RF's Financial News

Sunday, December 20, 2015

This Week in Barrons: 12-20-2015

This Week in Barrons – 12-20-2015:

Thoughts:

FED hikes rates by 25 Basis Points…

Dear Ms. Yellen:

In 1971, when President Nixon closed the ‘gold window’, the world changed forever as we passed total control of the price and value of money over to the Central Banks. During the past 20 years (with our ‘free money’ policy) we have been witness to the single, largest credit expansion in history. During this time the world’s Central Banks have increased their balance sheets by an insane 900%. But even the wildest of credit binges reaches a saturation point. That point is when the simple, bare minimum credit card payment – takes every penny of income that comes into a household. Even though that same household has perfect credit, it cannot take on any more debt without increasing its income. That is the situation that the entire world is in today. Our world is saturated with debt to the point that the world cannot take on one more payment without increasing its income.

This happened because over the past 25 years, incomes have remained stagnant while prices for goods and services have continued to rise. For example, the median household income in 1989 was $56k per year – exactly the same as it is today. However, in 1989 housing was over 50% cheaper than it is today. In 1989 the average cost of a car was $16,000, versus the $33,560 that it costs today. Consumers and nations are ‘tapped out’. China has over-built for decades trying to meet demand projections that were based upon a never-ending debt cycle. With ‘tapped out’ consumers and nations – those same Chinese plants are now idle, their mines are closed, and their warehouses are stuffed to the rafters with rotting inventory.

So Ms. Yellen, after keeping rates at zero for 78 months, adding trillions to our nation’s balance sheet, and NOT delivering a viable recovery – your economic remedy ‘this week’ was to RAISE RATES. Really? You continue tell us that your decision was ‘data dependent’, but the data stinks. This week the Baltic Dry Index (a measure of global shipping) hit another record low, while the Philly Fed report came in at a -5.9% showing ‘contraction’. So if your decision was NOT data dependent, then what is it? Was it this: “Wells Fargo Bank increased its prime lending rate today. That will affect: all Credit Card APRs, Home Equity lines, etc. But Wells Fargo will NOT increase the interest rate that it pays out on any of its deposits.” Ah-hah, so this rate hike will allow banks to charge more for credit, but won't force them to pay out any more on deposits. So this rate hike is all about taking care of your criminal banksters.

But Ms. Yellen, how are you going to protect your banksters when the world moves to a new ‘global reserve’ currency? Over the next several years (I think) the U.S. dollar will be replaced as the ‘global reserve currency’ by a basket of currencies called SDRs. Just two weeks ago the Chinese Yuan was included in that same SDR basket. When the U.S. dollar is removed from its ‘global reserve’ status, there will be a ‘reset’. There will still be U.S. dollars, but other nations will not be forced to acquire them in order to trade for each other’s goods and services. Instead, nations will work through exchanging their Rubles and Lira for SDRs.

Ms. Yellen, in your statement following the rate increase, you said that you expect to raise rates to 1.5% by the end of 2016, to 2.5% by late 2017, and to historical averages of 3.5% or so by 2018. You also said that it rarely makes sense to raise interest rates when inflation is as weak as it is. Well, with Europe (at best) treading water, China slowing, and the Emerging markets really feeling the pressures of a stronger dollar – how will those rate increases ever happen under what can only be described as deflationary conditions?

And I must assume that you’re ok with a weakening housing market, and (with fewer stock buybacks) a weaker stock market over the coming year. Additionally over the next year, with all Central Banks taking a more active role in the markets - I expect you’re ok with a higher frequency of market corrections and downside volatility than we’ve seen in the past 3 to 4 years.

Ms. Yellen, here’s hoping that a lot of our mothers haven’t rented out their son’s and daughter’s old rooms.

The Market...

On Wednesday, the FED announced their first rate hike in a decade. The market originally appeared to rejoice over it, and sent the DOW up over 200 points. But when reviewing the early part of the week, that Monday through Wednesday romp higher seemed to be manufactured. It felt more like Central Bankers trying to lift the markets ahead of the rate hike, and create 'headroom’ for any negative reaction. And sure enough, on Thursday we gave back every penny of Wednesday's big move higher plus a bit more. And on Friday a horrific bout of selling hit that sent the DOW down 370 points, and the S&P coughing up 36 points to the downside.

What happened to the Santa Claus Rally? Wasn't everyone told that Santa would show up, and bring a big yearend rally? Who didn’t get the memo? Did Santa get smacked in the head with too much economic reality such as: lower retail sales, all time lows in the Baltic Dry Shipping index, month after month of negative regional FED reports, and a RATE HIKE – for starters?

So with only 8 trading days left in the year, where does this leave things? I said months ago that without some new form of ‘stimulus' we would NOT get over the May highs, and now that is certain. But, that's not to say that the banksters might not manufacture another snap back rally – they might. But all in all, there's zero fundamental reason for the markets to go higher. If they do, it's the Central Banks themselves making it happen.

Now if the S&P loses 2000 – that’s a bad sign. If the S&P then loses 1993, it's a fair bet we will be visiting the August (1860) lows in the near future. Granted that would be unusual for this time of the year, but that's what I see. If they hold the line at 2000, we could see a bounce higher. But for those of you wishing for a shot at the all time highs – you’re out of luck for 2015.

Please be careful out there. It's a very strange time in the markets, in politics, and in the world. Try and be safe.

Tips:

I am looking for:

- SPX (@ 2,005) to test 1950 and then the 1900 level. If we break that, we could retest the 1,860 August lows,

- NDX (@ 4,514) to test 4500 and then the 4400 level.

- Apple (AAPL) and Costco (COST) – I would like to do ‘Iron Condors’ on them because I fear the selling is over. But right now I’m unwilling to catch a falling knife as their prices continue to fall,

- SalesForce (CRM) – I would like to do a ‘Calendar Spread’ as volatility continues to rise into earnings.

- Disney (DIS @ 107.72), I’m looking to do a January, 105 / 100 Put Credit Spread – especially after Disney fell 4 points on Friday.

I am:

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

- Long an oil supplier: REN @ $0.56

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, December 13, 2015

This Week in Barrons - 12-13-2015

This Week in Barrons – 12-13-2015:

Thoughts:

“Did I fire 5 shots, or did I fire 6? Do you feel lucky?”…Clint Eastwood as ‘Dirty Harry’

Dear Ms. Yellen:

Clint Eastwood’s line from the movie Dirty Harry relied upon the individual at the other end of the gun being a confused amateur and not totally aware of his surroundings. That’s exactly how you’re treating the up-and-coming FED rate hike decision on December 18^th, 2015. Depending upon how you count them: QE1, QE2, QE3, Cash-for-Clunkers, Operation Twist (oops – was that QE3?), I actually lost count of how many monetary injections the FED has architected. So I’m not sure whether you’ve fired 5, 6 or 10 shots.

But Ms. Yellen, if your goal was to: economically confuse J.Q. Public, create un-payable debts, and lower our standard of living – you have succeeded. In fact, this is just too darn perfect to be considered a series of accidents or bad decisions. Honestly, I don’t believe that good people could screw THIS many things up THIS badly.

I remember a 1983 piece by Charley Reese called: “The 545 People Responsible for America’s Woes.” Some excerpts follow:

- One hundred senators, 435 congressmen, one president and nine Supreme Court justices = 545 human beings (picked from over 300 million) are directly, legally, morally and individually responsible for the problems that plague this country.

- Politicians are the only people in the world who create problems, and then campaign against them.

- Have you ever wondered why, if both the Democrats and the Republicans are against deficits – we have deficits? Have you ever wondered why, if all the politicians are against inflation and high taxes – we have inflation and high taxes?

- After all:

o We don't propose a federal budget – the President does.

o We don't vote on appropriations – the House of Representatives does.

o We don't write the tax code or set fiscal policy – the Congress does.

o We don't control monetary policy – the Federal Reserve Bank does.

- These same 545 human beings spend much of their energy convincing you and I that what they did – is NOT THEIR FAULT.

- - It seems inconceivable to me that a nation of over 300 million cannot replace 545 people who stand ‘factually’ convicted of incompetence and irresponsibility.

- - I cannot think of a single problem (from an unfair tax code to defense overruns) that is not directly traceable back to those 545 people.

- - Therefore, it must follow that what exists is what they want to exist. 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 in to be the red.

- - There are no unsolvable government problems. Do not let these 545 people CON you into believing that ‘the economy’, ‘inflation’ or ‘politics’ are preventing them from executing their oath of office.

Ms. Yellen, Charley is as right today as he was in 1983. You do not take the most successful nation, with the strongest economy, with the highest morals, and turn it into the mess we are in now – BY ACCIDENT. You couldn't string that many accidents together. You’re fortunate that on July 2, 2013, Congress repealed the Smith Mundt Act.

What is the Smith Mundt Act? The Smith Mundt Act was put in place to make it illegal for the U.S. Government to use coordinated propaganda to influence people over the airwaves. After WWII, propaganda was being actively broadcast around the world. The Smith Mundt Act made it illegal for our Government to turn its massive propaganda machine against its own citizens. Unfortunately it was repealed on July 2^nd, 2013, and from that moment on the U.S. Government has the legal right to produce PROPAGANDA and spread it through any arm of the media.

So Ms. Yellen, without the Smith Mundt Act to protect me, I don’t know whether you’ve fired 5 or 6 shots. And just like Dirty Harry, aren’t you simply taking advantage of J.Q. Public being financially unaware and confused? If I were a betting man, I think the next bullet that you will be firing is a ‘rate hike’ bullet on December 18^th, 2015.

The Market....

When the FED raises interest rates by 25 basis points on Wednesday, it will be a strategy employed to quiet Congress, the markets, and the media. It is designed to sell some confidence about the economy and to boost economic moral. It also gives the FED room to cut again when needed. The markets currently sit precariously back at support levels, awaiting the FED. But even with the upcoming meeting, this past week’s market activity was ‘odd’ at best.

On Friday futures were in the toilet heading into the open, and we closed down 309 DOW points and 39 S&P points. Why did that happen?

- Europe was weak on Thursday night.

- Oil was plunging.

- High Yield credit was falling.

- Another hedge fund stopped paying out redemptions.

- And the Chinese devalued their currency.

But, I think that the big culprit was tax selling by some big funds, coupled with portfolio adjustments surrounding Wednesday’s interest rate hike. While I expected the rate increase in September and they punted – I don't think they will punt this time. The argument for ‘no hike’ is that the FED should not be raising rates going into weakening economic data. And that’s a fine analysis if you’re talking about honest people actually trying to fix an economy. The FED (however) is nothing of the sort. The FED knows that it can't save the middle or lower class, so it’s simply trying to save the system. The FED is not our friend, and is not there to create jobs or bolster our currency. The FED is there to further a banking agenda.

The common thinking is that this will be a ‘one-and-done’ rate increase. I (for one) disagree. If they increase rates, the dollar will strengthen, and that’s certainly bad for exports. But the FED doesn’t care about exports, jobs, or the middle class. The FED cares about the carry trade, the financiers – the money people. It is those people that can do very well playing currency games with a strong dollar positioned against the Euro and the Yen.

But for the FED to initiate a rate hike campaign as the economy fades – means that something pretty big is coming. I don't know what, but I do know that this FED will NOT take the blame for a recession. So if they're putting on the brave face and hiking rates – they must know that something significant is right around the corner.

There are many strange things that can happen between now and the end of the year. The market could get pretty volatile, it could put on a brave face and soar higher, or both. I can assure you one thing; it will NOT be a time of calm.

Tips:

DOW INDU (17,265): This index has been rattling around with some significant volatility. We will test 17,200 next week. The upside stall area is just above 17,800. I don’t think we see a breakout in either direction until after the FOMC meeting.

NASDAQ NDX (4,537): We did have a ‘gap-fill’ moment down to 4,500 before we bounced back in mid-November. Since then we have been in the 4600 to 4700 range. A drop to 4500 will certainly happen, and I suspect the index will stay in the 4,400 to 4,500 range until after the FOMC meeting.

S&P SPX (2,012): Much like the Dow Jones we saw this index bottom out in mid-November, rally back, and pretty much stick in the 2040 to 2100 range. We are testing the 2000 range, again and could see a drop back to the recent lows of 1950 and potentially 1900. We must wait for the Fed’s FOMC meeting to determine if we are going to sell-off or rally above 2100 into year-end.

RUT (1,124): The Russell (RUT) continues to be the best measure of order flow. The Russell has been in a bear market since June, and finally bottomed out in late September. Since then we have not been able to rally back to the June 1280-1290 highs. The Russell index will be the tell-tale sign for the market heading into year-end.

I am looking for:

- Google (GOOGL) (@ 750.42) to test the 733 level,

- Amazon (AMZN) (@ 640.15) to possibly test the 600 level,

- SPX (@ 2,012) to test the 1950 and then the 1900 level,

- NDX (@ 4,538) to test 4500 and then the 4400 level,

- TLT (bond ETF) currently is experiencing the largest short interest in its history. Either a lot of people are going to be right, or there will be a huge short-covering rally in TLT following the FED decision on Wednesday.