RF's Financial News

RF's Financial News

Sunday, November 27, 2016

This Week in Barrons - 11-27-2016

This Week in Barrons – 11-27-2016:



Thoughts:
Remember when:
-       Everyone thought BrExit would never happen,
-       That the Chicago Cubs would never win the World Series, and
-       The Donald would never be elected as U.S. President?

The good news is you’re not alone, as most of the betting parlors got it wrong as well.  The bad news is that many people have not put this event behind them.  Police officers are being shot by ‘distraught’ Hillary fans.  Corporate CEOs are being fired for saying that they are going to KILL Trump.  And just this week Jill Stein (the Green Party’s nominee for President) announced that she had raised $5m to recount the ballot boxes in Wisconsin, Michigan and Pennsylvania.

When Trump won, my very first thought was: “This ain’t over".  I remember when Jill Stein (on October 12th) said: “A vote for Hillary is a vote for War".  I guess that Ms. Stein (within a couple weeks) went from being afraid of Hillary – to praising her.  She also put up a web site, proclaimed that the voting machines were hacked, and raised enough money to recount the votes in 3 states.

If they ‘find’ an extra couple hundred thousand ballots for Hillary, can they actually pull the win away from Trump?  I don’t know that process, but it certainly looks like they're going to try.  And what about the financial ramifications?  After all, the market has been soaring on the idea of Trump cutting taxes and raising infrastructure spending.  Hillary wanted to RAISE taxes.  I think if the election results were reversed, we would see a 20% market pullback – eliminating all of the post-election gains and then some.  I'm not saying that this is going to happen, but the website, the donations, and the hard push from the left to take back the country are all real.

Maybe this will all fizzle out and calmer heads will prevail, but with $5 million being raised in a couple weeks to meet the requirements – this is pretty scary stuff.


The Market...



As SF reminded me:
-       The US economy and inflation have grown an average of 2% per year for the past 16 years.  Unfortunately, our debt has risen almost 350% faster than our economy – at a 6.8% annual rate.
-       Under President Obama, Government debt levels have doubled, unfunded liabilities are over $100 Trillion, and our debt to GDP ratio has grown to almost 121%.
-       Private and business debt is over $67 Trillion, and over 400% of GDP.
-       And lest we forget, out of the 300M total U.S. population: 95M are missing from the labor force, 2M people are in prison, 43M are living in poverty and receiving food stamps, 57M are Medicare enrollees, 73M are Medicaid recipients, and 31M are still without health insurance. Source: www.usdebtclock.org

All of this debt is unsustainable, and can’t be paid back.  The American people want: jobs, tax cuts, a balanced budget, low-cost education, and universal healthcare.  But it’s not clear how we cut taxes and achieve a balanced budget.  Or how we increase the defense budget, maintain Medicare and Social Security, and address healthcare, welfare and immigration – without boosting our debt to ridiculous levels.

After all, Trump is proposing to cut the corporate tax rate from 35% to 15%.  But corporations (with deductions) already average around a 17% tax rate.  So, going from 17% to 15% will not make all that much of a difference in corporate earnings.  This is especially true given the fact that corporate earnings (since 2012) have only grown by 2.6% per year, and Wall Street (using current stock prices) is projecting a 2017 earnings growth rate of over 20%.  Excuse me, but I really don’t see anything close to 20% earnings growth in the 9th year of an economic expansion, with the dollar strengthening, and inflation rising.

Trump also promises massive increases in infrastructure and military spending.  Thanks to Chris Wiles of Rockhaven Capital Management for putting together the following graphics showing how $2.63 Trillion of ‘Mandatory Programs’ will be allocated.  And since Trump didn’t mention any cuts, it’s safe to say that this pie isn't decreasing any time soon.





And then there is Trump’s $1.15 Trillion budget for ‘Discretionary Programs’.   The military accounts for 54% of discretionary spending, and if that increases along with infrastructure spending – it’s safe to assume that the entire ‘discretionary’ spending pie will also get larger.












The current budget deficit is about $616B, and will only grow larger with increased spending and additional tax cuts.  Oh, let’s not forget that interest rates are beginning to rise.







As for the immediate stock market direction, what in the world is going on?  How long will this ‘low volume – melt-up’ continue?  The market is moving higher strictly on the ‘hopium’ of Trump creating a monetary explosion.  Day after day, the volume of stock market transactions goes down, all the while stocks are moving higher.  A healthy market has stocks moving higher on increasing volume – showing the world that more and more people are bidding and coming into the marketplace.  Stocks moving higher on lower volume, means that people continuing to leave the party.  Some red flags to this market are:
-       The markets have broken through major resistance levels and moved higher - institutional participation has been lacking.
-       Excessive bullishness by the financial media.
-       Retail investors are becoming more bullish, and are beginning to chase an already over-bought market.  Historically this is a sign that the end is near.
-       The Dow Jones Industrial Average has risen too high too fast – signaling a ‘blow off top’.
-       The smashing of bonds (as yields spike) along with the continued pullback in gold, and emerging markets is a huge red flag.
-       And FED Chairperson Janet Yellen making it clear that she will raise rates in December – should serve as a large dose of caution to the markets.

Veteran trader Mark Cook sees the market moving higher from here, but not by much.  “I think we are going to see a lot of inflation.  The way that Trump is wired is that inflation is beneficial.  The stock market doesn’t like inflation.  During the Reagan years, after the election there was a huge rally, only to go down substantially once he got into office.  The table is set for quite a correction for 2017.”  And a well-known market forecaster Tom DeMark is predicting as much as an 11% decline for the S&P: “If there is going to be a plunge, it should happen within the next two or three weeks.”

There was supposed to be an OPEC meeting on November 30th that would include some non-OPEC nations as well.  They were trying to (once again) get some oil production cuts in place – in order to push oil prices higher.  As recently as today, Saudi Arabia suggested that the meeting may be on hold as they make sure that all of their own OPEC members are on board with the production cuts.  I suggest that even with Iraq and Iran balking at the idea, we will get some sort of a deal this week.  This OPEC announced deal should strengthen the oil market, and extending the overall market ‘melt up’.  If the meeting does not happen, then oil will fade and put a dent in the mindless romp higher.  

Also, the impending voter recount in 3 states could derail the markets.

The last situation that could put a pause in the markets is the December 14th FOMC meeting.  At this meeting, the FED will announce that they will raise interest rates ¼ of a point.  I fear the ‘buy the rumor, sell the news’ scenario.  In other words, even though a rate increase is widely expected – I’m looking for the markets to pullback when the FED actually does it.

One thing is certain, just 14 sessions ago the S&P stood at 2083 – barely hanging on to its 50-day moving average.  Friday, we closed 130 points higher at 2213.  That pace reminds me of 1999, and NO it can’t go on forever.  So, if OPEC announces a deal on November 30th, our market will climb higher, and I would start to lighten up ahead of the FED meeting on the 14th of December.  If OPEC does NOT come away with a deal, I would begin to lighten up, and want to be out of almost all trades by the time the FED meeting rolls around.


Tips:


History tells us that every single time for the past 100 years, whenever there has been a change from a 2-term President – the economy fell into a recession 6 to 12 months later.  History also tells us that every single U.S. recession (except for one with explainable circumstances) occurred around an election.  So, between the history of revolving Presidents, and the that fact that only 1 time has the market run for longer than this current expansion – odds say that this isn't a new leg higher, but rather a blow off top and the beginning of a market decline.



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





Sunday, November 20, 2016

This Week in Barrons - 11-20-2016

This Week in Barrons – 11-20-2016:



Thoughts:
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.


Tips:
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!

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