This Week in Barrons – 6-29-2014
Who let All these Sheeple into My room?
You’ve heard the old adage: When a man with money meets a man with experience – the man with money ends up with experience – and the man with experience ends up with all the money. The bad news is that first quarter GDP estimates (that were for +0.1% growth) were revised downward to a NEGATIVE 2.9% this week. Yes, the U.S. economy SHRANK by 3% in the first quarter of 2014. And this week, when the President addressed ‘The Sheeple’ (the J.Q. Publics of the world) – he blamed the ‘slight miss’ in the GDP number on – wait for it – ‘The Weather.’ Revisions of this magnitude are a way of ‘publishing reality’ after feeding ‘The Sheeple’ a load a crap. This constant ‘blame it on the weather’ and the ‘data is noisy’ has caused me to re-examine my perspective on the economy.
- Do I think the market is just a ‘Bit Frothy’, and I a little worried about a major correction? If so – then buy some protective PUT options and go on with my life.
- Do I think that things are a little more severe, but not yet in the ‘Epic Chance of a Major Meltdown’ camp? If so – then I should just cut my debt levels, save as much money as I can, and ‘ride it out’.
- However, If I think that the ‘Big One’ is coming. That is to say: I have examined the real numbers, the frauds, the manipulations, the market distortions, the debt levels, and have decided that a massive global currency and economic crash is pretty much ‘In the Cards’. Then I asked myself: What should I invest in that will get me through those times?
We all need to take the time to try and decide for ourselves just where we sit concerning ‘the scope’ of our economic situation, but if I'm right:
- There is going to be a currency crash.
- The world will shun the dollar to the point it loses its reserve currency status.
- And when the world no longer needs U.S. dollars to buy energy and to perform international trade, we (the U.S.) are in a heap of trouble.
Remember, hundreds of nations around the globe have tried to print their way out of trouble and into prosperity. It has never worked. So, why has the U.S. been able to print so much money and still ‘appear’ to be limping along? Well, if you're a solitary country – not part of the global reserve standard – and you print money:
A. You will distort your internal country’s values – which will cause inflation.
B. You will be unable to value your exports efficiently – which will cause bondholders to go crazy (knowing more inflation is coming).
C. You will shut down sovereign trade – which will cause you to ‘rinse ‘n repeat’ until your nation goes bankrupt.
The U.S. has held a very interesting position for the past 60 years. Its currency has been ‘in demand’ globally due to its status as the world’s reserve currency. Why is that important? A global reserve currency is a currency that is held in significant quantities by governments and institutions as part of their foreign exchange reserves, and is the currency that is most commonly used in international transactions. But in addition to that, the U.S. has held an even higher position due to a deal it made many years ago with the Saudi's and the OPEC nations. The ‘petro-dollar’ deal guaranteed that oil from the Middle East would ONLY be sold on the world stage in U.S. dollars.
Every nation needs oil. So when you have a ‘sweetheart deal’ that requires every nation to first obtain ‘U.S. dollars’ via foreign exchanges to buying oil – you have an ‘artificial’ demand for U.S. dollars that would NOT be there without the existing petro-dollar setup. Therefore, the U.S. has been able to print dollars and export our ‘inflation’ around the world. And the world has been forced to use our dollars if they want energy.
Well, ‘Times – They are a Changin’. The world is tired of our constant printing and their austerity suffering, while we live ‘high on the hog’ printing dollars and running up trillions of dollars in debt. The world is tired of being dollar slaves and yearns for currency freedom. That means that one day (fairly soon) we’re going to see the Saudi's and OPEC openly declare to sell oil for alternative currencies such as the Yuan, Ruble, Euro, Peso, gold and silver. The very minute that news hits the wires – no one will need to hold U.S. dollars any more. The world will instantly flood the system with U.S. dollars, the dollar index will decline, and we will then become just another Argentina & Zimbabwe.
So, what do you do about it? And perhaps more frightening is: how bad could it really get? If you’re a hard-working individual, with a good to excellent middle class income and some ‘savings’ – then things are going to get ‘exponentially’ tougher. I would expect gold first and silver second to increase in value enough to offset the crush of the dollar devaluation. Last week I mentioned ‘good real estate’ and I should have qualified what I mean by ‘good’. While it’s generally a great idea having a property and letting someone else pay for it – unfortunately in difficult financial times your ‘renters’ will often NOT be able to continue paying – and it’s incredibly difficult to evict tenants when they stop paying.
The two forms of real estate that I've found to be bullet proof are: (a) land that is rented by the U.S. government, and (b) land that is leased to farmers. So, if we don’t collapse into total anarchy, and the basics of the infrastructure continue to function – then having a good stock of PHYSICAL gold and silver coins will help you immensely. They've printed $29 Trillion to buy stocks, thus saving the rich from the embarrassment of losing money. This time however, it's the printing that's CAUSING the problem. When the collapse hits, printing more money won't fix it – only time and working through the fundamentals of a new economy will supply the solution. If you believe that a NEGATIVE 2.9% GDP in the first quarter of 2014 was caused by ‘bad weather’, and there is (according to Ms. Yellen) ‘no inflation – just noisy data’ – then completely disregard all that I’ve said above – and by the way – ‘I have some land in Florida (and a bridge in New York) that I’d like to sell you.’
Before I get into the market, I would strongly recommend that everyone sign up and read Michael Williams’ blog on a daily basis: http://marketpreview.silexx.com/. How Michael can turn out (day after day) high quality information like this is just beyond me – congrats to him.
Last Sunday we suggested that the market may see a bit of red as they work off the previous week’s pop higher. Well, that's exactly what happened – as the market sank on the week.
- Mortgage apps fell 1% last week, on the heels of the previous week’s 9% drop.
- First quarter GDP came in at NEGATIVE 2.9%, the worst first quarter since 1958. Remember when I was skeptical of the Fed's cutting QE because for the first time in their history they'd be cutting a stimulus program in the face of weakness. Well, you can't get much weaker than -3%. The good news is, with the horrific GDP data, there’s virtually no chance that the FED will raise rates this year.
- President Obama is pushing for more sanctions against Russia.
- Monsanto’s stock jumped $7 (not because of earnings, new R&D, or expansion) – but because they’re using ½ of their total market cap to BUY BACK their own stock.
- In Venezuela the electricity has been drastically shut down.
- Argentina has all but defaulted, and Putin is scheduled to go there in July. Yet another potential member of the ‘Dump the U.S. Dollar’ Club.
- Iraq and the Ukraine are still – well – Iraq and the Ukraine.
On Monday this week, we mark the end of the 2nd quarter of 2014. I would expect some window dressing – meaning brokers buying the stocks that did well and selling the stocks that didn’t. On Tuesday and Wednesday we should see the effects of some 'new money’ coming into stocks. So I think we trade sideways to higher into Thursday’s initial jobless claims and non-farm payrolls reports.
Thus far they've been able to engineer a magical levitation of the markets in the face of everything that's going on. I expect this to continue on into the mid-term elections in November – with a few 2% pullbacks sprinkled in for effect. But remember that anything could be that proverbial ‘last snowflake’ that lands and causes the avalanche. Just because they want it up, doesn't preclude the fact that something massive can go wrong.
I’m getting better at announcing trades, but I really have a ways to go. I make (roughly) 20 trades a day, and announcing them via Twitter and StockTwits is tougher than what I thought. But, I am getting better.
When I talk of ‘stock manipulation’ – there was nothing finer than the manipulation of MNKD stock following their receipt of FDA approval on Friday. The FDA announced their approval with a ‘badly worded’ release at 3:28 pm on Friday. With the wording of the release – the stock plunged from $10.50 to $8.20 in virtually 5 minutes – on volume (roughly) equivalent to Apple’s entire trading day! Following that initial move downward, the stock miraculously moved back to $10 and then to $11 (with a re-worded FDA message) in after-hours action. Allow me put forth a potential scenario:
- If you are the the CEO of MNKD, you need to make sure that your stock does NOT go ‘thru the roof’ upon FDA approval. [Estimates were for MNKD to rise to between $16 (a 60% gain) to $48 (a 400% gain) per share upon FDA approval – and then result in a huge ‘sell the news’ collapse directly following the rise.]
- Gains to these levels (if they held) would make partnerships and merger opportunities difficult, and stock ensuing collapse would make those same discussions problematic.
- At the same time, you need your stock to increase because your balance sheet is becoming ‘squeezes’ – and you do have ‘short-term cash’ obligations on the horizon.
- Now, hypothetically you could ‘work with’ the FDA on wording of their original announcement (in such a way) that would allow you to initiate a SALE of your own stock – starting the dominos to fall.
- And once your stock hit a pre-arranged level ($8.20 for example), you again come in with a hint of a re-worded announcement and cash to buy the stock (at these reduced levels) – and thereby trigger the ensuing 25% increase from $8.20 to $10 per share before the close.
- This would have limited your upside (and not priced you out of the partnership – merger market), and would have garnered you the quick $32M (16M shares * $2 per share increase from $8 to $10/share) that you (MNKD) needed for your cash obligations going forward.
- BRILLIANT – simply a work of art!
This week I’m looking to SELL premium PCS (Put Credit Spread) on the following:
- COST – weekly & daily squeeze = Directional, October $115 calls
- AAPL – 15 min & 4 hr squeeze = Directional, October $85 calls
- FEYE – hourly squeeze = Directional, July $37 calls, AND July (monthly) PCS $37 / 35 = $0.25/share
- BWLD – weekly squeeze = July (monthly) PCS $150 / $140 = $0.50/share
- CMG – hourly squeeze = July (weekly) PCS $577.50 / $572.50 = $0.52/share
- GOOGL – hourly squeeze = July (weekly) PCS $577.50 / 572.50 = $0.65/share OR $575 / $570 = $0.45 OR $572.50 / $567.50 = $0.30/share
- PCLN – 4 hour squeeze = July (weekly) PCS $1170 / 1162.50 = $0.65/share OR $1167.50 / 1160 = $0.57/share
- TSLA – hourly squeeze = July (weekly) PCS $227.5 / 222.5 = $0.40/share
- VIPS – 4 hour squeeze = July (weekly) PCS $180.00 / $175.00 = $0.40/share
Reviewing our Past Week’s Performance:
- Our directional Calls and our PCS (Put Credit Spreads) did very well indeed for us last week – and continue our assult on a 20% return à FOR THE MONTH!
- Mannkind Pharmaceutical (MNKD) – will be interesting on Monday. The Options market is telling us that it should settle around $14 per share.
- Durata Therapeutics (DRTX) – closed at $17.26 on Friday – allowing us to pocket the entire premium that we sold. We’re continuing to hold onto our position a little while longer.
- My energy portfolio (comprised mostly of small energy companies) continues to improve nicely (see below):
My current short-term holds (returning > 15.7% for June) are:
- **DRTX (Drug) – in @ $13.67 – (currently $17.26), 27% increase
- **MNKD – in @ $6.35 – (currently $11.00), 73% increase
o (Continued Income Plays here…)
- AKRX – In @ $30.96 – (currently $31.71), 2% increase / 3 days
- AMKR (Energy) – In @ $9.43 (currently $10.88) 15% increase / mo.
- ASX (Tech) – in @ $5.81 (currently $6.51), 12% increase / mo.
- BAS (Energy) – in @ $25.94 (currently $28.32), 9% increase / wk.
- ETP (Energy) – in @ $57.60 (currently $57.61), 0% increase / 2 days
- FET (Energy) – in @ $30.53 (currently $36.26), 19% increase / mo.
- GTAT (Tech) – in @ $18.09 (currently $18.2), 1% increase / 2 days
- HK (Energy) – in @ $5.25 – (currently $7.14), 36% increase / mo.
- KOG (Energy) – in @ $12.98 – (currently $14.45), 11% increase / 2-wk.
- LNG (Energy) – in @ $57.40 – (currently $69.95), 22% increase / mo.
- PQ (Energy) – in @ $5.87 – (currently $7.50), 28% increase / mo.
- **PVA (Energy) – in @ $14.57 – (currently $16.71), 15% increase / mo.
- **RFMD (Tech) – in @ $7.96 – (currently $9.36), 18% increase / mo.
- SPIL (Tech) – in @ 7.20 – (currently $8.12), 12% increase / mo.
- UIHC (Insurance) – in @ $16.81 – (currently $16.61), 1% decrease / mo.
- VTNR (Energy) – in @ 7.35 – (currently $9.95), 35% increase / mo.
- SIL (Silver) – in at 24.51 - (currently 14.02) – no stop,
- GLD (ETF for Gold) – in at 158.28, (currently 126.75) – no stop ($1,316 per physical ounce), AND
- SLV (ETF for Silver) – in at 28.3 (currently 20.16) – no stop ($20.96 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.