Debt-Ceiling Delay

Debt-Ceiling Delay (and Irma) lift the S&P to 2,500

by Louis Navellier

September 19, 2017

*All content in this Introduction to Marketmail represents the opinion of Louis Navellier of Navellier & Associates, Inc.*

The S&P 500 rose to a new all-time high above 2,500 last Friday, rising 1.6% for the week. Hurricane Irma was less destructive than feared, but the big engine for growth might have been political in nature. With both political parties and our suddenly bi-partisan President postponing a September debate over the debt ceiling, U.S. debt surged over $300 billion in one day and crossed the $20 trillion mark last Monday.

Ball and Chain Image

On Tuesday, Treasury bond yields rose after a poor bid-to-cover ratio at the 10-year Treasury bond auction. 10-year Treasury bonds are now yielding 2.2%. Although up from last week’s 2.05%, these yields are still historically low and favorable for higher stock prices, especially for the many dividend stocks that have yields significantly above 2.2%. However, Tuesday proved there is a limit to just how much money the U.S. government can borrow. Since the Fed is planning to start shrinking its balance sheet by selling Treasury and mortgage-backed securities, there may be more upward pressure on yields.

Even though Treasury bond yields meandered higher last week, dividend growth stocks exploded to the upside as yield-hungry investors finally figured out that the stock market yields more than many fixed-income alternatives. This caused the breadth and power of the stock market to improve considerably, which should help the overall stock market stage an impressive rally for the remainder of the year.

In This Issue

Bryan Perry takes a fresh look at the sector wars while focusing on Private Equity Partnerships for income. Gary Alexander covers the last 19-month super-surge in stocks, along with the case for why stocks rise amid “bad” news. Ivan Martchev takes a new look at Bitcoins and China after those two forces faced off last week, while Jason Bodner comments on the latest sector reversal after a “kinder, gentler” Irma left town. Then I’ll close with a review of U.S. manufacturing and the latest economic statistics.

Income Mail:
The Technology Hare and the Financial Tortoise
by Bryan Perry
The Quest for Dividend Income is a Crowded Trade

Growth Mail:
Buy When Sentiment is Overwhelmingly Negative
by Gary Alexander
A Weather Report and Historical Survey

Global Mail:
What’s Behind the China-Driven Bitcoin Collapse?
by Ivan Martchev
How the Yuan Correlates with Bitcoin

Sector Spotlight:
The Invisible “Non-News” Is More Powerful than the News We See
by Jason Bodner
Irma was Unexpectedly Kind to Insurance Companies

A Look Ahead:
Luring Manufacturing Jobs Back Home
by Louis Navellier
Volatile Energy Prices Distort Inflation and Retail Sales

Income Mail:

*All content of "Income Mail" represents the opinion of Bryan Perry*

The Technology Hare and the Financial Tortoise

by Bryan Perry

The overuse of the phrase “crowded trade” comes to mind when we think of certain Nasdaq stocks that occupy the Top 10 spots within the Nasdaq 100 – especially those that begin with the letters F-A-N-G. For the past year and a half, these specific technology growth stocks and some other household names have done the heavy lifting for priming bullish market sentiment and driving index-related performance. There have been other sectors with similarly stellar performance (aerospace, defense, select industrial and select biotech), but none that come with the fanfare of owning the biggest-name big-cap tech stocks.

One sector that has proved elusive in satisfying the animal spirits has been the financials. Following the Trump win in November and heading into 2017, with the Fed’s stated “dot plot” plan of hiking the Fed Funds Rate four times during 2017, investors quickly embraced banks, insurers, brokers and just about everyone else that was in the business of lending capital to both commercial and retail borrowers.

Last week, bond yields moved higher following two significant headlines. The first was that the federal debt officially surpassed $20 trillion for the first time. It happened on Monday September 11th, as the debt subject to the legal limit set by Congress jumped $317,645,000,000 in one day, following President Donald Trump signing a spending-and-debt-limit deal that will fund the government through December 8.

After President Trump signed the legislation suspending the debt limit, the total debt immediately jumped to $20,162,177,000,000. The next day saw bond yields rise after a poor “bid to cover” ratio at the 10-year Treasury bond auction. This soft auction comes as the Fed intends to reduce its balance sheet by selling Treasury securities and mortgage-backed assets. That will also add upward pressure to bond yields.

Rick Santelli Message Image

As a result, CNBC’s Rick Santelli (aka: John the Baptist crying in the wilderness) sent a clear message that there is a limit to how much money the U.S. government can borrow without upsetting global financial markets. At the same time, it is my view that as yields bump higher, bank stocks and all manner of financial equities that make up almost 14% of the S&P weighting are set to regain their leadership status next quarter. That will surely help to support the bull case for a higher market going forward.

The Quest for Dividend Income is a Crowded Trade

From the most recent Navellier Teleforum the vast majority of participants were interested in pursuing stock dividends for income. I noted last week that high-profile growth stocks were the life of the party for the first eight months of the year. But that changed last week after most dividend growth stocks outperformed all other sectors, even as the yield on the 10-year T-Note rose to 2.20%.

So, while the quest for yield has widespread appeal with the financials clearly a beneficiary as rates tick higher, where do investors go for robust dividend income when the yield on the Financial Select Sector SPDR ETF (XLF) and most of its major components is less than that of the 1.98% being paid out by the SPDR S&P 500 ETF (SPY)? The answer is in publicly-traded Private Equity (PE) partnerships.

I would argue that yield-hungry income investors pay special attention to the fortunes of The Blackstone Group LP (BX), Carlyle Group LP (CG), Kohlberg Kravis Roberts & Co. (KKR), Apollo Global Management LLC (APO) and Oaktree Capital Group LLC (OAK). There are others – and some would argue that the Business Development Companies (BDCs) fall into this category, too – but for today I’m focusing on the pure partnerships that report K-1 income. (Please note Bryan Perry does not currently hold a position in the above mentioned securities. Navellier & Associates does currently own a position in the above mentioned securities for client portfolios.)

The trailing 12-month yield for these five stocks averages about 7%. (Note: Distributions vary quarter-by-quarter, so I am using a trailing four-quarter blend to come up with an average yield that reflects a more realistic picture of what the annual income stream looks like.) Better yet, the fourth and first quarters are typically the highest payouts of the year, which means we’re coming right into the sweet spot for this list.

Understand that for the most part these stocks do not fit into the profile of classic “growth stocks.” If they make money during the quarter, you get paid well, but if they don’t see a large bump in asset management fees or don’t realize nice gains on exiting assets, then the distributions can be nominal.

That said, the people running these companies are some of the brightest in the business and the global investing landscape for what they do has been ripe with opportunities over the past 10 years. This potential is just now being harvested as they raise money for funds in other distressed areas, like energy or commodities, with the same objectives in mind…turning assets that can be bought for 50 cents on the dollar into those that can be sold for 90 to 100 cents on the dollar.

Investing in PE is not for everybody, but after following this sector for five years, I see the tailwinds of opportunity for this sub-sector within the broader financial sector as far more than just a stiff breeze.

Growth Mail:

*All content of "Growth Mail" represents the opinion of Gary Alexander*

Buy When Sentiment is Overwhelmingly Negative

by Gary Alexander

This bull market is now 8-1/2 years old. The last 19 months have been particularly robust. But it seemed like the bull market was over in February of 2016. From the start of 2016 to February 11, the Dow Jones index lost 1,765 points in just six weeks. Gold was up 16.6% in six weeks, but oil was down to just $26.

According to a CNN/Money posting on February 11, 2016, gloom stalked the canyons of Wall Street. “There’s a broad-based lack of confidence,” said Anthony Valeri, investment strategist at LPL Financial. “Everything suggests this market is heading lower in the short term. Psychology is too frail.” CNN reported that “a global stock market benchmark known as the MSCI all-country equity index officially fell into a bear market on Thursday [February 11]. It’s now down more than 20% from its record high….”

Economist Ed Yardeni’s February 11, 2016 briefing (“Waiting for the Other Shoe”) said that the Investors Intelligence Bull/Bear Ratio fell to 0.63 (the lowest since March 2009) and “bearish sentiment climbed to 39.2% (the most bears since October 2011) from 38.1% and 35.4% the prior two weeks.”

Fed chair Janet Yellen said that week that the U.S. is “taking a look” at negative interest rates, which led PIMCO to warn in a report that day (February 11) that negative rates may be having a “chilling effect” on financial markets and carry “unknown consequences.”  At the time, I wrote this headline in Growth Mail (for the week of February 15, 2016): “Market Sentiment is in the Dumpster (That’s Good News).”

On July 1, 2016, Mark Hulbert issued a similar headline (“Stock-market timers turn shockingly bearish – and that’s good for bulls”) in Marketwatch after the June 23 Brexit vote caused market gurus to once again take to the pulpit to preach the bull market’s demise. Note how low Hulbert’s sentiment index fell in February of 2016. A -70 reading implies that advisors were not just bearish but advised shorting stocks.

Average Recommended Equity Exposure Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

What happened next? According to Ed Yardeni (in “Over There & Over Here,” September 12, 2017), in the last 19 months the All Country World MSCI stock price index – the index that CNN said “officially fell into a bear market on February 11, 2016” – has risen 33.7% (in U.S. dollar terms) since February 11, 2016. Yardeni added that the U.S. MSCI stock price index is up even more, 35.2% since the 2016 low.

United States MSCI Stock Price Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

A Weather Report and Historical Survey

The press will be continually negative about the worst events the world throws at us each day, but stocks tend to rise based on expectations of future profits, which depend to a great deal on free trade and relative peace, without too much onerous government regulation. Despite 2016’s surprise elections (Brexit and Trump) and a tinhorn dictator’s nuclear rants, we really do have a relatively positive global environment.

First, the weather. We’ve seen a series of devastating hurricanes hit Texas and Florida, reminiscent of the 1-2-3 punch of 2005 – Katrina (Louisiana), Rita (Texas) and Wilma (Florida). At the time, there were predictions of several similar bad years to come, due to “climate change” theories. However, an 11-year “landfall drought” followed, in which no Category 3 or higher hurricane made landfall in the U.S. We would all like that streak to continue forever, but 2017 has become the worst hurricane year since 2005.

Is the recent devastation “unprecedented,” as many doomsday theorists would have you believe?  Hardly.

Just mentioning hurricanes in mid-September, 1900-1965, we’ve seen far worse killer winds hit America:

  • On September 8, 1900, Galveston, Texas was struck by the worst hurricane in American history, killing 8.000, with winds up to 135 mph, lasting 18 hours. The city was rebuilt – about 15 feet higher.
  • September 15, 1926: A major hurricane hit Miami and Palm Beach, Florida, killing about 370.
  • September 16, 1928: Another hurricane hit Florida at Palm Beach & Lake Okeechobee; 2,500 died.
  • September 21, 1938: In the first modern hurricane to target New England, Long Island was hit with winds of up to 183 mph: 700 died, 2,000 were injured, resulting in $330 million in damages.
  • September 15, 1961: Hurricane Carla still ranks as the most intense U.S. tropical cyclone landfall ever striking the U.S., devastating Texas with winds of up to 175 mph.
  • September 8, 1965: Hurricane Betsy hit the Gulf Coast, killing 75 in Louisiana and Florida. (My parents endured water up to their waists in their New Orleans home during that storm.)

According to Weather Underground, of the 25 highest death tolls in U.S. hurricanes, only one came after 1969. That was Katrina in 2005, and most of that was due to weakened levees in a city below sea level.

In other news, I would challenge anyone to name a year between 1776 and 1976 when times were better.

I’ll start with 1776, using only dates from this week: On September 21, 1776, British troops occupied New York City and burned much of it down. A wildfire began at the foot of Broad Street and “roared unchecked up the island’s west side, burning down about one-third of the developed area before it died out. Numerous commercial structures were destroyed, as were 4,893 houses and the first Trinity Church, which remained a blackened ruin for 15 years afterward” (source: John Steele Gordon, The Great Game). Americans did not re-occupy New York until November 25, 1783, a New York holiday the next century.

You think America is divided today? On September 17, 1862, Americans killed or wounded 21,000 other Americans at the Battle of Antietam, Maryland. In four years, Americans killed 750,000 other Americans. Adjusted for population, that would be like killing eight million Americans today. Lately, we’ve seen one death in Charlottesville and thousands of Americans rescuing thousands of strangers after two hurricanes.

Even during our high-growth Industrial Revolution, there were three long, deep Depressions in the mid-1870s, mid-1890s and 1907. First, on September 18, 1873, the Panic of 1873 reached crisis proportions. Robert Sobel, writing in Panic on Wall Street, said the “coal-black steed named Panic… thundered riderless down Wall Street,” as “a monstrous yell went up and seemed to literally shake the building in which all these mad brokers were for the moment confined.”   That day alone, 40 banks and brokerage houses closed their doors. Over 5,000 businesses failed during the last quarter of 1873, but the Panic of 1873 lingered until 1878, as another 5,000 banks and big businesses failed over the next five years.

Today is also a sad day in Presidential history, and on Wall Street. James Garfield, died of gunshot wounds on September 19, 1881, and the New York Stock Exchange closed on September 19, 1901, to honor the funeral of President William McKinley. On September 16, 1920, a bomb on Wall Street killed 30, and on September 11, 2001, planes flew into New York’s Twin Towers and DC, killing nearly 3,000.

Other Presidents had narrow escapes: In September of 1975, President Gerald Ford survived two inept attempts on his life within 17 days. The first wild shot was fired in Sacramento on September 5 by Lynette “Squeaky” Fromme. The second was by Sara Jane Moore in San Francisco on September 22.

Even in bullish years like 1997 and 1998, there were huge corrections following the Asian currency crisis of 1997 and the hedge fund crisis of 1998. So please, write me about a time (a year or a decade) that you think was better in America than right now. Make your best case and then I’ll write my response here.

Global Mail:

*All content of "Global Mail" represents the opinion of Ivan Martchev*

What’s Behind the China-Driven Bitcoin Collapse?

by Ivan Martchev

It was a tumultuous week for bitcoins, as Chinese authorities announced that they will ban bitcoin trading in the country. News followed last week that one of the largest exchanges will close, in effect creating a selloff in bitcoin that for the months of September resulted in a 50% decline in Chinese yuan terms.

Bitcoin Value Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

In U.S. dollar terms, the selloff was not as severe with the cryptocurrency declining from about $5,000 to hit a low of around $3,000 last week. The fact that bitcoin sold off more on yuan exchanges is not surprising as traders may not be able to get their bitcoins out of the country in time for the ban to go into full effect, so there has to be a discount in yuan-denominated bitcoins.

I looked at the bitcoin situation several years ago, concluding that it was a scam. I even posed the question in one of my weekly commentaries: “Is bitcoin a bubble or a scam?” One colleague astutely noted that “It’s a scam within a bubble.”  That was in early 2014. While bitcoin did crash from about $1,000 to about $300 in 2014, it recovered and in 2017 we saw a move from about $1,000 (six months ago) to about $5,000 before the latest re-crashing.

The bitcoin sales pitch is to get more people into a finite amount of bitcoins, with a cap expected to be around 21 million bitcoins. There are about 17 million bitcoins now; the algorithm is designed to increase that cap slowly before it is exhausted. If you wondered how bitcoins increase, they do so by “mining” (for more details, see the January 23, 2014 primer: “CNBC Explains: How to mine bitcoins on your own”).

The sheer absurdity that humans will bid for a line of code on an exchange in ever larger numbers and see its price skyrocket is not surprising when one looks at history. From tulips in the Netherlands in 1635-37, to South Sea Company stock in Britain in 1720-22, to the Wall Street Crash in 1929 driven by unlimited leverage on the exchange in combination with a financial system credit bubble; the list goes on and on.

Famous Market Manias Image

I am not surprised that the Chinese authorities are acting to ban bitcoin trading in the country. What I am surprised about is why more governments, including in the U.S., are not doing so. The CEO of the largest bank in the U.S., Jamie Dimon, labelled bitcoins as a fraud last week. He has the ears of President Trump and Fed Chair Janet Yellen, so if there is fraud on massive scale going on, shouldn’t our authorities act?

How the Yuan Correlates with Bitcoin

In June the Chinese yuan hit a low of 6.86 to the dollar, while in September amid the bitcoin crackdown the yuan appreciation accelerated and we saw it change hands at one point at 6.44.

The bulk of the appreciation in the yuan (fewer yuan per dollar means a stronger yuan) came in the past three months, just in time for the 19th National Congress of the Communist party of China next month.

Chinese Yuan versus China Foreign Exchange Reserves Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The Chinese yuan (blue line, left scale) in an inverse relationship with China’ forex reserves (black line, right scale).

While not a multiparty democracy, China has a one-party system of checks and balances, so the job of the President and the Premier are not guaranteed. There is a precedent for changing the politicians holding those positions before their assumed two-term (10-year) mandate runs out. In fact, this two-term business started with Deng Xiaoping’s protege Jiang Zemin, who took over as Chinese President in 1993.

The point is that the Chinese leadership would do anything to keep the Chinese economy going in order to keep their jobs at this important juncture in Chinese history. Messing around with the yuan exchange rate, or with bitcoin for that matter, is one of the tools to meet their goals before the October summit.

The bitcoin ban is a way for China to enforce capital controls, given the $1 trillion that left the country since the summer of 2014. Foreign exchange reserves have stabilized in 2017, and risen by less than $100 billion. I think that clampdown on outflows, the rebound in the yuan and the bitcoin ban comprise multiple steps taken by Chinese authorities to assure smooth sailing at the October CPC Congress.

The yuan-engineered short squeeze took its first big victim September 6, when Corriente Advisors threw in the towel after a bearish bet on the yuan resulted in a $240 million loss. Using yuan options, forwards and most other derivatives unfortunately makes any bear easily detectable by the Chinese authorities, who in some cases directly oversee the financial intermediaries that facilitate those bets in Hong Kong. So, if the Chinese authorities know where the shorts are and what the terms of the derivative contract are, it won't be hard to squeeze them with $3 trillion in forex reserves. This is precisely what they may be doing.

Two years in a row, we had huge overnight spikes in the Hongkong Inter-Bank Offer Rate (HIBOR) market, where in one case overnight yuan borrowing costs got to 66%, while the following year they got over 100%. I have no doubt that the PBOC engineered those moves in order to squeeze the yuan shorts on multiple fronts. The latest sharp appreciation of the yuan before the October summit is also designed to do damage to yuan bears and to show that the PBOC is in control of the Chinese financial system.

China Social Spending Financing versus China GDP Growth Rate Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The PBOC-engineered short squeezes do absolutely nothing to change the dynamic in which the Chinese economy’s growth rate has slowed dramatically, while borrowing has surged and keep surging. China’s “total social financing” (charted above) does not include shadow banking leverage, which adds another 100% to the total debt to GDP leverage ratio, making the total close to 400% and still rising.

When I examined this dynamic of rising leverage ratios and a slowing economy, coupled with a stock market crash in 2015, I thought that by 2017 the strain in the financial system would begin to show and the Chinese economy would experience a hard landing. The fact that it has not happened does not mean it won't happen. There is no such thing as “controlling a credit bubble” after it begins to pop. The Chinese authorities may have slowed this process down, but I doubt they will be able to prevent the hard landing.

Sector Spotlight:

*All content of "Sector Spotlight" represents the opinion of Jason Bodner*

The Invisible “Non-News” Is More Powerful than the News We See

by Jason Bodner

Humans are preprogrammed to find order and meaning. We find comfort in making choices based on cursory observation. We also find comfort in questioning our choices and self-scrutinizing! The reality is that casual observation can be vastly misleading. Consider for a moment that when we observe a solid six-foot thick plate of steel, we “know” that nothing can penetrate it. The reality is quite different.

The atom itself is 99.999999999% empty space, with particles bound and repelled by positive and negative forces. As everything is made of atoms, everything is nearly 100% empty space, including you!

An Atom is Almost All Empty Space Image

The same is true in the daily news. There are several solid news events each day, but great gobs of empty space (no news) greatly dwarf the global hot spots in the daily news. If I told you about a storm with the longest sustained winds of more than 185 mph, a tragic earthquake, and a North Korean missile launch, would you forecast that the market would go higher? Well, needless to say, it did. In the wake of negative headlines, the markets just shrugged it off and kept chugging to new highs. This is nothing new. We have seen the market’s meteoric rise since the surprise election last November. It seems as though nothing can keep this market down. Not political scandal, nuclear aggression, natural disasters, or any other news.

Keep on Truckin' Image

When we observe the market, some say the market is overheated and should correct. That argument has been presented for many months now. The bulls argue that the market is just primed to head higher. I personally believe both are true. Earnings and sales continue to offer much to cheer about. Near-term we may become overheated and see some correction, but shorter-term Treasury yields offer less rewarding returns than the dividend yield on the S&P 500. This is especially true when taking into account that Treasury yields are taxed as ordinary income, and dividends are taxed as long-term capital gains.

With this underlying engine, coupled with growing sales and earnings, fueled by speculative momentum, the market seems to have a bias toward pushing higher. And as I mentioned, nothing can seem to shake it.

This brings me to timing. Stock picking has been beaten up in the media and written off as dead in some circles. While it’s true that picking individual stocks is easier in a big bull surge, it’s still hard to pick stocks that outperform. The funny thing is that many investors seem to be more preoccupied with timing than the proper methodology of picking a winner. It’s almost as if the generic representative investor is saying, “thanks for showing me which stocks to buy. Now when do I buy them and when do I sell them?”

This, like everything in life, is a two-sided debate. The trend follower inside of me loves to look for great breakouts – huge surges on massive volume. They tend to be counterintuitive in that many would look at a chart of a stock that gapped up and say, “it’s too late, I missed the move!” While this is true short-term, no one truly knows when the next big gap up will take place. Those catalysts are many: superior earnings, special product release, a merger or acquisition, management change, and the list goes on and on…

But what really happens when you see a big price appreciation coupled with way above average volume? Many believe, me included, that the direction shifts upward. Sellers become scarcer and investors chasing the stock become more numerous. Short of anything else, this is basic supply and demand economics.

Timing of selling is naturally harder: If we lose x% we sell, or if we make y% we sell. Rules typically help as human emotions cloud judgement and wreak havoc withering trade profits or amplifying losses.

Picking stocks in a rising market is easier with a majority of the market’s components heading higher, but is also harder in identifying outperformers. That’s why I look towards leading sectors to give propulsion to leading stocks with superior fundamentals, so let’s turn to the latest trends in sector performance.

Irma was Unexpectedly Kind to Insurance Companies

A week ago, looking at the way financials were trading, one would have thought Irma would take out the entire insurance industry. The sector was pummeled, only to come screaming back with a vengeance. Only Telecom (with its tiny universe of stocks) and Energy fared better last week. We saw a quick rotation after Irma wasn’t as destructive as feared. On the losing end, investors dumped Utilities:

Standard and Poor's 500 Weekly and Monthly Sector Indices Changes Tables

While Energy perked up in recent weeks, it is still a poor performer when looking back three and six months. The same can be said for Telecom. The thing is, while Information Technology has taken a breather lately, it is still the top performer for three and six months, followed closely by Health Care. These two sectors are where I believe many of the leading stocks of tomorrow can be found. There don’t seem to be any sudden headwinds to tech or health and the market seems primed for further growth.

Standard and Poor's 500 Quarterly and Semiannual Sector Indices Changes Tables

Paying attention to the sectors’ overall performance across multiple past timeframes can assist our searches for the best stock investment opportunities. While the markets continue to shrug off anything coming its way, we must turn our attention to which stocks will profit us going forward.

But remember the wise words of Ed Seykota: “The trend is your friend except at the end where it bends.”

Ed Seykota Quote Image

A Look Ahead:

*All content in this "A Look Ahead" section of Market Mail represents the opinion of Louis Navellier of Navellier & Associates, Inc.*

Luring Manufacturing Jobs Back Home

by Louis Navellier

The big news last week was Apple’s introduction of the iPhone 8 & X, the latter of which is the first $1,000 mass-produced smart phone. Despite reports on Apple’s recent production woes with the metal frame, excitement over the new phones overshadowed the fact that it might take a long time to get one.

In the past, when Apple introduced new iPhones, it has caused imports to surge (since the iPhone is made in China). This causes the trade deficit to rise, lowering U.S. GDP growth. Overall, we all like great new technology, but until Apple’s iPhone production moves back to America, Apple hinders GDP growth.

The manufacturer of the iPhone 8 & X is Taiwan-based Foxconn, whose decision to produce LCD panels in Wisconsin may be the start of a trend for technology manufacturing returning to the U.S. After the Foxconn announcement, the U.S. dollar weakened considerably, so the U.S. may be looking more attractive to foreign manufacturers, especially when states like Wisconsin are handing out lucrative tax breaks and incentives to move to their respective states. So, just like the foreign auto manufacturers now have manufacturing plants in the U.S., the technology industry may be making a similar transition.

In the meantime, the rebuilding efforts after Hurricanes Harvey and Irma are expected to significantly boost fourth-quarter GDP. In addition to all the construction activity, the replacement of all kinds of goods and vehicles are also expected to boost fourth quarter GDP growth. Many reinsurance companies rallied after Hurricane Irma left Florida, since the damage was not as great as initially feared.

I have friends in the reinsurance business in Bermuda and although they are preparing to pay substantial claims, they admit that the damage from Hurricane Irma was not as bad as Hurricane Harvey, so they are all breathing a big sigh of relief. As an owner of a Florida home, I can tell you that most of my damage was tree-related, which is not typically covered under homeowner’s insurance, unless the trees smash the house. Otherwise, our damage was relatively minor, so we consider ourselves very lucky.

Volatile Energy Prices Distort Inflation and Retail Sales

The vicissitudes of Hurricanes Harvey and Irma sent energy prices on a roller coaster ride. This month and next, we’re likely to see that roller coast ride reflected in U.S. inflation and retail sales statistics.

Inflation statistics use “core” numbers to factor out food and energy prices. On Wednesday, the Labor Department announced that the Producer Price Index (PPI) rose 0.2% in August, below economists’ consensus estimate of a 0.3% rise. A 9.5% surge in wholesale gasoline prices accounted for most of the increase. Then, on Thursday, the Labor Department announced that the Consumer Price Index (CPI) rose 0.4% in August. Gasoline prices surged 6.1% and were largely responsible for the increase in the CPI. Excluding food and energy, the core CPI rose a more modest 0.2%. In the past 12 months, the core CPI has risen 1.7%. Due to Hurricane Harvey’s role in boosting gasoline prices, I do not anticipate that the Fed will raise key interest rates, since the core rate of inflation is running below the Fed’s 2% target.

The connection between energy and retail sales is less obvious until you realize that gasoline sales are a large part of retail sales. Even if the volume of gasoline sales is flat, a rise in fuel prices looks like a rise in retail sales. Sales of automobiles and other vehicles also represent a huge slice of retail sales.

On Friday, the Commerce Department announced that retail sales declined 0.2% in August, well below economists’ consensus estimate of a 0.1% rise. This was the largest monthly decline in six months. However, the details in August were much better than the headline. Excluding weak auto sales, which declined 1.6%, retail sales rose 0.2% in August, led largely by gas station sales that rose 2.43%.

In the same report, July retail sales were revised down to a 0.3% gain, down from the +0.6% previously reported, but when auto sales were excluded, July retail sales rose 0.5%, up from the +0.4% previously reported. In other words, slumping auto sales have grossly hindered overall retail sales in both July and August. Furthermore, there is no doubt that Hurricane Harvey distorted August retail sales and will help boost auto sales in the upcoming months due to all the vehicles destroyed by the hurricane flooding.

As a result, whatever retail weakness materialized in August, I expect retail sales to rise in the next couple of months due to the demand for replacement autos and more building materials in the wake of Hurricane Harvey and Irma. I should add that retail sales have risen 3.2% in the past 12 months, so consumer spending is still alive and well, even though it seems to move from sector to sector in individual months.


It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. Click here to see the preceding 12 month trade report.

Although information in these reports has been obtained from and is based upon sources that Navellier believes to be reliable, Navellier does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute Navellier's judgment as of the date the report was created and are subject to change without notice. These reports are for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in these reports must take into account existing public information on such securities or any registered prospectus.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier. in the future will be profitable or equal the performance of securities made in this report.

Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.

None of the stock information, data, and company information presented herein constitutes a recommendation by Navellier or a solicitation of any offer to buy or sell any securities. Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The reader should not assume that investments in the securities identified and discussed were or will be profitable.

Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for you. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. Investment in fixed income securities has the potential for the investment return and principal value of an investment to fluctuate so that an investor's holdings, when redeemed, may be worth less than their original cost.

One cannot invest directly in an index. Results presented include the reinvestment of all dividends and other earnings.

Past performance is no indication of future results.

FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not intended or written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

IMPORTANT NEWSLETTER DISCLOSURE: The performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier's Growth Investor, Louis Navellier's Breakthrough Stocks, Louis Navellier's Accelerated Profits, and Louis Navellier's Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters' reported performances should be considered mere "paper" or proforma performance results. Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier & Associates' Investment Products and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters and advertising materials authored by Louis Navellier typically contain performance claims that do not include transaction costs, advisory fees, or other fees a client may incur. As a result, newsletter performance should not be used to evaluate Navellier Investment Products. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or performance claims, should be referred to InvestorPlace Media, LLC at (800) 718-8289.

Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.

Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier's composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. Request here a list of recommendations made by Navellier & Associates, Inc. for the preceding twelve months, please contact Tim Hope at (775) 785-9416.

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It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. Click here to see the preceding 12 month trade report.

Although information in these reports has been obtained from and is based upon sources that Navellier believes to be reliable, Navellier does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute Navellier's judgment as of the date the report was created and are subject to change without notice. These reports are for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in these reports must take into account existing public information on such securities or any registered prospectus.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier. in the future will be profitable or equal the performance of securities made in this report.

Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.

None of the stock information, data, and company information presented herein constitutes a recommendation by Navellier or a solicitation of any offer to buy or sell any securities. Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The reader should not assume that investments in the securities identified and discussed were or will be profitable.

Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for you. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. Investment in fixed income securities has the potential for the investment return and principal value of an investment to fluctuate so that an investor's holdings, when redeemed, may be worth less than their original cost.

One cannot invest directly in an index. Results presented include the reinvestment of all dividends and other earnings.

Past performance is no indication of future results.

FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not intended or written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

IMPORTANT NEWSLETTER DISCLOSURE: The performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier's Growth Investor, Louis Navellier's Breakthrough Stocks, Louis Navellier's Accelerated Profits, and Louis Navellier's Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters' reported performances should be considered mere "paper" or proforma performance results. Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier & Associates' Investment Products and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters and advertising materials authored by Louis Navellier typically contain performance claims that do not include transaction costs, advisory fees, or other fees a client may incur. As a result, newsletter performance should not be used to evaluate Navellier Investment Products. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or performance claims, should be referred to InvestorPlace Media, LLC at (800) 718-8289.

Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.

Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier's composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. Request here a list of recommendations made by Navellier & Associates, Inc. for the preceding twelve months, please contact Tim Hope at (775) 785-9416.

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