This Week in Barrons – 11-30-2014:
You can fool some of the people all the time,
and all the people some of the time, but you can't fool all the people all the time… Abraham Lincoln.
Thoughts:
Dear Ms. Yellen:
Are we being played for a
fool? Let’s start with President Obama’s
immigration policy – especially as to how it applies to California. Just last week the L.A. Times reported the
following about Los Angeles County and their illegal immigrant population:
- 40% of all workers (10.2M people) are working for
‘cash’, not paying taxes, and are predominantly illegal immigrants working
without green cards.
- 95% of all murder warrants, and 75% of the ‘Most
Wanted List’ are illegal immigrants.
- 66% of all births are illegal immigrants on Medi-Cal (paid
for by the CA. taxpayers).
- And almost 60% HUD occupied properties are illegal
immigrants.
I would be remiss and
foolish if I didn’t ask: Is there a PLAN to help California and the other
border states handle this huge influx of 5M new illegal immigrants? Or is the plan to bankrupt these states, make
them even more ‘beholding’ to the government, and to gather the 2016 Hispanic
vote for the Democrats all in one ‘fell’ swoop?
By now you know that
last Friday, OPEC decided (some thought foolishly) to keep oil production
levels unchanged. The effect of lower
oil prices is essentially QE4, as the consumer will have more money to
spend. Oil ended Friday slightly lower
then $66 per barrel with energy companies, oil transporters, and rigging
companies all ‘taking it on the chin’.
In my mind, OPEC is playing us all for fools. J. Q. Public may cheer for lower gasoline
prices, but the bigger issue is our domestic oil and shale oil production –
that is getting significantly squeezed on margins and could see a decline if oil
prices remain under pressure. The
Saudi’s ‘get it’. They are willing to inflict
pain on our shale oil business, while at the same time put pressure on Russia's
exports. The Saudi’s can sell every drop
of their oil to China, and at the same time poke a stick in the eye of the
‘petro-dollar’.
Ms. Yellen, maybe I’m
becoming foolishly paranoid, but aren’t the risks caused by a strong dollar
becoming increasingly apparent:
- Disinflation pressure is continuing to rise, and bringing
with it the risk of deflation.
- The trade gap is continuing to widen, which is
beginning to stall U.S. GDP growth.
- And employment is coming under pressure as domestic
manufacturing and production slow. This
will cause U.S. multinationals to become less competitive, and encourage them to
expand overseas to avoid currency risk.
Ms. Yellen, is the
bigger fool the U.S. consumer?
Factually, the largest driver of general consumer consumption is
credit. It’s not just houses and cars,
but understanding that the holiday season causes a huge expansion of credit
spending. Currently credit cards are the
number one consumer purchasing method.
The average credit card balance for the U.S. consumer is: $7,743. Currently, the U.S. has over $847 billion in
outstanding consumer credit card debt. But the problem is NOT ONLY the
expansion of credit, but also stagnant wage growth combined with a questionable
ability to re-pay the debt. Using the
CPI to adjust for inflation, wage growth has actually declined over the past
decade. J. Q. Public’s ability to pay down debt is becoming
insurmountable, and producing larger balances carried for longer periods of
time. Everyone always talks about the
stock market rally, but seems to look past the parabolic debt acceleration that
has occurred during that same time period.
I always remember a
quote from Mark Twain: It is better to keep your mouth closed and
let people think you are a fool, than to open it and remove all doubt.
Markets:
Factually:
- Orders for U.S. business equipment unexpectedly
declined by 1.3% in October.
- Jobless claims increased more than expected – which
is rare for the holiday HIRING season.
- Durable goods orders (removing planes and cars) fell
by 0.9%.
- The Consumer Confidence Index was down sharply in
October.
-
Wal-Mart had 22
million people visit their stores on Thursday and Friday. That is more people (in one day) than Disney World
gets in an entire YEAR.
The markets have been in a
dogfight for the past week. We opened
Monday with the DOW at 17,812 and ended the week at 17,828. While along the way there were dips and pops,
the overall market really only traded sideways. That's a little bit disturbing because the
Thanksgiving Holiday week is usually positive. But the market has felt ‘heavy’ for two weeks.
While the market makers have dug in
their heels and kept the wheels from flying off, I can sense a level of desperation
and ‘control’. I will NOT be surprised
if we see some true ‘red’ show up next week. A likely scenario is to see a bit of a pull
back for a week or two, and then a final run up into the Holidays for ‘the
Santa Claus rally’.
Right now the market is ‘flat’,
and probing for direction. The market
has certainly proven that it can pop higher for no apparent reason, but I’m
looking for a bit of ‘profit taking’ this week. It might not happen, as the market makers have
managed this market from command central, but it ‘feels’ like it should.
Tips:
The
OPEC meeting has caused a new shift in the market. With oil prices at a 4-year low, the oil stocks
and our largest sector (energy) have been crushed. This move should give
the consumer more discretionary income, and should push the retailers and the
airlines higher. But the market (in general) will have a more difficult
time going higher – in the face of a declining energy sector. I think we will see more volatility on the
horizon, and that large caps will do better than small caps in the short
term. I have been looking for the Russell
2000 Small-Cap Index to go lower this coming week, and therefore investing in
the TZA (the inverse ETF) should work nicely.
This next week should be interesting as traders are back from the
holiday, and will begin to digest all of this new information.
My
current list of potential candidates includes: GILD, AAPL, WYNN, ALL, PII, HSY,
FLR, BMY, DPS, TEX, SLW, TRV, SPX, RUT, DUST, VXX, TZA, SPY, IWM, JNJ, MSFT and
UTX. Kroger (KR) reports earnings on Thursday, and I would like to
get a trade in Kroger if I can get a good set-up.
I’m looking at the
following Iron Condors (all with a Risk/Reward of less than 6:1):
- GILD – Dec1 – 95/96 to 106/107 for $0.14, - 1:6 risk
v reward,
- RUT – Dec1 – 1155/1160 to 1210/1220 for $1.42 – 1:6
risk v reward,
- SPX – Dec1 – 2030/2035 to 2100/2105 for $0.80 – 1:6
risk v reward,
- WYNN – Dec1 – 169/170 to 185/186.5 for $0.22 – a 1:5
risk v reward,
I’m also seeing the
following actions for next week:
- DUST going higher – which means the miners and gold
are going lower,
- VXX going higher – which means a downturn in stocks,
- TZA going higher – which means the Russell 2000 (RUT)
is going lower,
- SPY and IWM going lower – which means that the
S&Ps are heading lower, and
- I’m showing JNJ and MSFT going higher.
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!
Disclaimer:
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: <http://rfcfinancialnews.blogspot.com>
.
Please write to Mr. Culbertson at:
<rfc@culbertsons.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
<rfcfinancialnews.blogspot.com>.
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: http://www.youtube.com/watch?v=K2Z9I_6ciH0
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://rfcfinancialnews.blogspot.com/>
Until next week – be safe.
R.F. Culbertson
<http://rfcfinancialnews.blogspot.com>
No comments:
Post a Comment