This Week in Barrons - 9-14-2014

This Week in Barrons – 9-14-2014:

“These are CNBC-type numbers…”

In August, CNBC reported that their average viewership declined by 30% (year over year) to just 28,000 adult viewers, from 25-54 years old, during the 9:30am to 5pm time period.  This was its lowest rated month in over two years.  These numbers are really bad.  Can that many people just not care about today’s financial climate?  Here are some other ‘really bad’ numbers:

-       Japan just announced that on an annualized basis their GDP FELL 7%.

-       JP Morgan just said that the amount of excess liquidity around the globe is at "extreme levels.”

-       Poland said that Gazprom (the Russian natural gas organization) shipped 40% less natural gas on Wednesday than Poland had requested.  (Note to Europe – you push Russia with sanctions – they push back.)  It also means that Putin will turn even more towards China for financing.

-       Last month mortgage applications fell 7%, and refinancing’s fell 10%.

-       51% of the U.S. population could not go 2 weeks without a paycheck, and has NO retirement savings.

-       Jim Reid of Deutche Bank said: “The stock bubble needs to continue in order to sustain the current global financial system".  So, we need to keep inflating, otherwise the wheels will come off.

-       The Chinese PPI missed estimates – showing that they are over-stocked with inventory, and are cutting prices in order to sell it.

-       The Labor Department reported that the initial jobless claims increased 11,000 to a seasonally adjusted 315,000 for the week ending on September 6th.  This is the highest level since June, and above economists’ forecasts of 300,000.  Combine this number with the actual, full-time employment measured by ADP, and you quickly realize that job growth remains paltry and there is still far too much stagnation.  The strongest growth in job creation continues to be in part-time work.

-       Businesses continue to seek revenue overseas, where consumers prosper, taxes are lower, and regulations are more business friendly.  We, as a nation, can decide to compete or we can punish those that decide to participate.  Our administration has chosen the later of these choices.

-       Last week a report was circulating that the FED (during their meeting this week) will remove the language suggesting that rates will stay low ‘for an extended period’.  If the easy money is going away, then things have dramatically changed.

The dollar continues strong, and that strength has an inverse relationship to all commodities priced in dollars.  I believe that the recent dollar rally is playing a bigger role in the decline of commodity prices than actual supply & demand issues.  Goldman this week set a target price of gold at $1,050 per ounce (down from $1,250 where it resides currently).  While the price of paper gold is under pressure, physical demand remains strong.  I would be a buyer down at $1,050 – if we can get there. 

The Market....

We are closing in on another monthly options expiration week.  This month’s roller coaster ride has been more volatile than normal.  We had the sharp selloff in the beginning of the month, the sharp rally in the middle of the month, and now more selling pressure.  If you look at a chart of the S&P 500, you will see that since July 23^rd we are currently in the same spot we were then.  However, the S&P started at 1,985 on July 23^rd, then dropped to 1,904, then ripped back up to 2,011, and then rolled back over to 1,985 – precisely where we started.  The S&P has made no progress, but the daily swings have added up to over 151 points.

Speaking of the market, it really looks like crap.  The IWM, (which are the small-cap stocks that led this market for so long) are looking horrible.  The S&P has pulled down and its trading proxy (the SPY) is sitting on a soft support zone.  Friday, which has a habit of being green for the weekend talk shows, was bright red.  This market has been red 6 out of 10 days.  The bounces seem to be one day events, and more like desperation moves rather than any real serious buying pressure.

To me, the market feels heavy, and almost like it's run out of gas.  Now, we've seen this set-up in the past, and they've stepped in to save the day.  But right this second; we are parked on the verge of a serious pull down.  Yes, they might save it, turn it around, and push us up.  But, if you look at the chart and the internals from Friday, you can only deduce that we're one small step away from a healthy fade.

I'm not willing to say the entire run is over.  But I have mentioned for two weeks that September has a habit of being an ugly month.  It’s being made more interesting by a triple witching options expiration this Friday, and a FED meeting this Wednesday.  After all, Ms. Yellen may decide to remove the words "keep rates low for an extended period", and then you would have the making of a real stock selloff. 

So for the beginning of this week, my guess is they try and hold us here sideways.  We could very well bounce all over the place.  The great news is that an increase in volatility could give the market some welcome volume.  Then if Yellen doesn't remove the happy talk, they will try and rescue us.  If however the FOMC says that they are on track to end QE in October, and removes the "keep rates low for an extended period" line – we are probably going down.  That could be our long lost 8 to 10% pullback.

Tips:

“Something wicked this way comes.”  Friday found large funds bailing out of positions.  Instead of selling 1M shares at a time, they were continuously selling blocks of 1,000 shares – over and over again.  This is the first day in a while where I've seen every asset class (U.S. dollar, stocks, bonds, oil, gold, yen, and the list continues) down on the day.  In theory, stocks should be rallying with all of the other asset classes down, but they aren't.  The $TICK readings have been constantly to the downside – telling me that there aren’t any buyers.  This doesn't mean we won't get a nice short covering rally into the FED meeting on Wednesday, but it does mean that it’s fine to err on the side of caution.  For me, my red flag is always the push below the 21 EMA on a daily chart.  When that happens, it just opens the door for much more downside.  On Friday, the S&P, DOW and Bonds all crossed below that level – with the NASDAQ staying barely above it.  Therefore, I liquidated some major portions of my holdings. 

I still hold a couple of the energy stocks, a couple cyber-security stocks, and I continue to sell 1+ standard deviation PCS’s (Put Credit Spreads) and CCS’s (Call Credit Spreads) on the NDX and SPX.  Obviously if I’m wrong – re-entry is just a commission away.  But if I’m right and this market even remotely begins to roll over early in the week – then we’re in for one heck of a FED-induced ride.  If we stabilize mid-week, I would look to get back into small caps such as: ANAC, IDTI, IG, LEJU, NLS, PANW, RARE, RFMD, SLCA, and TSRA.  I would also be looking to put options trades on the following list of candidates: RUT, SPXPM, CMG, PII, GS, AMGN, AAPL, and MON.

My current short-term holds are:

-       FEYE (Cyber-Sec) – in @ $28.76 – (currently $34.95),

-       KO (Beverage) – in @ $41.17 – (currently $41.46),

-       LNG (Energy) – in @ $57.40 – (currently $82.64), and  

-       GLD (ETF for Gold) – in at 158.28, (currently 118.38)

My Small Caps (earned 19.73% in the month of August):

-       LNGLF (Energy) – in @ $3.54 – (currently $3.90),

-       NEO – in @ $5.82 – (currently $5.99), and

-       VDSI (Cyber-Sec) – in @ $14.17 – (currently $17.49)

To follow me on Twitter and 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

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 - 9-7-2014

This Week in Barrons – 9-7-2014

“We can’t trust this number…” Mark Zandi (Moody’s Chief Economist) and Steve Liesman (CNBC economics reporter)

Last Friday, virtually every economist was predicting that our economy would create over 200,000 jobs for the 8^th month in a row.  Unfortunately for them, the number came in at 142,000 jobs created in the month of August.  Both Mr. Liesman and Mr. Zandi (almost in unison) said: “I don’t believe this number!  If you believe this number, you believe pigs fly!  We can’t trust this number!”  Honestly, Mr. Liesman and Mr. Zandi – is this the FIRST time that you can’t believe the numbers that are coming out of our government?  Allow me to review a couple other numbers – which potentially you won’t like:

-       I trust the 12% ‘real unemployment rate’ (U6 – that was used for many years) – rather than the 6.1% (U3 rate) that the media is told.  FYI: 31% of the unemployed have been without work for over 6 months, and the labor participation rate reached it’s lowest level since 1978 – 62.8%.

-       I trust that the typical family in 2014 makes $200 more a year, than they did in 1989.

-       I trust that the U.S. is no longer leading the world in consumption.  China and India currently out-consume us in computers, cars, and smart phones.  It’s only a matter of time before they out consume us in every single category.

-       I trust that the BRIC nations (Brazil, Russia, India and China) have wage growth of over 10% per annum, with the U.S. being basically stagnant.

-       I trust that credit card growth in China is over 20% per annum, with the U.S. being flat.

-       I trust that on Thursday of this week, the European Central Bank (ECB) cut it’s deposit interest rates another 10 points.  It will now COST you 0.2% to keep your money in a ECB bank.  That's right, you have to PAY to put money in any EBC regulated bank.

-       I trust that Mr. Draghi announced that the ECB would indeed begin buying asset backed securities (mortgages).  So despite the European Union's charter making it illegal for the EU to do ‘QE’, they're going to go ahead and do it anyway by saying that it really isn't QE. 

In this day and age, it seems to be all about the flow of ‘free money’ and forcing people to buy stocks.  But maybe it’s not just PEOPLE buying stocks.  For years I’ve been saying that the world’s Central Banks are active participants in the markets.  On many occasions I’ve watched our markets be on the verge of ‘rolling over’ when – like magic – the ‘plunge patrol team’ would come in and save the day with a Billion dollar futures order.   Several months ago it was uncovered that Central Banks had purchased an incredible $29 Trillion worth of stocks and equity based assets.  Now, for the first time, Nanex’s Eric Hunsander has discovered that not only do the Central Banks actively play in the stock market, but they also play in virtually every area of trading from commodities to options to currencies.  In fact, the CME has a Central Bank Incentive Program – giving Central Banks price breaks on trading.

BINGO – the world’s Central Bankers are actually market participants, and there’s an actual incentive program for Central bankers to be even more involved.  But unfortunately this simply opens the ultimate can of worms to:  What about the laws of supply and demand?  If you would like to bid on a stock or a commodity, what happens when the person on the other side of the trade is a Central Bank with unlimited, deep pockets?  After all, Central Banks are institutions that manage currency, the money supply, interest rates, and the commercial banking system.  Central Banks (the FED in the U.S.) also possess a monopoly to PRINT a nation’s currency.

Don’t you think it’s unfair at best (illegal at worst) that you could be trading opposite an entity that can withstand infinite losses and can PRINT their way out of virtually any trading position?  This destroys any connection whatsoever that the markets may have had to reality.  How is a supply and demand balanced market even possible if on one side resides a Central Bank (with an infinite supply of money) for whom the entire notion of ‘losing money’ becomes completely irrelevant?

I have said for about a decade that I no longer care about fundamentals.  Stocks do NOT go up any more because of sound fundamentals. That boat has sailed.  The only thing that matters is what the market ‘elites’ want the stocks, commodities, and currency markets to do.  Stocks go up (and often quickly down) because the Central Banks drive them there.  For the past few years, the ‘market elites’ wanted the stock market higher and now we have proof – NUMBERS we can TRUST.  So Mr. Zandi and Mr. Liesman please do NOT talk to me about ‘numbers you can trust’, but rather find me a trustworthy ‘market’.

The Market....

The market started this holiday shortened week a bit sluggish, and with news of another terrorist beheading of a journalist.  The ISIS group does have the power to move markets; because when they do these things, we know there's going to be a retaliation and escalation of ‘boots on the ground’.  We continued the week drifting sideways and down.  In fact, the S&P put in its first 3-day losing streak in many weeks.  Just about the time I thought everyone was giving up – we got a horrible jobs report on Friday and news of a so-called cease fire in the Ukraine – and ‘BOOM’ up we went.

So, are we in for another leg higher?  Given the data, I would have to say no.  After all, the U.S. Labor Participation rate dropped to it’s lowest level since 1978.  This stat alone shows how blatantly the economy and the stock market have NOTHING in common.  With the lowest labor participation rate in 35 years, the S&P’s made a new all-time high this week.  This is NOT normal.

I understand that:

-       Our FED is a major buyer of stocks.

-       Our FED gets favorable pricing and ‘discounted rates’ in order to incentivize them to buy even more.

-       The percentage of analysts bullish on the market is hovering near record highs, while ‘bears’ are almost non-existent.

-       The ‘set it and forget it’ mentality tells all of us that this upward movement can’t stop.  I assure you it can, and it will.  I just wish I could tell you when.

The hedge fund industry is seriously lagging the market.  Coming into September, the entire industry is many percentage points below the gains of the S&P.  Why is that?  Because a true ‘hedge’ fund, takes positions that offset some value of risk.  Since the FED has created a market that only goes up, not being 100% long all the time means that you're missing the boat – and underperforming the S&P.

Will all of the hedge funds then throw caution to the wind and go ‘all in’ and be ‘extra long’ for the remainder of the year?  If they do, that would push the market higher, even if the retail customer does nothing.  However, it is times like these (with the momentum monkey fully in charge) when the market often tosses everyone a massive curve ball and drops like a rock.  With these daily, low trading volumes – producing a serious lack of liquidity, if everyone tries to bail out at the same time it will feed on itself quickly.

I have heard nothing out of the FED that would lead me to believe that Friday’s lousy jobs number will stop them from ending QE in October.  The markets appear to be in denial of the FED stopping a liquidity program.  I think the FED will indeed stop QE, but will continue to keep rates low.  I also think that after the next FED meeting, people will wake up to the idea that part of the gravy train is running off the tracks.

I’m currently leaning long, but I'm not terribly comfortable about it.  If we don't see some follow through on Monday, I suggest we'll do a bit of fading again until they find some other reason to jam us back up.  If we do see a strong up-move on Monday, then I'll count on the trading-bots to continue to drive us higher during the week.  Therefore, a show of strength on Monday will be important to consider, so watch the levels – as it could set the tone for the week.  I also suspect this week to be a bit more volatile and have more volume as everyone returns to his or her trading desks.  The returning traders will be making decisions for September, a month not usually generous to stock markets.

Tips:

In response to a question that I received about ‘How I trade?’, I’ve listed below some of the guidelines that I follow when trading stocks & options:

-       I constantly consult a stock’s chart in order to find the points of entry and exit with the highest probability of success.

-       I believe that you CAN time the market.  You can’t buy the EXACT low and sell the EXACT high, but there are good and bad entry points.

-       Learn to cut your losses quickly.  “Re-entry is just a commission away.”

-       Learn NOT to sell too soon – but rather hold for the bigger move.

-       Do NOT believe that diversifying your portfolio will protect you.

-       Do NOT believe that safety lies in covered calls or dividend paying stocks.

-       Do NOT buy or sell based upon emotion.

-       Do NOT average DOWN your losers.

-       Do NOT trade against the market trend.  “The trend is your friend until it ends.”

When picking Small Cap stocks – I look for:

-       Companies with a market cap between $1B and $10B,

-       Stocks priced under $60, but not a deal killer if they aren’t,

-       Stocks that are at or near 52 week highs,

-       Companies that are less than 5 years old – they are generally in a faster growth phase than more well established companies, and

-       Companies that have high short interest are a bonus to find.

My energy (oil) stocks and selling 1+ standard deviation PCS’s (Put Credit Spreads) and CCS’s (Call Credit Spreads) on the NDX and SPX became a little more ‘exciting’ this week with the surprise, ECB rate cut.  With the ECB rate cut, the U.S. dollar rose – which immediately reduced the price of commodities.  One of my favorite stocks – LNG – rebounded nicely on Friday, but some other oil stocks will take into September to rebound.        

In terms of directional trades:

-       BOUGHT TLT (the Bond ETF) as it reached it’s 8 and then 21 day moving average – October $114 and $121 Calls,

-       SOLD NDX & SPX – PCS’s (Put Credit Spreads) and CCS’s (Call Credit Spreads) – 2 SD (standard deviations) out & will buy more during the week for weekly expiration,

-       SOLD EWZ – PCS’s and CCS’s / 1SD out / Sept. monthly expiration,

-       SOLD AZO – $540 - 550 - 560 Butterfly / Sept. monthly expiration,

-       SOLD DVN – PCS’s / 1 SD out / Sept. monthly expiration,

-       SOLD IBB – CCS’s / 1 SD out / Sept. monthly expiration,

-       BOUGHT MA – January, $86 Calls, and SELL PCS’s (short term),

-       SOLD VIPS – PCS’s (Put Credit Spreads) and BOUGHT Calls to take advantage of a one-day sell-off in the stock,

-       SOLD RUT and IWM – PCS’s (Put Credit Spreads) – Sept. monthly expiration

My current short-term holds are:

-       FEYE (Cyber-Sec) – in @ $28.76 – (currently $31.72),

-       KO (Beverage) – in @ $41.17 – (currently $41.84),

-       LNG (Energy) – in @ $57.40 – (currently $83.35),

-       NUGT (Gold) – in @ $41.10 – (currently $37.64),

-       TLT (Bonds) – in @ 115.94 – (currently $115.73),

-       SIL (Silver) – in at 24.51 - (currently 12.75), and

-       GLD (ETF for Gold) – in at 158.28, (currently 122.06)

My Small Caps (earned 19.73% in the month of August):

-       ANAC – in @ $22.52 – (currently $21.92),

-       ANV (Miner) – in @ $3.78 – (currently $3.62),

-       FCEL (Energy) – in @ $2.52 – (currently $2.60),

-       FET (Oil) – in @ $25.14 – (currently $32.83),

-       GTAT (Tech) – in @ $17.84 – (currently $16.99),

-       IDTI (Tech) – in @ $15.08 – (currently $16.94),

-       IG (Tech) – in @ $6.24 – (currently $6.86),

-       LEJU (Tech) – in @ $13.07 – (currently $17.09),

-       LNGLF (Energy) – in @ $3.54 – (currently $3.69),

-       PEIX (Oil) – in @ $19.34 – (currently $22.83),

-       RFMD (Tech) – in @ $11.05 – (currently $12.31),

-       TSRA (Tech) – in @ $28.05 – (currently $29.68),

-       VDSI (Tech) – in @ $14.17 – (currently $16.40), and

-       VTNR (Oil) – in @ $7.87 – (currently $8.86)

To follow me on Twitter and 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

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>