“Life moves pretty fast. If you don’t stop and look around once and a
while you could miss it.” Ferris Bueller
Thoughts:
On the eve of potentially one
of the most contested, controversial, and eye-opening Presidential campaigns in
decades I’d like to say thanks:
-
To Jeff Immelt –
GE Chairman and Head of the U.S. Commission on Job Creation, for moving GE’s
X-Ray Division from Waukesha, Wisconsin to Beijing, China. I’m guessing President Obama forgot to tell
you to create jobs INSIDE the U.S.
-
To Saudi Arabia
– for lowering the price of oil so that the world is swimming in it. This week the price dropped below $45 per
barrel, and some of that could be attributed to Weatherford Oil’s insolvency
issue (having $8B debt and only $600m in cash to pay for it), but without real
production cuts – prices could soon move to $26 per barrel.
-
To President
Obama – for keeping over 5 wars going simultaneously – NONE of them approved by
Congress.
-
To Wikileaks for
showing that Donna Brazile (on two separate instances) gave Hillary Clinton the
debate questions BEFORE the debate.
-
To the FBI
agents who (on their own time) found a pattern of pay-to-play bribery
concerning the Clinton Foundation that includes the monetizing of political
influence, fraud, obstruction of justice, and a possible RICO conspiracy.
-
To Wikileaks for
saying that their source for all of their information is NOT Russian hackers,
but rather “good-guy insiders” within the U.S. government who wish this
information be known.
-
And to Chris
Matthews for saying: “Do you like uncontrolled, illegal immigration? Do you like the string of stupid wars from
Iraq to Libya to Syria? If you said yes
to any of that, and if you want to keep it that way – then vote for Hillary
Clinton. If you wake up the day after
the election, and it is the same as it is today – remember you had the chance
to change it but you were too dainty to do it.”
The experts say that a Trump
will win will depend upon:
-
The 'silent
majority' of working-class white males showing up to vote,
-
Hillary Clinton
bleeding votes to Gary Johnson – especially in Utah,
-
The
African-American and Latino voter turnout dropping, and
-
The Northeast
coming out in favor of Trump.
I’d like you to consider one
thing. Even though all of the anecdotal
evidence suggests a Trump win (Trump-Pence signs on lawns, Trump vs Hillary
attendance at rallies, Trump vs Hillary digital footprints, etc.) – let’s
assume Hillary steals the election.
Trump will contest it and start bringing up evidence of fraud. What happens if during that election
investigation, the ‘good guys’ at the FBI find a way to get Hillary indicted
via the foundation? What the heck happens then?
Unfortunately, I don’t think
Tuesday ends anything – I think it’s just the beginning. And I really hope that I am wrong.
The Market...
“The question is: What aren’t we going to do?” … Ferris Bueller
Factually this week:
-
We received the
results of the FOMC meeting = No rate hike.
-
We broke-down
thru DOW 18,000, and landed at 17,814,
-
We broke-down
thru S&P 2,100, and landed at 2,082,
-
The PMI fell,
the Dallas FED fell, and we had another week of record outflows from mutual
funds.
-
We had record
low levels of Insider buying, and even a slow-down in stock buyback
announcements.
-
Obamacare rates
in most states will increase between 25 to 100+%.
-
The strength in the U.S. Dollar will put a lid on earnings, and may
slow the FED’s hope for rate increases.
-
Corporations continue to embrace M&A over capital investments.
-
The Non-Farm
Payrolls Report showed that we added 161k jobs – BUT:
o
Part time jobs
increased 90,000,
o
Full time jobs
DECREASED by 103,000,
o
The Birth/Death
model created 197,000 fictitious (phantom) jobs
o
The Net Result –
we actually LOST 36,000 jobs.
How many ways can you say
volatility? It has been 36 years since
we’ve seen the S&P fall for 9 straight days. Although a 9-day losing streak sounds
incredibly bad, we are only off 4.7% from our all-time-high. July 7th was the last time the S&P closed
under 2120, and for almost 4 months the market bounced between 2120 and
2190. But Friday’s close below 18,000 on
the DOW, and 2,100 on the S&P – could get interesting. But the more intriguing fact is that
year-over-year we are now in the RED.
Since the great plunge of
2008, Governments and Central banks round-the-world have gone to incredible
lengths to push the equity markets higher.
The U.S. is the strongest horse in the glue factory, and despite all the
trillions in stimulus, we're limping along at a 1 - 2% GDP. Imagine for a
minute that the Central Banksters stopped printing, stopped buying stocks,
stopped buying corporate debt, and stopped QE.
After all these years, the only thing we would have to show for the
trillions in debt is a silly stock market.
No matter who gets into power things are going to change. By combining the market wanting to go lower
with the insanity of the election – we could be looking at the start of
something.
So long-term (whether
Hillary or Trump win), I believe the market goes lower next year. In terms of an immediate reaction, the
market's initial reaction will be quite different.
-
If Hillary wins,
I think we see a major 3 to 5-day rally that pushes us right back up against
the all-time highs. This becomes a ‘blow
off top’, and we start a long gradual slide that doesn't end until the markets
are down over 40%. So with Hillary, I
think we get an immediate ‘pop’ and then a gradual ‘drop’.
-
If Trump wins, I
expect to see a sell off as much as 20% that is both sharp and quick. Then the normal ‘dead cat bounce’ sets in that
lasts for a bit, and then a much slower slide lower. So with Trump, I look for an immediate sell
off, soggy bounce, and then a prolonged downturn.
-
Therefore, I
think the short-term play on Monday would be to buy a straddle and take
advantage of any large market move higher or lower.
After 7 years of being
propped and prodded higher, this bull market has probably run its last range
and is in need of a hefty correction – that could last for a long time. Remember, the market takes the stairs up, but
the elevator down. In other words,
crashes and corrections are normally fast and hard. I would ask your financial advisor about
buying protection (potentially via puts) in case this market does finally
correct.
This should prove to be quite
an exciting week. I hope you have enough popcorn.
Tips:
An investing roadmap for:
-
A Hillary win:
o
Banks would move
higher for a while: GS, JPM, MS, BAC, and C. You could play this using
the financial ETF = XLF, or the 2x financial ETF = UYG.
o
Foreign banks
should move higher as well: DB, BCS, CS and RBS.
o
Aero and defense
stocks will benefit: GD, RTN, NOC, and LMT.
You could play using the aerospace/defense ETF’s = XAR and ITA.
o
Hillary doesn’t
like the prices in healthcare or bio-tech so watch for those to be under
pressure.
-
A Trump win:
o
Coal will move
higher and the easiest play is the coal ETF = KOL.
o
He wants us to
be energy self-sufficient and will push for more oil and gas drilling. Look toward some offshore drillers like RIG
and DO. He will try and put the frackers
back to work, so look for him to sell natural gas around the world with UNG.
-
For playing the
‘short side’ of the market (i.e. making money when the market is going lower)
consider some ‘Inverse ETFs’ such as:
o
SEF, UYG, or FAZ
in the financials,
o
To short the DOW
use DOG, 2x = DXD,
o
To short the
S&P use SH, 2x = SDS, and
o
To short the
Russell 2K use RWM.
-
I suspect major
volatility is heading our way, and having some exposure to it makes sense. Look at buying some VIX and some VXX – to
play increases in market volatility.
Remember there are no cash values to these indexes, but rather they are
based upon the number of calls versus number of put options – and can get
pretty wild at times.
-
And of course
you could simply buy put options on the SPY, DIA, XLF, and IWM.
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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