RF's Financial News

RF's Financial News

Sunday, February 28, 2016

This Week in Barrons - 2-28-2016

This Week in Barrons – 2-28-2016:


“Power corrupts; Absolute power corrupts absolutely.” … John Dalberg-Acton

Dear Ms. Yellen:

I remember a quote by Albert Einstein: “I know not with what weapons World War 3 will be fought, but World War 4 will be fought with sticks and stones.”  Our lives revolve around electricity.  Last week we talked about abolishing cash, and making everything digital – which works as long as there is power to run it.  What IF: clocks stopped, refrigerators went silent, no heat, no microwave ovens, lights went out, no dial tones on cell phones, no cars at gas stations, and nobody picked up 9-1-1.  What IF: you arrived at your work place and it was dark, there are no streetlights, and everyone was outside looking confused.  Then someone (who commuted from 30 miles away) told you that they didn’t have any power back there either.  Then it hits you - something BIG has happened.  

Did an EMP (Electro-Magnetic Pulse) hit our power grid?  An EMP can come from a low-level nuclear explosion that enters the wires and ‘blows up’ everything in its path from transformers on poles, to circuit boxes in your home, to your TV and appliances.  Experts have said that (as a nation) we are extremely vulnerable to such an attack.  It’s my belief that if our power grid goes down, life (as we know it) grinds to a halt in a short period of time.  You will have enough gas in your car to get around for a week.  You won’t be able to cook.  There's no water because the town pumps are down.  Freezers and refrigerators are down – so food is rotting.  And people (although they may have $15,000 in the bank) only have $10 in their wallet – and the ATMs (like the banks) are closed.  After 30 days, roving bands of people would be scouring neighborhoods looking for food.  Police protection would be gone, as they would be ‘staying home’ to try and save themselves.

But I’m not at all worried about someone launching an attack via an EMP style nuclear shell.  My concern is someone ‘hacking’ into the power grid.  After all, the power grid runs on software.  Imagine someone implanting a virus (such as Stuxnet) onto our power grid.

Stuxnet is a malicious computer virus believed to be jointly built as an American-Israeli cyber weapon.  Although neither state has confirmed, anonymous U.S. officials (via the Washington Post) claim that the worm virus was developed during the Obama presidency in order to sabotage Iran's nuclear program.  The goal was to disable Iran’s program – all the while making it look like a long series of unfortunate accidents.  Stuxnet specifically targets PLCs (programmable logic controllers) that allow the automation of processes such as those used to control machinery on factory assembly lines, or centrifuges for separating nuclear material.  Stuxnet reportedly compromised Iranian PLCs, collected information on industrial systems, and caused the fast-spinning centrifuges to tear themselves apart.  Stuxnet's design and architecture could be tailored to attack modern SCADA (supervisory control and data acquisition) and PLC systems – just like those used in power plants.

Given our government has the ability to: (a) create a worm virus, (b) deposit it into a factory, (c) spiral things out of control until they blow up, and (d) all the while giving every indication to the operators that everything is okay.  Imagine what ‘real hackers’ could do.

John MacAfee created the first commercially available anti-virus software.  In the 1980’s (while employed by Lockheed Martin), John received a copy of ‘The Brain’ computer virus and began to develop software to combat it.  John has said on numerous occasions that incredibly bright hackers already have the ability to shut down our entire power grid.  He said that the U.S. Government is 20 years behind in technology.  He said: “Nobel prize winning mathematicians can figure out complex equations in their heads - that take us years on a computer.  These types of computer geniuses don’t fit the corporate mold.  You don't see Uncle Sam hiring a kid with a red mohawk hair-do and facial tattoo's.  But it's that very genius that can look at a full page of code, decipher it in his mind, and change it to do whatever he wants.  Uncle Sam does NOT have those kinds of kids."

So when I hear the word ‘power’ – it doesn’t mean who is going to be elected as our next President of the United States.  To me, ‘power’ means electricity – or lack of it.  I worry about the new push to abolish cash, and use smart phones. What cheaper, better and faster way could you ever envision to take over a nation, than to: (a) get them addicted to electricity, (b) abolish their money so that they are entirely digital, and then (c) pull the plug on the juice?  It would be the ultimate take over strategy and unfortunately, we could be ripe for it. 

I do hope that John MacAfee is wrong.  I also hope that the next time we are talking about ‘Power’ in the White House – it’s not someone searching for a light switch that works.

The Market:

-       Crude inventories are at a new, weekly, record high.
-       New home sales collapsed – down over 5%.
-       The Purchasing Manager’s Index came in 7% below expectations.
-       An interesting quote was: “With the exception of the Oct 2013 government shutdown, this February has been the worst month for business since the recession.”

I happen to be a big fan of Brad Lamensdorf’s Market Timing Report (www.lmtr.com) and would encourage you to subscribe - because of the interesting ways he analyzes data.  Here are a couple examples:

His ‘Smart Money / Dumb Money Confidence’ chart shows that the ratio is now as wide as it was during September’s correction.  This indicates major pessimism and fear in the marketplace by the ‘dumb money’.  Once this fear dissipates, it will serve as a contrarian indicator for a large decline.

His Selling vs Buying Climaxes Chart tracks when stocks make 12-month lows, but close the week with gains (selling climax).  In mid-January there were almost 1,100 selling climaxes, which rivals the number that occurred during the September low.  Be careful not to use this price increase as a trending indicator, but rather as a warning.

This is a typical bank stock chart – showing a January break in support and dropping nearly 20% after that break.  Such a dramatic drop often foretells: recession, exposure to sovereign debt, or possible energy loans going bad.  This price action is worrisome from a historical perspective.

The big G20 meeting (in Shanghai, China) is still going on.  The two-day event brings all the heads of the big nations together to chat about the global economy.  A lot of people are waiting to hear that they have agreed on a form of coordinated global economic stimulus (similar to 2008) to ward off the slowing economy.  But the talk on Friday was that they did not see the need for that.

The Friday market started out by running higher, with the DOW (at one point) being up 130 points.  But as the day wore on, the market went from being up 130 to closing 50 points in the red.  Technically, the S&P needed to cross the 1950 level and it did, but it couldn't hold it.  While it is true that they stopped the bleeding by getting above the 50-day moving average (at 1944), I tend to think that the G20 will determine whether the market will go higher and challenge 1975, or if it will roll back to the 1900 level.  If the G20 comes up with some global stimulus plan, we could rocket higher on Monday.  But if they come away with handshakes, we could see the market fading back down to the 1900 level. 

Secondly be aware that corporations cannot buy their own stock back 5 weeks prior to their earnings announcement, and 2 days following their announcement.  Therefore with the banks reporting earnings again in mid-April – it’s likely that the banks will begin to cool-off from now until then.

Let's be patient and see what the G20 comes up with over the weekend.


To prepare for a downturn, and if you would rather not use options – remember the following ETFs work in reverse.  That is to say when the DOW goes down, DOG (an inverse ETF for the DOW) goes up.  There are also ‘double’ and ‘triple’ leveraged ETFs as follows:
-       For the DOW: use DOG = 1x, DXD = 2x, and SDOW = 3x.
-       For the S&P: use SH = 1x, SDS = 2x, and SPXU = 3x, and
-       For the Russell 2000: use RWM = 1x, TWM = 2x, and SRTY = 3x.

I am watching:
-       MO – buying the stock & writing a covered call,
-       SPX – buying the 1900 – March / + April Calendar spread, and
-       XLF – shorting it over 22.

I am:
-       Long various mining stocks: AG, AUY, EGO, GFI, IAG, and FFMGF,
-       Long an oil supplier: REN @ $0.56,
-       Long CRM – Mar – Call - 82.5,
-       Long FIT – Mar – Call – 21,
-       Long GLD – Mar – Call Debit Spread – 115 / 120,
-       Long HD – Mar – Call – 135,
-       Sold JPM – Mar – Call Credit Spread – 57.5 / 58,
-       Long NFLX – Mar – Butterfly – 90 / 95 / 97.5,
-       Long NKE – Mar – Call – 67.5,
-       Sold RUT – Mar – Call Credit Spread – 1100 / 1105,
-       Sold SPX – Mar – Call Credit Spread – 2025 / 2030,
-       Long STI, using a Mar 35 Covered Call to generate income,
-       Sold TEX – Apr – Put Credit Spread – 19 / 20, and
-       Long TSN – Mar / Apr – 62.5 Calendar

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!

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

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.


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://
Until next week – be safe.

R.F. Culbertson


No comments:

Post a Comment