This Week in Barrons – 1-22-2017:
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.
“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.
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 20th – 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 27th – 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.
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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