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.”
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.
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
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Until next week – be safe.