RF's Financial News: November 2015

Sunday, November 29, 2015

This Week in Barrons - 11-29-2015

This Week in Barrons – 11-29-2015:

Thoughts:

Dear Ms. Yellen:

Happy Thanksgiving, and let’s talk Turkey. Everybody knows that Turkey and all of the NATO countries have been supporting ISIS for years – by selling their oil for them. The Russians went on a shooting spree, and took out over 1,000 ISIS oil-trucks in a two-week period. That is what ticked off Turkey. My only question is why didn’t anyone warn the oil-trucks of the up-coming air strikes? As the bloom comes off the rose, it’s becoming all too clear that the U.S. has lied concerning its fight against ISIS. The U.S. has done ‘just enough’ for the newspapers to make headlines, but not enough to eliminate ISIS. Now that the Russians are eliminating ISIS, it’s damaging Turkey's and NATO’s black market oil business. In a feeble attempt to slow Russia down, Turkey shot down a Russian jet for invading Turkish air space. However, immediately prior to taking this action, Turkey called NATO - asking for permission. At which point Mr. Putin asked the obvious question: “Why didn’t Turkey call Russia? Their first call should have been to Russia”. Putin was right, and we should be giving thanks to him for his patience and vision.

But that’s not what I wanted to talk about today. It just happened to be the 800-pound gorilla in the room. What I wanted to talk about is the moneymaking opportunity (4,700% a month) that ‘gardeners’ have been hiding for years. Yes, I said ‘gardeners’ and yes that number is correct. It’s all because of tomatoes. Most of you don’t know this but my wife is a ‘Master Gardner’ who enjoys growing all kinds of tomatoes – mostly for our salads or to give to neighbors. But then I recently did the math:

- One ounce (11,000) of beefsteak tomato seeds costs $17.63. In (generous) round figures that’s about 1 penny per seed.

- You need to germinate the seeds using soil and water, and once it has leaves – you then transfer it into a 4-inch pot (18 cents) with some potting soil (5 cents).

- It requires care, light, and water (1 cent) for about 30 days until the plant is 4 inches tall.

It could then be sold as a ‘starter’ for $1. That’s a 300% return every 30 days.

- But let’s keep one of those ‘starters’ for ourselves. The average plant produces between 10 and 15 pounds of actual tomatoes. If we received only 7 tomatoes from our plant, each could be sold for $1 – creating $7 in profit from $0.25 or a 2,700% return from one plant.

- As a bonus, each one of those tomatoes that the plant produces holds about 50 seeds. You would then separate one tomato from its seeds, dry them, and never buy seeds again.

- Also tomatoes have a habit of growing ‘suckers’ – that are genetic clones of the main plant that branch out in a ‘V’ between the main stalk and a branch. When they get to be 5 inches long you can clip them off, place them in starter mix, and have a plant that's already market size.

So with a simple tomato plant, there is a profit potential of 4,700% by selling 7 pounds of tomatoes for $1/pound, and 5 ‘suckers’ that we planted and two weeks later sold for $1/plant. Every gardener out there regularly turns $0.25 into $12 – a 4,700% return – each and every 4 to 6 weeks. It’s been termed ‘natures economy’ and it’s pretty darned profitable. So as we come into the new week and ponder the ups and downs of the market, consider the humble tomato. It's the only LEGAL ponzi scheme I know.

The Market:

If you ask the average person on the street how the market is doing – they will tell you that it’s doing great. They'll tell you that we're in a bull market, so things must be pretty good. But nothing could be further from the truth.

Facebook, Amazon, Netflix and Google have been termed the ‘FANG’ stocks. They are the current darlings of the market. However, if you remove those stocks from the indices – things get very curious. Currently, 87% of the S&P stocks are 5% below their highs, and 67% of those same stocks are actually down over 10% from their highs. If you just removed Google and Amazon from the NASDAQ 100 and the S&P, those indices would be NEGATIVE on the year. If ALL the companies in the index had the same weighting, the NASDAQ 100 and the S&P would be NEGATIVE 2.2% on the year. Is that a sign of a healthy market? Obviously not, especially if over 67% of the market is in a correction (off 10% from its highs). Yet J.Q. Public thinks that things are just peachy. Who’s going to give them the news that we’re really very close to a recession? The same people that are telling him that Russia is the bad guy.

But even if some of what I’m saying is even close to being true – why aren’t our markets at least declining? Enter Mario Draghi who (this week) promised even more QE to the European community. QE is the magic elixir. Market fundamentals, corporate earnings, even war doesn't matter – as long as we can create more debt. Recently Draghi has been ‘whispering’ that he might be willing to take institutional banks and cut their rates deeply negative, while leaving hometown banks alone. Why would he do that? Well, it seems the big problem with J.Q. Public is that he doesn't like the idea of having to PAY the bank for holding his money. So negative rates could very well cause a ‘run on the banks’. But the institutional banks (who cater more to big business) have a much less chance of that. In other words, a company like Siemens may have 30 billion Euros in an institutional bank. They are not going to walk in and demand their 30 billion Euros in paper. But millions of J.Q. Publics could certainly run to their respective banks and demand their 10k or 20k in paper Euros. So Draghi’s latest idea could very well be the next ‘big thing’ out of the ECB. Insane? Of course it is, but it is really just a preview of the total insanity of where we're headed over the next year.

This past week economists expected manufacturing activity as reported by the Richmond Fed to bounce into positive territory with a +1 reading. Unfortunately, the Fed reported a -3 reading – well below any economist’s estimate. And early indications for this month are very negative with new orders at minus 6, and backlog orders at minus 16.

But this coming week may prove to be a very big week, with the jobs report coming out on Friday. The market has been stuck in a tight range for the past 6 sessions. It has the real possibility to rip to the upside, or roll over or play dead following Friday’s report. Friday's Non-Farm Payroll Report (jobs report) will be the final report prior to when the FED meets to decide about an interest rate increase. If the jobs number comes in strong, it could sour the market, as the market will assume that the FED will raise rates in December. However, if it comes in really weak, markets could shout for joy due to rates potentially remaining at zero for yet another 30 days.

On Monday, the IMF (International Monetary Fund) will hold its final approval meeting allowing the Chinese Yuan into the SDR basket. I have predicted for over a year that China WILL be accepted, and that the inclusion will start next September. With the Chinese Yuan being so heavily backed by gold, this decision could sway the resource markets.

For the most part the big caps have gone to sleep this past week, giving the small caps a chance to catch up. While the S&P was pretty much flat on the week, the IWM (the ETF for the Russell Small Cap Index) made some nice gains. If the IWM makes it over its 200-day moving average at 120.12, it could kick the whole market into gear for one last Santa Claus rally.

I’m thinking that we remain somewhat muted prior to Friday’s jobs report, and markets continue to fight off reports that Black Friday shopping wasn't as good as retailers had hoped. Then on Friday the jobs report will add fuel to whichever direction we’re moving (up or down). Currently, the small caps look to be the best of the bunch, and that’s where I’m focusing for this coming week.

TIPS:

I like:

- Pandora Media (P) > 14.15,

- Acorda Therapeutics (ACOR) > 38.70,

- McDonald’s (MCD) > 114.40,

- Neurocrine Biosciences (NBIX) > 58.40, with

- Broadcom (BRCM), Zix (ZIXI), U.S. Silica (SLCA), Comstock Resources (CRK), and Guidewire (GWRE) all warming up

I just don't like the uneasy feeling that I have about the markets. I wonder if we’re not whipping a dead horse – trying to keep a zombie alive.

I am:

- Long various mining stocks: (AG, AUY, EGO, GFI, IAG, and FFMGF),

- Short the Euro via owning PUTS on FXE,

- Long the FANGs (Facebook, Amazon, NetFlix and Google),

- Long the RUT, January, Broken-Wing Butterfly (1100 / 1180 / 1250),

- Long AMXN, December, Broken-Wing Butterfly (690 / 700 / 705),

- Long the SPX, Dec-Jan, Put Calendar @ 2075,

- Long REN @ $0.56 – currently $0.88

- Sold the SPY, Dec4, Iron Condor (190 / 195 to 216 / 218),

- Sold the IYR, Dec, Call Credit Spread (-76 / +77),

- Sold the UVYX Dec, Put Credit Spread (-22 / +21), and

- Sold the XRT Dec, Call Credit Spread (-42.5 / 45).

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

Creativity = http://vimeo.com/user8991651/review/105373017/0d0c374c28

Investing = http://vimeo.com/user8991651/review/105373016/a5e84dd610

Marketing = http://vimeo.com/user8991651/review/105373015/d7237d026d

Sales = http://vimeo.com/user8991651/review/105373014/0e44b43962

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

<mailto:rfc@culbertsons.com>

<http://rfcfinancialnews.blogspot.com>

Sunday, November 22, 2015

This Week in Barrons - 11-22-2015

This Week in Barrons – 11-22-2015:

Thoughts:

Dear Ms. Yellen:

I remember when I was a kid. Our family rowboat needed a new coat of paint, and my father was NOT about to hire a painter. Instead, he asked around the paint stores, talked to people that did it ‘on the side’, and went ahead and tackled it himself. At 12 years old, I painted one entire side of the rowboat all by myself. It didn't seem odd or strange at the time – the rowboat needed to be painted and we were painting it.

Now let’s ‘fast forward’ to present day where that same DIY induced generation is in charge of corporations. The problem is: every executive team requires an annual pay raise, or they will move on to a different corporation. But what do you do if your corporate earnings stink, and your revenues stink even more? The only available avenue is for you to take advantage of the FED’s zero interest rate policy. Coming from a DIY mentality, you (Mr. / Ms. CEO) have the ability to financially engineer your own executive compensation structure and influence your own stock price – as follows:

- Your corporation borrows money at 0%, and sits on it a while.

- You link your executive’s compensation to your stock price by heavily paying your executives in stock options.

- You annually issue new stock options to the executives.

- You have the executives elect to redeem their options simultaneously.

- At that options redemption moment, the corporation announces a stock buyback program (roughly the size of the total executive option redemption) allowing management to redeem all of their own shares. Because earnings are a function of dividing income by the amount of shares outstanding, you also succeed in reducing the number of shares outstanding and therefore increase ‘earnings per share’.

- The key here is to ‘Get Out of Dodge’ (exit the corporation) BEFORE the debt comes due. After all, you’ve already spent the money that you borrowed to buy back your own stock. Macy’s (who’s stock price has been cut by 50% in the past 4 months) is an example of a company that is seeing it’s debt come due prior to increasing real sales and real earnings.

Therefore, due to the FED’s zero interest rate policy, private investors are buying into hundreds of stocks that have no real growth, falling sales, but manufactured earnings. If you wonder how widespread the above DIY behavior has become, just know that buybacks have hit an all time high. Factually, almost 60% of the 3,297 publicly traded U.S. corporations examined since 2010 have bought back their own stock. In fiscal 2014 the total combined net income of these companies was $847B. All the while the corporate buybacks and dividends for those same companies totaled $885B (more than all of their earnings combined). Currently, 78% of all executive compensation flows from stock options. I believe that earnings should come from innovation, production, and increased sales – not from corporations taking on billions in debt to buy back their own stock.

So corporations (in their lust for big paydays) have perverted and manipulated their own stock price. The ONLY thing a CEO cares about any more is a higher stock price. Not sales, not jobs, not production, not expansion – simply a higher stock price. And corporations are DIY’ing it right in front of you.

My family and I continue to think that every dollar we save by not having to pay someone to ‘Do It For Me’ – is a dollar we can use to enjoy the things we like. I was blessed to have been raised in a family where my dad was a hands-on guy and wasn't afraid to learn new things. I’m constantly being asked: “What is the best investment?” My answer is always: “Your best investment is education.” But let's narrow that down a bit. The best investment is learning how to DO THINGS YOURSELF. Nothing will give you a better return on your money than NOT having to pay someone else to do it.

The Market:

This week we learned that the NYSE is not going to execute stop loss orders after February 2016. They are selling this idea as ‘protection’ for the masses. But, let’s play a crazy conspiracy theory forward:

- There is presently a ‘full court press’ going on out there for the FED to raise rates in December as a symbol of a recovering economy.

- The FED has (however) failed and is on the ‘look-out’ for some extraordinary event on which to blame the economic weakness and therefore start more QE.

- Starting more QE ‘out of the blue’ would be a blatant admission that their 7 years of policies have FAILED, and our FED cannot FAIL.

- The FED has pimped-up the jobs reports, changed the way GDP is calculated, and modified our inflation measurements – all to create the illusion that the economy is doing fine.

I think that the FED will hike rates in December and eliminate stop loss orders in February because the FED knows something is coming on which they can blame our ills. The NYSE has been instructed to not stop people out when the market crashes, and could (therefore) create a massive loss of wealth. I realize that I sound like a conspiracy nut, but the good news is – it will only take 3’ish months for my theory to play out.

This past week:

- Deutsche Bank reported that without buybacks, earnings in the 3rd quarter would have been NEGATIVE.

- Putin offered a $50M bounty for information leading to the arrest of who made the bomb that blew up his airliner.

- The Empire State manufacturing report came in at a NEGATIVE 10.4. A less than zero reading denotes contraction. This reading was actually an improvement over October's NEGATIVE 11.36. Collectively, these readings indicate the worst manufacturing climate since March 2009.

- The Baltic Dry Shipping index has fallen from 1200 to just 537 in recent months – showing just how slow the global economy is running. In fact, reports show that we've been sending thousands of container ships back to China - empty. Those containers were supposed to be full of goods and materials, but China doesn't need or want them.

- The BlackRock Global Ascent Hedge Fund has lost 9.4% this year and investors were notified that it would be closing. The hedge fund (which as recently as two years ago had $4.6 billion in assets under management) is now almost completely cashed out and will close due to unfavorable market conditions.

- This week we found out that simply by asking a mutual fund’s manager how much money they have invested in their own fund – is actually a very accurate gauge of the success of that fund. That is to say (according to Morningstar), mutual funds where their managers invested nothing had the lowest returns, and those in which their managers had over $1 million invested had the highest returns.

- Wal-Mart announced a new service: savingscatcher.walmart.com. You can sign up for free, and anytime you buy something at Wal-Mart you put the TC# at the bottom of the receipt into the ‘savings catcher’ website. Wal-Mart will then automatically compare the items you bought to other stores in the area and if anything you purchased can be found for less somewhere else, they pay you the difference.

Whether you’re talking stocks, bonds or commodities, strange things are happening all around the globe. For example, in the gold arena I’m seeing 300 paper contracts being written for every single ounce of physical metal. This is an accident waiting to happen in the precious metals pits because the major bullion banks appear to be moving their physical gold away from the exchanges. A similar situation exists in silver – so one small spark and the precious metals could indeed be off to the races.

This week David Tepper, David Einhorn, and Stanley Druckenmiller reminded us that the market has no business being up where it is. All three of these major hedge fund players have backed away from the market – many of then reducing their exposure by over 30%. The market run-up from the August lows topped out at 2109 on the S&P. We closed Friday at 2089, a mere 20 points from that short-term top. I suspect the 2109 level will become a fairly formidable resistance area once again.

This week we have a short week as the market is closed on Thursday, and only open a half-day on Friday. Monday through Wednesday will encompass 90% of this week’s trading volume, with just 10% being saved for Friday. I expect volatility will be ‘in the air’ for sure. But allow me to get a jump on the festivities by wishing safe travels for all of you going to see loved ones. Do enjoy yourself and give thanks for being as blessed as we are. Eat, drink and enjoy each other’s company – because in the end, that is really all that matters. Please take care, be safe, and have a Happy Thanksgiving.

TIPS:

I think:

- The market will drift higher this week due to the Put/Call Ratio, the Skew, the Trin, and the VIX all being neutral,

- Crude oil will go lower to $31/barrel (currently @ $41.46),

- I will buy FOLD > 10.75,

- I will buy TRV > 116.48, and

- I will buy EA January Calls and finance them by selling some ‘in the money’ PUT options.