This Week in Barrons – 4-12-2015:
“Statistics are a lot like a bikini - what they reveal is eye opening, but what they hide is essential.” Mark Puliafico
Dear Ms. Yellen:
At the last G20 meeting, the nations (including the U.S.) modified the rules concerning what is and what is not a bank deposit. The new rule classifies ‘bank deposits’ as ‘bank holdings’, and that directly impacts who is entitled to these funds if and when a bank fails. That means that the moment you make a deposit, the money belongs to the bank first and the depositor second. In other words, if and when a bank fails the senior debt holders of a bank get paid first – virtually guaranteeing depositors never seeing 100% of their own money. The scarier part is that if banks were forced to use ‘mark to market’ accounting, their real estate holdings alone would result in a significant number of bank insolvencies. Therefore, under this new rule, insolvent banks could use their deposits first (to help pay back their debts) – leaving depositors with virtually nothing. Ms. Yellen, is your name on this G20 resolution?
Lately, over 50 of our ‘so called’ allies have rushed to join the Asian infrastructure bank being run by China. Our allies realize that China is going to be carrying a lot more weight globally, and their fear is that the U.S. dollar will go into a ‘free fall’ prior to official global reset. Keith Neumeyer (CEO of First Majestic Silver Corp.) stated the other day: “With the central banks changing from selling to buying gold (which is quite unique in our lifetime), a reset of the financial industry is coming. We’re seeing governments accumulate the metals because there is some kind of back-room deal being made. The gold accumulation that I see is (a) outside the normal system, and (b) an accumulation of the physical metal.” Ms. Yellen, my question is, when the reset hits, will it be the people that have the physical gold and silver that will win?
Lastly, I remember some of Harry Truman’s famous quotes: “The buck stops here”, and “If you can’t stand the heat, get out of the kitchen”, and finally “It’s a recession when your neighbor loses his job; it’s a depression when you lose yours.” But my favorite Truman quote is: “Just give me a one-handed economist. Because all of mine say, on one hand I would do this, and on the other hand I would do that." Mr. Truman – I feel your pain. As of late, two different FOMC members (on the same day) proclaimed (a) that interest rate increases are right around the corner, and (b) rate increases may not happen at all this year. The fundamental problem is ‘not’ which one publically spoke last, but rather not allowing capitalism to resolve the issue. The Fed’s ‘zero interest rate policy’ (ZIRP) is replacing ‘hard work’ with subsidies that demand ‘less work’ and more dependence upon government subsidies. ‘Do-It-Yourself’ motivation is a memory, as individuals are becoming solely reliant upon the government for their needs (food, shelter, healthcare, cell phones, and money). Ms. Yellen, it’s your job to change the U.S. back from being the ‘Land of Free Stuff’ – to the ‘Land of Opportunity’.
- Earnings season began this week with Alcoa (AA) beating its already lowered earnings estimates with revenues that were also ‘below estimates’. Remember the pattern of beting ‘lowered earnings estimates’ (via accounting) with ‘fewer sales’, as it will be repeated throughout this earnings season.
- On Friday GE came out with a $50B buyback. To put that in perspective, February was a record month for stock buybacks at $100B, and GE is going to do half of that by itself. To do the buyback, GE is going to sell most of GE Capital – which contributed 42% of GE’s profits for the past 5 years. So cutting to the chase, GE is selling the division that made half of their corporate profits, in order to keep their stock price higher in the short term.
- In March the U.S. created 50,000 real jobs, but last week over 4 TIMES that many people (200,000+) signed up for ‘First Time’ unemployment benefits.
- 57% of Americans have $0 set away for retirement.
- The NY Times reported that the average American is now worth 36% LESS than they were a decade ago.
- The fastest growing jobs sectors are retail sales clerks and cashiers. How well can you say: “Do you want fries with that?”
Last week I said that I would sell many of my long positions if the S&P’s closed below 2056, and that I would increase my holdings if the S&P’s closed above 2086. Thursday’s session ended with an S&P close of 2091, and on Friday they followed through with a close of 2102. The next milestone is 2108 – which isn't far away. If we can get over that, there is little question that we will challenge the all time S&P high of 2117. I think we will probably get there; however, breaking through and reaching even higher is going to be a lot tougher.
This coming week, the floodgates of earnings reports will open, and we will get to hear the confessions from hundreds of companies. Companies will ‘proforma’ and ‘one time charge off’ their way to accounting glory. The real story will lie within their revenue numbers. You see, companies can manipulate earnings, but it’s tougher to manipulate revenues / sales. Buying back their own stock and using non-GAAP reporting are two mechanisms companies use to ‘account’ themselves into higher earnings. But watch a company’s revenue numbers for Quarter over Quarter (QOQ) and Year over Year (YOY) comparisons. When a corporation is showing QOQ and YOY revenue declines, that will be your ‘red flag’.
I think we will get to the all time highs. I am not so certain that we will get past them in any meaningful way. The top in the S&P that was set on March 2nd could end up serving as a market ‘top’ for a long time. In the meantime, I will lean long and pick up some swing trades, but I won't overstay my welcome. This is not the time to buy and hold things.
The following chart is showing the technical indicators favoring an upward movement in the S&P and DOW this coming week. Also, the VIX (volatility index) is currently low (12.58). It’s tough for the market to ‘rollover’ with the VIX this low. Therefore, this week we could see a steady ‘grind higher’ into Friday’s monthly options expiration.
Currently looking at:
- Mosaic (MOS) and Potash (POT) to the upside,
- Carmax (KMX) and TripAdvisor (TRIP) to the downside,
- Alexion Pharmaceuticals (ALXN) to the upside – buying a Diagonal for a 5 cent credit: - APR4 190 / + MAY1 192.5, and
- Sam Adams (SAM) – thinking of selling an Iron Condor: + 220 / - 230 to – 310 / + 320.
I’m currently holding:
- AAPL – SOLD APR Iron Condor: + 119 / - 121 to -131 / + 133
- DUST – SOLD APR2 Calls: -17
- GLD – BOUGHT MAY Call Debit Spread: +112 / -120
- HD – BOUGHT APR Call: +112, and SOLD APR2 Put Credit Spread: -114 / + 113
- KR – BOUGHT APR – Call Butterfly: +75 / -77.5 / -80
- LL – SOLD APR – Put Credit Spread: -30 / +28, then SOLD APR – Call Credit Spread: -35 / +40
- NUGT – BOUGHT MAY Calls: +10
- ORCL – BOUGHT MAY / JUNE Call Calendar: $45
- RUT – BOUGHT May Call Butterfly: +1170 / -1240 / +1300
- SYK – SOLD APR – Put Credit Spread: +85 / -87.5 and Buy Butterfly: +95 / -97.5 / +100
- URI – SOLD APR – Iron Condor: +80 / -82.5 to -95 / +97.5
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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Until next week – be safe.