This
Week in Barrons – 2-9-2014
Daddy…Please make it stop!
For parents and young adults alike, at
some point in your life you've either uttered or heard those words. Maybe over a bruised knee, a bullying event,
or something in your life (either financially or job-wise) that just doesn’t
make sense. I find myself uttering these
words almost daily. For example:
1.
This
week the CBO (Congressional Budget Office) released their research concerning the
effects of Obama-Care on the economy and on the job market. They told us that Obama-Care will cost us over
$1 Trillion, and over 2.3 Million people will exit the workforce because of it. Given this was sold to us as creating 4+
Million jobs, lowering healthcare costs, and adding to the economy – this is
leaving Democrats with some ‘egg on their face.’ But instead of being honest with us (and
admitting that no one really knows) – the spin the Dems are putting on it
ranges from:
a. “The effect of having 2 million more people
out of work could be a good thing on the work-life balance.”
b. To:
“This is actually good news because people will finally have a choice. If they didn't want to pay for their
healthcare they could ‘choose’ to work less hours, and then have their benefits
provided for them.”
c. Please
make it stop! Honestly, most people don’t work because
they want to – they work because they have to – in order to provide for their
families. So giving me a choice to NOT
WORK in order to get free medical doesn’t make much sense to me.
d. But leave it to Nancy Pelosi to trump
everyone. You remember Ms. Pelosi –
she’s the one (when asked about the Obama-Care legislation) who said: “We have
to pass it – to see what’s in it.”
(Someone should tell Ms. Pelosi that’s what we do with ‘stool samples’
not groundbreaking legislation.) Ms.
Pelosi said: “The CBO report is telling us that Obama-Care will allow people to
follow their aspirations and become writers, be self-employed, and start their
own businesses. Obama-Care is
entrepreneurial. It won’t cost jobs, but
rather shift how people make a living and allow them to reach their
aspirations."
e. Please
make it stop! Ms. Pelosi, in what universe are LESS jobs
better than MORE jobs? And given that over
50% of the country lives paycheck to paycheck, how does John Q. Public survive
while he’s writing that Great American Novel?
2.
But it
gets better. This week, the Global
Markets Committee (the group who sets the rules for futures trading) has
invited JP Morgan’s Commodity Division head – Ms. Blythe Masters – to sit in
and help craft regulations and legislation.
a. Now this is the same JP Morgan that was just
fined $17 Billion for manipulating markets and basically screwing investors.
b. This is the very same department within JP
Morgan that – while being guided by Ms. Masters – was found guilty of manipulating
energy prices throughout California.
c. Please
make it stop! So, this group (in their ultimate wisdom,
clarity and good judgment) has decided that Ms. Master is the perfect person to
bring in and help craft the legal framework surrounding trading futures and
swaps. Do the words: ‘Fox in the
Henhouse’ resonate with anyone on that committee?
3.
Finally,
on Friday we received the Jobs Report, and of course it was every bit as lousy
as the one we received in December. It’s
getting to the point now that even the cheerleading, ‘talking heads’ on TV
don’t believe that this economy is firing on all cylinders. But this time was different. They blamed - ‘The Weather’. Yes, somehow the weather is the reason that
companies (across the U.S.) are not hiring workers.
a. But adding insult to injury, on Monday, we
received the ISM (suppliers and manufacturers) Report. I don’t think it could have been any worse.
i. The overall survey ‘outlook’ fell 8.6% from
55.8 to 51.
ii. New orders fell 20% from 64 to 51 (the
biggest drop since 1980).
iii. The ‘Prices Paid’ portion of the index
jumped 13% from 53.5 to 60.5.
iv. So we have LESS activity that people see
coming down the pike, there are LESS current orders, and we’re paying A LOT
MORE for the stuff that we’re ordering.
All of this doesn’t add up to a well-run economy.
b. Please
make it stop! I get the fact that: our economy is on the
ropes, the Fed is tapering, our regulating bodies are hiring crooks to form
policy, the jobs data is horrible, our trade data is lousy, the Baltic Dry index
continues to crash, our cities are bankrupt, the amount of people not in the
workforce is almost 1/3 of the population, food stamps – welfare – unemployment
and the other government-backed systems are overwhelmed; BUT do we now need to
resort to blaming this all on: ‘The Weather’.
I'm not in the panic business. I'm not in the shock-n-awe business. I'm in the reality business. I see long stretches of sub-par economic
activity that are going to lead to additional stress on both people and governments.
While I refuse to allow the entire
“Mad-Max’ scenario to play out in my mind, I'm not against the idea of serious,
recession-era scenarios playing out.
Please make it stop! Don't be afraid to enjoy your life,
but don't go broke either. Get yourself
some gold and silver – because it’s how you come out the other side that’s
really important.
The Market:
By mid-week, it became clear that we
were overdue for a market bounce. Even
in these most desperate of times, the market cannot go straight down. So, on Twitter I started to suggest that whether
the jobs report was good or not, I'd probably see the start of a market bounce.
The excuses for both the poor jobs
report and the two-day market bounce were really something special to listen to.
a.
We
learned from economist Mark Zandi that "This low jobs number would eventually
be revised higher, and that in the long run it shows increased job growth".
Interestingly, Mr. Zandi said the same
thing when the December job’s report hit.
The December job’s report was revised higher (by 1,000 jobs) from 74,000
to 75,000 jobs. Given Mr. Zandi forecast
job growth of 175,000 jobs (not 74,000) – I don’t think that this was the
revision that Mr. Zandi was fantasizing about.
b.
Again, we
learned from a dozen of the ‘talking heads’ that ‘The Weather’ was the reason
for poor hiring, and the two-day market romp was due to earnings and economic
data still ‘suggestive of a sustained recovery.’
c.
Please make it stop! I have a much simpler explanation.
Companies didn’t hire because they didn’t need anyone. And the market bounced because it was
‘short-term’ oversold, and everyone is hoping that the data is so bad that the
Fed will stop it’s tapering.
Five years after the start of this so-called
recovery, I’m still seeing some pretty incredible things:
-
From
food stamps to people living paycheck to paycheck,
-
From
unemployed over a year to leaving the workforce completely,
-
From
wages stagnating for over 10 years to inflation eating thru everyone’s buying
power, and
-
From over
1 in 4 young adults now living at home to 1 in 5 getting ‘something’ from Uncle
Sam.
The stock market went from 6,600 to
16,000 on the DOW for one reason – the Fed printing over $1 Trillion per year!
Ms. Janet Yellen (our new Fed head)
is scheduled to address Congress on Tuesday.
Everyone there will be pressing to see if she's going to: (a) continue
tapering, (b) stop tapering, or (c) stop tapering and replace the ‘taper’ with
another program. The way this ‘should’
play out is:
-
Monday
we should hold the gains of Thursday and Friday.
-
Tuesday,
if Ms. Yellen holds the solid line and doesn't hint at all about stopping the
taper, we will roll right back over.
-
Tuesday,
if Ms. Yellen purchased Alan Greenspan's “How to speak to Congress” manual, and
leaves them with the impression that she could possibly end the taper – the
market could gain some more.
-
Tuesday,
if Ms. Yellen makes a rookie mistake and mentions that she'd be willing to
reverse the taper if things don't improve – then we'll be back to the all-time
highs in short order.
From here on out, it's all about the
Fed. Continuing to taper with no hint of
stopping and we'll see new lows. Stopping
the taper and we levitate. Reversing the
taper, and we see DOW 18,000.
Tips:
I’m in a wait and see position until the S&P’s
get above 1,825.
-
I still like the
metals here as a hedge = Gold (GLD) and Silver (SLV).
-
I like any group of
stocks that can remain positive in a down market – and that group includes the
Bio-Techs: GILD, INCY, CELG, REGN, and BIIB.
-
I like 4 stocks in
particular: NFLX, FEYE, QIHU and TSLA. NetFlix
is a communications company; FireEye (FEYE) and QIHU are both in the
cyber-security space, while Tesla (TSLA) is the electric carmaker that wants to
continue moving higher. Now be careful –
because FEYE has earnings on February 11th. Tesla has earnings on February 19th
(and could provide a nice earnings run up until that date).
My
current short-term holds are:
-
FEYE – March ’14 $50 Calls – in @ $11.50
(currently $19.40)
-
TSLA – Feb ’14 $165 Calls – in @ $12.47
(currently $21.42)
-
QIHU – March ’14 $110 Calls – in @ $5.93
(currently $4.69)
-
USO
– April ’14 $37 Calls – in @ at $34.51 (currently $35.70)
-
FXY
– March ‘14 $97 Puts – in @ at $96.47 (currently $95.43)
-
SIL – in at 24.51 (currently 12.78) – no stop,
-
GLD (ETF for Gold) – in at 158.28, (currently
122.16) – no stop ($1,267 per physical ounce), AND
-
SLV (ETF for Silver) – in at 28.3 (currently 19.29)
– no stop ($20.00 per physical ounce).
To
follow me on Twitter and get my daily thoughts and trades – my handle is:
taylorpamm.
Please
be safe out there!
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 with their predictions, and that's a
rarity in this climate. Please check
them out on my recommendation.
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