RF's Financial News

RF's Financial News

Sunday, February 26, 2017

This Week in Barrons - 2-26-2017

This Week in Barrons – 2-26-2017:



Thoughts: 
   For quite a while it's been my thought that the metals markets might start to make a move in March.  One reason is that the mining stocks have been left out of the overall stock market rally.  Secondly, I sense some real creaks and groans in the precious metal exchanges as of late.  In terms of background, gold and silver are not priced on physical demand, but rather by paper futures contracts that can be shorted.  The world’s Central Banks (including our FED) have been manipulating gold and silver lower for over 20 years.  They have plead guilty to gold and silver price fixing, but the problem still exists.  For example, last Thursday (on a single exchange) over 1B ounces of silver were being shorted.  Factually, there are only 800m ounces of silver globally mined in the entire year.  It’s this HUGE paper short position that is causing the price of silver to be artificially held down.  A short position of this size in any other market, would be sounding alarm bells to regulators – who would force the shorts to unwind their positions in order to reduce the likelihood of a short squeeze.  However, precious metal regulators have been trained to look the other way.  The only redeeming factor is that each time it takes more and more ‘paper shorts’ to keep the price of the precious metals down.  What happens if they can't get the prices as low as they want?  The market maker is left on the wrong side of the trade and the physical metal must be delivered at the lower price with the market maker taking the loss.  These instances are growing but thus far still manageable.
   The bigger problem that is brewing is due to the Chinese Government.  The oil producing nations of Saudi Arabia, Russia and Turkey have decided that they don't like the old petro-dollar set up.  Instead, they have started to sell their oil for Chinese Yuan, and then trade those Yuan on the Shanghai exchange for physical gold.  This is causing the demand for physical gold to consistently be higher than the paper price.  I have said for many years that the price manipulation of gold and silver will end when the physical delivery of the metals overwhelms their ability to lower the price via shorts.  Due to the Yuan’s convertibility spreading around the globe, and the continued trust in the Shanghai Exchange – the demand for physical gold has almost been parabolic.
    Central Banks and Treasury Departments have had to dramatically increase the production of their short-futures contracts for the precious metals – in order to offset all of this new physical demand.  I think we could be nearing a tipping point where the ‘shorts’ lose control.  After all, until recently oil producers have been forced to sell their oil in U.S. Dollars.  As the U.S. Dollar lost its global luster, the Chinese crafted a way to exchange oil for assets that have maintained their value for over 5,000 years – mainly gold and silver.  Currently metals brokers are having to make one-off deals with ‘vaults’ around the world - in order to find enough supply to satisfy demand.
   But the demise of a currency is nothing new.  The 2nd World War caused at least 95 currencies to vanish.  When times are good, people are just fine using paper with pictures on them and digital entries as money.  But when times get ugly, they will instinctually turn back to gold and silver.  Gold/Silver World studied the demise of 599 paper currencies through the ages and found: (a) 30% ended by consolidation and other legal reforms – such as the creation of the Euro in 1999, (b) 15% ended through acts of independence – such as the United States, (c) 27% were destroyed by hyper-inflation through the over-issuance of paper money by governments and central banks, and (d) 28% were destroyed by war.
   If I'm right, and the metals exchanges are losing control of the pricing mechanism, we could soon see a dramatic rise in both metals.  Even if I'm only half right and they simply get forced to allow the prices to move higher in a controlled manner, it stands to reason that the miners are going to see another surge. 
If you do not own any physical gold or silver, I would recommend that you buy some.  I have never wavered on my prediction that we will see gold upwards of $3,000/oz. (currently $1,250) and silver above $70/oz. (currently $18).  Nothing feels better than having a roll of shiny silver eagles in your hand, and knowing that they can’t be re-created out of ‘thin air’ by a push of a button.


The Markets:






















   This week markets continued their march higher in the hopes of promised tax cuts, repatriation holidays, infrastructure builds (delayed 1 year), and regulation reductions.  As the chart shows, most American's have seen little real growth in the past 30 years.  For the first time, it is unlikely that our children will be better off than their parents.  Factually:
-       In 2016, S&P 500 corporations paid $20.2B (27%) LESS in dividends than in 2015.  That's the largest number of dividend cuts since the height of the 2009 recession.
-       Bloomberg reported that the U.S. currently has half as many publicly listed companies as it did 20 years ago.
-       SocGen said that 40% of all U.S. publicly traded companies are NOT profitable.
-       Our gasoline inventory glut is at a 27-year high.
-       In January, the U.S. Manufacturing and Services PMI’s both came in much LOWER than expectations.
-       Bloomberg also reported that most earnings reports are non-GAPP, and therefore – fictitious.  Banks are being allowed to report ‘mark to model’ rather than ‘mark to market’.  That means that banks can report what their ‘models’ say assets SHOULD be worth – rather than what the ‘market’ says that they are truly worth.

   The U.S. is sitting atop $20T in debt.  Our President is advocating big tax cuts, deficit spending to create jobs, cuts in regulations, and trade protectionism.  All of these will contribute to rising inflation and interest rates.  The jury is still out as to whether he will be successful in ‘draining the swamp’ before it ‘swallows’ him, but his contempt for lobbyists, political bureaucrats, media, and most members of Congress is well-known.  This week’s ‘Vegas line’ on whether President Trump finishes out his term is: 50-50.  After all, you can’t take over the world’s most powerful nation, and threaten to overthrow a multi-decade system that has empowered a class of global elites without a fight.
   Investor bullishness (as shown by the chart on the left) has entered into extreme optimism territory.  And just last week CNBC had an enthusiastic panel discussion entitled: "Best Move: Just Buy Everything?" 



   Thanks to CW for producing the following graph showing that the S&P 500 median Stock Price-to-Sales ratio is at its highest level in history.  This means that the average stock today is significantly more overvalued NOW than it was during the Internet Bubble of 1999.  While Trump’s proposals may eventually stoke the flames of economic growth, the reality is that (2nd chart) earnings estimates are actually being revised downward as the months go on.


   If the markets were to substantially decline from here, all of the preventive measures put in place post 2008 would quickly implode due to the enormity of the derivative exposure.  I remember years ago Warren Buffet warning that our true ‘weapons of mass destruction’ were our derivatives – and there are over $700T of them out there right now.
Market bubbles tend to lull J.Q. Public into a ‘Stocks must go Up’ psychosis – only to have ‘Stocks start to Fall’ and then:
-       Instead of SELLING, J.Q. Public is conditioned to buy the dip.
-       And as prices continue to decline, they buy more. 
-       They then stop buying, and start to make excuses for why it's best to hold.
-       Then one day they can't take it anymore, and sell it all.
-       This ‘capitulation’ sale usually occurs within 30-days of the absolute bottom, and the market starts running higher again.
-       But they don't get back in because they were ‘burned’, and no longer ‘trust’ the market. 
-       The market continues higher without them, and after a few years they start thinking that this time it is ‘different’.
-       They begin to nibble, and as the market goes higher they get braver and buy more.
-       Then just about when the market is at its absolute top, they go ALL IN and get smashed – again.

   This is the ‘rinse-n-repeat’ fear I have.  The most important job you have as an investor is to train yourself to sell when you sense the wheels about to come off.  If you hold through the first dip of a pull back and the next bounce doesn't take you to higher levels – that is your signal that you should be looking for the exits.  Art Cashin (head of floor operations for UBS) said: “We are wildly overbought", and believes that the President’s State of the Union Address on February 28th could mark a top in the markets.  Art is worried that tax reform will not be revenue neutral, the Tea Party Republicans will vote it down, and the market will come down hard in response.  The market has been up 11 days in a row.  That is something not seen since 1987.  It's overbought, extended, expensive, and stupid – but it can get more of each of those.  We need to lean into it, but the air up here is certainly thin.


Tips:
   With unusual options activity beginning in the mining sector, keep an eye out because this sector tends to move quickly.  For example, back in December I saw some unusual options buying on several mining companies including PAAS.  It soared from under 14 to over 21 in just a few weeks.  Last Friday I saw some similar, bullish options activity in JNUG.  If it continues to warm up, it could turn into a nice trade.
    When is the last time you saw a trade with an 81% chance of success, and one that you could adjust to suit your own timeframe and risk criteria?  As I said last week, this is the 1st in a series of 3 types of transactions that will achieve over 80% probability of success with minimal risk. 



Above is a transaction set-up on IWM (a Russell 2000 index), but you could use virtually any index product.  The index currently sits at $138.65 (dark vertical line on graph), and the expected move between now and March 17th is a little over $4.  Looking at all 3 scenarios:
1.   If the IWM were to fall $4 by March 17th – you would be up over $1,000, and would have taken a little over $1,500 in risk.
2.   If the IWM were to go UP rather than DOWN, your upside risk is $0.
3.   If the IWM were to go down MORE than $4, it would have to go through the $4 level first, and therefore give you a chance to get out of the deal at a profit before incurring the loss.

The particulars of the deal are as follows:
-       IWM is currently at $138.63.
-       March 17th Expected Move = $4.40
-       The Downside Deal (shown) – Cash-Flow neutral:
o   Buy 3 March 17, of the 135 / 139 Put Debit Spread, and
o   Sell 7 March 17, of the 131 / 135 Put Credit Spread.
-       The Upside Deal (not shown) – Cash-Flow neutral:
o   Buy 3 March 17, of the 139 / 143 Call Debit Spread, and
o   Sell 7 March 17, of the 143, 147 Call Credit Spread.

You can shorten or lengthen the timeframes on this type of trade in order to suit your particular trading style and risk criteria.

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:

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 <http://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, February 19, 2017

This Week in Barrons - 2-19-2017

This Week in Barrons – 2-19-2017:

Thoughts: 



"If you tell a big enough lie and tell it frequently enough, it will be believed."... Adolf Hitler


Dear President Trump:
Adolf Hitler (in 1925) dictated the above quote in his book: Mein Kampf.  It referred to a technique where big lies are often believed before small ones – because no one thinks that anyone would have the audacity to distort the truth so infamously.  Hitler’s primary rules also included: “(a) Never allow the public to cool off; (b) Never admit a fault or wrong; (c) Never concede that there may be some good in your enemy; (d) Never leave room for alternatives; (e) Never accept blame; and (f) Concentrate on one enemy at a time – Blaming them for everything that goes wrong.”

Mr. Trump, one of the most startling aspects of your Presidency thus far is not your brashness or outspokenness, but rather your ability to direct major un-truths directly into a camera.  You obviously know you are being fact-checked at light-speed – so there must be something of gigantic proportion at work.

Is it that your stance on Nationalism is running smack into the ‘One World Order’ ideology?  Your thoughts on immigration and borders have emboldened the U.K. to continue down the path of BrExit, and are allowing Marine LePen to gain traction in France.  You have certainly initiated wars of words between globalists and Nationalists, between the intelligence white hats and black hats, and between the military complex and the peacemakers.

Or are you frustrated because your hawkish foreign policy, looser domestic regulations, and BAT (Border Adjustment Tax) – could create an avalanche of Treasury bond selling from your 2 largest clients: U.S. Banks and China.  Since the financial crisis, big banks have been stockpiling Treasuries because they qualify as ‘safe assets’ counting toward required capital levels.  According to the St. Louis FED, U.S. commercial banks have more than doubled their holdings (over the past 9 years) to $2.4T in government debt and agency securities.  But you are pushing to roll back the parts of the Dodd-Frank regulation that would give big banks a reprieve from those capital requirements.  As a result, U.S. Banks could sell over $300B in Treasuries (previously used as a recessionary cushion), and funnel those proceeds ‘potentially’ into stock buybacks. 



But Mr. Trump, you and I both know that China is a creditor of a different magnitude.  As of November, China held $1.05T in Treasuries.  Are you being ‘truthful’ when you label China a “currency manipulator”, and when you threaten a 45% tariff on their products?  Alex Phillips (senior political economist at Goldman Sachs) writes that: “If the White House pursues a unilateral policy of tariffs on Chinese products, one probable avenue for China to retaliate would be to sell their U.S. Treasuries.”  Are you trying to ‘lock-up’ the credit markets – as in 2008?  Because Tu Xinquan (Dean of the China Institute for WTO Studies at the University of International Business and Economics in Beijing) has stated: “By angering a creditor of that magnitude, the Treasury market would be the first place China would look to send a message back to the United States.”

Some think you were elected to continue the corporate agenda, to continue to wage unnecessary wars, and to continue to topple Governments we don't like. Others think you were elected because of your bankruptcy background, and will be needed as the world goes through its necessary economic reset.  Still others believe you were elected as a sacrificial lamb, put in place to be the fall guy when the wheels completely come off our debt-ridden nation.  For the first time in my nearly 30 years of snooping around in the underground news, there's NO consensus.  My small bit of advice would be: “The truth will set you free.”  John 8:32.


The Markets:



For the past month, I’ve been calling for the last hurrah of a rally.  And once all of the ‘fence sitters’ are drawn in – THEN they will pull the rug and we will head lower.  Well, I think we're dead smack in the rally.  How far and how long it goes is anyone's guess – because there is no overhead resistance.  This could run for two more months, or end tomorrow.  Remember what got our market to 20K:
-       The ECB doing 80B a month in QE,
-       The Swiss National Bank buying $65B in U.S. stocks,
-       The Bank of Japan owning over 50% of their own market’s index ETF’s,
-       And companies borrowing at zero percent to buy-back their own stock.

Do these same shenanigans take the DOW to 30k?  I can make the case for DOW 30K pretty easily:
-       Trump cuts corporate taxes.
-       CFO’s will place what ‘should’ have been paid in taxes into the profits column, causing earnings per share to rise, and investors to buy,
-       The ECB would change gears and increase QE – with the increase going into U.S. equities,
-       And the Swiss National Bank would up their U.S. stock holdings by simply using ‘newly printed money’ to buy specific high-profile stocks.

I can also make the case for DOW 10K just as easily:
-       Trump’s tax revisions and regulations do NOT get passed,
-       The ECB decreases and stops QE,
-       And the Swiss National Bank starts selling their U.S. equity holdings.

So before considering holding through the dips – realize that dips can turn into sell offs and major corrections.  After all, the DOW and the S&P have hit all-time highs 7 times since just the inauguration, and not a SINGLE thing has changed.  One thing is certain however, gaining 800 points since Feb. 2 is not sustainable.  In fact, you know things are really upside-down when Janet Yellen makes the case to Congress that she's going to hike rates sooner rather than later, and the markets start to rise almost instantly.

According to the Business Insider, top hedge fund founders (such as Steven Cohen) are sending letters to investors explaining last year’s dramatic underperformance.  Which begs the question, how can so many smart people be so wrong?  Answer: because there's a huge manipulation factor that’s in play here.  Using oil as an example: (a) With oil storage capacities at their limits, and (b) with more oil rigs coming on line every day – hedge funds shorted oil – only to see it move higher.  Did the law of supply and demand go away?  Yes, because the loans behind the oil rigs require $52/barrel oil to remain profitable.  It’s the same everywhere you look.  Caterpillar just posted an all-time-high in its stock, only to be followed by its 50th straight QUARTER of declining sales.  As someone once taught me: “You need to trade the market that you have, not the one you want.”  And right now, this market is all about banks, and certain tech stocks.

Technical analyst Tom McClellan has been calling for a February/March correction for a while, and judging by one metric, he could be on track to deliver.  Tom explains: “When investors get complacent, they do certain things: They show up as bullish in the various surveys.  They bid tiny premiums on options, driving down the VIX.  They put all of their cash to work, letting money market fund levels get down ridiculously low.  And they trade tiny volumes on the QQQ.”  The QQQ ETF is the largest of all ETFs tracking the Nasdaq 100, and (referring to the chart below) has shown steadily declining volume in recent months.  Tom continues: “Low QQQ volume readings are associated with investor complacency, and with important price tops.  This confirms the expectations of a late February early March top.”




The other issue is that our FED is having difficulty tapering a Ponzi scheme.  Our entire financial economy is now based on ever expanding debt, with stocks being used as collateral to create more debt.  If stocks go down substantially, it isn't just mom’s and pop's 401Ks that fail, it’s also the multi-billions that have been pledged over and over again as collateral on top of that 401K.  If this market of ours goes down substantially, we've got a mini Armageddon on our hands.

Everybody knows that this market is beyond ‘Priced for Perfection’.  They need stocks to remain stable so that all of the counterparty risk doesn’t collapse (House of Cards).  I wouldn’t make any big bets right now, and would wait for some of the froth to blow off the top.  We're overdue for a corrective pause or pullback, and next week I’m thinking we may get a little bit of just that.


Tips:
StockTwits co-founder Howard Lindzon seems to have learned to love the bombs-related ETF - URA.  He is among a group of traders who are head over heels for the Global X Uranium ETF – URA which has blasted 55% higher since Election Day.  Howard said: “It makes sense (in hindsight) why uranium is on a tear.  It is an end of the world proxy based upon all the chatter from Trump on a nuclear arms race.”  But on Friday CNBC jumped on the ‘uranium rally’ citing production cuts and a nuclear-power renaissance – which made URA kind of a ‘Magazine Cover’ indicator.  This should signal that URA will need a break before building on its big rally, and word on the street is to short URA this coming week.

Over the up-coming weeks, I will deliver 3, battle-tested techniques for trading: ‘Calendar’, ‘Butterfly’ and ‘Iron Condor’ options for weekly income.  The techniques have a proven ability to garner 10% to 12% per trade / per week with minimal risk.  So, stay tuned…

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:

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 <http://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