario where global risks and uncertainties prevail.

Despite the stock market falling, most of the mining stocks and inverse ETFs gained. They are the best hedge against a falling stock market.

But what did actually happen?

Some reports pointed to the coming House vote on the repackaged Obamacare (ACA) on Thursday as a catalyst. There were only some minor changes on the original ACA and a group of the conservatives among the Republicans did not like the repackaged version, rather they wanted a full repeal of it.

Without this group support, the repackaged ACA will not likely be passed as the Democrats will also vote against the repackaged ACA.

Not only that, even if the House passes the bill on the ACA, it will be DOA (Dead On Arrival) at the Senate.

This is Trump's first and major hurdle. If he fails to get it passed by both House and Senate, it means a failure on his part to get the support he wanted and this could also affect and derail his tax reform and infrastructure plans.

Which let to the market finally waking up to the fact the Trump will not have it easy.

On top of that the Fed has been proven to be clueless with regard to the economy, hiking rate into a weakening economy and where wage growth is falling behind inflation.

We also have the debt ceiling where the US Government has just enough cash to last another two months (or less) as the suspension of the debt ceiling expires. And until today, nothing has been done to raise it. This adds to the risk of a government shutdown and more uncertainties in the market.

The recent fall could be the straw that finally breaks the camel's back and we could see further weakening in the stock market.

POTENTIAL US RECESSION DESPITE GOOD JOBS NUMBERS?

The ADP jobs report blew past expectations reaching 298k jobs in the month of February.  This immediately sent the 10 year bond yield spiking, the USD rising and the chance of a Fed hike, 100%.

The rise in ADP is a result of strong survey data such as Business Confidence which rose to highest levels in years, and strong consumer sentiment.

Precious metals of course weaken, as they normally do when the banks, hedge funds and algos worked in unison.

On surface it looks like a rosy picture. The ADP report was the headline feature but everyone seems to ignore 3 other reports which also came out the same day.

1) Productivity growth in Q4 was 1.3% vs 1.5% expectations, and after a 3.3% surge in Q3.

2) Wholesale inventories tumbled in January to -0.2% which was way below expectations. In the prior month it rose +1.0%  

3) The Atlanta Fed GDP Now has revised down the Q1 GDP to 1.2% from as high as 3% at the start of the year.

If the Q1 GDP falls below 1.9% then the US is in a TECHNICAL RECESSION. 

Against this backdrop the Fed is intent on raising the interest rate by 0.25% just as the US GDP is falling behind expectations. This could not end well for the stock market. 

Inflation is running above expectations and this suggests a potential stagflation if US GDP remains low.

Going back to the exuberant consumer confidence consider this. Major retailers are reporting Q4 earnings below expectations and many saw losses, resulting in several major retailers announcing bankruptcies and closure of stores. The chart below shows the severity of the situation.

This has put the shopping malls at risk due to a rise in vacancy. The commercial real estate debt is also at risk as some bonds are trading less than the par value. 

With trillions of dollars at stake, this could be a bubble that is worse than the 2008 housing bubble.

Source: Zerohedge

FORGET ABOUT THE MARCH RATE HIKE, THE LOOMING EXPIRATION OF DEBT CEILING HOLIDAY IS OF GREATER IMPORTANCE

Gold and silver continued to be hammered while miners lost more ground.

This is likely due to the upcoming March 15 Fed meeting which many banks have already priced in a 0.25% rate hike.  

The main stream media is down playing an important event on March 15 which is the expiry of the debt limit holiday. Upon the expiry, the government has a some $300B plus with which to sustain unless the debt ceiling is raised again.

Will the debt ceiling be raised?

It is expected that to continue spending the way the US currently does, the US government debt will double in a decade, that means by 2027, the debt will reach $40T!

With interest rate hike in March. An additional 0.25% hike in interest is equivalent to paying an additional $50B in interest payment based on the current debt of $20T, more if the debt ceiling is raised to meet Trump's spending requirements, ie: border wall, infrastructure and military spending, reduction in taxes, etc.

In an environment of worsening political tensions between the Republicans and Democrats and infighting among Republicans, will raising the debt ceiling be approved by Congress? The Democrats look set to go against Trump on all grounds, and Republicans being the conservative party have criticised Obama often on the amount of debt. So will they eat their own words  and vote to raise the debt ceiling themselves, which will anger their grassroots?

Some Republicans have come out to say that there won't any tax reduction without a spending cut, which could also put Trump's spending plans at risk. For Trumps plans to kick off, THE DEBT CEILING MUST BE RAISED.

If the debt ceiling is not raised, we could potentially see a government shut down and scaling back of payments in entitlements such as Social Security, Medicaid, etc.

Here's how I see it. 

1) Debt ceiling is raised, the stock market may respond positively, but the bond market could see a selloff. A selloff in the bond market will result in higher yields, which the market may misread as a stronger $, as such the price of the precious market may be kept in check. Eventually a skyrocketing debt will result in a weaker currency as it will deter investors from buying US treasuries as the inflation that comes with it may not be enough to yield a positive return. The Fed will have to step in and monetise the debt which in other words, another round of QE. And we know what happened to precious metals in the last QE. 

2) The debt ceiling is not raised, and turmoil erupts in the stock market which will also result in traders and investors losing faith in the US economy and a selloff in $$$ ensues.

So either way will be bullish for precious metals and miners.

Since the Fed is likely to hike rate in March, it will be pretty much like what happened in December. Precious metals and miners weakening ahead of the hike and resume an uptrend thereafter. 

The above is just my opinion.

SIGNS OF STRESS IN CHINA AND JAPAN

Most of my writings thus far have been focused on the US and EU. But something dangerous is also manifesting beneath the calm surface in China and Japan.
Look at the for mortgage loan (orange) and and net profits (grey) for commercial banks in China. What does it tell you? A falling net profit in the loans could very well mean surging NPLs and this could have dire consequences for the banks which have over extended the loans to a staggering level.

Next is the chart form Japan. Despite the suport from the BOJ in buying up bonds and ETFs, the Japanese population is just not spending. Meanwhile the BOJ has over extended the balance sheet by more than 250% of GDP. If the Japanese are not spending, the economy will continually be in the doldrums, not to mention the BOJ missing its inflation target.

Added together we have the US, EU, China and Japan all tethering on the edge of a precipice with their enormous debt.

PRECIOUS METAL TAKEDOWN AND ATLANTA GDP NOW FORECAST AT 1.8%, THAT'S A TECHNICAL RECESSION

Both gold and silver hav ebeen repeatedly hit over the the last week. Gold amnaged to hold above US$1,230 per oz but silver got hit badly when someone dumped US$2B in paper silver to caus ea massive drop in the price of silver on Thursday.
Who is the someone? Silverdoctors said it could be a major silver player coming to rescue the commercial shorts. 
This resulted int he miners being ht as well. Meanwhile, we have a parade of Fed speakers, including Yellen saying now's the time to raise interest rate because the economy is getting stronger. Stronger? Is that a joke? The Atlanta Fed GDP Now is forecasting Q1 2017 GDP at 1.8%. That vs 1.9% in Q4 2016 and 3.5% in Q3 2016. That's a 2 month consecutive drop in GDP! And in my dictionary, that signals a technical recession!
Once the reality sinks in, we could see a stock market sell off and a move into safe haven assets like precious metals.

GOLD AND SILVER CONTINUE TO TREND HIGHER IN THE OPTIONS EXPIRY PERIOD

The options expiry period saw gold and silver advancing substantially instead of the expectations of takedown by the bullion banks.

However miners lost some ground despite the gold and silver advancing. Most likely many traders see this as an opportunity to cash out the miners which have risen substantially over the last 2 months.

Some blamed a takedown in the gold ETF, GLD by institutional funds to jolt the confidence in gold and silver to stem the rise of the precious metals further, which also impacted the miners as well.

Nevertheless, a correction is good for the miners as they have been on a tear recently. Last year, the bullion banks together with the BIS sold more than US$10B worth of gold to knock gold off from its high in the US$1,300 - US$1,360 range but gold continue its advance. Is it money wasted?

Somehow I tend to believe that each attempt to suppress the price of gold and silver requires an even greater amount of shorts to cover the previous shorts, which becomes a growing vicious cycle and put the banks in dangerous positions. On top of that, each major short will emerge a major buyer who will demand physical gold in delivery, gold which the western banks do not have. In the previous takedown after the election, it was rumoured that the major buyer was the PBOC.

Why do I say that the western banks have little physical gold left? The Bundesbank of Germany reported that they have repatriated most of their gold back into the country but the gold bars have to be recast. Recast? Because the gold bars that they received belongs to others while those that they sent for safekeeping are no longer available in their original form. This is a clear sign that the western banks are running short in physical gold.

In the past few months, hundreds of tonnes of gold have moved from the western banks vaults to Switzerland where they are melted and recast into kilobars before being sent to an eastern nation, most probably China, in which case supports the theory that China has emerged as a major buyer during the preivous takedown. It will be interesting to watch next week as

Trump will be addressing the Congress on Tuesday, the option expiry on Monday for the COMEX and LBMA option expiry on Tuesday.

A looming debt ceiling debate in March could set the tone for the US economy and Trump's economic plan.

WHY THE S&P IS WAY OVERVALUED

This is a very interesting chart from Wolfstreet.
Despite the S&P Index at record levels, the earnings have pretty much remain at the Q4 2011 level. Compared to that period, the S&P is trading at 87% higher. 
Now, if you look at the light blue bars, the amount of share buybacks have actually increased from the period of Q4 2011 to the present by more than 30%!
The worrying part is that the share buybacks are being fueled by companies taking in even more debt to fund the purchases. 
So looking at the chart we can surmise that:
1) The S&P is overvalued by 87%. To fall back into the same valuation the S&P index have to fall by more than 45% from its current level!
2) Because much of the buybacks are driven by debt, further increase in interest rate will erode earnings. The anticipation of higher interest rate is also pushing the USD stronger. 50% of the S&P companies derive their earnings from overseas. Thus, a stronger USD will weaken earnings. This will be a double whammy on the stocks.  
3) The S&P is driven earnings using non-GAAP method. If the GAAP is applied, companies which have positive earnings will suffer losses. In part Wall Street rigs the game by pushing the earnings estimates lower so that it will be an easy beat, and thus beneficial to the stocks.
One of the ratios that I am always against is using the Debt to EBIDTA Ratio which often paints a brighter picture of a company's finances since it excludes, Interest Payments (ironic with so much debt at hand), Depreciation (capital invested in plant and equipment reduce in value over time) and Tax (like the government is going to let you get away with it). never mind the Amortisation which is subjective. So if the EBIDTA base is large (with so many items being excluded), then the ratio will be small. Isn't that a rosy picture!
But if you include all these items, the base is going to be small and thus the ratio will be big, and suddenly the picture turns ugly.
So it pays to study the financial statements diligently.
Meanwhile despite a series of takedown in gold and silver, the prices still remain stubbornly where they were.
However, with Thursday through Monday being in the options expiry period look out for more attempts to drive down the prices of gold and silver. With silver shorts being at high levels with physical being in demand, and production trailing demand, it will be an interesting few days ahead.

THE GREAT DISCONENCT

THE DOW vs REVENUE DISCONNECT

I have mentioned a few times the disconnect between the indices valuation vs revenue and earnings. With the Dow trending at record highs, here's a dose of the reality of what's happening (source: Wolfstreet).

This is despite all the billions of borrowed money spent on acquisitions and management's fantasy on prospects of greater revenue.

THE NON-FARM PAYROLL DISCONNECT

The market cheered when the non-farm payroll shot up to 227K jobs, way above the expected 175K jobs.

Two things stood out. Unemployment edged up to 4.8% from 4.7% earlier. If the jobs were so great why was unemployment edging up. Peter Schiff, well known economist and writer put it simply as there being more people re-entering the labour force.

The US has a peculiar way to classify unemployment. If you are not looking for a job, you are not part of the labour force. So this means that now more people are starting to look for jobs and with 95M Americans who can work but not working, the jobs have to grow greater than 227K jobs a month to bring the unemployment rate back down.

The other thing is the hourly wage which grew a measly 0.1% vs expected 0.3%. So with slower wage growth the Fed will have a tough time to convince the market that an interest rate hike is on the cards.

The Fed may not be able to hike interest rate as many times as it wants. In which case, why the euphoria that higher interest rate is good for the economy in the first place? Can anyone see the disconnect here? 

Truth is, that is how Wall Street rig the game. Good news is good news and bad news is also good news. To win the game, you have to go ahead of the curve.

Here are two charts (source Zerohedge) which I think reveal the current state of affairs. US productivity, which remains in decades low despite the uptick and the hourly wage which continues to remain in a multiyear low. That is why the Fed is faced with a daunting task ahead. To raise rate to 3%, productivity has to grow and wage earners must have the capacity to sustain in a higher interest rate environment.

THE 'ECONOMIC IS AWESOME' DISCONNECT

Oil price fell when the API released a report on continual buildup of gasoline over the week. What is surprising in this report is not the increase in supply but the FALL IN DEMAND. Look at the chart below (source: Zerohedge)

Demand falls because consumers are travelling less or shipment of goods via land is falling which according to Goldman Sachs only happens in a RECESSION.

And yet the major indices and crude oil continue to tread higher. This is beginning to look like a dotcom bubble where fundamentals take a back seat and greed takes over.

In the latest 12 month rolling period in tax collection, the Treasury Department reported that receipts fell 0.3% on an annual basis (see chart, source: Zerohedge).

As the chart shows, each time the receipts fell into negative territory, the US is on the cusp or already in a recession. The last time it turned negative was July, 2008.

So many indicators are pointing towards a softening economy where the 2016 GDP fell below 2015 GDP, and a rising inflation which have risen 2.6% in 2016 vs the Fed's 2.0% target. In all likelihood, we could be seeing the early signs of stagflation. 

JUDGE REVERSED JUDGEMENT ON JPM'S SILVER MANIPULAITON CASE AND UTAH INTRODUCES BILL TO MAKE GOLD AND SILVER LEGAL TENDER

Some interesting developments are taking place in the US. The Appeals Court has just reversed the judgement in favour of JP Morgan (JPM) in a civil suit for silver manipulation. The judge believed that there was ample evidence that JPM was involved in rigging the price of silver. So it is back to the lower court to embark on a fact finding mission to uncover more evidence.

JPM has accumulated almost 550M oz of silver in the last few years!

In Utah, the local government has introduced a bill to make gold and silver legal tender and transactions could be made with either. This bill will be put to vote. This is an attempt to remove the control of money by the Fed.

Both events;if JPM is found guilty for manipulation and the bill is passed could be positive to gold and silver.

SIGNS OF DANGER IN THE AUTO INDUSTRY

Here's some important charts from Zerohedge on US auto lease.

Americans are opting for auto lease to continue their lifestyle as new cars become more expensive vs leased. However the short end of it is that returning leases are putting a pressure on used car prices.

As used car prices become lower, the pressure will be on the price of new cars. So it is advisable not to invest in any auto manufacturers as this could blow up into a major crisis.

And yes, this is besides the more than US$1.1T worth of auto loans which is waiting to explode.

Charts are from Zerohedge

WHAT THE INSIDERS ARE DOING WHILE THE INVESTORS PILE IN

When the bankers and hedge funds are convincing everyone to chase the indices as Trump would be good for the economy, here's what the insiders are doing themselves.

This is a sign that you need to be extra vigilant.

A POOR GDP AND A SLEW OF BAD DATA BUT THE MARKET CHOSE TO IGNORE THESE

The GDP for 2016 came in weaker than expected at 1.6% for the whole year. In fact it was lower than 2015 (see chart, source: Wolfstreet). So it goes to show that the euphoria was emotionally driven rather than fundamentally driven. The sad thing is that the market ignores this important data, rather deciding on the Consumer Confidence report which notched in higher than expected. As a result, the indices were little changed

Gold and silver recovered on Friday with silver ticking up more than 1.8%, a move which surprised many. Is there a fundamental issue behind the rise? As I have said many times, silver production is falling while demand is rising. On top of that, many of the silver used are never ever recycled and there are news circulating in the internet China and India will be providing solar power to 600M homes and both Germany and China are bidding to start a solar farm in the Chernobyl wastelands. Silver is one of the most important material used in solar farming due to its conductivity properties.

As if there is not enough bad news, Existing Home Sales fell 2.8% MoM, while new Home Sales was 536K vs expectations of 593K, Durable Goods Sales came at -0.4% vs expectations of 2.5% on top of a November figure which was revised lower. The high expectations were driven by the PMI and ISM survey data which exceeded expectations. This goes to show the disconnect between survey data and hard data (see chart, source; Zerohedge). These is an important lesson to focus on hard data vs survey data. The same with the Consumer Confidence. If the confidence level is so high, why is Retail Sales collapsing?

I believe the market is straining to achieve higher and with a slew of data that indicated a deteriorating economy, investors will focus on fundamentals and this could result in a hard crash.

Therefore, I continue to accumulate small quantities on inverse ETFs and gold and silver miners whenever the opportunity prevails.

TRUMP'S AMERICA FIRST POLICY

Watching the inauguration speech, We can surmise the following:

1) Policies will aim to protect America's interests first
2) It will be Buy American and Hire Americans first
3) Repair existing and build new infrastructures

So looks like it will be a policy that is geared towards protectionism rather than globalisation in which case, the tariffs or border taxation becomes real.

Some economists say that a border tax will make the US$ stronger.

If the intention of tariffs is to narrow the trade deficit, a stronger US$ could make imports cheaper but exports could also fall, as US made goods become more expensive. Also a strong US$ will likely impact upon the earnings of major S&P companies of which 50% are derived from foreign earnings.

As I said in previous posts, imposing tariffs on imported goods could drive up inflation in the US as the US cannot possibly manufacture all it conumes.

On infrastructure I still maintain my position as to where is the source of money? From savings by rolling back government agencies? Or more debt? It remains to be seen how this will be played out.

Meanwhile Zerohedge reported that Chinese investors are pulling out of bitcoin and piling into gold backed ETFs in China. Should this become an investment frenzy it could bode well for both gold, silver and related miners.

Since the Fed decision to hike interest rate, gold has been up 6 weeks in a row.

It pays to watch Trump's policies as he starts his tenure in the White House.

ANOTHER HOUSING CRISIS INT HE HORIZON?

Pending home sales fell while new home sales rose in November. While the data seems mixed the following 2 charts will shed some light.

As you can see the number of failed sales has risen dramatically in 2016 vs 2015.

TARIFFS, MINIMUM WAGE AND MANUFACTURERS

There are still a lot of uncertainties regarding Trump's plans but we'll have to wait and see what they are specifically.

The main topic these days seems to be the imposing tariffs on imports to narrow the trade deficit and how it could benefit the US. But I do not see it in that manner.

US manufacturing will still have to rely on imported raw materials and components as the US cannot manufacture everything. Imposing tariffs on components will drive up inflation as the manufacturers in the US who require these components will have to pay a higher price for them and this will be passed to the consumers.

Not only that, the minimum wage of US$15 per hour (applicable to some states) will add on to manufacturing costs.

Manufacturers will also have to contend with rising costs of financing as interest rate increases.

With rising costs, manufacturers would have to look at automation and this could have ill effect on the labour force.

Back to the US consumers, they are simultaneously confronted with rising credit card debt, rising interest payments, rising insurance premiums and healthcare costs, and shrinking disposable income due to slow wage growth vs inflation. How much longer can the consumers continue to support the economy if prices keeps on rising?

Perhaps the latest Retail Sales data can shed some light into this. Retail sales ex-auto and ex-gas were unchanged vs 0.4% rise in expectations. So this goes to show other than autos and gas, consumers spending hardly budged.

And about those auto sales, most are driven by offering subprime auto-loans which are now in danger of falling apart very much like the housing crisis in 2008 as delinquencies rose (see chart below).

Source: Business Insider

Incidentally Consumer Confidence fell in the month of January to 98.1 vs expectations of 98.5.

With 70% of the economy being consumer driven, we could see some tough times ahead in the US economy.

US UNEMPLOYMENT AND LABOUR PARTICIPATION

The jobs number came in at 156,000 jobs below expectations of 175,000 jobs while unemployment ticked up 4.7% from 4.6% prior.

While the data looks disappointing, the major indices surged ahead, with the Dow nearly breaking the 20,000 mark - all because of the 2.9% wage growth which translates to higher disposable income for the average worker when measured against the 1.7% 'official' inflation rate.

The 4.7% unemployment report is actually a farce as 95.1M Americans of employable age remain without a job.

Furthermore, the Labour Participation Rate which remains below 63% vs 67% prior to the global financial crisis.

Here's a chart from Silverdoctors which show why the US could face tremendous headwinds in the near future due to changing demographics in the workforce.

As can be seen from the chart, the current number of workers from the age groups of 16-24, 25-34, 35-44 and 45-54 have all fallen into negative territory when compared tot hat of the year 2000.

This could extol are terrible pressure on Social Security, Medicaid and pension funds in the future due to declining contributions.

What happens wen those in the age groups of 55- 64 and over 65 finally retire?/