RF's Financial News

RF's Financial News

Sunday, May 1, 2016

This Week in Barrons - 5-1-2016

This Week in Barrons – 5-1-2016:

Ready to take a Leap of Faith?

On Friday the stock market reminded me of what it must be like to jump out of a helicopter.  In an instant, the Nasdaq took a 90-point swan dive, and broke through technical support.  I could talk about the corresponding wild swings in the S&P and in popular tech stocks, but right now – currencies are driving this market.  Early Friday morning, the Bank of Japan (BOJ) blindsided traders by making an unexpected announcement that caused the Nikkei to plunge over 1,000 points in a minute.  Because the Japanese economy is failing so badly, everyone expected the BOJ to take SOME monetary action (which translates to ‘give out more free money’).  Instead, the BOJ boldly declared that they would be doing NOTHING.  Boom – ‘drop the mic’ – ‘walk off the stage’.  The shockwaves were immediate.  The Japanese market puked, the Yen surged higher, Gold took off like a rocket, the U.S. Dollar fell, and global markets instantly went red.

This decision was so unexpected, that the BOJ followed their announcement with another announcement confirming that yes – they had decided to take no action.  What’s going on you asked?  Hint: Central Bank shenanigans. 

The U.S. FED is the 800-pound gorilla of the markets.  Less obvious (but just as true) is that the strong dollar has hampered our domestic and global economy.  For proof, you need look no further than the collapse in oil prices and the decline in the financial sector.  Our FED cannot afford to let our dollar and/or the economy slip any further – potentially into a recession.  After all, Ms. Yellen already had her knuckles rapped for raising interest rates this close to a Presidential election.  It’s no secret that the U.S. economy is teetering on the edge of recession, and reports of 0.5% economic growth aren’t fooling anyone.  To save the U.S. and global economies, the U.S. dollar MUST go down, and that means – on Friday the BOJ’s hands were tied.

The irony in all of this is that stocks dropped like a rock on Friday – because Japan did NOT destroy itself (more than it already has) by issuing more ‘free money’.  We now know why Ms. Yellen was so completely dovish in her remarks on Wednesday.  She knew that it was the BOJ’s turn to ‘manage the markets’ by talking tough.  The pattern that is developing across the big 3 Central Banks is that they regularly exchange the ‘talking tough baton’ between Ms. Yellen, Mr. Draghi of the ECU, and Mr. Kuroda of Japan.  Last month Mr. Draghi disappointed his constituents by not unleashing more ‘bazooka dollars’.  Last week, Japan’s Mr. Kuroda took control of the ‘disappointment baton’.  Next time, if global markets are running wild, don’t be surprised if Ms. Yellen is the ‘bad guy’ and disappoints.  And if global markets are falling in unison, don’t be surprised if it’s Ms. Yellen’s turn to say something bullish.  It’s all just a game. 

With Japan in particular, their financial system has become so perverted that the Bank of Japan (BOJ) is now a top-10-holder of 90% of Japanese stocks.  So even though they did not unleash any more QE, they are actively propping up their market by buying virtually all of the stocks – using an unlimited amount of money that they can create ‘out of thin air’.

The latest rumor out of our own FED is concerning ‘Helicopter Money’.  This is where the FED would write a huge check to the U.S. Treasury office, which would then send a tax rebate (cash) to millions of Americans.  The thinking and hope behind such an action is that Americans would then actively spend that money and more.  After all, consumer spending makes up the majority of economic activity so more spending would boost our country's growth prospects – which are currently dim.  No one expects the FED to announce a helicopter money program next week, but the mere talk of ‘Helicopter Money’ illustrates how desperate central bankers are to spark growth.

The Market:
-       Caterpillar (CAT) announced that they are closing 5 more plants and laying-off 900 more workers – the day after a TV interview where their CEO declared that their lay-offs were over.
-       Oil is still in trouble as Freeport fires 25% of its oil and gas workers.
-       OPEC is set to pump even more oil in April, as Saudi Arabia boosts exports to near-record high levels and Iran plans to double production.  Could it be that ‘someone’ is manipulating oil prices higher so that all of those bankrupt oil and energy companies can stay alive, sell more debt and try and pay back some of the banker loans that are in danger of defaulting?
-       Per SF, mortgage applications fell by 4% last week.  Homeownership in the United States is near its lowest point in history (63.6%) – just one-tenth of 1 basis point higher than its all-time low.  Homeownership hit a high of 69.4% in 2004, when mortgage lending was at its loosest level in history.
-       Core durable goods orders tumbled for the 14th month – creating the longest non-recessionary stretch in 60 years.
-       Apple (AAPL) missed earnings estimates last week – with revenues down 13%.  It was the first revenue decline in ‘forever’ for Apple.  Maybe people just didn't have the money to buy more ‘stuff’?
-       Hess (oil company), Buffalo Wild Wings, Boeing, and Baker Hughes were just a few of the many companies that also missed earnings and/or revenue estimates last week.

So, with all of the earnings misses, the housing market cooling, and gas prices moving higher – How’s the future looking?  The issue is that the banksters have painted themselves into the worst corner of all time.  They are keeping the markets at nosebleed levels, bragging about a 5% unemployment rate, and talking about the ongoing ‘recovery’ as if it were real.  But they know that the economy is a mess, GDP is hovering near 0, this earnings season is a disaster, and the entire globe is in a soft recession.  You can't have it both ways.

On Friday, the
‘Plunge Patrol Team’ stepped in and halted the slide in the S&P at 2050 and drove it back up to end the day at 2065.  They will defend the 2050 level on the S&P with every gold plated kitchen sink they can find.  However, with money still fleeing the market – internal market indicators are rolling over.  This week you can bet that Central Banks will be actively in the market trying to prevent the old adage: “Sell in May and Go Away".  [Referring to banksters packing up and moving to the Hamptons for the summer.]  Central Banks will not want that to happen, and they will rely on the corporate buy back embargo ending to help their case.

You see, most companies have not been able to buy back their own stock because there is a black out period around earnings season that forbids it.  That black out period will end for most corporations around May 4th.  As a result, we are going to see spectacular buy backs occur, as companies have sold tremendous amounts of debt in order to raise cash to do so.  Volatility is going to increase to wicked levels – so please be careful out there.

Silver.  Is there another commodity on Earth where demand is so high that the mint runs out – yet the price falls?  No.  [The Mint is legally bound to produce all the silver coins that the public demands.]  And this is NOT just a U.S. centric situation.  That is why I think digital entries in a computer are not real money.  Money should not appear or disappear with the ‘flick of a switch’.  Gold has been the world’s money for thousands of years.  I believe that the world will revert back to some form of loose gold standard.  Gold is going to go higher.  Many people think that it’s going to $10,000 per ounce, however my target is $3,000.  It’s presently trading around $1,290.  

A couple ways to play it include:
-       Buy GDX = an ETF of the ‘bigger’ miners.
-       Buy GDXJ = an ETF of the ‘junior’ miners.
-       Buy SGDM = the Sprott Zacks Gold Miners Index which is a rules-based index that seeks to identify about 25 gold stocks with the highest historical beta to gold price ratio.
-       And/or buy some individual miners such as: NEM, ABX, GFI, GG, PAAS, AG, AUY, RGLD, FNV, IAG, EGO, HL, MUX, BVN.

All of the above choices should grow considerably higher over the coming years.  For example on Feb 16th:
-       GDX was $16, and closed Friday at $25 for a 56% gain.
-       GDXJ was $22, and closed Friday at $38 for a 72% gain.
-       SGDM was $16, and closed Friday at $23 for a 43% gain.
-       And NEM was $24, and closed Friday at $35 for a 46% gain.

In the long run I'd rather have 10 silver eagles in my hand, than 500 digital dollars in some bank that now considers my deposit to be ‘an unsecured loan to the institution’.  I worry about digital dollars that (at the flick of a switch) can: ‘No Longer Exist’.

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,

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> .

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