This Week in Barrons - 9-21-2014

This Week in Barrons – 9-21-2014:

Dear Ms. Yellen:

Thank you Ms. Yellen for what you (and your predecessor ‘The Ben Bernake’) have done to interest rates over the past 5 years.  I don’t have much savings, so reducing a bank’s CD rates to below inflation really doesn’t bother me all that much.  And now that the economy is doing fine, I understand you think it’s time to raise the interest rates back up to normal levels.  That all makes sense to me.  A quick question: When you raise interest rates in the next 6 months – where do I find the additional dollars to pay my higher mortgage payment?  I mean, housing starts were down over 14% last month, and there are 53% more vacant homes for sale right now, than in 2010.  It’s pretty clear to me that the real estate community is having trouble selling houses with your incredibly low interest rates - How are they going to sell houses when the interest rates rise?  And when rates rise, can Uncle Sam afford to pay the interest payments on our national debt?  When rates rise, will I be able to afford to buy a new car, truck and toys for my kids?  So, in other words, with wages stagnant – is there a reason why you’re turning off ‘life support’ to our economy?

Least I forget I also wanted to thank you (Ms. Yellen) for what you’ve done to the stock market and my 401k.  However, many people don’t realize that 47% of the NASDAQ and 40% of the Russell (small-cap) stocks are down 20% in the past 12 months.  That's a lot of stocks in virtual ‘bear market’ territory.  But I’m worried about my 401K, you see:

-       When you ended QE1 – the market fell.

-       When you ended QE2 – the market fell.

-       When you ended QE Twist – the market fell.

Now that you’ve confirmed ending QE3 in October, what should I do about the impending market crash?  Should I take my money out of the market now?

Lastly, I also wanted to thank you (Ms. Yellen) for the strength in the U.S. dollar.  This dollar strength allows me to think better about the Democratic candidates as a strong dollar has kept prices low on gasoline, food, that new iPhone, and even a couple extra beers while watching Monday Night Football.  But the Consumer Price Index FELL for the first time in over a year last week – should I be worried about deflation?  And having a strong dollar goes right against what you’re trying to do with QE and zero rates – yes?  I mean even China (this week) announced a $500B QE program for their troubled banks.  So, when the mid-term elections are over, how quickly do you think you will return to the ‘printing press’ and the devaluation, currency wars against Japan and Europe again?  Should I buy things now before the prices go up?

The Market:

In Germany, their 2-year bond is paying a negative rate of return.  So if you took your money and purchased a German, government sponsored, 2-year note – you are going to PAY THEM to hold your money.  As bizarre as this sounds, when I look around the world I’m seeing savings rates that are at 200 year lows.  France’s 10-year yields have dropped to their lowest levels in 250 years – 1.52%.  The good and bad news is, it’s not just Ms. Yellen pushing the boundaries of insanity – it’s the world. 

In the past 36 months, we have not had a typical market correction of 10%.  This length of time between corrections has only occurred 3 times in the history of our market.  This week we received the ‘wink and nod’ from Ms. Yellen about interest rates – so we made all-time highs.  We launched the life-changing iPhone6 – so we made new all-time highs.  And we had the largest IPO in history, Alibaba – so we made new all-time highs.  But:

-       Friday was a triple witching options expiration day.  That’s an event that occurs 4 times a year, when the contracts for stock index futures, stock index options, and stock options all expire on the same day.  It often leads to a choppy market as major players square off their positions and institute new ones.  The week after ‘triple witching’ has been down/red 17 out of the past 22 weeks.

-       The market also put in a Hindenburg Omen (and confirmation) this week. This omen is a combination of technical data points that tend to mark a market peak.  It’s telling us that there is about a 30% chance of a market crash over the next 4 months.

-       Ms. Yellen confirmed that QE would end in October.

-       The IWM is the ETF (Exchange Traded Fund) for the Russell 2000.  The Russell 2000 is comprised of the small companies in the market that often set the direction for the big companies.  Well, the IWM is getting awfully close to falling below it’s 200-day moving average – which is not a bullish sign for the markets.

-       The CRB index (which measures the price of commodities) is dying a ‘not too slow’ death.  On Friday the index fell to a 4-year low, prompting the more intelligent to ask: If the world is in a recovery, shouldn’t it be buying more stuff and not less?  Oil and gas demand are down.  Copper demand is down.  If no one is buying commodities, how much of a recovery can there possibly be?

-       This week FedEx beat their estimates.  But if you read the companies OWN press release, they say that their stock buy back added 15 cents to the bottom line.  In other words if they hadn't spent billions to buy back their own stock, they would have MISSED earnings by a penny.  And (by the way) you know all that FED speak about no inflation – FedEx announced an across the board price increase of 5% starting in January.

-       But nothing (and I mean NOTHING) screams recovery (or lack of one) like Caterpillar.  Despite all of their stock buy back programs and their share price over $100 – they have had 21 straight months of DECLINING year over year global sales.

Bottom line, it feels like we might be just days or weeks away from a really good pull back.

Tips:

Reducing my portfolio over the past couple of weeks seems to have worked – and this week I’ve reduced it even further.  Being fearful of a market pullback, I’m now holding significant positions in a couple of the energy stocks, and a couple cyber-security stocks.  I continue to sell 1+ standard deviation PCS’s (Put Credit Spreads) and CCS’s (Call Credit Spreads) on the NDX, SPX and RUT – because selling those are somewhat agnostic to market direction.  If the weekly market direction is ‘UP’ – I sell more Put Credit Spreads, if it’s ‘DOWN’ – I sell more Call Credit Spreads.

If the market does decide to change directions, I would strongly recommend:

-       SELLING Call Credit Spreads for weekly income,

-       BUYING Put Options on your favorite high-flying stocks, and/or

-       BUYING ‘inverse’ ETFs.

If you’re uncomfortable with playing in the ‘Options’ market, there are ‘inverse’ ETFs that go up when the stock market goes down.  For instance, if you think the S&P is going to go lower, you can buy the SH.  This is a ‘one for one’ ETF, that goes one point higher for every point that the S&P goes lower.  The SDS goes 2 points higher for every one point that the S&P goes down.  And the SPXU goes 3 points higher for every one point that the S&P declines   All of the major index's have inverse ETF's.  For the DOW, consider looking at: the DOG for the 1 to 1 relationship, the DXD for the 2 to 1 relationship, and the SDOW for the 3 to 1 relationship.  There are approximately 70 inverse ETFs out there for those uncomfortable investing in options.

My current short-term holds are:

-       FEYE (Cyber-Sec) – in @ $28.76 – (currently $33.95),

-       KO (Beverage) – in @ $41.17 – (currently $42.05),

-       LNG (Energy) – in @ $57.40 – (currently $84.16), and  

My Small Caps (earned 19.73% in the month of August):

-       LNGLF (Energy) – in @ $3.54 – (currently $3.89),

-       IG – in @ $7.27 – (currently $7.55), and

-       VDSI (Cyber-Sec) – in @ $14.17 – (currently $19.13)

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 - 9-14-2014

This Week in Barrons – 9-14-2014:

“These are CNBC-type numbers…”

In August, CNBC reported that their average viewership declined by 30% (year over year) to just 28,000 adult viewers, from 25-54 years old, during the 9:30am to 5pm time period.  This was its lowest rated month in over two years.  These numbers are really bad.  Can that many people just not care about today’s financial climate?  Here are some other ‘really bad’ numbers:

-       Japan just announced that on an annualized basis their GDP FELL 7%.

-       JP Morgan just said that the amount of excess liquidity around the globe is at "extreme levels.”

-       Poland said that Gazprom (the Russian natural gas organization) shipped 40% less natural gas on Wednesday than Poland had requested.  (Note to Europe – you push Russia with sanctions – they push back.)  It also means that Putin will turn even more towards China for financing.

-       Last month mortgage applications fell 7%, and refinancing’s fell 10%.

-       51% of the U.S. population could not go 2 weeks without a paycheck, and has NO retirement savings.

-       Jim Reid of Deutche Bank said: “The stock bubble needs to continue in order to sustain the current global financial system".  So, we need to keep inflating, otherwise the wheels will come off.

-       The Chinese PPI missed estimates – showing that they are over-stocked with inventory, and are cutting prices in order to sell it.

-       The Labor Department reported that the initial jobless claims increased 11,000 to a seasonally adjusted 315,000 for the week ending on September 6th.  This is the highest level since June, and above economists’ forecasts of 300,000.  Combine this number with the actual, full-time employment measured by ADP, and you quickly realize that job growth remains paltry and there is still far too much stagnation.  The strongest growth in job creation continues to be in part-time work.

-       Businesses continue to seek revenue overseas, where consumers prosper, taxes are lower, and regulations are more business friendly.  We, as a nation, can decide to compete or we can punish those that decide to participate.  Our administration has chosen the later of these choices.

-       Last week a report was circulating that the FED (during their meeting this week) will remove the language suggesting that rates will stay low ‘for an extended period’.  If the easy money is going away, then things have dramatically changed.

The dollar continues strong, and that strength has an inverse relationship to all commodities priced in dollars.  I believe that the recent dollar rally is playing a bigger role in the decline of commodity prices than actual supply & demand issues.  Goldman this week set a target price of gold at $1,050 per ounce (down from $1,250 where it resides currently).  While the price of paper gold is under pressure, physical demand remains strong.  I would be a buyer down at $1,050 – if we can get there. 

The Market....

We are closing in on another monthly options expiration week.  This month’s roller coaster ride has been more volatile than normal.  We had the sharp selloff in the beginning of the month, the sharp rally in the middle of the month, and now more selling pressure.  If you look at a chart of the S&P 500, you will see that since July 23^rd we are currently in the same spot we were then.  However, the S&P started at 1,985 on July 23^rd, then dropped to 1,904, then ripped back up to 2,011, and then rolled back over to 1,985 – precisely where we started.  The S&P has made no progress, but the daily swings have added up to over 151 points.

Speaking of the market, it really looks like crap.  The IWM, (which are the small-cap stocks that led this market for so long) are looking horrible.  The S&P has pulled down and its trading proxy (the SPY) is sitting on a soft support zone.  Friday, which has a habit of being green for the weekend talk shows, was bright red.  This market has been red 6 out of 10 days.  The bounces seem to be one day events, and more like desperation moves rather than any real serious buying pressure.

To me, the market feels heavy, and almost like it's run out of gas.  Now, we've seen this set-up in the past, and they've stepped in to save the day.  But right this second; we are parked on the verge of a serious pull down.  Yes, they might save it, turn it around, and push us up.  But, if you look at the chart and the internals from Friday, you can only deduce that we're one small step away from a healthy fade.

I'm not willing to say the entire run is over.  But I have mentioned for two weeks that September has a habit of being an ugly month.  It’s being made more interesting by a triple witching options expiration this Friday, and a FED meeting this Wednesday.  After all, Ms. Yellen may decide to remove the words "keep rates low for an extended period", and then you would have the making of a real stock selloff. 

So for the beginning of this week, my guess is they try and hold us here sideways.  We could very well bounce all over the place.  The great news is that an increase in volatility could give the market some welcome volume.  Then if Yellen doesn't remove the happy talk, they will try and rescue us.  If however the FOMC says that they are on track to end QE in October, and removes the "keep rates low for an extended period" line – we are probably going down.  That could be our long lost 8 to 10% pullback.

Tips:

“Something wicked this way comes.”  Friday found large funds bailing out of positions.  Instead of selling 1M shares at a time, they were continuously selling blocks of 1,000 shares – over and over again.  This is the first day in a while where I've seen every asset class (U.S. dollar, stocks, bonds, oil, gold, yen, and the list continues) down on the day.  In theory, stocks should be rallying with all of the other asset classes down, but they aren't.  The $TICK readings have been constantly to the downside – telling me that there aren’t any buyers.  This doesn't mean we won't get a nice short covering rally into the FED meeting on Wednesday, but it does mean that it’s fine to err on the side of caution.  For me, my red flag is always the push below the 21 EMA on a daily chart.  When that happens, it just opens the door for much more downside.  On Friday, the S&P, DOW and Bonds all crossed below that level – with the NASDAQ staying barely above it.  Therefore, I liquidated some major portions of my holdings. 

I still hold a couple of the energy stocks, a couple cyber-security stocks, and I continue to sell 1+ standard deviation PCS’s (Put Credit Spreads) and CCS’s (Call Credit Spreads) on the NDX and SPX.  Obviously if I’m wrong – re-entry is just a commission away.  But if I’m right and this market even remotely begins to roll over early in the week – then we’re in for one heck of a FED-induced ride.  If we stabilize mid-week, I would look to get back into small caps such as: ANAC, IDTI, IG, LEJU, NLS, PANW, RARE, RFMD, SLCA, and TSRA.  I would also be looking to put options trades on the following list of candidates: RUT, SPXPM, CMG, PII, GS, AMGN, AAPL, and MON.

My current short-term holds are:

-       FEYE (Cyber-Sec) – in @ $28.76 – (currently $34.95),

-       KO (Beverage) – in @ $41.17 – (currently $41.46),

-       LNG (Energy) – in @ $57.40 – (currently $82.64), and  

-       GLD (ETF for Gold) – in at 158.28, (currently 118.38)

My Small Caps (earned 19.73% in the month of August):

-       LNGLF (Energy) – in @ $3.54 – (currently $3.90),

-       NEO – in @ $5.82 – (currently $5.99), and

-       VDSI (Cyber-Sec) – in @ $14.17 – (currently $17.49)

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>