This Week in Barrons – 6-22-2014
See No Evil, Hear No Evil, Speak No Evil…
On Wednesday we were honored to listen to Ms. Janet Yellen respond to questions by the economic press. Some of the questions were clearly scrubbed and purified, but others that should have elicited a good response were replied to with grotesque fantasy.
Ms. Yellen clearly has not heard or seen any of the evils of our economy, and therefore did not speak of them.
Prior to the Internet, most people thought that the Federal Reserve was a part of the Federal Government, and that its chairman and boards were government employees. It proved to be quite a wake up call to find out that they were no more ‘Federal’ than ‘Federal Express’. It surprised many to find out that the FED is a private group of ‘unelected’ bankers – placed into power by what could only be called a ‘midnight political coup’ over 100 years ago. After Wednesday’s remarks, I’m going to have trouble believing anything (either spoken or un-spoken) that comes out of our FED.
First: Ms. Yellen actually said that she did NOT see anything ‘frothy or bubble-like’ in the equity markets. Really Janet? Last year the markets rose 35% while most of the economic reports were trending downward. Janet, if NOT ‘frothy or bubble-like’ – then just how would you characterize a 35% market run-up during a weak economic period? New-normal? The markets have made 20 new, all-time highs this year – and our first quarter GDP came in as a NEGATIVE one percent. So – if I’m understanding you correctly: You don’t see anything ‘frothy or bubble-like’ after hitting 20 new, all-time highs during a period when our nations GDP was NEGATIVE, and AFTER experiencing a 35% market rocket-ride last year? Really Jan?
Second: Ms. Yellen refused to acknowledge inflation figures – published by her own government – that showed that inflation was beginning to over-heat. Her response was: “The data was ‘noisy’.” Really Janet? Just what pieces of data are ‘noisy’ – the FACT that chicken, pork, beef and electricity have hit all-time high prices? Oh we’re blaming that on the weather. And on what do we blame oil spiking to levels that normally cause a retrenchment in consumer spending – some ‘noise’ out of the Middle-East? So if I understand Ms. Yellen correctly: the FED says that their inflation target is 2% - the Government’s own reports show that we’re above that target already – and Ms. Yellen’s response was that the ‘data was noisy’ and that “inflation is subdued and won't hit their targets until late 2015”. Really Jan?
So Ms. Yellen refuses to see ‘absurd’ run-ups in the equity markets. Ms. Yellen refuses to hear the facts concerning inflation that her own government is telling her. And Ms. Yellen refuses to speak on anything that would rock the boat. Well, to quote Jim Carey: “ALLLLL-Righty Then!”
Factually, the Financial Times this week did their own investigation and found that the global Central Banks own $29 Trillion in stocks. The entire globe is awash in a Central Bank experiment that has NEVER been tried before. Never before has this amount of printed (fake) money been stuffed into our global economies. This week:
- Our FED lowered it’s 2014 growth forecast for the U.S. economy to 2.3%,
- Student loans, car loans, and credit card debt increased by $26.8B in April – reaching an all-time high of $3.2 Trillion,
- U.S. consumer debt reached a record 25% of disposable income, and
- The 2013 U.S. consumer saved 5.5% of their income, but the 2014 consumer is back down to under a 4% savings rate.
I’m betting that (over the next 2 months) Saudi Arabia announces that it will accept payment for their oil in virtually any currency including: the Yuan, the Euro, Gold, and Rubles. When that happens the entire pretense of the U.S. dollar is over. The "Petro-Dollar" deal we made with the Saudis (where all of their oil would be priced in dollars, in exchange for U.S. military protection) would unofficially end. And if the world dumps the dollar, then the U.S. loses its global reserve status. Did ANY reporter ask Ms. Yellen about that? Not a one. All anyone cares about (it seems) is keeping the punch bowl full, and when/if the FED is going to raise rates.
The general thinking among economists is that the FED can push this market until either we implode with hyper inflation, OR they yank the punch bowl away and we enter a recession / depression. But allow me to suggest a 3rd alternative. What if the rest of the world decides our fate for us by abandoning the U.S. dollar? When that happens, be ready for a significant devaluation of our currency. There’s a reason why people are buying ‘hard assets’ at significantly above market prices. The reason is – going forward – physical assets are going to be worth considerably more than the dollars that were used to purchase them.
The entire global economic situation was built and based upon the U.S. dollar being king. But trying to amass as many U.S. dollars as possible – just to see them devalued by another 40% - is a loosing effort. As you all know, I'm a firm believer in Gold, Silver and real estate. Unfortunately rental properties are only as good as the renter’s ability to pay. Let’s talk next week on alternative investment options that you can expense or depreciate – and that APPRECIATE in value going forward.
Oh look – another all-time high in the markets. Yawn. All-time highs have become as commonplace as weeds in a garden. But that's to be expected when:
- Central Banksters print money out of thin air, and then use that money to purchase over $29 Trillion in stocks, and when
- Hundreds of companies take their profits and (instead of using them to hire and expand) use them to buy back their own stock – simply to inflate their share prices.
We are experiencing the greatest disconnect in history between global stock markets (fueled by free money from our central banksters) and reality. Factually, we are overdue (timewise) for a pullback. But – the PUT/CALL ratio is telling us something different. The PUT/CALL ratio (the number of PUT options outstanding – divided by the number of CALL options outstanding) (a) on the S&P is 1.76, (b) on the NASDAQ is 1.39, and (c) on the Russell is 1.38. All of this is telling us that the world is buying a lot more PUTS than CALLS. On my yardstick, anything greater than 1.30 should be viewed as extreme PUT buying, and you can start looking for a potential bottom. And anything at 0.60 and below can be viewed as extreme CALL buying, and should be viewed as if there is a potential top in place. So while you may think that a pullback is in the cards (and potentially we could experience a small one mid-next week) – the numbers are telling us that there is more upside to this current market trend.
Also, when you review the major market indices against their various technical patterns:
- the S&P’s are in the fifth week of their 8-week up-trend,
- the DOW could be quite volatile this coming week,
- the Nasdaq is in the third week of an 8-week up-trend, and
- the Russell (small cap index) is in the first week of an 8-week up-trend.
So I’m looking for a renewed upside bias for this coming week.
I’ve honestly been trying to announce my trades via Twitter and StockTwits, but I failed miserably when it came to Quadruple Witching Friday. I will improve as the weeks go on – so just bear with me. If you wish to ‘follow me’, my nickname on both of these sites is: ‘taylorpamm’.
In terms of how I purchase options – I use the 70 / 30 rule. In terms of buying directional options, under normal conditions (low implied volatility) my bias is to: (a) invest 70% of my position into Delta 70’s (In The Money = ITM) options, and (b) invest the remaining 30% of the position into Delta 30’s (slightly Out of The Money = OTM) options.
I’m currently looking at the following plays:
- U.S. Steel (X) – U.S. Steel is 2 bars into a weekly squeeze with an upside bias – looking at the $25 – July monthly call options for around $1.14
- FireEye (FEYE) – I’m using their 2 and 3% weekly premiums as a nice ‘covered call’ strategy – i.e. either Write Call Credit Spreads / or purchase the stock and write Covered Calls against the stock.
- J.P. Morgan (JPM) – JPM just came out of a pinning move on Quadruple Witching Friday – and is ready to resume it’s upward move toward $61.45 – looking at $55 – July monthly call options for $2.69.
- XLNX – is in the 3rd day of an 8-Day Squeeze. Looking at the $45 – July monthly call options for around $2.71.
- Solar Power (SPWR) – is in the 1st week of an 8-Week Squeeze. Looking at the $39 – June weekly call option for around $1.81.
Reviewing our Past Week’s Performance:
- J.P. Morgan pinned nicely for us @ $57.50 – creating a very nice upside indeed. We’re currently in JPM - $55 – July monthly calls – looking for a pop higher early this week.
- Mannkind Pharmaceutical (MNKD) – We’re still in MNKD and continue the 40% covered call strategy. We’re coming up on FDA approval date – so it wouldn’t be uncommon to see a run up into FDA approval – a huge pop higher upon approval – and then a fall back to normal levels post-approval. We’d obviously like to sell at the highs and will keep our finger close to the trigger on this one – as approval can come virtually any time between now and July 15th.
- Durata Therapeutics (DRTX) – closed in the mid-16’s on Friday – allowing us to pocket the entire premium that we sold on the $15 / $12.5 Put Credit Spreads. We will potentially be scaling out of DRTX in the coming days/weeks.
- My energy portfolio comprised mostly of small energy companies continues to do very nicely indeed (see below):
My current short-term holds are:
- **DRTX (Drug) – in @ $13.67 – (currently $16.56), 22% increase
o (Look for more Income Plays here…)
- MNKD – in @ $6.35 – (currently $10.35), 63% increase
o (Continued Income Plays here…)
- AMKR (Energy) – In @ $9.43 (currently $10.85) 15% increase / mo.
- **ASX (Tech) – in @ $5.81 (currently $6.41), 10% increase / mo.
- FET (Energy) – in @ $30.53 (currently $36.15), 12% increase / mo.
- FPP (Energy) – in @ $5.68 (currently $5.48), 3% increase / 2-wk.
- HK (Energy) – in @ $5.25 – (currently $6.99), 24% increase / mo.
- KOG (Energy) – in @ $12.98 – (currently $14.51), 12% increase / wk.
- LNG (Energy) – in @ $57.40 – (currently $68.54), 19% increase / mo.
- NGLS (Energy) – in @ $64.47 – (currently $70.11), 4% increase / mo.
- N.W.E. (Energy) – in @ $47.84 – (currently $50.99), 7% increase / 2 wk.
- **NOG (Energy) – in @ $14.97 – (currently $17.10), 14% increase / 3 wk.
- **PFIE (Energy) – in @ $3.97 – (currently $5.05), 27% decrease / mo.
- PQ (Energy) – in @ $5.87 – (currently $7.15), 13% increase / mo.
- **PVA (Energy) – in @ $14.57 – (currently $15.10), 6% increase / mo.
- **RFMD (Tech) – in @ $7.96 – (currently $9.73), 22% increase / mo.
- SPIL (Tech) – in @ 7.20 – (currently $8.11), 12% increase / mo.
- THRM (Trans) – in @ $41.42 – (currently $42.93), 4% increase / 3 wk.
- **UIHC (Insurance) – in @ $16.81 – (currently $17.87), 6% increase / 3 wk.
- VTNR (Energy) – in @ 7.35 – (currently $9.95), 35% increase / mo.
- SIL (Silver) – in at 24.51 - (currently 13.79) – no stop,
- GLD (ETF for Gold) – in at 158.28, (currently 126.65) – no stop ($1,314 per physical ounce), AND
- SLV (ETF for Silver) – in at 28.3 (currently 20.04) – no stop ($20.90 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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Until next week – be safe.