This
Week in Barrons – 12-15-2013
Let’s Get Ready to Rummmmble…
This week it’s The Market versus
‘Benji and the Jets.’ On Wednesday (at
approximately 2:15 pm) we will learn whether there will be a tapering of the QE
program from $85 Billion per month to something less. The talking Feds have been out in force
saying that there is a good chance that a taper is coming at their next two-day
meeting in December. And just like in
the summer (when they made a similar announcement) the market has fallen ahead of
it.
This whole QE taper story is getting
old. But, because the market does indeed
move based upon it; therefore, I was wondering if a taper really made any sense.
-
In
retail, Wal-Mart continues to tell us that 2013 was one of the worst years in
their history. Others (Costco, BestBuy, and
Dick’s) including Mal-Mart have all missed their earnings estimates. Therefore, when middle-class retailers are
seeing a weak consumer, is the Fed's work really done?
-
In
housing (when I listen to CNBC) I’d swear that there are bidding wars and fist
fights as people are purchasing homes. Yet
mortgage applications have been declining virtually every month. And just this Thursday we learned that new
home mortgage applications fell another 18% from October to November. We also know that hedge funds have been buying
10,000 to 20,000 houses with the intent to rent them out. This isn't the kind of demand that spurs local
economies; therefore, the housing market is not nearly as ‘hot’ as TV claims it
is.
-
In GDP
(Gross Domestic Product), our economy grew faster than estimated, but when you
dig into the numbers, you see that the majority of the gains came from
companies increasing inventory levels in anticipation of a strong holiday
season. Will that entire inventory build-up
sell? Of course not. And (let us not forget) the government recently
changed the way it includes intellectual property in the GDP. The most recent reading reflected that change
– turning TV show reruns (because of their ‘implied value’) into GDP contributors.
-
In
profits, every retail CEO is saying that they will have to ‘promote the heck’
out of things in order to move their increased inventory. ‘Promote’ (in this case) means lower prices,
and dramatically lower profits.
-
In
jobs, the numbers are now so distorted it is almost impossible to figure out
just where the true unemployment level is. Last week we learned that weekly jobless
claims hit a 2-month high of 368,000. Shadow
Stats Inc. has the unemployment rate at 23%
if we measured it like we did in the past.
Or you can believe Uncle Sam’s 7% rate.
-
On
inflation, the PPI (Producer Price Index) came out on Friday with a slight
drop. Meaning that our annual price
inflation dropped and is now less than 2% per year. I don’t know anyone who believes that number.
The Fed knows that housing is just
bumping along, jobs stink, sales stink, inventory builds are dangerous, profit
margins are skinny, 65% of companies had their earnings estimates lowered (and
still missed), companies are borrowing money to do stock buy backs, EPA
regulations are killing entire business sectors, Obama Care is costing everyone
extra thousands of dollars, savings are non-existent, banks are still in woeful
shape and all in all – our economy is ‘just barely getting by’.
The Fed knows that cutting QE a week
ahead of Christmas will reduce the amount of money that people will spend on
the holiday. Therefore, logic tells me
that they are not going to taper next week, but will tell us ‘in stern
language’ that they were very ‘close’ but need a bit more data. If they were to toss out a small taper ($10 Billion
a month) – that really wouldn’t affect the economy all that much – but it would
affect investor psychology. The market
would think that they've started tapering, and will continue through 2014. The market would not like it, and if the rich
start selling stocks and hording money, then the real economy WILL grind to a
halt. The new Fed (under Ms. Janet
Yellen) would then have to step in and reverse course – jamming MORE QE into
the system to repair the damage the taper did. I just don't think that the Fed wants that
much drama.
But here is a wild card to consider.
What if the elites know that our current
economic system is doomed and in need of a complete overhaul? Could a new global reserve currency be so
close to implementation that the Fed starts to taper, knowing it will blow up
the economy and make people much more willing to accept any new plan? If the Fed removes the stimulus: the markets
fall, economic activity falls, layoffs resume, and at some point the masses
will scream for relief. The elites could
then announce their new ‘reset’.
In a nutshell, I do not think that
the Fed will taper. But if they do (and
those cuts are not reinstated by Janet Yellen) – then the game has changed, and
it is possible that they want to impart enough pain to soften folks up for a
major change. Any tapering (that isn't
reversed) is a big danger signal that something big is brewing.
Please – celebrate the season with
loved ones, and share that feeling with your friends and family.
The Market:
After the big pop over the fake jobs
numbers we received a week ago, this week was met with a market trading
downward and sloppy. On Tuesday evening,
Washington came up with a mini-budget deal that will keep the Government from
shutting down. I thought that the market
might like the idea of fiscal stability, but instead the market sold-off on
more Fed tapering worries. So, just like
the other Fed meetings this year, the market is acting ugly ahead of it, and forcing
the choice of ‘buying the dip’ or waiting until after the Fed announcement on
Wednesday.
Many people are trying to convince
me that since the market knows a taper is coming – that the taper must be ‘baked
into’ current market pricing. And if
that’s the case, a taper may not disrupt things. I'm not so sure. My feeling is that if they taper, the
psychology will trickle over toward a full Fed ‘pullout’ by the end of
2014. Can our economy and our stock market
hold up in the face of a Trillion dollars loss? Color me skeptical.
The next couple days should be quiet
trading days on low volume. On Wednesday
at 2:15 pm something WILL happen. We
will either SOAR on no taper, or soar, stumble, grumble, pop, drop and
basically see the market ‘flip-out’ over a taper. You could try and front run it with a
straddle on the options market, buying both calls and puts on the big index's
like the DIA or the SPY. With this type
of trade I’d go out a few months because I think the whipsaw will be great. Or you could simply do nothing, and wait a
couple of days.
I'm starting to make a list of what
I’m going to buy if there is no taper, and what I’m going to short if there is
a taper. I’ll be releasing this via
Twitter during the week, and next weekend.
I don't think I'll be doing a lot on Monday and Tuesday. Sometimes: “The only way to win is … not to
play.”
Tips:
In terms of gold and silver, the expected near-term Fed
tapering and the retrenchment of the largest gold consumer (India) due to its
government's import curbs are the two big factors hurting gold prices. In the longer-term, the reduction in QE, which
is expected to be gradual, and the low real interest rates, are positive
factors for gold. A 50-year chart of the
gold price versus the S&P 500 Index shows that the current ratio of 0.7 is
way below the long-term average of 1.13.
I'd like to recommend a website - http://www.simpleroptions.com It's an excellent resource and 'honestly' - I've been following them for over 6 months and they're more right than they are wrong on their predictions, and that's a rarity in this climate. Please check them out on my recommendation.
I continue to see gains with natural
gas (UNG) while the Japanese Yen (FXY) continues to fall. I’m cautiously looking at:
-
YHOO
over 40.25,
-
A (Agilent
Technologies) over 55.50,
-
BRCM (Broadcom)
over 29.00,
-
MS (Morgan
Stanley) over 31.05, and
-
And if GLD
(Gold) breaks (downward) thru 1,218.36 (currently @ 1,238) – it could fall to 1,147
– so look at Put Options or DUST if it breaks thru that resistance level.
My
current short-term holds are:
-
CCJ
– in at 20.50 (currently 20.75) – stop at entry,
-
UNG
– April 2014 $22 Calls – in at $0.62 (currently $1.52) – more room to run
-
UNG
– Dec. 21, 2013 $18 Calls – in at $1.41 (currently $3.44) – more room to run
-
USO
– April 2014 $37 Calls – in at $0.74 (currently $0.60) – looking for a move
higher…
-
FXY
– March 2014 $97 Puts – in at $3.76 (currently $3.70) – looking for a continued
drop as the Japanese currency is worse than US currency
-
SIL – in at 24.51 (currently 10.87) – no stop,
-
GLD (ETF for Gold) – in at 158.28, (currently
119.58) – no stop ($1,238 per physical ounce), AND
-
SLV (ETF for Silver) – in at 28.3 (currently 18.97)
– no stop ($19.70 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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