This Week in Barrons – 11-29-2015:
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.
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.
- 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.
- 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!
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Until next week – be safe.