This Week in Barrons – 4-10-2016:
If you listen closely … you can hear the 70’s a-comin’
This is one crazy, screwed up world that we live in. Sometimes you just need to change – to do what’s right. Money has become everything – which makes what Bruce Springsteen did last week that much more remarkable. Artists are the embodiment of their identity. When done correctly, artists channel their emotions, feelings, and insights directly to their listeners. Artists change hearts and minds, make a difference, and speak to us – all by putting the truth first. Bruce grew up in an era when musicians were giants. Heck, musicians (almost single-handedly) helped to stop an unjust war. Today's fans will have trouble digesting what Bruce did last week when he cancelled his tour date in North Carolina. He said: “As you also know, North Carolina has just passed HB2, the ‘bathroom’ law. HB2 dictates which bathrooms transgender people are permitted to use. Just as important, the law also attacks the rights of LGBT citizens to sue when their human rights are violated in the workplace. No other group of North Carolinians faces such a burden. In my mind, it’s an attempt by people who cannot stand the progress our country has made in recognizing the human rights of all of our citizens – to overturn that progress. I feel that it is time for the band and I to show solidarity for those freedom fighters. As a result (and with deepest apologies to our dedicated fans in Greensboro), we have canceled our show scheduled for Sunday, April 10th. Some things are more important than a rock show, and this fight against prejudice and bigotry — which is happening as I write — is one of them. It is the strongest means I have for raising my voice in opposition to those who continue to push us backwards instead of forwards.”
Last week I also listened to Elon Musk as he introduced his new (more affordable) TESLA automobile. Prior to announcing the vehicle itself (which produced the largest one-week launch of any product – ever), he stressed WHY to buy this car. (A) The internal combustion engine is continuing to spike our levels of CO2 ever higher. The last time our CO2 levels were this high was 11 million years ago – when man was just starting to walk. I’d rather not return to those times. (B) These same CO2 levels have resulted in 20-degree increases in our temperature extremes – resulting in unthinkable, environmental discontinuities if continued. And (C) a recent MIT study directly attributes 53,000 deaths per year to transportation emissions. So if you’re in favor of living over the alternative – then the decision is easy. Mr. Musk (in no small way) is raising his voice toward change – in order to do what’s right for our environment.
Finally in the ‘changing to do what’s right’ category, we learned this week that Brittany Stinson (a Delaware teen) was admitted to 5 Ivy-League colleges and Stanford – after penning an essay about Costco. Her 655-word ode to Costco was in response to a College Common Application admissions essay question that asked applicants to share something that was so important that their lives would feel “incomplete without it.” In the essay she talked of being: “A conquistador, but rather than searching the land for El Dorado, I scoured aisles for free samples.” She posed such questions as: “Was cultured yogurt any more well-mannered than its uncultured counterpart? Just as I sampled buffalo chicken dip or chocolate truffles, I probed the realms of history, dance and biology, all in pursuit of the ideal cart — one overflowing with theoretical situations and notions both silly and serious.” The line that I especially liked was: “With cart in hand, I do what scares me.”
Ms. Yellen, so few of us anymore ignore what makes us money, and do what scares us. Who will follow Bruce (the musician), Elon (the visionary), and Brittany (the conquistador)? Who will follow – potentially jeopardizing their career, losing money – all for what's right? It used to happen all the time. It must happen again. http://goo.gl/KZgvEH
- The Atlanta Fed now believes that GDP for 2016 will come in at 0.1% growth for the YEAR. That’s down from a 1.6% estimate in January.
- This week wholesale inventories fell 0.5%, and big truck orders plunged 37% to their lowest level since 2007.
- This week the Financial Times reported that the U.S. corporate default rate is at a 7 year high.
- On Wednesday, Gene Dodaro (an auditor for the Government Accountability Office) told lawmakers that in the next few years the federal government will OWE more money than our entire economy produces – and THAT is not sustainable.
- Additionally Gene found that in 2015 there was $136.7 Billion in improper payments made, which calls in question ALL governmental financial reporting.
We continue to see this divergence between reality and what's happening in the capital markets that are just a couple percent from all time highs. Our economy is troubled. Our trade deficits and our debts are through the roof. Our Government’s last hope is that keeping the stock market UP at all cost will keep J.Q. Public from revolting. In general, markets climb for years, and then fall like a rock in a short period of time. This market should have fallen two years ago, but the coordinated efforts by the FED, the ECB, and the Japanese Central bank – have kept all of the spinning plates in the air. They can't do this forever. Something’s going to break, but trying to call the exact date is a fool’s game.
Remember, a record $9 trillion USD has been pumped into the economy, and according to Goldman Sachs: “In each year since 2010, corporate demand via buybacks and M&A has represented the largest source of inflow to the U.S. equity market. We expect this pattern will repeat in 2016.” http://www.foxbusiness.com/features/2016/02/08/goldman-sachs-stock-buybacks-to-rescue-stock-market.html. That is to say, instead of investing in the company, expanding the business, funding R&D and purchasing new capital equipment – companies are pandering to their executive’s salaries and their Board of Directors. One doesn't have to be a rocket scientist to recognize the effect of massive stock repurchases on the market. Last week, during the blackout period (when companies were forbidden to re-purchase their own stock), the market had 3 consecutive down-days of record low liquidity. Some of the better known share buyback programs are: Gilead (GILD) - $12B, 3M (MMM) - $10B, GE (GE) - $26B, AIG (AIG) - $25B, and Apple (AAPL) - $35B.
The recently architected run-up from the February lows is nothing short of spectacular. But we're in a very interesting place. Hedge funds lost big in the first quarter. Bank of America says that investors are still fleeing the stock market in droves, and the only organizations propping up the market by buying ‘hand over fist’ are the ‘banksters’ themselves.
You’ve heard me compare this to a game of musical chairs. The problem is (at these levels) any day the music stops could be the day that the markets start a ‘major’ downward slide. It drives me crazy when major individual investors from Marc Faber to Jim Rogers scream to get out of stocks because something bad is coming. Yet each time we get a couple down days, our FED simply calls on their other central banking buddies to purchase even more stock than normal. It is terribly hard to bite your tongue and buy stocks when you know that they are rising for the WRONG reasons.
I predicted this week to be a pause to down week – and we got it. I am taking longer term ‘short-side’ positions, while in the short term trying to snag-n-grab profits from market bounces. The ‘Vegas Play’ I introduced in January is chugging along nicely, as the miners are still in an uptrend.
Should you be buying gold? Absolutely. Is buying silver still a good idea? Yes. All of the investors disillusioned by gold’s fall from 1900 to 1200, will be amazed at where gold ends up in the future. Gold and silver are assets where ‘timing the buy’ is everything. For example, if you bought gold between the years 2001 and 2006 (between $300 and $500) – you’re sitting pretty with gold currently at $1,240 / ounce. Timing is indeed everything, and I believe the time is right again.
However, be careful this week. I expect wicked pops-n-drops as earnings hits and misses start filing through. Try not to hold stocks over their reporting dates as the risk to reward is skewed to the downside.
S&P Index - On a pullback to the 2,000 level, watch to see how high it bounces. If it bounces over 2100, then the FED is in control and they are signaling a yearend rally. If the market does NOT bounce very high, then the market forces are in control and we are in store for much lower readings.
Russell Indx - The 1140 level will continue to act as resistance.
Nasdaq Indx - Unless we see a dramatic shift toward an up-trend, the broadening action displayed here is most often resolved to the downside.
Gold (GLD) - If we continue to hold 1,200 as support, we could rally fairly dramatically into the end of the year.
In terms of the upcoming earnings season (that starts on Tuesday) – if you’re an aggressive trader, think about buying out of the money, Delta 20 - Calls on some of the FANG stocks as they run into earnings. (Please sell BEFORE the actual earnings announcement as current risk/reward favors the downside.):
- GOOGL – Apr4 - $800 calls for $6.50,
- AMZN – Apr4 - $615 calls for $6,
- NFLX – Apr4 - $115 calls for $2.30, and
- FB – Apr5 - $118 calls for $2.
- Long various mining stocks: AG, AUY, DRD, EGO, FSM, GFI, IAG, KGC, and FFMGF,
- Long an oil supplier: REN @ $0.56,
- Sold CMG – Apr – Call Credit Spread – 470 / 472.5,
- Long GLD – Apr – Call Debit Spread – 118 / 123,
- Long IBM – Apr – Looking for a Pin @ $150,
- Sold NDX – May – Iron Condor – 4125 / 4150 to 4750 / 4775,
- Long NKE – Apr – Call – 67.5,
- Sold RGR – May – Put Credit Spread – 55 / 60,
- Long RUT – May – Butterfly – 1000 / 1080 / 1130,
- Long POT – Stock & Apr – Call 20,
- Sold TEX – Apr – Put Credit Spread – 19 / 20,
- Long TLT – May – Call Debit Spread – 128 / 133,
- Sold TSLA – Apr – Iron Condor – 227.5 / 232.5 to 275 / 280.
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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