This Week in Barrons - 11-23-2014

This Week in Barrons – 11-16-2014:

Thoughts:

Dear Ms. Yellen:

Are we having an ‘all out’ currency war?  The reason I ask is that I’ve seen this behavior before – where assets, commodities and debt all begin to lose their relationship with each other – and out pops the American Revolution, our Civil War, World War I, and World War II.  With China’s announcement of ‘almost’ QE on Friday, I think that we are in a full-out currency war with the rest of the world.    

Just when I thought the BRIC nations (Brazil, Russia, India & China) would be rational and watch the rest of us (Japan, U.S. and Europe) fight it out – they have now decided to act.  I was shocked when China (the world’s fastest growing and second-largest economy) announced an interest rate cut of 40 basis points from 6% to 5.6%.  They also freed up deposit rates – allowing savers to participate in a higher return.  And, right on the heels of China’s announcement, Europe’s Draghi ran to the nearest microphone to say that the ECB will go ‘ALL IN‘ – doing everything in its power to do more QE.  And this even triggered India to think about doing ‘more stimulus’.

My take away from all of this is:

-       The global economy is slowing – faster than I expected,

-       The world is hurtling towards a depression – faster than I expected,

-       And every central bank is going to try and destroy their currency in a bid to pay their debts with cheaper money – faster than I expected. 

I realize that the stock markets will rally on the idea of more printed money, but we all know how this ends.  First it was Japan, then the U.S., then Japan again, now China, and soon Draghi will try his best to circumvent the entire Euro zone Charter and find a way to print more money.

Ms. Yellen, doesn’t this put you into a tricky situation?  The general expectation is that the Fed will raise rates at the beginning of next year.  However, with your measuring stick of inflation (CPI) recently ticking lower to 1.7% - doesn’t this raise a ‘deflationary’ concern?  And now with China, Japan and Europe all ‘putting the squeeze on’ – couldn’t we easily see the CPI contract to 1.5% as the dollar index spikes to 90 or higher?  And won’t this ‘spike higher’ (a) widen the trade gap, (b) negatively impact every multi-national company’s top-line revenues, and (c) cause manufacturing jobs in the U.S. to shrink and (once again) move abroad.

Ms. Yellen, my questions are:

-       How long can you take the pain of a strong dollar, and the risk of deflation?

-       And with Japan’s announcement (last week) of them dipping into a recession – isn’t that a vote against QE?  (As an aside: One of Japan’s latest ideas is to hand out gift cards to ‘poor people’ and let them go and ‘buy anything they want’.  I can’t make this stuff up!)

Ms. Yellen, can you tell me again how all of this ends well?

The Market:

In a world where the BRICs (Brazil, Russia, India & China) are joining together to form their own financial bank and trading agreements, and as nations have attempted to move away from the U.S. dollar – a pattern of behavior seems to have emerged:

-       Remember Libya's Ghaddafi?  He declared that he wanted to begin to refuse the dollar.  He called on all Arab and African nations to establish a new African continent using a new currency – the gold dinar.  What was the outcome for Mr. Ghaddafi?  He was overthrown by the U.S. government and NATO, and later killed.

-       Remember Iraq’s Saddam?  He declared that he wanted to sell his oil for Euro’s instead of U.S. dollars.  What was the outcome for Saddam?  The U.S. invaded Iraq due to terrorism and suspicion of harboring weapons of mass destruction – he was later killed.

-       Remember Christophe de Margerie – the CEO of ‘Total’ the huge French oil conglomerate.  This is what he said this summer concerning the purchase of oil in U.S. dollars: “It would be good if the euro was used more. The fact that oil prices are quoted in dollars per barrel does not mean that payments actually have to be made in that currency. There are no valid reasons to pay for hydrocarbons in the American national currency."  He also spoke out against the Russian sanctions imposed by the U.S.  What was his outcome?  He was killed in a ‘freak’ plane crash.

So, you either jump on board with the U.S. dollar – or you end up ‘dead’ is the way that I see it.

In terms of the market, the bottom line is that this market is grossly overbought. Central Banks are hoping that by pushing the market to insane heights it will cure the economy's ills.  It won't, but it seems like the last option at this point.  The only thing holding this market up is the banksters and their behind-the-scenes maneuvers.  I can see them pushing the market higher, trying to keep everyone feeling good for the Holiday shopping season – but that’s a nervous ‘hold’ for me.

If you've been in this game as long as I have, you've seen:

-       The ‘Tech’ Bubble of the late 90's – and the resulting crash,

-       The ‘Housing’ Bubble – and the resulting crash,

-       The ‘Credit’ Bubble – and the resulting crash / financial meltdown,

-       And now we're in the ‘Central Bank’ bubble – it too will crash.

There is a good reason why so many of the most respected fund managers are woefully behind the market this year.  This year most of them remained on the ‘side lines’, or put very little of their cash to work.  They are seeing the same things that I do and that is: no volume, Central Bank rigging, and earnings created with buy-backs.  This is NOT a signal of a healthy market.

This week we saw the Chinese cut rates, Draghi go "ALL IN" on QE, and Obama shortcut the Constitution and print trillions more dollars in order to accommodate 5 million more ‘new citizens’.  All that was enough to send the market soaring on Friday.

History shows that we normally levitate up through the Thanksgiving Holiday, and I could easily see them doing that again.  But, it’s going to be more of a struggle this time.  When you have China cutting rates, Draghi starting QE, and we can't even hold a 100-point day – you know that things are desperate.  This market is tired and heavy.  I’m going to approach this week as I did last – leaning long but with my finger near the sell button. 

I wish everyone a Happy Thanksgiving.  It’s my favorite holiday, and I truly enjoy spending time with friends and family.

Tips:

I am not bearish here, but I continue to feel that more consolidation is in order.  I talk to other traders, and we scratch our heads looking at the last 5 weeks.  I know it seems like ancient history, but if you recall – remember all the gloom and doom 5 weeks ago when the S&P was at 1817?    We are currently at 2071, which is 254 points ‘straight up’ in 5 weeks.  If you have traded for very long, you have seen this game before and you know how it ends.  I certainly don’t want to fight this move as we will likely have even more upside, but everyone being so bullish and ‘risk-on’ makes me nervous.

My current list of potential candidates has grown from last week and is as follows; DDD, APA, MCD, DFS, DKS, JEC, GILD, PEP, PII, WGO, ALL, MET, PRU, KSU, ABT, AAPL, WYNN, FDX, HSY, FLR, BMY, DPS, TEX, TRV, UTX, and KR.

I’m looking at the following Iron Condors (all with a Risk/Reward of less than 4:1):

-       GILD – Dec1 – 92/93 to 108/109 for $0.19,

-       IBB – Dec1 – 275/277.5 to 310/312.5 for $1.18,

-       IBB – Jan 2015 – 260/265 to 325/330 for $1.15,

-       RUT – Jan 2015 – 1060/1070 to 1260/1270 for $$1.88,

-       WYNN – Dec1 – 169/170 to 190/191.5 for $0.30, and

-       WYNN – Dec 2014 – 164/165 to 194/195 for $0.20  

To follow me on Twitter.com and on StockTwits.com to 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 - 11-16-2014

This Week in Barrons – 11-16-2014:

“It passed because the American people are too stupid to understand the difference” … Jonathan Gruber (Obamacare architect) on Obamacare.

Thoughts:

Dear Ms. Yellen:

            The above was a quote from the architect of Obamacare.  Unfortunately it saddens me to say that we are stupid, and here are some recent facts to prove it:

-       Over half of us are worth (are being paid) less than $20 per hour.

-       We want to think that we will get a better job, but over 72% of the jobs created in October were only part-time.

-       We want to think we won’t lose our homes, but in October home repos had the largest increase (15%) since the height of the housing crisis.

-       We want to believe in our banking system, but (to date) 5 major banks have been fined over $35B due to the rigging of LIBOR and exchange rates, Gold and Silver price-fixing, and ‘robot’ mortgage signings.

-       We want to feel wealthier now that gasoline has fallen 19%, but unfortunately prices of food and rent have increased 22% and 15% respectively, which puts our gasoline savings in the rear view mirror.

-       We want to think Russia is the bad guy, but Russia and China just signed their second natural gas deal.  This makes China (instead of Europe) the largest consumer of Russian natural gas.  So while Europe comes apart at the seams, Russia and China are trying to create economic growth.

-       We want to think China’s economy is falling apart, but China is showing us that it can manage its 8% growth (U.S. = 2%) by announcing that it will be increasing its gold holdings to over 8K tons, and are going to import over $10T in foreign goods this coming year.

Therefore, Ms Yellen I guess we could be considered ‘stupid’ people.  Or – is it just the 545 leaders that we elect that are ‘guilty as charged.’  Courtesy of Charlie Reese of the Orlando Sentinel, here are some facts for you to consider:

545 is equal to: 100 senators + 435 congressmen + 1 President + 9 Supreme Court Justices.  545 human beings (out of our 300 million) are directly, legally, morally, and individually responsible for all of the domestic problems that currently plague our country.  These same 545 human beings spend much of their energy convincing you and I that what they did is not THEIR fault.  However, I can't think of a single domestic problem that is not traceable directly back to those 545 people.  Politicians are the only people in the world who create problems and then campaign against them.  If the tax code is unfair – it’s because THEY want it to be unfair.  If the budget is in the red, it’s because THEY want it to be in the red.  There are no unsolvable government problems.  I have forever wondered: IF both Democrats and Republicans are against deficits, inflation and high taxes – then WHY do we have deficits, inflation and high taxes?

The following is a list of taxes that have been enacted in the last 100 years:

Cigarette Tax, Corporate Income Tax, Excise Tax, Federal Income Tax, Federal Unemployment Tax (FUTA), Fishing Licenses, Food Licenses, Fuel Permits, Gasoline Tax (currently 44.75 cents per gallon), Gross Receipts Tax, Hunting License, Inheritance Tax, IRS Interest Charges, Liquor Tax, Luxury Tax, Marriage License Tax, Medicare, Personal Property Tax, Property Tax, Real Estate Tax, Service Charges, Social Security, Road Usage Tax, Recreational Vehicle Tax, Sales Tax, School Tax, State Income Tax, State Unemployment Tax (SUTA), Telephone Taxes (numerous), Utility Taxes (numerous), Vehicle License & Registration Tax, Vehicle Sales Tax, Watercraft Registration, Well Permits, and Workers Compensation Tax. 

Now, NONE of these taxes existed 100 years ago – when the U.S. was:

-       The most prosperous nation in the world,

-       Had $0 in National Debt,

-       Had the largest middle class in the world,

-       And was in an era when moms COULD stay at home and help raise the kids if they wished.

Ms. Yellen, What in the heck happened?  Did we become STUPID overnight?  How do you spell W-A-S-H-I-N-G-T-O-N?

The Market:

The market is working through an ‘over-bought’ condition by wobbling sideways and letting ‘time’ do the repair work on the technicals.  Part of me says that if this market was going to sell-off and do some profit taking – then it would have done so by now.  But I’m just not totally convinced.  We are currently ‘dead center’ in the area where pulling back would NOT be a bad thing.  And while it seems that this will be resolved to the up side, I’m just not certain right now.

As I approach the holidays, I always look toward the consumer for guidance.  Last week, Macy’s earnings showed that their revenue and margins were both contracting and compressing.  Wal-Mart’s story was similar to Macy’s but not as bad.  Their earnings per share (EPS) beat expectations, but they reported top-line revenue below expectations.

The easiest thing to say right now is that the ‘market is going higher.’  My issues with saying that are major indicators like the Russell Index of 2,000 stocks (RUT), and many of the financial, semi-conductor, and tech indices are struggling to keep their heads above water.  The path to me isn’t all that clear, but the markets would definitely LIKE to move higher.  I just don’t know if there’s any more ‘firepower’ left, and if any more ‘newbies’ are left to pull into the market?  The market just seems ‘heavy’ to me.  Also, heading into the holidays I have seen lowered guidance by some major retail names.  That means that even with lower gasoline prices, companies are beginning to lower their sales expectations for the holidays.  Companies are beginning to see elements in the consumer that are both troubling and un-manageable.

Please, be safe out there.

Tips:

In the coming week, I’m looking for a continued ‘grind’ higher in stocks, and a push lower in the dollar related commodities such as oil and gold.

By the Charts:

-       The RUT (Russell Index of 2,000 small stocks) currently sits at $1,173, and could fall back to test $1,161.  The RUT should guide the markets, except for the NASDAQ which seems to be running on AAPL fumes right now.

-       The SPX (S&P Index) sits at $2,040 and is consolidating.  This is a bullish pattern, and can easily resolve itself by rising to test the $2,055 level.

-       The NDX (NASDAQ Index) sits at $4,225 and continues to move higher on the back of AAPL (Apple).  This could potentially hit $4,363 with all of the smaller players being forced to buy some AAPL prior to year-end.

-       TLT (a Bond indicator) is showing a BUY signal on the daily chart.  It is looking like it wants to move into $122, from its current price of $119.50.

-       The dollar index continues to push higher.

-       The financial sector is moving with the markets – with Berkshire Hathaway leading the way.

-       The energy sector is under significant pressure due to the price of oil continuing to fall as the dollar rises.  I see oil ultimately going to $60 per barrel.

-       Gold rallied to resistance on Friday and should continue lower next week.  Take advantage of this by buying DUST – a triple leveraged, inverse ETF that tracks the gold miners.  I see Gold eventually landing at $1,033 per ounce, and Silver making its way back to $10 per ounce.

-       IYT (the transportation index) is consolidating and wants to move higher.  SELL the December – 153 / 154 – Put-Credit Spread, and BUY the December 169 / 170 / 173 Call Butterfly.

-       AZO (AutoZone) also wants to move higher.  SELL the December – 520 / 530 – Put-Credit Spread, and BUY the December 580 / 590 / 610 Call Butterfly

In my view we are on the verge of an 8 to 12 month move higher in the U.S. dollar that is a result of a 12-year wedge pattern that has just fired long.  The last pattern resembling this (only in the inverse) fired in 2002 – when the U.S. dollar went from $120 to $87 over the next 3 years.  Currently money is flowing into the U.S. dollar from Europe, Brazil, India, and South Africa.  I’m looking for the dollar to move from its current level of $87 back up to $110 or potentially to $120 over the next 8 to 12 months.

Next week is options expiration, and if things remain calm my list of potential candidates includes: GILD, AAPL, WYNN, FDX, ALL, PII, HSY, FLR, BMY, DPS, TEX, SLW, TRV, UTX, and KR.

To follow me on Twitter.com and on StockTwits.com to 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 - 11-9-2014

This Week in Barrons – 11-2-2014:

       

“How do you know if you’ve got a good mechanic?  By the size of his boat!” … Tom Magliozzi (co-host of NPT’s Car Talk radio program) – passed away on November 3^rd from complications of Alzheimer’s disease.  He left us a lot of knowledge and laughs:

-       “Do it while you're young. You may never have another chance to do anything this stupid again!"

-       "Life is too short to own a German car."

-       "If it falls off, it doesn't matter."

-       "Never let the facts stand in the way of a good answer."

-       “If I left work any earlier, I’d pass myself coming in.”

Dear Ms. Yellen:

Ms. Yellen, are we sure that we’re on the right track with jobs?  The ‘Jobs’ Report (released last Friday) showed that we created 214,000 jobs in October – lower than expected.  It was a 14% decrease from the 248k gain reported in September, and an identical decrease from a year ago.  If I subtract the ‘fake’ birth/death model jobs (137k), I show a net gain of 77k jobs in October 2014 – with 42k of those jobs being low-paying jobs in the food and beverage industry (waitresses and bartenders).  Education seems to matter when getting a job as unemployment for 25+ year olds with a Bachelor’s degree is 3.1%, but for those without a high school diploma the rate is 7.9%.  You can’t be happy about the U6 total unemployment rate hovering around 12% are you?  What’s worrying me is that the ‘Challenger’ lay off report for October had layoffs rising by 68% over the previous month.  This is especially worrisome given many companies go on hiring sprees prior to the holidays.

Ms. Yellen, in terms of the election – I think stocks prefer a slow moving government.  With a Democrat in the White House and a Republican Congress, this stalemate is something that Wall Street will like.  In the 90’s, the last 6 years of the Clinton administration had a Republican Congress and provided an ideal investing environment.  This same notion held true in the 80’s when the Democrats controlled the Congress under Reagan.  But some of the post-election comments that I heard were disturbing:

-       Only 22% of our citizens believe that their children will have a ‘better’ life than they do.

-       People can’t get mortgages because banks are ‘parking’ their FED money back in the FED, or in the stock/derivatives market.

-       People can't afford to buy a car because their wages haven’t increased in 15 years, so the 3-year lease is all that they can afford.

-       People can’t afford to send their kids to college because it costs an average family over 5 years wages to do so.

-       And people are angry at Obamacare because their premiums have increased dramatically.

Ms. Yellen, I’m seeing our energy boom cause a real clash between politics and economics.  The 1920 Mineral Leasing Act allows U.S. oil producers to sell only a tiny amount of oil abroad.  Even though our oil production has increased 32% since 2008, we only export 47k barrels a day versus importing 8M barrels.   So if the Republicans push for more oil and natural gas exports, the industry should grow larger and employment should increase significantly.  However Saudi Arabia, for the first time since the oil embargo in 1973, has taken a direct and defiant stance against the U.S.  They have publically announced reduced export prices on oil to the U.S. while simultaneously increasing supply.  I think that this is designed to squeeze the profit margins on the more expensive U.S. shale-oil production.  It’s my thinking that U.S. shale production costs are in the $70 per barrel range, while OPEC production costs are in the $40 dollar per barrel range.  Lately, the price of oil has steadily decreased from the $92 per barrel area, through $80 per barrel, with the next stop being $72.50 and then ultimately $60.50 per barrel.  Ms. Yellen, if the U.S. and Saudi Arabia are not able to find some common ground or solutions to this stand-off – are you anticipating OPEC removing the U.S. dollar dominated oil trade and move to some other standard such as gold?  A move like this would destabilize the dollar as a world reserve currency, and would most certainly devalue the dollar and create inflation.  Do you agree?

The Market:

This week I would like to discuss two market elements, the first is the strong dollar, and the second is Alibaba (BABA). 

The U.S. stock market (this week) continued to rally on the backs of the strong dollar.  Historically, the dollar index started in 1973 at 100.  It reached a high of 164.72 in 1985 – before a nasty decline culminating in a low of 78.43 in 1992.  From then until 1995, the dollar rallied to a zone of resistance around 90 – 3 different times before faltering back down to about 80 in 1995.  Post 2003, the dollar has tried and failed 7 times to rally beyond the 90-level.  Once again we are approaching that key 90-level. 

A strong dollar means that the world considers the U.S. market and the U.S. consumer to be the strongest.  It also means that commodity prices (including gasoline, gold and silver) will continue to plummet.  The dollar index has soared to 87.  I am looking for the dollar to continue to rally to 90 – which could happen over the next 6 to 12 months.  Then it should stall and potentially have a strong pullback.  This pullback will be the 30% correction that I have been looking for, and will represent the buying opportunity of a generation. 

Why do I think that it will take another year or so to correct?  When I look back over the past 40 years, all of the recessions have happened during a Presidential transition.  The ‘82 recession, the ‘93 recession, the 2001 recession, and the 2009 recession have all happened when there was a change of power in Washington.  In 2016 there will be a change in power that I think will align with both a recession and a market correction.  After that, the dollar will begin to recover, break above 90, and head toward its next major support level at 105.  So, if you think stocks are high now – you ain’t seen nothin’ yet.

In terms of the Chinese company Alibaba (BABA), they reported earnings this week.  Allow me to point out Alibaba’s size, its growth, and its reach:

-       The number of annual active Alibaba buyers climbed from 279M a year ago to 307M.  There are 319M people in the U.S., so Alibaba has almost the same number of annual active buyers as there are people in the U.S.  Alibaba grew by 28M active users in one year – which is more than the entire population of Texas.  Its mobile users have surged to 217M monthly active users, and its gross merchandise volume rose 49% from a year earlier.

-       Because the Chinese are moving up on the income ladder and gaining access to credit, China is becoming more reliant on domestic spending.

-       The Chinese population has enormous room for growth as a ‘flood’ of new consumers and higher income earnings are coming on-line daily.

Therefore, I think that the concerns about China have less to do with their domestic growth and more to do with the BRIC bank, the U.S. dollar as a reserve currency, their oil and gold purchases, and their international trade status.  China’s economy is getting to a point where their domestic economy can absorb virtually anything that the U.S. ‘can throw at them’ – and that should scare us.

Tips:

This week the U.S. Mint confirmed that they ‘sold out’ of silver one-ounce rounds. What is fascinating is that under normal economic circumstances – when something ‘sells out’ you would think that demand was indeed robust and you would then raise prices.  In the case of precious metals, their price is continuing to drop – directly in the face of dramatically increasing demand.  My thinking was that the Fed itself was driving down the prices of gold and silver, in order for them to buy and meet the redemption demands by foreign deposit holders like Germany and others.  Perhaps their plan is backfiring in so far as too many individuals are capitalizing on the demand disparity between paper and physical precious metals.  I think the price of gold settles at $1,033 per ounce.

It's been 17 trading days since FED-head Bullard hinted that maybe the QE process should be extended.  Since that mention during the depths of the 10% pullback, the DOW has gained 1638 points.  That's an average of almost 100 points per trading day.  By virtually every measure – this market is extended to the upside.  We should see some consolidation, but without a catalyst, we could just chop and drift higher.  Right now, the biggest magnet for the S&P is the 2050 value, and it is within striking distance – especially if the ECB does a fraction of the QE that the Bank of Japan announced last week.  This 2050 area has the potential to be an area where the S&P remains for a while.  So bottom line, the higher we go in this market without consolidation – the less I trust it.  My guess is that we do a bit of fading this week.  It could be a ‘run of the mill’ 2 - 4% pull back, or it could again morph into something deeper.  After that pull back, I think they'll re-group and shoot us higher into yearend.  A common strategy is to watch the stocks that hold up the best in a down turn, and then buy them for the upswing.  My current list of potential candidates is; GILD, IBB, AAPL, WYNN, FDX, BTU, ALL, PII, HSY, FLR, BMY, DPS, TEX, SLW, IYT, TRV, UTX, KR and a couple interesting long stock ideas in LAYN and HERO.

1.    Sold the NDX – December 2014 – Iron Condor – 3880 / 3890 to 4340 / 4350 – with a 1:4 risk/reward ratio and yielding $2.18 per contract

2.    Sold the RUT – December 2014 – Iron Condor – 1070 / 1080 to 1230 / 1240 – with a 1:3 risk/reward ratio and yielding $2.15 per contract

3.    Sold the SPX - December 2014 – Iron Condor – 1900 / 1910 – 2110 / 2120 – with a 1:3 risk/reward ratio and yielding $1.90 per contract

4.    On Wednesday - consider selling the XLP (Consumer Staples) – December 2014 – Iron Condor – 44 / 45 to 49 / 50 – with a risk reward of 1:5

5.    On Wednesday – consider selling the XLU (Utilities) – December 2014 – Iron Condor – 42 / 43 to 48 / 49 – with a risk reward of 1:3+

6.    On Thursday – consider buying the XLU (Utilities) – December 2014 – Butterfly – 47 / 49 / 50 – and sell the off-setting Put-Credit-Spread to make this a no-lose trade.

7.    On Thursday – consider buying the XLP (Consumer Staples) – December 2014 – Butterfly – 49 / 50 / 52 – and sell the off-setting Put-Credit-Spread to make this a no-lose trade.

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

Please be safe out there!

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