This Week in Barrons – 8-24-2014
Can’t We ALL Just Get Along?
These are the words that President Obama must say to himself every night before he goes to sleep. This week it was reported:
- 76% of Americans are dis-satisfied at the direction things are moving. Therefore, as CNBC continues to tout happy consumer sentiment numbers, the facts are: 76% of us are NOT happy.
- 36% of American families have absolutely NO savings for retirement. Not a 401K, a savings account, or even a handful of bonds that they may have received as a child.
- The FED continued to cut QE and reaffirmed its thinking that interest rates will start to increase around Q2 of 2015. But over the past 2 years, hasn’t corporate borrowing exceeded every record in the books? Yes. And when interest rates rise, won’t all ‘heck’ break loose? Yes. Because when interest rates rise, not only will the U.S. Government be harmed (as it will have to pay many more billions to finance its debt), but much of Corporate America (due to stock buy-backs and bonuses) will NOT be able to repay their higher debt payments.
- The Chicago Sun-Times reported that Obamacare was responsible for the cut in groundskeeper hours at the home of the Chicago Cubs – Wrigley Field. This caused the grounds crew’s inability to get a tarp on the field in order to prevent the postponement of a baseball game. The reason for the cutbacks was the health care coverage requirement under the Affordable Care Act, said the Sun-Times.
- AND, as more and more nations join the BRIC’s and decide to use the Chinese Yuan and the Russian Ruble for trade, we see nations pushing back against the insanity of the sanctions that Europe and the U.S. are implementing against Russia. This week the Czech Finance Minister came out and said that the ‘Western alliance is getting increasingly weaker, and the sanctions on Russia make no sense.’
So we can’t ‘All just get along’ because record numbers of us are broke, unhappy, scared of impending rate hikes, are only working ‘part time’ due to Obamacare, and feel deserted as it’s unclear whether the U.S. can even ‘buy friends’ at this point.
This behavior is on top of:
- Our Government changing the way inflation is calculated, in order to prevent increased social security outlays. FYI: If we go back to the pre-1980 inflation model, we are running at 9.7% inflation.
- Our Government changing the way GDP is calculated so we can improve our abysmal growth rate. The first revision of the 2nd quarter GDP estimate (4%) is coming out on August 28th. For those of you that thought the first quarter negative 2.9% GDP was an anomaly, I say that the 2nd quarter 4% GDP is the real anomaly. I believe it will be revised much lower, and we will see weaker results in the 3rd quarter as well.
- AND Our Government changing the way FICO credit scores are compiled – in order to allow for more people with credit issues to buy things they don’t need with money they’d don’t have.
So if we can’t – ‘All just get along’ – what should we do? We know that the economy is fake. We know that our debts too large to repay. We know that one day the wheels will come off. We know that the stock market is rigged, BUT at this point it’s rigged to go UP. So it stands to reason that owning stocks (while they're being pushed higher) makes a lot of sense. I find it interesting that people will drive all the way across town to buy an item that's on sale, but when the metals (silver and gold) are on sale – nobody buys them except the Chinese and Russians. Both countries have trillions of assets based in dollars. They know that dollars become increasingly worthless every time the FED prints more. So smart countries have been buying all the gold that they can get their hands on. Because, when the dollar begins to fall, gold will offset that fall.
My approach is simple. I use the markets for income, and then save money by way of physical, precious metals. The bottom line is this – I can think of no other vehicle that can produce the same kind of income as the stock market (for the average individual). You will need some education, but the education is available.
Remember: Kool-Aid makes you feel better. But it is nothing more than a sugary drink that also makes you fat, dumb, and complacent. NO – we can’t ‘just ALL get along.’
Monday was one of those incredible snap back days (up 200 points) that just caught everyone a bit off guard. And Tuesday didn't retreat, but rather pushed us even higher. No one seemed to care that it was the second lowest volume day, equaling such notables as Christmas Eve, and New Years. By the time Wednesday came around, the indexes had gone from slightly oversold to overbought, but the markets continued to climb. Was there good news? Well:
- Mortgage applications for home purchases fell another 0.4%.
- Target (the retailer) missed earnings and warned for the rest of the year, lowering their guidance.
- Automobile repossessions (from people not paying their loans) have surged an incredible 70% year over year, and those in the 30-60 day late bucket advanced noticeably.
- And Bank of America agreed to a $17 Billion fine – to pay off the mortgage-backed fraud they perpetrated during the big melt down.
On Friday the Russians and the "West" were tossing insults back and forth. The Russians had ordered their aid convoy into the Ukraine – which the Ukrainian Government instantly said was a provocation and escalation of war. Moments later, they actually let the Russians in, as to not to seem confrontational. As the day wore on, more and more officials called the Russian build up of troops near the border a 'dangerous situation’, and again the Ukraine changed their story and said the convoy was paramount to an attack. This went back and forth for hours and it did indeed have some market participants wondering if buying more stock made sense in such a tense time.
Ms. Yellen spoke on Friday and two things were very clear: (a) Quantitative Easing will end in October, and (b) the FED will continue to keep interest rates low for a while – their estimate is either into Q1 or Q2 of 2015. I’m thinking around April of next year, the FED will lose control of the interest rate situation.
I think that we will see a soggy market in September as traders begin to fear the end of QE. It will somewhat be a reverse of: "Buy the Rumor, Sell the News". I think that it’s very possible that with the market flirting with all-time highs (which is currently offering a bit of overhead resistance) and QE ending will put exert some downside pressure on the indices.
For the upcoming week, if the Ukrainian/Russian situation cools off a bit, the market will make one more push back up and over the highs – especially going into the holiday weekend. If (however) the situation continues to ramp up, then I think we will move sideways and slightly down on the week.
My current list of potential candidates is much lighter this week. Some names I am looking at are: COST, SLW, CBRL, BA, UTX, SLB, COP, UNH, AET, PII, URI, BAX, BEAV, OEX, SPX and SPY. As you know, these are just candidates of interest, and the trade set-up has to be right to take the trade. In terms of directional trades:
- BUY TLT (the Bond ETF) and BUY UBT the (leveraged bond ETF),
- SELL CSIQ – PCS’s (Put Credit Spreads) – as it’s extended,
- SELL TRIP – CCS’s (Call Credit Spreads) – 1 SD (standard deviation) out,
- BUY MA – Longer dated Calls, and SELL PCS’s (short term),
- BUY CME – Longer dated Calls, and SELL PCS’s (short term),
- SELL BIDU – PCS’s (Put Credit Spreads),
- SELL VIPS – PCS’s (Put Credit Spreads), and
- SELL SPY, QQQ, DIA, and IWM – PCS’s (Put Credit Spreads).
My current short-term holds are:
- AAPL (Tech) – in @ $92.86 – (currently $101.43),
- KO (Beverage) – in @ $41.17 – (currently $41.12),
- LNG (Energy) – in @ $57.40 – (currently $75.43),
- NUGT (Gold) – in @ $41.10 – (currently $43.03),
- TLT (Bonds) – in @ 112.32 – (currently $117.29),
- SLV (Silver) – in @ $20.17 – (currently $18.69)
- SIL (Silver) – in at 24.51 - (currently 13.44), and
- GLD (ETF for Gold) – in at 158.28, (currently 123.19)
My Small Caps (LEJU is moving):
- FET (Oil) – in @ $25.14 – (currently $32.87),
- GTAT (Tech) – in @ $17.84 – (currently $18.15),
- IDTI (Tech) – in @ $15.08 – (currently $16.34),
- IG (Tech) – in @ $6.24 – (currently $6.00),
- LEJU (Tech) – in @ $13.07 – (currently $18.41),
- PEIX (Oil) – in @ $19.34 – (currently $21.16),
- RFMD (Tech) – in @ $11.05 – (currently $11.81),
- TSRA (Tech) – in @ $28.05 – (currently $29.28),
- VDSI (Tech) – in @ $14.17 – (currently $14.26), and
- VTNR (Oil) – in @ $7.87 – (currently $8.27)
To follow me on Twitter and get my daily thoughts and trades – my handle is: taylorpamm.
Please be safe out there!
Expressed thoughts proffered within the BARRONS REPORT, a Private and free weekly economic newsletter, are those of noted entrepreneur, professor and author, R.F. Culbertson, contributing sources and those he interviews. You can learn more and get your free subscription by visiting: <> .
Please write to Mr. Culbertson at: <email@example.com> to inform him of any reproductions, including when and where copy will be reproduced. You may use in complete form or, if quoting in brief, reference <>.
If you'd like to view RF's actual stock trades - and see more of his thoughts - please feel free to sign up as a Twitter follower - "taylorpamm" is the handle.
If you'd like to see RF in action - teaching people about investing - please feel free to view the TED talk that he gave on Fearless Investing:
To unsubscribe please refer to the bottom of the email.
Views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest and is not in any way a testimony of, or associated with Mr. Culbertson's other firms or associations. Mr. Culbertson and related parties are not registered and licensed brokers. This message may contain information that is confidential or privileged and is intended only for the individual or entity named above and does not constitute an offer for or advice about any alternative investment product. Such advice can only be made when accompanied by a prospectus or similar offering document. Past performance is not indicative of future performance. Please make sure to review important disclosures at the end of each article.
Note: Joining BARRONS REPORT is not an offering for any investment. It represents only the opinions of RF Culbertson and Associates.
PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS (INCLUDING HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS AND OTHER SPECULATIVE INVESTMENT PRACTICES MAY INCREASE RISK OF INVESTMENT LOSS; MAY NOT BE SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop.
All material presented herein is believed to be reliable but we cannot attest to its accuracy. Opinions expressed in these reports may change without prior notice. Culbertson and/or the staff may or may not have investments in any funds cited above.
Remember the Blog: <http://>
Until next week – be safe.