RF's Financial News

Sunday, September 15, 2013

This Week in Barrons: 9-15-2013

This Week in Barrons – 9-15-2013

Down to the Wire:

This is the week that The Ben Bernanke is going to withdraw stimulus from our financial system – because he believes that the economic recovery is in full swing. Maybe The Ben Bernanke is seeing different numbers than I am, because for most Americans, the last several years have been a continual struggle – and here are some facts:

Entrepreneurship:

- The percentage of Americans that are self-employed has steadily declined over the past decade and is now at an all-time low.

Jobs:

- The U.S. economy actually lost 240,000 full time jobs last month, and we are now employing 6 million less full-time workers than in 2007.

- The largest employer in the U.S. right now is Wal-Mart, with Kelly Services (a temporary agency) as number two. One out of every 10 jobs is currently being filled by a temp agency.

- 60% of the jobs lost during the last recession were mid-wage jobs, but 58% of the jobs created (since then) have been low-wage jobs.

- 25% of all U.S. workers have a job that pays $10 an hour or less.

- Over 100 million Americans of working age do not have a job.

- The average duration of unemployment in the United States is almost three times as long as it was back in the year 2000.

Income:

- 76% of all Americans are living paycheck to paycheck.

- According to the Social Security Administration, 40% of all workers in the U.S. make less than $20,000 a year.

- Median household income (adjusted for inflation) has fallen by 7.8% since the year 2000, and fallen by 27% since 1969.

- Over 46 million Americans are living in poverty – with over 47 million on food stamps. Both numbers have tripled since the year 2000, and exceeds the combined populations of: Alaska, Arkansas, Connecticut, Delaware, District of Columbia, Hawaii, Idaho, Iowa, Kansas, Maine, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Dakota, Oklahoma, Oregon, Rhode Island, South Dakota, Utah, Vermont, West Virginia, and Wyoming.

Home Ownership:

- The home ownership rate in the United States is the lowest that it has been in 18 years.

- It is more expensive to rent a home in America than ever before.

- 20.2 million Americans spend more than 50% of their income on housing. This represents a 46% increase from 2001.

- 25 million American adults are living with their parents.

- According to U.S. Census, 57% of all American children live in a home that is either considered to be poor or low income.

- More than a million public school students in the U.S. are homeless. This is the first time that has ever happened.

Debt:

- In 1989, the debt to income ratio of the average American family was 58%. Today it is 154%.

- The total amount of U.S. student loan debt recently surpassed $1 Trillion.

- Total home mortgage debt in the U.S. is now 5 times larger than it was 20 years ago.

- Consumer debt in the U.S. has risen 1,700% since 1971. 46% of all Americans carry a credit card balance from month to month.

Health Insurance:

- In 1999, 64% of all Americans were covered by employment-based health insurance. Today that figure has dropped to 55.1%.

- 41% of all working age Americans either have medical bill problems or are currently paying off medical debt. The American Journal of Medicine also reported that medical bills favor heavily in over 60% of all personal bankruptcies.

Mr. Ben Bernanke: Does this sound like an economy in recovery?

Is The Ben Bernanke just not telling us that we’re in another economic depression?

I sure hope that they get it right on Wednesday. Let’s keep our fingers crossed.

The Market:

The market is on ‘Taper Watch’ until The Ben Bernanke delivers his decision on Wednesday. For the longest time I have said that there was no way they would taper - the economy just isn't strong enough to deal with it. But then I had to adjust my view based upon an aggressive campaign of releasing bogus economic reports showing our economy in extremely good condition – despite all of the previous figures. The only reason to ‘pretty up the pig’ was to remove QE.

Therefore:

- If The Ben Bernanke tapers $5B a month, we will never notice it. In fact a taper of between $5 and $10B a month has already been priced into the market during the August 4% drop.

- If The Ben Bernanke tapers between $10 - $20B a month, I think that the market reacts to the downside. I’m thinking that if the market has been pushed higher by all this QE (and it has) – then it stands to reason that there's a correlation between how much they push in, versus how high the market goes. We saw a 4% pull back to 14,800 on worry of Syria and the Fed taper. I think they sold us off to a level they think that $10B of QE is worth.

I’m still slightly in the camp that says he doesn't taper. But I'm just barely in that camp and can easily see them doing some $10B taper just because they made so much noise about the need to start cutting back, and they went to such pains to revise and re-calculate the economic numbers to reflect more strength than we really have.

It is my thinking that if they taper more than the $10B that has already been adjusted for, that the market has a bit of a hissy fit. I think that gold and silver will go down – as those who bought gold because of ‘Bernanke Bucks’ will panic and get out. All the while the Chinese will buy every ounce the small investors are selling.

If The Ben Bernanke kicks the can further down the road, by saying that there is not enough data on which to act – then I think we see an explosive rally that blasts us over the all time highs. No the economy won't be reflective of that, but this market is based on free money. And if this happened, I’d buy the SPY and DIA by using stock and call options. Therefore:

- No Taper – buy everything in sight.

- A Taper of between $1 to 10B a month – I think we continue to see the market inch higher, and we flirt with the all time highs of August.

- A Taper of between $11 to 20B – I think there is a little panic selling for a bit.

- A Taper of over $20B – an outright sell-a-thon where we dump over 1,000 DOW points in a very short timeframe.

On the gold and silver side, I would use ANY taper to resume buying the metals. I know it sounds like a broken record. And I know that they haven't recovered to their highs of 2011. But when I look around and see what's really happening around the globe, I'm still firmly convinced that physical ownership of these two metals is your single best investment.

That said, this week will certainly be interesting times for all. When we hear from The Ben Bernanke, this market is going to do something and probably violently. If you happen to be on the correct side of the reaction, you'll be rewarded. Stand on the wrong side, and you'll wish you hadn't.

I think the best approach here is to be a bit timid. We have 300 points to gain to reach the "all-time" highs, and even if there's no taper and the market runs, we'll have time to jump aboard. Meanwhile, if the market doesn't like something, it will be best not to be loaded up with stocks that are getting hit in the take down.

Tips:

A big shout-out to DS for his numeric help above.

At the investing conference last week the focus was on a particular strategy that takes advantage of being on the ‘right’ side of the trade (the house’s side), and understanding the timing of option decay. In a nutshell – you buy and sell when and with the market makers. When the market makers are selling – you sell, and when the market makers are buying – you buy. This strategy is best implemented on weekly options.

- With a stock in an upward set-up – near its 52-week high (like Priceline PCLN was last week).

- On Tuesday or Wednesday (prior to a Friday expiration) you SELL a Put-Credit spread that is 1 standard deviation (SD) out of the money.

- EX: PCLN was trading @ $960 – with a SD of $20. You look at the $940 Put-Credit spread – Selling the $940 and Buying the $935 for protection. I must admit it worked – as both expired worthless or near worthless – and the month received from SELLING the $940 PUT exceeded the amount spent on buying the $935.

- The same strategy can be used on stocks near their 52-week low (or not in an uptrend) only SELL the Calls Spread rather than the Put Spread.

Finally think about these 3 tips for the weeks to come:

- NDLS – Noodles the restaurant chain … it’s a buy under or close to $45.

- NPSP – NPS Pharmaceuticals … it’s a buy under or around $25 / or watch the Feb $22 calls if they dip below $5.00

- And finally RAX – Rackspace … it’s a buy under or around $45 / or watch the March $45 calls if they dip below $6.00

My current short-term holds are:

- FB – in at 25.61 (currently 44.24) - stop at 41.50,

- SIL – in at 24.51 (currently 14.11) – no stop

- GLD (ETF for Gold) – in at 158.28, (currently 127.90) – no stop ($1,308.40 per physical ounce), AND

- SLV (ETF for Silver) – in at 28.3 (currently 21.43) – no stop ($21.67 per physical ounce).

To follow me on Twitter and get my daily thoughts and trades – my handle is: taylorpamm.

Please be safe out there! a

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Sunday, September 8, 2013

This Week in Barrons - 9-8-2013

This Week in Barrons – 9-8-2013

Send lawyers, guns and money?

Forget all the U.S.’s feelings about humanitarianism. Our involvement in Syria has nothing to do with helping the good people of Syria with their plight. That’s just a sound bite, and a good cover story. So why would a broke nation (the U.S.), tired of a decade of war in miserable places, want to get involved with yet another nightmare? The answer is always the same – money and power.

Saudi Arabia and Qatar are the big dogs in the energy patch. But it is Russia that is making Billions by supplying Europe with natural gas. Qatar has the largest liquid natural gas (LNG) operation on the planet, and they have tried for years (to no avail) to get a pipeline through Syria – in order to dramatically reduce Russia’s LNG pricing – as well as taking over supplying the region with LNG. There is only one problem – and that’s the Syrian Assad regime. Assad (whom Obama wants out) said ‘NO’ to Qatar coming onto his land, and instead is penning his own deal with Iran to take some of their natural gas from the southern border and pipe that on through to the European region.

Saudi Arabia is also against the Assad regime – and has spent billions to get a puppet government installed in Syria in order to use it as a transportation hub, and control the energy flow to the southern European region. Therefore, you have Qatar and Saudi Arabia supplying billions of dollars and arms to the rebel factions to take out Assad – and presumably replace him with a very pliable puppet that will allow them to make untold billions on LNG – all the while – closing the door on the Russians.

As you can imagine Putin is not in agreement with this strategy. He knows full well that if Syria falls into the ‘wrong’ hands, it will be just a matter of time before Russia’s energy income will be dramatically reduced – due to the Saudis and Qataris supplying the region with virtually all the LNG and natural gas. So, Russia is a steadfast ally of the Assad regime. Russia needs him there to keep the Qataris and Saudis out of the region. Therefore, Russia is not amused, when we say that we have ‘proof’ of Assad using chemical weapons as our reason to get involved.

But why would the U.S. want to get involved in the first place? Simple – (1) because of Saudi oil, (2) Obama's relationships with Saudi royalty, and (3) with the deal Qatar has with shipping LNG around the globe; the U.S. stands to win on two fronts.

- First, with our shale oil discoveries, we are rich beyond belief in Natural gas, but we are not set-up to export it - Qatar is.

- Secondly, Russia gets crippled – while we make billions selling discounted natural gas.

The problem Obama had (before chemical weapons) was – how can we get involved without looking like we’re going to war ‘again’ over oil, energy and power?

Now, maybe as important as crippling the Russians and making billions selling LNG – is sending in our military. Our central bankers have been making noise about beginning to ‘taper’ the buying of U.S. Treasuries. The Ben Bernanke is having a hard time justifying his pace of $85B a month because The Fed has succeeded in cleaning up much of the available supply of U.S. Treasuries. And at this pace, future QE would be just ‘flat out’ money printing. In other words, currently The Ben Bernanke is not really printing money that gets injected into the system; he's simply buying enough treasuries that are issued to keep the demand high enough that rates stay low. But as the supply of these treasuries diminish – why would he need to spend $85B a month? Therefore, the U.S. needs to INCREASE it's debt in order to keep The Ben Bernanke buying, and keeping interest rates low.

What would cause the U.S. to have to offer up more treasuries? What sort of spending scheme could our government ‘hatch’ in order to inject billions more in debt – without presenting another useless social or work program? What could they conjure up that won't be knocked down by the political right? How about a military bill for lobbing hundreds/thousands of missiles? How about the flight times, energy costs and the whopper of a bill that comes with moving a huge portion of the Navy fleet to the area? War costs big money. The U.S. would need to sell a lot of treasure notes to finance this war – and The Ben Bernanke suddenly has his reason to keep buying. As has oft been quoted: “War is a racket, and the biggest money maker of all time.” Banksters create wars just to finance them.

So the Saudi’s, Qatari’s, and Obama have wanted to get rid of Assad for a while now, but the stars haven’t been aligned. With interest rates here in the states starting to rise – and killing housing and this so-called recovery – all they need (to kill three birds with one stone) is to get involved in Syria.

- (1) The military bills would keep The Ben Bernanke busy buying up billions in Treasuries,

- (2) We would help Saudi Arabia and Qatar get what they want (AND create a pure pathway to the Euro zone for our natural gas reserves), and

- (3) It would cripple Russia. The perfect trifecta.

But the U.S. still needs a reason. We need something to point to as a "red line" that if crossed would drag us in on humanitarian principles. So when asked: “Why is the U.S. so desperate to get involved in Syria?” – now you know.

But that then brings us to Part Two. At what point does something go horribly wrong and this escalates into a real WW3? Putin isn’t bluffing, and is not going to take kindly to the U.S. helping cripple his energy deals. Iran could easily look at this as a reason to strike Israel. Israel could easily retaliate and obliterate Damascus, and half of Iran. What happens if one of these US missiles hits a Syrian nuclear energy depot and radiation alarms spread for 200 miles? What if some lonesome general in some rebel camp decides to launch saran gas into a U.S. base and/or Israel?

I'm against the U.S. getting involved in this. I do not want our men and women getting shot – so that some oil monarch can run pipelines. I do not want to enrich the war machine. I’m hoping that we don’t go in. But I think the die has been cast – and the show of going through Congress is just that – a show. I think we'll start with the missile attacks, find that it "wasn't enough" and sure enough will send in our ground troops yet again. This is not a pleasant thought.

The Market:

Friday was the all important non-farm payroll report. Honestly – it stunk like five-day old fish.

- The top number came up short and missed estimates.

- The last two monthly reports were revised lower by tens of thousands of jobs.

- And the “labor participation rate" (which is the number of people out trying to find jobs) – fell to a 30-year low.

But Friday wasn't just about a lousy jobs report; we also had Obama on TV talking about the G20 meeting in Russia and the Syria situation. It was an embarrassing TV appearance by our president – because (honestly) he had no idea what to say. He's in a box (and he knows it), so each question brought on a slew of "uhm” and “aah's”, and more “hmm's" as he tried to quickly come up with something that made sense. It really was embarrassing to watch.

The market didn't like what it saw at first, and soon after the open we had fallen 150 DOW points. But then (like clockwork) the Plunge Patrol Team stepped in, and speculation started that the jobs report was so bad that The Ben Bernanke couldn't possibly taper on the 18^th. So, from down 150 we were actually green with 35 DOW points by noon.

Welcome to the world in 2013. Every day we're told that the global recovery is in full swing – and yet we know it is all a smoke screen. Over in Poland word has that their government is set to nationalize the private, pension funds. So this global recovery consists of:

- Governments stealing private pension funds,

- Going to war to create stimulus for the military complex,

- Going to war to give bankers more to finance,

- 48 million U.S. citizens on food stamps – with untold millions more on some form of Government hand out,

- China building cities that nobody lives in,

- Japan pushing more stimulus into its economy in 2 years, than we have, and

- India is going broke, with their government is contemplating the confiscation of their citizen’s private gold holdings.

This is NOT a recovery; this is “Fiat Money Printing Gone Wild!” This doesn't lead to the “Leave it to Beaver” (good times of the 1950’s) returning. We’re not investing based upon earnings or financial statements, but rather we’re investing in QE.

In the next 12 days we have some serious challenges.

- Mr. Putin said on Friday that if we bomb Syria, he's going to back Syria. That puts Obama in a bind. You really don't want to have a true stand off with the Russian bear.

- With The Ben Bernanke, I'm still slightly in the camp that says they don't taper, and if we do lob missiles by then, there's NO WAY we'll see a taper – in fact we could see increased accommodation. Just this week the Federal Reserve Bank of Minneapolis President Narayana Kocherlakota (who has backed the Fed's $85 billion in monthly bond buying) said: “The central bank's outlook for inflation and unemployment calls for more accommodation not less.”

So if they do ‘taper’ – I don’t think that it’s baked into the price – and I think tapering will rattle the market. If they don’t taper – I think the market soars on all the bogus printing. It is a very difficult time out there right now and there's no shame in leaning into the cautious camp. We have been doing some short-term trades, but it isn't easy trading. Sure I've heard that the market climbs a wall of worry, what they don't tell you is that sometimes the market falls off that wall and crashes. Until some form of normality creeps in, just keep your wits about you.