This Week in Barrons - 10-30-2016

This Week in Barrons – 10-30-2016:

 “Children taste color, hear shapes, and see sounds” … Picasso

When I think of Halloween, I think of a simple idea that hasn’t changed a whole lot, and yet has stood the test of time.  Unfortunately, there are very few of those ideas.  Immigration (for example), the U.S. policy has remained static since 1990, and before SF sent me the following video: https://www.youtube.com/watch?v=LPjzfGChGlE I would have thought that: (a) our immigration policy mattered to the world, and (b) we were a part of the solution.  On both counts I would have been wrong.

-       Since 1990 the U.S. has taken in 1m immigrants per year, and that’s virtually our social and infrastructure limit.  The World Bank tells us that there are 5.6B people living in poverty around the globe: (Africa - 650m, India - 890m, Asia - 1.3B, and Latin America -  105m) and our 1m immigrants do NOT even make a dent in that total.

-       Therefore, when people wish to double the number of immigrants that the U.S. takes in (irrespective of the devastating effect it will have on our own unemployed, the working poor, and our natural resources) – I wonder if they’ve run the numbers.

-       Seldom have I heard the stance that our immigration policies may be doing more harm than good.  That in fact the immigrants that we accept are among the most energetic, well-educated, and dissatisfied people in their particular countries.  IF they did not immigrate, THEY would be the ‘agents for change’ within their own country.

-       So not only can’t we take enough people to make a difference, but the people we take are the very ones that would be the catalyst for changing their own cultures.  After all, the true heroes are the ones that STAY in their own country and apply their skills to help their fellow countrymen.

-       Numerically, our immigration policy is working even worse than the odds suggest.  While the U.S. was taking in its 1m immigrants, the rest of the world was adding 80m to their own poverty numbers every year.

-       Immigration is NOT the answer.  The ONLY place where 99.9% of the impoverished people of the world can be helped – is where they live!  I encourage you to watch this video done so uniquely by an economist who uses ‘gumballs’ to represent those in poverty, and explains (in very basic terms) why the US policy is flawed and why it only exacerbates the issue:  https://www.youtube.com/watch?v=LPjzfGChGlE.

           My second misconception was that China has more poor people than the U.S. and Europe.  This week CW sent me the Credit Suisse Annual Global Wealth Report where it showed that as a percentage of the world's population, there are now more poor people in the United States and Europe than there are in China.  Almost 25% of Americans have a negative net worth.  The reason for that is that the U.S. makes it so easy to go into debt.  (a) You can borrow tens of thousands of dollars for a college degree without ever having to show the ability to pay it back.  (b) We encourage people to buy homes by making home mortgage interest deductible on our tax returns.  (c) The FED has kept interest rates at zero, making it more attractive to borrow than to save.  And (d) our government leads by example – with a net worth of NEGATIVE $60T.          

As our government continues to modify the definitions of inflation, GDP and unemployment to suit the political landscape, those same definitions are coming home to roost.  We have over 90m U.S. citizens not participating in the workforce (www.bls.gov).  That means over 37% of our working aged labor force is NOT working at all.  Of those 90m, over 43m of them are receiving food stamps worth over $5B per month.  Obamacare costs have just started to skyrocket with national premiums increasing 25%, and regional ones around Philadelphia rising 56%.  As the Obamacare patient population continues to skew toward the unemployed and older, and as fewer and fewer ‘healthy people’ actually pay into it – its prices will continue to rise.  Eventually the ‘takers’ will outnumber the ‘givers’ and the system will fail.

Anymore, I’m amazed how complex and convoluted we can make a very simple idea, and I admire the ones that have remained pure throughout the years.  Picasso once said: “It took me 4 years to paint like Raphael – but a lifetime to paint like a child.”

The Market: 

Factually:

-       Paccar, Volvo, and Daimler trucks all saw their profits and revenues decline in the third quarter of 2016.

-       Mortgage applications and business investment fell in Q3.

-       Italy’s oldest bank ‘Monte dei Paschi di Siena’ announced that it will cut 2,600 jobs, close 500 branches, sell off its bad loans, and raise capital in the latest bid to secure its survival.

-       OTTO / UBER made its first autonomous driving delivery = https://www.youtube.com/watch?v=Qb0Kzb3haK8 

-       Freight rail car orders fell to their lowest level in 6 years, meaning that there is no growth in shipping.

-       NATO recently announced plans for its biggest military build-up on Russia's borders since the Cold War.

-       Reuters reported that U.S. mutual funds had their largest outflow in five years.  $16.9B was pulled from stock mutual funds in the seven days through Oct. 19, more than in any other week since August 2011.

-       The first look at 3rd quarter GDP came in at 2.9%.  That's amazing considering the 2nd Q was just 1.4%.  The annualized rate is still under 2%.

This week Deutsche Bank attempted to calculate how much of the S&P’s run up was due too Central Bankster behavior.  After all, earnings have gone nowhere over the past two years, and on a GAAP basis they are the lowest since 2010.

This means that earnings growth has NOT been a factor behind the stock market's ascent to all-time highs.  After all, there are three components of a stock’s price: (a) earnings growth, (b) a stock’s sector multiplier, and (c) the ‘equity risk premium’ – as people view stocks as being less and less risky they drive the price higher.  DB said that the FED is worried that once rates go up (as a result of renormalization) and due to the lack of a central bank intervention, stocks will crash.  As it turns out the following chart shows that the FED has ample reason to be worried.  After all the bulk of the equity performance between 2012 and 2016 is captured inside the ‘equity risk premium’.

This also means that every push higher in yield, whether orchestrated by our Central Banksters, or due to events like a ‘The Donald Becoming President’ risks upsetting the precariously compressed equity risk premium (ERP) spring – leading to a violent market crash.  IF the ERP is responsible for 92% (800+ points) of the S&P500 move since 2012, that would suggest that our FED is directly responsible for approximately HALF the value of the stock market, and any moves to undo this support could result in crash that lands the S&P around 1,400.

           

In terms of trading next week leading up to the election, I’m looking for the same S&P chop that we’ve experienced for the past 5 months.  I expect the S&P to remain between 2120 and 2070 for the week, and drift slightly higher in anticipation of a Clinton presidency.

Tips:

At 1pm on Friday, the FBI announced that they were looking into more Emails concerning Hillary Clinton.  The market instantly went from up 74 to down 50.  The Democrats started asking how the FBI could be so insensitive as to open an investigation with just 11 days left to the election.  The Republicans started proclaiming that just maybe the rule of law in the U.S. could be saved.

Theories abound concerning what they have and why they did this: (a) The ‘powers that be’ see the early voting results, realize that Trump is going to pull this off, and want to save their necks. (b) FBI insiders were going to spill the beans on what they know, as many field officers felt betrayed by Dir. Comey. (c) Dir. Comey knows that WikiLeaks is going to release information this week that ties ALL of the top politicians into the corruption, and wants to get ahead of it. (d) FBI agents (NOT throttled about investigating Hillary) were working on Weiner/Huma emails, and found so much stuff they were going to come forward.  You can pick your favorite, but what we know thus far is that the FBI found thousands of State Department-related emails (ostensibly containing classified information) on the electronic devices belonging to Mr. Anthony Weiner and his wife (top Clinton aide) Ms. Huma Abedin.  The discovery has prompted FBI Director James Comey to (on the eve of the election) reopen the Clinton e-mail case. 

I don't know how this all works out.  My questions start with: (a) Is this the first election where one of the candidates is possibly under investigation for criminal activity?  (b) If more bombshells hit, will the DNC yank Hillary and replace her with Bernie or Joe?  (c) Could Obama use executive order to delay the election and give the DNC time to form a replacement?

My gut tells me that this is showmanship.  All the stuff they had originally was MORE than enough to disqualify her from ever having confidential clearance, and the FBI and the Justice System did nothing.  I think the FBI field officers felt betrayed.  I think that as more and more Podesta e-mails are made public, they had to do something to make it look like they're not bought off shills.  If this investigation continues, Hillary could be the first Presidential candidate that on election day is being investigated by the FBI for a Federal crime.

            I’m watching:

-       NFLX (Netflix)           – selling Call Credit Spreads around $130,

-       GOOGL (Google)     – selling Put Credit Spreads around $820,

-       AMZN (Amazon)      – selling Call Credit Spreads around $770,

-       FB (Facebook)         – buying Call Debit Spreads for earnings run,

-       FFIV                            – buying Call Debit Spreads – moving higher,

-       GS (Goldman)          – buying Call Debit Spreads – moving higher w/ rates,

-       OIL                              – looking to hold the 47 to 48 level then move higher, 

-       The Bank of Japan and Bank of England both have interest rate decisions next week – and a hint at more QE will drive the dollar and gold higher.

-       If Donald Trump wins the Presidency – watch for gold to spike higher over-night.

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!

Disclaimer:

Expressed thoughts proffered within the BARRONS REPORT, a Private and free weekly economic newsletter, are those of noted entrepreneur, professor and author, R.F. Culbertson, contributing sources and those he interviews.  You can learn more and get your free subscription by visiting: <http://rfcfinancialnews.blogspot.com>.

Please write to Mr. Culbertson at: <rfc@culbertsons.com> to inform him of any reproductions, including when and where copy will be reproduced. You may use in complete form or, if quoting in brief, reference <rfcfinancialnews.blogspot.com>.

If you'd like to view RF's actual stock trades - and see more of his thoughts - please feel free to sign up as a Twitter follower -  "taylorpamm" is the handle.

If you'd like to see RF in action - teaching people about investing - please feel free to view the TED talk that he gave on Fearless Investing: http://www.youtube.com/watch?v=K2Z9I_6ciH0

Creativity = http://vimeo.com/user8991651/review/105373017/0d0c374c28 

Investing = http://vimeo.com/user8991651/review/105373016/a5e84dd610

Marketing = http://vimeo.com/user8991651/review/105373015/d7237d026d

Sales = http://vimeo.com/user8991651/review/105373014/0e44b43962

To unsubscribe please refer to the bottom of the email.

Views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest and is not in any way a testimony of, or associated with Mr. Culbertson's other firms or associations.  Mr. Culbertson and related parties are not registered and licensed brokers.  This message may contain information that is confidential or privileged and is intended only for the individual or entity named above and does not constitute an offer for or advice about any alternative investment product. Such advice can only be made when accompanied by a prospectus or similar offering document.  Past performance is not indicative of future performance. Please make sure to review important disclosures at the end of each article.

Note: Joining BARRONS REPORT is not an offering for any investment. It represents only the opinions of RF Culbertson and Associates.

PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS (INCLUDING HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS AND OTHER SPECULATIVE INVESTMENT PRACTICES MAY INCREASE RISK OF INVESTMENT LOSS; MAY NOT BE SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop.

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Opinions expressed in these reports may change without prior notice. Culbertson and/or the staff may or may not have investments in any funds cited above.

Remember the Blog: <http://rfcfinancialnews.blogspot.com/> 
Until next week – be safe.
 
R.F. Culbertson

<mailto:rfc@culbertsons.com>

<http://rfcfinancialnews.blogspot.com>

This Week in Barrons - 10-23-2016

This Week in Barrons – 10-23-2016:

The World has gone Mad:

I found a headline this week that seemed so absurd: “The World Health Organisation finds that: ‘Failure to find a sexual partner’ is now a DISABILITY.”  Until now, the failure to achieve pregnancy after 12 months or more of regular unprotected sex - was NOT considered to be a disability.  “In a dramatic move, the World Health Organization (WHO) will change the disability standard to include: a person who is unable to find a suitable sexual partner or is lacking a sexual relationship to have children.”  The WHO says the change should give every individual the right to reproduce.  http://www.express.co.uk/news/uk/723323/Sexual-partner-fertility-disability-World-Health-Organisation-IVF

And then there is the by-line out of Niantic, Connecticut: “Students at Lillie B. Haynes Elementary School can Kiss Halloween Goodbye.  Principal DeLoreto canceled the school’s annual Halloween traditions in a letter to parents because she contends some students may feel excluded from the festivities, and adults may come dressed up as something scary.  We believe school day activities must be inclusive for all students, and we must be sensitive in regards to holidays and celebrations of religious, cultural or secular nature.  Please know classroom celebrations will continue to take place however, they will be Fall themed, not Halloween.”

And finally there’s the all-to-real story that Chris wrote about:

-       A 120-year-old company that once thrived, is now operating at 50%.

-       When times were good, management and employees entered into a compensation and pension plan that guaranteed everyone a base salary of $107,239, 10 weeks of paid vacation, 12 weeks of paid sick time, and generous health benefits.

-       But like so many of our companies and government entities, they assumed that the good times would last forever.

-       They also counted on an 8% Return On Investment (ROI).

-       Unfortunately, with interest rates pegged at ZERO for the last eight years – they find their pension plan only 65% funded, and in need of $10.4M to meet current obligations.

-       New management estimates that (without changes) they will have to close their doors permanently in 8 months – June of 2017. 

-       The plan of action is to find ways to increase revenues, and dramatically reduce expenses.

-       Revenues have been declining for more than a decade, because their product is discretionary, and they are being forced to compete against many newer and cheaper forms of entertainment.

-       The company’s largest expense is employee salaries and pensions, and implementing any significant cuts would run head-long into the employee union and would probably result in a strike.

-       The company is the Pittsburgh Symphony Orchestra.

-       Stories like this are going to be surfacing at an accelerating rate over the next several years due to our FED’s zero interest rate policy (ZIRP).

-       Massive, un-funded pension obligations are sitting out there unable to earn the required returns in a ZIRP world.

-       These obligations can only be met through drastic cuts, or increased taxes (in the case of government obligations).

-       None of this was ever mentioned by any of the Presidential candidates.

-       The Pittsburgh Symphony musicians are being asked to take dramatic pay cuts, and to transition their current defined benefit plan to a 401k.

-       They have instead decided to strike.

Unfortunately for them (and many others), there is no way to make the math work without substantial concessions by them, and substantial interest rate moves by our FED.

The Market...

Below (courtesy of Stockcharts.com) is a monthly chart of the DOW. 

In the beginning of July, the market rebounded from the Brexit sell off, and soared higher.  It then moved sideways for a couple of months.  In the beginning of September, it plunged down to a new support level, and has been trading sideways in a narrower band.  Long periods of sideways action create market pressures, and just like a watch, a spring, or a rubber band – at some point the pressure has to be released.  The only real question is: will we breakout or break down?

There is NO question about the market being supported.  The big tails on the bottom of the candles denote areas where the market has faded during the session, only to see ‘someone’ (in the 11^th hour) come and rescue the day.  Last Friday (for example) the DOW was down 112 points, feeling heavy and heading lower.  But then in the last 30 minutes, buyers with deep pockets came in and brought the market higher to end the day down a mere 16 points.  We know that mutual and equity funds have seen OUT-flows over the past 5 out of 6 weeks – so we know the ‘smart money’ isn’t buying.  That only leaves our friends the Central Banksters.  While they don't appear willing to push us to new highs like they used to, it is evident that they will keep the market from falling too far.

November and December are typically strong months, but this time around we have an election – the likes of which we've never seen.  Most market experts are looking for a fairly significant sell-off after the election (no matter which candidate wins).  But honestly it could just come down to a decision by the:

-       ECB, whether they continue QE past March of 2017,

-       Swiss National Bank (wink-wink) whether they continue to invest in our stock market,

-       Bank of Japan, whether they will further lower negative interest rates, or

-       Our FED, whether they choose to increase interest rates in December.

Our Central Banksters have proven that as long as they keep printing money, they can keep this market running sideways.  But it isn't all kittens and rainbows out there:

-       Bombardier will cut 7,500 more jobs through 2018,

-       IBM had its 18th consecutive quarterly revenue drop,

-       Ford plans on shutting down 4 plants over next few weeks, including an F-150 plant,

-       The Empire Manufacturing Report plunged another 6 points lower,

-       The CEO of CAT is leaving after 45 consecutive months of falling sales, and

-       Julian Assange had his internet capability cut ‘by the state’, and there are all sorts of rumors that he has gone underground or has been killed.

However, the most disturbing graph that I saw all week was the ‘Freight Index’ graph below.  It failed to rise in September, and that move is worrisome to me.

Donald Broughton (Managing Director and Sr. Transportation Analyst for Avondale Partners) says: “September data is once again signaling that overall shipment volumes and pricing continued to be weak, with manufacturing, wholesale and retail continuing to try and work down inventory."  In September, index measurements for freight shipments and expenditures fell 3.1% and 3.8%, respectively – compared to a year ago.  It was the 19th straight month of shipment declines.  Broughton said that continued weakness in freight movements is being driven by the excess capacity in trucking, rail, air freight, barge, ocean container and bulk.  “We see little reason to predict a change in course or any strength in any pricing rates for most transportation methods going forward.”  All this, is happening against a backdrop of the U.S. economy in a state of transition.  “After the explosion in fracking activity from 2009 to 2014, we have been patiently waiting for the consumer to take the baton of leadership in economic growth.  But lower fuel prices have simply allowed U.S. consumers to pay down debt and increase their savings rate.  The consumer has not yet picked up where the industrial economy left off.”  Broughton also sounded the alarm over our FED raising interest rates.  “It will make an already strong U.S. dollar even stronger, and that will hurt the overall economy and freight.  Historically, a strong dollar has produced a serious headwind for freight volumes, first in our exports, and then in a reduction in domestic manufacturing and assembly.  Nothing in the freight flow data suggests that another rate hike is warranted, or even that the first hike in December of 2015 was necessary.”

Tips:

I think you buy a stock when: 1) the stock has a nice technical pattern, 2) it has some ‘reason’ to move higher (such as earnings), and 3) we are in a flat to rising market.  Lately my issue has been with the overall market.  One day it’s up 100 points, and then it falls back 200 points.  We've only had ONE instance of back to back ‘UP’ days this entire month.  For the past several months the market has been crawling sideways in a loosely defined range of 2120 to 2190.

In so far as how the election could influence your investing, there are TWO elements that I believe we are going to lose when ‘the machine’ takes office: 1) Our Right to Bear Arms.  Hillary will have to wait to override the 2^nd Amendment for a Supreme Court appointment – but I think defensive weapons will be severely curtailed immediately.  And 2) Our Freedom of Speech.  Hillary and Obama have publicly stated that alternative news outlets like Drudge or Alex Jones should NOT be allowed to exist.  “We are going to have to rebuild within this wild-wild-west-of-information flow some sort of curating function," Obama said at an innovation conference in Pittsburgh.  Our ‘freedom’ to state any opinion and calmly disagree with someone else, along with our ‘right’ to arm ourselves is fairly unique around the world.  I’m seeing forces that want to bear down on both of these issues.  The investment opportunity is in the firearms arena – where business is booming.  I’ve been told that many is the day people are lined up 2 and 3 deep at the counter in order to be waited on. 

-       Think about: Smith & Wesson (SWHC), Sturm – Ruger (RGR), and Vista Outdoors (VSTO) – to take advantage of the run-up in firearms.

-       Look at: Diamond Offshore Drilling (DO), Western Refining (WNR), and Chesapeake Energy (CHK) – to take advantage of increased oil prices,

-       Watch: Morgan Stanley (MS) – as bank earnings have been great, and

-       Facebook (FB) has earnings coming up – so watch it for an earnings run.

What we don't have here is a flat to rising trend market – so look at these and be careful out there.

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!

Disclaimer:

Expressed thoughts proffered within the BARRONS REPORT, a Private and free weekly economic newsletter, are those of noted entrepreneur, professor and author, R.F. Culbertson, contributing sources and those he interviews.  You can learn more and get your free subscription by visiting: <http://rfcfinancialnews.blogspot.com>.

Please write to Mr. Culbertson at: <rfc@culbertsons.com> to inform him of any reproductions, including when and where copy will be reproduced. You may use in complete form or, if quoting in brief, reference <rfcfinancialnews.blogspot.com>.

If you'd like to view RF's actual stock trades - and see more of his thoughts - please feel free to sign up as a Twitter follower -  "taylorpamm" is the handle.

If you'd like to see RF in action - teaching people about investing - please feel free to view the TED talk that he gave on Fearless Investing: http://www.youtube.com/watch?v=K2Z9I_6ciH0

Creativity = http://vimeo.com/user8991651/review/105373017/0d0c374c28 

Investing = http://vimeo.com/user8991651/review/105373016/a5e84dd610

Marketing = http://vimeo.com/user8991651/review/105373015/d7237d026d

Sales = http://vimeo.com/user8991651/review/105373014/0e44b43962

To unsubscribe please refer to the bottom of the email.

Views expressed are provided for information purposes only and should not be construed in any way as an offer, an endorsement, or inducement to invest and is not in any way a testimony of, or associated with Mr. Culbertson's other firms or associations.  Mr. Culbertson and related parties are not registered and licensed brokers.  This message may contain information that is confidential or privileged and is intended only for the individual or entity named above and does not constitute an offer for or advice about any alternative investment product. Such advice can only be made when accompanied by a prospectus or similar offering document.  Past performance is not indicative of future performance. Please make sure to review important disclosures at the end of each article.

Note: Joining BARRONS REPORT is not an offering for any investment. It represents only the opinions of RF Culbertson and Associates.

PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS (INCLUDING HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS AND OTHER SPECULATIVE INVESTMENT PRACTICES MAY INCREASE RISK OF INVESTMENT LOSS; MAY NOT BE SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop.

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Opinions expressed in these reports may change without prior notice. Culbertson and/or the staff may or may not have investments in any funds cited above.

 

Remember the Blog: <http://rfcfinancialnews.blogspot.com/>
Until next week – be safe.

R.F. Culbertson

<mailto:rfc@culbertsons.com>

<http://rfcfinancialnews.blogspot.com>