RF's Financial News

Sunday, July 17, 2016

This Week in Barrons - 7-17-2016

This Week in Barrons – 7-17-2016:

“Déjà vu all over again”… Yogi Berra

Thoughts:

I remember September 1998. My friend and I had just sold a company, and every day we watched stocks go higher – despite most of the companies not having any revenues or earnings. We were told that it was a new paradigm where earnings didn’t matter. It was a melt-up like I had never seen before. Then it flattened out for about a year, and in October of 1999 it started up higher and faster than before. The similarities are Yogi Berra’esque. From 2009 to 2015 the market has relentlessly moved higher. But for the past year, the market has moved sideways, and in the past month is exploding higher.

Following the October 1999 move, we crashed hard. By 2002 the market was down 60%, fortunes were lost, and over 200 stocks that had traded over $100/share were either gone or trading for under $1. Yes, I think this is “Déjà vu all over again”. I don’t know how high or how long this run up will last, but I'm fairly certain that a black swan event will end it abruptly.

WHY are we at all time highs?

- #1 Corporate Buybacks – Last week the WSJ reported that the total number of shares outstanding in S&P 500 companies actually fell below 2011 levels. In Q1 2016, Companies repurchased the 2^nd largest amount of their own stock ($161.39B) in history. With fewer shares for sale, a smaller number of buyers can manipulate the markets.

- #2 Retail Investors are Gone – Last week was the 18^th consecutive week of money flows leaving the equity markets, and ETF money flows are also down 20% year over year. With fewer retail investors, it’s easier for the Central Banks and the FED to manipulate the markets.

- #3 Insiders ‘KNOW’ – If the ‘elites’ want to push us to 2,500 on the S&P, I’ll go along kicking and screaming. Friday night in Australia, Mr. Mester (a Cleveland FED member) suggested that ‘helicopter money’ could be the next step for our FED. Maybe the insiders know that such insanity is coming, and are just front running its implementation.

Given the FED can print money, and use those ‘printed dollars’ to buy real stocks – you can make the case that this market goes up until it doesn’t. After all, today’s Central Banks and their affiliates own $21 Trillion of government bonds and related securities – most of it purchased since the 2008 crisis. In Europe, Mario Draghi is buying up 90 Billion Euro's a month of corporate bonds. So what STOPS the market from going up forever?

- #1 Bad Investments – As you can imagine, companies that are on the ropes are more than willing to sell corporate bonds to stay afloat. Therefore, a lot of what the Central Bankers are purchasing is toxic.

- #2 No Safe Zone – Following the recent BrExit vote, the pound sterling went into ‘free fall’ with lows against the dollar not seen since 1985. With the pound sterling falling this low this quickly, there is a strong chance that a British recession could be right around the corner. And with almost all of the $60 Trillion global sovereign debt trading at yields of less than 1 percent, there are no longer any long term, safe cash-flow returns for investors.

- #3 Bank Defaults – Two of the largest banks in the world Deutsche Bank (German), and Credit Suisse Bank (Swiss) are under EXTREME financial stress. This circumstance can be linked to the entire Italian banking system that is in desperate need of a capital infusion. The Italian banks alone have $400 Billion (one-third) of all of the Eurozone non-performing loans. Unfortunately Eurozone rules preclude the Italian government from backstopping their banks with Italian taxpayer funding. The recent BrExit vote has highlighted the EU banking institutions as being the Achilles heel of the entire global financial system.

- #4 Political Unrest – Between October 2016 and May 2017, there will be elections in Italy, Germany, Netherlands, and France. If a political party hostile to the EU claims victory in any one of these elections, then in all probability that country will dump the Euro.

A political event or a failure by any major bank in Germany, Switzerland, or Italy could easily end the EU and the Euro. This toppling would most assuredly collapse the world into a global depression. Even with all of this, the remaining two canaries in the coalmine are:

- #1 Terrorism – When the California and Orlando shootings took place, everyone jumped on gun control – forgetting that it’s the evil person behind the weapon that’s the problem.

- #2 Price of Gold – After a five-year correction off the 2011 high, the current price trend is solidly up. This is often an indication that the world’s economic positions are shifting again.

The Market:

Factually:

- The Bureau of Labor Statistics reported that real average hourly earnings DECREASED by 0.2% in June.

- If you believe the headlines, Alcoa reported earnings this week that beat their estimates on robust Chinese demand. However, if you examine the numbers, the actual quarterly revenue is DOWN -15% year-over-year, and quarterly earnings were DOWN -91.80%. Even earnings per share came out in the red at -$0.45.

- The number of job openings in the U.S. FELL in May to its lowest level of the year, and the largest decline since August 2015. This is potentially a sign that the spike in hiring in June was an exaggeration.

Information was released earlier this week proclaiming Toria Nuland (Assistant Secretary of State for European Affairs) as the mastermind behind the Feb. 22, 2014 regime change in the Ukraine. Toria was responsible for plotting the overthrow of the democratically elected government of President Viktor Yanukovych while convincing the U.S. mainstream media that the coup wasn't really a coup but a ‘Victory for Democracy’. We (the U.S.) spent $5B to pull this coup off. And after trying to pin OUR Ukrainian coup on Vladimir Putin, we then tried to cripple him economically with sanctions.

The reason I’m bringing this up is on Friday afternoon, I learned that a military coup had taken place in Turkey. Supposedly, the military had shut down the bridges, blown up helicopters, and turned off satellite antennas, Facebook and Twitter. Even President Ergodan was in hiding. The first thing I wondered was whether the U.S. was behind the coup. Why – because Turkey is a NATO nation, and any small action by a NATO ally could trigger a massive missile launch toward Russia and a corresponding retaliatory effort. Listen to this 90-second video as Vladimir Putin pleads to journalists to wake up. He talks of the U.S. spreading lies and leading the world toward a nuclear war that may be irreversible. https://www.youtube.com/watch?v=8PgSX-WD96Q. Coincidentally, when people ask me how we are going to ‘globally’ get ourselves OUT of this economic disaster, my answer is: WAR.

In terms of next week, it was my guess that after our most recent two week melt up we might see a bit of a pause this coming week. However, with the Turkey situation being somewhat fluid, the picture is a bit warped. The markets could take it pretty hard. But in the most recent past, our markets have feasted on terrorism without blinking. We even survived the BrExit, and have gone on to all time highs. If there is a take over, and it is deemed to be good for the overall region, we could actually see Europe trade higher Sunday night and come into a green market on Monday.

Otherwise, please be careful.

TIPS:

#1 – If you were with me on the play in AG, you have seen your $20k turn into about $250,000 in about 8 months. I’m still sitting on my AG call options – so no changes there just yet.

#2 If you played NGD with me, you have seen it go from $3.75 to $4.67 (a 25% increase) in about 2 months. My plan is to buy more NDG options, once it breaks through $5.00.

#3 I’m lightly shorting Alcoa (AA) at these levels. It’s common for AA to experience an almost 30% retracement over the next 4 weeks following earnings. That means it would drop from $10.92 to $7.64 by late August. AA was down to $6.10 just a few months back. My short target is its recent support at $9.88.

#4 My attraction to the metals continues to grow. There are dozens of good mining companies that will do well if gold and silver continue higher – such as: FFMGF, NAK, BAA, AUMN, EGO, and FSM. Silver is presently around $20 per ounce, and I think it has a date with $70/ounce. I’m looking at January 2018, $7 calls in SAND. I’m waiting to buy them for $1. SAND was a $14 stock in 2012 – so buying a good company with an underlying commodity that’s increasing in value is a good bet in my book.

So go the miners – so go my weeks. Last week was a good week. I’m keeping it simple by being:

- Long various mining stocks and their respective call options: AG, AUY, CDE, FCX, FFMGF, FSM, HL, NGD, PAAS, and PGLC.

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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Sunday, July 10, 2016

This Week in Barrons - 7-10-2016

This Week in Barrons – 7-10-2016:

“Who’s the banana republic now?” … Bernie Sanders

Mr. Comey (Director of the FBI):

Welcome to Amerika – the next banana republic. Amerika used to be a place where you’d get a fair shake, a trial, and where your financial or power ranking made no difference. On July 5^th 2016, that all formally changed because you (Mr. Comey) told us that it was okay when ‘some people’ break the law.

Factually, Mr. Comey:

- Hillary said under oath, many times that there were NO classified e-mails on her servers. BUT according to you: “From the group of 30,000 e-mails returned to the State Department, 110 e-mails in 52 e-mail chains have been determined to contain classified information at the time they were sent or received. Eight of those chains contained information that was Top Secret at the time they were sent; 36 chains contained Secret information at the time; and eight contained Confidential information.” I guess Hillary lied.

- Hillary also said (under oath) that she had turned over ALL of the e-mails. BUT according to you: “We also discovered several thousand work-related e-mails that were not in the group of 30,000 that were returned by Secretary Clinton. We found those additional e-mails in a variety of ways. With respect to the thousands of e-mails we found that were not among those produced to State, agencies have concluded that three of those were classified at the time they were sent or received, one at the Secret level and two at the Confidential level.” I guess Hillary lied – again.

- Then you went on to say: “There is evidence that Secretary Clinton was extremely careless in her handling of very sensitive, highly classified information. She also used her personal e-mail extensively while outside the United States, including sending and receiving work-related e-mails in the territory of sophisticated adversaries. Given that combination of factors, we assess it is possible that hostile actors gained access to Secretary Clinton's e-mail account.”

Mr. Comey, let me get this straight:

- Hillary said (under oath) that there were NO classified emails on her servers, but you found 110 of them.

- Hillary said (under oath) that she had given the FBI ALL of her emails, but you found 2,000 additional emails.

- You said that it was very possible that people hostile to the U.S. hacked into her personal email account, and saw all 110 classified emails.

- And although you found evidence of violations of statues regarding the handling of classified information, your judgment was to bring NO CHARGES against her. You did this fully knowing that EVERY Amerikan with a single firing brain cell would say: "Are you kidding me? Most people would be crucified for much less.”

- You then went on to say: “To be clear, this is not to suggest that in similar circumstances, a person who engaged in this activity would face no consequences. To the contrary, those individuals are often subject to security or administrative sanctions.”

OMG. So yes she’s guilty, but because she's #Crooked Hillary, you were instructed to look the other way. The excuse that you’re using is that she exhibited gross negligence surrounding the highest level of state secrets, but did so in such an offhand fashion that she shouldn’t be prosecuted. So Mr. Comey this begs the question: If she's so careless that she might have let Russians, Chinese, and Ukrainians hack her emails containing state secrets – Is she truly FIT to run this country?

Honestly, I don't believe it had anything to do with being extremely careless or grossly negligent. I think #Crooked Hillary figured that by having control over her own private email server, no one would be able to find the shady deals she was doing through the Clinton Foundation – because private email servers are NOT subject to Freedom of Information requests.

Mr. Comey if this was you or I – we’d be rotting in Guantanamo for the rest of our lives. But this is #Crooked Hillary and she gets a pass because the whole political process is corrupt. And people wonder why Donald Trump is doing so well. It’s such a breath of fresh air when Mr. Trump comes on TV and tells us: “The whole process is rigged!" – and he was proven right once again on July 5^th.

Mr. Comey, both Hillary and Bill Clinton have looked into the cameras and have sworn on a stack of Bibles: "I did not have, receive or send classified email from my private server." But on July 5^th you confirmed just the opposite. I think the worst thing about being lied to, is knowing that you’re not worthy of being told the truth. Mr. Comey, if you’re wondering why Dallas happened, you need look no further than your July 5^th ruling because: “Mistrust is the sure forerunner of hatred” … Margaret of Valois.

I'm ashamed of what Amerika has become. Welcome to Amerika – land of the free and home of the brave – as long as your last name is Clinton. The first casualty of any war is truth, and it is most often killed long before the first shots are fired.

The Market:

In the grand scheme of things, equity market internals are precariously balanced and unfortunately deteriorating.

- Global currency wars continue. BrExit has led to a 31-year low in the British Pound, and 40% of the world’s bonds have negative yields. These currency wars are having pronounced effects on corporate earnings and domestic unrest.

- Global yields have accelerated downward. Corporations are embracing financial engineering and M&A over capital investments.

- Real assets like gold, real estate, and collectibles are inflating.

- Interest Rates remain the #1 variable. Low inflation and GDP growth means that interest rates will remain lower for longer.

Earnings are a clear function of low global GDP growth.  Earnings estimates are being revised downward for the 4^th consecutive quarter, and revenue estimates are fairing even worse.

- Investor psychology NOT fundamentals are driving PE (price to earnings) ratios. TINA (there is no alternative) has resulted in grossly inflated PE’s and valuations.

U.S. economic growth continues to muddle along at a sub-2% rate, and President Obama will have the distinction of being the first President in history (240 years) to never have at least one year of 3% GDP growth. Corporate earnings have now fallen for four consecutive quarters. Precious metals (the hottest market on the planet) continue to be in a bull market. JLA is looking for an additional $300 to $400 move to $1,700 per ounce by the end of this year. Many economists have gone back to the original Bretton Woods calculation – and using that same formula – have predicted the fair value for gold to be over $5,000 per ounce. And finally, negative rates punish all savers, pension plans and insurance companies, while rewarding debtors in the belief that zero or negative rates foster growth. Negative rates do NOT foster growth but rather force risk taking and the overvaluation of nearly all assets. Lower rates:

- Increase the value of a corporation’s discounted cash flows – forcing stock prices higher.

- But lower rates often mean lower earnings. Negative rates are demonstrating that there is a limit to how much lower rates actually stimulate growth, and there may be a tipping point where lower rates actually suppress growth.

On Friday, we ended the day with the S&P just a couple points shy of a new all time high. The reason for such a massive move was Friday’s Non-Farm Payroll report. According to the talking heads, we gained 287,000 jobs in June. But did we really create 287K jobs in June, after only creating 11,000 in May? When you examine the report:

- The BLS's ‘Birth/Death Model’ added 92K (fake) jobs to the report – lowering the total to 195K.

- 44K of those jobs were Verizon workers returning from being on strike – lowering the total to 151K.

- And then we find that 90% of the remaining job gains went to people working part-time and 55 years old or over. Can you say: “Welcome to Wal-Mart”?

- So we created 15K real jobs in June – which is consistent with the 11K we created in May.

Are we going to see new highs? It sure looks like it. If we close over 2130, can we just buy into it and hope for more? I think we can if order flow by the Central Banks is with us. However, we’re in a really bizarre time. If we break out over 2130, I wouldn't be terribly fast to jump on that trade because the possibility of a head fake is high. Please be careful out there!

TIPS:

Currently the actual movement of the market is higher than what implied volatility is pricing. That means in the short term – you should be buying directionally biased trades rather than selling spreads for premium purposes. I think the market is dramatically underpricing volatility, and therefore you can’t make much money ‘selling’ undervalued products.

The trades I like in this market continue to be in the precious metals arena. I’m keeping it fairly simple by being:

- Long various mining stocks and their respective call options: AG, AUY, CDE, FFMGF, FSM, NGD, PAAS, and PGLC, and

- Long Gold (GLD) and Silver (SLV).

To follow me on Twitter.com and on StockTwits.com to get my daily thoughts aand trades – my handle is: taylorpamm.