RF's Financial News

RF's Financial News

Sunday, November 13, 2016

This Week in Barrons - 11-13-2016

This Week in Barrons – 11-13-2016:

“I’m not going to quit, and neither should you.”  Kate McKinnon (SNL – 2016) – singing Leonard Cohen’s ‘Hallelujah’ https://www.youtube.com/watch?v=mgydzfHqVZA

Factually, most of us are still recovering from the election.  Donald Trump was elected because of a hacker named ‘Qucifer’, who discovered Hillary’s private e-mail server, and Julian Assange of WikiLeaks exposing the information for all to see.  Without that chain of events, the FBI would never have been involved, and the rage and the rural vote would have never come out like they did.  Combine that with:
-       The media that faked the truth, spun the lies, told us to ignore all the criminal behavior (on both sides).
-       The rural, non-college degreed white voters that showed up in numbers never seen before,
-       The ‘little guys’ tired of 30-years of stagnant wages, a two-tiered justice system, and job losses - all saying STOP at the same time,
-       FBI Director Comey bringing Hillary’s e-mail issues to the forefront – TWICE.  By not going forward to the DOJ or the Attorney General, he allowed the evidence to be tried in the court of public opinion,
-       WikiLeaks’ last release showing: (a) Hillary accepting Qatar money while she was Sec. of State, (b) the DNC and CNN colluding on the debate questions and leaking them to Hillary, and (c) the Clinton Foundation paying Chelsey $30m for her annual salary.
-       The Clinton campaign itself that: (a) never had her to visit Wisconsin as a Democratic nominee, and (b) only going to Michigan after polling showed that the race was a dead-heat.
-       Trump promised that he would LISTEN.

You can't say we weren't warned.  Brexit showed that the powers-that-be were out of touch with the rank-and-file.  The disconnect is not only about economics, but about attitudes, education and identity.  Trump preached two lessons: (a) be willing to change, and (b) be willing to stand up for what you believe in.  He refused to play by the rules.  He committed faux pas after political faux pas, but everything that the mainstream media said would matter – did not.  Trump had little infrastructure, and almost no ‘get-out-the-vote’ effort.  The joke may end up being on us given he goes in armed with a Republican Congress ready to:
-       Supply Middle Class Tax Relief – which would provide middle class families with two children a 35% tax cut,
-       Lower the business tax rate from 35% to 15%,
-       Provide Affordable Childcare and Eldercare – that would allow individuals to deduct childcare and elder care from their taxes, incentivize employers to provide on-site childcare, and create tax-free savings accounts for children and elderly dependents,
-       Repeal and Replace Obamacare, and
-       Re-Do the American Energy & Infrastructure Act – spurring $1 trillion in infrastructure investment over 10 years.

But what keeps nagging me is an old saying: "If elections really mattered, why would they let us vote?”  Donald Trump beat the best, well-oiled, political machine of all time, and I think it was for a reason.  I have said for years that there is going to be a global monetary reset.  The world is over $500 Trillion in debt, with over $3 Quadrillion in derivatives.  This is debt that cannot be repaid, and must be expunged.  I think Trump was tapped for three reasons: (a) In him they have a man that J. Q. Public could believe in.  (b) He’s navigated many bankruptcies in his past, and guiding us through a global currency reset would be a natural fit.  And (c) he’s disposable.  I have a feeling that Mr. Trump has been tapped to be the ‘excuse’ that the elitists have been looking for.  I think they're going to let him try and institute some of the things he wants to do, pull the plug on the global economy, and then blame him for his failed policies.

If Trump was picked to truly be the guy that reverses our slide – he's got the fight of his life in front of him.  But if he was picked to be the fall guy – the next few years are going to be incredibly brutal.  Make no mistake, I want to make America strong again and heal the divides, and as Kate McKinnon said on SNL – “I’m not going to quit, and neither should you.”

The Market:

“It ain’t what you know that gets you in trouble … it’s what you know for sure that just ain't so." Mark Twain

This week Mr. Stanley Drukenmiller (a well-respected fund manager) stated: "I sold all my gold on the night of the election because inflation is now set to spike, forcing money out of safe assets - like gold and Treasuries - and into the US Dollar.  I expect higher deficits, stronger growth, and another surge in debt.” 

That was followed by Mr David Stockman (Director of the Office of Management and Budget (1981-1985) under President Ronald Reagan) saying: “Donald Trump has no coherent program, and I believe the nation's long financial nightmare has just begun.  For months and years to come, our nation will be racked with fiscal, financial, political, and even constitutional crisis.  The stock market will now crash.  The stock-price obsessed C-suites of corporate America will begin to panic, and pitch inventory and workers overboard.  We will be in an official recession within 6 months.  The Federal budget will plunge back into trillion dollar annual deficits, and any notion of a Trump economic revival program will be stillborn in the financial and fiscal chaos ahead.”

So there are two really smart guys at polar economic opposites.  They both know about the debt picture, and are thoroughly aware of the derivatives and large counterparty risk associated with them.  They also both realize:
-       If Trump removes the regulations from coal, oil, and small business – jobs will improve.
-       If Trump cuts taxes – people and corporations will spend more quickly.
-       If Trump creates better trade deals – we will enjoy better trade ratio's.
But the fly in the ointment is still balancing the immense amount of necessary borrowing required to pull that off – with any future revenue creation.  The banks are insolvent, and can't be ‘fixed’ by Trump.  The system tried to purge itself in 2008, and instead of letting the crash happen our FED rushed in with the biggest monetary bazooka of all time – and kicked the can down the road.  Trump cannot fix that.

My market prediction was that if Trump won – the immediate reaction would be a severe plunge, and then a bounce.  That is exactly what happened, but I made a mistake on WHEN it would happen.  On Tuesday (as a Trump victory was becoming clear), the overnight futures kept falling with the DOW down -800 points, and -100 on the S&P.  But then the futures ‘magically’ started to climb, and by Wednesday at 4pm we closed up by 300 DOW points.  What happened?  Well, just because Trump was elected, it didn't stop Wall Street from doing funny things.  They let the enormous drop and recovery take place in the futures market in the middle of the night – when and where J. Q. Public doesn’t really participate.

And just because the DOW was up last week, other areas of the economy were still unhappy.  Oil prices dropped considerably.  It seems that data showed OPEC’s oil production rose by 230,000 barrels a day to a record high of 33.83 million barrels a day in October (exceeding the OPEC ceiling range of 32.5 million to 33 million barrels a day).  And in the U.S. we still have: (a) 96m people not in the workforce, (b) 44m people on food stamps, (c) over ½ of the population that can’t get $400 together for an emergency, and (d) over 1/3 of our working population – working 2 jobs.

The reason for the early powerful moves in the DOW are that the Republicans now control the Presidency, the Senate, and the House.  This directive means that in the first 100 days, many of the executive orders that President Obama has implemented can be easily reversed.  For example: (a) on Immigration, Trump could reverse the Deferred Action for Childhood Arrivals program, (b) on Climate Change, Trump will most likely cancel the Paris Agreement, and repeal many of the EPA regulations, and (c) on Trade, Trump will stop the Trans-Pacific Partnership, renegotiate NAFTA, and may even have his Treasury Secretary label China as a currency manipulator.

This week we saw massive moves higher in: financials (10.5%), healthcare (8.25%), industrials (7.8%), materials (5.3%) and the U.S. Dollar index (2%).  And we saw huge down moves in: utilities (4%), consumer staples (3%), precious metals (4%), long-term Treasuries (7%) and the Mexican Peso (13%).

Trump’s plans include large borrowing for infrastructure and a tax cut, which will result in a ballooning deficit and inflation.  This will either translate into economic growth or stagflation.  In the near-term, markets have discounted a significant amount of what they think will happen, and will probably need some time to digest these moves.  The sharp move higher in interest rates certainly gave the FED the green light to raise rates in December.  The strengthening dollar won't be good for our multinational corporations, and will also slow the FED's willingness to raise rates in 2017.  On Friday (a day when the bond market was closed), someone (nation) dumped $10B worth of paper gold onto the market @ 8:40 am ET – sending gold to a 4-month low.  This is NOT normal behavior. 

If I sound cautious and concerned here, it’s because I am.  The transaction volumes on Thursday and Friday were higher than normal, but in the end the S&P closed right around the flat line.  That means an awful lot of selling -  accompanied substantial buying.  We are in the seasonally strongest time of the year, and we may rally on from here; however, I'm frightened when I can't follow the plot.  Just because Trump says he's going to do all of these marvelous things, the market normally knows better than to follow in ‘lock-step’.  This is unusual behavior.  It's also unusual to see how many market ‘experts’ instantly flipped from saying Trump is a disaster, to ‘all is grand!’

While the stock market move was impressive (and there's probably more to come), all we can do is hope that earnings and economic activity will improve enough to match these lofty levels.  Currently the market is short-term extended.  I have to think that we're looking at a bit of a pull-back this week, but the pull-back will probably be a short term buying opportunity.  Don't forget, we are in the seasonally strongest time of the year.  With Obama wanting to go out on a high note, I could see them attaining more all-time highs before Trump gets sworn in on January 20th.


It was Veteran's Day on Friday, and to all of those that have served, I say: Thank You.  The elements that soldiers bring back with them from war, impact their lives forever.  I tip my hat and say thank you to any and all that served, no matter what your role. 

Touching on Gold and Silver specifically:

In the past 3 days, investors have decided gold is not the place they want to be during the opening days of a Trump pre-administration.  In the heat of the election, gold initially jumped 2% higher, but soon gave up that rally to be down 4% at the end of the week.  Gold (if nothing else) is a long-term currency risk against the dollar’s current $600B deficit and $20 Trillion debt.  Prior to the election, gold was in a sweet spot.  The uncertainty cycle was peaking, inflation was picking up, the Fed was doing nothing, stocks were expensive, and bond yields were low.

The Trump spending plan (Reaganomics) increases the likelihood of a dollar collapse.  Yellen will be forced to raise rates at a faster clip than she was previously thinking.  This flies directly in the face of other global central banks that have been easing.  The FED raising while others are cutting will cause the dollar to increase too much, and hurt multinational corporate profits and America’s exports.  Combined with our current debt levels, Trump won’t be allowed to increase deficits as much as Ronald Reagan.  Reagan spending did increase debt as a percentage of GDP, but it was beginning at a much lower level than where we are at today.  Trump’s debt projections (without entitlement cuts) would be the highest in our nation’s history.  Unaccompanied by drastic cuts to government health care, defense, and social security – gold and other ‘flight to quality’ products are simply down temporarily.

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: <rfc@culbertsons.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.


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.

R.F. Culbertson

No comments:

Post a Comment