This Week in Barrons – 9-11-2016:
“With the opening of the new World Trade Center, let’s remember what separates us from animals and from chaos – is our ability to mourn people we’ve never met.” – David Levithan
On this 15th Anniversary of 9/11, I pay homage to the many killed, and my heart goes out to all those still in pain.
The stock market has been in an odd place for a while, but no more so than during the last 2 months. The S&P has NOT moved more than 1% in over 40 days. During which time, all ‘heck’ was breaking loose such as: the 7th largest global shipper going bankrupt – stranding $14B worth of goods, more companies declaring lousy earnings than ever before, the ITT school closing – stranding 40K students and laying off 8K teachers, Wal-Mart laying off 7k, Caterpillar laying off 2k, auto sub-prime loans showing double-digit delinquencies, AND high-end real estate in New York (and other cities) starting to fall.
But as we talked last week, something feels different now.
- On Thursday we learned that 5,300 employees of Wells Fargo were fired for taking money out of customer deposits and opening over 2M new fake accounts for them. And when these fake accounts became overdrawn (even for lack of use) the bank sent-out overdraft notices and charged the poor customers that they had robbed in the first place.
- Then the Government released its preliminary findings on its own JOBS numbers. The government compares real job-related tax receipts to the job numbers that it has been reporting, and displays that difference normally in February of the following year. In this case they have already over-estimated the number of jobs out there by at least 150K. If you combine this number with the hundreds of thousands of fictitious Birth/Death model jobs that they keep adding, you come away with our jobs market being completely broken.
On Friday Mr. Rosengren (a FED-head) gave a speech suggesting that NOW was the time to start hiking interest rates. A few other FED-heads also chimed in with their agreement, with Mr. Gundlach directly saying: “Rates had hit bottom and the FED is ready to hike rates and change the entire game.”
On Friday, the “entire game” did change. Previously on a daily basis as the market pulled back, the Central Banksters would rush in (late in the day) and push stocks right back up into the trading range of between 2160 and 2190 on the S&P. The chart below shows you the ‘tails’ of how LOW the markets were BEFORE the Central Banksters rushed in and pushed it higher.
However, Friday’s almost 400-point drop was different – notice NO TAIL. Our Central Banksters just let it fall and did NOT come in and rescue the market in the last hour of trading. Why Friday? Is it the September 21st FOMC meeting (when they hike rates or not), or is it about the 1st Presidential Debate coming up on September 26th? Let me lay out a couple different scenarios:
- #1: The common wisdom is that since the economy really does stink, our FED would not dare raise rates – ESPECIALLY ahead of the strangest election in U.S. history.
- #2: The FED is all aboard the ‘Hillary Train’. It would be a great psychological mind game for the Central Banksters to take the market down ahead of the FED meeting on the 21st. Then have the FED hold tight with NO rate hike that would ignite a rally as we go into the Sept 26th debate. This would give Hillary the ability to point to a market roaring back to ‘all time highs’ under a Democratic President.
- #3: The FED knows that Trump believes that the Central Banksters have created a false market. The FED also knows that their ‘propping actions’ are so blatant that everyone knows that they ONLY care about keeping the stock market up. Could it be possible that our FED (to save face and despite this being an election year) will actually announce an interest rate hike in September? Could it be that they think Trump might win this, and they'd best begin looking like they're really doing something before Trump dismembers them? http://www.reuters.com/article/us-usa-fed-idUSKCN11C2C1?feedType=RSS&feedName=businessNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FbusinessNews+%28Business+News%29
- #4: Could it be that our FED thinks that a Trump win is possible, and wants to crush his supporters by changing the game. Instead of keeping the market up at any cost, they will now pull the plug on the market and force it to crash just as Trump is taking office. The fear of a Trump Presidency is so strong by the establishment, that they could punish every 401K holder by crashing the market and then blaming it on Trump’s ‘wild and frightening ideas’.
Each scenario is intentionally crazier than the last. The world is awash in debt that it can never repay, and $15T sits in accounts drawing negative interest. Often the way to fix these types of things has been to start a war, go deeper into debt, and then decide who owes what to whom at the end. We’ve seen sabre rattling in the Ukraine, in Syria, and now in the South China Sea. Could we be just a few months away from a major event such as: global ‘reset’, a market crash, a war, or even civil disobedience?
But even if nothing horrible happens within the next 6 months:
- Do our debts go away? Nope.
- Does the racial divide heal? Nope.
- Does Obama-care become affordable? Nope.
- Do the Trillions in student debt disappear? Nope.
- Does the average saver see a decent return on deposits? Nope.
IF something is going to happen, it would seem that we're in the right season for it. But here’s a TELL. Our FED has thrown together another FED-presentation to come out on Monday. This was NOT a scheduled talk, and the person coming out to make the statements has been a ‘Dove’ – meaning that she’s been all about NOT hiking rates. If she comes out on Monday and suggests that it's time to raise rates, then the game has changed. Hold onto your hats.
In the world of Crude Oil, the Saudis and Russians are finally talking about ‘stabilizing the energy market’. The Saudi tactic was to increase production, reduce price, and bankrupt the weakest players. The only problem with their tactic was that the non-diversified economies (like Saudi, Russia, Iran and Venezuela) are being hurt far more than diversified economies like the U.S. The Saudi / Russia talks are to take place on September 26 and 27. I think that any potential joint action is more an attempt to shore up sentiment since there is little else to lose – given that most countries are producing at full capacity already.
But the oil sector is definitely one of the few sectors that raises my interest. The XLE (the Energy Sector ETF) holds major players like Exxon Mobil, Chevron, and Schlumberger. The XLE hasn’t really launched out of its summer trading range. If it can break resistance at $70.00 – it should take off to $80.
In terms of the ‘here and now’, Friday was NOT your run of the mill down-day. Friday was a ‘Katie bar the door’ and rush for the exits day – that we haven't seen since BrExit. Until Friday, the average volume on the SPY (which is the proxy for the S&P) was running around 60m shares – on Friday it was 221m. Everything but the U.S. Dollar fell. The small caps (IWM), the financials (XLF), the oil sector (SMH), and even gold and silver fell. The DOW dropped almost 400 points, and the S&P fell 52. This was something akin to a panic. For two months I talked about remaining inside the 2160 and 2190 box on the S&P, until we would either ‘break-out’ or ‘break-down’, and I didn’t know which way it would go. Friday we got the first answer – we broke down.
Until Friday the manipulation in the market was very clear. No matter how far down we may have been at 1 pm – by the close we'd be safely back inside the box, or pressing toward the all-time highs. But on Friday that didn't happen. Instead of coming in and saving the day, the Central Banksters just stepped away and let the market fall like a rock. Did the Central Banksters decide that enough was enough? Was this some form of ‘warning shot’ from the market to the FED telling them to not ‘monkey’ with the interest rate? Was this the start of a major decline in the stock market? Or was this really just a nervous reaction because some FED-heads mentioned they want higher rates?
But we've heard FED-heads threaten rate hikes multiple times in the past – so why would the market panic so much over this one? After all, this plunge did some significant technical damage:
- The DOW = largest weekly drop since January, closing at its 100-day moving average.
- The S&P = largest weekly drop since Feb, closing just above its 100-day moving-average.
- The Russell 2000 = largest weekly drop since Feb, closing at its 50-day moving average.
- The NASDAQ = largest drop since April, closing below its 50-day moving average.
- And the Transportation Index closed below its 50-day moving-average.
So what happens now? If the ‘Dovish’ FED-head comes out on Monday talking about higher rates, I think we have more to fall. If she comes out neutral to ‘Dovish’, I wouldn't be surprised to see a major ‘dead cat’ bounce on Tuesday.
It’s up to the Central Banksters and what they do, as to whether I'll be buying this massive dip, or if it's time to truly go short. As the market says: “You take the stairs up, but the elevator down.” Meaning that markets fall a lot faster than they rise. As a caution, the ‘buying the dip’ philosophy has worked for the past 7 years – is this the week that it stops working? After all: “A trend is your friend until it ends.”
Typically, if stocks are going down – then bonds are going up, or some corresponding asset-class is moving higher. On Friday, we had stocks down, bonds down, oil down, and gold down – essentially a reduction in wealth across the board. What’s setting up is a mirror image of what happened in 2001 to 2002:
- The Transports put in a high approximately 10 months before the NASDAQ,
- And from there you had a sell-off into October 2000,
- Then a bounce into 2001,
- And then a sell-off into October of 2001 until it finally bottomed.
Now, history does not often repeat itself exactly, but it often rhymes. What I’m looking for here – if this pattern continues to unfold is that we:
- Continue to sell-off into October 2016 to about 15k on the DOW,
- We get a nice rally (back to 17k) from October through the end of 2016,
- And then we get crushed into October of 2017 (down to 13.2k),
- Until we resume our trek higher.
I sold out of everything long and short last week that was NOT gold, silver or oil related. I’m currently holding:
- JPM Butterfly – for a pinning play around 67.50,
- FB Butterfly – for a pinning play around 130, and
- AG, AUY, CDE, FCX, FFMGF, FSM, HL, NGD, PAAS, PGLC and SAND.
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>.
Please write to Mr. Culbertson at: <email@example.com> to inform him of any reproductions, including when and where copy will be reproduced. You may use in complete form or, if quoting in brief, reference <rfcfinancialnews.blogspot.com>.
If you'd like to view RF's actual stock trades - and see more of his thoughts - please feel free to sign up as a Twitter follower - "taylorpamm" is the handle.
If you'd like to see RF in action - teaching people about investing - please feel free to view the TED talk that he gave on Fearless Investing: http://www.youtube.com/watch?v=K2Z9I_6ciH0
To unsubscribe please refer to the bottom of the email.
Views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest and is not in any way a testimony of, or associated with Mr. Culbertson's other firms or associations. Mr. Culbertson and related parties are not registered and licensed brokers. This message may contain information that is confidential or privileged and is intended only for the individual or entity named above and does not constitute an offer for or advice about any alternative investment product. Such advice can only be made when accompanied by a prospectus or similar offering document. Past performance is not indicative of future performance. Please make sure to review important disclosures at the end of each article.
Note: Joining BARRONS REPORT is not an offering for any investment. It represents only the opinions of RF Culbertson and Associates.
PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS (INCLUDING HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS AND OTHER SPECULATIVE INVESTMENT PRACTICES MAY INCREASE RISK OF INVESTMENT LOSS; MAY NOT BE SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop.
All material presented herein is believed to be reliable but we cannot attest to its accuracy. Opinions expressed in these reports may change without prior notice. Culbertson and/or the staff may or may not have investments in any funds cited above.
Remember the Blog: <http://rfcfinancialnews.blogspot.com/>
Until next week – be safe.