RF's Financial News

Sunday, July 3, 2016

This Week in Barrons - 7-3-2016

This Week in Barrons – 7-3-2016:

“Half the world is redoing their kitchens, the other half is starving” … Don DeLillo

Thoughts:

Yeah, it’s the 4^th of July weekend – our Independence Day. 240 years ago we wanted to do things our way, and not be told by an oppressive government how to live our lives. Well, last Thursday the British brought out the ‘American’ in themselves and told their masters in Brussels that they were tired of being ruled, taxed, and led around by the nose by faceless elitists in a far away land. Funny isn't it? 240 years after we told England to ‘get lost’, the English told the EU to ‘get lost’. Donald Trump in his Independence Day message is asking people to break away from crooked politicians, and reminding everyone that: (a) We did not go from being the world’s biggest creditor to the world’s biggest debtor by accident, and (b) Our middle class system did not turn into The Have’s versus The Have-Not’s without leadership and guidance.

Our independence is being challenged economically, and thanks to ES for bringing many negative (‘Less-Than-Zero’) indicators to my attention:

- Currencies year-to-date (YTD): India (-1.9%), China (-2.2%), US (-2.5%), and UK (-9.7%)

- Equity Markets (YTD): NASDAQ (-3.3%), Euro (-9.8%), Shanghai (-17.2%), and Japan (-18.2%),

- $15T = current amount of NEGATIVE yielding government bonds,

- $700B = current (YTD) outflows from European bond funds,

- $525B = current (YTD) deals stopped by U.S. regulators,

- $4T = current (YTD) debt U.S. corporations have accumulated for stock buybacks – pushing business capital expenditure to a 6-year low,

- 0.2% = current annual DECLINE in U.S. productivity for 2016, and

- 71% = the amount of Americans that believe the stock market is rigged.

I worry that the term ‘Less-Than-Zero’ is influencing our ethics as well. I’ll point to this week’s Supreme Court ruling to overturn the Governor of Virginia’s conviction. Bob McDonnell was elected Governor of Virginia in 2010. In January of 2014, Bob and his wife Maureen were indicted on federal corruption charges for receiving improper gifts and loans from a Virginian businessman. A federal jury convicted them on almost all of the counts on September 4, 2014. On January 6, 2015, Bob and Maureen were sentenced to two years in prison, followed by two years of supervised release. The Supreme Court took up his appeal on the grounds as to whether it was ‘legal’ for Politicians to take bribes, and then repay those bribes with favors from their appropriate political office. Everyone would normally answer this with: ‘Heck No’. BUT this week the Supreme Court overturned the governor’s ruling, and held that although the Governor and his aides took actions, with state resources, and on behalf of the business that bribed them – those actions did not go FAR ENOUGH to constitute 'official actions'. The Supreme Court essentially just told elected officials that they are free to sell access to their office to the highest bidder. Scott Nelson said: “This ruling opens the way for wealthy individuals to undermine our democracy by buying influence at the highest levels."

Why did our Supreme Court rule like they did and when they did? That answer is easy = HILLARY. There are direct links between Hillary – her foundation being given millions, and then those very nations getting special deals, especially out of the State Department. This ruling lays precedent for her e-mail server and other misgivings not going FAR ENOUGH to constitute ‘official actions’. And taking it one step further, I now realize why Justice Scalia died. Justice Antonin Scalia would not have overturned the McDonnell case. Justice Scalia would NEVER have passed a blind eye to bribery. Consider the questions the Washington Post raised on February 10^th after his death: "You have a Supreme Court Justice who died, not in attendance of a physician. You have a non-homicide trained US Marshal telling the Justice of the Peace that no foul play was observed. You have a Justice of the Peace pronouncing death while: (a) not being on the scene, (b) not having any medical training, and (c) declaring that the justice died of a heart attack. What medical proof exists of a myocardial Infarction? Why not a cerebral hemorrhage? How can a US Marshal say, without a thorough post mortem, that he was not injected with an illegal substance that would simulate a heart attack? Did the US Marshal check for petechial hemorrhage in his eyes or under his lips that would have suggested suffocation? Did the US Marshal smell his breath for any unusual odor that might suggest poisoning? I think there is something fishy going on in Texas."

The folks that took it upon themselves to break free from England were determined to establish a new nation – a nation of freedom and laws. For those of us that believe we’ve lost some of our freedoms – I agree with that thought. But a lot of brave people fought and gave their lives for a shot at a new nation, a nation unlike any other, and for that I will give thanks for their actions. I applaud the spirit those folks had so many years ago. If you forget why we celebrate the 4^th of July, the following short clip by Mark Dice should bring a smile to your face as well as remind you: https://www.youtube.com/watch?v=2-Be9f7Ovgg

The Market:

“There are only two sure things: the infinite universe and human stupidity, and I’m not sure about the first one”… Albert Einstein

After talking to many of my friends in London, they all thought that BrExit NOT passing was a ‘sure thing’. Even Nigel Farage (the leader of the BrExit Party) after the polls had closed thought that it was a ‘sure thing’ that BrExit had LOST. Many people recently thought that gun control was a ‘sure thing’ (especially after Orlando). Most recently MSNBC (a liberal, left leaning website) ran a poll asking: "Do you believe people should be allowed to carry guns in public? Please chose from the following answers: (1) Yes – the Second Amendment guarantees it, (2) No – it’s too dangerous, and (3) Yes – but only for self-defense.” The voting results were: (1) = 449,000, (2) = 19,000, and (3) = 18,000. From this it appears that people are NOT worried about law-abiding citizens carrying weapons. And finally, everyone thinks that Hillary’s win in November is a ‘sure thing’. Her husband even met with the U.S. Attorney General on Air Force 1 this week – to seal-the-deal and to get this ‘email server thing’ taken care of.

A ‘sure thing’ is something that everybody knows in theory, but is forgotten far too many times in practice. Many ‘sure things’ DO come true. Back on Tuesday of this week (the day after the 850-point BrExit crash) the FED gave the green light to 31 banks to begin buying back their own stock again. This freed up billions in reserves that could now be used to bail out the sagging markets, and sure enough – stocks went up. Isn’t it humorous how our banks can’t seem to make money writing loans, but they have money to buy their own stock and run it up in price. Some of those announced buybacks are: (a) Bank of America = $5B, (b) Citigroup = $8.6B, (c) JP Morgan Chase = $10.6B, (d) Morgan Stanley = $3.5B, (e) American Express = $3.3B, (f) SunTrust = $960m, (g) U.S. Bancorp = $2.6B, (h) Ally Financial = $700m, (i) M&T Bank = $1.15B, (j) PNC = $2B, (k) BNY Mellon = $2.7B, (l) State Street = $1.4B, (m) Bank of New York = $2.14B, and (n) Discover Financial = $1.95B.

Global Central Banks only have two choices: (a) pull-the-plug and let the global economies crash, or (b) drag the stock market up at any cost because they’re not quite ready to let it crash and press the ‘reset’ button. So after the BrExit crash, the Central Banks engineered a complete ‘stick-save’ of the market, and we're back to where we were before the 850-point BrExit crash. Now they will back off a bit and let the market forces pull and push around the 2100 - 2130 level on the S&P. But behind the scenes:

- Silver and gold are moving higher, while

- The 30-year and 10-year treasury bonds are hitting ALL-TIME LOWS.

The bond market and the monetary metals markets understand the grand illusion that is being played out.

The FED’s plan was simple – save the market from rolling over. The timing for announcing the ‘all is perfect’ signal on the bank stress tests was spot-on. Our FED knew BrExit would cause a mess, and the two ways to get the market moving were to boost oil prices and boost the financials. After all, the financials are the single largest component of the market.

We are in some form of end game with the ONLY unknown being: "How long does it take?" I know that we are hurtling towards something major, something that many times I've called a ‘reset’. This week, I think we will see stocks move sideways and down for the next few days. This most recent run up was just too fast, too far – and some of that froth will need to be worked off with profit taking.

TIPS:

I've pounded the table for a long time about the precious metals being the ONLY legitimate place to be. I've also pounded the table on physical ownership of the precious metals. I laid out a play back in November using AG (a silver miner) and $19,000. As of Friday's close, silver is over $19/ounce level and that original $19,000 is now worth $192,000. Congrats to those of you that are in that play with me.

There are also some additional ‘dislocations’ in the metals that I haven’t seen in many years. For example: on the COMEX registers, the amount of people ‘standing for metal delivery’ in July, dwarf the amount of metal available to be delivered. So either a lot of those wanting delivery need to stand down and roll out, or the COMEX is going to default and require a cash settlement since they simply don't have the metal to cover the deliveries. So it’s left unsaid that I’m not the only person pounding the table on the precious metals and on physical delivery.

Some other low-cost precious metals stocks to consider:

- Auryn Resources (OTC: GGTCF) is a junior mining exploration company that engages in the acquisition, exploration and development of resource properties including the Committee Bay Gold Project, which covers almost 160,500 acres in Nunavut, Canada.

- Miranda Gold (OTC: MRDDF) is an exploration stage company that identifies, acquires and develops mineral properties, primarily exploring for gold. It includes Columbia with Pavo Real, which covers about 44,479 square acres in Tolima; and Oribella, which covers around 26,440 square acres in Antioquia.

- Pershing Gold (Nasdaq: PGLC) engages in the exploration, development and mining of precious metals, primarily in Nevada. It focuses on the Relief Canyon Mine, which covers an area of approximately 25,000 acres in Pershing County, Nevada.

- AMZN – Buy $780 July 29 Call Options (earnings play so volatility should increase),

- GOOGL – Buy $740 July 29 Calls / + $640 July 29 Puts (earnings play so volatility should increase) AND Buy + 690 July 29 Calls / + 690 July 29 Puts – Google will need to move more than $50.

- AZO – Buy $810 July monthly Call Options (see if we can get to all time highs), and

- POST – July monthly – 75 Calls – high short interest

I had a great week last week, and am keeping it fairly simple by being:

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

- Long Gold and Silver with GLD and SLV.

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

Please be safe out there!

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Sunday, June 26, 2016

This Week in Barrons - 6-26-2016

This Week in Barrons – 6-26-2016:

Thoughts:

For 2 years, I've been saying that our FED has been looking for anything to blame the ills of our economy on. Our FED has painted itself into a ‘credibility problem’ corner by suggesting that the U.S. economy was in recovery mode with great job growth – while not even being able to raise interest rates one quarter of one percent. Our FED was desperate. Week after week the economic reports were disappointing: rail shipments down, durable goods down, retail sales down, truck deliveries down, etc. Month after month they would preach: it’s the weather, it’s China, it’s the lack of inflation, etc. They were looking ‘so stupid’ that even CNBC’s Steve Liesman asked: “Ms. Yellen, do you think the FED has a credibility problem?”

Our FED has been desperate for some event that they could blame our ills on because job #1 at the FED is – ‘Keeping Your Job’. They know that cries for their replacements would have hit a crescendo if despite their entire lever pulling and button pushing – the economy still crashed. Why the heck do we need a FED playing God with our monetary policy if all of their policies fail to keep a deep recession away? We could easily turn their function back over to the Treasury, and terminate the UNELECTED heads of the PRIVATE banking cartel known as the FED.

But Friday their event came. The BrExit vote won't cover up the last few years of their bumbling, but it does take the pressure off of them concerning future interest rate hikes. Now they can say: “We were on pace to gradually hike rates, starting in July, but the BrExit vote has made the entire global economy more vulnerable, and considerable study will be necessary to gauge the monetary repercussions." In other words, "Thank you England, you saved us from looking like the incompetent jerks that we really are. Otherwise we would have to meet in July and talk about ‘data and dots’ again. Now we can simply point a finger across the Atlantic and say: Thank you England.”

Factually, NO ONE KNOWS what BrExit really means because it’s never happened before. All of the people writing detailed descriptions about what will happen must have a more expensive crystal ball than I do. I find it hard to predict because wild currency swings are in full force right now. For example: to download a song from Apple’s iTunes store costs $0.99 in the U.S. Come Monday, what will that same download cost in Germany, Britain, and France? Due to the various exchange rates it could cost anything, but it will definitely be a lot higher.

- At what point do people in Germany, Britain, France and the EU just stop downloading iTunes music simply due to the increased cost?

- And without that ‘previously predictable’ revenue stream, when does Apple go into ‘cash conservation’ mode and stop spending (including on hiring and on corporate buy-backs)?

I’m betting that BrExit is a fairly long, and drawn-out affair. I’m also betting that other nations just pushed their own SwExit, GrExit, and FrExit referendums to the ‘front burner’. Just today I heard about Scotland, Italy, and Hungary – on top of Sweden, Germany and France that were previously in the queue. Did you know that the EU laws regulate:

- The amount of curvature of a banana (otherwise you can’t sell it),

- The straightness of a cucumber (otherwise – no sale), and

- Eggs can no longer be sold by the dozen, but must be sold by weight.

The EU regulators have to know that it was this type of ‘over-the-top’ stupidity that helped the Brits and will help others to say ‘Goodbye’.

We won’t know the extent of the disruptions until we see how willing the EU is to compromise on their treaties and trade tariffs. The EU could try and punish the UK by increasing trade tariffs and becoming even more totalitarian. Or they could try and hold things together by negotiating fairly, and showing other member nations that they're not the bloodthirsty slime that they are accused of being. In any case, there’s plenty of blame being handed out this weekend, but at least our FED is off the hook until the end of the year.

The Market:

Should Britain have left the Euro? Heck yeah. It is just business. How can any country survive with two diametrically opposed economic systems? On one hand you have each individual government running his or her own fiscal and monetary show, and on the other hand you have an all-powerful central planner running a roughshod monetary policy as he sees fit. It’s natural that the well-run governments will end up bailing out the irresponsible ones. When the EU was formed, all of the economists ignored the math, as they were enamored with the ideas of: unification, trade, and immigration. Unfortunately, you can ignore the math – you just can’t avoid it. Or said differently by Ms. Thatcher: “Eventually you run out of other people’s money.” After all, why does Britain have to absorb any of the debt that the EU is incurring due to the poor fiscal policies of a few of its members? It was only a matter of time before the strong nations started to leave, or the weaker ones invited to leave.

As for trading this week, I sat on my hands. I'm not trying to take a victory lap here, but I just saw too many divergent elements that kept me on the sidelines. At the core a single issue: Google and Facebook have their fingers on the pulse of BILLIONS of people, and both have become experts at predicting behavior. They were both suggesting that the UK people wanted out. I chose listening to social media over broadcast media, and kept myself on the sidelines with just my holdings in the precious metals. (FYI – Gold was up $56 on the day.)

So what do I do now? Many people are calling for ‘Buy-the-Dip’ – because that’s all they know. I don't think that ‘Buying-the-Dip’ is the wisest move – yet. Sure, we should get a bounce after loosing 610 points on the DOW and 76 on the S&P’s. But will the bounce hold, or will it be just a ‘dead cat bounce’ and we roll back over later in the week? I think that the market has a date with ‘lower’. I don't know if that means Monday or Tuesday, or over the weeks to come. The BrExit vote is going to cause a ton of questions over what’s next, and what everyone is going to do. Last weeks economic reports were lousy, and I don't suspect they're going to get much better. This feels to me like a sideways and down market because:

- In this type of marketplace (with the volatility futures being inverted), the algorithms will be selling into every rally.

- Margin calls went out on Friday, so there will be more selling on Monday.

- We are currently sitting at the 2037 level on the S&P. We hit a ‘lock limit’ low on Friday of 1999 which means everyone will have purchased hedges around the 2,000 area of the S&P’s. This virtually guarantees that the market will touch that range in the near future.

- Currencies are all over the map right now, and will cause every CFO to ‘clamp down’ on corporate spending immediately. That also means we should see a sharp decline in corporate buy-backs on Monday as well.

Please be careful out there – especially this week.

TIPS:

Here are some additional thoughts:

- First thing, eliminate your ‘good-till-cancel’, ‘market’, or ‘stop’ orders. With this amount of volatility, market makers will touch your stop intentionally.

- For Monday thru Wednesday, if you see a ‘Rip-Your-Face-Off’ rally, sell into it or SHORT it.

- The S&P is calculating a 140 point expected move this coming week. That means that the S&P could fall from 2038 to 1880 by this time next week. That type of move could cause a global recession.