This Week in Barrons – 9-20-2015:
“Recent global economic developments may restrain activity, and are likely to put further downward pressure on inflation.”
Dear Ms. Yellen:
With that single sentence you said: ‘We are not going to raise rates, regardless of how great we tell you the U.S. economy is’. And what I heard was: ‘The economic data that you’re releasing is solely there to make me feel good’. In reality, your actions clearly tell me that the economy it is NOT as great as you have lead me to believe.
Yes Ms. Yellen, both you and the President have thrown strong U.S. economic data in my face for years: GDP improving 2.3%, U3 Unemployment 5.1%, and 0% Inflation. This has led me to believe that the U.S. economy was roaring back, and stronger than ever. Your marketing plan worked like a charm. But now you’re telling me: ‘April Fools – this economy isn’t even strong enough to raise interest rates by a measly 0.25%’.
So I am to assume that if you removed ALL of the FED’s monetary accommodation (including your ongoing bond and MBS buying and let rates float) that our economy would go right down the toilet – yes? So the fundamental reality is that your monetary policy and your direct participation in the financial markets (coupled with allowing leverage to expand) are the primary factors improving the economic data. And by removing those elements, this economy suddenly stinks like 5-day old fish.
Ms. Yellen, I think your press conference was one of the purest examples of outright lying and deception I've seen in a long time. The good news is that the world was watching. I think you and the rest of the FED have lost every ounce of credibility you may have had, and were exposed as public shills to the stock market. All of the press corps left that room with the same feeling: ‘Janet Yellen has been lying to us for months’. You had your shot, and you took a pass.
All of this new talk about raising rates in October or December is now just pure speculation – just what you claimed you were trying to avoid via FED ‘transparency’. In fact, one of your members actually predicts that in the next year interest rates will go ‘negative’. So we have gone from raising rates to: negative rates, more QE, bail-in's, forced Treasury note buying, and retirement account seizures – all in the blink of an eye. The Bank of International Settlements (to which you belong), reported this week that ‘you engineered the bubble, and therefore you will also engineer the upcoming crash.’
I can hear your next speech now. You should start with: “Come with me if you want to live.” You should end with: “I’ll be back.” And what I will remember is: “Hasta la vista, baby.”
We are experiencing the death of an era. We’ve seen the rise of China's manufacturing economy, and a tech era that took us from dial up Internet connections to fiber optics to cars that drive themselves. Not to be outdone, we’ve seen the world’s central banks create money and contort monetary policy in order to smooth-out business cycles. Even our business leaders were successful in convincing gullible Americans that off-shoring and sending manufacturing to China, Vietnam, Mexico, and Pakistan was good for us because they could do the labor and we would be the brains.
Now that we’re seeing the world dipping into recession (Canada was the latest to report 2 negative GDP quarters in a row), we are shouldered with too many resources, factories, and people. Banks are shackled with too much toxic paper, and over $70 TRILLION worth of questionable derivatives.
- The OECD cut its 2015 global growth forecast to 3%. It expects Chinese growth to slow from 7.4% in 2014 to 6.7% in 2015.
- Inflation across the Eurozone weakened to 0.1% in August.
- Standard & Poor’s lowered its credit rating on Japan.
- Hewlett Packard is laying-off 30,000 workers, and offshoring more of it’s engineering.
- FedEx (after missing earnings estimates) announced that it will be raising its rates by 5% in January.
- The Empire State Manufacturing Index posted its lowest reading since 2009.
- Retail sales (excluding autos) were well below estimates last month.
- Industrial production fell worse than expected – with auto parts seeing their largest drop since 2011.
- But the news that woke me up was GE’s Jeff Immelt (the ‘Chair’ of President Obama's Council on Jobs and Competitiveness) announced that GE will begin shipping more jobs overseas.
As you can tell by now, the world is running on empty. Everywhere you look, economies are either failing, or being propped up by life support. I don't for a minute think that this is some kind of ‘buy on the hip’ philosophy. This is a structural change we're facing, total exhaustion, a period that has ‘run its course’. I tend to think that we're staring down the barrel of a long, protracted economic fade, and that no matter what they throw at it, it has to find its equilibrium – and that will be a painful process.
Until our FED comes out with their next scheme to try and prop up our economy – the ‘top’ is in. We are starting to move sideways and down. Yes, we will bounce, but then we will fade away again – each time a bit lower.
How can I be sure? Because Ms. Yellen didn’t raise rates. She didn't even continue the propaganda that the ‘U.S. alone is strong enough to begin rate normalization’. Now, when people look at the Empire State Manufacturing Report coming in at MINUS 15, or the Philly Fed reporting a MINUS 6, they will start to understand that the recovery is indeed nothing more than illusion. I suggest that investors will be more critical of company earnings, and begin to question some of the abject fraud erroneously labeled as ‘aggressive accounting procedures’. Investors were okay with the fraud as long as the FED was on board. Now, they won't be so inclined.
Volatility will ‘rule the roost’. Banksters want asset prices rising so they can create even more toxic derivatives using fictionalized assets as collateral. Investors are beginning to fear that the FED can't make it happen any more. The upcoming ‘tug-of-war’ will be impressive to say the least. I think it's prudent to learn about inverse ETF's, going short, and how to purchase put options – if you haven't done so already!
In terms of Indexes:
- DOW - 16,385: We broke thru and closed below our 16,400 support level – so I’m showing 16,200 as the floor for the coming week. Once bond yields rise in the fall – the equity markets will again be the place for capital – but next week is still touch-n-go.
- NDX – 4,827: We’re at short-term support, with 4,200 as a broader low support area. This index is extremely volatile so expect action.
- SPX – 1,958: We are returning to the days of a high volatility range bound market between 1,920 and 2,000.
- RUT – 1,163: Of all of the indices, the Russell is the measure for the broadest flow of capital. The Russell looks relatively STRONG compared to the other indices, and actually long-term bullish. A drop to 1,160 is possible and then a run higher to the end of the week.
- Goldman Sachs (GS): SOLD SEPT $192.5 / 195 Call Credit Spread
- American Express (AXP): SELL Call Credit Spread
- Tesla (TSLA): SOLD 237.5 / 240 Put Credit Spread
- Amazon (AMZN): SELL Put Credit Spread
- REN – Long-term buy on this small oil stock priced @ $0.50
- OAS – Long-term buy on this small oil stock priced @ $11
I’m currently a little light – but holding:
- RUT – SOLD – Iron Condor – Oct 1090 / 1100 to 1250 / 1260,
o SOLD – Iron Condor – Oct1 @ 1895 / 1900 to 2055 / 2060,
o SOLD – Iron Condor – Oct1 @ 1905 / 1910 to 2055 / 2060,
o SOLD – Iron Condor – Oct1 @ 1915 / 1920 to 2170 / 2175,
o SOLD – Iron Condor – Oct1 @ 1925 / 1930 to 2170 / 2175,
o SOLD – Iron Condor – Oct2 @ 1850 / 1855 to 2060 / 2065,
o SOLD – Iron Condor – Oct2 @ 1895 / 1900 to 2060 / 2065,
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 2200 / 2205,
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!
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Until next week – be safe.