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.
The Market....
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!”
Tips:
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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