This Week in Barrons – 5-31-2015:
Dear Ms. Yellen:
How is it that we arrest FIFA (soccer) leaders, and let our bankers slide? How is it that our bankers can rape us for Trillions of dollars in mortgage fraud, Libor fixing, currency fixing, gold and silver manipulation, pay $40 billion in fines, and not a single high ranking banker goes to jail. Yet somehow the FBI can arrest 14 FIFA soccer heads for millions in corruption and graft? How is it that ‘Deflate-Gate’ (the New England Patriots letting the air out of footballs), can get 24/7 media attention for weeks on end, yet few reports were ever shown on the nightly news about the billions banks have been fined?
We are becoming a bi-polar (and potentially hateful) society. On Friday there was an incident on a United Airlines (UAL) flight going from Chicago to Washington D.C. Tahera Ahmad (a 31-year-old, female, Muslim chaplain and director of interfaith engagement at Northwestern University) was on this flight – heading for a conference promoting a dialogue between Israeli and Palestinian youth. For hygienic reasons she asked for an unopened can of soda. The flight attendant told her that she could not give her one, but proceeded to hand an unopened can of beer to a man seated nearby. Ahmad questioned the flight attendant, and her response was: "We are unauthorized to give unopened cans to people because they may use them as weapons on the plane." When Ahmad pointed out the discrimination (giving the man the unopened can of beer, but not her an unopened can of soda) the attendant said: “It's so YOU don't use it as a weapon.” Ahmad then asked the other passengers if they had seen what had just happened, and the man (sitting across the aisle) turned to her and yelled: "You Muslim, you need to shut the f--- up." Ahmad replied: “What?” And the man leaned over, looked her in the eyes and said: "Yes, you know you would use it as a weapon. So shut the f--- up."
Combine this ‘mood-swingesque’ behavior with Marco Rubio (a Republican Congressman from Florida and a candidate for President of the United States in 2016) being interviewed by CNN on Tuesday saying: “In America today, if you do not support homosexual marriage, you are labeled a homophobe and a hater. The next step is to argue that the teachings of mainstream Christianity (because they do not recognize homosexuality) constitute hate speech.” Really Mr. Rubio, United Airlines, and the FBI – is there no middle ground on any of these topics? FBI – can’t we prosecute ‘any’ bankers? United Airlines – can’t we uniformly enforce a rule rather than racially enforce one? Mr. Rubio – I realize you’re trailing Ms. Clinton, but do you really want to include religion in your Presidential platform?
It’s no secret that I'm on record suggesting that some form of economic collapse/reset is coming to the U.S. I'm also on record saying that you should (at minimum) learn the basics of defense, and prepare for some societal upheavals and/or tough times. The facts are, in 1980, the U.S. was the creditor to the world, and today we are the biggest debtor the world ever created. Of the 30 industrialized nations:
- Our student's rank 27th in math, and 20th in science.
- We are LAST in life expectancy.
- We are FIRST in first-day infant mortality.
- We have the 7th highest cancer rate in the world.
- And we rank 21st in high school graduation.
Just 20 years ago the U.S. was the ‘engine’ driving all of the good categories, and now we’re the ‘caboose’. The behind the scenes efforts to remove the U.S. from being ‘top of the hill’ were masterful because: (a) they’re succeeding, and (b) because nobody notices or cares. We are too busy watching a Kardashian’s butt.
When I see things such as Christianity being accused of hate speech by a Presidential candidate, teachers being taught to ignore horrible behavior because ‘it's in their culture’, or behavior discrimination due to someone’s last name – do you really think that currency resets are that far behind? As we jail our soccer leaders for Millions in fraud, yet allow our bankers to run free for Trillions in theft, deception and manipulation – do you really not see the shift in power from West to East? Keep these elements in mind as I suggest that the U.S. economy is going to go through some rough patches, because as sure as the sun rises, you will NOT hear about it on your nightly news.
- U.S. Corporate 1st Quarter profits sank 5.9% - the largest drop since 2009.
- Consumer sentiment FELL in May to a six-month low.
- 1st Quarter GDP was revised to a NEGATIVE 0.7%. Yes, despite all the trillions of injected dollars pushing the market higher, despite all of the gimmicks and manipulations, our economy still contracted. And that’s including a NEW GDP calculation that was modified to make it look better. The real number was closer to a NEGATIVE 3.5%.
Are stocks supposed to be making all time highs when corporate profits are falling and GDP is negative? No. But in this Central Banker controlled casino virtually anything goes. Next week we get a plethora of economic news, from Greece to ISM to the jobs report. These reports will mostly likely not be ‘wonderful’ so the thinking is that this data will keep the FED from raising rates. Consider this: the FED didn't raise rates in the first quarter and our GDP was negative. Could it be that our FED would finally have to say: ‘The economy stinks even with zero percent interest rates, so maybe we should pay attention to these lousy reports?’ It’s possible.
Our stock market has been narrow for weeks because the broader market refuses to participate in the ‘love-fest’. The Advance/Decline line on the NYSE has been faltering recently, and last week fell below its long-term trend line. This is another example of the disconnect between the well-known headline indexes and the broader overall market. There comes a point where this disconnect will simply be too large. You can't (for example) have the DOW at 30,000 while the broader market falls to the 2009 lows.
Our Central Banks, Wall Street and Corporations have sold debt – to raise cash – to do stock buy backs – to push the DOW and S&P to absurdly high levels. It is relatively easy to use derivatives via the futures market to push the DOW (30 stocks) and the S&P (100 stocks) higher. It is (however) much harder to get the other 4,000 publicly traded stocks to follow along. This is evident by such things as the DOW Transports that are more than 800 points below their old highs, and the Russell 2,000 small-cap index which is also well below its highs. So, what tends to happen is that the DOW and S&P can't ‘hang out’ up there all by themselves, and will require participation of the broader market or they will indeed come back down and re-join the other broader indices. And adding insult to injury:
- Because this market has been trading sideways for so long, technical support is not all that far below where the market is currently sitting. For example, technical support for the S&P (it’s 50-day moving average) is just 31 points below where it ended on Friday. Breaking this technical support means that the market would be free to move lower.
- Also, attempts for new highs are getting weaker and on less volume. A common pattern I see is large volume down-days and small volume up-days.
- Seasonally, the past 6 Junes have NOT been kind to this market.
- And then we are approaching ‘autumn’ when China gets accepted into the SDR basket of the IMF, and we near the termination of several ‘economic cycles’.
There are a lot of reasons to see a correction coming. I know – you can stop laughing now. We've seen this movie over 15 times in the past 6 years, and each time the Central Bankers just buy more stock, print more money, or both. I get it. But this time there is more desperation, and we just had another NEGATIVE GDP reading. After trillions in QE, zero percent interest rates, the President bragging about his great economy – the GDP number was so ugly they’re going to have to “revise their re-calculated adjustment” (whatever that means).
We know the power of Central Bank printing. We know the Trillions in stock buy backs that reduced the float and boosted stock prices. We know our FED made it so that there is virtually ‘nowhere else to put money’ other than the stock market. But, this can’t last forever. The market is tired, over priced, and very much in need of a major correction. Mother nature can only be pushed so far, before she will revolt.
My theory was that the market would breakout higher (which it did), and put in one last big push (sucking everyone in), and then pull the rug out. Well that second part hasn’t happened – yet. And, that second part is getting ‘less likely’ as the days go on.
We are below 2117 on the S&P by 10 points. I could see buyers coming in on Monday with ‘new June money’ and try to put on a show – only to have it fail. I see the market lower by the end of this week, and lower still by the end of next week. This period of indecisive chop will not last forever. It will either break out or break down, and I’m leaning toward breaking down. I suggest using smaller trading positions, and being nimble. Dips are still being bought, and rips are still being sold. Remember: the trend is your friend until it ends.
I’m nervous being long in this market, as the Transportation Sector has broken down, and is often a predictor of things to come. It is indeed frustrating watching this market trade sideways for 3 months. Apple (AAPL) for example, on February 23rd closed at $132.45, and on Friday it traded for $130.28. Caterpillar (CAT) on February 17th closed at $84.68, and on Friday it traded for $85.32.
I’m currently looking at:
- KR (Kroger) – BUY a June 75 / 77.5 / 80 Butterfly, as Kroger has earnings on June 18th,
- SPY – SELL the 216 / 218.5 Call Credit Spread,
- NKE – BUY a Butterfly centered around the $100 price target, and
- Continue selling Iron Condors on both the SPX and RUT.
I’m currently holding:
- AAPL (Apple) – SOLD a June 110 / 115 to 135 / 140 Iron Condor,
- DE – SOLD a June 96 / 97.5 Call Credit Spread,
- IYT (Transportation Sector ETF) – SOLD the June 153 / 160 Call Credit Spread,
- IYT – BOUGHT the June / July 150 Put Calendar,
- IYT – SOLD the June 148 Put / BOUGHT the July 144 Put – creating a diagonal to the downside,
- KR (Kroger) – SOLD a June 67.5 / 70 Put Credit Spread,
- KR (Kroger) – SOLD a June 67.5 / 72.5 Put Credit Spread,
- LL – SOLD an Iron Condor – June @ 18 / 19.5 to 24 / 25.5,
- NUGT – BOUGHT shares and weekly covered calls,
- ORCL – BOUGHT June $45 Calls (Earnings are on June 18),
- RH – BOUGHT the June / July $95 Call Calendar (Earnings on June 10),
- RUT – BOUGHT June Butterfly @ 1170 / 1240 / 1300,
o BOUGHT July Butterfly @ 1180 / 1250 / 1310,
o SOLD – Iron Condor – June1 @ 1210 / 1215 to 1290 / 1295,
o SOLD – Iron Condor – June @ 1140 / 1150 to 1330 / 1340,
- TGT – BOUGHT the 80 / 82 / 82.5 Call Butterfly,
- SPX – SOLD – Iron Condor – June1 @ 2070 / 2075 to 2170 / 2175,
o SOLD – Iron Condor – June 2 @
o SOLD – Iron Condor – June @ 1970 / 1975 to 2175 / 2180,
o SOLD – Iron Condor – June4 @ 1945 / 1950 to 2185 / 2190,
o SOLD – Iron Condor – July1 @ 1890 / 1900 to 2195 / 2205,
o SOLD – Iron Condor – July2 @ 1905 / 1910 to 2180 / 2185,
o SOLD – Iron Condor – July2 @ 2005 / 2010 to 2180 / 2185,
o SOLD – Iron Condor – July @ 1900 / 1910 to 2200 / 2210,
o SOLD – Iron Condor – July4 @ 1860 / 1870 to 2235 / 2245,
o SOLD – Iron Condor – July5 @1870 / 1880 to 2230 / 2240,
o SOLD – Iron Condor – Aug1 @
o SOLD – Iron Condor – Aug2 @
o SOLD – Iron Condor – Aug @ 1840 / 1850 to 2250 / 2260,
o SOLD – Iron Condor – Aug4 @ , and
- SPY – BOUGHT the 200 / 207 / 209 June Put Butterfly.
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!
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: < > .
Please write to Mr. Culbertson at: <email@example.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 < >.
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:
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.