This Week in Barrons – 3-20-2016:
Thoughts:
“If the FED says it will do one thing under certain conditions, and
doesn’t end up doing it… does it have a credibility problem?” … Steve Liesman of CNBC
Ms. Yellen:
I assume last
Wednesday you had a darn good reason for flip-flopping on your stance surrounding
raising interest rates? When CNBC’s
Steve Liesman started off the Q&A session with: “Madam Chair, inflation has
gone up the last two months. We had
another strong jobs report. The
forecasts for GDP have returned to two percent. And yet you stood pat on
interest rates … Does the FED have a credibility problem when it says it will
do one thing under certain conditions and doesn’t end up doing it? And frankly, if current conditions are not
sufficient for the Fed to raise rates, what would those conditions ever look
like?”
Honestly, your 261 word jumbled, James
Joyceian stream of consciousness, high-end econ-babble answer was completely
non-understandable – which is what I assume you wanted. But let’s discuss a couple of myths:
-
Myth #1: Many
people believe that the Federal Reserve is somehow a Federal Agency - FALSE.
-
Myth #2: Many
people believe that we actually need a Federal Reserve (a non-elected band of banksters)
to oversee the economy – FALSE.
-
Myth #3: Many
people believe that the United States always had a Federal Reserve – FALSE.
-
Myth #4: “Let us
control the money of a country, and I care not who makes its laws"…Mayer Rothschild – TRUE (said in 1838).
Ms. Yellen, there’s something inherently flawed when an un-elected group
(The Federal Reserve) was created on a holiday evening in 1913 for the purpose
of ‘smoothing out economic booms and busts’ – and then not immediately being FIRED
for allowing the ‘Great Depression’ of 1929 to occur. Instead, your powers were increased and now
you are allowed to conjure up ‘money’ out of thin air, and loan that same money
(with interest) to our Government. And
most recently lie to the U.S. economy when in December of 2015 – you proclaimed
(after the first interest rate hike in 10 years): “If data supports it, there
will be 4 additional rate hikes in 2016.”
Unfortunately for you, the most recent data confirms that we are running
on all cylinders with 4.9% unemployment and less than 2% inflation. BUT we have a problem with your ‘oath of
transparency’ to ‘not surprise’ the markets.
What kind of transparency do you think you are showing when you (a) lay out a plan for 4
(data-dependent) rate hikes, (b) receive (and brag about) the corroborating
data, and then (c) give the U.S. economy the ‘middle finger’ and whisper ‘ha-ha
I tricked you’.
So what was it that turned you around? Was it the most recent G20 meeting, where you secretly
agreed to keep U.S. policies more in line with what the rest of the global central
bankers were doing? After all, Sweden, Denmark, the ECB, Switzerland, and
Japan are actually operating with NEGATIVE interest rates. The U.S. is almost alone in having a slightly
positive rate. So it would be easy to
think that you decided that the U.S. should not hike rates while the world cuts
theirs. OR was it when the Obama/Hillary crusade said to you: ‘We're
coming into election time, and we want a nice strong market to prove that the our
policies are working. You will NOT hike
rates or do anything else to cause this market to fall’. I think it was the
second option. After all, Obama has
slowly been circling the wagons for Hillary.
Hillary isn’t getting the support that Obama got, and he’s taken it upon
himself to campaign for her and to tell the FED to save the market for her.
My hope was that somehow fiscal sanity would prevail, and our FED would
ignore all of the ‘noise’ and hike rates so that millions of savers could
finally get a tiny return on their savings. I was hoping that maybe our FED had seen the folly
of subprime mortgages and subprime auto loans, and were ready to at least try
and clean up their act. But all we saw was a group desperate to save
their own jobs, and a President equally desperate to keep the economic illusion
alive – one that starts and stops with the stock market. All of the FED members do not support a
Republican agenda, and as President Reagan once said: “You gotta dance with the
one that brung ya!” Meaning that you will
most likely continue to lean Dovish, and keep the market aloft as we head into
November.
The reality is you can’t really raise rates, stop buying bonds, stop
buying mortgage back securities, or shrink the money supply – because if you
did, the FED led recovery would quickly send the economy in to a recession. Having lost the economy, the stock market is
now your economy. Your job is to keep the
stock market propped up at any cost – as it is the only part of the economy
that you can control. But that begs the question – can you rig the stock
market forever?
The Market....
Factually:
-
4.9% of the population is unemployed as long as you don’t
count the 100 million are not in the workforce and the 50 million on food
stamps,
-
50% of all of the hires during this recovery are
part-time workers, with bartenders and waitresses making up the majority,
-
All of the consumer indicators fell last month: consumer
sentiment fell 1.9%, economic conditions fell 1%, and economic expectations
fell 2.4%,
-
Last month retail sales fell, inflation rose 2.3%,
average hourly earnings fell 0.1%, and average weekly earnings fell 0.5%, and
-
Our industrial sector is showing numbers lower than in
2009.
I was ready for our FED to announce another quarter point hike in
June. But, I also believe that when the global
community couldn't convince them otherwise, Obama/Hillary stepped-up to the
plate and told them not to do anything ahead of this election that would harm
the stock market – otherwise – they’re fired.
But this still begs the question: Is our FED capable of pushing the
market to new highs? I don’t think
so. Japan and the ECB both have negative
rates and their major index and the DAX are still 3,000 points below their
respective 2014 highs. So, keeping rates
‘equal to or less than’ zero does NOT seem to keep stocks moving higher.
Now, directly following the FED announcement on Wednesday, the dollar
index dropped like a rock – helping to drive the equity, bond, and commodity
markets higher. I’m wondering:
-
How much of our equity rally is based upon recent strong
earnings and fundamental expectations versus the FED’s more dovish stance?
-
If the U.S. dollar can find a bottom and begin to
rebound?
-
If the U.S. dollar continues to fall (effectively
lowering prices on U.S. goods overseas), should we expect a significant
reduction in the number of multi-national earnings warnings going forward?
Unfortunately (once again), this all comes down to the FED and not real
economics or fundamentals. After all, the
big run up from February’s lows came on the heels of 2 things: 1st the
FED played the oil futures market, and rescued oil prices. This allowed the banks to renegotiate some of
the completely underwater fracking and drilling loans that were imploding on bank’s
balance sheets. And 2nd we had
just come through a period of record stock buy backs. Corporations are still taking advantage of
borrowing money at zero and buying back their own stock – all with the goal of
boosting their own stock price and dramatically increasing their own executive’s
compensation packages.
For example: during the past 7 weeks private investors have pulled money
out of stocks in record numbers. Last
week alone, investors sold $3.7B worth of stock. But in what can only be called ‘almost’ record
numbers, corporations bought back their own stock in numbers not seen since
2007. The S&P estimates that in this
quarter alone, almost $165B worth of corporate buy-backs are in the works. Therefore,
all of the private sector selling (to exit the market) was met directly by corporate
buying.
But here's the rub, for the next 6 weeks – companies (going into their
earnings quiet period) are not going to be able to buy back their own stock. My feeling was that if Ms. Yellen had talked
about hiking rates in April or June, coupled with the ending of corporate
buy-backs – we were set-up for a substantial fall. Now with Ms. Yellen waffling on her rate
hikes and her dovish tone – we’ve got a split field. Do we go higher on the heels of a quiet FED –
OR do we trade sideways and down because the biggest buyer in the market isn't
going to be there?
I think we go sideways and lower. We may pop higher for another day or two, but
I don't think we will rally with enough volume required to break us out of the
substantial overhead resistance that exists starting at 2050 on the S&P. In the past couple of weeks, we've come up over
220 S&P points (with Janet’s ‘about face’ giving us the last 40 points). We are over-bought, over-extended,
over-priced and desperately in need of a pull back. Between the most incredible
Political season of my life, and the ‘End-game’ situation of our economy,
there's certainly no shortage of excitement lately. Take care and be safe.
TIPS:
If you haven’t heard the CNBC interview with Curly Haugland – a senior
GOP official, moaning about the whole idea of people voting at primaries – it’s
definitely worth a listen. In a
disgusting display of hubris, he virtually said that people should shut up and
"let the party nominate the candidate". He then went on to say
that the voting is a dog and pony show, and the Convention will appoint whom
THEY determine to be their man. He then said that he didn’t care if millions
or even record numbers of people pull the switch for Trump, because the people
do NOT have the right to appoint the nominee. Finally when asked: “Isn't the
party made up of those millions of people? Shouldn't their desires be
heard?" His answer was a definitive – “NO”: http://www.cnbc.com/2016/03/16/we-choose-the-nominee-not-the-voters-senior-gop-official.html
I’m still watch the following indicators:
-
The Russell Small Cap Index (RUT) – for general market
order flow in the equity markets.
-
The Dollar (DXY) – for strength and weakness, with a
strong dollar indicating a coming FED rate hike.
-
And the Bond Yield (TNX) – the 10-year yield will reflect
a FED rate hike expectation. If we see
yields move up, then the bond market is expecting a Fed rate hike.
I am:
-
Long various mining stocks: AG, AUY, EGO, GFI, IAG, and FFMGF,
-
Long an oil supplier: REN @ $0.56,
-
Long GLD – Apr – Call Debit Spread – 118 / 123,
-
Long NKE – Apr – Call – 67.5,
-
Long POT – Stock & Apr – Call 20,
-
Long SBUX – Apr – Call – 55,
-
Sold SPX – Mar4 – Call Credit Spread – 2040 / 2045,
-
Long SPX – 2010 – Mar4 / + April Calendar spread,
-
Long SPX – 2030 – Mar4 / + April Calendar spread,
-
Long SPX – 2050 – Mar4 / + April Calendar spread,
-
Long SPX – 1900 / 1925 / 1975 Apr Butterfly
-
Sold TEX – Apr – Put Credit Spread – 19 / 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!
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