RF's Financial News

Sunday, June 5, 2016

This Week in Barrons - 6-5-2016

This Week in Barrons – 6-5-2016:

“I am The Greatest.” … Muhammad Ali (passed away at the age of 74)

Thoughts:

Few people in my lifetime have called themselves “The Greatest,” and have gone on to prove it to the world. Muhammad Ali won boxing’s heavyweight title three times in his 21-year career. But it was his life outside of the ring that inspired adjectives such as: pretty, badass, fast, loud and brash. He openly attacked American racism at a time when he was expected only to say thank you and keep quiet. He joined the Nation of Islam at a time when the FBI labeled them a dangerous cult bent on destroying America. He challenged the legitimacy of the Vietnam War, refused to enlist, committed an act of civil disobedience, and was suspended from boxing for more than three years. But Ali’s greatest trick may have been his transformation – from one of the nation’s most reviled characters to one of its most beloved. Born Cassius Clay Jr. in 1942, he was the son of a sign painter and a domestic worker – his grandfather a convicted murderer and his great-grandfather a slave. Cassius Clay had dyslexia and struggled to read the printed word. He discovered his talent for boxing by accident when his bicycle was stolen, and the rest is history.

Just imagine living through:

- Seeing the U.S. go from being #1: to #11 in 4^th grade Math, #13 in GDP per capita, #23in PISA science scores, and #24in Literacy.

- And seeing the U.S. go from being #1 at LOANING money to the rest of the world; to #1 at OWING money to the rest of the world.

He (like a lot of us) lived through:

- Having his baby crib painted with lead-based paint,

- Having NO childproof lids on medicine bottles, wearing NO helmets while riding our bikes,

- Hitchhiking, and riding in the back of a open pick-up truck on a warm day,

- Drinking water from a garden hose,

- Sharing a soft drink (in one bottle) with lots of friends,

- Falling out of trees, getting cut, breaking bones – all without a single lawsuit,

- Having team tryouts and not everyone making the team,

- And playing sports and NOT everyone getting a medal.

Muhammad (even at his most subversive) spoke with a twinkle in his eye, in poetic verse, and always eager to please and torment simultaneously. I remember him saying: “He who is not courageous enough to take risks, will accomplish nothing in life.” Muhammad Ali was the most fearless, political, and radical athlete that ever lived. He was a man of strong principles and convictions that never shied away from letting anyone know what he thought, even if it made him unpopular. It's impossible to overstate the impact Ali had on the world. He began his life as Cassius Clay, winning an Olympic gold medal in 1960 before becoming the man everyone would grow to know and love. His role outside of boxing remained huge even after his career ended, as he helped to secure the release of 15 hostages in Iraq in 1990. Ali was the kind of talent who comes along only once in a lifetime (if you're lucky), and one whose legacy will last forever. "Float like a butterfly and sting like a bee, his hands can't hit what his eyes can't see." Muhammad Ali – may you Rest In Peace.

The Market:

There is a clear downward trend in JOBS – starting in October of 2015.

Factually, what can you say about last week’s action in the stock market? We received May’s Nonfarm Payrolls Jobs Report – and it wasn’t pretty.

- We saw the worst job growth in 6 years. We added only 38K jobs (versus an expected 160K) with the prior 2 months also being reduced by 59k.

- The FED’s Birth/Death model added 224,000 ‘fictitious’ jobs to that 38K reading. Therefore, by removing that distortion, we actually LOST 180K jobs in May.

- The unemployment rate slipped to 4.7% from 5%, but only because more Americans (664K) left the labor force. A staggering 94.7M people are no longer in the workforce, causing the participation rate to fall to 62.6% (the lowest since 1977).

- Part-time workers for economic reasons increased by 468K. That means either: (a) there were NO full time jobs available, and people needed anything they could get, or (b) they were making so little money at their first job, they needed another job to make-ends-meet.

- New York's Purchasing Manager’s Survey collapsed to the lowest reading since April 2009,

- China's PMI's slipped lower, and U.S. mortgage applications fell,

- GM sales fell 16%, Ford fell 5%, with the average auto loan topping 7 years and over $500 in monthly payment for the first time in history.

- Manufacturing performance was the weakest in over 6.5 years,

- The Chicago Purchasing Manager’s Index showed a contraction,

- S&P 500 1^st Quarter earnings declined for the 4^th straight quarter, and more sharply than in any quarter since 2009,

- Preliminary 1^st Quarter Productivity declined 1%,

- The dollar plunged, while safe-haven related investments such as bonds and gold jumped higher,

- But stocks ended down only slightly on the day.

This should put to bed any thoughts that our stock market is a ‘free market’ that reacts to ‘fundamentals’. With the worst jobs report since September of 2010, we should be looking at the beginning of a crash, but we aren't because the FED is holding the market up. The low rates continue to fund share buybacks and mergers & acquisitions activity. But earnings have now declined for three straight quarters and the economic data certainly hasn’t provided the results the FED had been hoping for.

If I'm right and the market is being held up artificially, so that J.Q. Public thinks that all is well in the world, why not just go all in (100% invested) and take the ride? After all:

- The Swiss National Bank has purchased $14B worth of U.S. stocks in the first quarter alone.

- The Bank of Japan is buying $Billions of U.S. stocks.

- The ECB is printing $85B a month, and is now buying Corporate Debt.

- Economic reports continue to deteriorate, big brands have gone bankrupt, the oil industry has experienced 121 bankruptcies, and we’ve seen weak durable goods orders, and falling earnings – HOWEVER, we are just 2% from all time highs.

I believe the market is up for 2 reasons: (a) to give the illusion that the economy is strong, as most people still believe that the DOW is a reflection of the economy. And (b) that there are so many current derivatives that use equities as collateral, if the FED allowed the markets to fall it would cripple our economy.

I also believe there are 2 reasons why you might NOT want to be 100% long in this market: (a) The FED has tried all of their tricks and they are now desperate. What if they just loose control (circa 2007)? And (b) what if they’re just holding it up long enough to get a reconstruction plan in place to pick up the pieces (potentially with The Donald at the helm), and then just allow it to crash?

I remember November of 2007 – the market was at an all time high and Jim Cramer was on CNBC screaming “Buy-Buy-Buy”. The FED’s Ben Bernanke was saying: “There is zero chance of any major economic event.” Yet a few months later we came into the worst stock market crash since the 30's.

What if we're in the same situation? What if they press the ‘reset’ button? What if (despite their best efforts) market forces simply overwhelm the FED? After all markets generally rise for a long time, and then they ‘snap’. We are 8 years into this run, and they’ve tossed the kitchen sink at it to keep it going. If you think that they can pull it off – go for it and go 100% long. I (on the other hand) think that reality always wins, and we will get another ‘snap’. I’m considering buying more physical gold and silver, and investing more in Bitcoin.

It’s scary to think that the FED has raised rates only once in the past 10 years, despite unemployment dropping well below their mandated 5% and inflation ticking higher. If oil keeps rising, then the Fed will have rising inflation to deal with as well. Due to the Jobs Report, the odds of a June rate hike have dropped from 30% to 4%. I think the most amazing part of the whole ordeal was that Friday’s market closed right at S&P 2100 – a level they've been flirting with for months. No mater how big the intraday dip, they always seem to find a way back to 2100.

So the question is, what now? You can see that the FED is trying to push us higher, and that remaining flat is the 2^nd best thing. The charts tell me that putting in a close under 2085 on the S&P would trigger more selling, and closing above 2105 would trigger more buying and requiring them to challenge the all-time-highs.

We live in perilous times. Please be safe out there.

TIPS:

Is the next ‘gimmick’ for our FED going to be Negative Interest Rates?

SF wrote me pointing out that in the 2008 financial crisis – 34% of working age individuals were without work, and today 37% are not working. Over the next several weeks I’m going to try to find the actual number of hours worked from 2008 to 2016 per sector. The goal is to understand whether these ‘new jobs created’ have actually contributed to a recovery. OR have we simply turned one full-time 40-hour/wk. job into several part-time 12-hour/wk. jobs, and we’re calling that a recovery because we now have 3 jobs where previously we only had 1. I (like SF) am guessing that the real net gain in hours worked is less than what the decline in unemployment would lead us to believe, and (in fact) we may be having NO recovery at all. If anyone has access to that data (average hours worked per sector between 2008 and 2016) – please let me know, and thank you in advance.

Short Term:

- The SKEW is at 135, and the 10-day Moving Average of the Put/Call ratio is dropping – both bearish indicators for the upcoming weeks’ indices.

- Gold and Silver appear bullish.

- Charts of Goldman Sachs (GS) and J.P. Morgan (JPM) both look bearish.

I am:

- Long various mining stocks: AG, AUY, CDE, FFMGF, FSM, NGD, and PAAS,

- And Long an oil supplier: REN.

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

Please be safe out there!

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Sunday, May 29, 2016

This Week in Barrons - 5-29-2016

This Week in Barrons – 5-29-2016:

It’s Memorial Day … Coming to a Theatre Near You

This Memorial Day there are some incredible, global situations converging.

- Venezuela: All of the U.S. news outlets have done an excellent job of downplaying the horror that is going on inside that country. The country is in melt down mode. On a regular basis 5,000 people will storm a grocery store because they heard that there might be ‘bread’ inside. Remember those Wal-Mart videos showing maniacal shoppers trampling people to death on Black Friday over a flat screen TV? Image ten times the number of shoppers, hungry from 3 days of starvation, all hearing that a bread truck is coming. That’s Venezuela.

- The Middle East: A place where it’s common to experience a car bombing, a hostage taking, an ISIS strike, and of course a modern passenger jet falling from the sky – all in a single day.

- Europe: The ECU is still clinging to its 17-nation experiment. It’s bankrupt, rudderless, and being over-run by migrants. They are still printing 85B Euros a month to keep these 17 zombie economies alive. And have $8T sitting in banks accounts, in a dozen countries, earning negative interest.

- Russia: Amazing in its calmness as the U.S. and NATO continue to move bases closer to its border.

- China: Continues to build military bases on islands that they have created.

And just when you think that it can’t get any weirder, on the main stage we have Donald and Hillary. First off, if any of us did what Hillary did with her e-mail server, we would all be in orange jumpsuits by now. [https://www.youtube.com/watch?v=-dY77j6uBHI] I think all of the current political drama is a part of a much larger theatre than: ‘Real Estate Mogul’ versus ‘Lifetime Bureaucrat/Liar’. Presidential politics are planned years in advance – with the people simply buying tickets in November. But this election is different. I mean: Where did Donald Trump come from? Am I to believe that he was just hanging out on a golf course and one day decided to ‘Give this President thing a shot’? Am I to believe that Donald "Art of the Deal" Trump decided to put his life on parade for millions to criticize, run around the country giving speeches – all on a whim? Donald preaches: ‘Negotiate from a position of strength.’ So there is NO WAY Donald entered this race without some form of assurance that he could win.

After all, Trump gets more media coverage than Hillary and Bernie combined. Media normally costs money, but The Donald has gotten billions of it, for free. Normally when the media disagrees with someone they just shut them down by cancelling interviews and erasing news spots. The media can make you go away by ignoring you, except if you’re Donald Trump.

Why would the global elites want Donald Trump in the White House? Surely his stance on everything from building a wall, making Iran pay, and his views on Muslim terrorists – fly in the face of globalization? I think the reason The Donald is there is due to his bankruptcy expertise. I've been talking about a monetary reset for a few years now, and The Donald is The King of bankruptcies. I know this is convoluted, but what if the plan is to have a global monetary reset and discharge all debts. You would want someone at the top you can trust, who is NOT a banker – and someone that could guide J.Q. Public through a really tough patch. Trump would be the perfect pick.

If there is a monetary reset, and the U.S. loses it’s grasp on its global currency reserve status – all ‘heck’ will break loose. J.Q. Public will not listen to a career politician or a banker. But J.Q. Public may be ‘okay’ with The Donald. Trump talks like a regular Joe – rough around the edges. He's not political, but rather tells you his opinion. He's been in business, and knows how to work systems. I'm starting to believe that Donald Trump is actually the elite’s pick for President, because something ugly is coming and Donald has the history to work through it.

All I can say is: “Get out the Popcorn”, because these next few months are going to be quite a show.

The Market:

Factually:

- Today, 78% of the eligible workforce between the ages of 25 and 54 is working – versus 82% in 2000. That 4% difference equates to 6M fewer jobs, with a rapidly increasing number being taken over by technology.

- For the first time in 130 years, MORE men aged 18 to 34 are living at home than co-habiting.

- Donald Trump wants to bring back all of the jobs lost to overseas workers, because he knows that job retraining won't work as well in the future.

- Commodity prices have fallen 55% since 2015 – the same margin they fell during the global financial crisis.

- This week was the 17^th week in a row of stock market institutional selling.

- As oil flirts with $50/barrel – most of the oil tanker ships around the world lay parked and full of oil. From Singapore to the U.S., oil companies are using tanker ships as storage, because there's no place else to put it.

- The Chinese devalued their Yuan again – taking it back to 2011 lows.

- The overall manufacturing conditions are the weakest since October 2009.

- Deutsche Bank paid $400M in fines for ‘Equity Trading Fraud’.

- 25 U.S. Non-Financial companies – control over HALF of the total amount of cash held by all U.S. Non-Financial corporations. What makes these companies so different is that they all are technology companies that generate significant cash flow over-seas.

Memorial Day is “a day on which those who died in active military service are remembered.” My father served in WWII, and earned a purple heart. When Vietnam came around I was too young, and the war ended just as I turned 18. But I lost two older friends in that affair. For them and the millions like them I say Thank You. Enjoy this holiday weekend, and a heartfelt tip of the cap to all of you that have served and continue to serve.

On the other hand, often the reason those brave souls were sent to fight these wars boiled down to nothing more than pure greed. Smedley Darlington Butler (July 30, 1881 - June 21, 1940) was a Major General in the United States Marine Corps – the highest rank authorized at that time. At the time of his death he was the most decorated Marine in U.S. history, and one of only two people EVER to earn two Medals of Honor. After his military career had ended, Smedley wrote a book titled: "War is a Racket". In it he said:

- “WAR is a racket. It always has been. It is: possibly the oldest, easily the most profitable, and surely the most vicious of rackets. It is the only racket in which the profits are collected in dollars and the losses in lives.”

- “A racket is best described as something that is not what it seems to the majority of the people. Only a small "inside" group knows what it is about. It is conducted for the benefit of the very few, at the expense of the very many.”

- In World War I, at least 21,000 new millionaires and billionaires were made in the U.S. How many of these war millionaires shouldered a rifle or dug a trench? How many of them knew what it meant to go hungry in a rat-infested dugout? How many of them spent sleepless, frightened nights, ducking shells, shrapnel and machine gun bullets? How many of them parried a bayonet, or were wounded in battle?”

- "I spent over thirty-three years in active military service as a member of this country's most agile military force, the Marine Corps. I spent most of my time being a high-class muscle man for Big Business, for Wall Street and for the Bankers. In short, I was a gangster for capitalism."

- “I helped make Mexico safe for American oil interests in 1914. I helped make Haiti and Cuba a decent place for the National City Bank boys. I helped in the raping of half a dozen Central American republics for the benefit of Wall Street. I helped purify Nicaragua for the international banking house of Brown Brothers in 1909-1912. I brought light to the Dominican Republic for American sugar interests in 1916. And in China I helped to see to it that Standard Oil went its way unmolested.”

And there (in a nutshell) is why Memorial Day shreds me emotionally. I have an incredible and deep respect for our fighting crew, and a deep disgust for the greed at the top of the food chain that orders the wars to take place. Smedley’s ideal was simple: "There are only two reasons to send our youngsters to war. One is in defense of our homes. The other is in the defense of our Bill of Rights. Every other reason is a racket, pure and simple."

For those of you needing a patriotic refresher: [https://www.youtube.com/watch?v=YaxGNQE5ZLA]

In terms of the market itself, after a couple of monster up days earlier this week, we ended Friday with the S&P basically at 2100 (2099.6). That was certainly a well-done ‘work of art’ by our Central Bankers. You see, on April 20, we closed with the S&P at 2102. The market then traded sideways and down, hitting a low of 2025 on May 19. Since then it has been steadily up, and we're basically back at that April high. Do the economic fundamentals warrant a move back up to these levels? Heck no. But fundamentals went out with ‘my father’s Oldsmobile’, and today it's all about keeping the market up at all costs.

Our Central Bankers have engineered a ‘stick save’ from the edge of a nasty looking cliff, and now everyone is breathing a sigh of relief. Is that it? Do we just go up from here, and make all time new highs? It's possible. With just 35 more points to go for an all time high, they might as well give it a shot. But, I think it is more probable that they run into resistance here, and start mildly selling-off around mid-week.

Enjoy the holiday with your friends and family. If you have the time, send a good thought along to all who have served and are serving. Thank them for keeping us safe.