RF's Financial News

RF's Financial News

Sunday, March 16, 2014

This Week in Barrons - 3-16-2014

This Week in Barrons – 3-16-2014

Mick Jagger had it right all along…














I’m remembering the summer of ‘65, “Satisfaction” by the Rolling Stones was on the radio, and that famous lyric:
“When I’m drivin’ in my car, and that man comes on the radio,
He’s tellin’ me more and more, about some useless information,
Supposed’ to fire my imagination.
I can’t get no… Satisfaction

It’s days like today that I must give our government ‘planners’ credit for a job well done.  When I was a kid growing up, if you would have told me that (in this day and age) the world would be more concerned about Miley Cyrus's ‘twerking’ than a potential World War III, I would not have believed you.  But they pulled it off.  The Rolling Stones (with their release of ‘Satisfaction’ in 1965) tried to warn us about the onslaught of ‘too much information’ and our personal inability to filter out the important from trivial – but we didn’t listen to them.

And so it goes with the Ukraine ‘situation’.  I turn on any network ‘news’ show and I hear about how: “Those bad Russians have taken over Crimea, and are looking to invade Ukraine".  And then around the ‘water cooler’ I hear: “Don’t they know who they’re dealing with.  Let’s go in and kick some Russian ass.  They’d better back off.” 

I wonder:
 How many know that this entire ‘Ukrainian mess’ (just like Syria) was inspired and funded by the U.S.?
- How many know there are tape recordings of our state department trying to select who they will put in the Ukrainian seat of power – after the uprising is successful?
How many know that it was the U.S. funded protesters that snippered people, not the ‘pro Russian’ government?
And how many of those, want to take a chance on us winning a nuclear engagement? 

On Friday morning Secretary of State John Kerry had a chat with the Russian diplomat to try and hash out some form of agreement.  Nothing was accomplished although the hopeful said they thought ‘Putin blinked’.  On that ‘rumor’ gold quickly dropped $11 and the DOW gained 90 points, but that reversed and the DOW ended the day and week negative.  The facts are simple:
If the Crimea vote goes off on Sunday (as predicted), and
If the Crimean citizens decide to be a part of the Russian Federation (as predicted),
Then the U.S. and the European Union will decide to take actions imposing ‘crippling’ sanctions.

In the Obama news bites, he seems to say that the U.S. will impose: “Crippling sanctions that will make Russia wish it had never said a word”.  But doesn’t Russia have a say in all of this?
Don't they have several hundred foreign owned companies in their country?  What would prevent Russia from ‘taking over’ the Russian divisions of: Coke, Pepsi, Exxon, etc. – and kicking out their non-Russian employees?
Doesn’t Russia have large loans with U.S. and E.U. banks?  What would happen if they stopped paying on those loans?
Doesn’t Russia have approximately $200B worth of US Treasuries?  What would happen if they dumped them on the world market for pennies on the dollar?
Doesn’t Russia supply an enormous amount of natural gas, coal, iron and other resources to Western Europe?  What would happen if they ‘clamped down’ on those exports?  I know that it isn't the depths of winter right now, but I also don’t suppose that 20 million cold Europeans are going to be happy about shivering through their March and April evenings. 

And consider the ultimate ‘hold card’.  What if the sanctions turn into shots being fired?  How quickly would that escalate into a true war, pushing toward a nuclear exchange?  History shows that desperate people do desperate things.  Add-In the ‘water cooler’ discussions and the simple threat of a nuclear exchange would cause an economic ripple that simply could NOT be put back together.

Big players with big agendas have caused this mess.  The average J.Q. Public is worried about his job, his wages, his insurance, and his immediate future.  Honestly, our own backyard is littered with problems, and we don't need to create new ones for the sake of our ‘planners’.  But we've gone and done it, and it could have serious consequences. 

I admit that there's very little the average person can do.  But unless the U.S. and E.U. back away from their rhetoric on sanctions: next week our world enters a white hot, new cold war – and what could go wrong with that?


The Market...

Despite trying to put on a brave face for the world, the U.S. market had a rough go of it last week.  It isn't just business as usual when an aircraft disappears into thin air with 230 people on board, where cell phones still worked and engine transponders ‘pinged’ for 7 hours after the last known contact.  It isn't every day when two nuclear superpowers are tossing barbed jabs back and forth, while ‘boots on the ground’ build up on borders.

It was however (business as usual) concerning our weekly economic reports:
Mortgage applications fell another 2%,
Consumer confidence fell like a rock, and
The NFIB small business optimism report fell almost 3% - from 94.1 to 91.4. 

Right now: ‘Return OF Capital’ is trumping ‘Return ON Capital’.  The questions are many:
If the Ukraine/Crimea/Russian situation settles down, do we just go back to our ‘ever-levitating’ market?
Do we finally find out that the airliner was actually hijacked, and might be (at this moment) being fitted with bombs to use in a terror attack?
Do we look forward to the next Federal Reserve meeting (on Wednesday), and start praying that the Fed starts talking about halting the taper?

Combine all of this political theatre with next week’s FOMC meeting and one thing is certain: unless the Fed comes out on Wednesday and declares that they have suspended their tapering, our markets have a better chance of going lower than higher over the next week.  If the Fed stands firm on their taper and declares that they would need to see some really dramatic reason to stop, that will even accelerate the market’s fall.  The Fed blamed the weakness this winter on the bad weather.  As the weather improves, and the data does not, it will be interesting to see the Fed’s next move.

But, if the Fed (on Wednesday) says that the problems in Europe along with the weak data have caused them to decide to slow the taper (or halt it), the market will add 500 points in a few days and ‘to hell’ will the whole Russia/Ukraine thing.  The markets will feel that once again (no matter what happens) the Fed's “got our back, damn the torpedoes, and full speed ahead”.

With all these twists and turns in play right now, there's not much you can do in the stock market.  I'd love to start leaning short here, but again, one friendly word out of Putin, or one mention that the taper is over, and your shorts would instantly become massive losers.  That said, leaning long right this second (with all these plates in the air) sounds more like Las Vegas, and definitely more risk than I would like to take. 

For me, the next several days will be: gold, silver and ‘wait and see’.


Tips:

Allow me end with my position on gold and silver.  Both are up nicely on the year, and if this political situation does start to spiral, everyone will wish they had more of the precious metals (including me).  But even if things get ugly over the Ukraine, I tend to think the really big moves (for the metals) are still in the future.  So frankly, I can't see any compelling reason for Gold or silver to dip back to their lows.  Yes, the ‘banksters’ will try and keep them contained, but I don't think they can get them down to the December lows any longer.  A long slow grind higher seems ‘right’ in my mind. 

A shout-out to R.P. for his article on gold and silver manipulation:  Manipulation is not a big deal – until it IS a BIG DEAL.  It’s not a big deal until it is discovered, but once it is – then ‘confidence’ will change overnight.  Case in point:
In April, China is due to give an updated report on their official holdings of gold.
If this does happen then you can apply simple math to determine: Where did their reported gold come from?
If China were to announce holdings of 5,000 metric tons (or anything close) then it will be known that this gold came from the U.S. – because there are no other gold supplies (on the planet) large enough to have supplied this much gold.
At that point the price manipulation argument will be put to rest because the ‘reset’ (in effect) will already have occurred.
After that point, the ONLY thing that will matter is whether or not you have any physical metal and how much, period!
Because once confidence breaks – it will not be restored except by a currency that has some sort of real backing.  We have history on our side here.

With that as a backdrop, this week we really got back into playing our NUGT / DUST combination.  These are two leveraged ETF’s that are focused around the precious metal (gold and silver) mining industry.  The ETF’s are designed to virtually offset each other – meaning as one goes up the other goes down virtually the same amount.  Therefore, it’s somewhat of a natural to:
-       Purchase equal dollar amounts of each ETF,
-       Sell one standard deviation, out-of-the-money calls on each ETF at between a 1.5 and 2% (weekly) return rate, and
-       Watch the calls expire worthless – pocketing their complete sale amounts.

My current short-term holds are:
-       FEYE – in @ $75.50 – (currently $75.57)
-       USO (Oil) – in @ $34.51 - (currently $35.77)
-       UCO (Oil) – in @ $28.75 – (currently $32.66)
-       SIL (Silver) – in at 24.51 - (currently 14.41) – no stop,
-       GLD (ETF for Gold) – in at 158.28, (currently 133.00) – no stop ($1,380 per physical ounce), AND
-       SLV (ETF for Silver) – in at 28.3 (currently 20.60) – no stop ($21.45 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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