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
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