This Week in Barrons – 9-15-2013
Down to the Wire:
This is the week that The Ben Bernanke is going to withdraw stimulus from our financial system – because he believes that the economic recovery is in full swing. Maybe The Ben Bernanke is seeing different numbers than I am, because for most Americans, the last several years have been a continual struggle – and here are some facts:
- The percentage of Americans that are self-employed has steadily declined over the past decade and is now at an all-time low.
- The U.S. economy actually lost 240,000 full time jobs last month, and we are now employing 6 million less full-time workers than in 2007.
- The largest employer in the U.S. right now is Wal-Mart, with Kelly Services (a temporary agency) as number two. One out of every 10 jobs is currently being filled by a temp agency.
- 60% of the jobs lost during the last recession were mid-wage jobs, but 58% of the jobs created (since then) have been low-wage jobs.
- 25% of all U.S. workers have a job that pays $10 an hour or less.
- Over 100 million Americans of working age do not have a job.
- The average duration of unemployment in the United States is almost three times as long as it was back in the year 2000.
- 76% of all Americans are living paycheck to paycheck.
- According to the Social Security Administration, 40% of all workers in the U.S. make less than $20,000 a year.
- Median household income (adjusted for inflation) has fallen by 7.8% since the year 2000, and fallen by 27% since 1969.
- Over 46 million Americans are living in poverty – with over 47 million on food stamps. Both numbers have tripled since the year 2000, and exceeds the combined populations of: Alaska, Arkansas, Connecticut, Delaware, District of Columbia, Hawaii, Idaho, Iowa, Kansas, Maine, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Dakota, Oklahoma, Oregon, Rhode Island, South Dakota, Utah, Vermont, West Virginia, and Wyoming.
- The home ownership rate in the United States is the lowest that it has been in 18 years.
- It is more expensive to rent a home in America than ever before.
- 20.2 million Americans spend more than 50% of their income on housing. This represents a 46% increase from 2001.
- 25 million American adults are living with their parents.
- According to U.S. Census, 57% of all American children live in a home that is either considered to be poor or low income.
- More than a million public school students in the U.S. are homeless. This is the first time that has ever happened.
- In 1989, the debt to income ratio of the average American family was 58%. Today it is 154%.
- The total amount of U.S. student loan debt recently surpassed $1 Trillion.
- Total home mortgage debt in the U.S. is now 5 times larger than it was 20 years ago.
- Consumer debt in the U.S. has risen 1,700% since 1971. 46% of all Americans carry a credit card balance from month to month.
- In 1999, 64% of all Americans were covered by employment-based health insurance. Today that figure has dropped to 55.1%.
- 41% of all working age Americans either have medical bill problems or are currently paying off medical debt. The American Journal of Medicine also reported that medical bills favor heavily in over 60% of all personal bankruptcies.
Mr. Ben Bernanke: Does this sound like an economy in recovery?
Is The Ben Bernanke just not telling us that we’re in another economic depression?
I sure hope that they get it right on Wednesday. Let’s keep our fingers crossed.
The market is on ‘Taper Watch’ until The Ben Bernanke delivers his decision on Wednesday. For the longest time I have said that there was no way they would taper - the economy just isn't strong enough to deal with it. But then I had to adjust my view based upon an aggressive campaign of releasing bogus economic reports showing our economy in extremely good condition – despite all of the previous figures. The only reason to ‘pretty up the pig’ was to remove QE.
- If The Ben Bernanke tapers $5B a month, we will never notice it. In fact a taper of between $5 and $10B a month has already been priced into the market during the August 4% drop.
- If The Ben Bernanke tapers between $10 - $20B a month, I think that the market reacts to the downside. I’m thinking that if the market has been pushed higher by all this QE (and it has) – then it stands to reason that there's a correlation between how much they push in, versus how high the market goes. We saw a 4% pull back to 14,800 on worry of Syria and the Fed taper. I think they sold us off to a level they think that $10B of QE is worth.
I’m still slightly in the camp that says he doesn't taper. But I'm just barely in that camp and can easily see them doing some $10B taper just because they made so much noise about the need to start cutting back, and they went to such pains to revise and re-calculate the economic numbers to reflect more strength than we really have.
It is my thinking that if they taper more than the $10B that has already been adjusted for, that the market has a bit of a hissy fit. I think that gold and silver will go down – as those who bought gold because of ‘Bernanke Bucks’ will panic and get out. All the while the Chinese will buy every ounce the small investors are selling.
If The Ben Bernanke kicks the can further down the road, by saying that there is not enough data on which to act – then I think we see an explosive rally that blasts us over the all time highs. No the economy won't be reflective of that, but this market is based on free money. And if this happened, I’d buy the SPY and DIA by using stock and call options. Therefore:
- No Taper – buy everything in sight.
- A Taper of between $1 to 10B a month – I think we continue to see the market inch higher, and we flirt with the all time highs of August.
- A Taper of between $11 to 20B – I think there is a little panic selling for a bit.
- A Taper of over $20B – an outright sell-a-thon where we dump over 1,000 DOW points in a very short timeframe.
On the gold and silver side, I would use ANY taper to resume buying the metals. I know it sounds like a broken record. And I know that they haven't recovered to their highs of 2011. But when I look around and see what's really happening around the globe, I'm still firmly convinced that physical ownership of these two metals is your single best investment.
That said, this week will certainly be interesting times for all. When we hear from The Ben Bernanke, this market is going to do something and probably violently. If you happen to be on the correct side of the reaction, you'll be rewarded. Stand on the wrong side, and you'll wish you hadn't.
I think the best approach here is to be a bit timid. We have 300 points to gain to reach the "all-time" highs, and even if there's no taper and the market runs, we'll have time to jump aboard. Meanwhile, if the market doesn't like something, it will be best not to be loaded up with stocks that are getting hit in the take down.
A big shout-out to DS for his numeric help above.
At the investing conference last week the focus was on a particular strategy that takes advantage of being on the ‘right’ side of the trade (the house’s side), and understanding the timing of option decay. In a nutshell – you buy and sell when and with the market makers. When the market makers are selling – you sell, and when the market makers are buying – you buy. This strategy is best implemented on weekly options.
- With a stock in an upward set-up – near its 52-week high (like Priceline PCLN was last week).
- On Tuesday or Wednesday (prior to a Friday expiration) you SELL a Put-Credit spread that is 1 standard deviation (SD) out of the money.
- EX: PCLN was trading @ $960 – with a SD of $20. You look at the $940 Put-Credit spread – Selling the $940 and Buying the $935 for protection. I must admit it worked – as both expired worthless or near worthless – and the month received from SELLING the $940 PUT exceeded the amount spent on buying the $935.
- The same strategy can be used on stocks near their 52-week low (or not in an uptrend) only SELL the Calls Spread rather than the Put Spread.
Finally think about these 3 tips for the weeks to come:
- NDLS – Noodles the restaurant chain … it’s a buy under or close to $45.
- NPSP – NPS Pharmaceuticals … it’s a buy under or around $25 / or watch the Feb $22 calls if they dip below $5.00
- And finally RAX – Rackspace … it’s a buy under or around $45 / or watch the March $45 calls if they dip below $6.00
My current short-term holds are:
- FB – in at 25.61 (currently 44.24) - stop at 41.50,
- SIL – in at 24.51 (currently 14.11) – no stop
- GLD (ETF for Gold) – in at 158.28, (currently 127.90) – no stop ($1,308.40 per physical ounce), AND
- SLV (ETF for Silver) – in at 28.3 (currently 21.43) – no stop ($21.67 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
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