This Week in Barrons - 2-9-2014

This Week in Barrons – 2-9-2014

Daddy…Please make it stop!

For parents and young adults alike, at some point in your life you've either uttered or heard those words.  Maybe over a bruised knee, a bullying event, or something in your life (either financially or job-wise) that just doesn’t make sense.  I find myself uttering these words almost daily.  For example:

1.    This week the CBO (Congressional Budget Office) released their research concerning the effects of Obama-Care on the economy and on the job market.  They told us that Obama-Care will cost us over $1 Trillion, and over 2.3 Million people will exit the workforce because of it.  Given this was sold to us as creating 4+ Million jobs, lowering healthcare costs, and adding to the economy – this is leaving Democrats with some ‘egg on their face.’  But instead of being honest with us (and admitting that no one really knows) – the spin the Dems are putting on it ranges from:

a.    “The effect of having 2 million more people out of work could be a good thing on the work-life balance.”

b.    To:  “This is actually good news because people will finally have a choice.  If they didn't want to pay for their healthcare they could ‘choose’ to work less hours, and then have their benefits provided for them.”

c.     Please make it stop!  Honestly, most people don’t work because they want to – they work because they have to – in order to provide for their families.  So giving me a choice to NOT WORK in order to get free medical doesn’t make much sense to me.

d.    But leave it to Nancy Pelosi to trump everyone.  You remember Ms. Pelosi – she’s the one (when asked about the Obama-Care legislation) who said: “We have to pass it – to see what’s in it.”  (Someone should tell Ms. Pelosi that’s what we do with ‘stool samples’ not groundbreaking legislation.)  Ms. Pelosi said: “The CBO report is telling us that Obama-Care will allow people to follow their aspirations and become writers, be self-employed, and start their own businesses.  Obama-Care is entrepreneurial.  It won’t cost jobs, but rather shift how people make a living and allow them to reach their aspirations."

e.    Please make it stop!  Ms. Pelosi, in what universe are LESS jobs better than MORE jobs?  And given that over 50% of the country lives paycheck to paycheck, how does John Q. Public survive while he’s writing that Great American Novel?

2.    But it gets better.  This week, the Global Markets Committee (the group who sets the rules for futures trading) has invited JP Morgan’s Commodity Division head – Ms. Blythe Masters – to sit in and help craft regulations and legislation.  

a.    Now this is the same JP Morgan that was just fined $17 Billion for manipulating markets and basically screwing investors.

b.    This is the very same department within JP Morgan that – while being guided by Ms. Masters – was found guilty of manipulating energy prices throughout California.

c.     Please make it stop!  So, this group (in their ultimate wisdom, clarity and good judgment) has decided that Ms. Master is the perfect person to bring in and help craft the legal framework surrounding trading futures and swaps.  Do the words: ‘Fox in the Henhouse’ resonate with anyone on that committee?

3.    Finally, on Friday we received the Jobs Report, and of course it was every bit as lousy as the one we received in December.  It’s getting to the point now that even the cheerleading, ‘talking heads’ on TV don’t believe that this economy is firing on all cylinders.  But this time was different.  They blamed - ‘The Weather’.  Yes, somehow the weather is the reason that companies (across the U.S.) are not hiring workers.

a.    But adding insult to injury, on Monday, we received the ISM (suppliers and manufacturers) Report.  I don’t think it could have been any worse.

                                               i.     The overall survey ‘outlook’ fell 8.6% from 55.8 to 51.

                                             ii.     New orders fell 20% from 64 to 51 (the biggest drop since 1980).

                                            iii.     The ‘Prices Paid’ portion of the index jumped 13% from 53.5 to 60.5.

                                            iv.     So we have LESS activity that people see coming down the pike, there are LESS current orders, and we’re paying A LOT MORE for the stuff that we’re ordering.  All of this doesn’t add up to a well-run economy.

b.    Please make it stop!  I get the fact that: our economy is on the ropes, the Fed is tapering, our regulating bodies are hiring crooks to form policy, the jobs data is horrible, our trade data is lousy, the Baltic Dry index continues to crash, our cities are bankrupt, the amount of people not in the workforce is almost 1/3 of the population, food stamps – welfare – unemployment and the other government-backed systems are overwhelmed; BUT do we now need to resort to blaming this all on: ‘The Weather’.

I'm not in the panic business.  I'm not in the shock-n-awe business.  I'm in the reality business.  I see long stretches of sub-par economic activity that are going to lead to additional stress on both people and governments.  While I refuse to allow the entire “Mad-Max’ scenario to play out in my mind, I'm not against the idea of serious, recession-era scenarios playing out.   

Please make it stop!  Don't be afraid to enjoy your life, but don't go broke either.  Get yourself some gold and silver – because it’s how you come out the other side that’s really important.

The Market:

By mid-week, it became clear that we were overdue for a market bounce.  Even in these most desperate of times, the market cannot go straight down.  So, on Twitter I started to suggest that whether the jobs report was good or not, I'd probably see the start of a market bounce.

The excuses for both the poor jobs report and the two-day market bounce were really something special to listen to.  

a.    We learned from economist Mark Zandi that "This low jobs number would eventually be revised higher, and that in the long run it shows increased job growth".  Interestingly, Mr. Zandi said the same thing when the December job’s report hit.  The December job’s report was revised higher (by 1,000 jobs) from 74,000 to 75,000 jobs.  Given Mr. Zandi forecast job growth of 175,000 jobs (not 74,000) – I don’t think that this was the revision that Mr. Zandi was fantasizing about.

b.    Again, we learned from a dozen of the ‘talking heads’ that ‘The Weather’ was the reason for poor hiring, and the two-day market romp was due to earnings and economic data still ‘suggestive of a sustained recovery.’   

c.     Please make it stop!  I have a much simpler explanation.  Companies didn’t hire because they didn’t need anyone.  And the market bounced because it was ‘short-term’ oversold, and everyone is hoping that the data is so bad that the Fed will stop it’s tapering.

Five years after the start of this so-called recovery, I’m still seeing some pretty incredible things:

-       From food stamps to people living paycheck to paycheck,

-       From unemployed over a year to leaving the workforce completely,

-       From wages stagnating for over 10 years to inflation eating thru everyone’s buying power, and

-       From over 1 in 4 young adults now living at home to 1 in 5 getting ‘something’ from Uncle Sam. 

The stock market went from 6,600 to 16,000 on the DOW for one reason – the Fed printing over $1 Trillion per year!

Ms. Janet Yellen (our new Fed head) is scheduled to address Congress on Tuesday.  Everyone there will be pressing to see if she's going to: (a) continue tapering, (b) stop tapering, or (c) stop tapering and replace the ‘taper’ with another program.  The way this ‘should’ play out is:

-       Monday we should hold the gains of Thursday and Friday.

-       Tuesday, if Ms. Yellen holds the solid line and doesn't hint at all about stopping the taper, we will roll right back over.

-       Tuesday, if Ms. Yellen purchased Alan Greenspan's “How to speak to Congress” manual, and leaves them with the impression that she could possibly end the taper – the market could gain some more.

-       Tuesday, if Ms. Yellen makes a rookie mistake and mentions that she'd be willing to reverse the taper if things don't improve – then we'll be back to the all-time highs in short order.

From here on out, it's all about the Fed.  Continuing to taper with no hint of stopping and we'll see new lows.  Stopping the taper and we levitate.  Reversing the taper, and we see DOW 18,000.

Tips:

I’m in a wait and see position until the S&P’s get above 1,825.

-       I still like the metals here as a hedge = Gold (GLD) and Silver (SLV).

-       I like any group of stocks that can remain positive in a down market – and that group includes the Bio-Techs: GILD, INCY, CELG, REGN, and BIIB.

-       I like 4 stocks in particular: NFLX, FEYE, QIHU and TSLA.  NetFlix is a communications company; FireEye (FEYE) and QIHU are both in the cyber-security space, while Tesla (TSLA) is the electric carmaker that wants to continue moving higher.  Now be careful – because FEYE has earnings on February 11^th.  Tesla has earnings on February 19^th (and could provide a nice earnings run up until that date). 

My current short-term holds are:

-       FEYE – March ’14 $50 Calls – in @ $11.50 (currently $19.40)

-       TSLA – Feb ’14 $165 Calls – in @ $12.47 (currently $21.42)

-       QIHU – March ’14 $110 Calls – in @ $5.93 (currently $4.69)

-       USO – April ’14 $37 Calls – in @ at $34.51 (currently $35.70)

-       FXY – March ‘14 $97 Puts – in @ at $96.47 (currently $95.43)

-       SIL – in at 24.51 (currently 12.78) – no stop,

-       GLD (ETF for Gold) – in at 158.28, (currently 122.16) – no stop ($1,267 per physical ounce), AND

-       SLV (ETF for Silver) – in at 28.3 (currently 19.29) – no stop ($20.00 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.

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 - 2-2-2014

This Week in Barrons – 2-2-2014

The State of Which Union?

There appears to be three unions.  The one I grew up in, the one I live in, and the one the President wants me to live in.  When I listened to our President the other evening, his version of America and mine don't mix well.  Allow me to give two examples:

1.    In my day, you strived to do better.  There were competitions where you'd compete against others and try to win.  Then the best and brightest would be placed on special teams and in advanced classes, knowing that the general selections would be boring to them.  But here’s something talked about by President Obama: A popular gifted-student program is getting the ax after officials decided it lacked diversity.  “Our classes will be heterogeneously grouped to reflect the diversity of our student body and the community we live in.  We believe that all children can learn and achieve high standards.  We also know that we want all children to have equal access to high quality, a challenging curriculum, and to have ample opportunities to master complex material and build academic and personal self-confidence. We also want our classes to reflect the diversity of our community. We believe we can have both: classrooms characterized by rigor and diversity.”

a.    Are you kidding me?  In an era where ‘educationally’ the U.S. is already losing ground to virtually every other nation – you’re taking away a gifted student program because it didn’t conform to a particular diversity percentage in a community. 

b.    Are you kidding me?  We’re no long encouraging the gifted child, but instead relegating them to the potting soil of educational mediocrity. 

c.     Are you kidding me?  I can only hope that the same diversity net is being applied to the football team, the tennis team, the swimming team, the chess team and the debate club.  

d.    America used to work.  It doesn’t anymore.  I don’t hear anything about going back to the way things were.  I hear a lot about more change, more regulations, more social engineering, more wealth distribution, more Government oversight, and more controls.  Can’t we just admit that we screwed something up very badly, and we need to set it back?  Why is everything the ‘New Normal’?  We’ve turned rugged individualism into the social unicorn of conformity. 

2.    My second example starts with a ‘shout out’ to S. Forbes for stimulating a discussion about the minimum wage.  In the State of the Union Address, President Obama – by executive order – decreed that he would raise the minimum wage by almost 40% on contractors doing work for the government.  In my opinion, the companies affected are NOT simply going to increase the wages of the people currently making $7.25 per hour to $10.10 per hour, and maintain the status quo.   My thinking goes like this:

a.    One ‘good’ programmer is equal to ten ‘average’ programmers, and one ‘great’ programmer is equal to a thousand ‘average’ programmers.  The caveat here is that you do NOT pay the ‘good’ and ‘great’ programmers 10 or 100 TIMES as much as the ‘average’ guy.  Their abilities are greater than their compensation.  In other lines of work a ‘good’ individual is more likely worth 2 or 3 ‘average’ individuals – again without the commensurate levels of compensation.

b.    I do not think that the current workers earning the federal minimum wage of $7.25 per hour – are going to be the ones getting a 40% raise to $10.10 or even $15/hr.  In my opinion, companies will find NEW $10.10 or $15/hr. employees.  The $10.10 or $15/hr. worker has an improved skill set, is more efficient (like the ‘good’ and ‘great’ programmers), and can (therefore) do the job of 2 or 3 minimum wage, ‘average’ workers.  Therefore, there will be a mass ‘firing’ of minimum wage workers, and a hiring of better qualified $10.10 or $15/hr. individuals – who will do the job of 2 or 3 minimum wage workers.  Bottom line: I don't think that this will hurt small business efficiency at all.  In fact, President Obama (with this regulation) could actually put more people out of work due to the hiring of more efficient workers displacing the existing minimum wage earners.  Now before you think that’s bad.  President Obama’s current approval rating is at an all time low.  By having more people out of work, on government welfare, food stamps, 99 weeks of unemployment system – Mr. Obama could have secured the 2016 Democratic presidency for his party’s candidate.  I think that this is a brilliant political and tactical maneuver, but if the perception is that the $7.25/hr. guy is going to get a raise to $10.10/hr. – nah – that’s just not going to happen!

President Obama’s view of progress and change is fundamentally against virtually everything I cherish about the "Old America".  Of course it wasn't all wine and roses back then.  But we were considerably freer from Government intrusion, had a middle class, people respected each other, and there were no school shootings.  Our children were encouraged to ‘compete and win’ – and ‘conformity’ was something you ‘ran away’ from – NOT something that you ‘strived’ for.

The Market:

So far January has been a real mess for the bulls.  Taking a walk down memory lane, the Federal Reserve did QE1, QE2, the Twist, and QE3 – with each of these programs pushing Billions of dollars into the system.  The goals of these programs were: (a) to keep interest rates at or near zero, and (b) to flood the insolvent banks with money.  The goal was ‘never’ to make sure that the banks did ‘the right thing’ and apply those monies to the areas that should get them.  Therefore, the banks created profits for themselves by pushing large portions of this money into emerging markets and stocks.

Factually we’re 5 years into Obama’s recovery and to this day:

-       92 million Americans aren't in the work force,

-       Home sales are lower for the 7^th consecutive month,

-       Food stamp use is soaring, and

-       Welfare of all shapes and forms is becoming a way of life.

Stocks made it to all-time highs because of Federal Reserve money.  Now that the Fed is taking back some of that money – the areas that the banks invested in (emerging markets and stocks) are paying the price.  This isn't a surprise.  I expected we would see an earnings-run then a stock slump, but it appears that the ‘tapering’ fear was bigger than any earnings-run ‘hope’.

So now the question is: ‘Will the Fed continue tapering until all $90 Billion/month is gone?’  In my view, the economy is NOT fixed, the banks are NOT fixed, and the markets will NOT hold these high levels without Fed money.  Therefore, one of two things will happen.  First (and most probable) is that after some more economic pain (and stock market drops) the Fed will announce that they will be stopping their tapering operations.  And if things don't improve, the Fed will come up with a ‘new and improved’ program that will push even more money into the system.   

The Second possibility is that the Fed realizes that the world absolutely hates the U.S. dollar (because of how we have devalued it), and decides to defend what is left of it at all cost.  The Fed knows that many countries don't want the U.S. dollar as the world reserve currency.  They also know that China is making deals to not use any U.S. dollars in their transactions.  If the Fed decides that maintaining our status as the global reserve currency is the most important element of all, then they will need to remove all stimulus and stop the printing completely.  This would mean:

-       The ‘Too Big to Fail’ banks – would fail,

-       The stock market would fall well under DOW 10k, and

-       No more bailouts to Ponzi scheme mortgage companies.

It would be a total and complete change of policy that would create some of the worst volatility in the modern era.  You just don't inflate the world with bogus dollars, realize that it didn't work, and then yank them all back out – without huge disruptions.

Because choice number two (saving the U.S. dollar) means doing a complete reversal of everything the Fed has done for 15 years, I find it hard to believe they would finally ‘find religion’ and do the ‘right thing’ from here on.  Therefore, what makes the most sense to me is that after some additional ‘pain’, the Fed halts the tapering and starts to re-inflate.  But I think the pain level needs to be significantly higher than a 5% reduction in the DOW and an emerging market currency fiasco.  Potentially after the Fed’s next taper leads to an outright currency crisis, the DOW spiraling lower, and the economic data getting uglier – the Fed will then realize that they’ve created a monster that they can’t reign in and will resume printing.  At least that’s been the Fed’s M.O. for the past 5 years.

In the meantime, the market action tells us that the taper has more effect on things than the ‘experts’ have told us.  Even on Friday, the markets fought off a 240 point DOW drop to end down 150 points.  January 2013 was the worst month in a long, long time.  With any ‘new month’ comes ‘new money’, and it wouldn't be unreasonable to see the market bounce in the beginning of February.  But as the Fed replaces their taper money, this market’s trend is probably going to be sideways and down.

Tips:

I’m still not comfortable buying the stock indexes at these levels.  But (at the same time) I remain shy of shorting this market.

-       I still like the metals here as a hedge = Gold (GLD) and Silver (SLV).

-       I also like any group of stocks that can remain positive in this market – and that group is the Bio-Techs, including names like: GILD, INCY, CELG, REGN, and BIIB.

-       In particular I like 3 stocks: FEYE, QIHU and TSLA.  FireEye (FEYE) and QIHU are both in the cyber-security space, while Tesla (TSLA) is the electric carmaker that wants to move higher in the worst way.

My current short-term holds are:

-       FEYE – March ’14 $50 Calls – in @ $11.50 (currently $24.00)

-       TSLA – Feb ’14 $165 Calls – in @ $12.47 (currently $18.80)

-       QIHU – March ’14 $110 Calls – in @ $5.93 (currently $6.66)

-       USO – April ’14 $37 Calls – in @ at $34.51 (currently $34.95)

-       FXY – March ‘14 $97 Puts – in @ at $96.47 (currently $95.61)

-       SIL – in at 24.51 (currently 11.98) – no stop,

-       GLD (ETF for Gold) – in at 158.28, (currently 119.96) – no stop ($1,245 per physical ounce), AND

-       SLV (ETF for Silver) – in at 28.3 (currently 18.47) – no stop ($19.20 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.

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>