This Week in Barrons – 7-7-2013
Are we Ever going to create ‘Real Jobs’ again?
In a digital world – where information flows like rain drops in a tropical storm, the seemingly endless stream of data can overwhelm anyone. It gets worse when the information seems to contradict itself. Heading into Friday's non-farm payroll report, we received some rather bizarre news out of Europe. The ECB and the UK said that they would be more forthcoming about giving ‘guidance’ about their actions going forward. For some reason the market found that to be ‘good news’. Frankly, I think it had more to do with Draghi saying he's not opposed to keeping stimulus in effect for a considerable period of time, but you can see virtually any form of ‘not bad news’ is cause for celebration. If the U.S. is talking tapering of QE, why is Draghi saying he's going full steam ahead? Can the U.S. be strong enough to taper QE, without the help of a European trading partner? No. Can Draghi's money printing create enough economic activity that we can taper with no ill effects – because Europe will pick up our slack? No. Let’s chalk it up to information overload.
Friday’s non-farm payroll report was a masterpiece of contradiction. The report talks of 195K jobs being created, yet a peek under the hood shows us a plethora of tangled wires. Because of Obamacare’s rules requiring anyone working over 30 hours a week to be included in the organization’s health plan, businesses have started cutting full-time people and replacing them with part-time workers. We have a situation where part-time jobs have soared to their highest level ever. Is this tidal wave of part-time workers really good for our economy? Thus far, in 2013, we have created 130K full-time jobs and 557K part-time jobs. This is The Ben Bernanke recovery. Along with the increase in part-time workers, we have also seen the number of ‘discouraged’ workers rise to over 1 million. Of the 195K jobs created, 132K of them were ‘fake jobs’ jobs that were reported under the Birth/Death model. Coincident with the jobs report, the 10 Year Treasury yield spiked up to 2.7% while Gold was once again beaten senseless. In what parallel universe is an all time high reading of part-timers considered a solid recovery and reason for the Fed to slow its stimulus?
Yet – as if in lockstep – all the major brokerage houses are now on the "September taper" bandwagon. As I've mentioned in the past couple weeks, something has changed. My first thought was that The Ben Bernanke was going to cut some of the QE (from $85B to $65B a month), step down from his job in January, and his successor could then step in and ‘push it back up’ because it was ‘just a bit too premature’. But then I had to start asking the deeper question: What if they've decided to just stop, let everything crash? – and try and pick up the pieces? The jury is still out on that one, but one thing is certain – our economy is NOT healthy enough to support its own weight. September isn't all that far away, and all are convinced the first taper is coming then.
To say that this is a confusing time is an understatement. Do you go long stocks, knowing that The Ben Bernanke might take away the ONLY thing that has kept stocks up? Or do you go short the stock market, and then get freight trained if he doesn't yank any QE and the market soars all the way to year-end? As much as I detest day trading, it seems that for the next few months, the only safe bet is to only do very short-term trades. Friday was a prime example. Right after the open we were up over 100 points, then we lost it all and went red, and then we gained it all back again at the close. Once again the 50-day moving averages proved to be stubborn. Until we are squarely above the 50's on the S&P and the DOW for more than one session, I can't get too excited. Be careful out there folks, everything is a mess, and literally anything can happen. I can just as easily make the case for a 3,000-point fall as I can a 2,000-point run higher. It's all about the Fed, nothing about the fundamentals any more. That is an awful way to run a market.
For years I've stressed that the market is only at these levels because of Fed money. And yet, to this day, the talking heads on financial TV come on and tell us that stocks are up because of strong earnings growth. Really? Doesn't anyone (other than me) find it sort of funny that we are now witness to the single largest number of earnings ‘Warnings’ we've ever had? If you're pushing stocks, and a record number of companies have come out and said that earnings will ‘stink’ – How do you continue pushing those same stocks?
In any case, on Friday we opened okay, the DOW plunged back down by 100 points, only to reverse and run for 140 points higher at the close. The S&P wasn't to be left behind, and it too broke over its own 50-day moving average. So the question is: Are we now free and clear to run wild and attack the May highs? In any other time of financial history that suggestion would be met with howls of laughter. A market challenging all time highs while companies the world over are warning about earnings, interest rates are surging, gasoline is spiking and mortgage applications have fallen off a cliff?
But this isn't any other time in history. This is the most perverted representation of a free market that has ever existed; therefore, we can't dismiss the idea as lunatic. That said however, I do urge a huge amount of caution. While Step-One had to be getting over the 50-day moving averages, Step-Two is going to be holding them. Step-Three will be the ‘trend line’ that is hovering at the S&P 1650’ish level. We need to get past that in order to restore faith that the market will continue to run higher.
Step-One was somewhat easy to do on absolutely NO volume, on a Holiday shortened week – where most traders were more worried about their next umbrella drink than their next stock. On Monday and Tuesday (when most of Wall Street is back in town) will the 50-day moving averages hold? I'm thinking that the 50's might hold, and they move the market higher, but the market (once again) will run out of gas at the trend lines and will fall back down due to lack of earnings. We're soon to be deep in the heart of earnings season and as much as they'll try and doctor them up – the upcoming earnings won't be pretty. It will take some real desperation money to jam the market higher when waves of earnings are found to be mediocre at best and outright lousy at worst.
If we close above the 50's Monday, a short-term window on the long side could present itself as they gather the support they'll need to attack the overhead trend lines. But it probably won't last long. I'm only calling for a short-term trade, not a ‘set it and forget it’ type action. I’ll write more next weekend on gold and silver – because that’s a story unto itself. Please be careful out there.
The stocks that I’m looking at for entry points are:
- HASI (@ $12.50, love the dividend yield and I like it on a pullback below 12),
- PCYC (@ $87 – due to acquisitions in the space – it could be challenging $100 soon),
- GOV ($25.50, I missed the latest move – should go to $27 shortly),
- COAL ($55.80, beaten up coal mining space - looking for $65 going forward),
- BTU ($14.60, another coal miner – I’m waiting for a bottom here – then it’s time to move), (you could also make a case for: CNX, ACI, ANR, and CLD), AND
- A shout out to DS for: Silver (SLV) and Freeport–McMoRan (FCX). Silver broke thru the $18 mark on high-volume on Friday – and I plan to trade SLV above $18.79. It helps that all the big analysts are jumping on board the precious metals wagon: JPM = “it’s our first overweight call on commodities since September, 2010”. Goldman has closed it’s silver and gold shorts. And Oppenheimer is saying: “at this time, we believe gold and gold miners represent good risk/reward. Indeed, the recent extreme weakness is judged to be the reciprocal or correlative of the extreme strength witnessed in the summer of 2011. The ‘despair’ relating to gold now is as palpable as ‘euphoria’ then.”
My current short-term holds are:
- SIL – in at 24.51 (currently 11.46) – no stop
- GLD (ETF for Gold) – in at 158.28, (currently 118.30) – no stop ($1,212.90 per physical ounce), AND
- SLV (ETF for Silver) – in at 28.3 (currently 18.20) – no stop ($18.73 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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