This Week in Barrons – 4-24-2016:
Thoughts:
“NO - not show YOU the money. Show ME the money.” …Jerry McGuire (movie)
Demographics In View
Over $51B has been pulled
out of mutual funds thus far in 2016, and Lipper says that an additional $3B
more was removed last week. In addition, Hedge funds have lost over $15B
this quarter. A lot of this is being
blamed on the market’s volatility, negative interest rates, and horrid economic
numbers. I think that there’s a lot of
truth to that. But a different angle on
‘Show ME the Money’ is in play.
This is the year when the
first wave of ‘Baby Boomers’ will turn 70 years old. For the next 20 years, approximately 3 million
people (per year) will turn that magic number. These ‘Boomers’ grew up during the most
productive times in history. They had
the good jobs. They made the most money,
and most have 401k's. ‘So what?’ you ask.
Well, there's a law that
requires: IF you have a 401k and IF you are 70.5 years old – you MUST start
taking your money out of your 401k. So using
conservative numbers:
-
3 million folks turning
70 this year, and (being conservative) 50% have a 401k. They (to date) have resisted taking their money
out because the market just kept going up, but NOW they have no choice – it’s
the law.
-
That also means
that 1.5m are no longer putting money into their 401k’s (given they’re being
forced to liquidate them). That doesn’t
sound too terrible until you realize that next year we will add another 1.5m to
that withdrawal list, and the year after that, and the year after that. All the while additionally adding to the non-depository
list.
Economists will tell you
that these new 70-somethings will begin to buy things like never before –
because they are ‘flush with cash’. I,
on the other hand, believe that these new 70-somethings will continue to keep
their expenses low so that they don’t out-live their money.
This naturally adds more
sellers than buyers to our stock market. Unfortunately, for stocks to move up – you need
more buyers than sellers. Lately,
corporations have been doing the buying via borrowing money or selling their
own bonds, and then using the proceeds of the sale to buy back their own stock.
With more and more 70-somethings
liquidating their 401k’s, either our government comes up with more ways to prop
up stocks, or stocks have no choice but to go down. And if stocks go down too far, companies
won't be able to pay the coupon on the bonds that they sold to re-purchase
their stock. Imagine the train wreck (crash)
if 35% of corporate America was to default on their own corporate bonds?
My point is that over the
next several years, our FED is going to have to get incredibly clever with
their shenanigans to stave off the wave of Baby Boomers – hitting 70.5 years of
age and liquidating their 401k’s.
Desperate times often lead to desperate measures, and maybe negative
interest rates in the U.S. is one of those measures. We know that our current debts can’t be paid,
and debts that can’t be paid – won’t be paid.
With trillions in debt, there’s going to be a reset and the retiring
Baby Boomers are just another reason why.
The Market...
We've just come through a
week of horrible earnings. Microsoft (MSFT)
missed, Google (GOOG) missed, Intel (INTC) guided lower and slashed 12K jobs, Caterpillar
(CAT) had sales down 13% and was just a disaster. I think this coming week will look something
like last week – a lot of chop, but in the end not a lot of directional travel.
But at least we have some levels we can
use as a barometer for further gains or losses. The high on the S&P this past week was
2111, and the low was 2081. So, in
general terms, buying when the market is over 2111 makes sense, and sitting
tight or going short under 2081 works for me.
Factually (speaking of
manipulation):
-
Eric Hunsader
CEO Nanex LLC reported that if you would have bought and sold the index futures
between 2am and 3:00am (buying at 2:00am and selling at 3:00am) – from 2005
until 2016, you would have captured half of the market’s total gains and NONE
of the losses. Unbelievable!
-
This week one of
the nation’s largest pension funds has applied for permission to cut benefits to
its 250,000 members by approximately 50%. The fund has missed its benchmark for
performance for years, and now 250k people face the reality that their $3k a
month check may only be $1,600/month going forward. FYI: If they don't get permission to cut the
benefits, the pension fund will be insolvent by 2025.
-
About 33% of Q1’s
S&P earnings will be non-GAAP (false) add-backs – accounting for 680
false-positive S&P points.
-
Last week Wells
Fargo confessed and was fined $1.2B for mortgage fraud. This week the FED elevated them to elite / ‘primary
dealer’ status.
-
This week, when Draghi
was speaking about the ECB’s plans – the ECB itself was selling $2B of ‘naked’ gold
futures in order to keep the price of gold down. This was an illegal sale done blatantly by
the ECG. I happen to agree that the
miners needed a bit of a correction as they've soared like eagles lately, but it’s
a blatant (in your face) manipulation.
Simply put, we are
continuing: (a) with 0% interest rates, (b) to overload our FED’s balance sheet,
(c) to print $85B Euro's a month and have NEGATIVE interest rates in Europe,
(d) to flounder in Japan, and (e) to chatter at the upper echelons about ‘helicopter
money’ – simply depositing $2.5k to $5k cash in every bank account around the
world.
Now you have to ask
yourself: Why (after 7 years into a recovery) are we still doing economic accommodations
at full blast? Why are the Banksters talking about ‘helicopter money’
with the markets at all time highs? Why
does half-the-world have negative interest rates? On one side there are
hundreds of reasons why stocks should be moving lower. On the other side, there is a manic Central Banking
system that is hell bent on ‘Doing what ever it takes’ to keep markets moving
higher. Who wins this battle? I'm siding with reality. If all it took to keep markets inflated was for
The Wizard of Oz to print money – don’t you think we would have done that by
now? Even our Banksters know that the printing
press is nothing new.
TIPS:
Congratulations to all of
you that followed me on the ‘Vegas Play’.
The strategy turned $20k into $94k within the past 6 months. I’ve received a lot of mail over the past week
surrounding this, and allow me to recap and address our next moves. To recap: 6 months ago I recommended
investing in a silver / gold miner: First Majestic Silver Corp. (AG) – using an
‘At the Money’ options strategy that went like this:
-
AG stock (at the
time) was selling for $3.12 per share, and had traded as high as $30 in the
past.
-
The $2 AG,
January 2018 Call Option was selling for $1.95.
-
Step #1 = Buy
100 - $2, January 2018 Call Options.
-
Step #2 = When
AG’s stock gets to $5 – sell the $2 Call Options and buy an equal amount of $5,
January 2018 Call Options.
-
Step #3 = When
AG’s stock gets to $10 – sell the $5 Call Options and buy an equal amount of
$10, January 2018 Call Options.
-
Step #4 = When
AG’s stock gets to $15 – sell the $10 Call Options and buy an equal amount of
$15, January 2018 Call Options.
-
If these steps
worked according to plan, you would successfully have turned about $20k into
$500k in 18 to 24 months if AG’s stock went to $20, or $1.1M if AG’s stock went
to $25.
This was the same ‘At the
Money’ options strategy that was used on the miners several years ago, and I
felt (6 months ago) that the miners were ready for a move higher.
The Good News is that AG’s
stock touched over $10 per share this week – and ended the day (on Friday) at $8.90. If you did the deal, you have successfully
turned $20k into $94k in 6 months. The
bad news is that because AG’s stock has risen so quickly – we didn’t get the
‘Call Option’ premium decay that I had anticipated – and therefore did NOT make
as much money as I had planned.
But this play (in anyone’s
book) has already been a big winner. Any
time you turn $20k into $94k in 6 months – you have hit a home run. There are NO guarantees that it will continue
to work. If you’re nervous about the trade,
then close it out for a huge profit, sell half, or skim some profits off the
top and continue. As for me, I’m
continuing with the plan – with a couple small modifications. When AG’s stock touched $10, the option
makers adjusted the price of the $10 options higher than normal. So I’m going to split my next buy purchasing
50% - $10 options, 35% - $12 options, and 15% - $15 options.
If you’ve been reading my
column for any length of time, you know that I feel that there’s a grand reset in
the works, and Gold is going to be used as a backing for certain currencies with
silver tagging along for the ride. I
have said for years that silver will be $75 to $100 per ounce – and it almost made
it there in 2011. I think that silver is
destined for higher prices – so taking some $12 and $15 options / 20 months out
is a risk that I’m willing to take. You
can play it safer by taking what you can get of the $10 options, and even
buying some $7 ‘In The Money’ options is fine too. The play is already a massive winner.
Can you get into the play
now? I say YES. If things continue to go as ‘sort of’
planned, then this $94k will turn into $700k.
You can certainly start by buying some $7 January 2018 Call Options on
AG. We know that this same style of trade
worked in 2010 and 2011. But yes you,
can start the play today – even though it is a little more risky.
I am:
-
Long various
mining stocks: AG, AUY, DRD, EGO, FFMGF, FSM, GFI, IAG, KGC, and PAAS,
-
Long an oil
supplier: REN @ $0.56,
-
Sold NDX – May –
Iron Condor – 4125 / 4150 to 4750 / 4775,
-
Sold RGR – May –
Put Credit Spread – 55 / 60,
-
Long RUT – May –
Butterfly – 1000 / 1080 / 1130,
- Long TLT – May –
Call Debit Spread – 128 / 133,
-
Sold TSLA – Apr5
– Iron Condor – 240 / 265.
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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