Keep a Close Eye on Gold
Keep a close eye on gold... The long-awaited breakout could be here now... An update on the auto industry... Why the automakers could be the next to fall...
Keep a close eye on gold...
In the May 31 Digest, we told you that gold could be close to a big breakout. In particular, we highlighted the following chart from our colleague Ben Morris, editor of DailyWealth Trader...
As we noted at the time, gold was just 1% from breaking out of a multiyear "wedge" pattern that could send prices much higher...
Today – less than one week later – it appears this move could be starting...
Gold jumped 1.1% to a seven-week high of $1,293.60 per ounce today. And as you can see in the updated chart below, gold is now trading above the upper trend line of this long-term pattern for the first time...
Again, as we mentioned last week, Ben doesn't recommend getting too bullish just yet. He wants to see gold move above $1,300 to be sure this isn't a "false" breakout that quickly reverses. We agree.
Our advice remains the same: If you don't yet have a small portion of your savings in physical gold (and silver) bullion, feel free to do so today.
But if you've been waiting for a great, low-risk buying opportunity in gold stocks and other, more speculative vehicles, we urge you to remain patient and wait for a confirmation.
Today's move suggests you may not have to wait much longer.
Are investors "cheering" falling auto sales?
Last week, U.S automakers reported that sales fell again in May for the third straight month.
And yet, shares of the big three U.S. automakers – Ford Motor (F), General Motors (GM), and Fiat Chrysler (FCAU) – rallied on the news. As news service Reuters reported on Thursday...
Automakers reported sales fell 1% from a year ago. This brought the annualized sales pace down to 16.66 million cars and light trucks from 17.17 million vehicles a year ago, according to figures compiled by Motor Intelligence...
GM and Ford executives expressed hope that demand for new cars and trucks will stabilize in the second half of 2017, and said recent high levels of unsold cars will decline...
What's going on here? These firms admit the situation looks bleak today... but they believe things will turn around later this year.
As regular Digest readers can probably guess, we're less hopeful...
Even these poor results likely understate just how weak demand is today...
If not for record dealer incentives, sales would have fallen even further. More from Reuters...
Manufacturers and dealers "really pushed the deals over the holiday weekend to prop up their May numbers," said Jessica Caldwell, executive director of industry analysis at Edmunds, the car shopping website.
General Motors dealers were offering discounts of up to $12,000 on the full-size Chevrolet Silverado pickup, while some dealer discounts on Ford Motor Co's F-series pickups were more than $10,000 on 2017 models and more than $14,000 on leftover 2016 models.
More important, demand for new cars is likely to weaken even further as used car prices fall...
According to J.D. Power Valuation Services, its Used Vehicle Price Index fell another 0.4% in April to 109.9.
Prices have now fallen for 10 consecutive months, and sit at their lowest level since September 2010. Worse, the latest decline was led by sport utility vehicles ("SUVs"), which had previously been a bright spot.
Meanwhile, the latest data suggests automaker estimates regarding unsold cars are "optimistic" at best...
According to Daniel Ruiz of the Bottom-Up Automotive Analysis blog, inventories remain at historic highs...
On May 10, 2017, there were 145,763 new 2016 vehicles unsold. Today, 2016 new car inventory stands at 112,310. At the current rate of sale, we will not sell through the new 2016 inventory till the last week of August...
The inventory problem today is a metaphoric train wreck as the engine (2016 unsold inventory) has been derailed, with the freight (2017/18 new inventory) still traveling behind at a high speed. You might wonder, How far into 2018 will we have to go to sell the 2017's?
The longer it takes, the greater the pain... The only solution is to slow or halt production of new cars. The longer the manufacturers wait, the longer the production stop will be.
Many automotive-related stocks have had a rough year...
We've documented the troubles of auto lenders like Santander Consumer USA (SC) and rental-car companies like Hertz Global (HTZ) and Avis Budget (CAR). But shares of the big U.S. automakers have been relatively resilient so far.
We believe this soon will change... Slowing sales (despite record discounts and incentives) combined with massive inventories are warning of big trouble ahead.
New 52-week highs (as of 6/5/17): AbbVie (ABBV), Amazon (AMZN), Alibaba (BABA), Becton Dickinson (BDX), Ctrip.com (CTRP), Euronet Worldwide (EEFT), Eaton Vance Enhanced Equity Income Fund (EOI), Facebook (FB), Alphabet (GOOGL), PureFunds ISE Mobile Payments Fund (IPAY), Johnson & Johnson (JNJ), Microsoft (MSFT), AllianzGI Equity & Convertible Income Fund (NIE), Nvidia (NVDA), ProShares Ultra Technology Fund (ROM), and Guggenheim China Real Estate Fund (TAO).
In today's mailbag, a longtime subscriber sends his thanks... and more great feedback on the latest essays from P.J. O'Rourke. As always, send your questions and comments to feedback@stansberryresearch.com.
"To all of you at Stansberry Research... you have made me wealthy. I thank each of you for that. You all have taught me to be a wise investor. You have taught me to see a bargain when I am looking at it. But the [most important] thing you have taught me is how to trade options right. I have been trading options for not quite 2 years now. My worst month has been 82% good trades. I have had more months of 100% than I ever thought possible. This is because all of you have talked and trained people how to trade options. The first time I saw this stuff I knew that this is where the money is made.
"Because of all of this, my wife has been able to retire at 57. Because of this we have been able to give my youngest daughter a nice house to live in. We needed a tax deduction, and they needed a different place to live because their rent was going to go sky high. It saves them $800 a month. I realize that 'thank you' doesn't quite cover it. But I was reading DailyWealth today and realized that I knew what was being said already, and that it was because it was stuff that I [learned from you]." – Paid-up subscriber Jeff S.
"Oh, P.J., we laughed and laughed! I was choking and coughing, laughing so hard that my wife insisted I tell her what was so funny. I read your whole piece to her and we both laughed till our sides hurt. That day (when I received your piece about 'Shoveling s*** in hell'), I had just spent several hours putting new sticks onto our chicken house roost in order to accommodate our 12 new hens. We had 8 mature ones and then added 12 day-old chicks back in March. We're now attempting to blend the two flocks without too much bloodshed. But, when I'm shoveling out the chicken house and doing other manual labor I rarely have such enlightening and humorous thoughts. Thanks for moving the mental conversation to a higher plane." – Paid-up Stansberry Alliance member Ed M.
P.J. O'Rourke comment: Thanks, Ed! There's no greater compliment to a humorist than saying he made you laugh out loud. (Just like there's no greater insult to a politician than saying the same thing.) Good luck with blending the flocks – it's still "Jets" and "Sharks" in my henhouse.
"[PJ,] would you give all your readers permission to plagiarize and/or copy [your essay on health care reform] and send to their Representatives and Senators? It appears that the only thing these folks understand is money and votes, rendering doing what's right for America and its people to the back of the bus, or maybe out the rear door..." – Paid-up Stansberry Alliance member Dave S.
P.J. O'Rourke comment: Dave – thanks for the kind words! And it ain't plagiarism if I beg and plead for you (and everybody else) to copy it and send it on to Congress! Sign your own names to it if you like. I've been writing about politics for 45 years and I know the Representatives and Senators don't listen to me. But maybe they'll listen to you.
Regards,
Justin Brill
Baltimore, Maryland
June 6, 2017