This
Week in Barrons – 4-28-2013
What's Next?
For years I've been claiming that
the Central Banks are behind the stock market rise. And depending upon the
person listening, I would get anything from: "Yeah I thought so" to
"Are you nuts?” This week, according
to Bloomberg’s Sarah Jones: “Central Banks, guardians of the world's $11
trillion in foreign-exchange reserves, are buying stocks in record amounts as
falling bond yields push even risk- averse investors toward equities. The Bank of Japan said that it would more
than double investments in equity exchange-traded funds. The Bank of Israel bought stocks for the
first time last year while the Swiss National Bank and the Czech National Bank
have boosted their holdings to at least 10 percent of reserves.”
Do you think that if Japan doubles
it’s investment in stocks that the Japanese stock market might go up? And when you think of the $85B a month that The
Ben Bernanke is giving the banks, what percentage do you think makes it into
the stock market? But the disturbing
part with Central Banks buying stocks, is that they have unlimited funds. When a Central banker needs money, he can
just print it. And when you have Central
Banks thinking that there's no better place to invest than in the stock market
– it causes abnormal stock action. For example, Caterpillar (CAT) came
out this week and missed earnings, said that the world is slowing, and lowered
it guidance. CAT gained 6 points after
releasing this information. That’s our friendly
banksters at work. If the money costs
you nothing, you have no real ‘skin in the game’; therefore, you can take risks
all day. Simply consider this week’s
economic reports:
-
Durable
goods orders fell 5.7%,
-
The
March ISM report fell from 54.2 to 51.3,
-
The
Chicago PMI (Purchasing Index) fell from 56.8 to 52.4,
-
The Richmond
Fed report on manufacturing fell from +6 to -3,
-
The Kansas
City Fed report fell from 0 to -5,
-
New
York manufacturing fell from 10.04 to 9.24,
-
The US is
indicating that we could get more involved in Syria due to their use of
Chemical weapons,
-
The
market experienced a flash crash over a hacked twitter report – losing a lot of
money due to their stops, and
-
Europe's
Bank Lending Survey showed (this week) that the Eurozone is firmly in a soft
depression.
Stocks are up in the face of fading
economic reports because the Central Banks are keeping them there.
Now you all know that I like gold
and silver. But the raid on the precious
metals a couple weeks ago had 2 distinct goals. One was to scare many people away from buying them. Another was to lower the price to a level
where Central Banks felt good about buying gold and silver for themselves. Getting the price down worked. But the idea that everyone would be scared away
from buying Gold backfired. Gold set record
sales levels in Asia and India last week. The U.S. Mint ran out of 1/10 ounce gold coins,
and sold a record 60,0000+ gold coins in the days after the plunge. The J. P. Morgan (JPM) inventoried warehouse
of commercial gold fell like a rock, as their holdings fell to levels not seen
since 2010. Since JPM's commercial
holdings fell 64% in virtually a day, it appears that people are demanding physical
delivery of their metals. The only piece
of this that I find odd is that as Central Banks are talking ‘down’ the price
of gold, they are buying more than at any time since 1964. Bloomberg reported: “Central banks are
buying the most gold since 1964. The
World Gold Council says that Central Banks added 534.6 metric tons to reserves
in 2012, the most in almost a half-century, and expect purchases of 450 to 550
tons this year. Central Banks
owned 31,671 tons at the end of 2012, about 19 percent of all the metal ever
mined, the London-based World Gold Council estimates.”
It appears that Central Banks:
-
Own one
fifth of all the gold ever mined.
-
Are
purchasing more gold and silver.
-
Are
pushing the paper price lower in order to consume more.
-
Are
‘playing in the stock market’. This
Thursday two headlines crossed the wire: “US based stock funds posted their largest weekly outflows in a year – $7.3B, and US based stock ETFs posted their
largest weekly outflows in a year – $8.4B.”
-
Are doing a very good job of ‘playing in the stock
market’. As almost $16 Billion was pouring out of our
ETFs and stock funds, our market is challenging it’s all time highs again
simply due to our Central Banks.
Unfortunately (by many accounts)
this ends badly, and there are only three ways out of this mess:
1.
We stop
the printing and go through massive bankruptcies, implosions, pick up the
pieces, and rebuild.
2.
We continue
printing until the velocity picks up to the point of hyperinflation and
everything collapses.
3.
OR we
rebuild American on cheap energy (coal, oil, shale, natural gas) and become the
world’s supplier and change our tax structure accordingly.
Central Banks are buying gold,
silver and stocks. Stocks are the one
element that Central Banks can cause to go higher – and often that’s a sign of
desperation. I leave you with one
thought: If the Central Banks want physical gold and silver, we should want it
too.
The Market:
This week the market suffered a week
of horrid economic news, and ended with substantial gains. The media is
telling us that the market is climbing higher because there is no place else to
put your money, and even the foreign investors are buying. Unfortunately,
(factually) this week was the lowest volume week in 3 months. I think we are caught in Twilight Zone –
between ‘reality’ and ‘created reality.’
-
The Fed
tells us that market demand is strong, and investors are diving in, but mutual
funds and ETFs saw record outflows.
-
The Fed
tells us that the country is growing wildly, but GDP missed estimates.
-
We are
told that foreign inflows are at record levels, but market volume hits 3 month
lows.
-
We are
told that stocks are going up on earnings, yet earnings have been relatively
weak and revenues simply "lousy".
Since the Fed is pulling the
strings, the easiest thing to do is to hold your nose, jump in with both feet
and pray the music doesn't stop. Each
dip in the market is being ravenously bought.
Each bad business report is being rewarded with higher stock
prices. The only issue I have is that I'm
investing money into a market that is being manipulated. It just feels wrong.
Factually, the market has some
significant resistance at the 159’ish level on the SPY (a Standard and Poor’s
EFT). The SPY marched up on Monday,
Tuesday, and Wednesday, and then on Thursday it hit 159.27 as the intra day
high. The SPY then pulled back and ended
lower on Friday closing at 158.24. So
resistance (for now) is at the 159’ish level.
So as an investor / trader you don’t want to get ‘too long’ until you
have two market closes above the 159 level on the SPY.
And soon we will have to consider
seasonality. “Sell in May and Go Away”
isn't just an old adage; it is something that is based in fact. Most market gains come between September and
April, and most market stagnations are from May to September. Are we going to see that loosen up – as it has
the past 3 years in a row? We should see
seasonal weakness, but if the banksters aren't ready to stop pushing stocks
higher, then stocks can't stop going up, seasonality or no seasonality.
Tips:
We made some small trades this week – but basically we sat on our hands
and enjoyed the run-up in precious metals.
My current short-term holds are currently only in the precious
metals arena:
-
SIL – in at 24.51 (currently 14.63) – no stop
yet
-
GLD (ETF for Gold) – in at 158.28, (currently
141.00) – no stop ($1,453.60 per physical ounce), AND
-
SLV (ETF for Silver) – in at 28.3 (currently
23.16) – no stop ($23.76 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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