RF's Financial News

Sunday, September 11, 2016

This Week in Barrons - 9-11-2016

This Week in Barrons – 9-11-2016:

“With the opening of the new World Trade Center, let’s remember what separates us from animals and from chaos – is our ability to mourn people we’ve never met.” – David Levithan

Thoughts:

On this 15^th Anniversary of 9/11, I pay homage to the many killed, and my heart goes out to all those still in pain.

The stock market has been in an odd place for a while, but no more so than during the last 2 months. The S&P has NOT moved more than 1% in over 40 days. During which time, all ‘heck’ was breaking loose such as: the 7th largest global shipper going bankrupt – stranding $14B worth of goods, more companies declaring lousy earnings than ever before, the ITT school closing – stranding 40K students and laying off 8K teachers, Wal-Mart laying off 7k, Caterpillar laying off 2k, auto sub-prime loans showing double-digit delinquencies, AND high-end real estate in New York (and other cities) starting to fall.

But as we talked last week, something feels different now.

- On Thursday we learned that 5,300 employees of Wells Fargo were fired for taking money out of customer deposits and opening over 2M new fake accounts for them. And when these fake accounts became overdrawn (even for lack of use) the bank sent-out overdraft notices and charged the poor customers that they had robbed in the first place.

- Then the Government released its preliminary findings on its own JOBS numbers. The government compares real job-related tax receipts to the job numbers that it has been reporting, and displays that difference normally in February of the following year. In this case they have already over-estimated the number of jobs out there by at least 150K. If you combine this number with the hundreds of thousands of fictitious Birth/Death model jobs that they keep adding, you come away with our jobs market being completely broken.

On Friday Mr. Rosengren (a FED-head) gave a speech suggesting that NOW was the time to start hiking interest rates. A few other FED-heads also chimed in with their agreement, with Mr. Gundlach directly saying: “Rates had hit bottom and the FED is ready to hike rates and change the entire game.”

On Friday, the “entire game” did change. Previously on a daily basis as the market pulled back, the Central Banksters would rush in (late in the day) and push stocks right back up into the trading range of between 2160 and 2190 on the S&P. The chart below shows you the ‘tails’ of how LOW the markets were BEFORE the Central Banksters rushed in and pushed it higher.

However, Friday’s almost 400-point drop was different – notice NO TAIL. Our Central Banksters just let it fall and did NOT come in and rescue the market in the last hour of trading. Why Friday? Is it the September 21^st FOMC meeting (when they hike rates or not), or is it about the 1^st Presidential Debate coming up on September 26^th? Let me lay out a couple different scenarios:

- #1: The common wisdom is that since the economy really does stink, our FED would not dare raise rates – ESPECIALLY ahead of the strangest election in U.S. history.

- #2: The FED is all aboard the ‘Hillary Train’. It would be a great psychological mind game for the Central Banksters to take the market down ahead of the FED meeting on the 21st. Then have the FED hold tight with NO rate hike that would ignite a rally as we go into the Sept 26^th debate. This would give Hillary the ability to point to a market roaring back to ‘all time highs’ under a Democratic President.

- #3: The FED knows that Trump believes that the Central Banksters have created a false market. The FED also knows that their ‘propping actions’ are so blatant that everyone knows that they ONLY care about keeping the stock market up. Could it be possible that our FED (to save face and despite this being an election year) will actually announce an interest rate hike in September? Could it be that they think Trump might win this, and they'd best begin looking like they're really doing something before Trump dismembers them? http://www.reuters.com/article/us-usa-fed-idUSKCN11C2C1?feedType=RSS&feedName=businessNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FbusinessNews+%28Business+News%29

- #4: Could it be that our FED thinks that a Trump win is possible, and wants to crush his supporters by changing the game. Instead of keeping the market up at any cost, they will now pull the plug on the market and force it to crash just as Trump is taking office. The fear of a Trump Presidency is so strong by the establishment, that they could punish every 401K holder by crashing the market and then blaming it on Trump’s ‘wild and frightening ideas’.

Each scenario is intentionally crazier than the last. The world is awash in debt that it can never repay, and $15T sits in accounts drawing negative interest. Often the way to fix these types of things has been to start a war, go deeper into debt, and then decide who owes what to whom at the end. We’ve seen sabre rattling in the Ukraine, in Syria, and now in the South China Sea. Could we be just a few months away from a major event such as: global ‘reset’, a market crash, a war, or even civil disobedience?

But even if nothing horrible happens within the next 6 months:

- Do our debts go away? Nope.

- Does the racial divide heal? Nope.

- Does Obama-care become affordable? Nope.

- Do the Trillions in student debt disappear? Nope.

- Does the average saver see a decent return on deposits? Nope.

IF something is going to happen, it would seem that we're in the right season for it. But here’s a TELL. Our FED has thrown together another FED-presentation to come out on Monday. This was NOT a scheduled talk, and the person coming out to make the statements has been a ‘Dove’ – meaning that she’s been all about NOT hiking rates. If she comes out on Monday and suggests that it's time to raise rates, then the game has changed. Hold onto your hats.

The Market...

In the world of Crude Oil, the Saudis and Russians are finally talking about ‘stabilizing the energy market’. The Saudi tactic was to increase production, reduce price, and bankrupt the weakest players. The only problem with their tactic was that the non-diversified economies (like Saudi, Russia, Iran and Venezuela) are being hurt far more than diversified economies like the U.S. The Saudi / Russia talks are to take place on September 26 and 27. I think that any potential joint action is more an attempt to shore up sentiment since there is little else to lose – given that most countries are producing at full capacity already.

But the oil sector is definitely one of the few sectors that raises my interest. The XLE (the Energy Sector ETF) holds major players like Exxon Mobil, Chevron, and Schlumberger. The XLE hasn’t really launched out of its summer trading range. If it can break resistance at $70.00 – it should take off to $80.

In terms of the ‘here and now’, Friday was NOT your run of the mill down-day. Friday was a ‘Katie bar the door’ and rush for the exits day – that we haven't seen since BrExit. Until Friday, the average volume on the SPY (which is the proxy for the S&P) was running around 60m shares – on Friday it was 221m. Everything but the U.S. Dollar fell. The small caps (IWM), the financials (XLF), the oil sector (SMH), and even gold and silver fell. The DOW dropped almost 400 points, and the S&P fell 52. This was something akin to a panic. For two months I talked about remaining inside the 2160 and 2190 box on the S&P, until we would either ‘break-out’ or ‘break-down’, and I didn’t know which way it would go. Friday we got the first answer – we broke down.

Until Friday the manipulation in the market was very clear. No matter how far down we may have been at 1 pm – by the close we'd be safely back inside the box, or pressing toward the all-time highs. But on Friday that didn't happen. Instead of coming in and saving the day, the Central Banksters just stepped away and let the market fall like a rock. Did the Central Banksters decide that enough was enough? Was this some form of ‘warning shot’ from the market to the FED telling them to not ‘monkey’ with the interest rate? Was this the start of a major decline in the stock market? Or was this really just a nervous reaction because some FED-heads mentioned they want higher rates?

But we've heard FED-heads threaten rate hikes multiple times in the past – so why would the market panic so much over this one? After all, this plunge did some significant technical damage:

- The DOW = largest weekly drop since January, closing at its 100-day moving average.

- The S&P = largest weekly drop since Feb, closing just above its 100-day moving-average.

- The Russell 2000 = largest weekly drop since Feb, closing at its 50-day moving average.

- The NASDAQ = largest drop since April, closing below its 50-day moving average.

- And the Transportation Index closed below its 50-day moving-average.

So what happens now? If the ‘Dovish’ FED-head comes out on Monday talking about higher rates, I think we have more to fall. If she comes out neutral to ‘Dovish’, I wouldn't be surprised to see a major ‘dead cat’ bounce on Tuesday.

It’s up to the Central Banksters and what they do, as to whether I'll be buying this massive dip, or if it's time to truly go short. As the market says: “You take the stairs up, but the elevator down.” Meaning that markets fall a lot faster than they rise. As a caution, the ‘buying the dip’ philosophy has worked for the past 7 years – is this the week that it stops working? After all: “A trend is your friend until it ends.”

TIPS:

Typically, if stocks are going down – then bonds are going up, or some corresponding asset-class is moving higher. On Friday, we had stocks down, bonds down, oil down, and gold down – essentially a reduction in wealth across the board. What’s setting up is a mirror image of what happened in 2001 to 2002:

- The Transports put in a high approximately 10 months before the NASDAQ,

- And from there you had a sell-off into October 2000,

- Then a bounce into 2001,

- And then a sell-off into October of 2001 until it finally bottomed.

Now, history does not often repeat itself exactly, but it often rhymes. What I’m looking for here – if this pattern continues to unfold is that we:

- Continue to sell-off into October 2016 to about 15k on the DOW,

- We get a nice rally (back to 17k) from October through the end of 2016,

- And then we get crushed into October of 2017 (down to 13.2k),

- Until we resume our trek higher.

I sold out of everything long and short last week that was NOT gold, silver or oil related. I’m currently holding:

- JPM Butterfly – for a pinning play around 67.50,

- FB Butterfly – for a pinning play around 130, and

- AG, AUY, CDE, FCX, FFMGF, FSM, HL, NGD, PAAS, PGLC and SAND.

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!

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Sunday, September 4, 2016

This Week in Barrons: 9-4-2016

This Week in Barrons – 9-4-2016:

“Say it loud, and say it often”… LaQuan Lunford

Thoughts:

I’m convinced that if you say something loud enough and often enough – people will believe it. People love a good story. Remember Paul Revere (during his midnight ride) signaling by lantern ‘one if by land’ and ‘two if by sea’? Truth be told, that story didn't happen. Actually, Paul was with two friends and the British captured them all. But Mr. Prescott (a local doctor) escaped, made it to Concord and warned everyone. I’m trying not to further burst your bubble – BUT also:

- Napoleon was NOT short,

- Einstein did NOT fail math as a kid,

- Bats are NOT blind,

- Lemmings do NOT commit suicide by hurling themselves off cliffs, and

- Lightening can strike twice, 3, or even 4 times in the same place.

It’s often the STORY that matters, and a story that really upsets me concerns inflation. The dictionary defines inflation as: “1) an increase in the money supply, 2) a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services.” For some reason, our FED is convinced that inflation does NOT exist, and that it IS a requirement for a strong economy. First, inflation is roaring. We've seen huge increases in the money supply, and there is certainly no shortage of credit when every furniture store is offering no money down, and no payments for 2 years. As for rising prices, if you eat, buy electricity, go to college, see a doctor, enjoy a movie, take a taxi, repair a car, buy insurance – you know that prices are rising. Yet the FED tells us that inflation is lower than their 2% target rate. Why?

Moreover, the FED is forever warning us of ‘deflation’ – falling prices. Now, I personally LOVE falling prices, and have never heard someone say: “I’m waiting for that product to go UP in price before I buy it”. The free market system also seems to like lower prices because they have made Wal-Mart (the leader in low prices) the largest employer in the world. But our FED is convinced that if you know prices are going to fall, you will WAIT to buy that appliance, car, or dress. And consumers waiting to purchase will cause a recession and then a depression. I’m wondering if that is just a STORY that they’ve been telling each other so long that they have started to believe it themselves? After all, people don't delay their purchases FOREVER waiting on lower prices. This is the ‘dot com’, instant gratification era. Lower prices cause us to act NOW instead of later. With electronics, I can assure you that prices will fall year over year, but people continue to camp out on sidewalks just to get the newest iPhone.

The FED itself has said in it’s own writings: “The only episode in which we find evidence of a link between deflation and depression is the Great Depression (1929-34). We find virtually no evidence of such a link in any other period. ... What is striking is that nearly 90% of the episodes with deflation did not have depression. In a broad historical context, beyond the Great Depression, the notion that deflation and depression are linked virtually disappears.”

Our own FED tells us that deflation will send our economy into a death spiral, but their research suggests nothing of the sort. If falling prices don't kill economies, then why is our FED so rabid about the 2% per year inflation mantra? The answer is that it gives them the ultimate freedom in their decision-making. Think about it, 2% per YEAR is a LOT of money in a $17T dollar economy. If our FED did NOT need inflation, then where would the justification for creating those tens of billions of dollars go? Maybe then everyone would start asking: Why is the country broke? Why aren't there any real jobs? Where's all the money going? Why don't we have a balanced budget?

The facts are that inflation is running around 8%, we really don't need any inflation at all, and deflation isn't the kiss of death – it just allows consumers to get more value for their dollar. History shows us that lower prices (except for real estate) cause more buying and more investment for expansion. The inflation story is just that, a story from our unelected and unaccountable Federal Reserve.

Enjoy your Holiday weekend. Eat too much, drink just enough, and spend some quality time talking to those that really matter to you.

The Market:

Factually, this week brought us empirical evidence that the world is slowing:

- The 7th largest shipping company in the WORLD (South Korea’s Hanjin Shipping Company) declared bankruptcy and its assets were frozen. After almost $1B in additional financial assistance, the company’s creditors called it quits. The court will determine wither Hanjin should be liquidated or given a chance to restructure. In the meantime, approximately 540,000 containers have become stranded in ports around the world just in time for retailers gearing up for the Holiday season.

- Thanks to SF for reporting that rail freight volume has dropped almost 6% from a year ago, and that 2015’s volume even plunged 13.4% from 2014. Unfortunately 2014’s rail volume dropped 5.8% from 2013, giving 2016 the excellent chance to set a low in rail freight volume for the decade.

- SF also reported that automation could be the great global jobs equalizer. As China automates it’s manufacturing plants (replacing humans with computers and robots) its cost structure will approach that of the U.S. – effectively killing the ‘cheap’ labor component associated with offshore manufacturing. Therefore, more manufacturing many come back onto our shores. But the blue-collar jobs associated with it are never to return. In fact the future of any low education jobs (or even those with a vo-tech background) are in great jeopardy.

- Wal-Mart announced that it was laying-off 7,000 people.

- Caterpillar said that it was laying-off 2,000 more in Europe.

- Factory Orders and Corporate Earnings fell in August, and have fallen every month since 2014.

- Productivity fell (just above recessionary numbers) to an annual rate of 0.6% this past quarter.

- The Shiller 10-year Price to Earnings ratio is 26.9 – making it comparable to 1999 levels, and definitely NOT levels for risk-taking.

- The Swiss National Bank (SNB) now owns more publically traded shares in Facebook than Mark Zuckerberg (the owner and founder of Facebook).

- Bank of America reported that the ‘smart-money’ continued to be net SELLERS of U.S. stocks for the eighth consecutive week.

- Our mainstream news must have forgotten to report that Deutsche Bank (DB) defaulted on its ability to deliver physical gold. Our Central Bankers did not want this making the news because it would have sent the price of gold skyrocketing and DB into default.

- The U.S. Government’s Non-Farm Payrolls (Jobs) Report was one that only a mother could love. After hoping that 180k new jobs were created in August, we found out that only 151k were created. We also found out that 2/3rds of those jobs (106k) were fake jobs – created mathematically – so we really only created 45k jobs in August.

With all that news, you would have thought the market was down 300 points on the week, but instead the market was up on the week – proving that nothing matters but Central Bankster intervention. The capital markets are the ONLY thing keeping the wheels on our global economy, and our Central Banksters are desperate to keep them rolling.

How long this charade goes on is anyone's guess. On July 14th we opened the day at 2157 and punched over 2160. Since that time, we've bounced between 2157 and 2190. On Thursday morning we re-touched the 2157 number, only to see a ‘magic levitation’ take place and push us all the way up to 2170. Friday we gapped higher out of the box and ended the day at 2179.

I would expect to see our markets try and assault 2190. However, the previous agenda was to make new highs. Interestingly, since August 15th, it seems the game has changed. Our Central Banksters seem to not be as concerned with new highs as they are just keeping the markets from rolling over and dying. They're okay with ‘sideways’.

September is often a cruel month. If normal market forces were in charge, I would be telling you that a wise move would be to sell-out and go short. But this isn't a normal market, and I don't know exactly what the Central Banksters are willing to do. So use the 2157 and 2190 levels as your guide to trading. If we close a few days over 2190, then we should go even higher. If we lose 2157 on a closing basis for a few days, then I could see 2120 coming quickly.

The next 100 days are going to be very interesting. Will Trump win? Will Hillary finally admit to being ill, or could she be removed from running over the latest FBI dump? Will someone along the Russian/Ukrainian border make a mistake and start a war? Will a major bank finally admit it is broke beyond repair? Will someone screw up in the 3 way chess match going on in Syria? Maybe none of the above will occur, but it sure feels like something big is brewing.

TIPS:

Some likely trades this week:

- Don’t fight the FED = buy September Options in Facebook (FB):

o Buy the 124 / 130 Call Debit Spread,

o Buy the 128 / 130 / 132 Call Butterfly,

o Sell the 126 / 124 Put Credit Spread, and

o Sell the 122 / 118 Put Credit Spread

- Gold this week (GLD):

o One morning this past week someone (with very deep pockets) sold $5B worth of paper gold on the exchange. No person would do this because it destroys the price (which it did). But Central Banksters can do it because they want people NOT to buy gold and instead - put their money in negative interest rate accounts.

o Deutsche Bank analysts came out and said that gold should be trading around $1,700/oz.

- The metals have lived through a normal pullback in the past week and I continue to like: AG, AUY, CDE, FCX, FFMGF, FSM, HL, NGD, PAAS, PGLC and SAND.