RF's Financial News

RF's Financial News

Sunday, May 14, 2017

This Week in Barrons - 5-14-2017

This Week in Barrons – 5-14-2017:

“The Art of the Meal”… by Donald Trump

Dear Mr. Trump:

   On September 14th 2016, you said: “I like fast food because at least I know what they’re putting in it.”  On April 12th 2017, you said: “When I was dining with Chinese President Xi Jinping, I authorized the Syrian airstrike while they were serving the most beautiful piece of chocolate cake that you’ve ever seen.”  And on May 12th 2017, you stated: “My signing of this executive order scales back our high-school’s meal nutritional requirements.”  Mr. Trump, not only are you overly fixated on food, but I’m with Mrs. Obama on this one when she replied: “Mr. Trump, why don't you want our kids to have good food at school?  What is wrong with you?  Your executive order loosens school meal standards that are aimed at combating childhood obesity.  Why would anyone want their kids growing up eating crap?"
   Are you just trying to get back at the Senate for making a joke of your latest healthcare bill?  Are you afraid to concentrate on doing one thing well – because it may define your presidency?  Warren Buffet (at his annual stockholders meeting) cited: “Our bloated health care system is the true barrier to America's world competitiveness, and where we keep getting more out of whack with the rest of the world.  Medical costs are the tapeworm of American economic competitiveness."  Both Mr. Buffett and Mr. Charles Munger (his business partner at Berkshire Hathaway) advocate a single-payer healthcare system.  Under this plan, the United States would enact a universal type of coverage for all citizens with an opt-out provision that would allow the wealthy to still get concierge medicine.  But instead of working toward making one element great, you seem to be inflicted with ‘shiny object syndrome’ – where your latest ‘shiny object’ is X-FBI Director Comey.  Be aware, the world is telling you that healthcare is much more important.
   Currently, health care costs are 17.1% of G.D.P. – up from 13.1% as recent as 1995.  The health care percentage of G.D.P. in Germany is only 11.3%, in Japan it’s 10.2%, in Great Britain it’s 9.1%, and in China it’s only 5.5%.  That puts the United States at a material disadvantage far beyond any tax code improvements.  It harms American corporations specifically because they bear such a large share of those costs.  After all, corporations spend an average of $12,591 per year for coverage of a family of four – up 54% since 2005.
   As for the elephant in the room (your firing of FBI Director Comey), I honestly was not as taken aback by your action as I was by this week’s interview with Mr. James Clapper (the former director of National Intelligence).  Mr. Clapper, who served both Democratic and Republican administrations, ended his prepared remarks with a reminder of what the Russian investigation is really all about: "The Russians used cyber operations against both political parties, including hacking into servers used by the Democratic National Committee and releasing stolen data to WikiLeaks and other media outlets.  Russia also collected information on certain Republican Party affiliated targets, but did not release any Republican related data.  The Intelligence Community Assessment concluded 1st that President Putin both directed and influenced these campaigns in order to erode the faith and confidence of the American people in our presidential election process.  Secondly, President Putin did so to demean Secretary Clinton.  Thirdly, he sought to advantage Mr. Trump.  These conclusions were reached based on the richness of the information gathered and analyzed, and were thoroughly vetted and approved by the directors of the three agencies and myself."  So, by firing Mr. Comey you intensified the Russian investigation, and pushed back healthcare reform, tax reform, and your infrastructure projects even further.  I’m assuming that is what you intended?
   Finally, on this Mother’s Day, please remember to say ‘Thank You’ to your mother for all of her efforts.  Being a ‘good mom’ is a phrase so embedded in our everyday thinking that (in some ways) it has lost its meaning.  We often use ‘good’ as a synonym for competent.  But a ‘good mom’ is far more than a measure of her competence.  It also takes into account her humanity, her values, the qualities inherent in her character and other intangible traits.  Mr. Trump, I’ve come to believe that individually pursuing goodness all the while surrounding yourself with good people – is the only leadership decision that really matters. When we ask ourselves why we admire leaders, the answer is that they put other people first and understand and practice good values.  Good leaders are committed to improving everyone around them, more than they are committed to improving themselves.  They feel a duty to serve others by inspiring and shaping.  To quote Tom Peters: “Leaders don’t create followers, they create more leaders.” 
   I see our values as our critical competitive advantage moving forward.  I was reminded on Friday – at the passing of a dear friend – that the success portion of our brains receives the highest level of stimulation when we willingly and actively give to others.  Mr. Trump, I would ask you to consider elevating your giving abilities before the Senate begins impeachment proceedings and I begin seeing signs (resembling the below) on street corners all around the U.S.

The Market:

This week:
-       The PPI (Producer Price Index) came in elevated at 1.9% per year.  This heightened level of inflation will allow the FED to increase rates in June. 
-       The ECB and Mario Draghi now own over 10.2% of all European corporate bonds.
-       The Bank of Japan is now a top 10 shareholder in more than 90% of the companies within the Nikkei 225 Stock average.
-       The Swiss National Bank increased their U.S. stock allocation by 14%.
-       The Volatility Index (VIX) crashed to a 9-handle this week.  It hit its lowest level (and highest level of investor complacency) since February 2008.
-       Marc Faber said: “Assuming Central Banks continue their QE programs, one day the socialists will own everything.  It's almost the perfect crime.  You print up billions of Euro's or Franc's or Yen, trade them for corporate debt and stock, and in the end, you own real businesses for NOTHING.”

   This isn't a new concept.  It was especially prevalent during the 1930's – only then it was called counterfeiting.  It was illegal.  You would print bogus $10 bills that cost you a penny and then go out and buy goods from a retailer.  Unfortunately, our Central Banksters have taken this to a whole new level by counterfeiting money – only this time buying the entire corporation.  Central Banksters are buying companies in the telecom, drug, and energy space.  Basically, companies that you’d like to own if you were ‘in charge’.  And it is this Central Bank buying that is pushing stocks higher.  After all, baby boomers are taking money out of the market, pension funds are maxed out, and millennials don't have all that much to put in.
   When does it stop?  The ‘greater fool’ theory comes to mind.  The greater fool theory states: “the price of an object is determined not by its intrinsic value, but rather by irrational beliefs and expectations of market participants.  A price can be justified by a rational buyer under the belief that another party is willing to pay an even higher price.”  So, is the plan that our Central Banksters will just keep printing money, buying stocks and bonds, sending markets higher until they own significant percentages of the world's major businesses – and then they pull the plug on everyone?
   No matter how bullish you are, or how badly you've been brainwashed into watching the market rise for the last 8 years – there are times when the market struggles.  We are currently in one of those times.  We are stuck just below the all-time highs and having an issue getting past them.  As said by Wolf Richter: “Over the past 10 weeks, five (FAANG) stocks in the S&P 500 Index have gained over $260B in market value.  They are: Facebook, Apple, Amazon, Netflix, and Google.  But what about the rest of the S&P 500?  On March 1, the index closed at 2,394, and last Friday it closed at 2,399.  In those 10 weeks, it went absolutely nowhere.  Which means that the remaining 495 (non-FAANG) stocks in the index LOST $260B in value.”  So, we’re going nowhere fast, and trading volumes are horrible.
   The technical patterns suggest that a lower market is coming:
-       On the SPX (S&P), the MACD indicator is about to go sub-zero (where the black line crosses below the red line.)
-       On the XLF (the financial sector ETF), it is still well below its 50-day moving average, with the MACD indicator about to fade below zero.
-       The IWM (the proxy for the Russell small-company index) is barely holding above its 50-day moving average, and the MACD is already below 0. 
-       The only elements holding this market up are the FAANG stocks, the semiconductors, and the Emerging Markets (EEM). 

   This is the type of set-up that has ruined so many hedge funds over the past couple of years.  The charts are set up to run lower, we are heading into the summer doldrums, and the hedgies figure that the market is primed for a correction – so they go short and buy put options.  Then (out of the blue), we get some early morning, large futures buyer from an unnamed account and boom we soar for 200 points.  We are in that very same situation again.  We have a June rate hike coming.  Earnings season is just about over.  The GDP number is guiding lower, and both financials and small caps are struggling.  Everything says that it’s time for a correction.  But not so fast.  If the Central Banksters do not want us to go lower, then we'll either trade sideways here for a couple months or they will simply push us higher.
   Go to www.stockcharts.com and plug in the symbol ‘SPX’.  Since April 25th you will see a clear daily bottom at the 2,381 level.  As long as we don't plunge through the 2,381 level – nothing will have changed.  In fact, they could send us back to 2,399 again on the upside.  So, under 2,380 – look out below.  And over 2380 – hunt for longs.


   In terms of gold and silver, if you wish to see the live time difference between what gold and silver sell for in the U.S. (on our ‘crooked’ COMEX) versus over on the Shanghai metals exchange go to: http://didthesystemcollapse.com/.  Right now, there is a $1.38 (8.4%) difference on an ounce of silver.
  To quote MC: “Like gold, Bitcoin has become a store of value.  It is the timing of transactions and disagreements between developers that have crippled any real consensus.  You can thank the Chinese (with their 8 cents/kwh electricity costs and their low gpu hardware costs) for rocketing Bitcoin (and other crypto currencies) forward.  As nations continue to buy gold, Chinese demand is driving Bitcoin higher given supply is known and the record keeping immutable.”

   Above you see charts of both Apple (AAPL) and Amazon (AMZN) – the two stocks (along with the Emerging Markets ETF = EEM) that are holding this entire market place together.  Unfortunately, with the S&Ps marking time and the Russell 2000 Small Cap Index heading lower, you need to be cautious of the NASDAQ’s upside potential vs its downside risk.
   For the S&Ps (SPX), this coming week I’m looking at an expected move of plus or minus $23 – giving us an S&P range of between $2,368 and $2,414.  Currently, we are staying in that tight range, 85% of the time – while the other 15% of the time we explode for 3X deviation moves.  Also, keep your eyes open this coming week for any wild reversals out of Amazon (AMZN) and Apple (AAPL).  When you get advances that are this narrow in scope, any ‘profit-taking’ selling can stimulate a lot more selling – causing a significant downside correction in the NASDAQ itself.

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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