RF's Financial News

Sunday, December 6, 2015

This Week in Barrons - 12-5-2015

This Week in Barrons – 11-29-2015:

Thoughts:

Dear President Obama:

There was at least ONE record set on this year’s Black Friday, and that was the processing of 185,000 weapons background checks on a single day. And just this week we were reminded why – people are scared. We were vividly reminded of the horror that can be created, when 2 people (armed with AR 15's) went into a company function and killed 14 people. Companies are asking the question: “Are we next”? And as our economy slides further downward, and the economic dislocations become larger than in the 2008 melt down, I think that there will be more of these ‘outbursts’. Gun shops are selling 4 TIMES more weapons than last year. J.Q. Public is ‘talking with his wallet’ that no amount of militarized police, or ‘warm and fuzzy’ talk is going to stop bad people from doing bad things.

President Obama you continue to say that we are the only country that has these problems, when factually the world suffers more than we do. For example:

- France (in 2015) has suffered more casualties from mass public shootings than the U.S. has suffered during your entire presidency - (508 to 424 – and that includes Wednesday’s San Bernardino massacre).

- Norway, Anders Behring Breivik used a gun to kill 67 people and wound 110 others – with still others being killed by bombs that Breivik detonated.

- Of the TOP 4 worst school shootings, 3 have occurred in Europe with Germany having 2 of them.

- And in 2004, Beslan, North Ossetia-Alania, Russia was the scene of a terror attack where 32 armed men invaded a grade school – capturing over 1000 hostages, and killing 386 people over the 3-day event.

President Obama, between 2007 and 2011 (outside of Iraq, Afghanistan and the U.S.) there were an average of 6,282 terrorist attacks per year with more than 27,000 people (on average) being killed, injured or kidnapped. As the years go on I fear that we will dissolve into more social unrest, with even more staged events, and that the 185k Black Friday figure will continue to grow exponentially. This is NOT a U.S. issue, but rather a global issue. What will it take for us to put our politics aside and take a real first step?

The Market:

I’m sorry to say, the economic news this week wasn’t exactly wonderful:

- The Index of Purchasing Managers was supposed to report a 50.5 level – and instead came in at a 48.6 level – with new orders falling once again.

- The ISM Manufacturing Index fell to its worst level since 2009.

- The CEO Economic Outlook dropped back to its 2012 level.

- And the Swiss 10-year bond is now yielding an insane NEGATIVE 0.41%.

However, there was good news out of China this week. Their currency (the Chinese Yuan) was admitted to the International Monetary Fund’s (IMF’s) Special Drawing Rights (SDR). This is a strategic basket of global currencies that are combined to form a global ‘elite’ currency. It gives China the measure of respect and prestige that they deserve, and forces all of the big currency players to take them seriously. But, it doesn’t end there.

Our global plan continues to try and draw Russia into the world’s hot spots and see what kind of weapons they bring to the party. The more missiles and electronic jamming devices they employ in Syria (for example), the more we get to learn about their latest technology. Meanwhile, China is building Islands in the South Sea for the purpose of expanding their navy and corresponding naval bases. Throughout history, war has been the solution for virtually every major economic calamity. Bankers love it because they get to finance both sides. Elitists love it because they can hide in the shadows, and not get blamed for causing the war (which they did).

So China's inclusion into the IMF’s SDR is not just about accepting the world’s second largest economy into the ‘Big Boys Club’, but rather another dagger in the heart of the U.S. dollar. If I’m right, not too far into the future we will hear about China wishing to back their Yuan with a percentage of GOLD. At that point the world will need to make a decision: Do the major players want U.S. Dollars that are backed by nothing more than the ‘full faith of our Government’, or will they want the Chinese Yuan that is backed by gold? Naturally, the Yuan will soar, causing large pension and insurance funds to sell U.S. Dollars, Euros, Yen and British Pounds – in order to increase their stake in the Chinese Yuan. And other nations will then react by increasing their gold holdings in order to prevent any further erosion of their own currencies.

Also this week, ahead of Mario Draghi's ECB statement, funds ‘bought the rumor’ that he would do a lot more QE and slash deposit rates to record levels. However, his official announcement wasn't nearly as big of an event as all had anticipated – so all those ‘buying’ funds instantly ‘sold the news’. And by the time Thursday was over, we had lost over 300 DOW points.

But on Friday we received two bits of news. First the Non-Farm Payrolls report told us that (on the surface) the U.S. had created 218k jobs last month. Of course what was hidden behind that 218k number, was the creation of 311k ‘part-time’ jobs which (therefore) caused the ELIMINATION of 93k full-time positions. I guess none of the news agencies had the backbone or the moral obligation to report that. Secondly, Mario Draghi came out on Friday and basically said: “Hey, don't fret over what I just said on Thursday, I'm really going to dump all the QE necessary to drive inflation up to 2% - and I'm going to do it quickly." Those two elements combined for a positive 370 DOW point and 42 S&P point up day.

So what happens now? We have a FED meeting on the 15^th and 16^th, and their decision on rates (going higher) will be delivered on the 16^th. Therefore, we only have 7 trading days before we hear what the FED will do. Will the markets remain brave into that day, and try and move over their various resistance levels at 2094, 2103 and then at 2116? I tend to think that in the beginning of the week we will give back some of Friday's gains. I think we fade back from 2092 to 2080 on the S&P, then firm up, trade sideways for a bit, and then finally try and attack those same 2094, 2103 and 2116 levels.

TIPS:

I would like to:

- Add to the UVXY trade below because volatility should increase going into the FED meeting on the 16^th.

- Look at an Iron Condor on Apple (AAPL) either the Dec5, 105/110 to 125/130 for $0.62 or the Jan 100/105 to 125/130 for $0.86.

- Look at an Iron Condor on Caterpillar (CAT). I think it has found a temporary floor with earnings due out at the end of January. Either sell the Jan 60/62.5 to 75/77.5 Iron Condor for $0.52 or the Jan 55/60 to 77.5/82.5 Iron Condor for $0.31.

- Finally look at Harley Davidson (HOG). With earnings on Jan 28^th, there is a rumor of a potential ‘leveraged buyout’ which could cause some upside movement in the stock. I think their present 2.6% dividend yield and their 12 P/E will keep a floor on the stock. I would look to sell the 42.5 / 45 Put Credit Spread for $0.29, or (if you like the rumor) then sell the 45 / 47.5 Put Credit Spread for $0.96.

I am:

- Long various mining stocks: (AG, AUY, EGO, GFI, IAG, and FFMGF),

- Long the FANGs (Facebook, Amazon, NetFlix and Google),

- Long AMZN, December, Broken-Wing Butterfly (690 / 700 / 705),

- Long REN @ $0.56 – currently $0.91

- Sold the SPY, Dec4, Iron Condor (190 / 195 to 216 / 218),

- Sold the IYR, Dec, Call Credit Spread (-76 / +77),

- Sold the UVYX Dec, Put Credit Spread (-22 / +21), and

- Sold the XRT Dec, Call Credit Spread (-42.5 / 45).

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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Sunday, November 29, 2015

This Week in Barrons - 11-29-2015

This Week in Barrons – 11-29-2015:

Thoughts:

Dear Ms. Yellen:

Happy Thanksgiving, and let’s talk Turkey. Everybody knows that Turkey and all of the NATO countries have been supporting ISIS for years – by selling their oil for them. The Russians went on a shooting spree, and took out over 1,000 ISIS oil-trucks in a two-week period. That is what ticked off Turkey. My only question is why didn’t anyone warn the oil-trucks of the up-coming air strikes? As the bloom comes off the rose, it’s becoming all too clear that the U.S. has lied concerning its fight against ISIS. The U.S. has done ‘just enough’ for the newspapers to make headlines, but not enough to eliminate ISIS. Now that the Russians are eliminating ISIS, it’s damaging Turkey's and NATO’s black market oil business. In a feeble attempt to slow Russia down, Turkey shot down a Russian jet for invading Turkish air space. However, immediately prior to taking this action, Turkey called NATO - asking for permission. At which point Mr. Putin asked the obvious question: “Why didn’t Turkey call Russia? Their first call should have been to Russia”. Putin was right, and we should be giving thanks to him for his patience and vision.

But that’s not what I wanted to talk about today. It just happened to be the 800-pound gorilla in the room. What I wanted to talk about is the moneymaking opportunity (4,700% a month) that ‘gardeners’ have been hiding for years. Yes, I said ‘gardeners’ and yes that number is correct. It’s all because of tomatoes. Most of you don’t know this but my wife is a ‘Master Gardner’ who enjoys growing all kinds of tomatoes – mostly for our salads or to give to neighbors. But then I recently did the math:

- One ounce (11,000) of beefsteak tomato seeds costs $17.63. In (generous) round figures that’s about 1 penny per seed.

- You need to germinate the seeds using soil and water, and once it has leaves – you then transfer it into a 4-inch pot (18 cents) with some potting soil (5 cents).

- It requires care, light, and water (1 cent) for about 30 days until the plant is 4 inches tall.

It could then be sold as a ‘starter’ for $1. That’s a 300% return every 30 days.

- But let’s keep one of those ‘starters’ for ourselves. The average plant produces between 10 and 15 pounds of actual tomatoes. If we received only 7 tomatoes from our plant, each could be sold for $1 – creating $7 in profit from $0.25 or a 2,700% return from one plant.

- As a bonus, each one of those tomatoes that the plant produces holds about 50 seeds. You would then separate one tomato from its seeds, dry them, and never buy seeds again.

- Also tomatoes have a habit of growing ‘suckers’ – that are genetic clones of the main plant that branch out in a ‘V’ between the main stalk and a branch. When they get to be 5 inches long you can clip them off, place them in starter mix, and have a plant that's already market size.

So with a simple tomato plant, there is a profit potential of 4,700% by selling 7 pounds of tomatoes for $1/pound, and 5 ‘suckers’ that we planted and two weeks later sold for $1/plant. Every gardener out there regularly turns $0.25 into $12 – a 4,700% return – each and every 4 to 6 weeks. It’s been termed ‘natures economy’ and it’s pretty darned profitable. So as we come into the new week and ponder the ups and downs of the market, consider the humble tomato. It's the only LEGAL ponzi scheme I know.

The Market:

If you ask the average person on the street how the market is doing – they will tell you that it’s doing great. They'll tell you that we're in a bull market, so things must be pretty good. But nothing could be further from the truth.

Facebook, Amazon, Netflix and Google have been termed the ‘FANG’ stocks. They are the current darlings of the market. However, if you remove those stocks from the indices – things get very curious. Currently, 87% of the S&P stocks are 5% below their highs, and 67% of those same stocks are actually down over 10% from their highs. If you just removed Google and Amazon from the NASDAQ 100 and the S&P, those indices would be NEGATIVE on the year. If ALL the companies in the index had the same weighting, the NASDAQ 100 and the S&P would be NEGATIVE 2.2% on the year. Is that a sign of a healthy market? Obviously not, especially if over 67% of the market is in a correction (off 10% from its highs). Yet J.Q. Public thinks that things are just peachy. Who’s going to give them the news that we’re really very close to a recession? The same people that are telling him that Russia is the bad guy.

But even if some of what I’m saying is even close to being true – why aren’t our markets at least declining? Enter Mario Draghi who (this week) promised even more QE to the European community. QE is the magic elixir. Market fundamentals, corporate earnings, even war doesn't matter – as long as we can create more debt. Recently Draghi has been ‘whispering’ that he might be willing to take institutional banks and cut their rates deeply negative, while leaving hometown banks alone. Why would he do that? Well, it seems the big problem with J.Q. Public is that he doesn't like the idea of having to PAY the bank for holding his money. So negative rates could very well cause a ‘run on the banks’. But the institutional banks (who cater more to big business) have a much less chance of that. In other words, a company like Siemens may have 30 billion Euros in an institutional bank. They are not going to walk in and demand their 30 billion Euros in paper. But millions of J.Q. Publics could certainly run to their respective banks and demand their 10k or 20k in paper Euros. So Draghi’s latest idea could very well be the next ‘big thing’ out of the ECB. Insane? Of course it is, but it is really just a preview of the total insanity of where we're headed over the next year.

This past week economists expected manufacturing activity as reported by the Richmond Fed to bounce into positive territory with a +1 reading. Unfortunately, the Fed reported a -3 reading – well below any economist’s estimate. And early indications for this month are very negative with new orders at minus 6, and backlog orders at minus 16.

But this coming week may prove to be a very big week, with the jobs report coming out on Friday. The market has been stuck in a tight range for the past 6 sessions. It has the real possibility to rip to the upside, or roll over or play dead following Friday’s report. Friday's Non-Farm Payroll Report (jobs report) will be the final report prior to when the FED meets to decide about an interest rate increase. If the jobs number comes in strong, it could sour the market, as the market will assume that the FED will raise rates in December. However, if it comes in really weak, markets could shout for joy due to rates potentially remaining at zero for yet another 30 days.

On Monday, the IMF (International Monetary Fund) will hold its final approval meeting allowing the Chinese Yuan into the SDR basket. I have predicted for over a year that China WILL be accepted, and that the inclusion will start next September. With the Chinese Yuan being so heavily backed by gold, this decision could sway the resource markets.

For the most part the big caps have gone to sleep this past week, giving the small caps a chance to catch up. While the S&P was pretty much flat on the week, the IWM (the ETF for the Russell Small Cap Index) made some nice gains. If the IWM makes it over its 200-day moving average at 120.12, it could kick the whole market into gear for one last Santa Claus rally.

I’m thinking that we remain somewhat muted prior to Friday’s jobs report, and markets continue to fight off reports that Black Friday shopping wasn't as good as retailers had hoped. Then on Friday the jobs report will add fuel to whichever direction we’re moving (up or down). Currently, the small caps look to be the best of the bunch, and that’s where I’m focusing for this coming week.

TIPS:

I like:

- Pandora Media (P) > 14.15,

- Acorda Therapeutics (ACOR) > 38.70,

- McDonald’s (MCD) > 114.40,

- Neurocrine Biosciences (NBIX) > 58.40, with

- Broadcom (BRCM), Zix (ZIXI), U.S. Silica (SLCA), Comstock Resources (CRK), and Guidewire (GWRE) all warming up

I just don't like the uneasy feeling that I have about the markets. I wonder if we’re not whipping a dead horse – trying to keep a zombie alive.