RF's Financial News

RF's Financial News

Sunday, November 20, 2016

This Week in Barrons - 11-20-2016

This Week in Barrons – 11-20-2016:

Approximately one week ago today, the world woke up to a Donald Trump victory.  Since then, the world has changed in ways I could have never imagined:
-       The stock market (which was supposed to crash) put on a run not seen in a decade.
-       One phone call between Trump and Putin has cut our Defcon Level back to the safest level there is: 5.
-       Cities are experiencing riots and violence not from ‘Right Wing’ extremists, but rather the ‘Tolerant Left’.
-       And the main stream media (armed with their 7% public approval rating) want to have Facebook, Twitter and YouTube regulate and eliminate alternative news sites.

Factually, alternative news sites breakdown into 2 categories: (a) those that are self-funded via donations, memberships and paid advertising, and (b) and those that survive via Google ad-words, Facebook and YouTube views.  Infowars.com (for example) is self-funded, sells products, has advertisers that pay real money for ads, and would be difficult for any ‘band of elitists’ to shut down.  On the other hand, there are hundreds of little guys out there just reporting on the truth as they see it.  It’s these little guys that need YouTube, Twitter and Facebook to gather an audience, and get paid for their information.

Interestingly, YouTube just rolled out their ‘YouTube Heroes’ program.  People that sign-up as YouTube Heroes are given access to a special ‘Heroes Dashboard’.  YouTube then trains you on how to hunt, find, and ‘snitch’ on ‘offensive’ videos.  The problem is: What is offensive, and Who determines what is offensive?  Could Hillary experiencing a meltdown be offensive – certainly.  Could Trump preaching ‘Making America Great Again’ be offensive – absolutely.  Unfortunately, snitches are going to dictate what videos remain on YouTube and reap advertising dollars, and which ones do not.  Many of the little guys will be forced to conform with YouTube’s ‘offensive’ definition, or go out of business.  The same is true with Google’s ‘fake news’ definition. 

Mark Zuckerberg’s Facebook is even worse as Mark personally has a track record of pulling the plug on anything that doesn’t fit his personal agenda.  The Telegraph recently said: Facebook and Google have pledged to ban websites that peddle fake news after the world's two most popular websites were accused of spreading false and incendiary articles about the US presidential election.  Facebook has added fake news websites to its list of bannings.”

According to the Daily Caller, Twitter: “Has initiated a major purge of prominent accounts associated with the Alt-Right exactly a week after GOP President-elect Donald Trump's stunning electoral victory.  Twitter went on to banish the accounts of over 2 dozen well known alternative media members.”

So Facebook, Twitter, Google, and YouTube have all taken it upon themselves to squash every ‘non-left leaning’ website.  And, there’s not a darned thing any of us can do about it.  The beauty of digital media used to be that anyone could present their views to anyone else that might take the time to read or listen to them.  I guess that’s a thing of the past.  Well, it’s time to dust off the old short-wave radio.

The Market:
The instant Donald Trump was declared the President elect; all heck broke loose in the markets.  The U.S. dollar, stock market, commodities, and yields shot straight up.  But metals (that were predicted to do the same), have fallen like a rock.  A year ago, I laid out a call option play (in the metals) that turned $19k into $244k in 7 months.  The rationale started with a Hillary Clinton Presidency, and her insistence on a hot war with Russia.  But Donald Trump’s election, optimism, non-war, strong dollar, unprecedented debt levels, and unbridled inflation – will add another 9 months to this trade.  Now that Ms. Janet Yellen has re-affirmed her decision to remain ‘on the job’ until February 2018 – it seems that our FED is the only thing standing between an economic meltdown and some form of normalcy.  I continue to buy gold and silver because:
-       The implementation of Donald’s plan comes with tremendous inflation – gold & silver win.
-       Congress NOT going along with Donald’s bazooka style of fiscal stimulus will cause a deflationary disaster – gold & silver still win.
-       The FED differing with The Donald will cause a recession – gold & silver win again.

However, trading gold and silver will remain sloppy until after the December FED meeting.  Inflation in the new year will allow the metals to rebound.

Trump’s proposed infrastructure plan has helped fuel expectations of higher demand for industrial commodities such as copper and steel.  His plan will require an entire nation to ‘double down’, and believe that adding trillions to our current debt load is the right move.  Trump’s call for hefty tariffs on Chinese imports, and proposed sanctions due to currency manipulation will lead to massive inflation – hurting oil consumption and potentially triggering a recession.  Trump’s demand for U.S. energy independence is expected to lead to a climb in domestic oil production (fracking) in a market that’s already oversupplied.  The U.S.’s ability to export surplus oil, puts a $50/barrel ceiling on oil prices.  And coupled with OPEC’s inability to curtail oil production, will cause oil to be trapped in the $35 to $50/barrel range.

Goldman’s 2017 forecasts are below:

Factually last week:
-       Retails sales rose much higher than expected,
-       Housing starts jumped (an impossible) 25%.  We have NEVER seen a 25% increase in housing starts.
-       Initial jobless claims fell 8+%.  We have NEVER seen that large a decrease since 1970.  How can initial jobless claims be at 40 year lows when 96m people are NOT even in the workforce?
-       The CPI (a measure of inflation) rose more than expected,
-       Billions of dollars left the equity markets again,
-       Our FED is on a course to raise rates in December, but over in Europe, Draghi has said that he sees “QE for years to come".
-       And the Saudis and Chinese emerged as rabid sellers of U.S. Treasuries – reinforcing major U.S. dollar strength and problems in all emerging markets. 

Unfortunately, these numbers do NOT ring of stability.  For example, as interest rates rise, housing prices will fall.  Homes priced at $400k with a 3.5% mortgage, are going to be re-priced at $325k with a 4.5% mortgage.  And each time the U.S. dollar inches higher on the world stage, it costs emerging countries more of their own currency to service their debt – because their debt is priced in U.S. dollars.

But is the stock market taking the proverbial ‘pause that refreshes’, or are we headed lower?  Somehow over the past week: (a) Trump’s trade policies went from being bad to perfect, (b) his idea of borrowing to build infrastructure went from being horrific to ‘the golden road to glory’, and (c) Instead of his cabinet appointments being beyond belief they went to beyond reproach.  If any of this bothers you – you’re not alone.

November and December are traditionally strong months for the stock market, and the S&P is just 9 points away from an all-time closing high.  This seems like a trophy that Obama and Trump need to share.  On the other hand, the market is never a big ‘fan’ of the FED raising interest rates.  And despite all of the talk about ‘Making America Great Again’, there’s no guarantee that Trump will even get half of what he wants.  And then there's the idea that we've come too far – too fast.

My sense is that they're going to get their all-time highs, but that it won't last terribly long.  If the December rate hike doesn't derail it, all of the noise surrounding the inauguration will definitely put a damper on things.  After all, ‘the Left’ says that they are going to bring a million people to ‘March on Washington’ and disrupt things.  If this were not ‘the season’, I would be selling this market short in a heartbeat because of what the credit markets are telling me.  But ‘Tis the Season’ to be jolly – and to be careful.

Because of Mexico being ‘beaten down’ as of late, some of you have asked me how to invest specifically in Mexico. 
-       The easiest way is to buy the Mexican ETF = EWW.  Or you could focus on traditionally strong Mexican brands such as:
-       WMMVY = Walmex (the Mexican division of Wal-Mart),
-       KOF = Coca-Cola Femsa, and
-       BSMX = Banco Santander because of its high-quality loan book, and solid growth in net interest income.

Also, Warren Buffet just announced his interest in the airline carrier market.  To invest like Warren, you could look at buying into the U.S Global Jets ETF = JETS that includes global airline operators and manufacturers.  JETS saw its market value climb roughly 8.8% in the third quarter, and continues to be a lot of investor’s top pick for 2017.

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!

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