RF's Financial News

RF's Financial News

Sunday, September 29, 2013

This Week in Barrons - 9-29-2013


This Week in Barrons – 9-29-2013
 
“Go East Young Man”… said one gold nugget to another

If the Fed isn't tapering its QE program, why was gold attacked and sent lower just two days after the announcement?  One would think that continued money printing would be a good reason for gold to rise, right?  But it didn't, and I think I know why.

When The Ben Bernanke announced the first QE (to help stabilize the markets after the big melt down), the world accepted that as a valid response by a Central bank to inject liquidity into the system.  In that case gold was allowed to rise ever higher because of the perceived inflation and the uncertainty of the times.  In November of 2010, QE 2 was announced (which was really an extension of the QE 1), and the Fed said that they would continue to buy $600 Billion worth of Treasuries – allowing gold to continue to work its way higher.

But in September of 2011, it was the announcement of ‘Operation Twist’, when everything changed.  From that day forward, gold started to take a beating – as the world (and especially China) realized that the U.S. was NOT going to rebound.  Gold hit its all-time high in the same month that ‘Operation Twist’ was announced.  From a high of $1,900 an ounce, gold has continued to fall – especially after additional QE announcements.

Allow me to set the stage.  Remember 1998 and 1999, money was everywhere, jobs were plentiful, the stock market was going ballistic, and the U.S. was in the midst of a computer revolution of epic scale.  The technology explosion was furious.  Every few months there was a newer (hotter) computer chip that everyone ‘had to have’.  Along with the computers, we were all purchasing headsets, cameras, mice, keyboards, modems, speakers, monitors, and more.  It was frustrating trying to keep-up, but something massive was also happening in the global financial arena that most people didn't consider.  Most of the world’s technology manufacturing had shifted to China by that point.  And while we were spending our U.S. dollars buying the latest and greatest, China was taking in Billions of dollars manufacturing these components.  The Chinese companies (and the Chinese Government) were flush with cash.

What does a country do when it's taking in so much money?  In stable times, countries go to the bond market(s) and purchase secure treasuries and sovereign bonds.  China did just that.  China became an enormous owner of U.S. Treasury debt.  The U.S. Treasury officially states that China is the largest holder of our debt, and now owns $1.3 Trillion dollars worth of our Treasuries.  They amassed the bulk of that debt during the late 90’s – the tech explosion, and since the tech melt-up, that amount has just continued to grow.

Fast forward to today, with China having a major problem.  They own over a trillion dollars worth of our debt, and yet they stand helpless as the U.S. Central bank destroys the value of these dollars right before their eyes.  China knows that we’re playing the age-old game of "devalue your currency and repay your debt with cheaper dollars".  Imagine how it feels to lose over $25B/yr. of purchasing power – simply by holding onto U.S. debt.  (I.E. the Fed has announced that they want a minimum inflation rate of 2% per year.)   The only reason that the U.S. dollar is holding up as well as it has is due to the ‘rigged’ deal we have in place to be the world's reserve currency.  If we ever lose our reserve currency status, the dollar will be worth a lot less, and China certainly doesn’t want that to happen.

Therefore, the Chinese have been furiously trying to buy up "real" things with their dollars while the dollar still has value.  They've purchased oil fields, U.S. theatres, IBM’s personal computer division, Smithfield foods, and a ton of California commercial real estate.  The Chinese realize that the fat lady is singing, and the U.S. is NOT going to recover and be the super power for much longer.  They also realize they have enough U.S. debt that they could crush us like a bug if they started selling those bonds on the open market.  So what would you do if you were China?
1.    Tell the U.S.: “If you don't want us dumping hundreds of billions of your treasuries onto the market, then find us a way to purchase ‘gold’ inexpensively – so we can become a part of the NEXT global reserve currency.”
2.    Begin to back your country’s currency with significant amounts of gold.
3.    And, tell the U.S. to reduce the price of gold, so that U.S. dollars can purchase more of the physical metal.

The good news for The Ben Bernanke is that I think he’s scored a “Two For.”  You see, often when gold moves up in price, it’s actually not gold increasing in value but rather the dollar going down in value while gold remains the same.  So, as The Ben Bernanke:
-       Continues to print money (to keep this economy moving),
-       Continues to ‘naked short’ gold – supporting the dollar and reducing the price of gold,
-       AND therefore allowing the Chinese to purchase more gold with their existing supply of U.S. dollars.  The Ben Bernanke constructed a great “two for” one deal.

The global ‘powers that be’ realize that the U.S. cannot possibly repay its debts.  The European Union is technically insolvent, and there's going to be a global reset.  None of the real countries want anything to do with U.S. dollars any more.  So, there's going to be a reset where the U.S. dollar is no longer the sole reserve currency of the world.  When that reset comes, the Chinese (with enough gold backing) want to be considered solid enough to be a part of the new global reserve.  So each time you see these insane attacks on Gold, you can rest assured that they're lowering the price so that China can buy up another batch of gold, and make the dollar look like it isn't Monopoly money.  That appears to be the "wink and nod" deal that we have with the world's Central banks and the IMF (International Monetary Fund).

If you match up physical supply and demand for gold, you will see that there’s more demand than available supply.  Now, add to that – the Central Banks colluding to paper ‘short’ the gold market every time the dollar loses significant ground.  And finally add in the Chinese buying-up all available gold inventories.  This gives the illusion of a stronger dollar, while agreeing to sell China all the gold they want at a discounted price.

So what do we do?  We buy when the Chinese buy – on pullbacks.  This will end in an inflationary blow-up, and then gold will be re-priced along with a new global reserve currency.  Be patient.  It took 11 years for gold to go from $295 in the year 2000, to $1,900 in 2011.  Gold will have its new all-time highs, and I’m thinking we begin to see all ‘heck’ break loose before the end of 2015.  

Some people think an announcement about gold will come on October 8th, with the birth of the new $100 bill.  If you look at the new $100 bill – it’s loaded with gold inferences: a big gold ink well, a gold feather for the ink well, a gold liberty bell, even the $100 turns from Green to Gold if you move the bill.   I can only imagine how high gold would move on any sort of hint to a gold supported U.S. currency.  I don’t think that this will happen anytime soon; however, that day will come when the Chinese feel they've got enough physical gold to satisfy the world.


The Market:

Peas ‘n Carrots – Peas ‘n Carrots.  The market is pouting over the Government fiasco that is playing out, and honestly I thought they would have ignored these shenanigans by now.   Over the past 30 years, the market has dipped for ‘roughly’ the ten days before a debt-ceiling crisis, and then recovered over the ten days following.  Because it’s so common, I thought that this time the market wouldn't go through it’s pout, but I am wrong.

The market has sold off for 6 out of 7 sessions.  The DOW is below its 50-day moving average, while the S&P is still well above its 50-day average.  There hasn’t been much ‘technical’ damage done, and (in fact) the IWM (which is the Russell 2000 ETF), is actually just a few points off its all time highs.

A couple myths that are out there (thanks to BL for the numbers):
-       Myth #1:  “There’s a lot of cash on the sidelines.”  - False.  There is currently 3.5 times more money allocated to stocks than is invested in money market funds. This is a 30-year high. The last two highs occurred during the top of the last two bull markets of 2000 and 2007.
-       Myth #2:  “Investors are waiting for a pull-back in order to buy.” – False.  Currently there is significant margin debt at NYSE firms.  In fact, the current margin debt is larger than was present in 2007.  This says that investors are currently buying.
-       Myth #3:  “P/E ratios are right in the investing sweet-spot.” – False.  P/E multiples in the S&P are currently at 21.5.  Excluding 2000 and 2007, this is one of the most expensive markets in history.  Multiples have virtually doubled over the last four years, and are not sustainable.

So this is nothing more than a garden variety pull back, as lower volumes and a few ‘nervous nellies’ ponder how the Government showdown is going to play out.  This could (however) morph into something much larger if both sides decided to shut down the Government for weeks (instead of a day or two).  At that point things could evolve into a true 10% correction, but I don't think either side wants that.

While the beginning of October has the ability to be a bit nasty, I think that the ‘animal spirits’ will run and will move well into year-end, setting an all-time high.  Therefore, we have to be patient and work through the ongoing Democrat / Republican slugfest.  But remember, since The Ben Bernanke did not taper (and there's no way he will taper in October), the market will (eventually) have a green light to go run wild.


Tips:

Congrats to those of you who adopted the strategy of selling slightly out of the money covered call options last week.  For example: on Apple (AAPL) you netted over a 60% annual return last week, and I would suggest that you do it again this week.  For example:  Apple is selling for $480+ (per share) right now.  If you own some, you could sell the $485 weekly call option (expiring on Friday, Oct 4) – and collect the $6 per share.  If the option expires worthless – that’s about a 65% annual return, and if you’re ‘called out’ the return is even greater.  “Rinse ‘n Repeat” with many of the weekly options stocks – some with better returns than Apple.  I will elaborate on this strategy as the weeks go on.

My current short-term holds are:
-       FB – in at 25.61 (currently 51.24) - stop at 49.00,
-       SIL – in at 24.51 (currently 13.45) – no stop
-       GLD (ETF for Gold) – in at 158.28, (currently 128.97) – no stop ($1,338.40 per physical ounce), AND
-       SLV (ETF for Silver) – in at 28.3 (currently 20.96) – no stop ($21.78 per physical ounce).

To follow me on Twitter and get my daily thoughts and trades – my handle is: taylorpamm. 

Please be safe out there! a

Disclaimer:
Expressed thoughts proffered within the BARRONS REPORT, a Private and free weekly economic newsletter, are those of noted entrepreneur, professor and author, R.F. Culbertson, contributing sources and those he interviews.  You can learn more and get your free subscription by visiting: <http://rfcfinancialnews.blogspot.com> .

Please write to Mr. Culbertson at: <rfc@culbertsons.com> to inform him of any reproductions, including when and where copy will be reproduced. You may use in complete form or, if quoting in brief, reference <rfcfinancialnews.blogspot.com>.

If you'd like to view RF's actual stock trades - and see more of his thoughts - please feel free to sign up as a Twitter follower -  "taylorpamm" is the handle.

If you'd like to see RF in action - teaching people about investing - please feel free to view the TED talk that he gave on Fearless Investing: http://www.youtube.com/watch?v=K2Z9I_6ciH0

To unsubscribe please refer to the bottom of the email.

Views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest and is not in any way a testimony of, or associated with Mr. Culbertson's other firms or associations.  Mr. Culbertson and related parties are not registered and licensed brokers.  This message may contain information that is confidential or privileged and is intended only for the individual or entity named above and does not constitute an offer for or advice about any alternative investment product. Such advice can only be made when accompanied by a prospectus or similar offering document.  Past performance is not indicative of future performance. Please make sure to review important disclosures at the end of each article.

Note: Joining BARRONS REPORT is not an offering for any investment. It represents only the opinions of RF Culbertson and Associates.

PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS (INCLUDING HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS AND OTHER SPECULATIVE INVESTMENT PRACTICES MAY INCREASE RISK OF INVESTMENT LOSS; MAY NOT BE SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop.

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Opinions expressed in these reports may change without prior notice. Culbertson and/or the staff may or may not have investments in any funds cited above.

Remember the Blog: <http://
rfcfinancialnews.blogspot.com/> 
Until next week – be safe.

R.F. Culbertson
<http://rfcfinancialnews.blogspot.com>

Sunday, September 22, 2013

This Week in Barrons - 9-22-2013


This Week in Barrons – 9-22-2013
 
“The lady doth protest too much.” … William Shakespeare

The quotation: "The lady doth protest too much." comes from Shakespeare's Hamlet.  In Shakespeare's time, "protest" meant "vow" or "declare solemnly".  Hamlet is a play within a play, and the Queen criticizes the Player Queen's speech on the grounds that excessive avowal of her plan NOT to remarry after the Player King's death sounds hollow and insincere.  Over the years, there are many examples of situations where a politician, a special interest group, or the media has gone over the edge in promoting their agenda, to the point where you just know it's pure baloney. 

One example of this was when we were told that after the financial meltdown of 2008, all the new regulations and rules made the banks safer and had removed all of the manipulations and frauds in the system.  Since that time we’ve had:
-       The LIBOR price fixing scandal,
-       The JPM illegal short positions in precious metals,
-       The "London Whales" incident,
-       The raiding of private accounts on Cyprus,
-       $700 Trillion in derivative positions,
-       MF Global and Sentinel stealing customer money, and many other incidents.

So when you hear that these regulations have made our banks safer: “I fear, the lady doth protest too much.”

I can go down the same path for:
-       Gold and silver manipulation – where the media will tell you that this is nothing but fantasy, all the while whistle blowers have presented incriminating evidence to the CFTC and SEC.
-       Obamacare – where the media is telling you how wonderful it will be, all the while hundreds of companies are placing workers on ‘part-time’ status, and Management and Unions alike are asking President Obama to kill it.
-       And our most recent Fed Taper – where the chorus was so loud that 90% of the world was convinced we were going to see a cut in our QE spending.  And what happens ten minutes after the ‘no taper’ announcement, the media starts to tell us about how it will probably happen in October.

Factually, last month:
-       Credit Card debt was reduced by $1.8B – that’s good.
-       The Chinese central bank loosened credit restrictions, and industrial production moved 10.4% higher – that’s good.
-       Mortgage financing / re-financing has dropped by 70% since May – that’s bad.
-       Retail sales increases fell well short of expectations – that’s bad.
-       The French and Italian production rates decreased by 1.8% and 4.3% respectively – that’s bad.
-       And the unemployment rate in Greece (where this all started) is a record high 27.9% - that’s bad.
-       Student Loan debt increased by $12.2B, and at over $1T with no end in sight – there’s no way that this ends well.

Remember, the louder the voices, the less likely it is to happen.  If an issue has been ignored or dismissed, I would advise you to look in that direction.  Do your own homework, and then you’ll know the truth on how you should react; otherwise, “I fear, the lady doth protest too much.”


The Market:

Last week we didn't get the taper, and the market blasted higher on Wednesday.  But by late Thursday the market had realized it’s mistake.  Everyone had been so convinced that the taper was on and that ten year interest rates would climb over 3% - they had made investments accordingly – and now had to unwind all of those trades.

I knew that Friday would be a disaster:
-       Investors would need to reverse trades made in-advance of the taper,
-       It was a triple-options expiration day,
-       The S&P was being quarterly rebalanced, and
-       The DOW was also being rebalanced as winners and losers were swapped in and out respectively.

Sure enough it turned ugly late in the day and before it was all over, the DOW had lost over 180 points.  Every penny (and then some) from Wednesday's big surge on the ‘No Taper’ news was lost.  So, have we seen the top in the market for the year?

I don't think so.  On Friday there were a lot of positions to square off, and a lot of rebalancing had to take place.  In addition, there was pure, old-fashioned profit taking.  We could be facing a 2 to 3% pullback, but I’m in the camp that we see a year-end rally that sends us right back up to all-time highs.  This entire year has been built on Fed money, and The Ben Bernanke just told us that more is coming.
 
Don't get me wrong; I'm upset that the market couldn't care less about fundamentals and only cares about "free money injections".  But unfortunately that is the hand that we’re dealt.  While the market puts and sells, know The Ben Bernanke continues to pump in his $1.5 to $5.5 Billion a day, and it accumulates in the banks looking for a place to spend it.  There is a point when the banks won’t be able to contain themselves any longer, and then they will buy up everything in sight.  This is what they've done all year, and what they will probably do into year-end.

I’m creating a shopping list of stocks that will run well when the market gets past its profit taking pout party.  We also have the fight over the debt ceiling looming, and it was during one of those exact fights that the U.S. lost its AAA credit rating.  This is making the market quite nervous.  I think we see a week of ugly, sideways to down trading, until they put this behind us.  But at some point it will indeed be behind us, and all they will think about is Holiday bonuses. Greed will win; just wait for it.


Tips:

In a Post-Friday, triple-witching, options expiration world, I’m watching the following for breakouts:  IBM over 195, Intel (INTC) > 24.10, Caterpillar (CAT) > 88.25, Goldman Sachs (GS) > 169.50, Morgan Stanley (MC) > 29.50, Broadcom (BRCM) > 28, 3D (DDD) > 55.65, Southern Copper (SCCO) > 30.40, PennyMac Mortgage (PMT) > 23, Johnson ‘n Johnson (JNJ) > 91, Tractor Supply (TSCO) > 133, and Starbucks (SBUX), Federal Express (FDX), and Boyd Gaming (BYD) - currently without levels.

In terms of the looming debt ceiling negotiations, you may wish to consider selling slightly out of the money, weekly call options – as a strategy.  That is to say: if Apple (AAPL) is selling for $467 right now (and if you own some) – you may want to sell the $475 weekly call option (expiring on Friday, Sept 27) – and collect the $4.55 per share.  If the option expires worthless – that’s about a 55% / year return – and if you’re called out that’s a 150% return.  With weekly call options – in general:
-       You’re getting paid for the volatility and a small up-tick if it comes,
-       It’s weekly so you can re-evaluate next weekend, and
-       You can take advantage of the option’s theta decay as you get closer to the weekend expiration date – and buy the option back (if you need to) at a much reduced price.

Finally I’m still thinking about these 3 tips for the weeks to come – the first two in particular are getting a lot of notice:
-       NDLS – Noodles the restaurant chain – buy under or close to $45 (currently $44.22).
-       NPSP – NPS Pharmaceuticals – buy under or around $25 (currently $30.65) / or watch the Feb $22 calls if they dip below $5.00 (currently $9.70).
-       And finally RAX – Rackspace – buy under or around $45 (currently $53.65) / or watch the March $45 calls if they dip below $6.00 (currently $11.00).

My current short-term holds are:
-       FB – in at 25.61 (currently 47.27) - stop at 45.00,
-       SIL – in at 24.51 (currently 13.83) – no stop
-       GLD (ETF for Gold) – in at 158.28, (currently 127.92) – no stop ($1,332.50 per physical ounce), AND
-       SLV (ETF for Silver) – in at 28.3 (currently 21.04) – no stop ($21.87 per physical ounce).

To follow me on Twitter and get my daily thoughts and trades – my handle is: taylorpamm. 

Please be safe out there! a

Disclaimer:
Expressed thoughts proffered within the BARRONS REPORT, a Private and free weekly economic newsletter, are those of noted entrepreneur, professor and author, R.F. Culbertson, contributing sources and those he interviews.  You can learn more and get your free subscription by visiting: <http://rfcfinancialnews.blogspot.com> .

Please write to Mr. Culbertson at: <rfc@culbertsons.com> to inform him of any reproductions, including when and where copy will be reproduced. You may use in complete form or, if quoting in brief, reference <rfcfinancialnews.blogspot.com>.

If you'd like to view RF's actual stock trades - and see more of his thoughts - please feel free to sign up as a Twitter follower -  "taylorpamm" is the handle.

If you'd like to see RF in action - teaching people about investing - please feel free to view the TED talk that he gave on Fearless Investing: http://www.youtube.com/watch?v=K2Z9I_6ciH0

To unsubscribe please refer to the bottom of the email.

Views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest and is not in any way a testimony of, or associated with Mr. Culbertson's other firms or associations.  Mr. Culbertson and related parties are not registered and licensed brokers.  This message may contain information that is confidential or privileged and is intended only for the individual or entity named above and does not constitute an offer for or advice about any alternative investment product. Such advice can only be made when accompanied by a prospectus or similar offering document.  Past performance is not indicative of future performance. Please make sure to review important disclosures at the end of each article.

Note: Joining BARRONS REPORT is not an offering for any investment. It represents only the opinions of RF Culbertson and Associates.

PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS (INCLUDING HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS AND OTHER SPECULATIVE INVESTMENT PRACTICES MAY INCREASE RISK OF INVESTMENT LOSS; MAY NOT BE SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop.

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Opinions expressed in these reports may change without prior notice. Culbertson and/or the staff may or may not have investments in any funds cited above.

Remember the Blog: <http://
rfcfinancialnews.blogspot.com/> 
Until next week – be safe.

R.F. Culbertson
<http://rfcfinancialnews.blogspot.com>