This Week in Barrons – 7-31-2016:
“I love the smell of napalm in the morning” … Robert Duvall – Apocalypse Now
You can almost hear the helicopters flying overhead – getting ready to drop ‘free money’ on everybody that’s willing to reach up and grab it. Remember ‘Cash for Clunkers’ – we’re almost there. How do I know?
- 1. Whenever investors feel like they MUST join the herd – because it's the only way to make money, those same investors usually end up being slaughtered. And, please don’t tell me that ‘it will be different this time’. Yes Verizon’s 4% yield and Proctor & Gamble’s 3% yield look enticing, but it was just a couple of years ago that these same stocks dropped 50% and 40% respectively – immediately eliminating 10 years of income.
- 2. It’s a presidential election year, and there’s nothing worse than a lackluster (to down) economy in a big election year. It begs the question: “Are you better off now – than 4 years ago?” And coincidentally on Friday we learned that the U.S. economy grew at a measly 1.2% annual rate – well below the 2.6% growth estimates that economists had predicted.
Do you sense my frustration? Month after month, I whine about how the stock market is NOT reflective of the underlying economy.
- How is the stock market at ALL-TIME-HIGHS when our GDP is bordering on recession?
- Over 10 million eligible workers have stopped looking for work (an all-time-high), yet if we are to believe our FED – there is only 5% unemployment and the labor market is extremely tight?
- David Rosenberg (chief economist at Gluskin Sheff) tells us that 44% of all corporate debt is rated BBB (basically junk). U.S. companies are currently holding the lowest level of cash to debt in a decade, and their borrowing is NOT slowing down.
Fraud, manipulation, and other agendas do not impress me. When Wall Street commits fraud – it often costs us money. When politicians commit fraud, it normally costs us lives. Political fraud is fairly inexpensive given just 6 media outlets produce 85% of all U.S. news. And since the U.S. repealed its own propaganda ban on July 2, 2013, political fraud is now legal: http://foreignpolicy.com/2013/07/14/u-s-repeals-propaganda-ban-spreads-government-made-news-to-americans/ Currently our propaganda machine is targeting Putin and Russia. He’s being blamed for everything from the Ukraine to the DNC email hack. Hillary has termed him: “The next Hitler”. Putin (however) is asking the world’s journalists to start reporting reality.
- The U.S. (via NATO) is moving tons of missile capable weapons onto Russia's doorstep. Thus far, Russia has NOT responded by placing missiles in Poland or Rumania.
- The U.S. (via NATO) plans on having Anti-Ballistic Missiles (ABMs) on the Poland/Russia border by mid 2018. Putin cannot let that happen any more than we could let Khrushchev put missiles in Cuba in 1962.
If we (NATO) put those missile batteries in Poland and the Baltic states, Russia has stated publically that they will blow them up. Putin has stated publically to the Polish and Baltic people: "Don't get caught up in the crossfire between the U.S. and us. Please do not allow those missiles, because we will have no choice but to take them out".
So, I hear the helicopters of war bringing in enough money to last the global economies 18 to 24 months. Then, we will attempt to beat the Russians into submission. Unfortunately that tactic did not end well for either Napoleon or Hitler.
- Sales growth has been declining since 2012, and negative since 2015.
- In Q2 of 2016, home ownership hit an all-time low of 62.9%.
- Former Goldman Sachs manager and founder of Global Macro Investor Raoul Pal said that European banks are the Eurozone’s next powder keg.
o Issue #1: Monte dei Paschi Bank (the oldest bank in the world and third largest in Italy) is in crisis mode as it’s stock price was over $100 pre-2008 financial crisis, and is now about $0.50.
o Issue #2: Deutsche Bank (that has had its own struggles with profitability in this low interest rate environment) was trading above $130 per share pre-2008, and is now below $13 (an all-time low).
o Issue #3: The Stoxx 600 European Banking Index is bracing for the worst, and is down 22% year-to-date. The European debt crisis (which began over five years ago) has created long-term systemic risks for banks, and is showing no sign of letting up.
- June’s Durable Goods Orders came in at a NEGATIVE -4%. They also revised last month's reading lower.
Expectedly, our FED did nothing at last week. Unexpectedly, the Bank of Japan (BOJ) also did nothing – as the world was awaiting additional QE. The initial market reaction was a huge plunge, but like so many days we ended down just a smidge. This market is bullet proof. No matter how bad the numbers, it just keeps going sideways and up depending upon how much money our FED prints and gives to the Swiss National Bank to invest in our markets.
On Friday the U.S. GDP numbers were supposed to show 2.6% growth. Instead, they showed a measly 1.2% growth. And to make matters worse, the first quarter estimates were revised downward to 0.8%. Uncle Sam has twisted all the data (to look better), has changed the way GDP is calculated (to look better), and the BEST they could do was 1.2% growth. That means the real GDP is probably NEGATIVE by about 3.5%. But even with all that bad news, the S&P moved higher on the day. Seems logical, aye? Weakening economy, recessionary GDP, and our stock market is hitting all time highs.
Given the market held up in spite of the lousy GDP numbers and the lack of more QE from the BOJ, I would suspect that our markets would be moving higher this coming week. No – we don't belong higher, and there’s no fundamental reason for us to move higher. But, that hasn’t stopped us for a long time (years).
There is a bit of a divergence going on. The DOW faded a bit during this past week, while the S&P held up. The RUSSELL (small caps) faded a bit, while the mid-caps held up. Those are normal signs of sector rotation as money moves from asset class to asset class. For this week, continue to watch the metals. As more and more people realize how ugly the global economies are, the more they are willing to move more into the precious metals. The SPDR Gold Trust (the ETF that provides exposure to Gold) took in $3.3B in new money last month, and a total of $12.2B in the first half of 2016. This was more than all of the U.S. stock ETF’s combined during the same periods. Please take care.
“Please don’t tell me that it will be different this time…”
7 months ago I posted my detailed trading strategy on AG – a silver mining stock. To date, every $20k that you invested in AG is now worth $250k. 2 months ago I suggested buying some January 2018 - $4 Calls in NGD (a gold mining stock). NGD bounced between $4 and $5, and I decided to add more on a dip under $4 or a break above $5. To date, every $20k that you invested in NGD is now worth $30k – and on Friday it broke out over $5 per share. I did not buy any more on Friday, but if it holds over $5 on Monday and Tuesday, I'll be a buyer.
My attraction to the metals continues. Some relatively inexpensive ones are: FFMGF, NAK, BAA, AUMN, EGO, and FSM. I’m keeping it simple by:
- Selling PUT Spreads on tech names such as AMZN, AZO and GOOGL, and being
- Long various mining stocks and their respective call options: 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!
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Until next week – be safe.