This
Week in Barrons – 10-26-2014:
Politicians – they Walk Among us – and they Breed!
Maybe it’s because of Halloween
Week, but politicians are really starting to scare me. Last week President Obama (in a campaign
speech) said: “By almost every measure we are better off than the day I took
office". At first I thought it was
his attempt at humor, until I realized he believed what he said. Factually President Obama – from the time you
took office until now:
-
Individual
savings rates have fallen by 17%, from 6.5% to 5.4%,
-
The
number of food stamp recipients has increased by 46%, from 31.9 M to 46.5 M,
-
The
number of part time workers has increased by 12%, from 25M to 28M,
-
The median
income of a U.S. worker has fallen by 3.3%, from $55,871 to $53.978 (not
counting inflation),
-
The
number of people living in poverty has increased by 26% to 48M (an all-time
high),
-
The
majority (60%) of the jobs lost since 2008 have been 'high paying' jobs (over
$18/hr.), while the majority (58%) of the jobs created since 2008 have been
'low paying' jobs (less than $12/hr.),
-
AND with QE3 creating 1M jobs, but costing the taxpayers $1T – that’s a cost
of $1M PER JOB created! That’s an incredible statistic. If the average job created produced wages plus
benefits of $16 per hour ($33,000 per year) – where did the other 96% of the
$1M per job go? Does it mean that the remaining $967,000 per job ($1M per job minus the
$33,000 worker’s wages) went into the pockets of banksters – who (in turn)
invested it into the stock market?
Now, we can only blame
ourselves for electing the ‘Walking Dead.’
In fact, JA sent me some sample Congressional interactions that (I’m
ashamed to say) made me laugh at their level of incompetence:
-
Bernie Sanders (a senior Vermont Congressman) recently
complained about his trip to Orlando, Florida – because his room lacked an
‘ocean view’. When he was told that
Orlando was in the middle of the state he exclaimed: “Don't lie to me! I
looked it up on the map, and Florida is a very THIN state!"
-
Lindsay Ross (an aid to John Kerry) inquired: “Would
it be less expensive when going to Hawaii - to fly into California and then
take the train to Hawaii?”
-
Bobby Bright (a freshman Congressman from Alabama)
wondered how to find his plane. “I know
that the flight number is #823, but none of the planes seemed to have the flight
numbers painted on them.”
-
And then there was Mary Landrieu (a Senator from
Louisiana), who was told that in order to fly to China she needed both a
passport and a tourist visa. Ms.
Landrieu was abrupt in her response: “I do NOT need a visa because the last
four times I visited China – every shop I visited accepted American Express.”
When the President speaks
of income inequality, someone needs to do the math for him on the above
numbers. It appears that for every
working-class dollar created, we are paying $29.3 in crony capitalism to all of
his capitalist-investor-banker friends.
History shows us that this pace is unsustainable without a correction of
dramatic proportions. I urge you to make
your voices heard – the first week of November.
The Market:
In the short term, there
is a pattern of market manipulation developing, and it’s all being accomplished
by jawboning. Early last week it was FED
heads Williams and Bullard hinting at QE4, then the ECB's Coeure talked of
going on an ‘ECB buying spree’, then China talking about a $30 billion targeted
stimulus, and finally the Japanese finance minister hinting at a 25% stock
rebalancing in their government pension fund. The amazing part is that the jawboning is
working. Market volatility is at
‘un-heard-of’ levels, with wild mood-swings of a couple hundred points per day.
But let’s take a step
back. One thought is that next week
(when the FOMC ends the QE program) ‘air’ could start to leak out of this
market. The elections are on November 4th,
so any of the ‘propping up’ that may have been done will be over by then. Combine this with the incredible earnings misses
from some large multinationals (IBM, Coca-Cola and McDonalds), and the outright
‘doctoring’ of earnings due to stock buyback programs (Apple buying back $45B
worth of it’s own stock) – and you have a confused investor favoring the
market’s downside direction.
On the other hand, we've
had the first 10% correction in over 3 years, and many feel that this was as
deep a plunge as we're going to see. We
also are coming into the months of November and December – that are typically
good months for the market. In fact, November
is notorious for being the month where companies do the bulk of their buy back
action. And there are a ton of hedge
funds that are woefully behind the market – that will try and ‘save face’ by
piling-in and ‘making’ the market go higher as they ride along.
The strong
U.S. dollar (that has delivered us lower oil prices) is weakening U.S. exports
and hurting our corporation’s top-line revenue abilities. Due to dollar fluctuations, tax inequalities and
other reasons, multinational corporations continue to migrate overseas – where
the bulk of consumers are located and where consumer income is growing. The key overseas markets are Brazil, Russia,
India and China (BRIC’s) – along with the emerging markets.
So there are reasons to
think that this market will fall, and reasons to think that it will rise. However, without more FED injections of some
kind, this market will start to ‘roll over’, and the recent increased
volatility is evidence of that. But I do
NOT think that this ‘roll over’ will happen between now and the end of the
year. I think that we're going to be
trapped between the lows of the 10% dip and the highs we have already set. I can see us running up and down inside that range
until the year ends. But come the New Year,
I do expect this market to begin its downtrend, and it could fall a long way.
Next week (on
Tuesday and Wednesday) we have another Federal Open-Market Committee (FOMC)
meeting. I believe that the Fed will
maintain their dovish stance on interest rates – keeping them at zero out into
the future. But I am on the fence as to
whether they will take any action regarding QE4 – in order to weaken the dollar
and create more inflation. In advance of
the FOMC meeting, I would expect to see market consolidation along with the VIX
(market volatility index) in the 15 to 17 range. The RUT (Russell 2000 Index of small-cap
companies) along with the 10-year bonds are pricing-in a dovish FED
meeting. I believe that the FED can sell
more HOPE’ium with its zero interest rate policy alone. If the FED introduces more QE – then the
volatility should be reduced, and the market will indeed move higher.
Between now and the end of
year, this market will favor the nimble investor. You won’t be able to get too long or too
short. If you’re the type of investor
that wants to hold something for more than a week or two at a time – this won’t
be a great market for you as the FED’s stars are beginning to align. The FED needs a stronger dollar and weaker
CPI in order to justify more QE, and to keep interest rates at zero for a
longer period of time. If the FED mentions
deflationary concerns at the FOMC meeting, this will fuel rumors surrounding
QE4. And with the weaker CPI (1.7%) and
the FED’s concern about ‘slack in the labor market’ and ‘structural
unemployment problems’, there is a possibility that they may NOT end QE3 just
yet and let it play out a little while longer.
Personally, I’m reminded
of a line from the movie ‘War Games’ where Joshua (a computer) says: “The only
winning move is – NOT to play.” Right
now I fear our market is stuck between the big correction and the all-time
highs, and we will remain there until yearend.
Tips:
We have all
heard the saying: “The market has no memory from day to day”, and that
certainly applies to this market. Just a little over a week ago, the
market was talking ‘doom and gloom’ and now it’s singing ‘Happy days are here
again.’
The past week, the S&P had its best week
in almost 2 years. This coming week has
many major energy and oil companies reporting earnings, so I expect some
downward pressure on the markets. I’m
seeing potential trades in names such as: AAPL, IBB, FDX, COST, DPS, CME, CBOE,
ICE, WYNN, TEX, SLW, IYT, TRV, UTX, HERO, XLE, UPL, PAA, KMI, VRTX, AMGN, and
REGN.
Remember,
over 75% of the time – the week before Halloween has an upward bias associated with
it. I’ll be watching the RUT (the Russell-2000 Small-cap Index) as my ‘tell’
for this market.
In response to readers
asking for more exact stock picks, I have constructed some recommendations
below; however, you may want to pause until after the FOMC meeting – just in
case there are any fireworks. Also
please note, I continue to move from investing ‘directionally’ (which I find
extremely difficult in this environment) – to investing in what I think will
NOT happen. Below – you will see that I think
WYNN, YELP will move lower (so I’m selling Call Credit Spreads), while
believing that GMCR, NFLX, IBM, AMZN, and DECK will move higher (and therefore
selling Put Credit Spreads.)
-
Wynn
Hotels (WYNN) – Sell the 202.5 / 205 Call Credit Spread with the momentum waves
negative and the daily squeeze is waiting to fire short,
-
Yelp
(YELP) – Sell the 65 / 67 Call Credit Spread with the momentum waves negative
and daily squeeze firing short,
-
Green
Mountain Coffee (GMCR) – Sell the 136 / 134 Put Credit Spread – with the theme
of the week being upward and the momentum waves being positive,
-
NetFlix
(NFLX) – Sell the 362.5 / 357.5 Put Credit Spread as the ‘squeeze’ is causing a
reversion to the mean,
-
Deckers
(DECK) – Sell the 77 / 75 Put Credit Spread with the theme of the week being
upward but cautious due to the mixed momentum waves,
-
IBM –
Sell the 155 / 152.5 Put Credit Spread with the theme of the week being upward but
cautious due to the negative momentum waves,
-
Amazon
(AMZN) – Sell the 265 / 260 Put Credit Spread with the theme of the week being upward
but cautious due to the negative momentum waves,
-
S&P
Index (SPX) – Sell the 1920 / 1915 Put Credit Spread – with the theme of the
week being positive, but wait until after Wednesday’s FOMC meeting for
confirmation,
-
Nasdaq
(NDX) – Sell 3910 / 3905 Put Credit Spread – with the theme of the week being
positive, but wait until after Wednesday’s FOMC meeting, and
-
The
Russell 2000 (RUT) – Sell the 1070 / 1060 Put Credit Spread – with the theme of
the week being positive, but wait until after Wednesday’s FOMC
My
current short-term ‘Larger-Cap’ holds
are:
-
KO (Beverage) – in @ $41.17 – (currently $41.03),
To
follow me on Twitter and on StockTwits to get my daily thoughts and trades – my
handle is: taylorpamm.
Please
be safe out there!
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