This Week in Barrons - 2-19-2017

This Week in Barrons – 2-19-2017:

Thoughts: 

"If you tell a big enough lie and tell it frequently enough, it will be believed."... Adolf Hitler

Dear President Trump:

Adolf Hitler (in 1925) dictated the above quote in his book: Mein Kampf.  It referred to a technique where big lies are often believed before small ones – because no one thinks that anyone would have the audacity to distort the truth so infamously.  Hitler’s primary rules also included: “(a) Never allow the public to cool off; (b) Never admit a fault or wrong; (c) Never concede that there may be some good in your enemy; (d) Never leave room for alternatives; (e) Never accept blame; and (f) Concentrate on one enemy at a time – Blaming them for everything that goes wrong.”

Mr. Trump, one of the most startling aspects of your Presidency thus far is not your brashness or outspokenness, but rather your ability to direct major un-truths directly into a camera.  You obviously know you are being fact-checked at light-speed – so there must be something of gigantic proportion at work.

Is it that your stance on Nationalism is running smack into the ‘One World Order’ ideology?  Your thoughts on immigration and borders have emboldened the U.K. to continue down the path of BrExit, and are allowing Marine LePen to gain traction in France.  You have certainly initiated wars of words between globalists and Nationalists, between the intelligence white hats and black hats, and between the military complex and the peacemakers.

Or are you frustrated because your hawkish foreign policy, looser domestic regulations, and BAT (Border Adjustment Tax) – could create an avalanche of Treasury bond selling from your 2 largest clients: U.S. Banks and China.  Since the financial crisis, big banks have been stockpiling Treasuries because they qualify as ‘safe assets’ counting toward required capital levels.  According to the St. Louis FED, U.S. commercial banks have more than doubled their holdings (over the past 9 years) to $2.4T in government debt and agency securities.  But you are pushing to roll back the parts of the Dodd-Frank regulation that would give big banks a reprieve from those capital requirements.  As a result, U.S. Banks could sell over $300B in Treasuries (previously used as a recessionary cushion), and funnel those proceeds ‘potentially’ into stock buybacks. 

But Mr. Trump, you and I both know that China is a creditor of a different magnitude.  As of November, China held $1.05T in Treasuries.  Are you being ‘truthful’ when you label China a “currency manipulator”, and when you threaten a 45% tariff on their products?  Alex Phillips (senior political economist at Goldman Sachs) writes that: “If the White House pursues a unilateral policy of tariffs on Chinese products, one probable avenue for China to retaliate would be to sell their U.S. Treasuries.”  Are you trying to ‘lock-up’ the credit markets – as in 2008?  Because Tu Xinquan (Dean of the China Institute for WTO Studies at the University of International Business and Economics in Beijing) has stated: “By angering a creditor of that magnitude, the Treasury market would be the first place China would look to send a message back to the United States.”

Some think you were elected to continue the corporate agenda, to continue to wage unnecessary wars, and to continue to topple Governments we don't like. Others think you were elected because of your bankruptcy background, and will be needed as the world goes through its necessary economic reset.  Still others believe you were elected as a sacrificial lamb, put in place to be the fall guy when the wheels completely come off our debt-ridden nation.  For the first time in my nearly 30 years of snooping around in the underground news, there's NO consensus.  My small bit of advice would be: “The truth will set you free.”  John 8:32.

The Markets:

For the past month, I’ve been calling for the last hurrah of a rally.  And once all of the ‘fence sitters’ are drawn in – THEN they will pull the rug and we will head lower.  Well, I think we're dead smack in the rally.  How far and how long it goes is anyone's guess – because there is no overhead resistance.  This could run for two more months, or end tomorrow.  Remember what got our market to 20K:

-       The ECB doing 80B a month in QE,

-       The Swiss National Bank buying $65B in U.S. stocks,

-       The Bank of Japan owning over 50% of their own market’s index ETF’s,

-       And companies borrowing at zero percent to buy-back their own stock.

Do these same shenanigans take the DOW to 30k?  I can make the case for DOW 30K pretty easily:

-       Trump cuts corporate taxes.

-       CFO’s will place what ‘should’ have been paid in taxes into the profits column, causing earnings per share to rise, and investors to buy,

-       The ECB would change gears and increase QE – with the increase going into U.S. equities,

-       And the Swiss National Bank would up their U.S. stock holdings by simply using ‘newly printed money’ to buy specific high-profile stocks.

I can also make the case for DOW 10K just as easily:

-       Trump’s tax revisions and regulations do NOT get passed,

-       The ECB decreases and stops QE,

-       And the Swiss National Bank starts selling their U.S. equity holdings.

So before considering holding through the dips – realize that dips can turn into sell offs and major corrections.  After all, the DOW and the S&P have hit all-time highs 7 times since just the inauguration, and not a SINGLE thing has changed.  One thing is certain however, gaining 800 points since Feb. 2 is not sustainable.  In fact, you know things are really upside-down when Janet Yellen makes the case to Congress that she's going to hike rates sooner rather than later, and the markets start to rise almost instantly.

According to the Business Insider, top hedge fund founders (such as Steven Cohen) are sending letters to investors explaining last year’s dramatic underperformance.  Which begs the question, how can so many smart people be so wrong?  Answer: because there's a huge manipulation factor that’s in play here.  Using oil as an example: (a) With oil storage capacities at their limits, and (b) with more oil rigs coming on line every day – hedge funds shorted oil – only to see it move higher.  Did the law of supply and demand go away?  Yes, because the loans behind the oil rigs require $52/barrel oil to remain profitable.  It’s the same everywhere you look.  Caterpillar just posted an all-time-high in its stock, only to be followed by its 50^th straight QUARTER of declining sales.  As someone once taught me: “You need to trade the market that you have, not the one you want.”  And right now, this market is all about banks, and certain tech stocks.

Technical analyst Tom McClellan has been calling for a February/March correction for a while, and judging by one metric, he could be on track to deliver.  Tom explains: “When investors get complacent, they do certain things: They show up as bullish in the various surveys.  They bid tiny premiums on options, driving down the VIX.  They put all of their cash to work, letting money market fund levels get down ridiculously low.  And they trade tiny volumes on the QQQ.”  The QQQ ETF is the largest of all ETFs tracking the Nasdaq 100, and (referring to the chart below) has shown steadily declining volume in recent months.  Tom continues: “Low QQQ volume readings are associated with investor complacency, and with important price tops.  This confirms the expectations of a late February early March top.”

The other issue is that our FED is having difficulty tapering a Ponzi scheme.  Our entire financial economy is now based on ever expanding debt, with stocks being used as collateral to create more debt.  If stocks go down substantially, it isn't just mom’s and pop's 401Ks that fail, it’s also the multi-billions that have been pledged over and over again as collateral on top of that 401K.  If this market of ours goes down substantially, we've got a mini Armageddon on our hands.

Everybody knows that this market is beyond ‘Priced for Perfection’.  They need stocks to remain stable so that all of the counterparty risk doesn’t collapse (House of Cards).  I wouldn’t make any big bets right now, and would wait for some of the froth to blow off the top.  We're overdue for a corrective pause or pullback, and next week I’m thinking we may get a little bit of just that.

Tips:

StockTwits co-founder Howard Lindzon seems to have learned to love the bombs-related ETF - URA.  He is among a group of traders who are head over heels for the Global X Uranium ETF – URA which has blasted 55% higher since Election Day.  Howard said: “It makes sense (in hindsight) why uranium is on a tear.  It is an end of the world proxy based upon all the chatter from Trump on a nuclear arms race.”  But on Friday CNBC jumped on the ‘uranium rally’ citing production cuts and a nuclear-power renaissance – which made URA kind of a ‘Magazine Cover’ indicator.  This should signal that URA will need a break before building on its big rally, and word on the street is to short URA this coming week.

Over the up-coming weeks, I will deliver 3, battle-tested techniques for trading: ‘Calendar’, ‘Butterfly’ and ‘Iron Condor’ options for weekly income.  The techniques have a proven ability to garner 10% to 12% per trade / per week with minimal risk.  So, stay tuned…

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 <http://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 - 2-12-2017

This Week in Barrons – 2-12-2017:

Thoughts: 

Step right up, test your strength, and ring the bell.

This little-known phenomenon could make ‘stock-picking’ great again, and could cause long-suffering stock pickers to do some dancing.  ‘Risk on – Risk off’ was a dominant feature of financial markets in the aftermath of the 2008 crisis.  It meant that assets perceived as ‘risky’ (such as stocks, commodities, and non-government bonds) tended to either rally or sell off in unison, and assets perceived as ‘safe’ tended to do the same – but in the opposite direction.  Within equities, this caused a high correlation between individual stocks, and their specific sectors.  This made it difficult for active, ‘stock-picking’ investors to beat the market.  After all, why invest in a particular stock when you can invest in the entire sector, for less risk, and obtain the same returns?

Since the indexes have made new, all-time highs – the correlation between stocks and sectors has fallen quietly by the wayside.  In fact, as noted by the chart below, stock correlations are now significantly below their post and pre-financial crisis averages.  Brian Belski, chief investment strategist at BMO Capital Markets remarked, “These lower correlations are good news for stock pickers, as active stock picking strategies will be the key to delivering outperformance in the coming months.  The years of riding the wave of the index funds and ETFs could be coming to an end.”

And while stock pickers (or at least the ones who pick the right stocks) may rejoice, the shift carries some other ramifications.  Nicholas Colas, chief market strategist at Convergex, noted that low correlations mean that getting sector and stock bets RIGHT just got a whole lot more serious.  For example, many financial managers have remained overweight in the energy sector because it was last year’s big winner.  Unfortunately, the sector has fallen 3.3% year to date, but several winning stocks (within the sector) have continued on their winning ways.  The goal of the stock picker is to find those specific winners, and not count on the entire sector to perform as well as the winners themselves.  So according to Nicholas, “The rough part about the correlation’s sudden disappearance, is that being wrong just got a whole lot more expensive.”

The lowering of the correlation and the fewer stock market winners that come with it – could be by design.  SF brought to my attention that over the next year our FED will either print money like crazy (and make the past $10 trillion deficit pale in comparison), OR they will stop buying U.S. stocks and bonds.  I’m voting for door number 1.  Michael Cloherty (the head of U.S. interest-rate strategy at RBC Capital Markets) believes that the unwinding of QE “will cause a massive and long-lasting hit to our mortgage market.  After all, America has been on a spending spree for over a decade – adding over $10T to its debt load, and over 20 million people onto its health insurance rolls (ACA).  Who's paying for this?”

In basic terms, the FED wrote trillions of dollars’ worth of IOU's to pre-pay for all of our spending.  After all, the economy has only grown at 1.5% during the past 8 years, and the money had to come from somewhere.  To further set the record straight – we (the U.S.) purchased over half of our own debt.  Huh?  Yes, we created our own debt instruments (T-Bills) and because nobody else wanted to buy them – we sold them back to ourselves.  Heck, we even bought back $1.5T of the Mortgage Backed Securities which failed in 2008.  So:

-       We issued debt, to buy assets (mortgages) which we know during the next recession will tank ($1.5T),

-       And (now that interest rates are rising) those original T-Bills that we purchased are set to double or triple – before we roll them over during the next several years.

Yes, our debts will need to be repaid over the next several years, and many pet projects and benefits (including Social Security) will take a hit.  How President Trump handles this financial undertaking will be a true test of strength.

The Markets:

The S&P has now gone for a record 40 days without an intraday swing of 1% or more.  Does it mean that things are so balanced between longs and shorts that wobbles are a thing of the past?  OR, does it mean that every time the S&P is in danger of falling more than 1% - SOMEONE rushes in and saves the day?  I'll take door number 2.

The FEDs are continuing to prop-up this market, and I’ll use oil as an example.  This week we had the 2nd largest oil inventory build-up on record (14 million extra barrels), but the price of oil went higher.  How does the price go up – when we have so much oil that we’re storing it in ships in Galveston Bay?  Simple – if the U.S. allows the price to go down all of those billions in loans to frackers and drillers goes bust, and banks hate it when loans go unpaid.  So, the FED uses paper money to pin the price of oil right where they want it.

If you wonder just how much the manipulation matters, the stock market is 24% ahead of last year at this time, and corporate earnings are only 4.6% above last year.  It’s my contention that this 19.4% gap is coming from the U.S. Government allowing ‘Non-GAAP’ reporting of corporate financials.  For example, let’s examine Humana’s latest earnings report: Humana’s actual Q4 sales revenues came in short of estimates at $12.88B.  Actual GAAP (Generally Accepted Accounting Principles) earnings per share came in at a NEGATIVE $2.68/share – but Humana reported a POSITIVE (Non-GAAP) $2.06 earnings per share.  Humana actually LOST $2.68 per share, but since the U.S. Government allows Non-GAAP reporting – Humana reported a positive number and the stock went up.  That is the reason that actual earnings are only 4.6% of last year, but stock market returns are 24% higher.

Gold and silver may experience a significant upside as we head into March.  I say that for three reasons: One is because Iran has stated publically that as of March – they will stop using the U.S. Dollar for trading purposes.  Understand, EVERY nation (Libya, Iraq, etc.) that has abandoned the U.S. Dollar in favor of a different currency has been destroyed.  Secondly, Wall Streeter Greg Guenthner thinks that gold prices could jump 20% over the next several weeks because gold’s advance in the first six weeks of 2017 has perfectly mirrored the action seen in the same period in 2016.  The precious metal is looking like the perfect hedge against: inflation (which is rising), instability in Europe, and the growing skittishness over Trump’s political agenda.  “For the 2^nd year in a row, Gold has posted gains of 6% through the first week of February.  In both cases, gold bounced off a late December bottom, dipped in late January, and rocketed to new highs at the start of February,” Guenthner says.  “If this keeps up, gold could be ready to repeat last year’s epic comeback.”

A third reason for the precious metal’s rise is that traders think the S&P 500 is setting up for a major pullback.  Chartists like Sven Henrich base start their analysis by counting the number of stocks above their 50-day moving average during each month.  December’s had 82% of stocks above their 50-day moving average, while January fell to 75%, and February (to date) only has 60.6%.  Which means that almost 40% of the stocks are hurting – leaving fewer (overbought) stocks to hold up this rally.  “This sort of combination has spelled trouble for stocks in the past, most recently in the summer of 2015, but also in 2007,” said Henrich.

But the DOW isn't at 20K because factories are humming, the consumer is in perfect financial shape, and debt levels are low.  On the contrary, subprime loans are rising (along with their default levels), and the consumer is in horrible shape with half of them not being able to come up with $400 for an emergency.  For more than a month you've heard me say that my theory was that we would get to DOW 20K, struggle a bit, and then ultimately go one final leg higher.  On Thursday two things happened.  One was that Trump announced that in a few weeks he would unveil a "phenomenal" tax plan.  But more importantly (I think), FED head Bullard made headlines by stating, "Shrinking the federal balance sheet may allow policy space for future QE".  Additional QE is the Holy Grail of a manipulated market.  Following that statement, the market started to rise.

On Thursday, we broke back over DOW 20K, and ended the week at DOW 20,269.  The only problem was, we did it on anemic transaction volume.  When you cross a major milestone like DOW 20K, the S&P (SPY) should NOT be trading 65m shares like it did Friday.  The day after Trump was elected we traded 265m shares.  A volume of 65m shares means that not everyone is ‘on board’ with this rally.  And the two-day romp wasn't as easy to join as you may think.  Many stocks would pop higher in the morning, and then fade lower during the day.  And specifically, most of the moves came from stocks that announced earnings either before the market opened or after the market closed. 

If this is the final push, then I need to see some confirmation volume early next week, OR I would expect to see this market pause and roll over.  Watch for a potential ‘gap-up’ on Monday, and then keep an eye on the volume in the SPY.  If we trade significantly more than 100m contracts on the SPY – we could be in for a nice ride to the long side.  Otherwise, you could see it begin to trade sideways and down for a fairly long time.

Tips:

 

Indexes:         The Nasdaq is currently the strongest of the index products, then the DOW, and then the S&P and Russell.  If the S&P cannot get over 2320 on Monday, I would expect to see consolidation and a movement lower into 2293.

Currencies:    The Yen has more downside into the 87.25 level, and is buyable after that.

Crude:            Trade crude until it makes $55/barre, and then go short.

Copper:          Copper looks good to the upside into the $2.80 to $2.90 level.

Gold:   I was looking for pullback to $1,216/oz. but did not get it.  I see gold moving higher past the $1,245/oz. level.

My stance for next week is neutral.  I’m looking for places where I can sell premium, or buy ‘out of the money’ options (March and April monthlies) in anticipation of big moves.  Most stocks are extended, and you need to begin thinking what ‘advantage’ do you have buying up at these ranges?  I’m watching:

-       RUT – (Russell 2000) anticipating a choppy week, and erring on the side of strength,

o   SNA – (Snap-On) If RUT can remain strong, I’m looking to buy some out of the money Calls for the March or April expiration.

-       XLE – (Energy Sector) continued lower all during the week,

-       XRT – (Retail Sector) was in rally mode all week, but faded on Friday,

o   ULTA – If XRT can look good on Monday, I’m looking to buy some of the money Calls for the March or April expiration.

-       CLVS – (Clovis Oncology) I’m looking for it to have 4 more points to the upside – starting next week.

-       AAPL – (Apple) looking for a potential pin at $130/share on Friday,

-       NVDA – (NVidia) had a Bearish engulfing candlestick last week so I look for it back around $110 before getting long again,

-       FB – (Facebook) looking to re-enter back around $130 – it’s 21-day EMA,

-       WYNN – looking to sell Call Credit Spreads at these levels,

-       LOW – (Lowes) 200-day moving average is around $75; therefore, selling Credit Spreads above this line makes sense.

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>