This Week in Barrons – 9-20-2015:
Thoughts:
“Recent global economic developments may restrain activity, and are
likely to put further downward pressure on inflation.”
Dear Ms. Yellen:
With that
single sentence you said: ‘We are not going to raise rates, regardless of how
great we tell you the U.S. economy is’.
And what I heard was: ‘The economic data that you’re releasing is solely
there to make me feel good’. In reality,
your actions clearly tell me that the economy it is NOT as great as you have lead
me to believe.
Yes Ms.
Yellen, both you and the President have thrown strong U.S. economic data in my
face for years: GDP improving 2.3%, U3 Unemployment 5.1%, and 0% Inflation. This has led me to believe that the U.S.
economy was roaring back, and stronger than ever. Your marketing plan worked like a charm. But now you’re telling me: ‘April Fools –
this economy isn’t even strong enough to raise interest rates by a measly 0.25%’.
So I am to assume
that if you removed ALL of the FED’s monetary accommodation (including your
ongoing bond and MBS buying and let rates float) that our economy would go
right down the toilet – yes? So the fundamental
reality is that your monetary policy and your direct participation in the
financial markets (coupled with allowing leverage to expand) are the primary
factors improving the economic data. And
by removing those elements, this economy suddenly stinks like 5-day old fish.
Ms. Yellen, I think your press
conference was one of the purest examples of outright lying and deception I've
seen in a long time. The good news is
that the world was watching. I think you
and the rest of the FED have lost every ounce of credibility you may have had,
and were exposed as public shills to the stock market. All of the press corps left that room with
the same feeling: ‘Janet Yellen has been lying to us for months’. You
had your shot, and you took a pass.
All of this new talk about
raising rates in October or December is now just pure speculation – just what
you claimed you were trying to avoid via FED ‘transparency’. In fact, one of your members actually predicts
that in the next year interest rates will go ‘negative’. So we have gone from raising rates to: negative
rates, more QE, bail-in's, forced Treasury note buying, and retirement account
seizures – all in the blink of an eye. The
Bank of International Settlements (to which you belong), reported this week that
‘you engineered the bubble, and therefore you will also engineer the upcoming
crash.’
I can hear your next
speech now. You should start with: “Come
with me if you want to live.” You should
end with: “I’ll be back.” And what I
will remember is: “Hasta la vista, baby.”
The Market:
We are experiencing the death
of an era. We’ve seen the rise of
China's manufacturing economy, and a tech era that took us from dial up Internet
connections to fiber optics to cars that drive themselves. Not to be outdone, we’ve seen the world’s central
banks create money and contort monetary policy in order to smooth-out business
cycles. Even our business leaders were successful
in convincing gullible Americans that off-shoring and sending manufacturing to
China, Vietnam, Mexico, and Pakistan was good for us because they could do the
labor and we would be the brains.
Now that we’re seeing the
world dipping into recession (Canada was the latest to report 2 negative GDP
quarters in a row), we are shouldered with too many resources, factories, and people.
Banks are shackled with too much toxic paper, and over $70 TRILLION worth of questionable
derivatives.
Factually:
-
The OECD cut its
2015 global growth forecast to 3%. It
expects Chinese growth to slow from 7.4% in 2014 to 6.7% in 2015.
-
Inflation across
the Eurozone weakened to 0.1% in August.
-
Standard &
Poor’s lowered its credit rating on Japan.
-
Hewlett
Packard is laying-off 30,000 workers, and offshoring more of it’s engineering.
-
FedEx
(after missing earnings estimates) announced that it will be raising its rates
by 5% in January.
-
The Empire State
Manufacturing Index posted its lowest reading since 2009.
-
Retail sales (excluding autos) were well below estimates last month.
-
Industrial
production fell worse than expected – with auto parts seeing their largest drop
since 2011.
-
But
the news that woke me up was GE’s Jeff Immelt (the ‘Chair’ of President Obama's
Council on Jobs and Competitiveness) announced that GE will begin shipping more
jobs overseas.
As you can tell by now,
the world is running on empty. Everywhere you look, economies are either
failing, or being propped up by life support. I don't for a minute think
that this is some kind of ‘buy on the hip’ philosophy. This is a structural change we're facing, total
exhaustion, a period that has ‘run its course’.
I tend to think that we're staring down the barrel of a long, protracted
economic fade, and that no matter what they throw at it, it has to find its equilibrium
– and that will be a painful process.
Until our FED comes out
with their next scheme to try and prop up our economy – the ‘top’ is in. We are starting to move sideways and down. Yes, we will bounce, but then we will fade
away again – each time a bit lower.
How can I be sure? Because Ms. Yellen didn’t raise rates. She didn't even continue the propaganda that
the ‘U.S. alone is strong enough to begin rate normalization’. Now, when people look at the Empire State
Manufacturing Report coming in at MINUS 15, or the Philly Fed reporting a MINUS
6, they will start to understand that the recovery is indeed nothing more than illusion.
I suggest that investors will be more
critical of company earnings, and begin to question some of the abject fraud erroneously
labeled as ‘aggressive accounting procedures’. Investors were okay with the fraud as long as
the FED was on board. Now, they won't be
so inclined.
Volatility will ‘rule the
roost’. Banksters want asset prices
rising so they can create even more toxic derivatives using fictionalized assets
as collateral. Investors are beginning
to fear that the FED can't make it happen any more. The upcoming ‘tug-of-war’ will be impressive
to say the least. I think it's prudent to learn about inverse ETF's,
going short, and how to purchase put options – if you haven't done so already!
TIPS:
In terms of Indexes:
-
DOW - 16,385: We
broke thru and closed below our 16,400 support level – so I’m showing 16,200 as
the floor for the coming week. Once bond
yields rise in the fall – the equity markets will again be the place for
capital – but next week is still touch-n-go.
-
NDX – 4,827: We’re
at short-term support,
with 4,200 as a broader low support area. This index is extremely volatile so expect
action.
-
SPX – 1,958: We
are returning to the days of a high volatility range bound market between 1,920
and 2,000.
-
RUT – 1,163: Of
all of the indices, the Russell is the measure for the broadest flow of
capital. The Russell looks relatively STRONG compared to the other
indices, and actually long-term bullish. A drop to 1,160 is possible and then a run
higher to the end of the week.
Recommendations:
- Goldman Sachs (GS): SOLD SEPT $192.5 / 195 Call Credit Spread
- American Express (AXP): SELL Call Credit Spread
- Tesla (TSLA): SOLD 237.5 / 240 Put Credit Spread
- Amazon (AMZN): SELL Put Credit
Spread
- REN – Long-term buy on this small oil stock priced @ $0.50
- OAS – Long-term buy on this small oil stock priced @ $11
I’m currently a little light – but holding:
-
RUT – SOLD – Iron Condor – Oct 1090 / 1100 to 1250 / 1260,
-
SPX:
o
SOLD – Iron Condor – Oct1 @ 1895 / 1900 to 2055 / 2060,
o
SOLD – Iron Condor – Oct1 @ 1905 / 1910 to 2055 / 2060,
o
SOLD – Iron Condor – Oct1 @ 1915 / 1920 to 2170 / 2175,
o
SOLD – Iron Condor – Oct1 @ 1925 / 1930 to 2170 / 2175,
o
SOLD – Iron Condor – Oct2 @ 1850 / 1855 to 2060 / 2065,
o
SOLD – Iron Condor – Oct2 @ 1895 / 1900 to 2060 / 2065,
o
SOLD – Iron Condor – Oct4 @ 1825 / 1830 to 2070 / 2075,
o
SOLD – Iron Condor – Oct4 @ 1880 / 1885 to 2120 / 2125,
o
SOLD – Iron Condor – Oct5 @ 1860 / 1865 to 2200 / 2205,
o
SOLD – Iron Condor – Nov1 @ 1850 / 1855 to 2085 / 2090.
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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