This Week in Barrons – 9-27-2015:
Thoughts:
Does the punishment
really fit the crime?
GM vs VW (and the rest of the world):
Remember when GM put cars
on the road that they KNEW had faulty ignition switches. The ignition switch only cost $1 to fix, but
if it failed could turn your car off causing: no power, no airbags, no brakes,
etc. GM knew that they had a
problem, but they kept selling cars, and did not institute a recall. The confirmed deaths range from 129 to over
300. The bottom line is that people died
in cars produced with a KNOWN defect. Clarence
Ditlow (Exec. Dir. for the Center for Auto Safety) said: "GM killed over 100 people by knowingly
putting a defective ignition switch into over 1 million vehicles. Yet no one from GM went to jail, or was even
charged with criminal homicide. GM (since
1966) has paid millions of dollars to keep criminal penalties out of the
Vehicle Safety Act. Today, GM officials
walk off scot-free while their customers are 6 feet under." The GM fine was $900M, no criminal penalty,
and a promise to do better next time.
On Monday, Fortune
magazine reported that Thomas Lund (one of
the highest ranking former officials of Fannie Mae) settled charges brought by
the SEC back in 2011 that he helped deceive Fannie Mae’s shareholders in the
run-up to the financial crisis. The
suit claimed that Mr. Lund, who was the head of Fannie's single-family
division, helped hide more than $100B of subprime exposure from Fannie's
shareholders – allowing it to continue to back more and more risky loans. According to the prosecution, “Thanks to Mr.
Lund's chicanery, the bubble in mortgage finance caught investors unaware. This resulted in losses of at least $8 Trillion
in the U.S. stock market alone.” Arguably,
in September 2008, this brought the entire financial industry (and the world
economy) to the edge of collapse – not to mention millions of people losing
their homes. Mr. Lund's penalty for his role: a
mere $10,000. What's more, the
penalty will not be considered a fine, but rather a "gift to the U.S. government."
And let’s not forget that the government had to bail out Fannie
and still controls it.
So, GM killed people – and
received a $900M fine and a slap on the wrist. Fannie Mae defrauded umpteen thousands of people
out of their homes, ruined their lives, and helped create the greatest financial
meltdown in 75 years – and received a $10K
dollar fine and a slap on the wrist.
Now enter
Volkswagen. VW is one of the largest automakers on earth. The U.S. would like to fine VW $18B for
knowingly allowing the car’s software to say that it was producing less carbon emissions
than it actually was. They did not kill
anyone. They did not swindle nations out
of trillions of dollars. They openly
lied about their carbon amounts, and for that will be ‘darn near’ bankrupt. Why is the U.S. pouncing on VW so hard? First, the ‘powers that be’ (including the
Pope) have been pushing the danger of global warming on us for more than 15
years. According to them, global warming
is the single biggest threat of all time, and they stand fully ready to
regulate, tax, and make us conform to the carbon credit market. Secondly, the U.S. expects all nations to do
as we tell them without question, and if they don't – bad things will happen to
them: Libya, Saddam, Syria, Russia, etc.
The U.S. has been having
an issue with certain aspects of Germany for a long time: from NSA spying to asking
us to return their gold. Germany was
vocal about not liking our Russian sanctions, and was opposed to the QE
programs of the ECU. And VW had plans to
build a massive all-electric car plant in China. They were
going to spend 22B Euro's in China, making 15 different, electric car models –
cheaper, faster, better and rechargable faster than the Tesla. Do
you really think that the U.S. was going to miss an opportunity to shut down the
expansion of a Chinese/German business?
I also find it interesting
that the VW news broke just two days after the ‘Russia Insider’ newspaper
declared that Germany was ditching its ‘Anti-Putin’ campaign and welcomed
Russia’s help in Syria to end the war, and with the refugee issue. Now don't get me wrong, VW did indeed lie and
break the rules. However, does the $18B punishment
really fit the crime?
The Market:
On Thursday evening, Janet
Yellen gave a speech at the University of Massachusetts where she (at the end
of her talk) almost appeared to have suffered a stroke. I was hoping that this was an inflection
moment, and she would have an epiphany – look into the crowd and say: “Forget
all the crap I just said. We're stealing your money, giving it to the banksters,
and there's nothing you can do about it." I would have actually
applauded a move so bold, but unfortunately it didn't happen.
Instead, she spoke as if
the most recent FOMC ‘no rate hike’ decision didn’t happen. This message was designed to tell the stock
market that this next rate hike would be a ‘one and done’, and any return to
‘normalization’ was off the table. She
then said: “The lowest the FOMC can
feasibly push the real federal funds rate is essentially the negative value of
the inflation rate. As a result, the
Federal Reserve has less room to ease monetary policy when inflation is very
low. This limitation is a potentially
serious problem because severe downturns such as the Great Recession may require pushing real interest rates far
below zero for an extended period to restore full employment at a
satisfactory pace." So, she’s going
to raise rates IF she doesn’t have to push rates NEGATIVE to save the world?
Now, there were other big
headline items this week:
-
Chinese
President Xi visited the White house. It’s
interesting when the worlds biggest debtor comes face-to-face with the worlds biggest
lender.
-
Presumably to
prevent a government shutdown, Speaker Boehner announced his resignation.
-
The UN appointed
Saudi Arabia to head their human rights council. Saudi Arabia (the nation with the most beheadings)
celebrated their new status by announcing the crucifixion of a teen because he
mocked the king.
-
And then there’s
the biotech slime-ball that increased the price of his drug from $13 a pill to
over $700 a pill. Given he’s an X-Jim
Cramer student and an X-Hedge Fund manager, I’m guessing he made a small fortune
shorting the biotech sector this week.
Bottom line? The
wheels are close to coming off. Ten
major markets are effectively crashing.
World alliances are changing.
Since 2008, the nations of the world have cut their interest rates over
550 times. Events are coming at us fast
and furious: from China's market melting down to the commodity implosion, from
the transport sector declining to the shipping rates collapsing. So
please be careful out there.
For those of you looking
to ‘short the market’ via ETF’s – consider the following:
-
The S&P
short is the SH. The SDS double shorts it,
and the SPXU is the triple short.
-
The financial
sector triple short is FAZ.
-
The RWM shorts
the small caps. The TZA triple shorts
them.
-
The PSQ shorts the
NASDAQ. The QID is the double short, and
the SQQ is the triple short.
TIPS:
-
INDU 16,314: We could
be getting ready for a bounce up to the 16,600 – 16,800 range again
-
NDX 4221: A
strong move this week into 4,300 could trigger a follow-thru to 4,400 next
week. Apple could be a catalyst for this
move by releasing any early iPhone sales numbers.
-
SPX 1931: Watch the 1960 level to see if we can rally into
that zone. The VIX rallied into the
close so all bets are off for Monday morning.
-
RUT 1122: The Russell has been under-performing the
rest of the market and that remains a concern. We need to see some real broad based strength
in this index, and a solid move to 1160.
-
The Biotechs (on
Friday) had their largest decline in the past 7 years.
-
Hedge funds are
the ‘shortest’ they’ve been in the past 4 years.
-
Because we’re
coming into earnings season, I think the chance of going up exceeds that of any
additional downward pressure.
Recommendations:
-
SPY – Sell an Iron Condor – Nov @ 166 / 168 to 207 / 209,
-
REN – Long-term buy on this small oil stock priced @ $0.50,
-
OAS – Long-term buy on this small oil stock priced @ $11,
-
If we lose 1913
on the S&P, I'll start scaling into some SDS. The first level of support on the S&P
would be at 1913. Below that it would be
1867 and then 1800. On the upside, if
the S&P gets over 1995, we’ll be headed for 2033.
-
If the DXD gets
over 24.14, it will be time to start shorting the DOW.
-
If the FAZ gets
over 13.40, it will be time to start shorting the financials.
I’m currently light – but did
begin some buying this week:
-
ADBE – SOLD –
Iron Condor – Oct @ 75 / 77.5 to 90 / 92.5,
-
GOOGL – BUY –
Call Debit Spread – Oct @ 705 / 715,
o BUY – Call Debit Spread – Oct @ 650 / 660,
o BUY – Call Debit Spread – Oct @ 680 / 690,
-
LL – SOLD – Iron
Condor – Oct @ 12 / 13 to 18 / 19,
-
NFLX – BUY –
Calls – Oct @ 100,
o BUY – Calls – Oct @ 105,
o BUY – Calls – Oct @ 110,
o BUY – Calls – Oct @ 120,
-
RUT – BUY –
Butterfly – Nov @ 1080 / 1160 / 1230,
-
SPX:
o SOLD – Iron Condor – Oct1 @ 1915 / 1920 to 2005 /
2010,
o SOLD – Iron Condor – Oct2 @ 1850 / 1855 to 2015 /
2020,
o SOLD – Iron Condor – Oct2 @ 1895 / 1900 to 2060 / 2065,
o SOLD – Iron Condor – Oct @ 1894 / 1900 to 2025 /
2030,
o SOLD – Iron Condor – Oct4 @ 1800 / 1805 to 2050 /
2055,
o SOLD – Iron Condor – Oct4 @ 1825 / 1830 to 2070 / 2075,
o SOLD – Iron Condor – Oct4 @ 1880 / 1885 to 2120 / 2125,
o SOLD – Iron Condor – Oct5 @ 1860 / 1865 to 2090 /
2095,
o SOLD – Iron Condor – Oct5 @ 1780 / 1785 to 2070 /
2075,
o SOLD – Iron Condor – Nov1 @ 1850 / 1855 to 2085 / 2090.
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>
