RF's Financial News

Sunday, February 1, 2015

This Week in Barrons - 2-1-2015

This Week in Barrons – 2-1-2015:

“This is a Game Changer’…” John Madden

Thoughts:

Dear Ms. Yellen:

Who do you think will win today’s big game? If I compare our economy to the Super Bowl, I think that the major indicators and the earnings data that were reported this week could be true ‘game changers’.

- The U3 (your official unemployment indicator) is beginning to show it’s true colors in that instead of the published 5.6% rate – the U.S. is really closer to a 9.3% unemployment rate. Most economists think that we should be focused on the labor participation rate – which is at its lowest levels since the 70’s.

- The CPI (your official rate of inflation) has been so radically changed over the years that it no longer measures inflation, but rather the cost of living. Your fear of ‘deflation’ was reinforced this week as consumer spending contracted in the 4^th Quarter – while wages remained stagnant.

- And GDP (your official measure of productivity) has been modified to include $100’s of billions of non-tangible assets – allowing the U.S. economy to appear far more robust than it really is. This week the data showed that GDP slowed far more than previously anticipated – to an anemic 2.6% growth rate.

I also think that the most recent Gartner report is a ‘game changer’. Peter Sondergaard reported that 1 in every 3 jobs will be converted to software and/or robots within the next 10 years. Peter said: "New digital businesses will require less labor, and machines will make sense of data faster than humans can.” Another study by Oxford predicts that robots will replace 47% of ALL jobs over the next 15 years. What is surprising is that the study also found that the displaced workers will have absolutely nowhere else to go. The original idea was for displaced workers to be re-trained and placed back into the workforce. But the numbers are showing that for every 100 displaced workers, there will only be jobs for 1.

Finally Ms. Yellen, I’m still trying to figure out what you meant to say with Wednesday’s FED statement. You said that the economy had gone from ‘solid to strong’. You replaced “keeping interest rates low for a considerable time” with “we can be patient on raising interest rates”. And then you said that the vote was unanimous. Does that mean that the vote was unanimous for the economy being ‘strong’, or unanimous with ‘being patient’ about raising interest rates? And I’m still troubled, if things are so ‘gosh darn’ strong – why do you still need a ‘zero interest rate policy’?

This dollar rally is truly a ‘game changer’. I know that you’ve tried to ‘talk down’ the value of the dollar, but that hasn’t worked. If the European Central Bank (ECB) and the Bank of Japan (BOJ) remain uber-accommodative with their QE, and you raise interest rates even 25 basis points – won’t the dollar spike higher and put serious deflation pressures on our economy? This year we could see everything from a war breaking out in the Ukraine, to China being included in the SDR currency basket, to the BRICs (Brazil, Russia, India and China) splintering completely away from the U.S., to the Euro-zone dissolving. The market chop we have seen lately is telling me that nobody knows what to do, and therefore confusion reigns.

Good luck today. May the best team win.

The Market:

Factually:

- Facebook (FB) came out with their quarterly earnings and originally beat the estimates, until everyone noticed they only beat those estimates because they got their tax rate lowered, and put those gains in as earnings.

- International Paper, United Technologies, Microsoft, Proctor and Gamble and Caterpillar all missed their top line revenue and bottom line earnings estimates. The CEO of Caterpillar even came on CNBC and pleaded with the FED not to raise interest rates because business is so lousy out there.

- The Durable Goods Index came out this week. They were predicting a gain of 0.3%, and instead it came in at MINUS 3.4% with the previous month being revised downward.

- According to Bankrate.com, 75% of Americans are living paycheck-to-paycheck with little to no emergency savings, and 27% of those surveyed have NO savings at all.

- The Baltic Dry Index (a general gauge of economic activity) has crashed to a 28-year low. That is lower than the 2008 meltdown.

- This week a major snowstorm was to cripple New York City, and even it missed the mark. I find it ironic that climatologists can predict with utmost certainty that global warming will completely wipe out our civilization within the next 40 years, but we still can’t forecast a local snowstorm accurately.

- On Friday we learned that in New York, an unemployed mother (on Food Stamps and $0 in income) was able to buy a BMW for her daughter. She was honest with the BMW dealer, and they assured her that she did indeed qualify for a sub-prime car loan. Didn’t we see this movie before? A rerun of the consequences of this madness is now warming up.

Most analysts blame the ‘uncertainty of corporate earnings in a high dollar environment’ for the markets most recent downturn. I don’t agree. Corporations have been faking and producing non-GAAP earnings for years. The only issue now is that our corporations are losing the ability to compound debt upon debt by the FED stopping QE. The current economic ponzi scheme requires Central Banks to continue devaluing their currencies, cutting rates to negative, and printing money. Given we received a ringing economic endorsement from the FED this week, my question is: If 93 million Americans are no longer in the workforce, and 49 million Americans are on food stamps, and 75% of Americans are living paycheck to paycheck – how does the FED categorize that as ‘strong’?

In my opinion, the FED has come to the realization that their manipulations of the U.S. currency have failed. Why do I think this? Last week Larry Summers (past U.S. Treasury Secretary) said from Davos, Switzerland: “We have to recognize that the era when central bank improvisation can be the world’s growth strategy is coming to an end.” I think that the FED knows that our economic system is beyond repair and to ‘keep face’ they’re going to tell us how great things are until a gigantic event happens that they can blame things on.

Currently the market is incredibly weak. The DOW is just 120 points away and the S&P only 20 points from their respective December lows. If they fail those lows, there is little question that we will then test their respective 200-day moving averages. The 200-day averages are a 5.6% correction from the December highs. In the last 5 years, that is about as deep a correction as we would get before the FED or the Plunge Patrol Team would come to the rescue. However in today’s non-QE environment, if we lose the 200-day moving averages we could fall into a major 15 to 20% correction within days.

The danger is to the downside. Earnings have not been good. The global situation is deteriorating. The Greeks are talking about defaulting on their debt and withdrawing from the EC. Russia has not taken the war bait. Our FED is acting tough in the face of a sagging economy. Unless something unforeseen changes quickly, I can make the case for a pretty hefty market plunge. The reason I labeled today's letter a ‘Game Changer’ is because we're not far from falling off the economic cliff. This is the biggest test we've had in a long time. Yes, they can pull a rabbit out of the hat and hold us here and try and work us higher. But it doesn't look likely right now. The best course of action right now is defensive. If you're sitting with a big portfolio of stocks and you simply don’t want to sell, then you should consider buying puts against your holdings for protection.

TIPS:

Of the 19 trading days in January, 13 of them were spent as triple-digit down days on the DOW. That is one terrifying statistic that demonstrates how scared investors are of our slowing economy. My current list of potential candidates for this coming week is as follows:

- Wells Fargo (WFX) – looking for an Iron Butterfly,

- Abbvie (ABBV) – looking for a move higher,

- Harley Davidson (HOG) – looking for a move to the upside,

- IBM – looking for an iron condor,

- FedEx (FDX) – potentially moving to the upside,

- Kansas City Southern (KSU),

- 3M (MMM),

- 3D Systems (DDD),

- Stryker (SYK), and

- Wynn (WYNN).

For next week I’m mainly selling into this increased volatility with:

- AMGN – MAR – SELL the +140/-145 PCS,

- CP – MAR – SELL the +155/-160 Put Credit Spread (PCS), and SELL the -200/+205 Call Credit Spread (CCS) as the CCS approaches $0.83,

- LL – FEB / MAR – BUY the Call Calendar FEB -65 / MAR +65,

- RH – FEB / MAR – BUY the Call Calendar FEB -90 / MAR +90,

- RUT – MAR – SELL the +1040/-1050 to -1270/+1280 Iron Condor,

- RUT – MAR – BUY the +1130 / -1200 / +1260 Call Butterfly,

- SPX – FEB – SELL the +1870 / -1875 to -2110 / +2115 Iron Condor, and

- TLT – FEB – BUY +135 / -141 Call Debit Spread.

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>

Sunday, January 25, 2015

This Week in Barrons: 1-25-2015

This Week in Barrons – 1-25-2015:

“Today’s Euro/QE announcement has come far too late and is akin to applying a defibrillator to a dead monkey.” Andrew Wilson, Towry Head of Investment

Thoughts:

Dear Ms. Yellen:

Ms. Yellen, ‘Hyper-Interventionism’ is when a government tries to change, bend, or control the laws of supply and demand. Quantitative easing (QE), price fixing, pegging currencies, and subsidies to offset trade imbalances are all methods of trying to control supply and demand. But as time passes (just like with a drug addict), more and more effort and resources are required to keep the hyper-interventionism effective. This week we saw what happened to the Swiss Franc when the Swiss National Bank (SNB) stopped their hyper-interventionism, and in minutes their currency rocketed 15% and their stock market crashed. Ms. Yellen, I wonder what would happen if you really stopped the FED’s hyper—interventionism in the U.S.?

Your next FED meeting is January 27 and 28th. I’m seeing:

- The dollar index continuing to rally,

- The EU doing ‘major-league’ QE,

- The Swiss unpegging their currency,

- The job market beginning to deteriorate,

- Wage growth continuing to stagnate, and

- The stock markets maintaining their rally.

Now, I think you’re going to attempt to talk the dollar down by being dovish in your remarks. That’s especially true given Mr. Plosser and Mr. Fisher (the only remaining ‘hawks’) are no longer voting members on the board. With only doves and staunch Keynesian economists on your board, you will most certainly lean toward more accommodation with your main fear being deflation. But history shows that inflation can come on suddenly – just look how far the Swiss Franc moved (15%) in minutes.

Ms. Yellen, is it just me, or is every nation in a race to destroy their own currency? The idea of slashing deposit interest rates to the bone is being implemented on a scale I’ve never before seen. I’d be curious to hear how you see this ending smoothly – without extensive collateral damage. I see this coming to a crashing halt right around the time of the next presidential election.

The Market:

Factually this week:

- Johnson & Johnson reported reduced year-over-year revenues, and (by GAAP standards) missing earnings by a mile.

- UPS warned on earnings due to a ‘weak’ U.S. market.

- McDonalds missed both top-line revenues and bottom-line earnings.

- eBay beat earnings by a penny, but had to buy back $1.2B of their own stock and lay off 2,400 workers to do it.

- U.S. Steel laid-off another 545 people (over the 1,300 previously announced) along with idling production facilities.

- John Deere announced an additional 900 lay-offs.

- China’s growth has slowed to a 24-year low, and U.S. manufacturing growth slowed to a 1 year low.

- The International Monetary Fund dropped their global growth outlook.

- Existing year-over-year home sales dropped for the first time in 5 years.

- On Thursday, Mr. Draghi announced a 1T Euro QE package consisting of 60B Euros a month until September 2016 – or longer.

- The Euro is in ‘free fall’ since Draghi went ‘all in’ for QE.

- Canada, Denmark, India, Switzerland and a handful of others have all cut their interest rates in response to European QE.

- Russia and China signed a $250B dollar high-speed rail pact – linking Moscow and Beijing by train.

- The Bank of Japan bought $5.6B worth of foreign stock last week.

- Since Obama’s State of the Union speech, we have seen over 32,000 announced job cuts.

For years the gold and silver bugs have been splattered all over the windshield. I’ve gone on record as saying that gold is not down because the world is rosy and no one wants it. Gold is lower because it has been manipulated downward. The Central Banks did NOT want gold competing with fiat currencies. China accumulated over $1T in U.S. Treasuries. When we were doing QE (devaluing our currency) we traded China ‘less expensive gold’ for not ‘dumping’ our Treasuries. But the other part of the Chinese situation is that they are adamant about being recognized as one of the world’s leading economies. They knew that if they could amass enough gold to ‘back’ their currency, then they would have a good chance of having their currency (Yuan) included in the weightings for the International Monetary Fund’s Special Drawing Rights (SDRs) – being held in September 2015. So we kept a lid on the price of gold while the dollar was falling, thereby allowing China to purchase what gold they needed (at reduced prices) in order for the Yuan to be included in the SDR discussions. That is why gold has been taken down and capped for the last 4 years.

The IMF will rebalance their SDRs this fall. China will prove that it has accumulated between 2.5% and 3% of its GDP in gold, and the Yuan will then be included in the SDR weighting. It is at this point that the cap on the price of gold will be removed. Why? Because once China has their needed amount of gold and is in the SDR, they will no longer want the price of gold to be capped and will gladly allow gold to go to $2,500, $3,000 or more. So, does China have enough gold? Judging by the way gold is acting I have to say that we are darned close to seeing the bottom in both gold and silver. I'd like to believe that 2015 would mark the end of their manipulation, and I won't be surprised if I see both of them meet and beat their old highs next year.

The following chart shows some technical predictions concerning various currencies: Euro versus U.S. Dollar, British Pound versus U.S. Dollar, U.S. Dollar versus the Japanese Yen, along with technical predictions for the S&P and DOW averages. It’s telling you to think strongly about buying PUTS on the FXE (the EURO ETF), and about buying PUTS on the FXY (the Japanese Yen ETF).

Right now the S&P is in a bit of a tight box between its 50-day moving average of 2,046, and its double top of 2,064. I’m not going to add to any directional positions until the S&P goes over 2,064, and I won't take profits until the S&P closes under 2,046. Also remember, we are in the middle of earnings season, with a lot of really big names declaring earnings this week. Our markets could easily pop to the upside for 100 points on the heels of a good earnings beat, and then fall for another 200 on a couple ugly reports. This volatility will only be resolved by patience. Keep an eye on the precious metals over the next several weeks as I think there will be some interesting plays setting up.

TIPS:

The following is a list of ‘short’ ETF’s that you could take advantage of if the market ‘goes south.’ So if you sense the market ‘tanking’ – think about putting some money into:

TZA = Russell 2000 3X Short / VOL = 61%

TWM = Russell 2000 2X Short / VOL = 40%

FAZ = Financials 3X Short / VOL = 50%

SKF = Financials 2X Short / VOL = 27%

EDZ = Emerging Markets 3X Short / VOL = 55%

EEV = Emerging Markets 2X Short / VOL = 40%

NUGT = Precious Metal Miners 3X Long / VOL = 130%

DUST = Precious Metal Miners 3X Short / VOL = 133%

DUG = Oil & Gas 2X Short / VOL = 50%

DIG = Oil & Gas 2X Long / VOL = 53%

SQQQ = QQQ 3X Short / VOL = 49%

DXD = DOW 2X Short / VOL = 30%

QID = QQQ 2X Short / VOL = 33%

SDS = SP500 2X Short / VOL = 33%

SCO = Oil 2X Short / VOL = 109%

ERY = Energy 3X Short / VOL = 79%

I’m looking to sell iron condors on the indexes, buy strong stocks on pullbacks, and sell weak stocks into rallies. I’m looking toward:

- Priceline (PCLN) – to sell a Call Credit Spread,

- Tesla (TSLA) – to sell a Call Credit Spread,

- RUT – to sell an Iron Condor,

- IWM – to sell an Iron Condor,

- Chipotle (CMG) – to sell a Put Credit Spread,

- Facebook (FB) – to buy a Call Debit Spread,

- Apple (AAPL) – to buy a Call Debit Spread,

- Lumber Liquidators (LL) – to buy a Call Debit Spread,

- Johnson & Johnson (JNJ) – to buy a Call Debit Spread,

- Amgen (AMGN) – to sell a Put Credit Spread after earnings,

- UPS (UPS),

- Timkin (TKR),

- 3-D (DDD), and

- The Energy Sector ETF (XLE).

For next week I’m mainly selling premium into this volatility with:

- AMZN – JAN5 – SELL the +245/-250 to -350/+355 Iron Condor – taking this off on Thursday AM before earnings,

- GILD – JAN5 – SELL the +89/-90 PCS – cashing this in before earnings,

- AAPL – MAR – SELL the +95/-100 PCS,

- AAL – SELL the 45 / 47 PCS – and BUY the 52.5 / 55 / 60 Call Butterfly,

- RUT – MAR – SELL the +1040/-1050 to -1290/+1300 Iron Condor,

- RH – FEB / MAR – BUY 94 Calendar,

- UPS = JAN5 = 101 / 103 / 104 PUT Broken Wing Butterfly,

- SPX – FEB – SELL the 1870 / 1870 PCS, and

- TLT – BUY in the 125 to 126.5 zone.

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:

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.

Note: Joining BARRONS REPORT is not an offering for any investment. It represents only the opinions of RF Culbertson and Associates.

Remember the Blog: <http://rfcfinancialnews.blogspot.com/>
Until next week – be safe.

R.F. Culbertson

<mailto:rfc@culbertsons.com>

<http://rfcfinancialnews.blogspot.com>

Sunday, January 18, 2015

This Week in Barrons: 1-18-2015

This Week in Barrons – 1-18-2015:

Thoughts:

Dear Ms. Yellen:

Were you ‘tipped off’ in advance of last Thursday’s announcement by the Swiss National Bank (SNB) deciding to: (a) cut interest rates to negative 0.75% and (b) remove the Euro floor & ceiling cap on their currency? Obviously this threw the world into a currency avalanche as people scrambled to square out of positions. After all, prior to Thursday the Swiss Franc was pegged to the Euro, and this move by the SNB resulted in an overnight 23% spike higher for the Swiss Franc. By Friday morning two currency brokers were already declared insolvent, and one of the publicly traded companies (FXCM) was halted in pre-market trading as they tried to find capital to keep from declaring bankruptcy. The SNB believes that next week the EU will launch a form of QE, which will lower the value of the Euro. For the past 3 years, the SNB has been buying Euros to keep the Swiss Franc capped and balanced. However, if you're buying a currency that you know will be devalued, and therefore you will lose a lot of money – you can either: (a) take one for the team, or (b) decouple your currency and move on. What also is interesting to me is that for months Mr. Thomas Jordan (the headman at the SNB) has been telling the Swiss that all is well, and that they didn't need any ‘gold-backed’ currency. And then (out of the blue) they remove the peg to the Euro, cause a massive avalanche in the Swiss economy, and crush many exporters. I understand that the SNB Balance Sheet was completely out of control, and it was going to be a bloodbath when the EU announced its QE on January 22^nd. But that isn't my issue. My issue is that the SNB (for 3 years) has looked their people in the eye and said point blank: “We've got your back.” Then in a flash they said: “Sorry, we changed our minds.” The SNB directly lied to the Swiss people. All those who were deluded into voting against a Swiss gold initiative in November – are now in shock because they now realize that all of the promises that the SNB made to them were lies. I’m assuming that our FED is NOT doing the same thing (behind the scenes) to us?

And what about Mr. Draghi? For 2 years, he’s been jawboning about pulling out all the stops, and going ‘all in’ for QE. Now (on Thursday January 22^nd), he has everyone wondering whether he will be true to his word, or whether he’s going to be like the Swiss and stab everyone in the back. But if the SNB was willing to make such a monumental move ahead of the EU announcement, at minimum the SNB thinks that the announced EU program will indeed be big enough to bash the Euro definitively lower. So despite the EU courts giving their approval for QE (with restrictions), many now feel that Draghi’s announcement will be significant enough that everyone gets their fair share of the "Free Money Pie”.

Unfortunately Ms. Yellen, Mr. Jordan proved that the global economic situation is far beyond what most people think. In the past we could all be assured that the Central Banks would work together to promote their agenda. But because of breakdowns between the major players, we are beginning to see an ‘every man for himself’ type of attitude shaping up. We're in a fiat currency war that will end badly for everyone. In the end, I believe that it’s whoever owns physical gold that will win the war. Even Alan Greenspan can't talk fast enough about how the only real money is gold, and how not even the U.S. dollar can touch it. That's because after being a central bank insider himself, he knows that fiat currencies are avalanches waiting to happen. He is simply trying to tell us to get out of the way.

The Markets:

Factually last week:

- The Michigan Consumer Confidence survey came in at a record high of 98.2. The U.S. consumer clearly loves their lower gasoline prices.

- Citibank and Banc of America missed their own earnings estimates.

- BP is cutting 300 workers due to the drop in oil prices.

- The PPI (Producer Price Index) fell 0.3% on lower gas prices.

- J.P. Morgan missed their own earnings estimates, and announced that they had incurred yet another $1B in legal fees as investigators continued to probe JPM’s currency fraud and manipulation techniques.

- And December Retail Sales completely missed the boat as actual sales ‘decreased’ 0.9% over estimates.

Last week’s market action was ‘choppy’ to down, and there are several reasons for this:

- Investors that have been riding the ‘market gravy-train up’, have decided to lock in some profits and take money off the table.

- Earlier this week there was a question over whether the European courts would actually allow some form of QE to be enacted.

- There is a major push/pull going on between the people that believe the economy is firing on all cylinders, and those who look at the economic reports and realize we are sinking.

- There is the continued yes/no debate over whether the FED will raise interest rates this year.

- And the Central Banks themselves are manipulating the markets by ‘jawboning’, and by actually buying stocks and bonds.

The whipsaw action (in and of itself) isn’t terribly important. But when a market gets this wickedly volatile, it generally means that the prevailing trend is coming to an end. So that means that the general ‘UP’ trend that has been in place for the past 5 years – could be coming to an end. Therefore, all of this insane chop could be warning of an impending market avalanche. After all, other than ‘free money’ from the EU, India and Japan, there is very little reason for our markets to move higher. Banks and financials are missing their earnings targets. Retail sales are coming in well below estimates. And the energy sector remains weak, and getting weaker as the layoffs are starting.

This coming week should continue our market volatility. If the EU unleashes a massive QE program, it will cause a short-term market run-up that could challenge the highs of Jan 8 - 9. But it will also cause some major players to realize that the Europeans subverted their constitution and printed money just to keep the wheels from coming off their own economy. That thinking should lead to higher gold prices, and lower yields on Treasuries as the world eventually flocks to safety. But it won't be until Thursday that we hear what the Europeans are going to do. If the markets decide that the EU is doing ‘too little – too late’, then we could see the market roll over and plunge in a big way. I'm going to base any buying of gold and the mining stocks on what I hear from Europe on Thursday. If they go big, then I think the miners and gold will continue to push higher. If they go ‘quietly into this good night’, then the metals may temporarily cap here. The stage is truly set for Mr. Draghi at 8:30 am on Thursday morning.

TIPS:

Factually:

- Copper (/HG) can be used as a economic leading indicator. When the price of copper is over $3 per pound, the world economies are growing. Why? Because 400 lbs. of copper are used in each home, and 50 lbs. of copper are used in each automobile. Right now copper is $2.50 per pound, and that is telling me that overall global demand is slowing.

- The falling price of gasoline is putting (on average) $150/month additional into a family’s pocket. Since most families live paycheck to paycheck, these additional funds are being spent on restaurants such as Buffalo Wild Wings (BWLD) and Papa John’s Pizza (PZZA).

- The bond indicator (TLT) is flashing a ‘flight to safety’ sign as it is hitting all time highs.

- And gold is moving higher, which compliments the ‘red flag’ that copper is giving us in terms of a global slowdown, currency fears and a ‘flight to safety’.

The 3 C’s of trading (Comprehension + Confirmation = Confidence) will never be more apparent than over the next several quarters as many are looking for a 10 to 20% correction in the equity markets. I personally am going to:

- Begin to sell my winning puts on the Yen currency (FXY) and buy more puts on the FXE after Draghi’s January 22^nd announcement – assuming that he does announce European QE.

- I also started playing NUGT (the triple leveraged gold miner ETF) this week to the long side.

- And I also re-initiated my 3% per week play on NUGT & DUST. (NUGT and DUST are the same ETFs only one is the exact opposite of the other. Therefore if you purchase both in equal quantities (thereby off-setting their stock movements) – you can then sell ‘weekly covered calls’ on both – pocketing the proceeds without fear of the underlying ETFs moving against you.

My current list of potential candidates for this week is as follows: Restoration Hardware (RH), Lumber Liquidators (LL) – look at a Feb / March Calendar trade, Costco (COST), Kroger (KR), Starbucks (SBUX), John Deere (DE), Nordstrom’s (NORD), Amgen (AMGN), and the Energy Sector ETF (XLE). I’m also looking at some after earnings plays for: American Airlines (AAL) and Federal Express (FDX). You’ll find that after earnings there will be a volatility crush and it’s the ideal time to buy a Calendar trade.

For next week I’m mainly selling into this increased volatility with:

- AMZN – JAN5 – SELL the +245/-250 to -350/+355 Iron Condor,

- GILD – JAN5 – SELL the +89/-90 PCS,

- IBB – FEB – BUY the 310 / 320 / 335 Call Broken Wing Butterfly,

- AAPL – MAR – SELL the +95/-100 PCS,

- AAL – SELL the 45 / 47 PCS – and BUY the 52.5 / 55 / 60 Call Butterfly,

- RUT – MAR – SELL the +1040/-1050 to -1290/+1300 Iron Condor,

- SBUX – FEB – BUY the 80 / 85 / 90 Call Butterfly,

- SPX – FEB – SELL the 1870 / 1870 PCS, and

- TLT – BUY in the 125 to 126.5 zone.

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:

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.

Note: Joining BARRONS REPORT is not an offering for any investment. It represents only the opinions of RF Culbertson and Associates.