This Week in Barrons - 12-15-2013

This Week in Barrons – 12-15-2013

Let’s Get Ready to Rummmmble…

This week it’s The Market versus ‘Benji and the Jets.’  On Wednesday (at approximately 2:15 pm) we will learn whether there will be a tapering of the QE program from $85 Billion per month to something less.  The talking Feds have been out in force saying that there is a good chance that a taper is coming at their next two-day meeting in December.  And just like in the summer (when they made a similar announcement) the market has fallen ahead of it.

This whole QE taper story is getting old.  But, because the market does indeed move based upon it; therefore, I was wondering if a taper really made any sense.

-       In retail, Wal-Mart continues to tell us that 2013 was one of the worst years in their history.  Others (Costco, BestBuy, and Dick’s) including Mal-Mart have all missed their earnings estimates.  Therefore, when middle-class retailers are seeing a weak consumer, is the Fed's work really done?

-       In housing (when I listen to CNBC) I’d swear that there are bidding wars and fist fights as people are purchasing homes.  Yet mortgage applications have been declining virtually every month.  And just this Thursday we learned that new home mortgage applications fell another 18% from October to November.  We also know that hedge funds have been buying 10,000 to 20,000 houses with the intent to rent them out.  This isn't the kind of demand that spurs local economies; therefore, the housing market is not nearly as ‘hot’ as TV claims it is.

-       In GDP (Gross Domestic Product), our economy grew faster than estimated, but when you dig into the numbers, you see that the majority of the gains came from companies increasing inventory levels in anticipation of a strong holiday season.  Will that entire inventory build-up sell?  Of course not.  And (let us not forget) the government recently changed the way it includes intellectual property in the GDP.  The most recent reading reflected that change – turning TV show reruns (because of their ‘implied value’) into GDP contributors.

-       In profits, every retail CEO is saying that they will have to ‘promote the heck’ out of things in order to move their increased inventory.  ‘Promote’ (in this case) means lower prices, and dramatically lower profits.

-       In jobs, the numbers are now so distorted it is almost impossible to figure out just where the true unemployment level is.  Last week we learned that weekly jobless claims hit a 2-month high of 368,000.  Shadow Stats Inc. has the unemployment rate at 23% if we measured it like we did in the past.  Or you can believe Uncle Sam’s 7% rate.

-       On inflation, the PPI (Producer Price Index) came out on Friday with a slight drop.  Meaning that our annual price inflation dropped and is now less than 2% per year.  I don’t know anyone who believes that number.

The Fed knows that housing is just bumping along, jobs stink, sales stink, inventory builds are dangerous, profit margins are skinny, 65% of companies had their earnings estimates lowered (and still missed), companies are borrowing money to do stock buy backs, EPA regulations are killing entire business sectors, Obama Care is costing everyone extra thousands of dollars, savings are non-existent, banks are still in woeful shape and all in all – our economy is ‘just barely getting by’.

The Fed knows that cutting QE a week ahead of Christmas will reduce the amount of money that people will spend on the holiday.  Therefore, logic tells me that they are not going to taper next week, but will tell us ‘in stern language’ that they were very ‘close’ but need a bit more data.  If they were to toss out a small taper ($10 Billion a month) – that really wouldn’t affect the economy all that much – but it would affect investor psychology.  The market would think that they've started tapering, and will continue through 2014.  The market would not like it, and if the rich start selling stocks and hording money, then the real economy WILL grind to a halt.  The new Fed (under Ms. Janet Yellen) would then have to step in and reverse course – jamming MORE QE into the system to repair the damage the taper did.  I just don't think that the Fed wants that much drama.

But here is a wild card to consider.  What if the elites know that our current economic system is doomed and in need of a complete overhaul?  Could a new global reserve currency be so close to implementation that the Fed starts to taper, knowing it will blow up the economy and make people much more willing to accept any new plan?  If the Fed removes the stimulus: the markets fall, economic activity falls, layoffs resume, and at some point the masses will scream for relief.  The elites could then announce their new ‘reset’.

In a nutshell, I do not think that the Fed will taper.  But if they do (and those cuts are not reinstated by Janet Yellen) – then the game has changed, and it is possible that they want to impart enough pain to soften folks up for a major change.  Any tapering (that isn't reversed) is a big danger signal that something big is brewing.

Please – celebrate the season with loved ones, and share that feeling with your friends and family.

The Market:

After the big pop over the fake jobs numbers we received a week ago, this week was met with a market trading downward and sloppy.  On Tuesday evening, Washington came up with a mini-budget deal that will keep the Government from shutting down.  I thought that the market might like the idea of fiscal stability, but instead the market sold-off on more Fed tapering worries.  So, just like the other Fed meetings this year, the market is acting ugly ahead of it, and forcing the choice of ‘buying the dip’ or waiting until after the Fed announcement on Wednesday.

Many people are trying to convince me that since the market knows a taper is coming – that the taper must be ‘baked into’ current market pricing.  And if that’s the case, a taper may not disrupt things.  I'm not so sure.  My feeling is that if they taper, the psychology will trickle over toward a full Fed ‘pullout’ by the end of 2014.  Can our economy and our stock market hold up in the face of a Trillion dollars loss?  Color me skeptical.

The next couple days should be quiet trading days on low volume.  On Wednesday at 2:15 pm something WILL happen.  We will either SOAR on no taper, or soar, stumble, grumble, pop, drop and basically see the market ‘flip-out’ over a taper.  You could try and front run it with a straddle on the options market, buying both calls and puts on the big index's like the DIA or the SPY.  With this type of trade I’d go out a few months because I think the whipsaw will be great.  Or you could simply do nothing, and wait a couple of days.

I'm starting to make a list of what I’m going to buy if there is no taper, and what I’m going to short if there is a taper.  I’ll be releasing this via Twitter during the week, and next weekend.  I don't think I'll be doing a lot on Monday and Tuesday.  Sometimes: “The only way to win is … not to play.”

Tips:

In terms of gold and silver, the expected near-term Fed tapering and the retrenchment of the largest gold consumer (India) due to its government's import curbs are the two big factors hurting gold prices.  In the longer-term, the reduction in QE, which is expected to be gradual, and the low real interest rates, are positive factors for gold.  A 50-year chart of the gold price versus the S&P 500 Index shows that the current ratio of 0.7 is way below the long-term average of 1.13.   

I'd like to recommend a website - http://www.simpleroptions.com   It's an excellent resource and 'honestly' - I've been following them for over 6 months and they're more right than they are wrong on their predictions, and that's a rarity in this climate.  Please check them out on my recommendation.

I continue to see gains with natural gas (UNG) while the Japanese Yen (FXY) continues to fall.  I’m cautiously looking at:

-       YHOO over 40.25,

-       A (Agilent Technologies) over 55.50,

-       BRCM (Broadcom) over 29.00,

-       MS (Morgan Stanley) over 31.05, and

-       And if GLD (Gold) breaks (downward) thru 1,218.36 (currently @ 1,238) – it could fall to 1,147 – so look at Put Options or DUST if it breaks thru that resistance level.

My current short-term holds are:

-       CCJ – in at 20.50 (currently 20.75) – stop at entry,

-       UNG – April 2014 $22 Calls – in at $0.62 (currently $1.52) – more room to run

-       UNG – Dec. 21, 2013 $18 Calls – in at $1.41 (currently $3.44) – more room to run

-       USO – April 2014 $37 Calls – in at $0.74 (currently $0.60) – looking for a move higher…

-       FXY – March 2014 $97 Puts – in at $3.76 (currently $3.70) – looking for a continued drop as the Japanese currency is worse than US currency

-       SIL – in at 24.51 (currently 10.87) – no stop,

-       GLD (ETF for Gold) – in at 158.28, (currently 119.58) – no stop ($1,238 per physical ounce), AND

-       SLV (ETF for Silver) – in at 28.3 (currently 18.97) – no stop ($19.70 per physical ounce).

To follow me on Twitter and 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: <http://rfcfinancialnews.blogspot.com> .

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 <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

<mailto:rfc@culbertsons.com>

<http://rfcfinancialnews.blogspot.com>

This Week in Barrons - 12-8-2013

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This Week in Barrons – 12-8-2013

Is Bitcoin the next World Reserve Currency?

The average US citizen has been allowed to live well beyond their means, because the US dollar is the World’s Reserve currency.  The US dollar’s reserve currency status has been the reason the United States could ‘borrow and spend’ (like a drunken sailor) for the last 40 years.  Therefore, expect our politicians to fight tooth and nail before losing that status.  Losing that status is inevitable, but politicians will want the inevitable to be delayed for as long as possible.  One of our concessions for this delay has been to allow China to purchase tons of gold at discounted prices.  When the global currency reset comes, all currencies will be revalued based on the true assets of the holding country.  That is why Central banks all around the globe have been buying gold since the attacks on gold began a few years ago.  Every country is trying to build up their balance sheet in preparation for the new reserve currency.  After all, every nation knows that ‘printing money out of thin air’ can’t go on forever – something’s going to have to change.

Taking a step back: the US will lose its Global Reserve currency status because it has ruined (debased) the value of its currency.  All of the countries that do business with US are tired of holding US dollars, and seeing them worth less and less each year.  Therefore, job #1 for the US will be for us to try and pay down some of our debts, and actually show a ‘strengthening’ dollar.  The only problem with that is that we (as a nation) are broke – we have no money.

4 years ago I remarked that Uncle Sam is looking at the tremendous accumulation of wealth inside our 401K's, Pension Plans, etc.   This money is often just sitting idle.   Uncle Sam would like that money, and has hired firms to study how they can make it mandatory that you take a percentage of that money and purchase Government bonds.  Therefore, I think that the first step in the Global Reserve end game will be an announcement by our administration that the World Bank & IMF have instructed all nations to co-operate in a global currency revaluation, in order to bring all currencies into a new valuation range.  This will result in the US no longer being the sole holder of the Global Reserve currency title.  That title will go (instead) to a basket of currencies, backed by the assets of the underlying countries.

Because the reset will be costly (and we're mired in too much debt to bring our currency valuation in line with other countries), our administration will announce that they are going to force everyone to buy Government securities.  Remember, it worked for health insurance.  Our government will mandate that some percentage of our wages and savings will have to go towards buying Government issued bonds.  I realize that (on the surface) this sounds totally insane – conspiracy nut stuff.  But remember Cyprus?  Remember how the Cyprus government absconded with up to 50% of the population’s savings?  That was a trial balloon that worked.  Instead of armed citizens revolting in the streets, they remained amazingly calm as: (a) they were denied access to their money for days, and (b) finally granted access to only limited amounts of their individual assets.  No rioting.  No shooting.  The scam went off without a hitch.

So job #1 will be for our nation to try and ‘reinforce’ our currency by amassing all the ‘real-money’ it can scrape together.  That way (when being measured for the ‘reset’) we hold the highest rankings.  I also think (when the global reset button is pushed) – countries are going to try and work all the industrialized nations into a situation where there's not too much variance between the strongest and the weakest.  The US will want its position to be at the strongest level.  The US will want the US dollar to be ‘a significant part of’ the new Global Reserve currency basket, and supporting our dollars with the savings of 300 million people will help that effort tremendously.

From there, I think things start to unravel quickly.  The US (for a long time) has not had to produce and export goods to enjoy a good standard of living.  Currently – we simply print more money.  We are (as a nation) allowed to borrow – with no real expectation of paying it back.  Believe me, as soon as the ability to ‘print all the money we want’ is gone, it will be a very short period of time before it becomes abundantly clear that the US can not ‘produce and earn’ in the capacity necessary to keep us strong.

At that point our economy will begin to stall, and any recession will deepen.  Now, the irony of it all is that most of the world has benefited greatly by the US spending more than it earns.  Japan sells us cars and electronics by the boatload.  China sends us all manner of gadgets.  Every major economic power from Europe, to Asia, to South America to Canada has taken in fortunes on the heels of the American consumer spending money they don't have.  That will stop.

If we can't print more money, we can't spend it.  And when the US stops spending, the rest of the world will soon find that their individual countries do not have the internal consumption to support their economies.  For example: Japan exported 1.5 million cars to the US in 2011.  Germany's BMW and Mercedes export billions worth of cars and machinery to the US.  If the US can't afford to buy those cars, goods, and services – will other country’s individual citizens be able to support that supply?  Of course not.  So the world will see a synchronized decline, and that is the real end game.  I think it is at that point where we see the whole world push for a single currency, run by a central planning agency out of Europe.  And that is why I find the rise of Bitcoin fascinating.  Bitcoin may or may not be that single currency – but certainly something very much like it will be.

The real question is: When does this begin?  The wheels are in motion right now, but I don't think we will see the first real actions being taken until late 2014 or early 2015.  Nobody wants to make it a part of the mid-term election process, and we have at least a year before things get desperate enough to start these dominos falling.  After all, the Fed has been pushing $85 Billion a month into our monetary system in order to keep the ‘crash’ away.  But it is that very injection of currency that has all of our trading partner nations dumping dollars.  Therefore, the Fed will have to end its currency injection (QE policy) at the very same time we approach this monetary reset.  So as you can see, there's no shortage of excitement going forward.

Honestly, I hope I'm desperately wrong.  I hope that ‘cheap natural gas / energy’ or some other magic dust hits our country, and we figure out how to solve all our economic problems.  Unfortunately, math doesn't lie, and the math says we cannot fix this mess.  This week the idea surfaced of the US minting a ‘Trillion Dollar Coin’ and having us borrow against it.  But let's face it, it would still be a man-made fake, and it would eventually fail.  The world is getting tired of the US fakes.

The Market:

Last Sunday I suggested that the market technicals were telling me that it was setting up for a pullback.  And then I also mentioned, that this year (alone) the market set up over 25 times for a similar pullback that never happened.  We would then just pause; run in place a few days, and ‘boom’ up we would go.

We did basically the same thing this time.  From Monday through Thursday we did a bit of selling, the averages faded off – but not by a lot.  Monday we opened at 16,087 and Thursday we hit a low of 15,809 – off a total of about 280 points – 1.3%.  Big deal.

Friday we received a ‘better than expected’ jobs report.  No one (except the talking heads on CNBC) seemed to know where all this new found strength came from, but let it suffice it to say that ‘someone’ wanted to make the jobs report look good and they did.   In years past, a strong jobs report would have had them selling stocks like mad (because it may signal the end of QE), but not this time.  This time everyone adored the number, and on Friday we gained 200 points – basically gaining back virtually every point of the pullback.

What’s changed?  Why was a good Jobs Report toxic for 3 years, and now it's rewarded?  Have we finally decided that our country is strong enough to not worry about a Fed taper?  Did we decide that the number was indeed ‘pretty good’, but not good enough to initiate tapering in December?

I tend to think that the last option makes the most sense.  I believe that they came to the conclusion that the number was ‘pretty good’, but it might have some ‘noise’ in it from the Government shutdown.  After all, the ending of the government shutdown did bring people back to work.  And is the Fed really going to remove the punchbowl right before Christmas?  Will the Fed really cut QE in a year when retailers are telling us that the consumer is about tapped out?

I believe that the Fed will keep some form of stimulus in place until all of the global leaders put their currency reset plans in place.  But QE (in the fashion it is administered right now) is not the only way the Fed has of keeping interest rates low.  The Fed could taper the current QE program and continue to keep rates low by using reverse repossessions.  Therefore, my feeling remains the same – I don’t think that the Fed will do any tapering on Dec. 18^th.  But ‘just to save face’ (and after warning about it for so many months), I won't be surprised if the Fed (on December 18^th) does toss out a ‘tiny’ $5 or $10 Billion QE reduction.

The Fed knows that they can pull $5 or $10 Billion out of the system without causing any structural damage.  The market could look at it as the start of a larger cut back and go into spasms of selling, but then Ms. Janet Yellen could easily step in (in January) and push it right back.  That's a lot of jostling around and upsetting of markets before springtime; therefore, I think they will leave things alone.

All that said, was Friday the start of the year-end push for glory?  I don’t think so.  I think we have some more chopping and slopping to do before they give us the all clear for a final year-end push.  Despite everyone’s bravado on Friday, the market is still quite worried about the Fed pulling the punch bowl away, and everyone knows that our economic numbers are as fake as an honest politician.  So unless market psychology has changed in the past day, the markets may be a bit timid about pushing us into the final year-end charge right now.  But when Dec 18 comes without a taper, we should see a freight train run into the New Year.

Tips:

We were stopped out of TSO this week for a hefty $7/share profit.  We were also stopped out of OC and AXP flat.  

I couple things I’m looking to get involved with this week:

-       I purchased UNG (Natural Gas ETF) – April 2014 - $22 Call Options for $0.62 – currently $0.90.

-       I purchased UNG (Natural Gas ETF) – December 21, 2013 - $18 Call Options for $1.41 – currently $2.18.

-       I purchased USO (Oil ETF) – April 2014 - $37 Call Options for $0.74 – currently $0.77

-       I purchased FXY (Japanese Currency ETF) – March 2014 - $97 Put Options for $3.76 – currently $3.50.

-       Twitter (TWRT) is a little rich at $45 – but I do like the ‘covered call’ yields.

-       I’m looking at:

o   DBA – Jan, 2014 - $25 Put options around $0.50

o   EMLC – heading lower – look at the $24 Put Options around $0.50

o   ECH, PFF, PGX – heading lower looking at Put Options

o   ITB – heading higher looking at Call Options

o   TLT – heading a lot lower – looking at Put Options

o   And GLD if it breaks thru 1218.36 – it could fall to 1147 – looking at Put Options or DUST if it breaks thru that resistance level.

My current short-term holds are:

-       CCJ – in at 20.50 (currently 20.36) – stop at 19.80,

-       UNG – April 2014 $22 Calls – in at $0.62 (currently $0.90) – more room to run

-       UNG – Dec. 21, 2013 $18 Calls – in at $1.41 (currently $2.18) – more room to run

-       USO – April 2014 $37 Calls – in at $0.74 (currently $0.77) – more room to run

-       FXY – March 2014 $97 Puts – in at $3.76 (currently $3.50) – Japanese currency is worse than US currency J

-       SIL – in at 24.51 (currently 10.82) – no stop,

-       GLD (ETF for Gold) – in at 158.28, (currently 118.57) – no stop ($1,230 per physical ounce), AND

-       SLV (ETF for Silver) – in at 28.3 (currently 18.70) – no stop ($19.50 per physical ounce).

To follow me on Twitter and 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: <http://rfcfinancialnews.blogspot.com> .

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 <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

<mailto:rfc@culbertsons.com>

<http://rfcfinancialnews.blogspot.com>