This
Week in Barrons – 6-23-2013
Trouble, Trouble, Toil & Trouble:
There’s a certain humility that comes over you after you spend 3 days on a university campus – away from all the world’s hustle and bustle – and focused solely on celebrating the Class of 2013 at Northwestern University. I’m truly humbled by their intellect – and sincerely apologize for the financial ‘mess’ that we’ve left them. But none the less, Congratulations to the Class of 2013.
There’s a certain humility that comes over you after you spend 3 days on a university campus – away from all the world’s hustle and bustle – and focused solely on celebrating the Class of 2013 at Northwestern University. I’m truly humbled by their intellect – and sincerely apologize for the financial ‘mess’ that we’ve left them. But none the less, Congratulations to the Class of 2013.
Financially, I'd venture to say that just about everyone
knows what happened on Wednesday.
Without actually saying the words, The Ben Bernanke hinted that he would
like to see a tapering off of the Quantitative Easing (QE) by late this year. That caused a 400+ point drop in the stock
markets over the next two days. I
received an email from someone that summed it up quite nicely: "It would
seem that if the market fell 440 points in two days over the mere mention of
tapering, I believe your are right that when they ‘actually taper’ we will have
all hell to pay".
But it wasn't just stocks that were getting hammered. Gold, silver, copper, lumber, bonds, swaps – virtually everything was getting hit. The unwinding of an out of control policy – that tried to keep interest rates at 0 for too long – isn’t pretty and will cause issues we currently don’t understand. This unwinding could easily become truly catastrophic. The world is in a massive debt bubble and the Central banks are now officially losing control. And according to Donald Trump, the stage is now set for a possible collapse that dwarfs 2008. Speed is the real issue right now. If the wheels come off slowly (as has been the case in Europe), they will continue to plug the holes by printing more cash, and kick the can down the road. But, if a chain reaction were to occur, where derivatives start to default, that could freeze up the entire banking system – circa 2008.
I'm on record as saying the Fed won't stop printing. There have only been two choices: (a) continue to print and ‘inflate-away’ our debts, or (b) stop printing and have the economy go into a recession/depression. We either take the pain, allow business to fail, banks to go belly-up, endure a year or two of a horrible economy, or print money to keep the wheels turning. I think the Fed will continue to print.
If The Ben Bernanke wants to step down in January, he could cut a bit of stimulus on his watch, and then his replacement could make a determination that we are just too early for less stimulus and jack it back up – potentially higher. Why do I think The Ben Bernanke won't stop printing? His entire career is based upon knowing what the Central bank did during the Great Depression was wrong. He told everyone that he had tricks and gimmicks and could solve any depression. He would look very bad if he quit printing and the economy imploded on him. Similarly, his replacement isn't going to want a world depression on his or her watch, and the only way to ward that off is to print more and more. Therefore, in my opinion, a year from now we will still have QE (in some form) and it will potentially be larger than it is today.
Which makes things even more bizarre when we look at what happened to commodities this week. On Thursday Gold was down $90 an ounce. Yet (once again) demand for the physical metal went through the roof. Understand, there must be quite an agenda behind debasing the commodities, because you just don’t ‘naked short’ the precious metal market (time and time again) – just because it’s a fun thing to do. The agenda must include migrating gold from west to east. China has seen what many different dynasties have done for money, and know that gold has gotten them through all of it. China wants all the gold it can get because (in my opinion) they would like the Yuan to be part of the global currency reserve, and would like gold to back some percentage of it. But that creates a problem for the European central banks, and they will need gold to be a part of their currency as well.
We currently have Central banks being quite aggressive about their gold purchases. Therefore it makes sense for them to drive the paper price lower, and potentially drive buyers into other risk assets such as currency or stocks. Along with attacking the prices, there are other ways to keep the physical metal out of people’s hands:
But it wasn't just stocks that were getting hammered. Gold, silver, copper, lumber, bonds, swaps – virtually everything was getting hit. The unwinding of an out of control policy – that tried to keep interest rates at 0 for too long – isn’t pretty and will cause issues we currently don’t understand. This unwinding could easily become truly catastrophic. The world is in a massive debt bubble and the Central banks are now officially losing control. And according to Donald Trump, the stage is now set for a possible collapse that dwarfs 2008. Speed is the real issue right now. If the wheels come off slowly (as has been the case in Europe), they will continue to plug the holes by printing more cash, and kick the can down the road. But, if a chain reaction were to occur, where derivatives start to default, that could freeze up the entire banking system – circa 2008.
I'm on record as saying the Fed won't stop printing. There have only been two choices: (a) continue to print and ‘inflate-away’ our debts, or (b) stop printing and have the economy go into a recession/depression. We either take the pain, allow business to fail, banks to go belly-up, endure a year or two of a horrible economy, or print money to keep the wheels turning. I think the Fed will continue to print.
If The Ben Bernanke wants to step down in January, he could cut a bit of stimulus on his watch, and then his replacement could make a determination that we are just too early for less stimulus and jack it back up – potentially higher. Why do I think The Ben Bernanke won't stop printing? His entire career is based upon knowing what the Central bank did during the Great Depression was wrong. He told everyone that he had tricks and gimmicks and could solve any depression. He would look very bad if he quit printing and the economy imploded on him. Similarly, his replacement isn't going to want a world depression on his or her watch, and the only way to ward that off is to print more and more. Therefore, in my opinion, a year from now we will still have QE (in some form) and it will potentially be larger than it is today.
Which makes things even more bizarre when we look at what happened to commodities this week. On Thursday Gold was down $90 an ounce. Yet (once again) demand for the physical metal went through the roof. Understand, there must be quite an agenda behind debasing the commodities, because you just don’t ‘naked short’ the precious metal market (time and time again) – just because it’s a fun thing to do. The agenda must include migrating gold from west to east. China has seen what many different dynasties have done for money, and know that gold has gotten them through all of it. China wants all the gold it can get because (in my opinion) they would like the Yuan to be part of the global currency reserve, and would like gold to back some percentage of it. But that creates a problem for the European central banks, and they will need gold to be a part of their currency as well.
We currently have Central banks being quite aggressive about their gold purchases. Therefore it makes sense for them to drive the paper price lower, and potentially drive buyers into other risk assets such as currency or stocks. Along with attacking the prices, there are other ways to keep the physical metal out of people’s hands:
-
FedEx
has stopped delivering precious metals to individuals in the UK and Germany.
-
On May
23, France passed a law prohibiting their postal service from delivering gold
to the public.
-
And the
Chicago Mercantile Exchange (CME) just increased margin requirements on Gold by
a whopping 25%.
So, where are we?
-
We have
The Ben Bernanke winking and nodding that QE is going to start to taper.
-
We have
the market in panic model.
-
Gold and
silver were sold off on the upside down belief that there will be less Fed
inspired inflation.
-
Interest
rates are soaring with mortgages costing 3.5% a couple weeks ago to 4.12% this
Thursday. If the economy is to return on
the back of housing, then higher interest rates will let housing die on the
vine.
If indeed the Fed was to stop QE, who would buy the
treasuries that Japan and China don't purchase, and at what interest rate? My guess is that we will begin to hear about a
new Government program to make you buy bonds for your retirement fund (like
they are making us buy Obamacare). Last week
$13.6 Billion came out of the bond markets.
People are frightened about Benghazi, the IRS, the NSA, Afghanistan,
Iran, Syria, employment, debt, higher taxes, Obamacare – and the list goes on. The
single element that people were able to feel better about has been the stock market
and now that is scaring the hell out of them. That 5% correction could have repercussions. People can't
hide in gold or silver, Bonds are plunging, stocks got whacked – they don't
know what to do. I certainly understand
that, and there is something ‘different’ about his market downturn.
I wanted to end on a positive note, but it is hard. The pieces of the puzzle are coming together faster and faster, and the picture they create is one of deep economic trouble ahead. One thing I suggest is that for the next several months – consider putting 6 months worth of living expenses (in case) in a good home safe. Why – because if a cascade of crazy stuff happens one night, starting in Japan and spreading across Europe and into the US, I could easily see a banking system shut-down (for several days) as they would try and sort out all of the derivative nightmares. This is a pretty good time to really be cautious. Sorry – it just feels that way.
The Market:
After a 400+ point drop, we only managed to claw back some 40 points on Friday. That means a lot of the money simply wasn't willing to jump back into the market just yet. So the Fed supported things, but this time they didn't really "buy the dip".
Historically June is the worst market month. After 7 months of "up", we’ve had our first really big plunge, and it was overdue. I've said for two weeks that this time ‘feels different’, almost like they're losing control all across the globe. When they're selling virtually everything from commodities to stocks to bonds, it is hard to decipher where the buyers are going to pop up next.
We're only down about 5% from the all time highs set in May. A typical correction is between 8 - 10%, and thus far they haven't been willing to let that happen. A lot of profit has been made, and no one is going to want all to slip away. And if you hadn’t noticed, the market volume on Thursday was the HIGHEST volume of the year – and it was ALL to the downside.
My guess is that we have a bit more work to do on the downside before all the players decide to come back in. The only reason it doesn't feel like we are just heading down for good is because of all The Ben Bernanke bluster. I don't think this Fed inspired market run is over yet, although obviously it is looking fragile. Patience is the key. We need to let the market come to us. Right now with everything from the DOW to the S&P to the XLF (the banking ETF) are all at or below their 50 day moving averages. Too many days like that, and the market mood will turn negative instead of profit taking & buy-the-dip.
All that said, if we were to fail Friday's S&P low of 1577, and end the day there – then it would seem apparent that the overall direction is going to be considerably further down – and going short a little there would probably be nicely profitable.
There's no question about this – this is not your every day shake out. A lot of damage has been done, and folks are scared. Volatility will soar in the next few days. If you can't be ‘trading-wise’ nimble, then I don’t see a reason to play right now. There is a lot of gold and silver technical jargon being spoken, but frankly I don’t believe any of it any more. The precious metals are being systematically attacked in a way never seen before. This isn't a normal market function. Over in Asia, they once again lined up for hours to buy physical gold. This is a fight to the death between the folks that want the metal versus the Central banks. It is truly an ugly fight, and I just continue to nibble away on the dips. The way the global economic picture looks, I can think of nothing better to do. Not just in the U.S. but all around the world. People will be selling everything to raise cash. When it all falls at the same time, (stocks, bonds, & gold) you know there's some underlying panic. I want to buy some of that panic.
Good luck out there. Be careful. Don't jump the gun long or short. Buckle your seatbelt because we're going for quite the ride.
I wanted to end on a positive note, but it is hard. The pieces of the puzzle are coming together faster and faster, and the picture they create is one of deep economic trouble ahead. One thing I suggest is that for the next several months – consider putting 6 months worth of living expenses (in case) in a good home safe. Why – because if a cascade of crazy stuff happens one night, starting in Japan and spreading across Europe and into the US, I could easily see a banking system shut-down (for several days) as they would try and sort out all of the derivative nightmares. This is a pretty good time to really be cautious. Sorry – it just feels that way.
The Market:
After a 400+ point drop, we only managed to claw back some 40 points on Friday. That means a lot of the money simply wasn't willing to jump back into the market just yet. So the Fed supported things, but this time they didn't really "buy the dip".
Historically June is the worst market month. After 7 months of "up", we’ve had our first really big plunge, and it was overdue. I've said for two weeks that this time ‘feels different’, almost like they're losing control all across the globe. When they're selling virtually everything from commodities to stocks to bonds, it is hard to decipher where the buyers are going to pop up next.
We're only down about 5% from the all time highs set in May. A typical correction is between 8 - 10%, and thus far they haven't been willing to let that happen. A lot of profit has been made, and no one is going to want all to slip away. And if you hadn’t noticed, the market volume on Thursday was the HIGHEST volume of the year – and it was ALL to the downside.
My guess is that we have a bit more work to do on the downside before all the players decide to come back in. The only reason it doesn't feel like we are just heading down for good is because of all The Ben Bernanke bluster. I don't think this Fed inspired market run is over yet, although obviously it is looking fragile. Patience is the key. We need to let the market come to us. Right now with everything from the DOW to the S&P to the XLF (the banking ETF) are all at or below their 50 day moving averages. Too many days like that, and the market mood will turn negative instead of profit taking & buy-the-dip.
All that said, if we were to fail Friday's S&P low of 1577, and end the day there – then it would seem apparent that the overall direction is going to be considerably further down – and going short a little there would probably be nicely profitable.
There's no question about this – this is not your every day shake out. A lot of damage has been done, and folks are scared. Volatility will soar in the next few days. If you can't be ‘trading-wise’ nimble, then I don’t see a reason to play right now. There is a lot of gold and silver technical jargon being spoken, but frankly I don’t believe any of it any more. The precious metals are being systematically attacked in a way never seen before. This isn't a normal market function. Over in Asia, they once again lined up for hours to buy physical gold. This is a fight to the death between the folks that want the metal versus the Central banks. It is truly an ugly fight, and I just continue to nibble away on the dips. The way the global economic picture looks, I can think of nothing better to do. Not just in the U.S. but all around the world. People will be selling everything to raise cash. When it all falls at the same time, (stocks, bonds, & gold) you know there's some underlying panic. I want to buy some of that panic.
Good luck out there. Be careful. Don't jump the gun long or short. Buckle your seatbelt because we're going for quite the ride.
Tips:
This
week we sold out of MUX – otherwise we did very little.
My
current short-term holds are:
-
SIL – in at 24.51 (currently 13.60) – no stop
yet
-
GLD (ETF for Gold) – in at 158.28, (currently
134.55) – no stop ($1,387.30 per physical ounce), AND
-
SLV (ETF for Silver) – in at 28.3 (currently
21.30) – no stop ($21.95 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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