This Week in Barrons - 3-2-2014

This Week in Barrons – 3-2-2014

What should I Buy?

For the past two weeks we have been discussing a potential global currency reset.    Unfortunately there are few investments you can make to protect yourself from a global currency devaluation.  Why?  Well if this were just Argentina (for example) – you could quietly put some money in a foreign currency via foreign exchanges, and by the time they outlawed such things, you would already have the benefit of the increase in the foreign exchange rate.  However, on a global reset - you won't be able to buy into a foreign currency (that may rise as your currency is devalued), because the foreign currency will be devalued as well.  Therefore, there are only 3 ‘protection’ investments: real estate (if you own it out right), gold and silver.

What about owning shares in gold mining companies, or the GLD and SLV?  The mining companies are a good bet for the short-term, but it does not make them immune.  If things get really ugly, there's no question that Governments would simply ‘seize control’ of the mining companies.  That said, holding some gold and silver mining stocks should be a good choice as we get closer to the reset.  You can bet that if we had a 3-day banking holiday, only to wake up on day 4 with a new currency with a new value, those miners would be priced considerably higher.  However, if that happened, I would immediately ‘cash out’ on the initial market-pop higher for the miners – for fear that the Governments hosting the mining operations would seize control of the mines themselves.

Both the GLD and SLV exchange traded funds have not been attractive to me since they launched.  That being said, as long as the markets are functioning normally, they have been good ways to record gains when the metals move up.  My fear is that they are really ‘shams’ for the average investor, and are NOT the same as holding the physical metal.  Therefore, holding physical gold and silver is the single best thing you can do.

With that in mind, what should I buy?  In gold, buying a one-ounce ‘gold eagle’ gold coin will cost upwards of $1,350, and buying groceries with that coin becomes a little difficult.  But one ounce ‘gold eagles’ come in 4 ‘face values’: a $50 face value = one once of gold, a $25 face = 1-half ounce of gold, $10 = 1-quarter ounce of gold, and $5 = 1-tenth ounce of gold.   You can certainly purchase a 1/10^th ounce ‘American’ eagle for about $150, it is only 91% pure gold.  On the other hand, the Royal Canadian mint makes 1/10^th ounce gold coins called ‘Maple Leafs’ and they are 99.9% pure.  The ‘Maple Leafs’ will cost approximately $160 per coin, but worth the extra $10 for the remaining gold purity.

With silver remaining ‘cheap’ in relation to where it should be, I suggest one ounce, recognizable silver coins.  In other words, the Australian Silver Kookaburras, Austrian Silver Philharmonics, and Chinese Silver Pandas make great collectibles but lousy spendables.  I would stick to the U.S., one ounce, ‘silver eagle’ coins.

Honestly, I hope that I’m nuts and way off-course.  But as I look at the Ukraine who is on the verge of war because they’re: broke (like the U.S.), have a deep political divide (like the U.S.), and religious and racial issues (just like the U.S.) – I keep hoping that this too shall pass.

The Market:

Let me start off by saying I was wrong.  I did not think that the S&P would make it over 1,850 – but it did.  Candidly, I’m still waiting for those 3-day closes above the 1,850 level, but we clearly got the first one on Friday when we closed at 1,859.  But, why is the S&P making new all time highs when the economic news stinks, and the Fed is removing punch from the bowl?  The most obvious answer is that there is no other place to go to invest.  As I look around the world, where can I put my money for some kind of a return with a modicum of safety?  Emerging markets are creaking and groaning with the looming threat of defaults.  The world is facing the possibility of a European war over the Ukraine.  And the southern European countries continue to deteriorate.  As crazy as it sounds, U.S. stocks are being looked at as the best of a bad lot.

But notice what the corporations are doing with their money.  They are not building plants, or investing in other capital expenditures.  In record amounts, corporations are issuing debt (borrowing) and using the proceeds to buy back their own stock.  Because this reduces the amount of shares of stock available, this gives the illusion of increasing earnings per share.  To date corporations have announced over HALF A TRILLION dollars worth of stock buy backs.  Daily I see companies (a) miss their earnings estimates, (b) guide earnings lower into the future, and (c) then announce an $X Billion stock buy back program.  This results in the stock moving higher – not due to growth, hiring, increased revenues, or profits – just from borrowing money to buy stock.  In my world, that behavior is called ‘margin debt’ (borrowing money to buy stock) – and that is never a good idea.

I don't know how far this can go.  In the short-term, the DOW is still 250 points shy of its all-time high, and we are still in danger of the S&P rolling over in what amounts to a failed break out.  But here’s the issue: If you buy stocks in a trading account, and you have the time to play with your accounts, then none of the following matters because you have the ability to buy and sell without constraints.

However, the average person has their money in a 401k.  When 401ks were first started, you were allowed to manage them ‘daily’ on your computer.  You could virtually day-trade your 401k, moving money from cash into funds (and stocks) for a few days and then back into cash after a potential pop in the stock.  But over the years ‘The Street’ got wise to that behavior and implemented rules only allowing you to ‘adjust’ your 401k allocation a certain number of times in a quarter.  Often you’re only allowed one adjustment per quarter, and sometimes only two per year.

So the problem becomes, if you decide to push 100% of your 401k into stocks right now because the S&P has broken out – you can’t do anything else with that money for another 3+ months.  A week later, a war breaks out in Europe and the S&P drops 800 points – you have lost your fortune all because you could not make another 401k move.

This is the single biggest problem in J. Q. Public’s finances today.  The stakes have been ‘tilted’ so that J. Q. Public is no longer in control of his money.  It’s currently all up to the Wall Street fund managers.  While it is fun when the market is going up, there will be true pain and anguish when the market is on it’s way down.  Unfortunately, the market is levitating for all the wrong reasons.   Hopefully any correction will not resemble the Japanese ‘candle stick’ that dropped from 40,000 down to 9,000 in a matter of weeks.  Please be careful out there.

Tips:

This week I strictly played the probabilities and generated income by selling weekly ‘put credit spreads’ along with our standard earnings plays – where we sell ‘put and call options’ one standard deviation away from the current price.  Allow me to explain:

For our Weekly Income:

-       I normally just sell weekly ‘put credit spreads’ / either 1 or 1.5 standard deviations in the money.

-       A ‘standard deviation’ is an amount calculated by your trading platform – that tells you for a period of time (often weekly) – that a stock will remain within a certain price range – 67% of the time (for a single standard deviation).

-       Therefore, if the stock goes up (at all) or down (slightly), the options expire worthless and I pocket all of the ‘sales’ proceeds on a weekly basis.

-       For example: 

o   On a $10 stock (if the ‘standard deviation’ is $1 – a value calculated by your trading platform) I would be selling either the weekly 1 or 1.5 standard deviation options.

o   Therefore I would be selling either the $9.00 or $8.50 put options – betting on the stock remaining either above $9.01 or $8.51 for the week. 

o   Probability tells me that I will have an 88%+ chance that the stock will remain above those targets, and therefore the put options that I sell will expire worthless – and I will pocket all of the proceeds.

For Earnings Plays the behavior is similar:

-       If stock is trading for $10, and the weekly ‘standard deviation’ (calculated by your trading platform) is $1.00.  (This means that there is a 67% probability that the stock trades between $9.00 and $11.00 for the week.)

-       On an earnings play I could SELL the weekly, $11.00 ‘call option’ and SELL the weekly $9.00 ‘put option’ for a premium amount (paid into my account) – and be right 67% of the time.

-       However, I often want more ‘security’ than 67% of the time – so I often go out 1.5 standard deviations to give me that added 88% cushion of probability.  Therefore I often sell the $11.50 call option and the $8.50 put option respectively.

-       I would be ‘betting’ on the stock remaining less than $11.50 and above $8.50 for the remainder of the week. 

-       Then at the end of the week, the options would expire worthless – leaving me to pocket the entire premium.

I still like the following stocks: BIIB, SCTY, NFLX, TSLA, QIHU, CMG and commodities such as USO and UCO.  All of these seem to march to a different drummer than the market itself and perform well using the above trading philosophy.

I also like some smaller names such as:  MNKD, ARIA, and FireEye (FEYE). 

My current short-term holds are:

-       QIHU – in @ $91.20 - (currently $109.55)

-       ARIA – in @ $8.43 – (currently $8.63)

-       FEYE – in @ $75.50 – (currently $85.00)

-       USO (Oil) – in @ $34.51 - (currently $37.18)

-       UCO (Oil) – in @ $28.75 – (currently $34.87)

-       FXY (Japanese currency) – PUTS in @ at $96.47 - (currently $95.88 – looking for it to go lower)

-       SIL (Silver) – in at 24.51 - (currently 14.09) – no stop,

-       GLD (ETF for Gold) – in at 158.28, (currently 128.08) – no stop ($1,329 per physical ounce), AND

-       SLV (ETF for Silver) – in at 28.3 (currently 20.41) – no stop ($21.20 per physical ounce).

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

Please be safe out there!

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 - 2-23-2014

This Week in Barrons – 2-23-2014

“Somethin’s coming – Somethin’…” (Pt 2) … West Side Story

Last week I laid out the groundwork for what I believe is the machinery that will usher in a ‘global currency reset’.  If I'm right, this will be the most significant economic policy change since the end of WWII.  Let’s discuss the proper way to navigate such troubled waters.

First off, I think we need a guidepost.  We need to be able to measure the time line of these events as they take place.  I have decided to use the Fed's actions as the milestone for when the implementation of such a reset is coming.  Starting with Greenspan, and then Bernanke – any time the economy was starting to soften, the Fed would rush to the rescue by cutting rates and printing money.  The economy was never allowed to correct the excesses of the boom that preceded the slowdown.  Over and over it went, as they would simply inject stimulus into an overly tired body. 

Often it worked.  Economic activity perked up on the heels of the lower rates and the extra dollars.  The economy would then go on another ‘up’ cycle until that injection wore off, and elements showed signs of weakening.  Then (like clock work) the Fed would come rushing to the rescue (again) with lower rates and more money – Rinse and Repeat.

However, something is happening right now that flies in the face of that.  The Fed has started to remove the stimulus we call QE, despite a weakening overall economy.  This is a significant turn of events.  The Fed knows how the overall economy is actually performing, and instead of increasing the amount of money they're doling out, they're reducing it.  Therefore, for the first time in over 20 years, a sagging economy is being met by less Fed activity, rather than by more monetary stimulus.

My original thought was that the Fed would talk a big game about ending QE, but would not actually do it.  Then they did the first ‘taper’.  I thought that this could have been just a display of ‘moxie’ to the rest of the world.  And in the face of weakening economic news, they did the 2^nd taper.  Now we're looking at March and asking: Will they again reduce the amount of QE?  Thus far the Fed has been comfortable blaming outside influences such as the weather for the bulk of the lousy economic numbers.

-       On Tuesday homebuilder sentiment had its single biggest fall in the history of the report.

-       The Empire State Fed report had its largest drop in economic activity in 18 months.

-       Caterpillar told us that global sales for the equipment fell for the 14th straight month.

-       The Philly Fed report of economic activity fell from a reading of 9.4 to a reading of ‘Negative’ 6.3.

-       And housing sales fell like a rock – again. 

Everyone is blaming the weather, and is some of this weather related?  Absolutely.  Ice storms in Atlanta, never ending snow falls in the northeast, and record-breaking cold temperatures are business inhibitors.  When you cancel 4,000 flights, and place cities on emergency alert, some level of economic activity will come to a halt.  When the Fed tapers in March, it will be completely consistent with its previous actions.  But what happens when the weather breaks?

If we get into the summer (mid-July) and the Fed has not stopped the taper, then we must assume that their game plan has changed, and they are willing to let the economy roll over.  If we see that, I would have to believe that we are in the first steps of ushering in this global reset, and the timeline then becomes fairly defined.  By reducing the taper $10 Billion at each Fed meeting, the Fed would reduce the stimulus to zero by December 2014.  Our economy (at that point) would at best last another year without stimulus before entering a fairly hefty recession.  On the other hand, if the Fed (at minimum) stops the taper this summer, it would mean that they are not ready for the global reset and will keep the economy limping along for longer.  That would also mean more all time highs to be found in stocks.

Job #1 then is to try and gauge when a global reset could happen.  Job #2 is what to do when/if our suspicions are confirmed.  This is where gold and silver start to play.  Gold backed currencies have their own set of problems.  But since the Central Bankers (who control most of the world’s gold) believe in a gold backed currency, they will certainly give gold a very high weighting in the new global currency.  And, considering how vocal the Chinese are about (a) being tired of the U.S. devaluing the dollar, and (b) wanting themselves to be a bigger part of the world stage, it’s not a coincidence that they are accumulating gold at a very rapid rate.

Very few individuals in the U.S. own gold.  The raids on the gold paper futures have driven prices down, and have sent many of the ‘gold holders’ to sell and invest elsewhere.  This is why I believe that gold (and to a smaller extent silver) are the single best investments that will help you through a potential reset.  The problem for many is simply the $1,325 price per ounce of gold.  This sends many to go with silver and it’s $22 per ounce price tag.  Will silver do well?  Yes, I’ve said for years that silver could easily go to $70 per ounce.  But it will still be gold that Central Bankers choose to back their currency.

One question often asked is: What should I buy - coins, bullion, or rounds?  With silver you should own one ounce, silver ‘eagle’ coins.  They are the single most recognized coin you can own.  In gold, it’s a slightly different story.  With gold costing $1,325 per ounce, a gold ‘coin’ is really worth too much to be practical.  Therefore, I suggest buying 1/10^th ounce gold coins.  Holding silver eagles and some small weight gold coins are good survival tactics.  For holdings beyond that which you would use for emergency money, then you should consider one ounce gold coins, and bulk silver.  I believe having some of both.

The Market...

So far – so good.  I’ve been thinking that the markets would run-up to their all-time highs, but would come up short and finally fade out.  Currently the markets have run-up to their highs, have been trading sideways, and have not been able (as of yet) to break through.  That’s certainly not through lack of effort.  This week’s economic news was horrendous, but the markets did not roll over and drop.  We had a flat Tuesday, dropped hard on Wednesday, came all the way back on Thursday, and faded slightly on Friday.  So, the desire to continue pushing higher is certainly still there.

We let a fair number of our positions get called out under a ‘covered call’ scenario and are currently sitting mainly in cash.  If this market does break to the upside and make new highs, I’ll be glad to jump back in.  But I’d rather be light as I am anticipating a pullback from our run-up.  Now, if the Fed were to suddenly halt their tapering (or reverse it), we would certainly be setting new highs again.  But with the taper still ‘on’ and the economy slowing, I think that it will be difficult for the banks to manufacture a sustainable break to new highs.

Now, there may be one 'last push" left in the markets (where they try and suck in the last of the hold outs).   But I think J. Q. Public realizes that the markets are at all time highs only due to Trillions of Fed dollars, and that the markets simply follow the money.

If I'm right and this begins to fade here, the drop could be substantial, and I'd want to be playing on the short side.  If I’m wrong, I would need to see a few consecutive days of market closes, above the old all time highs.  The S&P closed at 1,836 on Friday – only 14 points away from it’s all time high of 1,850.  But the DOW closed at 16,103 and it’s all-time high is 16,580.  While we may be able to get above 1,850 on the S&P for a bit of a show – gaining another 400+ DOW points in a lousy economy and a tapering Fed is going to be difficult.

I’m cautious until either the market breaks out or breaks down.

Tips:

I always get questions:

-       Where to purchase gold and/or silver?

-       Where to get a good price?

-       Who do you trust, and will the transaction go smoothly?

Over the years I’ve done business with many, and the firm I recommend is run by a father and son team out of Colorado called: http://www.cornerstonebullion.com.

This week I sold out of NUGT and SLW for 70 and 35% gains respectively.  As much as I love the metals – the miners (including NUGT and SLW) are more affected by the general market than they are the price of gold.  Therefore, with the ‘pause’ in the general market I grabbed the opportunity to take some profits.

I still like stocks such as: BIIB, NFLX, TSLA, QIHU and some commodities – that seem to be able to buck the trend and go higher – when the S&P is either flat or lower.

Some other stocks that I’m interested in at the moment are: MNKD – with its move above $6 on Friday, and ARIA – with its peak above $9 on Friday.  Both of these are showing very ‘interesting’ options action – and certainly worth a second look this week.

Lastly – please be aware of the naturally inverse relationship between the Japanese Yen and the S&P.  If the Japanese Yen moves lower (FXY) the S&P index will move higher – and vice versa.  For many weeks now, this relationship has been broken – yet another reason why I believe something very different is being played out in the back rooms around the economic globe.

My current short-term holds are:

-       QIHU – in @ $91.20 - (currently $105.51)

-       ARIA – in @ $8.43 – (currently $8.87)

-       USO (Oil) – in @ $34.51 - (currently $36.71)

-       FXY (Japanese currency) – PUTS in @ at $96.47 - (currently $95.23 – looking for it to go lower)

-       SIL (Silver) – in at 24.51 - (currently 14.70) – no stop,

-       GLD (ETF for Gold) – in at 158.28, (currently 127.45) – no stop ($1,326 per physical ounce), AND

-       SLV (ETF for Silver) – in at 28.3 (currently 21.00) – no stop ($21.87 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>