This Week in Barrons – 6-12-2016:
“’You're like Jesus, if he was arrogant and all of his miracles were fake… I'm just trying to create a space for wisdom.” … Merritt McKinney - Now You See Me 2
Recently I saw the movie ‘Now You See Me 2’ and it dawned on me that society is making the individual, global FED players ‘rock stars’, only all of them are “arrogant and all of their miracles are fake”. We are doing this at the expense of the actual markets, and the companies within them. The stars are now: Janet Yellen, Mario Draghi, Haruhiko Kuroda, Zhou Xiaochuan, and Mark Carney of the United States, Europe, Japan, China, and England respectively. Unfortunately, over the last decade the FED heads have decided that it was their ‘obligation’ to decide the winners and losers. The losers would be the savers, pension funds, and insurance funds that have seen interest rates plummet. The winners are every corporation that has even the slightest political intention. Nobody realized that by manipulating interest rates, you would effectively manipulate everything. In fact by pushing interest rates negative, you force ‘savers’ to increase their risk tolerance and enter the stock market. Instead of ”trying to create a space for wisdom”, investment decisions are being made on guessing what the various FED heads will do next.
The Bank of Japan (after introducing negative interest rates) is now actively purchasing Japanese stocks. They are now a top ten shareholder in 90% of the stocks traded in Japan. Not to be outdone, the European Central Bank (ECB) has also moved on from negative interest rates and is purchasing corporate bonds. This means (for example) that the citizens of the EU are actually funding the Bayer acquisition of Monsanto. Bayer (in an effort to accumulate the funds necessary to purchase Monsanto) sold billions of dollars of Bayer corporate bonds. The ECB then printed the appropriate amount of money, and immediately bought the bonds from Bayer. Therefore, Bayer just received billions of dollars to buy Monsanto directly from the ECB. If you were Bayer, you never had to increase sales, or change any business practices. You acquired Monsanto because the ECB printed money out of thin air and gave it to you. There is no precedent for that amount of FED head authority or intervention.
We’ve never seen anything like it. Switzerland, China, Japan, and the European Central bank all admit to buying stocks. Corporate earnings could go to zero, and stocks in these areas would still rise just as long as they are being purchased by money that is simply printed into existence, instead of money that has been earned and saved. This type of FED head action is being termed the ‘Hidden Hand’.
Marc Faber of the ‘Gloom, Boom and Doom Report’ said: “Central banks are only interested in their own prestige. If a particular element did NOT work in the past, they will do it again and increase the dosage. Eventually, (for example) they will buy all the bonds, and all the shares outstanding. And when the housing market goes down, they will buy all the homes – and then the government will own everything."
I have no idea when or how this all ends, though I'm fairly certain that it won't be pretty. The crazy thing about these FED heads is that they are all academics that have never worked a day in their lives. However, their game is not without risk. Goldman Sachs estimates that a 1% increase in U.S. Treasury yields would trigger over $1 trillion in losses – exceeding all of the losses from the last financial crisis. I believe that gold and other hard assets will be the spectacular winners of this manipulation. George Soros and other semi-retired investors have also voiced their opinions on the side of buying gold and gold miners. So far this year the Gold Miners (GDX) are up 90% as compared to a 3% increase in the S&P.
To that end I would like to recommend a FREE precious metals seminar taking place on the 16th, 17th, and 18th of this month. It’s a collection of 20 interviews from the how’s and why’s of buying precious metals, to identifying fakes and frauds, and even touching on where to ‘hide’ them. This online seminar is FREE to listen to, and is $20 to purchase the podcast. It only requires a first name and e-mail to enter and you can review the speaker list and content at: http://cdi.ontraport.net/t?orid=98572&opid=55. I have it on excellent authority that it will be the best, free education you will ever get on the precious metals.
- China’s financial defaults are rising significantly,
- Another $2B left the market last week – making it 10 out of the last 12 weeks where money has been fleeing the stock market.
- The amount of global sovereign debt with negative yields surpassed $10 trillion for the first time in May. It is spread across 14 countries, with Japan by far the largest source of negative-yielding bonds.
- Businesses accumulated debt in the 1st Quarter of 2016 at the fastest pace in three quarters. Business debt grew at a blistering 7.9%, and has expanded by almost 8% in three of the last five quarters.
- Household debt grew at a much slower 2.7% pace, with student and auto debt leading the way and credit card debt growing by 6.1%. Mortgage debt grew at the slowest pace of 1.6%.
- DS informs me that for the past 54 consecutive months, rent increases have exceeded pay increases. This is crushing seniors and the lower middle class as in many cases – they are spending 40% of their income on rent.
If you listen to the market carefully you can almost hear the creaks and groans. The distortions from so much pushing and pulling on a market that clearly doesn't belong at these levels, are causing all kinds of problems. In the middle of the week, the DOW and the S&P were trying to ‘fade lower’, but that ‘Hidden Hand’ kept powering them back up. On Friday, the ‘Hidden Hand’ showed up in the final hour to take us off the lows, but the DOW ended down 119 points and the S&P lost 20.
One of the issues that hit on Friday was that a new poll in the UK showed 55% of the respondents are leaning toward a ‘BrExit’, or (in other words) leaning toward having the UK leave the European Union. The Global Elites definitely don't want any part of that because it would trigger other nations following suit. And this is where their ‘one world government’ plot would start to dissolve in the test tube.
A theory that surfaced on the back of the BrExit poll concerned the FED meeting this week. The FED has a scheduled meeting focused on interest rates on Tuesday and Wednesday of this week. Currently, the market is giving the FED a ZERO chance of doing a rate hike. But if our FED had inside knowledge that the UK was indeed going to BrExit (leave the EU), then it could freely raise interest rates and blame the market’s behavior (falling) on Britain. I'm not saying that is what's going to happen, but rather a rumor circulating around the trading floor.
On the downside of things, the S&P has to hold 2085, or we are going to the 50-day moving average at 2076, and then to 2065. On the upside, if we can gain back all of Friday’s loses and see the market over 2109, then we could see them try and pull off another run at the old highs.
Remember, this week we have the FED meeting and ‘triple witching’ on Friday. After that, we have an upcoming vote on BrExit. Hang onto your hats, as all heck could break loose over the next two weeks.
I would look at some of the silver miners whose profit per ounce of silver is moving higher. The ones that I see that have a relatively low cash cost of mining an ounce of silver from the ground and are increasing their profit margins are:
- Fortuna Silver Mines (FSM),
- Avino Silver & Gold Mines (ASM),
- First Majestic Silver (AG), and
- Hecla Mining (HL).
Avino, First Majestic and Hecla Mining each produced an ounce of silver at about $5 per ounce, in the first quarter of this year. Fortuna (FSM) produced at same ounce for $1.44.
- Long various mining stocks: AG, AUY, CDE, FFMGF, FSM, NGD, and PAAS,
- And Long an oil supplier: REN.
To follow me on Twitter.com and on StockTwits.com to get my daily thoughts aand trades – my handle is: taylorpamm.
Please be safe out there!
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Until next week – be safe.