This Week in Barrons – 5-5-2013
The Forever Battle of: Illusion vs Delusion:
This week brought us the Federal Reserve meeting, their most recent monetary policy stance, and the Jobs report. It also brought us JPM being brought up on charges of manipulating power prices in the west. Imagine JPM (another Enron), manipulating both power and silver prices. But this week was truly all about The Fed and Jobs. The Ben Bernanke has printed more money than any head of the Federal Reserve in history. He is arguably the world’s most powerful banker, and has never worked a day in his life inside a bank. In fact, (as far as I can tell) he’s a true academic – and has never had a real job.
Given the bulk of the economic reports show little if any true growth, it begs the question: How is the stock market flirting with all-time highs? The answer is both simple and widely accepted. The Federal Reserve has been printing trillions of dollars and pushing it into the system. These dollars must go somewhere, and they end up in the stock market. We’ve seen over 23% of the world's central banks being so desperate for returns that they are buying tens of billions of dollars’ worth of stocks right out on the open market. Therefore, if the Fed ever reduced their money printing, the market rally would stop on a dime. Therefore, The Ben Bernanke is the most important cog in this machine.
Heading into the Wednesday release of the FOMC's statement, everyone was on edge concerning the potential phrasing of the remarks. When the statement was released, you could almost hear a collective sigh of relief. Not only was most of the statement like last month, but the statement added a condition that the committee would be “willing to do more” if conditions merited it. That means that the Fed will do more QE, stimulus, money printing if needed. And considering the lousy economic reports, it is clear that at some point it will be needed.
But we still had that nagging non-farm payroll report to deal with. After the ADP report (released earlier in the week) suggested there were very few jobs created, everyone wondered what the government numbers would show. The estimates focused around 140K jobs being created, and on Friday morning we were told that 165K jobs were created (considerably more than even the most bullish estimates). So I took a look:
- First: I noticed that the "hours worked" portion of the report fell by over 6% from 34.6 hours / week last month to just a little over 32 hours per week this month. That is a huge fall. What normally happens is that companies are so busy that people are forced to work more hours, and when they can't squeeze any more hours out of their existing workforce – then they go out and hire. So what does it mean if people are hiring more and the workweek is shrinking?
- Secondly: I noticed the part-time portion of the report, which really describes a part-time employment economy, with most of the new jobs being created in the part-time and service sectors – with wages and hours worked declining. (Remember, employers do NOT have to pay healthcare for part-time workers!)
- Finally, because the Bureau of Labor and Statistics (BLS) included 193K ‘fake jobs’ (birth/death model) in their 165K jobs number, we actually LOST about 28K jobs in April. [The Birth/Death model creates a ‘Phantom Number’ that hopes to estimate how many new businesses are created when various unemployment levels are reached. The BLS then reports this ‘Phantom Number’ as fact.] Unfortunately I’m not seeing 193,000 people that have lost their jobs, or were sitting on couches collecting unemployment checks, actually going out and opening their own business.]
And just to add insult to injury, on Friday morning we also received the ‘Factory Orders’ report – which FELL 4 points. So if everyone is hiring, wouldn’t you think that it was because there were more ‘factory orders’? It seems that if businesses are hiring, they are hiring part-time workers that have the ability to ask: “Do you want fries with that?"
But the market loved the ‘Jobs’ number and we were off to the races. In a matter of moments the DOW was flirting with 15,000 and the S&P was clearly into all-time highs again. The single most important element on the planet right now is The Ben Bernanke’s printing press. As long as the printing presses run, the market will continue higher. I've never seen anything like it in history, and when it ends it too will be a historical event. The crash that will follow this disaster is going to make the 2008 crash look lame. Considering that the UK, the European Central Bank, and Japan have also entered the ‘race to the currency bottom’, the insanity that will happen when the nations begin to slow their collective printing is almost impossible to comprehend. We could see a DOW 18,000, or even 20,000. But remember Japan in the 80's, with a stock market that ran from under 9,000 to 40,000 and then spent the next 10 years under 9,000 again.
On Friday, 15,009 was the intra-day high on the DOW and 1,618 on the S&P. Both were new all-time highs, and both reached those highs for exactly the wrong reasons. You know that. I know that. And even the talking heads on CNBC know that. Jim Cramer even said: “Today, fraud is now just part of the equation. The equation of course being: Why is the market always up?" On Friday Jim mentioned that this market is just like the late 90's. “You come into it, just knowing that the market is going to go up again". I think Jim nailed it!
The issues that we all face are easy:
- How long can this last?
- How far can it go?
- And, what happens at the end?
The best answer is probably: This will go on until the money printing slows. So far that has indeed been the ‘right answer.’ Now, how long before the QE is slowed or taken away is another problem entirely. All of the old rules have been broken, and we are no longer being driven by fundamentals of any kind. The printing presses being driven by: Draghi (Europe), or Abe (Japan), or Bernanke are the only elements that matter. I cannot think of a reason why this market insanity will stop. While the Banks can certainly stop buying stocks for a while, and create their own pullback or "correction"; the fact continues that The Ben Bernanke is still printing, and the money will just pile up in the banks until they once again decide to deploy it. Therefore, it would appear that the market direction will be "up" despite the occasional 5% correction or pause.
I have one small issue with reliving the late 90’s, and that is that the ‘tech sector’ – which caused the largest portion of the ‘bubble’ – still remains (13 years later) 33% off its highs. This time (however) it isn’t just ONE asset class or just the DOW, S&P, NASDAQ, Bonds, Derivatives, etc. – but rather it is currency. When this bubble finally pops, it is going to affect every single corner of our society from politics, to pensions, and from technology to medicine.
I will continue leaning long, and buying over-inflated junk. But I’m still a believer that the big money will be made in the fall of this market. On the hyperinflation side, I continue to protect myself with the physical metals. While the gold haters are quick to gloat about gold pulling off its all time highs, they rarely gloat about the techs still being down 33% from their highs (13 years ago), or Apple (APPL) being off 30% from its high (last year).
In terms of what to buy when the market goes into ‘crash’ mode? Luckily there are so many products out there right now, it has become much easier to "be short" the market in case of collapse. The only problem is, will the ‘powers that be’ make shorting illegal? Will they eliminate the ‘short-side’ ETF’s? Remember, they’ve outlawed shorting before, so they very well might. And considering the options market is so inter-connected these days, the basics of selling actual individual stocks short, and buying put options will still be our very best defense.
Honestly, we are so overdue for a true 10% correction that I’m even tired of hearing about it. When we finally get a pullback that even remotely measures up to 10%, then we'll have to decide if we're looking at a "correction" or the market bubble popping. The answer: If The Ben Bernanke is still printing $85 billion a month, I'll buy that dip because it’s just a correction. If The Ben Bernanke stops printing, I’ll go wholesale short because “Look out below!”
We made some trades this week and our short term account is listed below.
My current short-term holds are currently only in the precious metals arena:
- SLB at 75.18 (currently 75.72) – stop at 75.20
- SBUX at 60.70 (currently 61.81) – stop at entry
- TJX at 48.77 (currently 48.98) – stop at entry
- NSC at 77.03 (currently 78.04) – stop at entry
- SIL – in at 24.51 (currently 14.88) – no stop yet
- GLD (ETF for Gold) – in at 158.28, (currently 142.15) – no stop ($1,464.30 per physical ounce), AND
- SLV (ETF for Silver) – in at 28.3 (currently 23.29) – no stop ($23.97 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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Until next week – be safe.