This Week in Barrons – 1-20-2013
Currency Wars
On Friday, CNBC had a short interview with Kyle Bass. Kyle told David Faber of CNBC that Japan has basically lit the fuse and is going to implode within a couple years. Naturally Faber tried to give him a couple jabs, but Kyle stood firm saying that all of the components for this economic-bomb to go off are in place:
On Friday, CNBC had a short interview with Kyle Bass. Kyle told David Faber of CNBC that Japan has basically lit the fuse and is going to implode within a couple years. Naturally Faber tried to give him a couple jabs, but Kyle stood firm saying that all of the components for this economic-bomb to go off are in place:
- Japan currently spends
25% of its revenue on interest payments, and with higher rates (via inflation)
the entire situation becomes ridiculous – as every 1% rise in their interest
rate costs them another 25% of revenue!
-
Currently 20% of Japan’s exports
go to China, which could easily be cut in half due to political tensions.
-
Current movements in Japan’s currency
(devaluation) will not give them any competitive advantage in the market
place.
Kyle Bass goes on to site massive problems in Japan starting within 2 years. These problems join the cesspool of problems in Europe, China and the U.S., and a current trend to “get what they can, before it all blows up". In other words, Kyle shows how Japan is using yen to buy up Western assets. Japan badly wants OUT of it’s own currency. China is using Dollar denominated assets to buy up resources all over the world, because China badly wants OUT of any US Dollars. The world seems to be in a constant devaluation mode, seeing who can reach the bottom first.
This week we found out that Germany wants to bring all of its gold back home. Just 7 months ago Germany was writing articles about how having a large portion of their gold abroad was good for them, because it let them deal in the currency markets so quickly. Now, just months later they've decided that the only place for their gold is at "home". What changed? Could it be Japan's new insistence that they're going to have inflation versus deflation, and now the global currency war has finally hit full throttle. You bet it has.
I've been predicting a massive economic reset between all the major countries, but nobody knows when. As Kyle Bass said: “When countries have been messing with their currency for 70 years, it's hard to pick the exact date when it all goes boom in the night.” Factually you can easily see this coming.
The Market....
This
week has been five of the slowest trading days that I can remember. I thought that since JPM and Goldman Sachs
were both releasing earnings this week – if they were good – they’d pick up the
pace and push us higher. That didn’t
happen, despite Goldman Sachs posting a "stellar" quarter.
Well,
for months I suggested that the market was going to challenge the near term
highs of DOW 13,600 and S&P 1,475. Since the 19th of November, the DOW
has moved from 12,500 to 13,650, and the S&P has moved from 1,353 all the
way to 1,486. In other words, we made
it! My theory was that we'd run up to
the resistances, fade back some, regroup, push on through, and challenge the
‘all time’ highs. Well, we've made it to
the resistances, now it's up to them to either power through, or back off. I can make a case for either; therefore, we
need to proceed with caution. I
personally think that we will fall back just a bit, and then push for the
highs. As we exceed the all time highs, then
I think we flame out, and enter a long drawn out bear market.
Someone
asked me how I come up with my daily picks?
Often, my answer revolves around matching individual stock price
dislocations with market trends. For
example: a month ago two major gun makers: RGR and SWHC fell from $60 to $40,
and $11.50 to under $8 respectively – when Vice President Biden was tasked with
fixing our gun laws. Combine the general
tone of the market going up, with the power of the NRA gun lobby, with the new
‘fear related’ gun sales, and investing in either of these stocks would have
earned you a quick 15%, and there’s still room to run. The same scenario is playing out with Boeing
(BA). Often you can look at a sector and
see a quick dislocation such as when Wynn (an extremely well run casino
company) turned in a magnificent quarter, and other casino stocks such as Las
Vegas Sands (LVS) could be a beneficiary of that ‘bounce’. Therefore buying LVS around $52 – looking for
a $10 push to the upside (it’s all time high) – isn’t that bad of a sector
related play.
Many have written in terms of silver and gold. Just this week the United States Mint announced
that it has temporarily sold out of
2013 American Eagle Silver Bullion coins. As a result, sales are
suspended until they can build up an inventory of those coins, which should be
the week of January 28th, 2013.
So demand is exceeding supply, which should cause a spike in
silver.
The silver announcement was quickly followed by one
from the German Bundesbank, of their intention to repatriate a portion of their
gold reserves held in foreign central bank vaults. Many view this as the beginning of the next
phase of not only the gold bull market, but also the global currency war that
began last year when the Swiss pegged the Franc to the Euro, and China dumped
more than $100 billion in U.S. Treasuries on the market. Do not believe for a second that the Bundesbank
is doing this for political purposes. Germany
is furious with the US for artificially keeping the price of gold down, and for
trying the patience of our allies in the same way that happened back in the
1960's when Charles De Gaulle began redeeming France's trade dollars for gold
because the U.S. didn't maintain the dollar to gold ratio. Both of these elements are ‘outward,
fundamental signs’ of a rising price for gold as well as silver.
Tips:
My current short-term holds are:
-
HD – in at 61.53 (currently 65.40) – stop at
63.60
-
MS in at 18.50 (currently 22.48) – stop at 21.00
-
SPY in at 141.97 (currently 148.35) – stop at
146.00
-
SIL – in at 24.51 (currently 21.97) – no stop
yet
-
GLD (ETF for Gold) – in at 158.28, (currently
163.00) – no stop ($1,686.60 per physical ounce), AND
-
SLV (ETF for Silver) – in at 28.3 (currently 30.79)
– no stop ($31.90 per physical ounce).
To follow me on Twitter and get my daily thoughts and trades
– my handle is: taylorpamm.
Please be safe out there!
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