RF's Financial News

RF's Financial News

Sunday, April 24, 2016

This Week in Barrons - 4-24-2016

This Week in Barrons – 4-24-2016:

Thoughts:



“NO - not show YOU the money.  Show ME the money.”  Jerry McGuire (movie)

Demographics In View

Over $51B has been pulled out of mutual funds thus far in 2016, and Lipper says that an additional $3B more was removed last week.  In addition, Hedge funds have lost over $15B this quarter.  A lot of this is being blamed on the market’s volatility, negative interest rates, and horrid economic numbers.  I think that there’s a lot of truth to that.  But a different angle on ‘Show ME the Money’ is in play.

This is the year when the first wave of ‘Baby Boomers’ will turn 70 years old.  For the next 20 years, approximately 3 million people (per year) will turn that magic number.  These ‘Boomers’ grew up during the most productive times in history.  They had the good jobs.  They made the most money, and most have 401k's.  ‘So what?’ you ask.

Well, there's a law that requires: IF you have a 401k and IF you are 70.5 years old – you MUST start taking your money out of your 401k.  So using conservative numbers:
-       3 million folks turning 70 this year, and (being conservative) 50% have a 401k.  They (to date) have resisted taking their money out because the market just kept going up, but NOW they have no choice – it’s the law.
-       That also means that 1.5m are no longer putting money into their 401k’s (given they’re being forced to liquidate them).  That doesn’t sound too terrible until you realize that next year we will add another 1.5m to that withdrawal list, and the year after that, and the year after that.  All the while additionally adding to the non-depository list.

Economists will tell you that these new 70-somethings will begin to buy things like never before – because they are ‘flush with cash’.  I, on the other hand, believe that these new 70-somethings will continue to keep their expenses low so that they don’t out-live their money. 

This naturally adds more sellers than buyers to our stock market.  Unfortunately, for stocks to move up – you need more buyers than sellers.  Lately, corporations have been doing the buying via borrowing money or selling their own bonds, and then using the proceeds of the sale to buy back their own stock.  With more and more 70-somethings liquidating their 401k’s, either our government comes up with more ways to prop up stocks, or stocks have no choice but to go down.  And if stocks go down too far, companies won't be able to pay the coupon on the bonds that they sold to re-purchase their stock.  Imagine the train wreck (crash) if 35% of corporate America was to default on their own corporate bonds?

My point is that over the next several years, our FED is going to have to get incredibly clever with their shenanigans to stave off the wave of Baby Boomers – hitting 70.5 years of age and liquidating their 401k’s.  Desperate times often lead to desperate measures, and maybe negative interest rates in the U.S. is one of those measures.  We know that our current debts can’t be paid, and debts that can’t be paid – won’t be paid.  With trillions in debt, there’s going to be a reset and the retiring Baby Boomers are just another reason why. 


The Market...
We've just come through a week of horrible earnings.  Microsoft (MSFT) missed, Google (GOOG) missed, Intel (INTC) guided lower and slashed 12K jobs, Caterpillar (CAT) had sales down 13% and was just a disaster.  I think this coming week will look something like last week – a lot of chop, but in the end not a lot of directional travel.  But at least we have some levels we can use as a barometer for further gains or losses.  The high on the S&P this past week was 2111, and the low was 2081.  So, in general terms, buying when the market is over 2111 makes sense, and sitting tight or going short under 2081 works for me.

Factually (speaking of manipulation):
-       Eric Hunsader CEO Nanex LLC reported that if you would have bought and sold the index futures between 2am and 3:00am (buying at 2:00am and selling at 3:00am) – from 2005 until 2016, you would have captured half of the market’s total gains and NONE of the losses.  Unbelievable!
-       This week one of the nation’s largest pension funds has applied for permission to cut benefits to its 250,000 members by approximately 50%. The fund has missed its benchmark for performance for years, and now 250k people face the reality that their $3k a month check may only be $1,600/month going forward.  FYI: If they don't get permission to cut the benefits, the pension fund will be insolvent by 2025.
-       About 33% of Q1’s S&P earnings will be non-GAAP (false) add-backs – accounting for 680 false-positive S&P points.
-       Last week Wells Fargo confessed and was fined $1.2B for mortgage fraud.  This week the FED elevated them to elite / ‘primary dealer’ status.
-       This week, when Draghi was speaking about the ECB’s plans – the ECB itself was selling $2B of ‘naked’ gold futures in order to keep the price of gold down.  This was an illegal sale done blatantly by the ECG.  I happen to agree that the miners needed a bit of a correction as they've soared like eagles lately, but it’s a blatant (in your face) manipulation.

Simply put, we are continuing: (a) with 0% interest rates, (b) to overload our FED’s balance sheet, (c) to print $85B Euro's a month and have NEGATIVE interest rates in Europe, (d) to flounder in Japan, and (e) to chatter at the upper echelons about ‘helicopter money’ – simply depositing $2.5k to $5k cash in every bank account around the world.

Now you have to ask yourself: Why (after 7 years into a recovery) are we still doing economic accommodations at full blast?  Why are the Banksters talking about ‘helicopter money’ with the markets at all time highs?  Why does half-the-world have negative interest rates?  On one side there are hundreds of reasons why stocks should be moving lower.  On the other side, there is a manic Central Banking system that is hell bent on ‘Doing what ever it takes’ to keep markets moving higher.  Who wins this battle?  I'm siding with reality.  If all it took to keep markets inflated was for The Wizard of Oz to print money – don’t you think we would have done that by now?  Even our Banksters know that the printing press is nothing new.


TIPS:
Congratulations to all of you that followed me on the ‘Vegas Play’.  The strategy turned $20k into $94k within the past 6 months.  I’ve received a lot of mail over the past week surrounding this, and allow me to recap and address our next moves.  To recap: 6 months ago I recommended investing in a silver / gold miner: First Majestic Silver Corp. (AG) – using an ‘At the Money’ options strategy that went like this:
-       AG stock (at the time) was selling for $3.12 per share, and had traded as high as $30 in the past.
-       The $2 AG, January 2018 Call Option was selling for $1.95.
-       Step #1 = Buy 100 - $2, January 2018 Call Options.
-       Step #2 = When AG’s stock gets to $5 – sell the $2 Call Options and buy an equal amount of $5, January 2018 Call Options.
-       Step #3 = When AG’s stock gets to $10 – sell the $5 Call Options and buy an equal amount of $10, January 2018 Call Options.
-       Step #4 = When AG’s stock gets to $15 – sell the $10 Call Options and buy an equal amount of $15, January 2018 Call Options.
-       If these steps worked according to plan, you would successfully have turned about $20k into $500k in 18 to 24 months if AG’s stock went to $20, or $1.1M if AG’s stock went to $25.

This was the same ‘At the Money’ options strategy that was used on the miners several years ago, and I felt (6 months ago) that the miners were ready for a move higher.

The Good News is that AG’s stock touched over $10 per share this week – and ended the day (on Friday) at $8.90.  If you did the deal, you have successfully turned $20k into $94k in 6 months.  The bad news is that because AG’s stock has risen so quickly – we didn’t get the ‘Call Option’ premium decay that I had anticipated – and therefore did NOT make as much money as I had planned. 

But this play (in anyone’s book) has already been a big winner.  Any time you turn $20k into $94k in 6 months – you have hit a home run.  There are NO guarantees that it will continue to work.  If you’re nervous about the trade, then close it out for a huge profit, sell half, or skim some profits off the top and continue.  As for me, I’m continuing with the plan – with a couple small modifications.  When AG’s stock touched $10, the option makers adjusted the price of the $10 options higher than normal.  So I’m going to split my next buy purchasing 50% - $10 options, 35% - $12 options, and 15% - $15 options.

If you’ve been reading my column for any length of time, you know that I feel that there’s a grand reset in the works, and Gold is going to be used as a backing for certain currencies with silver tagging along for the ride.  I have said for years that silver will be $75 to $100 per ounce – and it almost made it there in 2011.  I think that silver is destined for higher prices – so taking some $12 and $15 options / 20 months out is a risk that I’m willing to take.  You can play it safer by taking what you can get of the $10 options, and even buying some $7 ‘In The Money’ options is fine too.  The play is already a massive winner.   

Can you get into the play now?  I say YES.  If things continue to go as ‘sort of’ planned, then this $94k will turn into $700k.  You can certainly start by buying some $7 January 2018 Call Options on AG.  We know that this same style of trade worked in 2010 and 2011.  But yes you, can start the play today – even though it is a little more risky. 

I am:
-       Long various mining stocks: AG, AUY, DRD, EGO, FFMGF, FSM, GFI, IAG, KGC, and PAAS,
-       Long an oil supplier: REN @ $0.56,
-       Sold NDX – May – Iron Condor – 4125 / 4150 to 4750 / 4775,
-       Sold RGR – May – Put Credit Spread – 55 / 60,
-       Long RUT – May – Butterfly – 1000 / 1080 / 1130,
-       Long TLT – May – Call Debit Spread – 128 / 133,
-       Sold TSLA – Apr5 – Iron Condor – 240 / 265.

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!

Disclaimer:
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.

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.

R.F. Culbertson

<http://rfcfinancialnews.blogspot.com>

Sunday, April 17, 2016

This Week in Barrons - 4-17-2016

This Week in Barrons – 4-17-2016:

Thoughts:


















Ms. Yellen:
You held closed-door meetings with President Obama this past week, and I’m betting that he told you that your ONLY job was to continue to keep this stock market up.  The ‘heck’ with doing the right thing (and beginning to normalize interest rates) your #1 job is to make sure that the stock market remains inflated because it’s the ONLY thing separating us from a crushing depression.

We both know that your Zero Interest Rate Policy (ZIRP) has stimulated corporate buy-backs, and that corporate buy-backs are the difference maker in keeping this market afloat.  We also know that J.Q. Public sees the stock market as a reflection of the economy, and as long as it’s flirting with ‘all time highs’ he feels good enough to take on more debt.  And the world runs on debt and credit.  Every day banksters create ‘derivatives’ that they sell to other investors.  These ‘Asset-Backed Securities’ (ABS) are bonds or notes backed by financial assets – typically consisting of receivables, auto loans, housing contracts and home-equity loans.  As you can imagine, if the individual assets inside these bundled securities start to go south, then the assets themselves begin to implode.  Think of it exactly like the mortgage debacle of ‘05 – ‘08.

Now if we both can agree that the real impetus behind the stock market's rise over the past few years has been corporate buy-backs ($430B in 2014 and $540B in 2015), then you need to concentrate on the CREDIT market and not on the stock market.  Why?  Because corporations are BORROWING the money to do the stock buy-backs from the credit market.  For example:
-       The XYZ company (with a $15 stock price) decides to borrow money from the credit markets at 6.5% - in order to buy-back their own stock.
-       To borrow the money they use their sales ‘receivables’ as collateral.
-       XYZ starts buying back their own stock, meanwhile the world begins to take notice.
-       The world participates in the stock price increase, and drives the price to $30.
-       Unfortunately, each quarter XYZ’s sales are falling, and they lay-off more and more workers just to make ends meet.  That is to say, their business is dying yet the stock price is rising.

Now Ms. Yellen, it’s NOT the stock price increase that bothers me.  What worries me is a company’s CASH ability to pay back the 6.5% INTEREST that they owe on the borrowed money – used to drive their stock price higher.  See by using the monies to drive their stock price higher, they did NOT invest in R&D or in becoming more efficient.

But wait - it gets better.  What about the investor that loaned XYZ the money?  What happens to the Bank, Pension fund, Insurance fund, and/or Hedge fund when XYZ defaults on paying their 6.5% interest payment?  Honestly, they’re going to take a big hit to their asset ledger and their credit market capabilities could be downgraded.  This downgrade is solely due to XYZ’s inability to pay what they owe on the borrowed money.

So the reason to worry about a corporation’s declining revenues (sales) is not how the stock price will suffer (and it may), but rather how a corporation can re-pay their interest on their debt obligations given reduced revenues.  A major corporate default could trigger an immediate debt downgrade, and then we would be looking at 2008 all over again.

So I believe that you can NOT get a ‘leg up’ on interest rates because an increase in interest rates (coupled with falling sales and earnings) would trigger a series of corporate interest payment defaults – from which the world could not recover.  Therefore, if stocks can't hold a particular price, then some tangible amount of corporate debt will become non-performing.  If enough of it does, we have contagion, and a repeat of 2008.


The Market:

As SF so aptly pointed out, notice the spike in business closures in February of 2016. 


Align the above graphic – with a business’ needs for growth capital – with all of the financial lay-offs occurring around the globe – and you’ll begin to get the picture of a global downturn.

Factually:
-       Alcoa kicked off earnings season this week by announcing a sales decline, profits that were down 90% (year-over-year), and 1,000 new employee layoffs with another 1,000 in the 
works.
-       Consumer confidence fell this week to sub 90 – a number not seen in years.
-       Production capacity fell to 74.8%.
-       Wells Fargo was fined $1.2B for selling toxic mortgages to investors.
-       Goldman Sachs was fined $5B for similar mortgage shenanigans. 
-       Reuters confirmed that Deutsche Bank has agreed to settle U.S. litigation over allegations it illegally conspired with Bank of Nova Scotia and HSBC Holdings Plc to fix silver prices at the expense of investors.  They also say they are going to disclose info on other big players that were a part of this same scheme. 
-       In total, our banksters have now paid over $200B in FINES for rigging markets, shafting investors, fixing rates, and laundering money.

If you've been watching gold and silver you're seeing something we haven't seen in a long time.  After a blistering run higher in gold, silver and the miners, they did NOT roll back down.  They traded sideways a bit, caught their breath and have started moving higher again.  This is definitely different.  In the last 5 years, they would pop higher, but then instantly roll right back down.  I’m in a fair number of them, and have hesitated talking too much about them because (for years) it was so easy to get burned by buying false breakouts.  However it looks like the tide has turned.  Just about all of the miners have once again started higher.  Please feel free to check out some charts on: NG, HL, KGC, SAND, AG, FSM, and DRD.

There is still an EPIC battle going on in the stock market.  On one side you have: horrible sales, lower earnings, less shipping, a slowing China, lousy durable goods orders, and stagnant wages.  On the other side you have the incessant desire to keep asset values up in order to keep trillions of dollars in derivative debt from imploding.  Thus far, the various FED’s have kept things going.  Can they keep all of these plates spinning long enough to come up with a plan B, which will be some form of monetary reset?

Let’s look at the big picture.  On February 11th of 2016, the market was at 1820 on the S&P, and today we’re at 2080.  On October 15th of 2014 (a year and a half ago), the low of the day was 1820.  So we could fall all the way back to 1820 (a 12% decline) and not break the lower range the market has been in for 2 years.  With the market at 2080, we're still inside a major box between the high of 2135 and a low of 1820.

My guess is that this upcoming week will be a bit red.  Yes it is earnings season and stocks will pop and drop like crazy over individual releases, but it is my thinking that we do a bit of fading.  I am writing this AHEAD of the oil gathering at Doha, so things could change quickly.  If you're not familiar, there's a big meeting of oil producing countries in Doha today – to see if they can agree on a production cap.  If this meeting is viewed as a success, oil will spike and so will the markets on Monday.  If it is a yawner, then I think that the market is going to do some backtracking.

As hard as it is to believe, until we get over 2135 or below 1820 we’re just in a large range of up and down chop.  Not a bull market or a bear market – just a TRAPPED market.  Try and buy the dips, and sell the rips.  It's a lot of work, but the overall market has been running in place for 18 months.  There's no solid trend, so you have to trade what they give you. 


TIPS:

I am:
-       Long various mining stocks: AG, AUY, DRD, EGO, FSM, GFI, IAG, KGC, and FFMGF,
-       Long an oil supplier: REN @ $0.56,
-       Long BA – Apr4 / May – Diagonal -133 / + 135 Call  
-       Long GLD – May – Call Debit Spread – 118 / 123,
-       Sold LEN – May – Call Credit Spread – 48 / 50,
-       Sold NDX – May – Iron Condor – 4125 / 4150 to 4750 / 4775,
-       Sold RGR – May – Put Credit Spread – 55 / 60,
-       Long RUT – May – Butterfly – 1000 / 1080 / 1130,
-       Long POT – Stock & May – Put 16,
-       Long TLT – May & June – Call Debit Spreads – 128 / 133,
-       Sold TSLA – Apr – Iron Condor – 227.5 / 232.5 to 275 / 280,
-       Long WYNN – Apr4 – Butterfly – 99 / 102 / 105 Call.

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!

Disclaimer:
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.

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.

R.F. Culbertson

<http://rfcfinancialnews.blogspot.com>