This Week in Barrons –
1-22-2017:
Thoughts:
It’s often said that
entrepreneurs control the planet. That
statement was fully on display during the World Economic Forum in Davos,
Switzerland this past week. There, we
found out that the following 8 entrepreneurs control more than HALF of the
world’s wealth:
-
Bill Gates –
U.S. – founder of Microsoft (MSFT),
-
Amancio Ortega –
Spain – founder of Inditex Zara (ITX),
-
Warren Buffet –
U.S. – founder of Berkshire Hathaway (BRK.A)
-
Carlos Slim Helu
– Mexico – founder of Grupo Carso,
-
Jeff Bezos –
U.S. – founder of Amazon (AMZN),
-
Mark Zuckerberg
– U.S. – founder of Facebook (FB),
-
Larry Ellison –
U.S. – founder of Oracle (ORCL), and
-
Michael
Bloomberg – U.S. – founder of Bloomberg LP.
It is my contention that our
government has yet to figure out how to foster and grow entrepreneurship. Since the Obama administration took office,
new corporate formation has been at all-time low levels. I believe that entrepreneurship in the U.S.
grows ‘in spite’ of our government’s efforts.
Ms. Maria Contreras-Sweet (outgoing head of the Small Business
Administration (SBA)) proved my point this week with her exit email. And thanks to MJP – who was nice enough to
provide his facts, wit, and sarcasm to her email below.
Maria: “Small businesses are the cornerstone of the
American Dream. They give us the freedom to chart our own paths and live to our
fullest potential. They are the engines of American job creation,
creating the majority of our new jobs, and are the wellspring of American
innovation.”
MJP:
“The above is ONLY true if you count a 'new job' as one person deciding to
start a side business. Otherwise, you
have squelched entrepreneurship. The
Bureau of Labor Statistics (BLS) tells us that 85% of ‘new businesses’ under
the Obama administration were one person businesses without a payroll – and 50%
of those are gone within one year.”
Maria: “Small business
owners shape the character of our Main Streets and are the pillars of our
communities. Under President Obama, we
at the U.S. Small Business Administration have been fighting to ensure that
America’s entrepreneurs receive the support they need to succeed with
unprecedented access to capital, counseling, and record-level federal
contracting opportunities.”
MJP:
“Unfortunately, all of that access to capital and counseling was artificially
enhanced with taxpayer money. You should
ask: Why would any entrepreneur ever agree to take swimming lessons from a
government who’s afraid of the water?
Everything about the Federal Government’s mantra of ‘over-spend to
under-produce’ flies in the face of entrepreneurship – and shows their true
lack of understanding.”
Maria: “The SBA strives to be smart, bold and
accessible: embracing smart systems and modern technology, promoting bold steps
into new markets, and ensuring entrepreneurship is accessible to Americans of
all backgrounds.”
MJP: “Unfortunately with entrepreneurship there is no
need to 'promote' new markets. The goal
of the entrepreneur is to FIND the customers, or otherwise admit that there
isn’t a viable market and move-on. I
appreciate our government trying to make heroes out of victim groups – but
realize that entrepreneurship and the free markets are blind to: race, color,
creed, and sex.”
Maria: “Looking back on the economic crisis the
nation faced eight years ago, I am awed by the strides made by this
Administration and proud of the role that the SBA team has played in supporting
that progress. America’s small
businesses were hit hard by the Great Recession, and we responded with a
comprehensive effort to encourage entrepreneurship and bolster job creation.”
MJP: “Honestly, our government created dozens of
programs to support startups that would have (should have) never survived
without your life support. The BLS
proves that less than 10% of your efforts were successful, and that you and the
Obama Administration established a new, all-time LOW for new company creation.”
Maria: “When private sector
small business lending faltered, the SBA stepped into the breach, bridging the
gaps and reaching record levels of lending support to America’s
entrepreneurs. When small firms needed
increased earnings to thrive and grow, we worked with small businesses to help them
win record-shattering levels of contracts.”
MJP: “Lending to people with weak business plans and
as a lender of last resort is: fake, unsustainable, a horrible idea, and a
complete waste of taxpayers' money.
There is no art or science that rewards spending a lot of resources
badly.”
Maria: “When our heroic veterans needed help
entering a difficult economy, we created new training programs – bringing
entrepreneurial skills to more than 50,000 members of our military and their
spouses. When underserved communities
across the nation were struggling to rebuild, we launched a series of
initiatives to boost entrepreneurship, lending, investment, and innovation.”
MJP: “This all sounds good, but having your efforts
result in the lowest level of entrepreneurial activity in HISTORY is nothing to
be proud of. Rather than putting money
where people aren’t – maybe try investing where customers actually are? I don’t think any successful entrepreneur
made a living from selling to customers that could not pay in areas that
customers did not frequent.”
Maria: “When President Obama took office, American
families were losing their livelihoods and their homes at staggering rates.
Thanks to his leadership, the next Administration will inherit a small business
economy that is strong and robust.”
MJP: “As a result of being crushed by regulations and
by the cost of ObamaCare, the small business community voted against you /
Hillary. Every year entrepreneurs ask
for two things: reduced taxes and early stage tax credits. Entrepreneurs (without a nanny state) can
figure everything else out, or they close-up and move-on.”
As I heard President Trump
(in his inaugural address) talk of taking the power from Washington and giving
it back to the people – I was reminded of a similar inaugural address given
over 50 years ago by a rebellious John F. Kennedy: “For too long, a small
group in our nation's Capital have reaped the rewards of government while the
people have borne the cost. Washington
flourished, but the people did not share in its wealth. Politicians prospered - but the jobs left and
the factories closed. The establishment
protected itself but not the citizens of our country. Their victories have not been your victories;
their triumphs have not been your triumphs; and while they celebrated in our
nation's capital, there was little to celebrate for struggling families all
across our land.” JFK (when elected) was just as controversial
a figure as Donald Trump. We gave JFK a
chance, and we made it work.
The Market:
“No one wins in a trade war.”… Chinese President Xi
72% of U.S. companies
believe that Donald Trump’s presidency will impact their business operations in
the following top 3 areas:
-
Regulation: A Trump administration could change rules that
specifically help midstream energy companies like Williams Cos. (WMB), and
boost banks such as: Citi (C), PNC (PNC), and Morgan Stanley (MS).
-
Fiscal
Spending: Trump’s
infrastructure plans could give a lift to materials providers such as Vulcan
(VMC), Summit (SUM), and Martin Marietta (MLM).
-
Barriers to
Global Trade: Even President Xi admits,
with the U.S. being the largest consumer of goods on the planet (by a long shot)
– it gives the U.S. the upper hand at leveling the playing field. However, instituting a ‘Border Adjustment
Tax’ could mean real trouble for global
automakers, along with Nike (NKE), Dollar Tree (DLTR), and Restoration Hardware
(RH).
In a trade war, Goldman’s
top 10 impacted companies would be:
1. Nvidia (NVDA),
2. Apple (AAPL),
3. Broadcom (AVGO),
4. International Business Machines (IBM),
5. 3M (MMM),
6. Nike (NKE),
7. Skyworks Solutions (SWKS),
8. Wynn Resorts (WYNN),
9. United Technologies (UTX), and
10. Yum China Holdings (YUMC).
I continue to wonder if the
market’s sag for the past month was just a digestion of the giant
(post-election) move, or whether it’s signaling the beginning of a fade to
correction? The market responded
positively to Inauguration Day on Friday, as we ended the day up almost 100
points on the DOW and up 7 in the S&P.
But all we did was place the S&P dead center in the middle of the
range it's been in since December 13th. And we simply moved the DOW from
slightly under the range – to back into the lower side of the range.
Is the DOW ever going to
snag the golden ring of DOW 20K, or do we continue in this sideways range
box until ultimately we begin a fading type of correction? I've been leaning towards seeing that last
hurrah run-up, but it's not looking all that healthy. As you see by the graph below, there isn’t
all that much ‘cash on the sidelines’ to invest in the market. In fact, you could potentially say that anyone
who wanted to be invested in this market – IS invested in this market. If that is the case, then sellers should
overtake buyers in the coming weeks and return this market back into its moving
averages or lower.
I think we only have this
coming week to get us back near the highs, or we could see this rally exhaust
itself and begin to roll over. Let’s see
if Friday's gains were the start of the final attack on 20K, or simply a
desperate attempt to keep the wheels from coming off. We'll know soon enough.
TIPS:
There is a tug-of-war going
on between the precious metals and the more ‘risk-on’ assets. But before we go down that road, last week I
highlighted an Iron Condor strategy that I use strictly on the indices (SPX,
NDX, RUT, DIA, SPY, QQQ and IWM). In
low-volatility markets (such as this one), I sell Iron Condors with their inner
strike ‘closer to the money’ such as a delta-30 and their outer strike in the
upper delta-20s. That gives me more of a 1:1 risk to reward relationship. That way if one side of the trade goes
‘south’, I have enough money on the other side of the trade to either roll it
or buy it back – and still remain profitable.
I laid out a specific SPX trade that I was doing: selling some weekly
Iron Condors (IC) – expiring January 20th – between 2260 / 2265 and
2290 / 2295 – for between $230 and $245 per IC.
I was hoping to show some of the modifications that I had to do, but the
SPX acted remarkably calm – ending the week @ 2271. Therefore, I pocketed the entire $245 per
contract. In hopes of demonstrating any
required adjustments, I again sold a similar set of weekly SPX Iron Condors –
expiring January 27th – between 2245 / 2250 and 2280 / 2285 for $250
per IC. Just like this past week, in
next week’s newsletter I will highlight any modifications I do to this trade in
order to better show you how to create a weekly income stream.
Next, if you’re not using www.earningswhispers.com to help
you maintain a market pulse during earnings season, and www.thetradeexchange.com to help
you keep a handle on specific company tweets – you should.
Finally, gold jumped over
$1,200/oz. and silver over $17/oz. this past week. The action surrounding the Trump inauguration
could be signaling a move to $1255 and $18 respectively. Here are 5 elements that could send the
precious metals soaring:
1. Trump declares his intention to name China as a
currency manipulator. Watch: FXI, FXP,
and ASHR.
2. Trump declares his intention to abandon the so-called
‘One-China’ policy.
3. Trump states an intention to declare artificial
islands built by China in the South China Sea as illegal.
4. Trump makes more statements that are seen as encouraging
European Union (EU) member countries to leave the trade pact. Watch: EWG, FEZ, HEDJ, VGK, and FXE.
5. And Trump provides support for quickly doing a trade treaty
with the United Kingdom – adding more fuel to the UK’s hard exit from the
EU. Watch: EWU and FXB.
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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