RF's Financial News

RF's Financial News

Sunday, April 20, 2014

This Week in Barrons - 4-20-2014

This Week in Barrons – 4-20-2014

The best place to hide something is right in plain sight.



Sometimes the easiest way to hide something is to put it out there – in plain sight.  Recently, a study was done to examine people’s perceptions as they were walking.  The subjects were asked to walk down a sidewalk and report any unusual findings.  The sidewalk was of regular size.  Along one side of the sidewalk was a brick wall, with the other side being open to the street.  All the people had to do was stroll along the walk, and report anything they may find unusual.  One by one the test subjects walked the sidewalk, and virtually every one of them found the quarter that the testers had placed on the sidewalk itself.   Not one single person noticed any of the $10 bills that were taped to the brick wall – exactly 7 feet off the ground.  Not one person.  Everyone looked "down" and found the 25 cents, while no one looked up to find $10.  The real prize (that was worth 40 TIMES what they found) was hidden – right there in plain sight.

In my line of work, sometimes the most glaring evidence is hidden from us in plain sight.  For example, this week we all paid our taxes, but studies tell me that less than one percent of us know: Why we have taxes?  Enter Beardsley Ruml – an American statistician, economist, philanthropist, planner, adviser to President Herbert Hoover, director and chairman of the New York Federal Reserve Bank, active in the Bretton Woods Conference (that established the international monetary system), and was paramount in planning the ‘New Deal’.

In 1945 Mr. Ruml made a famous speech to the American Banking Association (ABA), saying that since the end of the gold standard, “Taxes for Revenue are Obsolete”.  The real purposes of taxes were:
      To "stabilize the purchasing power of the dollar",
-       To "express public policy in the distribution of wealth and of income, in subsidizing or in penalizing various industries and economic groups", and
-       To "isolate and assess directly the costs of certain national benefits, such as highways and social security.”

Obviously the two issues I wish to highlight are: (a) the RE-distribution of wealth and income, and (b) to subsidize or PENALIZE various industries and economic groups.   This was almost 70 years ago, and to this day the facts are hidden very well – in plain sight.

Another example:  A small (but not insignificant) group of individuals have been screaming that the stock ‘market is rigged’ for almost as long as the market has existed.  Most have been laughed at, called kooks, conspiracy nuts, right wing whackos, and generally discarded.  Then Michael Lewis writes a book about High Frequency Trading (HFT), and suddenly ‘the market is rigged’ is on everyone's lips.  This same market, has been right in front of our faces for years – explained, detailed, and deciphered – yet ignored.

Of course it’s not just the stock market and taxes that are rigged:
-       Interest rates are rigged.  People hear about LIBOR and (since it seems so exotic) they shrug their shoulders swearing that it doesn’t really affect them.  Honestly, not too many years ago you could put $100,000 in the bank and make $7,000 a year in interest.  Now you make ZERO.
-       Energy markets are rigged.  They see J.P. Morgan get slapped with billions in fines for energy market tampering, and they’re not connecting the dots as to how gasoline has doubled in price over the past 5 years while demand (since 2004) has fallen like a rock.
-       Corporate accounting is rigged.  Corporate reporting standards have lapsed so much that corporations are no longer required to abide by GAAP (Generally Accepted Accounting Principles) regulations when reporting their financial numbers.
-       Gold is rigged.  On Tuesday at 8:30am the gold market recorded a ‘fake’ sale of $500 million in futures – causing gold to fall $30 in a single hour.
-       Our own FED is telling us that there is NO inflation; meanwhile the price of food (alone) has increased 19% in the past 4 months (since January of 2014).

I think that the angst most people feel around tax day isn't that they detest paying the taxes, but they abhor how their tax dollars are being spent.  Our own government hides the facts in plain sight, counting on no one being able to see them. 

A couple of thoughts (for Easter):
-       Look up – more than down,
-       Think and Listen – more than talk, and
-       Reach-out and Act on your own conclusions.

Happy Easter to everyone. 














The Market...

We had a 4-day virtual ‘lift off’ that took the DOW from a low of 16,028 on Monday, to a close of 16,409 on Thursday.  We seem to have run back to the 16,460 area of resistance.  On April 9 we closed at 16,437 before falling in 3 days to 16,028.  On March 10 we closed at 16,418 before plunging to 16,046.  Naturally the question is, do we fall again, or do we power up and set our sights on the double top at the 16,600 area?

If you've noticed one thing in the past couple of years it's the fact that this market is very tough to short.  The reason is clear.  Every time we set up for a fade, the FED cuts that fade short after a very quick 2 - 4% dip, and then blasts it right back up.  I'm actually tired of writing how we get these perfect ‘correction’ set-ups, only to see the FED short circuit the correction and push us higher.  So, while the single biggest stock gains come during downtrends (because they’re so fast and violent), I really haven’t been ‘short’ since the 2008 crash.

In the past 2 weeks, Ms. Yellen (before Congress) stated that QE would end by the fall of 2014, and about 6 months later interest rates would rise.  The markets went down violently on her words.  This week Ms. Yellen came out and reversed herself, saying that because the labor market is so soft, the FED will need to keep rates low for an extended period.  The markets soared back up on her words.  Unfortunately, the markets are NOT moving on economic fundamentals, but rather moving on whether the FED will continue to fill the punch bowl.  In many ways this more resembles a ‘drug addiction’ than ‘investing’.  As long as our dealer can provide us with the stuff we’re good, but as soon as the dealer cuts us off – we go into withdrawal.

I said it before and I’ll say it again:  IF the FED stops tapering, or (worse) reverses their taper and does more QE – we’re headed toward DOW 18,000 and higher.  It won't matter if the economy grinds to an absolute halt and goes into a full-scale depression.  With that in mind, I have no choice but to continue to find the ‘long side’ opportunities.  It feels wrong (almost ‘dirty’), but the fact is that the markets are convinced that the FED will always support them, and therefore a dip is just another buying opportunity.

We all know that this will end badly.  A chink in the armor could be the NASDAQ.  It’s still in a downtrend.  I’m looking for the NASDAQ buying to stop on Monday, and to continue it’s downtrend – potentially bringing weakness into the S&P and the DOW over the next week or so.

The facts are: of the companies that have reported thus far, 67% of them have MISSED their top line / revenue estimates.  And these ‘estimates’ have already been lowered.  These same companies are beating on the bottom line by not hiring, doing stock buy-backs, and by manipulating their accounting.  Companies can easily ‘adjust’ their earnings per share, but they can't ‘adjust’ their revenues.  Combine that with the fact that just last week beef, pork, shrimp, soybeans and soy meal all hit RECORD high prices.  Combine that with the steady climb back towards $4 per gallon gasoline and stagnant wages.  What you have is a market that does not reflect our true underlying economy.

I'm still leaning slightly long on the DOW, but I’m beginning to nibble on shorting the rallies on the NASDAQ.  Honestly – none of this feels right.  It feels like I’m missing something – that’s right there in plain sight.


Tips:

The $500M ‘fake short’ in Gold surprised me (as it did most people) last week.  Our position in TLT also took a hit last week – presumably on the belief that the dispute in the Ukraine would be settled over this weekend.  I’m still holding my position in (MNKD), for it’s 2% weekly yield on the call options.  MNKD is currently selling for $6.25 / share – with the $6.50 call options paying you 13 cents per week.  The energy sector has been nothing short of ‘on fire’ as of late, with our USO positions soaring for nice gains indeed.  I also opened some positions in smaller stocks that I think have a good chance of doubling (or more) over the next 12 to 18 months.  Those stocks are listed below, and a couple that I’m still following are:  PFIE, LSCC, VNTR and FPP.  This week I see TLT and Gold as being buyable, and potentially the NASDAQ as being a nice short candidate – topping off on Monday. 

My current short-term holds are:
-       MNKD – in @ $6.35 – (currently $6.25)
-       USO (Oil) – in @ $37.19 - (currently $37.68),
-       BXE (Oil) – in @ $9.11 – (currently $9.16),
-       LSG (Gold) – in @ $0.78 – (currently $0.75),
-       NGLS (Nat Gas) – in @ 60.11 – (currently $61.33),
-       POZN (Pharma) – in @ $8.68 – (currently $8.70),
-       PTIE (Pain Tmt) – in @ $5.34 – (currently $5.38),
-       RFMC (Tech) – in @ $7.96 – (currently $7.87),
-       SIL (Silver) – in at 24.51 - (currently 12.33) – no stop,
-       GLD (ETF for Gold) – in at 158.28, (currently 124.74) – no stop ($1,295 per physical ounce), AND
-       SLV (ETF for Silver) – in at 28.3 (currently 18.88) – no stop ($19.67 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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1 comment:

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