S3 E7: What? Me, Worry?

At the risk of aging myself, I vividly remember Mad Magazine as a kid, and the goofy, enigmatic, care-free character Alfred E. Neuman.

Alfred was famous for being care-free with the buzz phrase..."What, Me Worry?"

As the Trade War intensifies, I ask, who is "worried" out there?

Well Donald Trump is hoping China is worried. The Donald is hoping that Fed Chair Powell is worried.

But both of these individuals are giving us their BEST "Alfred E. Neuman" imitation.

What? Me, Worry?

Powell can "wait", he is NOT worried.

Xi Jinping can "wait", as he just secured a $400 billion trade surplus windfall, thanks to a pre-tariff BOOM in Exports. There is NO inflation in China. Retail Sales are growing at a near +6% year-year rate. Industrial Production is surging, the Labor market has stabilized, the stock market is NOT plunging like it is in the US, leaving only the deflated Property market (and maybe the Banks) as a potential source of worry.

Bottom line, Xi is NOT "worried".

Trump has tried to bully both Xi and Powell...but neither are worried, and neither has flinched (nor is likely to anytime soon).

The ONLY people who are WORRIED right now...US Consumers, and US Equity market bulls.

This has been bearish for the USD and Stock Indexes...and wildly bullish for Gold and Canadian Gold Mining shares, JUST LIKE I'VE SAID IT WOULD BE since January, and more specifically in the last several episodes of Money, Markets & New Age Investing. 

Transcript

What Me Worry: Setting the Stage

Speaker 1 0:00

Hi, greg Weldon, back at you with season three. This is episode seven of Money Markets and New Age Investing, and I'm going to jump to the end, I'm not going to bury the lead here. Today's topic is what Me Worry. If you remember I'm old enough to remember Mad Magazine when I was a kid, and Alfred E Newman, this kind of likable, goofy, enigma-like character, all right, that was kind of never worried about much of anything, he just let it shrug, pretty much shrugged everything off, and it was always like what me worry? And at this point in time it's kind of like I'm looking at the situation with tariffs, I'm looking at the situation with Donald Trump and I'm looking at it's kind of like you thought that this would be a tactic that would worry our trading partners, that if they didn't get in line they're going to lose the US customer. But you look at Chairman Xi Jinping in China. You have to say he's not worried, all right, he's kind of hitting back. Then you look domestically and now all of a sudden you're pushing the Fed to cut rates, calling Powell a loser, all right. And Powell's like what me worry, I can wait, I don't have to do anything right here. And it's pretty interesting because the two people that Trump's trying to bully here neither one of them are worried, and in the case of China, there's good reason not to be worried. Yeah, is their property market a mess? Absolutely, and the numbers we just got this week are really dreadful, but it's consistently, you know, kind of chugging along at the bottom. It's not necessarily getting worse per se in terms of the depths of of decline when there's a lot of other good things happening, some of them because of the tariff threat and then enactment. But who's really worried? The US consumer. So when you say what me worry, it's not China, it's not the Fed, it's the consumer and its holders of US equities.

Speaker 1 2:04

Some of the themes that I gave you back in January of this year for my year ahead themes there were two in particular we're going to talk about today because they're never more evident than they are today, here in April, here for almost four months later, after I said these things, we're neck deep in it. Okay, well, three of them really. Number one is a consumer cocoon, that's consumer. The cocoon would begin to harden, discretionary spending, would really be tougher to find growth, and this would be a big problem for the Fed. That is absolutely happening. I'm going to give you the data on that, the most recent data. It's already been proven to me, but now it's becoming more visible above ground to more people.

Speaker 1 2:42

Secondly, with stagflation Nobody was talking about stagflation in the fourth quarter last year, except a few of us, including me, and now the Fed's even talking about it. The Fed has acknowledged it, even with their own revisions, that we talked about in our last episode and that the stock market would have an economic reality check, that the consumer cocoon was a death knell for the stocks because you had the leadership in AI, which was waning, it had run its course, it had really been spent. You got every ounce of energy out of the AI theme in terms of stocks and stocks have become stretched and extended technically the worst we have ever seen, going back to 1929, the worst ever and out of touch with the underlying economy, which is still 70% the consumer Totally out of touch with the economy. And it'd just be an economic reality check. Now you might say, well, it's only because of tariffs. No, it's not. No, it's not. Tariffs are not the cause, tariffs are the catalyst. This would have happened anyway. Some other story, some other thing would have happened. We were headed in this direction. Anyway, you cut it. All right. Tariffs are only going to make it worse in the near term.

Speaker 1 3:53

Let's talk about the consumer and the cocoon, because the numbers are eye-opening. They're jaw-dropping, I mean, they really are. All right, consumer credit fell in February. All right, that's always a month lag. So we just got the data for February Down 0.8. It's almost a billion dollars for the month. It was expected to increase by 15.2. So it's a 16 billion miss on the downside. That was actually negative for the month. Not only that, that's the second month in the last four to be negative, on top of November's decline of seven and a half billion, which was sizable. The only other times that we've seen multiple months of decline in a short period are December of 1990 through early part of 92, january of 1998 for just one month, and then August of 2008 through August of 2010 and during the pandemic. So you're looking at a consumer cocoon that's only been seen to this degree on four other occasions. All right, not only that. Bigger picture. The annual flow all right. The rolling 12-month total or if you take the annualized rate either which way you want to look at it, the Fed looks at it both ways is negative almost $10 billion in credit Not created. Negative All right, unwound credit. That's cocooning baby First since 2020.

Speaker 1 5:13

All right, then we turn to the retail sales numbers. Now what's interesting is retail sales. It was not a horrific number, the most recent one that was released just last week, unless you're looking at online sales, all right. Online sales has been the growth that has been consistent through the pandemic and well before, literally since 2009,. All right. And in that context, non-store retail sales, okay. Online shopping up only 0.1 for the month. That's virtually nothing. You don't see that kind of weakness on a month-to-month basis almost ever. That took the year-over-year rate, cut it almost half from 8.2 in February all the way down to 4.8. And 4.8 may sound high, but compared to 2.8 inflation, that's barely 2% real growth and that's barely the minimum you need to say. We might be able to kind of hold the line on debt.

Consumer Cocoon Hardening: Economic Warning Signs

Speaker 1 6:12

Here's the problem the rolling 12-month change in dollars, which is what I love to look at in retail sales and keep in mind. Retail sales do not account for price changes. So all these numbers are negative when you account for inflation. All of them, every one of them. All right, but let's put that aside for now, because it makes it even worse that these numbers are this bad, before you even account for inflation, which only deepens the negativity of these numbers.

Speaker 1 6:40

The rolling 12-month change in online sales $5.8 billion. That's the third lowest in the last five years, okay. The two other really bad numbers okay, the lower ones were January of this year, all right. So you're talking two of the worst three in five years just came in the first quarter and July of 2021. Okay, kind of the depths of the year-over-year change in pandemic, all right. So two of the lowest since 2018 have come in the first quarter, okay. And when you start talking about this to the degree that, when we take it back to September of last year, online sales sales, online retail sales were 124.6 billion in march. Six months later, 126.8 it's up only 2.2 billion, which is 0.18 percent, less than two-tenths of a percent over six months. You take that annualized and the last six months, the annualized rate of change in online shopping is less than one half of one percent growth Lowest ever, lowest ever.

Speaker 1 7:50

Now you want to talk about the labor market and all these people try it on TV and tell you that the labor market remains strong. No Again. Every month I slash these numbers to death. I mean, these numbers don't work for that narrative at all. In the most recent number, unemployment rate rose. All right, why? Well, the labor force rose more than employment rose, thus unemployment rose. So the rate actually is 4.2, up from 4.0 two months ago. It's risen to 10th each of the last two months and it's a double whammy because not only are more people unemployed, but wage growth fell again 3.2. Now it's down from 4.2. It's down 100 basis points in five months from 4.2 to 3.2. Worse than that, when you compare it to core PCE, the Fed's kind of target rate, which is 2.8, real wage growth right now is less than half of 1%. Now, it is coincidence that wage growth on a real basis is less than half of 1% and the annualized rate of change over the last six months in online shopping is less than half of 1%. Or is it? I forget what show it is, or is it? And you then really don't have to wonder why we're seeing the crash, the crash, the collapse that we're seeing in consumer confidence.

Speaker 1 9:13

The Consumer Sentiment Survey, university of Michigan. The director of the University of Michigan Consumer Sentiment Survey had this to say about the just released numbers for March, consumer sentiment fell for the fourth straight month, plunging by 11% from March. This is actually April data, that's right. The decline was, like last month, pervasive and unanimous across age, income, education, geographical location and political view. Everyone is worried. What me worry? Xi China China, not worried. The Fed Powell Everyone is worried. What me worry? Xi China, not worried. The Fed Powell not worried. Us consumer yeah, very worried, like the most worried in a long time. In fact, the index of consumer sentiment has fallen by 30% in the first quarter alone. That's a crash.

Consumer Sentiment Crash: Record Low Concerns

Speaker 1 10:00

The expectation index is down 40%, 38 point something year over year. It's the second lowest reading in the 45-year history of this survey, the second lowest. It's lower than 1980. I'm talking about the Consumer Sentiment Index, lower than 1980. Lower than 1990. Lower than 2009. Lower than 2011. Lower than the pandemic. Only 2022 was worse. So we have the two worst times ever in the last three years.

Speaker 1 10:29

I mean, think about that. Now let's move forward. The expected inflation rate 4.9. What me worry? Yeah, consumers worry about inflation 4.9. When you take the median point prediction and it's interesting how they work these things out the Fed, new York Fed, does the same way as the Interferential Michigan, where there's a dispersion index, but the median point prediction is well above 6%, meaning there's enough consumers that believe inflation will be above 6% a year from now. That's huge, let me tell you. Food back up too, by the way, back into the 4% range in many ways. Not only that, but the Fed inflation expectations from the New York Fed survey also just released all this data is within the last week.

Speaker 1 11:08

From the New York Fed survey also just released all this data is within the last week was the percentage of consumers expecting inflation to be above 4% within a year rose to 42% almost half that's up from 34% in January of a year ago. 42% expect inflation above 4%. 42% of consumers expect inflation to be more than twice the Fed's target. Worse than that, now it's a double whammy Again machete. This is one of the pieces I just did was machete Getting cut from every angle. With the double-edged machete is the consumer. The percent of consumers that expect unemployment to be higher is 67%, the highest since ever. I mean the highest this survey since the 70s. The highest ever ever. I mean the highest this survey's since the 70s. The highest ever except for 2009.

Speaker 1 11:54

One of the worst recessions the Great Depression Not really a depression, but kind of. So the question then becomes and I love the New York Fed survey the percentage of consumers saying they feel better off. They feel they will be better off or be worse a year from now. Okay, in June of 2024, right, nine months ago, feeling worse off was 21%. Now it's 30. Now it's 30. From 21 to 30% saying they will be worse off a year from now, and that's greater than will be better off, because the biggest percentage will be the same. So even the degree to which you're not better off now, you're either the same or worse off. So it's even worse than even that headline might suggest.

Speaker 1 12:41

Within the Fed survey, the most interesting part to me was the income growth expectations fell to a four-year low of 2.8%. If you take that against the 4.9% University of Michigan inflation expectation, real income is expected to be down by 2% over the next year. Real income, nominal income, versus inflation equals real income. Worse than that, the Fed and their dispersion index. There were consumers that expect their income to decline by as much outright decline, nominally decline by as much as 1.7% over the next year. When you throw that against the 4.9% inflation, you have consumers that are telling the Fed we expect our real income to be down by 6.6% over the next year, you think these people are going to be going out and increasing their spending.

Speaker 1 13:37

This is why the XOY discretionary ETF, the XRT retailer ETF, the PNQI, which is the internet retailer ETF, and Amazon great indicator retailer ETF and Amazon great indicator have all broken down against the S&P all over again after correcting higher during this rally that AI took the market to new high. Where's the leadership coming from AI? No, the consumer, no, china and a recovery in China? It might have been. No, all right. All of these indicators linked back to the consumer and the cocoon hardening put the S&P somewhere between 2,500 to 3,500 versus the 5,100 it is right now. I mean I'm not saying the S&P is going down 50%, but the odds, the probabilities attached to that are not zero. They're not zero. All right.

Speaker 1 14:29

The economic reality check that I've talked about in the stock market is happening right now. Here it is. We called it All right and again, tariffs and the trade war, not the cause, the catalyst Certainly going to make it a lot worse than it might have been otherwise. No doubt, all right. The other big call I made in the podcast. Really, in this whole dynamic we called the stock markets, hopefully you took our advice and lightened your positions To the degree to which we also were talking about the dollar down being a big trade coming up All right and down being a big trade coming up all right, and that kind of ties into what we see with the trade issue. Okay, because ultimately, donald Trump is pushing people away from the dollar. He says, look, we're going to punish you if you don't use the dollar, all right, but now we're going to institute all these tariffs which only incentivize these countries to to pursue the BRICS more aggressively. Brics is alive and well. It it's going to happen.

Speaker 1 15:20

I keep saying that it was on the back burner for a little while because of Trump's win, but it's right back in the forefront, although much more quietly, because they're not going to talk about it. But in the meantime, do you think Xi is out there worrying? I wrote my piece today for my clients and it's called what Me Worrying. This led to the podcast title, but it's about China and it's about Xi Jinping, or is he Alfred E Newman? Why is Xi not worried?

Speaker 1 15:45

You have an export boom going on, okay, you're talking about. Yeah, of course this is front-loaded, but it's like you've given them this huge war surplus of money. All right, Because exports set a record in the first quarter of $850 billion, that's $3.5 trillion annualized. That's a massive number. It dwarfs anything we've ever seen. The trade balance has been above $100 billion for the only time ever. For the last three months in a row, including a month ago, was over $170 billion. You just handed China $400 billion in new money and you want to say, hey, you want to spend that on the military, you want to spend that on further, and they're already way ahead of us in terms of trade handling, logistics, robotics, automation, all these kinds of things. You just handed them $400 billion, donald, so that gives them a lot of wait and see. Let me worry. It's a massive trade surplus. Their retail sales are 6% year over year. They have no inflation. There's room for rate cuts.

China's Surprising Position of Strength

Speaker 1 16:47

The currency is holding up against the dollar, which means it's going down against all its trading partners, which is almost nirvanic for the Chinese in terms of trying to resurrect an economy which is not great in terms of the property market. But the rest of it isn't bad. It isn't bad and not only that you're talking about. They're doing a trade deal with Vietnam. They're going to build a canal Chinese funded. The dong is down against the currency, the Chinese renminbi, because they're looking like they might play ball with China. In the meantime, there have been talk about China discussing trade with Korea and Japan. Those currencies have broken out against the Chinese renminbi and what's interesting about that is now, all of a sudden, today, xi is now talking about reciprocal tariffs on these other countries if they make trade deals with the US, ie, korea and Japan. And then we have the Philippines. What's interesting about this? The Philippine currency is into a massive breakout against the Chinese currency, literally. After years of depreciating, the Philippine currency has come alive against the renminbi.

Speaker 1 17:47

This week, philippines and the US will hold their annual joint war games 9,000 US troops joining, I think it's 15,000 Filipino troops. Troops from Australia and Japan will both be there, all right, and talk about the Philippines. Twice they have threatened to literally declare war on China literally, and both times China backed down. The issue here is fishing rights. The issue here is China building out these artificial islands, which is out their international border, well beyond the two miles from the mainland. All right, and now they're infringing and had multiple naval skirmishes with the philippine navy. So the fact they're holding these war games and they're doing it. The game, okay, is two islands in the philippines that faced the south china sea. How would they repel a chinese invasion? I need to say more? And you just handed them a $400 billion war chest, all right. So you have. Xi says what me worry? No, xi says I can wait.

Speaker 1 18:49

And what happens? This week, too, trump goes after Powell, calls him a loser. Not the way to make friends and influence people, all right. Not the art of the deal, not at all. All right. He's trying to bully both of these people and both these people aren't going to be bullied. And both of them just crossed their arms and said what Me worry, I'm not worried, all right, the consumer is worried. And Trump's in the middle, getting pressured from both sides. So this is highly problematic for Trump and I. So this is highly problematic for Trump, and I mean for the economy and for the consumer and for the stock market. Now this is again, like I said, further pushing people away from the dollar. So what happens?

Speaker 1 19:27

The dollar is broken down, just like I said it would. It has done exactly what I've been saying it would when it got below par 45 and then 99.65, those were the two levels in the cash US dollar index that I said keep an eye on. It's 97.60 already, all right, and I said it would go to 89 fast. You're talking 10 to 15% downside quickly in the dollar, which has lifted gold to new all-time highs at levels that even I would not have predicted this quickly, even though I said it wasn't out of the realm of possibility. Again, one of those things it wasn't a zero probability. The probability is gold will go to $3,500. It wasn't a high probability, but it's the one that worked out. So that's to say, why can't you say the stock market could be 50% lower? It can, it has been before. So I don't know. I'm not expecting it to happen because the dollar down is actually positive for stocks. They don't have to happen because the dollar now is actually positive for stocks. They will find a low somewhere in here and when this trade war ends they'll celebrate so, but for the time being we're still short.

Gold Mining Shares Breaking Out

Speaker 1 20:25

Okay, and hopefully you took my advice in the sense of taking protection. Okay, remember we're talking about financial prophylactics. Had you taken protection, you'd be much better off right now. Had you bought gold, you'd be better off. And, frankly, what I've been talking about really in the last couple episodes is the mining shares. Think about the gold miners. All right, the cost of gold, say it costs you $1,000 to get out of the ground. Well, once that's $1,700, those are kind of thin margins. Or, as we'll be speaking Now, when it's $3,400, the margins are fat and that's P-H-A-T fat. All right, and it has been a long wait.

Speaker 1 21:02

But the GDX, the gold mining share ETF, has finally broken out and I have said expect this, expect this, expect this. And now we have it All right. From its breakout point, which I gave you it was 44.22, which was the previous high you're already up 20.4 percent as of today. From the december end of the year place, when I was saying this year gdx would be a you know, a holding for the year, it was 32 42. It's up 64 percent since then to get to the 2011 high. It's another 30 percent higher from here. All right, the gdx, the gold mining share etf, has outperformed over the last 52 weeks the russell 2000 by 63.1 percent. The gold, the gdx gold money share, is outperforming the xlk information technology etf by 59 percent and in fact, it is now outperforming gold itself. It's up 2% over gold over the last 52 weeks. In the meantime, gold has outperformed the S&P by 44.6% over the last 52 weeks.

Speaker 1 22:17

I gave you my gold picks. Canadian gold mining shares with a hedged Canadian dollar position has been a spectacular play. The gold mining shares are printing money. Even the import costs, energy are low at stable prices. Silver will follow.

Commodities Outlook and Closing Remarks

Speaker 1 22:31

I just did a special, literally last Wednesday, with my top picks. Now new top picks, especially in silver, but across the board in the gold mining shares and silver. I will send that to you if you want to get a copy and I'll tell you how to do that at the end. But I have one more thing I want to talk about, because the other part of this is commodities. All right, and the fact that commodities very ironic I've never seen this before in my career and you can see something new all the time Commodities have come down hard because of fear that tariffs would crimp the demand side.

Speaker 1 23:03

Now some of these commodities have come down so far against you know they're pricing in. You know a disastrous demand side when the fundamentals on the supply side still remain very positive. Copper was a phenomenal buying opportunity. It went from $5.15 to $4. We bought in back on the flip side up at $4.32. It's already trading today. Right now Copper is $4.72. It's already 40 cents in the money.

Speaker 1 23:30

The next one is going to be soybeans. Keep an eye on the July soybean contract above $10.60. We also have coffee, cocoa, cotton. All three of these commodities are in play. The DBA is the way to go with the food commodities, but in that context it's interesting to note that food CPI is already pushing 4% again, all the way back from being negative. So if you want to get my special on the silver and gold mining shares, particularly those in Canada, feel free to send me an email. If you want information on my daily product, the Global Macro Strategy Report, where we give official recommendations in foreign exchange, fixed income, global stock indexes, precious and industrial metals, energy and the food and agricultural commodities, or if you want to get information on our CTA, we're registered Series 3 as a money manager. You can email me at gregweldon G-R-E-G-W-E-L-D-O-N. Gregweldon at weldon W-E-L-D-O-N. Online one word weldononlinecom. Certainly follow me on Weldon Live. Follow the podcast at money underscore podcast. And until next time, thanks for listening.