This Week in Barrons - 1-31-2016

This Week in Barrons – 1-31-2016:

Thoughts:

“I’m sorry my friend – you are toast!” … Lex Luther in BizarroWorld

Dear. Ms. Yellen:

Many years ago, a uber-comic book collector friend of mine told me of BizarroWorld.  It’s a comic book place where all ‘Good was Bad’ and all ‘Bad was Good.’  Lately, I’m seeing more real life introductions of the ‘BizarroWorld’ behavior.  For example:

-       I recently read where the rules for transgenders playing sports in the Olympics are changing.  It seems that ‘pre-operation’ men will be able to compete against females as long as they have acted like a woman and have taken hormone shots for a year.  Really?

-       Also, the mass influx of immigrants into Europe is causing a spike in crime, very little incarceration, and some major changes in thinking.  A German report revealed that a record-breaking 38,000 ‘asylum seekers’ were accused of committing crimes in 2014.  German authorities argue that their citizen's sudden interest in acquiring weapons has nothing to do with these statistics; however, there is an indisputable spike in migrant-associated rape, physical assault, stabbing, home invasion and burglary.

And since the focus in this country is about jobs, SF wrote to me pointing out that (over the next 10 years) it is estimated that robots will replace 50% of the American and British workforce.  These machines are different, as they have the ability to replace both human hands and brains.  Consider the replacement of:

-       Cashiers – by a transaction oriented wearable device,

-       Marketers – by robots that can mass-personalize every message,

-       Customer Service Agents – by robots who can answer questions with the help of technology such as IBM’s Watson,

-       Financial Middlemen – by robots who can execute ‘Blockchain’.   Blockchain is Bitcoin’s computer program capable of automatically processing transactions and creating perfect, reliable digital records.  This would replace most banking, insurance, escrow, and mortgage personnel.

-       Journalists – the Associated Press already uses robots to produce hundreds of articles per week, and

-       Lawyers (other than litigators) – where robots would perform all repeatable tasks.

These machines would be able to take over mid-skilled level jobs, leaving only the very low skilled or the very high skilled jobs for humans.  Now, I understand that we in the U.S. have morphed away from being a manufacturing society into a service based model due to technology and inexpensive, off-shore labor.  But the manufacturing countries of Germany and China are going to be greatly impacted.

And think of the upcoming college graduate – currently shouldered with (on average) $30,000 of tuition debt.  One graph below shows the ‘underemployment rate’ for college graduates steadily increasing since 2002.  The other shows wages for recent college graduates varying dramatically by discipline.  The median early career wage for a computer engineer is $60,000 – with a corresponding ‘underemployment rate’ of 19%.  While the median early career wage for a sociology major is $33,000 – with an ‘underemployment rate’ of 57%.

You can see BizarroWorld coming.  A world over-run with robo cops, robot baristas, sociology majors who are forced to work asking ‘Do you want fries with that’, and not enough computer engineers to totally rethink all of the potential robotic, societal outcomes.  I realize that BizarroWorld is strictly for comic book lovers.  But I also realize that on more than one occasion – Art HAS imitated Life.  To quote Lex Luther: “I’m sorry my friend, you are toast!”

The Market:

“You can choose to ignore the math, but you can’t avoid it!”  As if to add insult to injury with BizarroWorld, on Friday, the Bank of Japan (mimicking Denmark, Sweden and the ECB) cut their interest rate to minus 0.1%.  It also added that it is prepared to push the rate even lower if needed.  Basically, the move is telling depositors that they will be ‘charged’ to keep their money with the Bank of Japan.  Correspondingly the U.S. market jumped 400 points on Friday – on hopes that our FED would delay their upcoming interest rate hikes.  Unfortunately, as much as I would love to embrace the headlines - the underlying currents of math and fundamentals move effortlessly forward and eventually the day will come when you just can’t ignore them anymore.  Are we there yet, probably not.  But it’s ONLY time we’re buying, as we are not changing any fundamental, economic realities.

This week:

-       December durable goods orders fell over 5%,

-       The Dallas FED reported a negative 34.6 growth number – even lower than last month’s negative 21,

-       4th quarter GDP fell to 0.7% (one tenth lower than expectations),

-       Richard Fisher (the X-Dallas FED chair) is out saying that the inflation models the FED is focused on could be WRONG,

-       California home prices fell for the 2^nd straight month,

-       The Baltic Dry Index set another record low,

-       Apple reported SLOWING sales growth,

-       Two Italian banks were halted from trading due to a limit down exception,

-       And other than Facebook’s earnings this past week – the best argument you can make thus far about earnings is one supporting ‘stagnation’ as opposed to ‘growth’.

Japan’s NIRP (Negative Interest Rate Policy) caught everyone by surprise – because just last week Japan’s Kuroda publicly stated (on Reuters) that they were not thinking about negative interest rates.  The overall effect of course was that asset prices around the world jumped higher.  But is cutting rates to negative, really a reason for stocks to move higher?  Not really.  Negative interest rates are completely unnatural, and will hurt the Japanese citizens.  In fact, it will tend to create capital flight, as people refuse to put money in their local banks.  AND it will cause the Yen to fall, and (after all) this is a currency war.  Japan wants the Yen to fall to boost exports.  That's fine, but what do you think China is going to do?  The race to the bottom is in full bloom.

Make no mistake, the outcome of this is NOT good.  All across the globe nations are desperate to do anything they can to avoid depression, and if that means abusing their currency to screw your neighbor – well, so be it.  This is a desperation move where we don't know the ultimate results because it has never been done before.  I suspect history will not look kindly upon it.

I often laugh, because any time I tell someone that I’m a ‘gold bug’ they laugh at me.  They tell me that gold is a relic, it gives me no return, and it just sort of sits there.  Yeah, well right now an ounce of gold returning zero has a better Return on Investment than bonds in Sweden, Denmark, Switzerland, Japan and the ECB.  All of THEM charge you to own their lousy paper.

Anyway, Japan’s Yen did fall against other currencies.  That makes their exports more attractive; however, it makes the dollar even stronger against the Yen.  Wall Street is thinking that Japan's move will put our FED’s rate hike decisions on hold.  In fact, some were thinking that the FED may take back their December increase.

Are they right?  Don't bet on it.  The MOST that will happen is that the FED may reduce the number of scheduled hikes.  Originally they said there would be 4 rate hikes this year.  I actually thought that 4 was a bit much – simply because it is an election year, and that takes the ‘end of the year’ out of the equation.

But nothing was going to stop Friday's rally as often the largest ‘up-days’ come in oversold bear markets.  Friday was one of those vicious snap back rallies that take your breath away.  This is NOT the start of a new leg higher in a bull market, but rather a powerful bounce in a market staring into the face of a Global recession.  The only question is, how high does it go? 

We ended Friday right at resistance on the S&P.  For example, we closed on Jan 12 at 1938 – opened the next day at 1940 and fell like a rock.  Last Friday we closed at 1940.  We could test some intra day highs at 1950, but after that it would be a struggle to get to 1988.  But I suspect Friday was a bit too much, and I'm looking for a bit of selling on Monday.  If that happens, it will be very interesting to see how far the slide goes.  If the slide can NOT hold the 1921 level, then I would expect to see us right back at 1900 on the S&P again soon.

Tips:

Notes:

-       Remember: Congressman Hank Johnson (D) predicting that Guam would tip over if too many people were on it.  https://youtu.be/cesSRfXqS1Q

-       If you ONLY bought the S&P on the night before a two-day Fed meeting, and then sold it the next day after the Fed's decision – you would realize 60% of the S&P's upward movement for a whole year. 

INDU 16,000 
Selling pressure resumes, and a drop to 15,600 is in the cards. Replace long-term investing with hedging and trading.

NDX 4100 
    Should assume it’s slow grind downward thanks to Apple and Amazon.

SPX 1900 
    We could get a dead cat bounce and hit 1950 or even 2000.  The rally is short-lived due it being based on Fed action and not fundamentals.

RUT 1000
     It was July of 2013 that we last saw the broad based index this low.  The Russell has no ‘safe-guards’ and is the most pure form of order flow into the general equity markets.  Currently the outflows have stopped and we are seeing consolidation.  Use the Russell to gauge how best to move forward.

I am:

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

-       Long an oil supplier: REN @ $0.56, and

-       Sold SPX – Mar – Call Credit Spread – 2025 / 2030.

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>

This Week in Barrons - 1-24-2016

This Week in Barrons – 1-24-2016:

Thoughts:

Cover of ‘The Economist’ in 1988 - Notice the Year on the Coin

Dear. Ms. Yellen:

The picture above is the January 1988 cover of the Economist magazine.  The headline says: “Get Ready for a World Currency.”  Beneath the bird (‘The Phoenix’) you see many nations currencies represented, but notice the DATE on that coin?  It’s 2018.

To quote a passage from the article itself: ”THIRTY years from now, Americans, Japanese, Europeans, and people in many other rich countries, and some relatively poor ones will probably be paying for their shopping with the same currency.  Prices will be quoted not in dollars, yen or D-marks but in, let's say, ‘The Phoenix’.  Companies and shoppers will favor ‘The Phoenix’ because it will be more convenient than today's national currencies.  The supply of Phoenix’s will be fixed by a new central bank, potentially descending from the IMF.  Each country will use taxes and public spending to offset temporary falls in specific currency demand, but it would have to borrow rather than print money to finance each of their budget deficits.  With no recourse to inflation, governments and their creditors would be forced to judge their borrowing and lending plans more carefully than they do today.  The Phoenix would probably start as a cocktail of national currencies, just as the Special Drawing Right is today.  In time, though, its value against national currencies would cease to matter, because people would choose it for its convenience, and the stability of its purchasing power.”

This Rothschild owned financial publication (The Economist), 28 years ago – laid out exactly what the central bankers were PLANNING.  All we had to do was read it.  Major things like this just don’t happen.  Little by little you need to get (in this case) the world angry with the U.S., our policies, and our ever-abused currency.  First Libya tried to get away from selling oil in U.S. dollars – their government was changed.  Then Iraq tried it – and their government was toppled.  Then the CEO of a large French energy company TOTAL suggested: “There is NO NEED to trade oil in U.S. dollars.”  Weeks later, he was killed in an airplane – that was hit by a snowplow – driven by a drunk driver.  No, I can’t make this stuff up.

Today, Russia and China are transacting billions of dollars in oil trades – all in their native currencies.  It’s only a matter of time until the Saudi's publicly state that they'll accept anyone's currency for their oil.  When that happens, the big global reset will be near because the days of the ‘petro-dollar’ will be over.  Cries of currency manipulation will continue to rise; all the while currency exchange rates will drive people to demand change.  Canadian currency (for example) has lost almost 50% of its purchasing power in a very short period of time.  Food costs in Canada have gone up dramatically because 80% of their food is imported.  A box of frosted flakes is now $15, and a cucumber is $3.

All of this was PLANNED.  Market instability will increase, economies will continue to grind lower, and eventually the public will come (hat in hand) begging Governments to ‘do something’.  And that ‘something’ will involve pseudo-white knights sweeping in from Brussels and the U.N. – presenting the world with a unified global reserve currency.

The world is in flux.  Consider the unstoppable progress of technology and what it will do to the jobs situation.  What do you think the one-time cashiers, machinists, office workers, bartenders, burger-makers, etc. are going to do when robots replace them?  The common line of thinking is that they will be re-trained for different jobs.  Unfortunately, the jobs they will be re-trained for – will be replaced by even more technology.  Right now Uber is one of those ‘gig jobs’ that many are using for extra cash.  To quote the CEO of Uber when talking about autonomous cars: “Our service would be a whole lot cheaper if you weren't paying for that other dude in the car.”  So I’m wondering what the ‘Master Plan’ has in store for untold millions of idled workers?

Humans (for lack of a better word) are being phased out.  While nothing ever goes strictly according to plan, you have to admire how much ‘the Powers that Be’ have accomplished:

-       Our kids have become dumbed down.

-       Our colleges have become expensive sandboxes for the easily insulted.

-       Our government (for the first time in history) forces us to purchase medical insurance.

-       We are blanketed by inflation, but are being told that it’s imaginary.

-       Wages have stagnated for 30 years, and it’s being termed progress.

-       And one well-paying job has been replaced by two lousier part-time ones that do not include pensions or benefits.

And all of this was NOT by accident – look at the date on the coin.

The Market:

This week global markets were pronounced as ‘officially’ being in ‘bear’ territory as they were down over 20%.  Soon, we will see country after country move into recession territory.  The dynamics about this situation appear to be far more challenging than in 2008.  This next global recession will be based upon the burden of debt.  The larger picture is not based upon corporate indebtedness, but rather (to use a Warren Buffett phrase) our own derivatives – aka ‘financial time bombs’.  You see U.S. Debt is now at $18.9 Trillion (growing at $0.1 Trillion per week) with the total derivative market estimated to be over $700 Trillion.  In the Wall Street ‘derivative casino’, people are actively betting on events whose inaccuracy will not be exposed for many years.  The true question will be whether this ‘bear market’ will finally expose the ‘derivatives casino’ as the ‘pyramid scheme’ that it really is?

This week our markets (after falling for over 2,000 points on the DOW since Dec. 30) set a short-term bottom around 1 pm on Wednesday.  Oil then proceeded to gain 17% in just two sessions.  Mario Draghi also reported that since $7.8 Trillion has been lost from global equities in 2016, all of the Central Banks are prepared to act in concert to prevent a global market meltdown.  It seems that Central Banks around the world are getting ready to unleash holy hell in stimulus to SAVE the STOCK MARKETS.  I guess that takes the ‘free’ out of our ‘free market’ system.

Okay, so what happens now?  I don't for a minute think that we have seen the bottom in stocks for 2016.  I do however think that IF oil doesn't collapse, AND China stabilizes a bit – this ‘snap-back’ rally has more to go.  Those are two big ‘IFs’, but I could see this running all the way to 1950 on the S&P.  We were way overdue for a ‘snap-back’, and now we have it.  The only question is: does this last for another day, few days, a week or maybe two weeks.  The answer to that question lies in how oil behaves.  If there are any more problems in the Middle East between the Saudi's and the Iranians – then oil could remain elevated.  But I do NOT think this is going to last all that long, because the true earnings just don't support it.

To date, of the companies that have reported earnings, only 47% of them have beaten their estimated revenue numbers.  Certainly ‘more’ have engineered an Earnings Per Share beat – but that’s just accounting fiction at this point.  You can’t fake sales, and sales are slowing across the board.  Should this market run back to the old highs on falling revenues?  I think not.  

Enjoy this bounce for what it is, but it isn't time to toss the kitchen sink at it for the long term.

Tips:

I am:

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

-       Long an oil supplier: REN @ $0.56,

-       Long FB (Facebook) – heading into their earnings mid-next week,

-       Long ATO (AutoZone), and

-       Sold SPX – Mar – Call Credit Spread – 2025 / 2030.

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>