This
Week in Barrons – 5-25-2014
The Problem with Roaches is: There’s Never Just One:
There's an old saying that if you
see one roach, you're infested. Why? Because they are prolific breeders and can
multiply in amazing numbers. While they
are disgusting little creatures, they are indeed incredible survivors, and
impossible to control.
So, why talk about roaches? Every day actions are being taken by foreign
nations to rid themselves of U.S. dollars. Every day there are alliances, pacts, contracts
and deals that are being created in which the U.S. is NO LONGER a part. Each one of these deals takes a small bite out
of the U.S. economic supremacy that we fought so hard to attain. The war is being won by the East and lost by
the U.S. – very rapidly. A few examples
announced last week:
-
Russia
plans to build 8 nuclear plants for Iran.
(No U.S. dollars are involved.)
-
Russia
plans on supplying natural gas to China for the next 30 years. (Every payment methodology being discussed does
NOT include U.S. dollars.)
-
China plans
to build a high-speed rail line (carrying passengers and industrials) for Kenya
(No U.S. dollars are involved.)
-
And China
signed an additional 15 agreements within Africa for over $11 Billion dollars
for infrastructure improvements. (No
U.S. dollars are involved – an exchange for natural resources is being contemplated.)
This summer the BRICs will launch
their version of a development bank. China
and Russia are the major players, but it isn’t just the headline names (Brazil,
Russia, India and China) that are going to be involved. Argentina, Qatar, Iran, Vietnam and Mexico are
also joining the fold. The U.S. was not
asked (nor will it be asked) to be a part of this development bank.
In India the recent elections have
brought in the Modi regime. The regime
has promised many modifications to name a few: (a) They said that they would do
away with any gold surcharges that the last administration put in place in
order to try and limit gold sales. (b) They
are pro business, and therefore can expect to see broad alliances with Iran,
and the African nations. And (c) they
have mentioned looking to China for substantial financial help going forward.
Ask yourself, how many headlines (in
the past couple of years) have had anything to do with the U.S. expanding trade
to secure much needed resources? Not
many. Over a year ago I began talking
about a 'Global Reset’ where the U.S. dollar loses its global reserve status,
and the world re-prices virtually everything. Everywhere I look I see the pieces coming
together. The world is tired of the constantly,
devalued U.S. dollar and once the Russians, the Chinese and the Indians all
come together and hammer out their desires, the U.S. dollar will be removed
from its 70-year level of importance. We’ve
been the world’s safe haven for decades, and we’ve squandered it.
The fact that the ‘Global Reset’ is coming
is solid. The only question is
timing. I think it will happen sooner
than most people think. It will be like
the homeowner that sees that first roach, waits until he sees a couple more, and
then realizes that they’re everywhere.
Then he kicks himself for not taking action sooner. The same thing is true with the collapse of
the U.S. dollar. Everyone's going to say:
"What happened?” It is by no small coincidence
that you're not going to hear about the collapse of the dollar until the day
you wake up and it is ‘Done’. The
President will come on television to announce a ‘Bank Holiday’ for several days
while we make ‘currency adjustments.’ It’s
not an IF anymore; it’s just a WHEN.
The Market:
The good and bad news about the
markets as of late, is that any upward movements have been on the ‘lowest
volume of the year.’ And although it’s
nice to move upward, rather than downward – trends are dictated by volume. Downward movements have been on very high
volume, while upward movements have been on extremely light volume. This tells me that the path of least
resistance for the markets is downward.
But, that not withstanding, we did set new, all-time highs on the S&P
this week.
Friday we learned that Italy (in
order to boost their GDP – and to have their national debt ratio remain in line
with their borrowing), has decided to include Drugs, Prostitution and Smuggling
in their GDP calculations. You read that
correctly. They are going to begin to add
the value of junkies and hookers to their GDP.
That literally caused me to stop and realize that the entire world’s
numbers are now just a fantasyland.
Heck, why even bother printing GDP numbers if you're going to include
cocaine and black market dealings? You
may ask: Where (and How) are you getting the numbers for Drugs, Prostitution
and Smuggling? And why not just say:
"All of our numbers are fake” and move on?
Speaking of absurd, I often get mail
from readers telling me that I’m crazy for suggesting that the metals market is
the most manipulated market on earth. On
Friday, Barclays Bank came out and admitted that it had been manipulating the
price of gold for the past ten years, so that it could avoid paying out options
gains to its own customers. And what was their penalty? It was a ‘slap on the wrist’ and a promise to
never do it again.
M.W. had a great market quote this
week: “The Federal Reserve has taken the place of
the Venture Capitalists of the Dot.Com era and the Mortgage Lenders of the
Housing Boom era. The market is rallying
because money flow is FORCED into equities as cash and bonds are made
artificially unattractive. The media and
many others continue to believe the economy is doing well and is improving,
because they mistakenly correlate the market rally with the economy. Remember, the Dot.Com rally and Housing Boom, were
both created on borrowed money, leveraged debt, and a blind faith that the New
Economy couldn’t come down."
Factually:
-
The Russell 2000 (an index of small-cap stocks) represents approximately
10% of the total market capitalization of the United States.
Small-caps
are often viewed as a barometer for investors’ risk appetites. When bulls are in control you’ll see these
names leading the charge. In the 8 years
since 2000 that the market was positive, the small-caps have averaged annual
returns of 23% (40% higher than the average return of the S&P.)
-
However, the first five months of 2014 have not been kind. Small-caps are down 4.5%.
For the first time since November 2012 they:
(a) closed below their 200-day moving average, and (b) put in a 10% decline –
peak-to-trough. This is small caps’ 36th peak-to-trough decline of at least
10% since 2000.
-
Of the first 35
peak-to-trough corrections, EVERY
ONE was accompanied by large-caps falling, on average 12.8%. Lately however, the Russell 2000 is down by
10%, while the S&P 500 is up 0.12%.
-
If the Russell can’t find some sort of bottom soon, this small
cap (mom and pop) contagion could spread to the Colgate’s and Kimberly Clark’s
of the world.
The way I see it:
-
Either history repeats itself, and the S&P 500 and DOW
follow the lead of small caps and correct downward, OR
-
There is a summer rally taking the S&P over 2,000, and
causing casual investors around the country to reach for their margin accounts
in order to ‘bet the farm’ – just like in 1999.
-
To me, it
feels like the elites have decided to push this market further than any sane
person would guess, and we're going to break out and punch higher. Of course it's insane, but sanity left the
building years ago.
The key will be HOLDING these highs
for more than just a couple of days. We
will need to hold these highs and stabilize; otherwise it will indeed be
another failed breakout attempt. So
watch the S&P and see what it does next week. The only warning I will give is this: If the
S&P 1,900 doesn't hold, we could see the markets toss in the "Sell in
May and go Away" towel. The fall
could be bigger than anyone expects. So,
watch the S&P Index to see that it remains above 1,900.
Tips:
Factually:
-
Congrats to those
of you who were with me on the DRTX trade.
On Friday the FDA did approve their skin care treatment and the stock
continued to rally. Between the stock price
and options increases, we’re going to record another 100% gainer over a one
month time period.
-
The portfolio is up
over 50% year to date. (Hopefully that
doesn’t jinx us going forward.)
-
We sold FET, FPP,
NLGS for small gains this past week, and purchased more MNKD and DRTX.
-
TLT continues to be
a channel trade. The latest channel
shows TLT a ‘sell’ when it gets to 115+.
-
MNKD continues to
rally into it’s FDA date – sometime in mid July. The stock gained over 10% again last week –
and the associated options added another 2 percent to that.
-
Our small cap
energy plays continue to do well: BXE, FET, FPP, HK, PFIE, HTM, PQ, and
VTNR. And I have added 3 new stocks to
our small cap play list: ASX (Advanced Semiconductor Engineering – a technology
company), UIHC (United Insurance Holdings, Corp.), and SPIL (Silicon Precision
Industries – a tech company). You can’t
help but fall in love with their charts, along with their most recent
gains. I’m trying to grab some of these
small caps – in order to hold them for years and potentially watch them become
10-baggers within the next 18 to 24 months.
Also, I’m still a buyer of NUGT at these levels –
but mostly collecting premium by:
-
Buying an equal
amount of DUST / NUGT (so that the stocks offset their own rises and falls)
-
SELLing 1 to 1.5
Standard Deviation (SD) Covered Calls on both, and
-
SELLing 1 to 1.5 SD
Put Credit Spreads (PCS) on both NUGT and DUST.
-
This nets you
between 2 and 3% per week!
My
current short-term holds are:
-
DRTX
(Drug) – in @ $13.67 – (currently $16.89), w/ 10% monthly Covered Call Yield,
-
MNKD
– in @ $6.35 – (currently $7.77), w/ 2% weekly Covered Call Yield,
-
TLT
– in @ 112 – (currently $112.70),
-
USO
(Oil) – out @ $38+ - may dive back in this week,
-
ASX
(Energy) – in @ $5.81 (currently $6.28),
-
BXE
(Oil) – in @ $9.11 – (currently $9.39),
-
HK
(Energy) – in @ $5.25 – (currently $5.57),
-
HTM
(Energy) – in @ $0.75 – (currently $0.59),
-
LSCC
(Tech) – in @ $7.85 – (currently $7.91),
-
PFIE
(Energy) – in @ $4.47 – (currently $3.97),
-
PQ
(Energy) – in @ $5.69 – (currently $6.07),
-
PVA
(Energy) – in @ $14.57 – (currently $15.54),
-
RFMD
(Tech) – in @ $7.96 – (currently $9.45),
-
SPIL
(Tech) – in @ 7.20 – (currently $7.61),
-
UIHC
(Insurance) – in @ $16.81 – (currently $17.85),
-
VTNR
(Energy) – in @ 7.02 – (currently $8.49),
-
SIL (Silver) – in at 24.51 - (currently 11.94)
– no stop,
-
GLD (ETF for Gold) – in at 158.28, (currently
124.51) – no stop ($1,293.40 per physical ounce), AND
-
SLV (ETF for Silver) – in at 28.3 (currently
18.66) – no stop ($19.48 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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