This Week in Barrons – 5-11-2014
I must have missed something…
I must have missed something, or maybe I just didn't pay attention when I was growing up – but (way back then) we didn't seem to need the level of diversity training, grief counseling, and classes on ‘understanding others’ that are present today. Maybe it was my parents, but I personally grew up oblivious to race, color, creed or sex, but rather strictly focused on results. I’ve been trying to understand the most recent social engineering of the U.S. – that embraces a homogenous, one size, one thought fits all attitude.
Maybe I missed something but (more and more) people seem to be saying one thing and doing another. The political candidate that shakes hands and kisses babies – suddenly gets busted for tax evasion, larceny, and insider trading. The individual leading the ‘family power’ workshop – gets caught cheating with the spa manager.
And I know that I missed this: Where has regular face-to-face, ear-to-ear conversation gone? We now have Yik-Yak – a smart phone application that lets anyone post anything in message form – without identification. That’s right, there is no username or password. You are completely anonymous. Imagine the shear number of people that are being insulted at will, be-rated 24/7, about anything and everything.
There have always been haters, cheaters, liars, and jerks. Heck, in 1970 one of the most popular shows was: “All in the Family” – with ‘Archie Bunker’. This show (if shown today) would potentially land the producer in jail. In 1970 it was exciting, meaningful, and challenging to laugh at ‘Archie’, and in many cases laugh at yourself as well. ‘Archie’ exposed our differences, and tried to mend some of them through humor. Unfortunately, today we have a quick ‘n easy escalation from humor – to lack of civility – to rudeness – and sometimes ending in violence.
Maybe I’m missing something, but isn’t this escalation of violence occurring DESPITE all of the social engineering efforts that are taking place? And this level of violence is occurring while the economy is still functioning. What happens when things really get tough? Last week, 44 people were shot in Chicago. And last week the EBT cards were still functioning. What happens when the EBT cards don’t work? If we can see these levels of evil in ‘good times’, what unspeakable evils will we see during a melt down?
Last week I discovered that every Federal agency (right down to and including the Post Office) has been buying hundreds of thousands (in some cases – millions) of rounds of lethal ammunition. Why is this? I think they know that the economy and our currency are doomed, and when they fail (if things don't go well), all heck is going to break loose. So they’re buying up billions of rounds of ammo to protect themselves against John Q. Public if/when society breaks down.
To get a hint of where a society can go in a hurry, simply watch some of the real videos that are coming out of the Ukraine. You’ll see mobs cutting off people’s legs, burning people alive, and beating people to death with blunt instruments. That could be the U.S. Look at the Yik-Yak posts. Look at our inner city violence. Look at our lack of face-to-face, and ear-to-ear communication. The U.S. is one banking holiday / one EBT system failure away from these videos.
Wow, I really must have missed something along the way?
Happy Mother’s Day to everyone that has the toughest job in the world – being a Mom!
Also, a quick shout out to S.F. for reminding me about the Chinese currency (Renminbi) situation. Recently, China’s Third Plenum voted in the boldest package of policies seen in decades. Beijing is freeing up interest rates for foreign-currency deposits, easing restrictions on cross-border capital flows in the Shanghai free-trade zone, easing foreign investors access to Chinese markets and the daily trading band for the Renminbi-dollar rate has now been doubled to plus or minus 2%. They have deregulated their services sectors, simplified their customs clearance, settled cross-border trade disputes, allowed two-way portfolio investment, and have allowed foreign companies to issue Renminbi bonds and access the domestic equity market themselves. In light of all this, I now expect full Renminbi convertibility to come earlier than expected. As Renminbi internationalization and financial reforms accelerate, their currency’s role in global reserve management should expand quickly. I think very soon we will see a multiple reserve currency system in which the Dollar, Euro and Renminbi all play their part.
On Friday, we saw the DOW close at a new, all-time high. And why wouldn't it?
- Didn't the GDP (Gross Domestic Product) just disappoint to the downside?
- Aren't home sales falling like a rock?
- Wasn’t the most recent ‘Jobs Report’ horrible?
- Aren't more small businesses closing than opening?
Through a wicked twist of fate, it appears that the worse the numbers get – the higher we go on the DOW. I guess that if we had all out nuclear war – we would see the DOW touch 25,000. This market is being pushed higher despite the facts. Yes - this is ‘Bubble Mania’ Part 2.
I’m guessing that the thinking on ‘The Street’ goes something like this:
- The only way to get any return on your money is through buying either junk bonds or stocks.
- Treasuries are paying less than inflation – so you're losing money.
- Emerging markets are much too volatile.
- The Fed has proven that if things start falling apart, they will rush in and hand out free money and support the market.
- Therefore, stocks are the ONLY place to be right now.
But right now, there’s one big difference. China continues to amass huge stockpiles of gold. In the last year, China amassed (what amounts to) the entire worlds production of the metal. Meanwhile, our gold storage amounts continue to decline – as we encourage ‘paper money’ being our ultimate salvation. When you contrast what the East is doing with what America is doing, you can see why the West is in real trouble. The U.S. encourages its citizens to go out and spend their savings on newer gadgets, and to accumulate large amounts of debt in order to increase consumption. The Chinese authorities are encouraging their citizens to save in gold, store it in a safe place, and to be fiscally prudent. Which culture will truly prosper? Time will tell, but I'm leaning toward the East.
The point being, when you can ‘easily’ print paper dollars, you can always have a market hit all-time highs during a fading economy. An economy where: (a) 93 million are unemployed, and (b) one out of every five citizens is on Government assistance. John Q. Public sees the markets hit new highs, and figures that it's okay to go into more debt because ‘everything must be fine’. It’s not. On Thursday we saw the credit numbers explode by an additional $17 Billion. All of the additional borrowing was due to student loans, and sub-prime car loans. If you think that's healthy, you too have swallowed the Kool-Aid.
While the DOW has closed at an all-time high, the S&P has a way to go. The reason is simple. It is much easier to drive 30 stocks higher (the DOW), than to move the S&P (500 stocks). Therefore, the S&P is not ‘breaking out’ as of yet. On Friday the XLF (a financial sector ETF) did NOT even go positive on the day. So, while the DOW put on a ‘brave face’ for the weekend, the broader market is still range bound. In fact, the Russell 2000 (a measure of small to medium sized companies) – is actually in correction territory – down 10% from its highs.
Finally, the Ukraine tends to move from one headline to the next so fast that everything is ‘yesterdays weather’. But I assure you, the Ukraine is not yesterday, but rather it is today and tomorrow. If they pull off the referendum vote on Sunday, and by Monday we see that half of the Ukraine wants to be ‘Russian’, what next? Do the U.S. and Europe introduce more sanctions, provocation, and warships? What happens when Russia starts with their own sanctions against the U.S. and Europe? Where does the fallout end?
The bottom line is that we're in a stranger position right now than I think I can remember. If nothing goes ‘bump in the night’, the FED can keep printing and keep pushing the DOW higher. But the right ‘bump’ could cause a flash crash – the likes of which we haven't seen in a long time. Until the S&P puts in a few closing highs above the old all-time highs, I continue to tread lightly or not at all.
Congrats to those of you who were with me on some of last weeks earnings trades: (mostly Call Credit Spreads) on: SSYS, TSLA, PCLN, QIHU, and GOOGL.
TLT (the Bond market ETF) touched $111.20 on Friday – which was my buy signal to purchase more June and July calls. TLT has been a channel trade for the past 6 months. That means you purchase at the bottom of the channel (in this case around $111.20) and sell when it reaches the top of its channel – in this case around $114. TLT is also interesting because when it starts to decline – those declines normally last 4 to 5 days – then it’s time to buy again.
My faith in the long end of this market continues to reside in the energy sector, and specifically in small energy stocks such as: BXE ($9.37), FET ($31.61), FPP ($5.17), HK ($5.69), PFIE ($3.84), HTM ($0.71), PQ ($6.20), and VTNR ($8.93).
I’m also a buyer of both Gold (GLD) and Silver (SLV) at these levels.
My current short-term holds are:
- MNKD – in @ $6.35 – (currently $6.22),
- TLT – in @ $106.22 – (currently $111.24 – bought more on Friday),
- USO (Oil) – in @ $37.19 - (currently $36.40),
- BXE (Oil) – in @ $9.11 – (currently $9.37),
- FET (Energy) – in @ 30.42 – (currently $31.61)
- FPP (Oil) – in @ $5.32 – (currently $5.17),
- HK (Energy) – in @ $5.25 – (currently $5.69),
- HTM (Energy) – in @ $0.75 – (currently $0.71),
- LSCC (Tech) – in @ $7.85 – (currently $7.87),
- LSG (Gold) – in @ $0.78 – (currently $0.78),
- NGLS (Nat Gas) – in @ 60.11 – (currently $61.63),
- PFIE (Energy) – in @ $4.47 – (currently $3.84),
- POZN (Pharma.) – in @ $8.68 – (currently $8.39),
- PQ (Energy) – in @ $5.69 – (currently $6.20),
- PTIE (Pain Tmt.) – in @ $5.34 – (currently $5.07),
- RFMD (Tech) – in @ $7.96 – (currently $8.78),
- VTNR (Energy) – in @ 7.02 – (currently $8.93<
- SIL (Silver) – in at 24.51 - (currently 12.54) – no stop,
- GLD (ETF for Gold) – in at 158.28, (currently 124.10) – no stop ($1,289.25 per physical ounce), AND
- SLV (ETF for Silver) – in at 28.3 (currently 18.42) – no stop ($19.21 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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