This Week in Barrons – 10-18-2015:
Thoughts:
Dear Ms. Yellen:
This week:
-
The CEO of Schlumberger (major oil and gas supplier) said: “This will go down as the most severe
downturn we’ve had in decades.”
-
The CEO of FactSet said: "We touch over 250,000
customers per month, and this industrial environment is definitely in a
recession.”
-
Housing foreclosures spiked 66% year over year –
producing the largest annual rise in bank repossessions ever recorded.
-
The 2015 pace of job creation has declined 24% over 2014.
-
The labor pool has been reduced to 1970’s lows. If we use the old rules to track unemployment
– the true unemployment rate would be 15%.
-
The 12-month, average inflation rate is ZERO. Deflation is close.
-
For 3 months in a row, the Empire and Philadelphia business
reports have shown a contracting economy – with new orders hitting 2009 lows.
-
Japanese Industrial Output dropped 1.2% from the
previous month.
-
The Germans sold their latest 10-year ‘bunds’ at record
low interest rates – NEGATIVE 0.3%.
Ms. Yellen, if you’re asking me to invest in companies that are NOT
growing, but are capable of borrowing ‘free money’ just to buy back their own stock
– sorry, I didn't learn that one in
Economics 101.
But hey, it’s all just one big ponzi scheme. Remember the 80's and Crazy Eddie? A string of electronics stores called
"Crazy Eddie's" – specialized in selling low priced consumer
electronics. One of the ploys ‘Crazy Eddie’
(Eddy Antar) used to keep his store expansion moving was to request a loan from
a bank to open more stores. He would then
set up a walk through with the bankers at one of his stores. The day before the walk through, he would shut
down the other stores in the area, and move most of their entire stock of
merchandise into the store that the bankers would be viewing.
On the day of the walk through, the bankers would be amazed at the sheer
volume of merchandise – piled to the ceilings.
The bankers were then invited back in a couple of days to see the amount
that was sold. And sure enough, most of
the goods were gone. Eddy would then say:
“See, we sold all of that in just 3 days!" In reality, Eddy had the employees
truck all the stuff back to the other stores where it came from. Eddy was managing the appearance of ‘strength’,
when in fact he was using loans to stay afloat. Ms. Yellen, doesn’t this
sound familiar to what our corporations are doing today?
But Ms. Yellen, unlike all of your bankster friends, Crazy Eddie went to
jail. I ask you: if retail sales aren’t growing and inventory is increasing,
if the 3rd Quarter GDP estimate is being reduced again, and if Wal-Mart can’t
make money – you’d have to agree that this isn’t just China slowing down. The whole world is slowing, and in many ways
– “Our Prices are Insane.”
The Market:
The definition of money is:
1.
It must be durable (which is why we don't use wheat, corn
or rice).
2.
It must be divisible (which is why we don't use artwork).
3.
It must be convenient (which is why we don't use lead or
copper).
4.
It must be consistent (which is why we don't use real
estate).
5.
It must possess value in itself (which is why we don't
use paper).
6.
It must be limited in quantity (which is why we don't use
aluminum or iron).
7.
And, it should have a long history of acceptance (which is
why we don't use molybdenum or rhodium).
Only gold and silver fit all seven characteristics. Bitcoin / Bitgold are wonderful (and I
personally love the idea of ‘crypto currency’), but unfortunately our government
can disable it in a heartbeat by pulling the plug on the Internet.
If I were to switch gears from giving investment advice, to giving survival
advice – I would advise everyone to have some physical gold (2 coins), silver
(20 coins) and $2,000 in cash on hand for emergencies. I think silver at $17/oz. has a date with
$70/oz., and gold at $1,200/oz. has a date with $3,000/oz.
The best denominations to own are the U.S. Gold & Silver Eagles, and
the Canadian Maple Leaf. These are
universally accepted as a great store of value. Remember the movie ‘Trading Places’, where Dan
Akroyd goes from being a highly paid commodity trader to a street-wise derelict.
In one scene, Dan goes into a pawnshop trying
to get money for his Rochefoucauld watch.
The pawnshop owner offers him $50.
Dan responds: “This is the thinnest, lightest, waterproof watch in the
world. It retails for $7,000, and tells
time in Monte Carlo, Rome, London, Paris, New York, and Beverly Hills.” To which the pawnie says: “In Philadelphia,
it's worth 50 bucks". Dan takes
the money. Remember, the key to currency is owning what everyone ELSE
views as valuable.
-
In terms of allocation, 70% of the amount of money you
allocate for metals should be in gold, with the remainder in silver.
-
The most traded silver product on earth is the Silver
Eagle, and is guaranteed to contain one troy ounce of 99.9% pure silver. If something totally wicked happens and you
need to use your silver for food – the Silver Eagle will be the ‘go to’ coin.
-
I recommend buying them from: http://www.cornerstonebullion.com
-
In terms of storage, it is a mixed problem. You want to store your metal where you can get
it – in case of an emergency. Metal that
you can’t retrieve – is metal that you can’t use. One of the very best remote repositories is: http://www.dakotadepository.com. It is insured, offers segregated accounts,
and is extremely secure.
-
If you like the idea of storing your metal in your home,
then a good ($2k) safe should be on your shopping list.
-
I’m not against buying the GLD (which is the ETF for gold),
but know that you are NOT buying gold – you’re just buying a digital proxy for
gold.
-
Instead of GLD, consider the CEF. The CEF is a
closed end fund that is 60% gold and 40% silver. The difference is that
they actually have the audited gold and silver in their Canadian vaults.
-
Also consider PSLV – the Sprott Silver Trust. This
Trust was created to invest and hold substantially all of its assets in
physical silver bullion. Its purpose is
to provide a secure, convenient and exchange-traded investment alternative for those
who wish to hold physical silver without the inconvenience.
Until last week, an
incredible $70 Billion had fled away from the stock market. But with this run-up, last week saw a $3
Billion in-flow back into equities. But
we are in that odd situation where:
-
There is record
‘Put’ buying as protection against a crash,
-
Gold is being
bought,
-
And silver is in
such demand that there is virtually no supply.
The economic numbers are showing
us rather horrifying data, earnings are disappointing, and yet the market
continues to rise. The FED is in: ‘keep
the market up at any cost or the world blows up’ mode. They have already
pushed this market higher and longer than I thought possible, and even in the
most bullish scenarios the market’s latest upside move is overdone. If nothing else, a pause should be in the
cards. After letting the market catch its breath, I would not be
surprised to see one more leg higher – preaching Christmas sales.
TIPS:
Recommendations:
Allow me to redo a concept
that I shared with you 2 weeks ago concerning the silver / gold miner – First
Majestic – ticker symbol AG.
-
It has moved
from $3.58 (2 weeks ago) to currently $4.06/share. I’ll go on record as saying that you can
always purchase the stock. Another way
to play it is by using the January 2018 call options.
-
Given the stock
has moved in price, I would recommend the $3 – January 2018 call options
currently selling for $2.30. By buying
45 contracts you are spending about $10,000 on this trade. Use your own personal preference to adjust
your purchase size – for example: buying 10 contracts costs $2,500.
-
As silver/AG
rises, and AG hits $5+/share, our $10K in options will be worth $18k. We will then sell our $3 call options, and
use the proceeds to buy option contracts at the $5 strike price. By continually maintaining a closer ‘to the
money’ strike price – our gains will multiply much faster.
-
As silver/AG continues
to rise, and AG hits $10+/share, our $5 contracts will be worth $53k. We will then sell our $5 contracts, and use
the proceeds to buy contracts at the January 2018 $10 strike.
-
As silver/AG continues
to rise, and AG hits $15+/share, those $10 contracts are now worth
$132,000. Sell those $10 options, and use
the proceeds to buy contracts at the January 2018 $15 strike.
-
And finally as
silver continues to rise, and AG hits $20+/share, you will have made $250k on a
$10k investment. You could even roll it
out again, and have $500k when AG makes it to $25+/share.
So the only real question
is: ‘Can AG go from $4.06 to $20 in less than 2.4 years?’ The miners did similar things in the past,
and there's even more reason for them to blast off this time if silver
manipulation ends. But honestly, if AG just goes from $4.06 to $6 you
will still make a great return on your money.
I’m still light – but buying more and more AG and FFMGF:
-
AG – BOUGHT Stock @ $3.58 – currently $4.06
o
BOUGHT – Jan, 2018 $2 Calls @ $2.30 – currently $2.78
-
FFMGF – BOUGHT Stock @ $0.33 – currently $0.37
-
SPX:
o
SOLD – Iron Condor – Oct4 @ 1800 / 1805 to 2050 / 2055,
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 2090 / 2095,
o
SOLD – Iron Condor – Oct5 @ 1780 / 1785 to 2070 /
2075,
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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