This Week in Barrons – 2-16-2014
“Somethin’s coming – Somethin’…” … West Side Story
This week something happened that was quite remarkable. Despite Janet Yellen telling Congress that the Fed was going to continue its tapering, the market gave her a big pass because she said: "If the data were to turn unfavorable, then of course there would be reason to pause the taper.”
Okay, so what's that mean? When the Fed first tapered, did the data really suggest a good strong recovery? NO.
- Mortgage applications were crashing,
- Housing sales were falling like a rock,
- An unimaginable amount of people were opting out of the job market,
- And Obama-care was causing countless issues.
Then in January, when the Fed tapered again – did the data suggest a good strong recovery? NO.
- Jobs data was still horrible,
- The market was still falling,
- Retail sales showed a decrease of 0.4%,
- Companies were reporting sketchy (at best) earnings,
- And many economists were warning of slowing GDP growth,
- Barclays announced that they were cutting 12,000 workers,
- And U.S. Initial Jobless claims increased yet again.
Why is the Fed tapering when the economy is just barely limping along?
Why is the Fed saying they will need to see more declining data to end tapering, when we've had gobs of this kind of data and they're explaining it away with ‘the weather’?
My only answer to these questions is either: a ‘global reset’ is coming, or the Fed will soon announce yet another program that will allow it to push more money into the economy. Let’s explore the first one, because it’s the one that makes the most sense.
The IMF World bank knows that there's too much debt in too many countries for it to ever be repaid. Lately, global currency fluctuations have been so extreme and so rapid; it is often impossible to carry on continuous trade. No matter where I look, the evidence suggests that something must be done. I think there is a plan afoot to replace the U.S. dollar as the global reserve currency. But more than that, plans are being made for a complete rebalancing of every country’s debts versus their ‘worth’ in natural resources, precious metals (gold and silver), output per capita, productivity, demographics, etc. The following quotes are from ‘China Daily’:
- “The World Bank's former chief economist wants to replace the US dollar with a single global super-currency, saying it will create a more stable global financial system.”
- And Justin Yifu Lin told Bruegel (a Brussels-based, policy research think tank): "The dominance of the greenback is the root cause of global financial and economic crises,"
So the first thing to consider is that China is becoming very vocal about wanting to rid the world of U.S. supremacy. This is no idle threat as China is scheduled to outpace the U.S. economically in just a few short years. At that point, we will all need to respect the tremendous amount of gold and silver that China and other Asian nations have amassed.
In the not so distant future, there could be an announcement of a global currency reset where:
- Debts will be discharged and equated to different values.
- Countries will be valued and ranked based on real tangible assets. The countries that are the richest (in real, tangible elements – not ‘fiat’ money) will carry more weight. This ‘weighting’ explains why China has been ridding itself of dollars and buying up tangibles such as: gold, silver, oil, land, farms, buildings, and businesses.
- SDR's (special drawing rights) will be constructed that will allow distribution of real assets between countries (in order to facilitate trade).
- AND the U.S. dollar will no longer be the global reserve currency – the new SDR will.
This explains why the Fed started to taper in the first place, and answers why they continue to taper in light of all of the bad economic data. If the wheels are in motion to launch this SDR – then there's no longer any reason to prop up a failed economy. For the past 20 years, every time the economy has shown that it needed to contract and go through a healthy recession and regroup, the Fed has rushed to the rescue with tons of free money. The single biggest example of this was during the 2008 meltdown. When QE-1 ended and things got weak, the Fed came out with QE-2. When QE-2 ended and things got weak, the Fed came in with ‘The Twist’. When that expired, the Fed rushed in with QE-3. But now, after all this printing, and with the economy still soggy – they are REMOVING the stimulus. If the Fed doesn’t halt the tapering by this summer, then something MAJOR has changed, or they are going to announce another program that allows them to jam more money into the system.
If/When we have a global currency reset, here are a couple thoughts:
- What happens to our money? Is the ‘old’ $100K now worth $200K or $50K?
- What happens to prices, and the value of land, homes, and businesses?
- What about interest rates? (Will they be higher to service all the debt?)
- What about gold? Will these new SDR's be backed by gold? Indirectly yes. The countries with the most gold (and other redeemable assets) will have their currencies carry a higher weighting in the composition of the SDR. For the past 3 years, Gold has been manipulated lower to facilitate China getting rid of dollars and amassing gold. When everyone is satisfied that the Chinese have the proper amount of gold that gives their currency the proper weight in the global SDR, then gold will no longer be manipulated lower.
The good news is that I believe we exit this ‘global currency reset’ with something better than what we have now. The Fed must be tired of creating booms and saving us from the busts. The world is telling us to stop spending more than we take in. And we’re all tired of the U.S. Government pushing for more control over our lives. Maybe, a good, old-fashioned economic shake-up will get people to focus on what the hell happened to our country, and how to get it back. And that would be a breath of fresh air.
After January’s long market plunge, the market has roared back within ‘spitting distance’ of it’s old highs. So do we break through and make new highs, or do the old highs act as resistance and we fall back?
A couple weeks ago we suggested that the market would put in a big bounce, come up shy of the new highs, and roll back over. We're now in the range of ‘coming up shy’.
Will I be surprised if they punch through the old highs? Yes I will. It is one thing for the banksters to want to keep the market running, but it’s very different for them to pull it off.
While I will be surprised to see them punch us through those old highs, one thing that I constantly remind myself is that we’re living through some very odd times. Times where all of the old rules are out the window. Last week, CNBC reported how great our economy was doing, and that all we needed was just one more piece of BAD DATA and the Fed would cancel the taper. One day, good news will again be good news, we just don’t know whether that will be tomorrow, or after we gain another 10,000 DOW points.
Did I profit by this bounce? Absolutely. But (at this instant) I have a fair amount of cash and am ready for a market pullback. I think that this week the market’s run stalls. We then do a bit of sideways up and down chop, and finally fade lower. The other way that this could play out is: (a) they push us up over the old highs, (b) which drag in the remaining ‘doubters’, and (c) as soon as everyone's all in – the rug-pull comes. Only time will tell.
So, I’m feeling that it’s time to play defense until it’s clear that we've either broken over the highs forcefully, or have entered a period of fading. I don't want to get caught on the wrong side.
I cashed out of Tesla (TSLA), FireEye (FEYE), Nividia (NVDA) and REGN last week – with gains of over 200%, 200%, 50% and 30% respectively. It was a great week. And in the entire portfolio, we’re up over 13% and it’s only mid-way thru February.
Currently, the S&P’s have broken over 1,826 and are sitting at 1,839.
- Gold and silver are UP.
- The Stock markets are UP.
- The Japanese Yen is UP.
- Treasuries are UP.
- Commodities are UP.
- In a nutshell – all of this is IMPOSSIBLE. Treasures and the stock market should not both be UP together. The Yen and the stock market should not both be UP together. Gold and the stock market should not both be UP together.
At this point, I still like the metals here as a hedge: Gold (GLD), Silver (SLV), and especially the physical metals. Gold has gone over it’s moving average, and has appeared to put in a bottom, with silver following nicely. I’m also playing the miners through NUGT (a 3X ETF) and SLW – both doing nicely. FEYE, SSYS, PRLB and DDD are coming back to life. I still like: BIIB, INCY, NFLX, with my favorite set-up being QIHU.
My current short-term holds are:
- QIHU – in @ $91.20 - (currently $99.25)
- NUGT – in @ $35.25 – (currently $50.29)
- SLW – in @ $20.25 – (currently $25.38)
- USO – in @ $34.51 - (currently $35.91)
- FXY – in @ at $96.47 - (currently $95.93)
- SIL – in at 24.51 - (currently 14.96) – no stop,
- GLD (ETF for Gold) – in at 158.28, (currently 127.31) – no stop ($1,319 per physical ounce), AND
- SLV (ETF for Silver) – in at 28.3 (currently 20.73) – no stop ($21.50 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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