This
Week in Barrons – 2-23-2014
“Somethin’s coming – Somethin’…” (Pt
2) … West Side Story
Last week I laid out the
groundwork for what I believe is the machinery that will usher in a ‘global
currency reset’. If I'm right, this will be the most significant economic
policy change since the end of WWII.
Let’s discuss the proper way to navigate such troubled waters.
First off, I think we need a guidepost. We need to be able to measure the time line of these events as they take place. I have decided to use the Fed's actions as the milestone for when the implementation of such a reset is coming. Starting with Greenspan, and then Bernanke – any time the economy was starting to soften, the Fed would rush to the rescue by cutting rates and printing money. The economy was never allowed to correct the excesses of the boom that preceded the slowdown. Over and over it went, as they would simply inject stimulus into an overly tired body.
Often it worked. Economic activity perked up on the heels of the lower rates and the extra dollars. The economy would then go on another ‘up’ cycle until that injection wore off, and elements showed signs of weakening. Then (like clock work) the Fed would come rushing to the rescue (again) with lower rates and more money – Rinse and Repeat.
However, something is happening right now that flies in the face of that. The Fed has started to remove the stimulus we call QE, despite a weakening overall economy. This is a significant turn of events. The Fed knows how the overall economy is actually performing, and instead of increasing the amount of money they're doling out, they're reducing it. Therefore, for the first time in over 20 years, a sagging economy is being met by less Fed activity, rather than by more monetary stimulus.
First off, I think we need a guidepost. We need to be able to measure the time line of these events as they take place. I have decided to use the Fed's actions as the milestone for when the implementation of such a reset is coming. Starting with Greenspan, and then Bernanke – any time the economy was starting to soften, the Fed would rush to the rescue by cutting rates and printing money. The economy was never allowed to correct the excesses of the boom that preceded the slowdown. Over and over it went, as they would simply inject stimulus into an overly tired body.
Often it worked. Economic activity perked up on the heels of the lower rates and the extra dollars. The economy would then go on another ‘up’ cycle until that injection wore off, and elements showed signs of weakening. Then (like clock work) the Fed would come rushing to the rescue (again) with lower rates and more money – Rinse and Repeat.
However, something is happening right now that flies in the face of that. The Fed has started to remove the stimulus we call QE, despite a weakening overall economy. This is a significant turn of events. The Fed knows how the overall economy is actually performing, and instead of increasing the amount of money they're doling out, they're reducing it. Therefore, for the first time in over 20 years, a sagging economy is being met by less Fed activity, rather than by more monetary stimulus.
My original thought was that the Fed would talk a big game about ending QE, but would not actually do it. Then they did the first ‘taper’. I thought that this could have been just a display of ‘moxie’ to the rest of the world. And in the face of weakening economic news, they did the 2nd taper. Now we're looking at March and asking: Will they again reduce the amount of QE? Thus far the Fed has been comfortable blaming outside influences such as the weather for the bulk of the lousy economic numbers.
-
On Tuesday homebuilder
sentiment had its single biggest fall in the history of the report.
-
The Empire State Fed
report had its largest drop in economic activity in 18 months.
-
Caterpillar
told us that global sales for the equipment fell for the 14th straight month.
-
The
Philly Fed report of economic activity fell from a reading of 9.4 to a
reading of ‘Negative’ 6.3.
-
And housing
sales fell like a rock – again.
Everyone is blaming the
weather, and is some of this weather related? Absolutely. Ice storms in Atlanta, never ending snow falls
in the northeast, and record-breaking cold temperatures are business
inhibitors. When you cancel 4,000
flights, and place cities on emergency alert, some level of economic activity
will come to a halt. When the Fed tapers
in March, it will be completely consistent with its previous actions. But what happens when the weather breaks?
If we get into the summer (mid-July) and the Fed has not stopped the taper, then we must assume that their game plan has changed, and they are willing to let the economy roll over. If we see that, I would have to believe that we are in the first steps of ushering in this global reset, and the timeline then becomes fairly defined. By reducing the taper $10 Billion at each Fed meeting, the Fed would reduce the stimulus to zero by December 2014. Our economy (at that point) would at best last another year without stimulus before entering a fairly hefty recession. On the other hand, if the Fed (at minimum) stops the taper this summer, it would mean that they are not ready for the global reset and will keep the economy limping along for longer. That would also mean more all time highs to be found in stocks.
Job #1 then is to try and gauge when a global reset could happen. Job #2 is what to do when/if our suspicions are confirmed. This is where gold and silver start to play. Gold backed currencies have their own set of problems. But since the Central Bankers (who control most of the world’s gold) believe in a gold backed currency, they will certainly give gold a very high weighting in the new global currency. And, considering how vocal the Chinese are about (a) being tired of the U.S. devaluing the dollar, and (b) wanting themselves to be a bigger part of the world stage, it’s not a coincidence that they are accumulating gold at a very rapid rate.
If we get into the summer (mid-July) and the Fed has not stopped the taper, then we must assume that their game plan has changed, and they are willing to let the economy roll over. If we see that, I would have to believe that we are in the first steps of ushering in this global reset, and the timeline then becomes fairly defined. By reducing the taper $10 Billion at each Fed meeting, the Fed would reduce the stimulus to zero by December 2014. Our economy (at that point) would at best last another year without stimulus before entering a fairly hefty recession. On the other hand, if the Fed (at minimum) stops the taper this summer, it would mean that they are not ready for the global reset and will keep the economy limping along for longer. That would also mean more all time highs to be found in stocks.
Job #1 then is to try and gauge when a global reset could happen. Job #2 is what to do when/if our suspicions are confirmed. This is where gold and silver start to play. Gold backed currencies have their own set of problems. But since the Central Bankers (who control most of the world’s gold) believe in a gold backed currency, they will certainly give gold a very high weighting in the new global currency. And, considering how vocal the Chinese are about (a) being tired of the U.S. devaluing the dollar, and (b) wanting themselves to be a bigger part of the world stage, it’s not a coincidence that they are accumulating gold at a very rapid rate.
Very few individuals in the U.S. own
gold. The raids on the gold paper futures
have driven prices down, and have sent many of the ‘gold holders’ to sell and
invest elsewhere. This is why I believe
that gold (and to a smaller extent silver) are the single best investments that
will help you through a potential reset. The problem for many is simply the $1,325 price
per ounce of gold. This sends many to go
with silver and it’s $22 per ounce price tag.
Will silver do well? Yes, I’ve
said for years that silver could easily go to $70 per ounce. But it will still be gold that Central
Bankers choose to back their currency.
One question often asked is: What
should I buy - coins, bullion, or rounds? With silver you should own
one ounce, silver ‘eagle’ coins. They
are the single most recognized coin you can own. In gold, it’s a slightly different
story. With gold costing $1,325 per
ounce, a gold ‘coin’ is really worth too much to be practical. Therefore, I suggest buying 1/10th
ounce gold coins. Holding silver eagles
and some small weight gold coins are good survival tactics. For holdings beyond that which you would use
for emergency money, then you should consider one ounce gold coins, and bulk silver.
I believe having some of both.
The Market...
So far – so good. I’ve been thinking that the markets would run-up
to their all-time highs, but would come up short and finally fade out. Currently
the markets have run-up to their highs, have been trading sideways, and have
not been able (as of yet) to break through. That’s certainly not through lack of
effort. This week’s economic news was
horrendous, but the markets did not roll over and drop. We had a flat
Tuesday, dropped hard on Wednesday, came all the way back on Thursday, and
faded slightly on Friday. So, the desire
to continue pushing higher is certainly still there.
We let a fair number of our positions get called out under a ‘covered call’ scenario and are currently sitting mainly in cash. If this market does break to the upside and make new highs, I’ll be glad to jump back in. But I’d rather be light as I am anticipating a pullback from our run-up. Now, if the Fed were to suddenly halt their tapering (or reverse it), we would certainly be setting new highs again. But with the taper still ‘on’ and the economy slowing, I think that it will be difficult for the banks to manufacture a sustainable break to new highs.
Now, there may be one 'last
push" left in the markets (where they try and suck in the last of the hold
outs). But I think J. Q. Public realizes
that the markets are at all time highs only due to Trillions of Fed dollars,
and that the markets simply follow the money.
If I'm right and this begins to fade
here, the drop could be substantial, and I'd want to be playing on the short
side. If I’m wrong, I would need to see a
few consecutive days of market closes, above the old all time highs. The S&P closed at 1,836 on Friday – only 14
points away from it’s all time high of 1,850.
But the DOW closed at 16,103 and it’s all-time high is 16,580. While we may be able to get above 1,850 on
the S&P for a bit of a show – gaining another 400+ DOW points in a lousy
economy and a tapering Fed is going to be difficult.
I’m cautious until either the market
breaks out or breaks down.
Tips:
I always get
questions:
-
Where
to purchase gold and/or silver?
-
Where
to get a good price?
-
Who do
you trust, and will the transaction go smoothly?
Over the years I’ve
done business with many, and the firm I recommend is run by a father and son
team out of Colorado called: http://www.cornerstonebullion.com.
This week I sold out of NUGT and SLW for 70 and 35%
gains respectively. As much as I love
the metals – the miners (including NUGT and SLW) are more affected by the
general market than they are the price of gold.
Therefore, with the ‘pause’ in the general market I grabbed the opportunity
to take some profits.
I still like stocks such as: BIIB, NFLX, TSLA, QIHU and
some commodities – that seem to be able to buck the trend and go higher – when
the S&P is either flat or lower.
Some other stocks that I’m interested in at the
moment are: MNKD – with its move above $6 on Friday, and ARIA – with its peak
above $9 on Friday. Both of these are
showing very ‘interesting’ options action – and certainly worth a second look
this week.
Lastly – please be aware of the naturally inverse
relationship between the Japanese Yen and the S&P. If the Japanese Yen moves lower (FXY) the
S&P index will move higher – and vice versa. For many weeks now, this relationship has
been broken – yet another reason why I believe something very different is
being played out in the back rooms around the economic globe.
My
current short-term holds are:
-
QIHU – in @ $91.20 - (currently $105.51)
-
ARIA – in @ $8.43 – (currently $8.87)
-
USO
(Oil) – in @ $34.51 - (currently $36.71)
-
FXY
(Japanese currency) – PUTS in @ at $96.47 - (currently $95.23 – looking for it
to go lower)
-
SIL (Silver) – in at 24.51 - (currently 14.70)
– no stop,
-
GLD (ETF for Gold) – in at 158.28, (currently
127.45) – no stop ($1,326 per physical ounce), AND
-
SLV (ETF for Silver) – in at 28.3 (currently 21.00)
– 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!
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>
