RF's Financial News

RF's Financial News

Sunday, November 16, 2014

This Week in Barrons - 11-16-2014

This Week in Barrons – 11-16-2014:

“It passed because the American people are too stupid to understand the difference” … Jonathan Gruber (Obamacare architect) on Obamacare.


Dear Ms. Yellen:
            The above was a quote from the architect of Obamacare.  Unfortunately it saddens me to say that we are stupid, and here are some recent facts to prove it:
-       Over half of us are worth (are being paid) less than $20 per hour.
-       We want to think that we will get a better job, but over 72% of the jobs created in October were only part-time.
-       We want to think we won’t lose our homes, but in October home repos had the largest increase (15%) since the height of the housing crisis.
-       We want to believe in our banking system, but (to date) 5 major banks have been fined over $35B due to the rigging of LIBOR and exchange rates, Gold and Silver price-fixing, and ‘robot’ mortgage signings.
-       We want to feel wealthier now that gasoline has fallen 19%, but unfortunately prices of food and rent have increased 22% and 15% respectively, which puts our gasoline savings in the rear view mirror.
-       We want to think Russia is the bad guy, but Russia and China just signed their second natural gas deal.  This makes China (instead of Europe) the largest consumer of Russian natural gas.  So while Europe comes apart at the seams, Russia and China are trying to create economic growth.
-       We want to think China’s economy is falling apart, but China is showing us that it can manage its 8% growth (U.S. = 2%) by announcing that it will be increasing its gold holdings to over 8K tons, and are going to import over $10T in foreign goods this coming year.

Therefore, Ms Yellen I guess we could be considered ‘stupid’ people.  Or – is it just the 545 leaders that we elect that are ‘guilty as charged.’  Courtesy of Charlie Reese of the Orlando Sentinel, here are some facts for you to consider:

545 is equal to: 100 senators + 435 congressmen + 1 President + 9 Supreme Court Justices.  545 human beings (out of our 300 million) are directly, legally, morally, and individually responsible for all of the domestic problems that currently plague our country.  These same 545 human beings spend much of their energy convincing you and I that what they did is not THEIR fault.  However, I can't think of a single domestic problem that is not traceable directly back to those 545 people.  Politicians are the only people in the world who create problems and then campaign against them.  If the tax code is unfair – it’s because THEY want it to be unfair.  If the budget is in the red, it’s because THEY want it to be in the red.  There are no unsolvable government problems.  I have forever wondered: IF both Democrats and Republicans are against deficits, inflation and high taxes – then WHY do we have deficits, inflation and high taxes?

The following is a list of taxes that have been enacted in the last 100 years:
Cigarette Tax, Corporate Income Tax, Excise Tax, Federal Income Tax, Federal Unemployment Tax (FUTA), Fishing Licenses, Food Licenses, Fuel Permits, Gasoline Tax (currently 44.75 cents per gallon), Gross Receipts Tax, Hunting License, Inheritance Tax, IRS Interest Charges, Liquor Tax, Luxury Tax, Marriage License Tax, Medicare, Personal Property Tax, Property Tax, Real Estate Tax, Service Charges, Social Security, Road Usage Tax, Recreational Vehicle Tax, Sales Tax, School Tax, State Income Tax, State Unemployment Tax (SUTA), Telephone Taxes (numerous), Utility Taxes (numerous), Vehicle License & Registration Tax, Vehicle Sales Tax, Watercraft Registration, Well Permits, and Workers Compensation Tax. 

Now, NONE of these taxes existed 100 years ago – when the U.S. was:
-       The most prosperous nation in the world,
-       Had $0 in National Debt,
-       Had the largest middle class in the world,
-       And was in an era when moms COULD stay at home and help raise the kids if they wished.

Ms. Yellen, What in the heck happened?  Did we become STUPID overnight?  How do you spell W-A-S-H-I-N-G-T-O-N?

The Market:

The market is working through an ‘over-bought’ condition by wobbling sideways and letting ‘time’ do the repair work on the technicals.  Part of me says that if this market was going to sell-off and do some profit taking – then it would have done so by now.  But I’m just not totally convinced.  We are currently ‘dead center’ in the area where pulling back would NOT be a bad thing.  And while it seems that this will be resolved to the up side, I’m just not certain right now.

As I approach the holidays, I always look toward the consumer for guidance.  Last week, Macy’s earnings showed that their revenue and margins were both contracting and compressing.  Wal-Mart’s story was similar to Macy’s but not as bad.  Their earnings per share (EPS) beat expectations, but they reported top-line revenue below expectations.

The easiest thing to say right now is that the ‘market is going higher.’  My issues with saying that are major indicators like the Russell Index of 2,000 stocks (RUT), and many of the financial, semi-conductor, and tech indices are struggling to keep their heads above water.  The path to me isn’t all that clear, but the markets would definitely LIKE to move higher.  I just don’t know if there’s any more ‘firepower’ left, and if any more ‘newbies’ are left to pull into the market?  The market just seems ‘heavy’ to me.  Also, heading into the holidays I have seen lowered guidance by some major retail names.  That means that even with lower gasoline prices, companies are beginning to lower their sales expectations for the holidays.  Companies are beginning to see elements in the consumer that are both troubling and un-manageable.

Please, be safe out there.


In the coming week, I’m looking for a continued ‘grind’ higher in stocks, and a push lower in the dollar related commodities such as oil and gold.

By the Charts:
-       The RUT (Russell Index of 2,000 small stocks) currently sits at $1,173, and could fall back to test $1,161.  The RUT should guide the markets, except for the NASDAQ which seems to be running on AAPL fumes right now.
-       The SPX (S&P Index) sits at $2,040 and is consolidating.  This is a bullish pattern, and can easily resolve itself by rising to test the $2,055 level.
-       The NDX (NASDAQ Index) sits at $4,225 and continues to move higher on the back of AAPL (Apple).  This could potentially hit $4,363 with all of the smaller players being forced to buy some AAPL prior to year-end.
-       TLT (a Bond indicator) is showing a BUY signal on the daily chart.  It is looking like it wants to move into $122, from its current price of $119.50.
-       The dollar index continues to push higher.
-       The financial sector is moving with the markets – with Berkshire Hathaway leading the way.
-       The energy sector is under significant pressure due to the price of oil continuing to fall as the dollar rises.  I see oil ultimately going to $60 per barrel.
-       Gold rallied to resistance on Friday and should continue lower next week.  Take advantage of this by buying DUST – a triple leveraged, inverse ETF that tracks the gold miners.  I see Gold eventually landing at $1,033 per ounce, and Silver making its way back to $10 per ounce.
-       IYT (the transportation index) is consolidating and wants to move higher.  SELL the December – 153 / 154 – Put-Credit Spread, and BUY the December 169 / 170 / 173 Call Butterfly.
-       AZO (AutoZone) also wants to move higher.  SELL the December – 520 / 530 – Put-Credit Spread, and BUY the December 580 / 590 / 610 Call Butterfly

In my view we are on the verge of an 8 to 12 month move higher in the U.S. dollar that is a result of a 12-year wedge pattern that has just fired long.  The last pattern resembling this (only in the inverse) fired in 2002 – when the U.S. dollar went from $120 to $87 over the next 3 years.  Currently money is flowing into the U.S. dollar from Europe, Brazil, India, and South Africa.  I’m looking for the dollar to move from its current level of $87 back up to $110 or potentially to $120 over the next 8 to 12 months.

Next week is options expiration, and if things remain calm my list of potential candidates includes: GILD, AAPL, WYNN, FDX, ALL, PII, HSY, FLR, BMY, DPS, TEX, SLW, TRV, UTX, and KR.

To follow me on Twitter.com and on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm. 

Please be safe out there!

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