This Week in Barrons – 2-19-2017:
"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.
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.
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!
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