This Week in Barrons – 11-15-2015:
Dear Ms. Yellen:
To quote Marvin Gaye: “What’s Going On?” In a true carnival atmosphere, the Keynesian Central Bankers are throwing endless amounts of monetary spaghetti against the wall – hoping that some of it sticks. The ‘clapping seals’ that infest CNBC are diving for fish – directly in front of the Valuation Hall of Mirrors. And Ms. Yellen – you (The Bearded Lady) are the main attraction handing out cotton candy – trying to perpetuate the illusion of an economic recovery. This is a carnival of epic proportions where the price of money is fixed, and the games of chance are rigged. If you listen closely you can hear a faint chorus of unyielding hissing sounds – representing the deflating of American citizen’s savings and checking accounts. But unlike ‘carny games’, there are no big fluffy teddy bears for prizes when you pop the balloons – unless you’re short. But beware, the ‘People’ are feeling their power. They've got cameras and social media, and despite the fact that most employ these for narcissistic purposes, they can be harnessed to stand up to the powers-that-be. And there's so much to stand up to:
- Early in the week, the University of Missouri President resigned over his racial remarks. Otherwise the football team & coaches refused to play their game against Brigham Young, and would have cost the college $1 million.
- Then Wisconsin cut $250 million from their state’s university budget while paying $500 million for a new Milwaukee Bucks arena.
- The new national rankings for ‘personal freedoms’ came out with Canada ranking #1, and the U.S. NOT making the top 10.
- The new national rankings for ‘prosperity’ were released, with Norway ranking #1, and with the U.S. NOT making the top 10.
- A new report showing death rates for middle-aged white people dramatically increasing – being driven by an epidemic of suicides and overdoses of prescription opioids.
- At this week’s Republican debate, I was shocked to hear one of the candidates say that the FED has pushed this stock market up to please Obama. While that's only part of the situation, at least someone was brave enough to say it.
- By the way, you should tell President Obama that just hours after his Friday appearance on Good Morning America where he said: “ISIS is not getting stronger, we have them contained" – ISIS pulled off a pretty spectacular terror attack in Paris.
- And now, the first wave of Syrian refugees has landed in New Orleans, and 10,000 of them are being to be placed in 180 towns across the U.S.
Marvin Gaye is asking: “What's Going On”, and the people are saying: “I’m mad as hell, and I’m not gonna take it anymore." This feels like the 60’s. But the difference back then was it was harder to play, and not everybody considered themselves to be a star. Today we've got the look-at-me crowd, which wants the old system to tumble so they can get a chance.
Ms. Yellen, you may not think what happens in Missouri affects you, but it does. We've got an entire spectrum of disadvantaged people in America (arguably the majority) that are beginning to speak up and win. Winning begets more winning, and uncertainty causes more volatility and downside pressure to the markets. To quote Bob Dylan: “The times they are a-changin”.
The ‘Velocity of Money’ is slower than it’s been in the past 50 years – which is why you get this:
The velocity of money (as shown by the blue, descending, real-economy line) is the speed at which money changes hands in our economy. Declining monetary velocity is indicative of severe over-indebtedness. The ascending red line denotes the phony, inflating of paper assets economy as represented by the S&P 500. The chart shows the impotence of Fed policies, and how they’ve created nothing more than a new hybrid strain of ‘1999 Tulip-Mania’ while the real economy continues its descent.
The big issue with the red (S&P 500) line on the above graph, is that any ripple event that causes a decline in asset prices will create a rush to sell, and will trigger an initial round of margin calls. Margin call selling will further reduce the value of the underlying asset – triggering more margin calls and more selling and so on. So is it any wonder why central banksters want to manipulate markets higher while forestalling any meaningful correction?
But are we in ‘free fall’? On November 2, the S&P put in a high of 2116. Since then we have fallen almost 100 points in 8 trading sessions. In fact, there was only one ‘up’ day in those 8 sessions. It's been a dramatic ‘free fall’ indeed, and begs the question: “Is there more to come?”
Most are blaming the fall on the strong jobs report that will assuredly trigger a FED rate hike in December. I'm sure there's some truth to that, but I also think we've got a combo-platter working. The retail sales numbers were bad – stores are missing earnings and cutting guidance. There's simply no real earnings power out there. When you see the company that makes parts for the Apple iPhone laying-off 10% of it's workers due to slowing iPhone sales – you know that there’s trouble.
October through December is historically the strongest period for the market. But October was so insanely strong, and the run-up so ‘out of place’ that it stole some of the November power. The problem from a technical standpoint is that they weren't just rotating out of the big caps and into the small caps, or technology into energy – but everything was falling in tandem. The Russell (small cap index) broke through its 50-day moving average on Friday. The financials (XLF) fell through their 200-day moving average. All of the stochastics are heading lower and widening, and the MACD's are below 0 and growing negative. Just looking at the charts would lead you to conclude that these markets have further to fall.
But we're all big boys and know that it wasn't the technicals or the fundamentals that pushed these markets to nosebleed levels. It was QE-1, 2, 3, the Twist, Central banks buying stocks, and Corporate buy backs. These markets were not pushed higher due to: ‘Organic revenue growth’. What is to stop the FED from doing more?
I said months ago that the market top was set in May, and would not be breeched unless there is some new form of stimulus/ponzi scheme. I think Friday's terror mess in Paris will have ‘some’ effect on the market this week, but it will not be a deciding factor. I’m seeing sector weakness at support levels. On the S&P (currently at 2023), the next stop lower would be the 50-day moving average at 2007. But here the 50-day is already below the 200-day – which is in itself a sign of weakness. In a strong market the 50-day is well above the 200-day. If 2007 fails, then it's on to 1995, and then down to 1960. But what about the upside – where could that go? I wouldn't even consider buying anything until the S&P got over 2052.
For me, I’m watching the Russell (RUT) to see if it can re-take the 1154 level. So if the Russell exceeds 1154 and the S&P gets over 2052 – then I think we can see a decent bounce back. Under those limits, the trend will continue to be lower. Be careful out there folks, there's simply ‘too much’ going on to be foolishly brave.
On Friday the CRB Index (that measures all of the commodities) – closed at levels we have not seen since the year 2003. A big part of this is crude oil, which is close to making new, multi-year lows. The worrisome issue is the banking industry’s $5T worth of loan exposure to the energy industry. Remember, the 2008 financial crisis was triggered by a mere $1T worth of sub-prime debt. So what continues to disturb me is what is going on in the deflationary commodity sector. Consider:
- Short positions on the Euro = Buying PUTS on the FXE.
- Long positions on the VIX (volatility index) that is showing more strength to the upside that doesn’t correlate well for stocks this coming week.
- The FANGs (Facebook, Amazon, Netflix & Google) broke through their 8-day moving averages and are touching their 21’s. If they break their 21’s – it could be a long way down.
- If this market is going to reverse, watch the NASDAQ getting over 4,550 and holding.
After Paris – gold and mining stocks are looking interesting:
- AG – BOUGHT stock @ $3.00 / and Jan, 2018 $2 Calls @ $2.30
- AUY – BOUGHT stock @ $1.83 / and Jan, 2017 $2 Calls @ $0.90
- EGO – BOUGHT stock @ $3.19 / and Jan, 2017 $3.50 Calls @ $1.10
- GFI – BOUGHT stock @ $2.30 / and Jan, 2017 $2.50 Calls @ $0.90
- IAG – BOUGHT stock @ $1.47 / and Jan, 2017 $1.50 Calls @ $0.85
- FFMGF – BOUGHT stock @ $0.29
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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