This Week in Barrons – 8-21-2016:
"A Day Of Reckoning Is Coming”… Carl Icahn
Thoughts:
I spent this past week in
Mexico, talking to and meeting entrepreneurs, reading the foreign press, and viewing
the U.S. from a slightly different angle.
The most discussed topic was our upcoming Presidential election. Everyone from waiters to taxi drivers to
college students had the same two questions:
-
Is Donald Trump
insane?
-
Why are we
ignoring Hillary Clinton’s scandals, and her health issues?
There were several ‘Day of
Reckoning’ newspaper headlines that caught my eye:
-
Will NATO spark
a U.S. vs. Russia War?
-
Will Syria pit
the U.S. against China & Russia?
-
Will a South
China Sea ‘test’ go awry, and a U.S. vs. China war erupt?
In fact, one of the
students pointed out the ‘unfairness’ of the U.S. press by holding up a CNN
headline: “Trump to use Heritage when vetting for the Supreme Court”. Now unless you read the CNN article – it
sounds like Donald Trump would use someone’s history, lineage, ethnicity and
race when selecting them to serve on the Supreme Court – yes? But by reading the article, you find out that
Donald would consider applicants that have garnered good marks from the
Heritage Foundation. The Heritage Foundation (founded in 1973) is a
research and educational think tank whose mission is to formulate and promote
conservative public policies based on the principles of free enterprise,
limited government, individual freedom, traditional American values, and a
strong national defense. The student was
NOT a supporter of Trump but rather wondering whether PR for his own small
business should be more focused upon facts or upon gaining readership – because
it’s clear to him that the U.S. favors the second choice.
Then someone asked about
the world’s current financial experiment that includes low interest rates,
negative yields on government debt, and quantitative easing. They cited RIT Capital Partners Chairman Lord
Rothschild latest quote: “We have seen central bankers continuing what is
surely the greatest experiment in monetary policy in the history of the world. It is impossible to predict the unintended
consequences of very low interest rates, 30% of global government debt at
negative yields, and quantitative easing on a massive scale. U.S. stocks have grown threefold since 2008 -
with investments growing and volatility remaining low. However, the real economy didn't enjoy
such a profit, as growth remains anemic, with weak demand, and deflation in
many parts of the developed world. Many
risks remain including: Britain's vote to leave the EU, the U.S. Presidential
election, China's slowing economy, and global terrorism – a consequence of the continuing
conflict in the Middle East.”
In
my answer, I pointed out that global interest rates (including America’s 0.5%
rate) are now the lowest in 5,000 years virtually ruining all pension funds and
savings accounts. Sweden, Switzerland
and Japan only turned to negative key lending rates as a mechanism for fighting
deflation. But a ‘Day of Reckoning’ is
coming because to quote Chris Wiles: “You can ignore the math, you just can’t
avoid it.”
The Market....
Factually last week:
-
Caterpillar’s
retail sales (a global, economic barometer) suffered its 2nd biggest
plunge since the 2008 financial crisis,
-
The Empire State
FED reading was expected to show a +2.5 growth reading, but instead came in at
-4.2 showing contraction,
-
Cisco is
laying-off 14,000 people / 20% of its entire workforce,
-
Home Depot,
Lowes, Staples and Target reported revenues and earnings that were disappointing. Target also warned for the rest of the year,
and said that Apple product sales were down 20%.
-
Mortgage
applications fell,
-
Annual mutual
fund redemptions are running at a record $168B pace, and
-
Corporate Insiders
are SELLING (their stock) 19 TIMES faster than they are buying – a pace unheard
of in recent history.
If you look at a chart of any
of the indices (SPX, IWM, XLF, etc.), the common denominator is that their stochastics
are beginning to roll over, and on many of them the MACD (advance / decline
line) is sliding lower. If I had nothing
else to go on, I’d swear that the markets would be heading lower. But
unfortunately our friendly Central Banksters do offer us another way on which
to judge. It’s simple. If the Central Banksters decide to buy, all of
the fundamentals and techno jargon is worthless - because stocks will simply go
up. Therein lies the issue. We
belong lower, but if our Central Banksters won't allow it – it won't
happen.
We learned this week that:
-
George Soros
doubled down on the short side of the U.S. market.
-
Institutional
investors are talking about an ‘unsustainable market’ and a ‘megaphone’ pattern
that looks ripe for a market collapse.
-
Headlines like:
"Markets Are Ripe for a Black Swan Event", and “Why most Hedge Funds will
NOT Survive” are everywhere.
However, the market is
holding up in the face of all this doom and gloom. For the last 9 sessions the S&P has been trapped
between 2175 and 2190 on a closing basis. It’s been over 2 months and the market is still
ignoring: BrExit, poor earnings, lousy economic reports, more money sitting in
negative interest accounts, a rabid election process, and the sound of war
drums around the globe. Between the Central
Banksters buying and corporate stock buy backs, stocks simply go up or hold
their own. And this begs the question:
When does this stop? OR Does it even
have to stop?
I think that it does have
to stop, but not because I’m against markets going up. It is perfectly legitimate for markets to
levitate when you have a growing economy, growing employment, growing incomes,
growing earnings, etc. That's exactly
what markets should do, and they should reflect that growth with higher stock
prices. The problem however is our
current, undeniable market abstraction. Our
market has gone up in the face of: FALLING earnings, FALLING incomes. Part-time
jobs, INSANE healthcare costs, FALLING exports, and EXCESSIVE corporate
valuations.
What would happen if the Swiss
National Bank, the Japanese Pension Fund, and our Central Banksters stopped
buying U.S. stocks? How long would it
be, before there would be no buyers for any stocks offered? In my opinion the answer is ‘Not Long’, and if
you remove those monster buyers, the DOW would be cut in half in less than a
year. So, the only thing between the DOW
at 19,000 and the DOW at 8,000 is the Central Banksters that print money out of
thin air, and buy with no regard to price, earnings or sales. Can that go on forever? At some point, the population would catch that
stocks were ONLY going up. Then the population
would pile into stocks with ‘all they have’, and history shows us that is when our
Central Banksters will sell, take profits, and trigger a market collapse.
Throughout history the
elites have caused chaos, only to rush in and deliver the message that they are
the only way out of the chaos. Create the problem, and then chose yourself to
fix the problem. If the Central
Banksters ever decide to SELL some of their stock holdings, I can virtually
guarantee chaos. With that in mind, what
if the game plan is to keep the market up and steady for Hillary, but if Trump
wins have the Central Banksters crash the market, blaming his policies for the
flight out of stocks? We're in a very
strange time. A time where no one has
ever seen:
-
Negative
interest rates (unique),
-
Central
Banksters buying stocks with printed money (unique), and
-
Stocks going up
in the face of a global recession (unusual).
The way the market is
‘walking sideways’ instead of correcting tells me that there is more upside
coming. You'll want to participate, but
please keep your position size small and take profits quickly. As one high ranking General remarked the
other day "We're just one mistake away from WWIII". Lean long, but keep your finger near the sell
button.
TIPS:
Some likely trades this
week:
-
Looking toward
EA, NXPI, QUOT and maybe AMD to the upside,
-
Looking at LRCX
– it has 19% short interest (high), sitting at near 52-week highs, is a
candidate for selling the October $18.50 or the January $18 straddle
-
The metals have
lived through a normal pullback in the past week and I continue to like: AG, AUY,
CDE, FCX, FFMGF, FSM, HL, NGD, PAAS, PGLC and SAND.
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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