We just learned this morning that wholesale inventories rose 0.3% in January, rather than decline by 0.2% as economists expected. Last month’s reading was revised to unchanged from a decline of 0.1%.
Meanwhile, wholesale sales tanked 1.3%. That was more than twice the 0.6% drop in December, and the sixth decline in the last seven months.
|A bad sign for the economy.|
As a result of rising supply and falling sales, the inventory-to-sales ratio climbed to 1.35. That’s the highest since April 2009 when the U.S. economy was just coming out of the Great Recession. Not only that, but it’s also worse than the worst level we saw during the dot com bust.
One key sector that’s looking increasingly oversupplied? Autos. Dealers have been complaining about having too many cars on their lots, while manufacturers have had to result to increasing incentives to move metal. But other industries are facing challenges of their own.
Manufacturing isn’t the only driver of economic growth in the U.S. We’re more of a service economy these days. But given the magnitude of the problems that this key ratio is pointing toward, I wouldn’t ignore factory weakness either.
|Auto inventories continue to expand.|
The piling up of inventories will likely lead to production cuts and manufacturing layoffs — unless we see a miraculous, out-of-the-blue surge in sales. That, in turn, will weigh on GDP in 2016, and likely put pressure on stock prices, too.
So what do you think about the accumulation of inventories? Is this a troubling economic indicator? Are we going to see a negative print for GDP sometime in 2016 as a result? Or do you think relative strength in the service sector will carry the day? Hit up the comment section and let me know.
Sharp, short-term rallies. Painful, intermediate-term declines. Increased volatility overall. Those are the hallmarks of this market environment, and it prompted several of you to weigh in with your thoughts about what’s going on and what to do about it.
Reader Anthony G. said: “There is extreme irrationality in this market. The central bankers have really created a mess. The bear attack is near.”
Reader Tommr also suggested central bank moves are behind the crazy market swings, saying: “The global central banks (including our own Fed) claim to be ‘stimulating the global economy’ when, in fact, what they are doing is exactly the opposite of that. I am not completely sure if this is being done deliberately, or if these people really don’t have a clue.”
Reader David K. posed the following questions about the recent bounce: “So, who exactly is doing all this buying? Is it from retail buyers, institutional buyers, or someone else? The market just doesn’t turn around on a dime like this without some sort of rationale. Why would commodities of all sorts suddenly become the darlings after being stinkers for so long?”
As for how to position portfolios in this environment, Reader Duane said: “I agree with your latest advice and plan on buying deep dips and selling the big rips in the markets using ETFs/reverse ETFs. I have made some money recently with gold and silver and am out of that position now.
“My account is mostly in cash but I am eyeing some future shorts and am just waiting to pull the trigger. With this volatility, it seems almost impossible to hold anything longer term with any sort of confidence or conviction. Basic supply and demand economics do not seem to be working right now.”
Thanks for sharing everyone. I wholeheartedly agree with the idea that central bank action is helping cause volatility now, rather than suppressing it as it did for several years.
I still favor owning a handful of core, lower-volatility, higher-yielding, non-economically sensitive stocks. The names I have in my Safe Money Report are performing well. But outside of those positions, I think you have to be nimble, flexible, and willing to trade more actively in order to stay ahead of this market. I also think maintaining a higher cash position these days makes a ton of sense.
If you’d like to add any other thoughts, use the comment section as your outlet.
“Fed Whisperer” Jon Hilsenrath at the Wall Street Journal reported today that the Federal Reserve will likely hold off raising rates at its two-day meeting that concludes March 16. But officials will probably suggest they’re ready to raise them at the April and/or June meetings if the economy doesn’t run off the rails.
Donald Trump took home another three Republican election victories in Michigan, Mississippi and Hawaii, while Ted Cruz won in Idaho. Hillary Clinton won in Mississippi, while Bernie Sanders prevailed in the state of Michigan.
Iran test-fired two missiles reportedly capable of reaching Israel today. The missile tests followed similar launches yesterday, raising concerns that the Middle East nation is violating United Nations Security Council resolutions.
Remember that explosion in iron ore prices the other day, a surge that prompted one analyst to say the market had gone “berserk?” Turns out it was at least partially driven by an Asian flower show. Seriously.
The Financial Times reported today that the Chinese industrial city of Tangshan is hosting an international flower show soon. Officials have ordered steel mills there to shut down between April and October in order to reduce regional pollution. That order forced mills to buy half a year’s worth of ore supplies in only a few weeks so they could produce more steel before the shutdown. Strange but true.
So, what thoughts do you have about the latest political news? Iran’s missile tests? The odd explanation for surging iron ore pricing? Share them in the comment section when you get a chance.
Until next time,
P.S. The message Boris and Kathy deliver in the recording of their emergency phone call is a simple one:
There is a massive time bomb hidden away inside Deutsche Bank. It has the power to destroy the European economy and crush the euro currency at any time without warning.
When it happens, they see three things happening:
1. The euro currency will fold like a cheap suit.
2. The ETF that’s designed to soar when the euro sinks will post record gains.
3. And select options on that ETF will make you potentially up to ten times richer.
That’s their forecast — and they’re about to act on it — with all-new investment recommendations that they believe could soar nearly 1,000%.
Click here to learn more about Global Currency Investor.