This Week in Barrons – 4-28-2013
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.
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.
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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