RF's Financial News: January 2017

Sunday, January 29, 2017

This Week in Barrons - 1-29-2017

This Week in Barrons – 1-29-2017:

Thoughts:

Over the years, I’ve spoken many times about how our Central Banksters are enormous buyers of stocks. I’ve mentioned how the Bank of Japan owns almost 75% of Japan’s ETFs. I’ve spoken about the Swiss National Bank owning billions of dollars’ worth of Apple (AAPL), Microsoft (MSFT), and Exxon Mobil (XOM). And I’ve talked about how our companies are borrowing money at virtually zero interest rates, and using those same funds to buy back their own shares of stock. Just this week, Zero Hedge ran a story on how Central Banks plan on buying even MORE stocks – which begs the question: Can stocks ever really go DOWN? Given Central Banks can both print money out of thin air, and buy stock: How can you ever take a beating?

The answer comes from ‘where’ the money came from. In normal times, you were paid a commensurate wage for your work. So, the amount of money that was in circulation at any given time was directly proportional to the number of goods and services that existed in the world. This kept production in line with demand, and it also kept a lid on pricing. But when the Central Banksters started creating billions and buying stocks, the entire process of consumption being linked to creation and demand was thrown out the window. And what was put in its place was the absolute definition of inflation.

Many people define inflation as "rising prices", but in technical terms that’s simply the result. The true definition of inflation is: "an increase in the money supply". I personally can’t think of a better example of an ever-increasing money supply than our Central Banksters creating money out of thin air, and using it to instantly buy stocks. They are clearly doing it without any productive input to the global economic machinery.

Schemes like this often work in the short term, but go awry because some event causes an increase in the velocity of money and that causes prices to spiral higher. The velocity of money is simply how fast a dollar changes hands. In a hot economy, the velocity is high because everyone is out spending all that they can get. In a sluggish economy, monetary velocity slows as savings increase.

Historically, printing money has never worked. While the injection of money during periods of economic contraction has (at times) been able to keep the wheels from coming off an economy – continued injections lead to runaway inflation. Inflation is starting to become an issue, and will become a larger one over the next several months and years.

A couple thoughts to consider – (courtesy of SF):

- 4^th Quarter GDP came in at 1.9% on Friday – well below the estimates.

- Neil deGrasse Tyson said: “Congress and Donald Trump are considering cutting PBS support (0.012% of the budget) to help balance the Federal budget. This is like deleting your text files to make more room on your 500Gig hard drive.”

- "It's cheaper to buy a $35,000 robotic arm than it is to hire an inefficient employee – making $15 an hour bagging French fries," … former McDonald’s CEO Ed Rensi.

- The South China Morning Post reported that Foxconn (a supplier to both Apple and Samsung) has recently REDUCED total employment by 60,000 people with the introduction of robots.

- More than 67% of U.S. assets are controlled by individuals over 50 years old. Bankers are viewing the ‘Reverse Mortgage’ as the final opportunity to lend to the 50+ generation. In that vein, Fifth Third Bank ($141B out of Ohio) will acquire Retirement Corporation of America (RCA) – a registered investment adviser providing retirement education and planning nationwide.

- We need to revise our educational system:

o University enrollment has increased 20% over the past decade.

o University costs for tuition, fees, room, and board have risen 34% over the past 10 yrs.

o Over the past decade, University endowments have increased over 80%.

o Over the past 10 years, our Universities are spending more money on building monuments, than they are on improving the teacher to student ratio.

o Maybe Universities should be taxed like Mutual Funds – after all:

§ The top 10 University endowments are: (1) Harvard = $36B, (2) Yale = $26B, (3) Texas = $24B, (4) Princeton = $23B, (5) Stanford = $22B, (6) MIT = $13B, (7) Texas A&M = $10B, (8) Northwestern = $10B, (9) Univ. of PA = $10B, and (10) Univ. of Mich. = $10B.

§ Some Top ETFs are: (7) QQQ (NASDAQ) = $42B, (10) IWM (Small Caps) = $34B, (16) GLD (Gold) = $30B, (20) EEM (Emerging Mkts.) = $26B, (22) XLF (Financials) = $22B, and (30) XLE (Energy) = $17B

o With our universities having larger endowments than most of the ETFs out there, I think it’s time to refocus our educational system around the educator rather than around the endowment or the physical facility.

The Markets:

Animal spirits are alive and well. For the first time in my life, I'm watching a man go to Washington, and totally change the entrenched political decision-making. In the past, a President would over-promise, under-deliver, and in many cases, do a 180 degree turn against what they said on the campaign trail. Trump is definitely NOT playing that game.

But even with all of the hope, the reality of the moment is that things aren't very good, and the market is front running all the good things that are potentially coming. This week the DOW made it over 20K, and held above that level for 3 days. However, it came with anomalies that caused me to raise an eyebrow. According to the latest Bank of America data, last week U.S. equities saw $6.3B in outflows. This was the largest weekly redemption from U.S. mutual funds and ETFs in four months. So, at the very time that the DOW created all-time highs, $6.3B was pulled OUT of the markets. Also, the day we hit 20K, trading volume on the SPY (the largest ETF) was only 84m shares. The following day volume on the SPY went down to 60m shares, and on Friday it hit 59m shares. In other words, there has been no volume confirmation of this move.

So, $6.3B is leaving equities and being deployed into bonds, and we have a clean break-out to all-time historic highs on relatively low volume. These are NOT the sorts of actions that I would have expected last week. But then again, I'm using analysis based on some fundamental premises, and fundamentals went away ten years ago. Who cares if pension funds and insurance companies are pulling out – just as long as the Swiss National Bank keeps buying the DOW stocks and driving them higher. I still think that we get this last run higher, pull in more sideline sitters, and then roll over into a 10% correction.

Tips:

Over the past several weeks, I laid out a specific SPX trading strategy that I was doing. I started by selling some weekly Iron Condors (IC) – expiring January 20^th – between 2260 / 2265 and 2290 / 2295 – for between $230 and $245 per IC. I was hoping to show some of the modifications that I had to do, but the SPX acted remarkably calm – ending the week @ 2271. Therefore, I pocketed the entire $245 per contract. Last week I sold a similar set of weekly SPX Iron Condors – expiring January 27^th – between 2245 / 2250 and 2280 / 2285 for $250 per IC. The SPX went to 2295:

- This allowed our 2245 / 2250 Put Credit Spread portion of the IC to expire worthless and I pocketed the entire $130 per contract.

- BUT we had to roll out the 2280 / 2285 portion to the corresponding Feb 3^rd delta 30 options centered around the 2310 / 2315 strikes for $1.85.

- That $1.85 came directly out of the previous SPX’s $2.45 profit – reducing our profit on the Jan 27^th transaction to 60 cents.

- We are now holding the 2310 / 2315 Call Credit Spread @ $1.85 / and will sell the 2275 / 2280 Put Credit Spread against it on Monday – for an additional credit of $1.40.

I will continue this example through this week, in hopes that it should give you enough to do this on your own moving forward.

I’m attending a financial conference in Rocky Mount, NC this weekend – and will hopefully incorporate those thoughts in my upcoming trades and recommendations.

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>.

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Sunday, January 22, 2017

This Week in Barrons - 1-22-2017

This Week in Barrons – 1-22-2017:

Thoughts:

It’s often said that entrepreneurs control the planet. That statement was fully on display during the World Economic Forum in Davos, Switzerland this past week. There, we found out that the following 8 entrepreneurs control more than HALF of the world’s wealth:

- Bill Gates – U.S. – founder of Microsoft (MSFT),

- Amancio Ortega – Spain – founder of Inditex Zara (ITX),

- Warren Buffet – U.S. – founder of Berkshire Hathaway (BRK.A)

- Carlos Slim Helu – Mexico – founder of Grupo Carso,

- Jeff Bezos – U.S. – founder of Amazon (AMZN),

- Mark Zuckerberg – U.S. – founder of Facebook (FB),

- Larry Ellison – U.S. – founder of Oracle (ORCL), and

- Michael Bloomberg – U.S. – founder of Bloomberg LP.

It is my contention that our government has yet to figure out how to foster and grow entrepreneurship. Since the Obama administration took office, new corporate formation has been at all-time low levels. I believe that entrepreneurship in the U.S. grows ‘in spite’ of our government’s efforts. Ms. Maria Contreras-Sweet (outgoing head of the Small Business Administration (SBA)) proved my point this week with her exit email. And thanks to MJP – who was nice enough to provide his facts, wit, and sarcasm to her email below.

Maria: “Small businesses are the cornerstone of the American Dream. They give us the freedom to chart our own paths and live to our fullest potential. They are the engines of American job creation, creating the majority of our new jobs, and are the wellspring of American innovation.”

MJP: “The above is ONLY true if you count a 'new job' as one person deciding to start a side business. Otherwise, you have squelched entrepreneurship. The Bureau of Labor Statistics (BLS) tells us that 85% of ‘new businesses’ under the Obama administration were one person businesses without a payroll – and 50% of those are gone within one year.”

Maria: “Small business owners shape the character of our Main Streets and are the pillars of our communities. Under President Obama, we at the U.S. Small Business Administration have been fighting to ensure that America’s entrepreneurs receive the support they need to succeed with unprecedented access to capital, counseling, and record-level federal contracting opportunities.”

MJP: “Unfortunately, all of that access to capital and counseling was artificially enhanced with taxpayer money. You should ask: Why would any entrepreneur ever agree to take swimming lessons from a government who’s afraid of the water? Everything about the Federal Government’s mantra of ‘over-spend to under-produce’ flies in the face of entrepreneurship – and shows their true lack of understanding.”

Maria: “The SBA strives to be smart, bold and accessible: embracing smart systems and modern technology, promoting bold steps into new markets, and ensuring entrepreneurship is accessible to Americans of all backgrounds.”

MJP: “Unfortunately with entrepreneurship there is no need to 'promote' new markets. The goal of the entrepreneur is to FIND the customers, or otherwise admit that there isn’t a viable market and move-on. I appreciate our government trying to make heroes out of victim groups – but realize that entrepreneurship and the free markets are blind to: race, color, creed, and sex.”

Maria: “Looking back on the economic crisis the nation faced eight years ago, I am awed by the strides made by this Administration and proud of the role that the SBA team has played in supporting that progress. America’s small businesses were hit hard by the Great Recession, and we responded with a comprehensive effort to encourage entrepreneurship and bolster job creation.”

MJP: “Honestly, our government created dozens of programs to support startups that would have (should have) never survived without your life support. The BLS proves that less than 10% of your efforts were successful, and that you and the Obama Administration established a new, all-time LOW for new company creation.”

Maria: “When private sector small business lending faltered, the SBA stepped into the breach, bridging the gaps and reaching record levels of lending support to America’s entrepreneurs. When small firms needed increased earnings to thrive and grow, we worked with small businesses to help them win record-shattering levels of contracts.”

MJP: “Lending to people with weak business plans and as a lender of last resort is: fake, unsustainable, a horrible idea, and a complete waste of taxpayers' money. There is no art or science that rewards spending a lot of resources badly.”

Maria: “When our heroic veterans needed help entering a difficult economy, we created new training programs – bringing entrepreneurial skills to more than 50,000 members of our military and their spouses. When underserved communities across the nation were struggling to rebuild, we launched a series of initiatives to boost entrepreneurship, lending, investment, and innovation.”

MJP: “This all sounds good, but having your efforts result in the lowest level of entrepreneurial activity in HISTORY is nothing to be proud of. Rather than putting money where people aren’t – maybe try investing where customers actually are? I don’t think any successful entrepreneur made a living from selling to customers that could not pay in areas that customers did not frequent.”

Maria: “When President Obama took office, American families were losing their livelihoods and their homes at staggering rates. Thanks to his leadership, the next Administration will inherit a small business economy that is strong and robust.”

MJP: “As a result of being crushed by regulations and by the cost of ObamaCare, the small business community voted against you / Hillary. Every year entrepreneurs ask for two things: reduced taxes and early stage tax credits. Entrepreneurs (without a nanny state) can figure everything else out, or they close-up and move-on.”

As I heard President Trump (in his inaugural address) talk of taking the power from Washington and giving it back to the people – I was reminded of a similar inaugural address given over 50 years ago by a rebellious John F. Kennedy: “For too long, a small group in our nation's Capital have reaped the rewards of government while the people have borne the cost. Washington flourished, but the people did not share in its wealth. Politicians prospered - but the jobs left and the factories closed. The establishment protected itself but not the citizens of our country. Their victories have not been your victories; their triumphs have not been your triumphs; and while they celebrated in our nation's capital, there was little to celebrate for struggling families all across our land.” JFK (when elected) was just as controversial a figure as Donald Trump. We gave JFK a chance, and we made it work.

The Market:

“No one wins in a trade war.”… Chinese President Xi

72% of U.S. companies believe that Donald Trump’s presidency will impact their business operations in the following top 3 areas:

- Regulation: A Trump administration could change rules that specifically help midstream energy companies like Williams Cos. (WMB), and boost banks such as: Citi (C), PNC (PNC), and Morgan Stanley (MS).

- Fiscal Spending: Trump’s infrastructure plans could give a lift to materials providers such as Vulcan (VMC), Summit (SUM), and Martin Marietta (MLM).

- Barriers to Global Trade: Even President Xi admits, with the U.S. being the largest consumer of goods on the planet (by a long shot) – it gives the U.S. the upper hand at leveling the playing field. However, instituting a ‘Border Adjustment Tax’ could mean real trouble for global automakers, along with Nike (NKE), Dollar Tree (DLTR), and Restoration Hardware (RH).

In a trade war, Goldman’s top 10 impacted companies would be:

1. Nvidia (NVDA),

2. Apple (AAPL),

3. Broadcom (AVGO),

4. International Business Machines (IBM),

5. 3M (MMM),

6. Nike (NKE),

7. Skyworks Solutions (SWKS),

8. Wynn Resorts (WYNN),

9. United Technologies (UTX), and

10. Yum China Holdings (YUMC).

I continue to wonder if the market’s sag for the past month was just a digestion of the giant (post-election) move, or whether it’s signaling the beginning of a fade to correction? The market responded positively to Inauguration Day on Friday, as we ended the day up almost 100 points on the DOW and up 7 in the S&P. But all we did was place the S&P dead center in the middle of the range it's been in since December 13th. And we simply moved the DOW from slightly under the range – to back into the lower side of the range.

Is the DOW ever going to snag the golden ring of DOW 20K, or do we continue in this sideways range box until ultimately we begin a fading type of correction? I've been leaning towards seeing that last hurrah run-up, but it's not looking all that healthy. As you see by the graph below, there isn’t all that much ‘cash on the sidelines’ to invest in the market. In fact, you could potentially say that anyone who wanted to be invested in this market – IS invested in this market. If that is the case, then sellers should overtake buyers in the coming weeks and return this market back into its moving averages or lower.

I think we only have this coming week to get us back near the highs, or we could see this rally exhaust itself and begin to roll over. Let’s see if Friday's gains were the start of the final attack on 20K, or simply a desperate attempt to keep the wheels from coming off. We'll know soon enough.

TIPS:

There is a tug-of-war going on between the precious metals and the more ‘risk-on’ assets. But before we go down that road, last week I highlighted an Iron Condor strategy that I use strictly on the indices (SPX, NDX, RUT, DIA, SPY, QQQ and IWM). In low-volatility markets (such as this one), I sell Iron Condors with their inner strike ‘closer to the money’ such as a delta-30 and their outer strike in the upper delta-20s. That gives me more of a 1:1 risk to reward relationship. That way if one side of the trade goes ‘south’, I have enough money on the other side of the trade to either roll it or buy it back – and still remain profitable. I laid out a specific SPX trade that I was doing: selling some weekly Iron Condors (IC) – expiring January 20^th – between 2260 / 2265 and 2290 / 2295 – for between $230 and $245 per IC. I was hoping to show some of the modifications that I had to do, but the SPX acted remarkably calm – ending the week @ 2271. Therefore, I pocketed the entire $245 per contract. In hopes of demonstrating any required adjustments, I again sold a similar set of weekly SPX Iron Condors – expiring January 27^th – between 2245 / 2250 and 2280 / 2285 for $250 per IC. Just like this past week, in next week’s newsletter I will highlight any modifications I do to this trade in order to better show you how to create a weekly income stream.

Next, if you’re not using www.earningswhispers.com to help you maintain a market pulse during earnings season, and www.thetradeexchange.com to help you keep a handle on specific company tweets – you should.

Finally, gold jumped over $1,200/oz. and silver over $17/oz. this past week. The action surrounding the Trump inauguration could be signaling a move to $1255 and $18 respectively. Here are 5 elements that could send the precious metals soaring:

1. Trump declares his intention to name China as a currency manipulator. Watch: FXI, FXP, and ASHR.

2. Trump declares his intention to abandon the so-called ‘One-China’ policy.

3. Trump states an intention to declare artificial islands built by China in the South China Sea as illegal.

4. Trump makes more statements that are seen as encouraging European Union (EU) member countries to leave the trade pact. Watch: EWG, FEZ, HEDJ, VGK, and FXE.

5. And Trump provides support for quickly doing a trade treaty with the United Kingdom – adding more fuel to the UK’s hard exit from the EU. Watch: EWU and FXB.