This Week in Barrons – 7-3-2016:
“Half the world is redoing their kitchens, the other half is starving” … Don DeLillo
Yeah, it’s the 4th of July weekend – our Independence Day. 240 years ago we wanted to do things our way, and not be told by an oppressive government how to live our lives. Well, last Thursday the British brought out the ‘American’ in themselves and told their masters in Brussels that they were tired of being ruled, taxed, and led around by the nose by faceless elitists in a far away land. Funny isn't it? 240 years after we told England to ‘get lost’, the English told the EU to ‘get lost’. Donald Trump in his Independence Day message is asking people to break away from crooked politicians, and reminding everyone that: (a) We did not go from being the world’s biggest creditor to the world’s biggest debtor by accident, and (b) Our middle class system did not turn into The Have’s versus The Have-Not’s without leadership and guidance.
Our independence is being challenged economically, and thanks to ES for bringing many negative (‘Less-Than-Zero’) indicators to my attention:
- Currencies year-to-date (YTD): India (-1.9%), China (-2.2%), US (-2.5%), and UK (-9.7%)
- Equity Markets (YTD): NASDAQ (-3.3%), Euro (-9.8%), Shanghai (-17.2%), and Japan (-18.2%),
- $15T = current amount of NEGATIVE yielding government bonds,
- $700B = current (YTD) outflows from European bond funds,
- $525B = current (YTD) deals stopped by U.S. regulators,
- $4T = current (YTD) debt U.S. corporations have accumulated for stock buybacks – pushing business capital expenditure to a 6-year low,
- 0.2% = current annual DECLINE in U.S. productivity for 2016, and
- 71% = the amount of Americans that believe the stock market is rigged.
I worry that the term ‘Less-Than-Zero’ is influencing our ethics as well. I’ll point to this week’s Supreme Court ruling to overturn the Governor of Virginia’s conviction. Bob McDonnell was elected Governor of Virginia in 2010. In January of 2014, Bob and his wife Maureen were indicted on federal corruption charges for receiving improper gifts and loans from a Virginian businessman. A federal jury convicted them on almost all of the counts on September 4, 2014. On January 6, 2015, Bob and Maureen were sentenced to two years in prison, followed by two years of supervised release. The Supreme Court took up his appeal on the grounds as to whether it was ‘legal’ for Politicians to take bribes, and then repay those bribes with favors from their appropriate political office. Everyone would normally answer this with: ‘Heck No’. BUT this week the Supreme Court overturned the governor’s ruling, and held that although the Governor and his aides took actions, with state resources, and on behalf of the business that bribed them – those actions did not go FAR ENOUGH to constitute 'official actions'. The Supreme Court essentially just told elected officials that they are free to sell access to their office to the highest bidder. Scott Nelson said: “This ruling opens the way for wealthy individuals to undermine our democracy by buying influence at the highest levels."
Why did our Supreme Court rule like they did and when they did? That answer is easy = HILLARY. There are direct links between Hillary – her foundation being given millions, and then those very nations getting special deals, especially out of the State Department. This ruling lays precedent for her e-mail server and other misgivings not going FAR ENOUGH to constitute ‘official actions’. And taking it one step further, I now realize why Justice Scalia died. Justice Antonin Scalia would not have overturned the McDonnell case. Justice Scalia would NEVER have passed a blind eye to bribery. Consider the questions the Washington Post raised on February 10th after his death: "You have a Supreme Court Justice who died, not in attendance of a physician. You have a non-homicide trained US Marshal telling the Justice of the Peace that no foul play was observed. You have a Justice of the Peace pronouncing death while: (a) not being on the scene, (b) not having any medical training, and (c) declaring that the justice died of a heart attack. What medical proof exists of a myocardial Infarction? Why not a cerebral hemorrhage? How can a US Marshal say, without a thorough post mortem, that he was not injected with an illegal substance that would simulate a heart attack? Did the US Marshal check for petechial hemorrhage in his eyes or under his lips that would have suggested suffocation? Did the US Marshal smell his breath for any unusual odor that might suggest poisoning? I think there is something fishy going on in Texas."
The folks that took it upon themselves to break free from England were determined to establish a new nation – a nation of freedom and laws. For those of us that believe we’ve lost some of our freedoms – I agree with that thought. But a lot of brave people fought and gave their lives for a shot at a new nation, a nation unlike any other, and for that I will give thanks for their actions. I applaud the spirit those folks had so many years ago. If you forget why we celebrate the 4th of July, the following short clip by Mark Dice should bring a smile to your face as well as remind you: https://www.youtube.com/watch?v=2-Be9f7Ovgg
“There are only two sure things: the infinite universe and human stupidity, and I’m not sure about the first one”… Albert Einstein
After talking to many of my friends in London, they all thought that BrExit NOT passing was a ‘sure thing’. Even Nigel Farage (the leader of the BrExit Party) after the polls had closed thought that it was a ‘sure thing’ that BrExit had LOST. Many people recently thought that gun control was a ‘sure thing’ (especially after Orlando). Most recently MSNBC (a liberal, left leaning website) ran a poll asking: "Do you believe people should be allowed to carry guns in public? Please chose from the following answers: (1) Yes – the Second Amendment guarantees it, (2) No – it’s too dangerous, and (3) Yes – but only for self-defense.” The voting results were: (1) = 449,000, (2) = 19,000, and (3) = 18,000. From this it appears that people are NOT worried about law-abiding citizens carrying weapons. And finally, everyone thinks that Hillary’s win in November is a ‘sure thing’. Her husband even met with the U.S. Attorney General on Air Force 1 this week – to seal-the-deal and to get this ‘email server thing’ taken care of.
A ‘sure thing’ is something that everybody knows in theory, but is forgotten far too many times in practice. Many ‘sure things’ DO come true. Back on Tuesday of this week (the day after the 850-point BrExit crash) the FED gave the green light to 31 banks to begin buying back their own stock again. This freed up billions in reserves that could now be used to bail out the sagging markets, and sure enough – stocks went up. Isn’t it humorous how our banks can’t seem to make money writing loans, but they have money to buy their own stock and run it up in price. Some of those announced buybacks are: (a) Bank of America = $5B, (b) Citigroup = $8.6B, (c) JP Morgan Chase = $10.6B, (d) Morgan Stanley = $3.5B, (e) American Express = $3.3B, (f) SunTrust = $960m, (g) U.S. Bancorp = $2.6B, (h) Ally Financial = $700m, (i) M&T Bank = $1.15B, (j) PNC = $2B, (k) BNY Mellon = $2.7B, (l) State Street = $1.4B, (m) Bank of New York = $2.14B, and (n) Discover Financial = $1.95B.
Global Central Banks only have two choices: (a) pull-the-plug and let the global economies crash, or (b) drag the stock market up at any cost because they’re not quite ready to let it crash and press the ‘reset’ button. So after the BrExit crash, the Central Banks engineered a complete ‘stick-save’ of the market, and we're back to where we were before the 850-point BrExit crash. Now they will back off a bit and let the market forces pull and push around the 2100 - 2130 level on the S&P. But behind the scenes:
- Silver and gold are moving higher, while
- The 30-year and 10-year treasury bonds are hitting ALL-TIME LOWS.
The bond market and the monetary metals markets understand the grand illusion that is being played out.
The FED’s plan was simple – save the market from rolling over. The timing for announcing the ‘all is perfect’ signal on the bank stress tests was spot-on. Our FED knew BrExit would cause a mess, and the two ways to get the market moving were to boost oil prices and boost the financials. After all, the financials are the single largest component of the market.
We are in some form of end game with the ONLY unknown being: "How long does it take?" I know that we are hurtling towards something major, something that many times I've called a ‘reset’. This week, I think we will see stocks move sideways and down for the next few days. This most recent run up was just too fast, too far – and some of that froth will need to be worked off with profit taking.
I've pounded the table for a long time about the precious metals being the ONLY legitimate place to be. I've also pounded the table on physical ownership of the precious metals. I laid out a play back in November using AG (a silver miner) and $19,000. As of Friday's close, silver is over $19/ounce level and that original $19,000 is now worth $192,000. Congrats to those of you that are in that play with me.
There are also some additional ‘dislocations’ in the metals that I haven’t seen in many years. For example: on the COMEX registers, the amount of people ‘standing for metal delivery’ in July, dwarf the amount of metal available to be delivered. So either a lot of those wanting delivery need to stand down and roll out, or the COMEX is going to default and require a cash settlement since they simply don't have the metal to cover the deliveries. So it’s left unsaid that I’m not the only person pounding the table on the precious metals and on physical delivery.
Some other low-cost precious metals stocks to consider:
- Auryn Resources (OTC: GGTCF) is a junior mining exploration company that engages in the acquisition, exploration and development of resource properties including the Committee Bay Gold Project, which covers almost 160,500 acres in Nunavut, Canada.
- Miranda Gold (OTC: MRDDF) is an exploration stage company that identifies, acquires and develops mineral properties, primarily exploring for gold. It includes Columbia with Pavo Real, which covers about 44,479 square acres in Tolima; and Oribella, which covers around 26,440 square acres in Antioquia.
- Pershing Gold (Nasdaq: PGLC) engages in the exploration, development and mining of precious metals, primarily in Nevada. It focuses on the Relief Canyon Mine, which covers an area of approximately 25,000 acres in Pershing County, Nevada.
- AMZN – Buy $780 July 29 Call Options (earnings play so volatility should increase),
- GOOGL – Buy $740 July 29 Calls / + $640 July 29 Puts (earnings play so volatility should increase) AND Buy + 690 July 29 Calls / + 690 July 29 Puts – Google will need to move more than $50.
- AZO – Buy $810 July monthly Call Options (see if we can get to all time highs), and
- POST – July monthly – 75 Calls – high short interest
I had a great week last week, and am keeping it fairly simple by being:
- Long various mining stocks and their respective call options: AG, AUY, CDE, FFMGF, FSM, NGD, and PAAS, and
- Long Gold and Silver with GLD and SLV.
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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