This
Week in Barrons – 1-5-2014
Where do we go from here?
Fortunetellers always have their
gimmicks: a crystal ball, a deck of cards, a board, or a book of ancient
sayings. In 2013 crystal balls were sometimes
in the shop for a tune up, cards were slightly smudged, boards were a little warped,
and books of ancient sayings was often gibberish. What I ultimately rely
on is information. With enough
information we can see ‘dots’, and with enough ‘dots’ we can connect them. And just like the ‘connect the dots’ children's
books – often a picture emerges.
In the past we were able to predict:
-
Gold’s
run over $1,000 when it was just $290,
-
The
Iraq war,
-
The
housing bubble,
-
The
credit bubble,
-
The
banking system collapse,
-
And a
handful of other big ticket items.
The issue with ‘connecting the dots’
is: What if the information ‘behind the dots’ is fabricated or at minimum –
incomplete? The old computer saying is:
‘garbage in – garbage out.’ Recently I
remember:
-
The NSA
telling us that they don’t spy on us – and we all found out otherwise,
-
Banks
telling us that they don’t ‘fix’ rates – and then the LIBOR scandal surfaced,
-
The
‘Too Big To Fail’ banks getting slapped with fines for money laundering,
-
Bernie
Madoff scamming people out of billions,
-
Our own
IRS hunting down and ‘auditing’ anyone that had questioned Obama,
-
Sub-Prime
mortgages (comprised of part-time McDonalds and Wal-Mart workers buying $800k
homes) were being AAA rated,
-
Presidents
telling us that there would be ‘No New Taxes’,
-
Our
unemployment rate being 7%, when it’s clearly around 15%,
-
The
Housing industry telling us that they are strong – when those same housing permits
and applications are hitting multi-year lows, and
-
Our
government telling us that gold and silver are worthless – while demand for the
physical metals hits all new highs.
The issue I need to watch (over the
next several years) is the blatant inaccuracy of the data – upon which I make
my decisions. This inaccurate data tends
to ‘fog up’ the crystal ball and makes short-term predictions extremely
difficult causing money to be misallocated, energies misspent, and wrong
decisions made.
My fear is that ‘going forward’
these data distortions will become greater and louder. Remember the phrase: “The truth will set your
free.” Well, first you need to find the
truth. For example: Sun Zhaoxue (the most influential leader in
the Chinese gold industry – President of the China Gold Association and President
of China Gold Group (China's largest gold mining company) recently said: “The United States intends to suppress the
price of Gold to ensure the Dollar's dominance." Now:
-
Wouldn't
suppressing the gold price be a global manipulation? Yes.
-
Wouldn’t
that be illegal? Yes.
-
Will
Uncle Sam ever admit doing it? No.
-
Does
John Q. Public know that our Government is secretly beating down the price of gold
in the paper market? No.
-
Will
CNBC, the N.Y. Times or the WSJ ever tell us of that manipulation? No.
As far as long-term predictions go, the most common misconception is that ‘Gold has no place
in a fiat monetary system’. Most people believe
that when President Nixon closed the gold window in 1971 and our currency became
‘fiat’, that gold just shriveled up into a worthless ball of dust only used in
jewelry. Nothing could be further from
the truth. Every day Governments
electronically ship tons of gold back and forth because gold is the basis for
the entire ‘petro dollar’ setup.
Historically, J.Q. Public could walk into a bank and exchange dollar
bills for gold. Then, in 1933, the rules
were modified so that only Governments could make this exchange. In 1971 President Nixon realized that France
and other nations were draining our gold reserves – so he ‘closed the gold
window’. Then came the ‘deal’ with the
Saudi’s.
Currently, the most important
commodity on the planet is oil. The
‘deal’ with the Saudi’s is that the Saudi’s can only sell oil for U.S.
dollars. In public, the Saudi's go along
with this because the U.S. offers them protection via armed forces. The second part of this deal was that the EPA
would be created, and (under the guise of keeping the environment protected) it
would keep U.S. oil sequestered – not competing with Middle Eastern oil. (FYI – when the pact was signed (1971) oil
was trading for less than $4 dollars a barrel.)
Behind the scenes a
system evolved where U.S. dollars would come to the Saudi’s in exchange for
oil, and the Saudi’s would exchange some portion of those for Gold
bullion. This gold is never physically
moved from place to place – but rather sits in vaults (bullion banks) where it
can be ‘leased out’ to handle financial ‘gold’ and other commodity future
transactions. For example: as gold
miners need money to pay bills – these gold miners will come to bullion banks
and in exchange for future deliveries of gold, receive present day ‘cash’. Then as the miners produce the physical gold,
they repay their loans to the banks in the form of gold bullion. This all gets very confusing, but every major
economy has a gold reserve, which gives it the right to buy and sell commodity
goods around the world. Therefore, the
idea of gold being some worthless relic is nothing but a smoke screen.
Knowing that gold has
functioned as the true behind the scenes money for all these years, we now have
to take into account the fact that around the globe, people are very tired of
the U.S. and its behavior. The Chinese have called us currency
manipulators, and they make no apology for saying publicly that they are tired
of the deliberate debasing of our dollars. They also know that since it is only our Petro
dollar arrangements that have allowed us to remain the global reserve currency,
they want desperately to do two specific things:
- One, turn as many of
their U.S. dollar reserves into gold as possible, and
- Two, use as many of
their U.S. dollars to purchase tangible items.
This trend is not China specific. There are currently 13 countries with trade
pacts involving doing their oil business in local, or regional currency, thereby
by-passing the dollar. This started when
Saddam Hussein decided to sell his oil for Euro's. It wasn’t long after that – when he was
blamed for terrorism and killed. The
same fate befell Gaddafi, as he was beginning to trade Libyan oil in diverse
currencies, and then for pure gold.
But China has nuclear weapons, and an army of
unparalleled size. At some point China
is going to announce that they have enough gold that they can back their Yuan
with a percentage of gold, and it should be part of a new global reserve
currency. That would be the ultimate
tipping point. The day the U.S. can't
just print trillions of dollars and force others to use them, is the day the U.S. comes
to grips with something every other country already knows – if you live beyond
your means, bad things happen.
If the U.S. can’t
balance its budget and needs to borrow money from other countries by selling
debt (Treasuries) – the game ends, because nobody will want our U.S. dollars
because they are decreasing in value and are not needed to purchase oil.
This end is coming,
but it’s a change of such magnitude that trying to predict the timing of it is
extremely difficult. Every resource will
be utilized to keep it from happening. Nothing
will be off the table: not wars, not banking holidays - nothing. However, the end of the U.S. financial
reign is mathematically inevitable. Therefore, for the long-term picture – massive
disruptions are in store. Gold and
silver will exert themselves as the underpriced money they truly are, and
become considerably more valuable. Inflation
will rage. Living standards will
drop.
I next week’s letter I will be
outlining my thoughts for 2014. I think
in 2014 we will witness some very exciting times. Let’s ride them out together.
The Market:
The New Year has dawned and (thus
far) not lived up to its financial hype.
The first trading day of the New Year brought us a down session. The second day brought us some pops and
drops, but in the end, we didn't even regain half of what we lost the day
before. But that came on the back of what
I could only call an exceptional year in the capital markets. So what will the remainder of this New Year bring?
While most of the talking heads are
predicting another 8 to 10 percent rise in the markets, I think our markets
could perform very differently. I actually
don't mean that we might roll over and fall like a stone. I’m considering the real possibility that
(depending upon what Ms. Yellen has up her sleeve) we could see the markets
rocket to 18,000 on the DOW.
Here’s the issue: The U.S. economy is not a DOW 16,000-point
economy. At very best we're functioning
at the 8 – 9,000 level. But because of
the Trillions the Fed has printed and injected into the system, we're at unseen
levels. There are many ways this can play out, and the long-term
situation is very interesting to explore.
But in the short-term, we have some immediate ‘issues’ to deal with.
-
One is,
the 10-Year note flirting with 3%. Despite
the bravado suggesting that it isn't a ‘big deal’ – rising interest rates are
indeed a ‘big deal’. So we need to watch
that.
-
Secondly,
the big investment names such as Warren Buffet and George Soros (and others)
have been dramatically trimming their investment positions. When the big guys start pulling money ‘out of
the system’, they generally have a hunch that things aren't going to be so rosy
going forward.
-
Finally,
there's absolutely no doubt that (at some point) the money-managers (that have
made a ton of money during the big market run) will want to ‘lock in’ some of
those profits. You ‘lock in profits’ by
selling.
On the other hand, we have the ‘New
Year’ money, the January effect, and earnings reports starting later this week.
So, there is good reason to believe that
this market could indeed climb higher for the next couple of weeks.
There is a ‘Tug-O-War’ going on.
In the long-term, the petro-dollar collapses, inflation soars, and the U.S.
economy enters depression. In the short-term
however, there are many reasons that we could set all new highs – again. I think (this coming week) we see a circling
of the wagons, and a market ‘levitation’ into earnings season and the Non-Farm
Payroll report on Friday.
Tips:
I did some ‘tax loss’ buying on New Year’s Eve. That means that I purchased a basket of
stocks that were ‘tossed out with the bath water’ – literally on New Year’s Eve
– in hope of seeing them bounce in the New Year. These stocks included: ARIA, HSOL, AFOP, STML, CAVM, LNKD, TGT,
TSLA, and ULTA. Let’s see if they bounce
over the next 2 weeks.
-
USO and UCO (oil
ETF): pulled back substantially this
week. I’m looking for our March and
April CALL options to regain their dominance – and this offers a good buying
opportunity.
-
FXY (Japanese
currency ETF): Although the Japanese Yen
rose slightly this week – the PUT options continue to fall. March and April FXY – PUT contracts continue
to do well.
-
XHB (the housing
sector ETF) continues to do well – up over 55% for the month.
-
The entire 3D
printing sector is continuing to run higher.
‘Triple D’ (DDD) and SSYS are the true stalwarts in the group – but
don’t forget smaller names like XONE and VJET.
-
Look at: ATVI and XLU (could be elephant trades
forming) on the long side.
-
Look at: SINA as a buying opportunity.
-
Look at: FCX as a way to play the gold bounce only playing
it through copper.
-
Also if AAPL, GS,
or AMZN ‘gap down’ on Monday – look at this as a buying opportunity.
My
current short-term holds are:
-
USO
– April 2014 $37 Calls – in USO at $34.51 (currently $33.75)
-
FXY
– March 2014 $97 Puts – in FXY at $96.47 (currently $93.22) – room to run,
-
XHB – Mar 2014 $33 Calls – in XHB at $31.74
(currently $33.15) – room to run,
-
HD
– in at 81.07 (currently 82.09) – stop at 81.50,
-
EMC
– in at 24.74 (currently 25.00) – stop at entry,
-
DDD
– in at 82.60 (currently 96.88) – stop at 93.00,
-
SSYS
– in at 126.63 (currently 136.00) – stop at 132.00,
-
FCX
– in at 34.95 (currently 37.32) – stop at 36.50,
-
SIL – in at 24.51 (currently 11.61) – no stop,
-
GLD (ETF for Gold) – in at 158.28, (currently
119.23) – no stop ($1,238 per physical ounce), AND
-
SLV (ETF for Silver) – in at 28.3 (currently 19.46)
– no stop ($20.12 per physical ounce).
To
follow me on Twitter and get my daily thoughts and trades – my handle is:
taylorpamm.
Please
be safe out there!
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 with their predictions, and that's a
rarity in this climate. Please check
them out on my recommendation.
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