RF's Financial News

RF's Financial News

Sunday, December 22, 2013

This Week in Barrons - 12-22-2013


This Week in Barrons – 12-22-2013

It’s been just ‘one of those’ years…

This has been one of (if not ‘THE’) strangest investing years I've ever seen.  The average investor’s 401k is up approximately 24%, and they are feeling pretty good about the year.  By ‘going with the flow’ the average investor has enjoyed one of the best years in history.  Michael Snyder compiled a list of statistics from 2013 that are too crazy to believe:
-       The rate of U.S. home ownership has fallen for the eighth consecutive year.
-       102 million working age Americans do not have a job.
-       40% of our workforce makes less than $20,000 a year.
-       40% of all workers are making less than what a full-time minimum wage worker made in 1968 (adjusted for inflation).
-       Food stamp participation has grown from 17 million in 2000, to more than 47 million in 2013.
-       In 5 years, the U.S. Debt to GDP (Gross Domestic Product) ratio has increased over 44%.
-       The U.S. median household income has fallen every year, for the past 5 years.
-       Total global debt levels are 30% higher than they were back during the financial crisis of 2008.
-       And perhaps the most meaningful statistic of all:  Only 7% of all non-farm workers in the United States are self-employed / entrepreneurs.  That is the lowest percentage on record.  If you’re asking our small businesses to grow us out of this recession – we need to figure out how to teach them: ‘sales’, ‘team-building’, ‘decision-making’ and ‘cash flow’.

Steve Forbes reminded me that Mr. Elon Musk was recently named ‘Person of the Year’ – and high-lighted an interview that he did: http://money.cnn.com/2013/11/21/leadership/steve-jobs-elon-musk.pr.fortune/index.html

For me a couple elements stood out:
-       Much of Mr. Musk’s clarity of vision comes from the basic laws of physics – he calls them the ‘first principles of reasoning’.  He talks of boiling things down to their fundamental truths and reasoning up from there – as opposed to reasoning by analogy.  “Most of our life is spent reasoning by analogy – which basically means copying what other people do with a slight variation.  An example of ‘reasoning by analogy’ would be: Someone in 1900 thinking that the way to provide faster transportation would be to breed stronger horses.  Unfortunately, that is NOT how the world changes.”
-       Mr. Musk used his ‘first principles of reasoning’ theory to launch SpaceX – long before he had a rocket design.  Without looking at what NASA had created and pondering how to tweak it, he started with the laws of physics.  To lift ‘X’ pounds into orbit would take ‘Y’ amount of fuel and necessitate raw materials costing ‘Z’.  By adding ‘Y’ and ‘Z’ together, the result was barely 1% of what NASA spent per launch.  Total cost never dwarfs raw materials costs like that.  Therefore a smart design and manufacturing process should be able to produce a rocket that would cost orders of magnitude less.  He gambled a huge chunk of his personal net worth on SpaceX, long before there was even a design on the table.  It was the clarity of the underlying physics that gave him the confidence that innovation was there for the taking.
-       With Tesla, Mr. Musk was convinced that the electric car was essential if humanity was to have a shot at a sustainable-energy future.  That conviction led him (in the midst of the bleak market crash of 2008), to personally gamble his last dollars to keep the company alive, and give the Model S a chance to see the light of day.
-       “Conviction doesn’t necessarily mean certainty”.  In fact Mr. Musk said:  “I thought the likeliest outcome was failure."

Let Mr. Elon Musk act as a reminder to all future entrepreneurs:
-       Dream big, and don’t allow your main focus to be on making money.
-       Embrace and expose yourself to the world's most inspiring designs and designers.
-       Make things as simple as you can – and no simpler.
-       Play with radical, future possibilities – and keep playing until you find something really big that you believe in.

‘Tis the season for good friends, joy and relaxation.  I often try and find a few moments on Christmas day to reflect upon all the gifts I have been given – throughout the year.  I hope you and your family enjoy your day as much as I will.  Peace on Earth – good will toward man.  Take Care.


The Market:

On Friday the DOW closed at 16,221.  That was light years higher than after the incredible tech run of the late 90's, and higher than the housing bubble of 2007.  Yet the facts that underlie our real economy are so completely horrific, that logic says ‘We can't be this high.’  Unfortunately logic doesn't have bankers running printing presses.

We had every reason to believe that if The Ben Bernanke actually started to ‘taper QE’ that would spell the end of the market's rise to glory.  But what he did was simply put out headline fodder.  We found out last week that the Fed really isn't tapering anything, and in fact promised to keep rates at zero even if the last 6.5% threshold of unemployment was met.  We learned that the Fed is reinvesting the interest back into bond and mortgage purchases; therefore, the ‘pre-taper’ figure was closer to $95 Billion a month in purchases – making the $10 Billion a month taper a moot point.

This week the Ben Bernanke promised that zero interest rates would be here for years to come.  Does that mean we will have another year of no pullbacks, no corrections and ever-higher markets?  It just might.  The market may very well ignore the horrible facts of our economy and just jam stocks higher.

Companies have taken advantage of these low interest rates by taking out loans.  And with the newly borrowed money they have bought back their own stock and increased dividends – thereby driving stock prices higher.  By March of 2013, companies had announced over $1 Trillion worth of buy backs.  The way this works:
-       Companies borrow money (at near zero interest rates) and buy back their stock.
-       That reduces the total amount of company shares outstanding and increases earnings per share.
-       The increased earnings per share – increases demand for the stock, and the stock price rises.
-       That is why this market goes on to record highs, despite seeing the highest amount of earnings warnings/misses in a quarter - EVER. 

This market has gone further than I thought they could take it; therefore, I need to reassess.  I do think we are in for a year-end Santa Claus rally and January effect.  This week we should hold steady and eek out some more gains.  

With the stock market up 23% year-to-date, will the money managers ‘lock in their gains’ and sell before the end of the year?  I don’t think so.  If they sell now, they will need to pay taxes in April of 2014.  But if they go into January and accumulate any year-end run, they can sell later in January and have a full 15 more months before they would have to pay the tax burden.  Thus, we are probably clear to run to year-end and into the New Year.  After that, I would start to be concerned.

So with that in mind, it is my thinking that we are going to levitate into year-end as Santa pays a visit to Wall Street.  I think you can pick up some stocks and take a ‘winners lap’ into the start of the New Year.  Keep your eyes on financials and technology, as both should do well.  


Tips:

This week I sold some UNG December $18 calls (the natural gas ETF) for over 100% profit.  With this type of ETF it’s important to examine the underlying commodity.  In this case, natural gas has run from $4.10 to $4.40 – and if it continues to run to $4.90 – the corresponding April calls could turn into a 1,000% profit generator.  Therefore, it’s not too late to purchase some April, $22 calls in UNG.

The same is true of USO (the oil ETF).  As the underlying price of oil continues to rise – future dated ‘CALL’ contracts are the place to be. 

With the ‘taper’, the US dollar continues to rise against the Japanese Yen – and therefore the FXY (the ETF that tracks the Japanese currency) – continues to fall.  Future dated PUT contracts make the most sense here.

Lastly, I’m beginning to dip my toe into XHB – the housing index.  As you see below, I’m using future dated CALL contracts to make that dive.

My current short-term holds are:
-       UNG – April 2014 $22 Calls – in at $0.62 (currently $1.67) – more room to run,
-       UNG – Jan $19 Calls – in at $2.20 (currently $2.84) – more room to run,
-       USO – April 2014 $37 Calls – in at $0.74 (currently $0.76) – moving higher,
-       FXY – March 2014 $97 Puts – in at $3.76 (currently $4.10) – we’re ‘tapering’ – they’re not,
-       XHB – Mar 2014 $33 Calls – in at $0.85 (currently $1.01) – more room to run,
-       AKAM – in at 47.08 (currently 47.70) – stop at entry,
-       DDD – in at 82.60 (currently 86.99) – stop at 84.25,
-       DD – in at 62.26 (currently 62.88) – stop at entry,
-       SIL – in at 24.51 (currently 10.60) – no stop,
-       GLD (ETF for Gold) – in at 158.28, (currently 115.90) – no stop ($1,203 per physical ounce), AND
-       SLV (ETF for Silver) – in at 28.3 (currently 18.64) – no stop ($19.41 per physical ounce).

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

Please be safe out there!

I'd like to recommend a website - http://www.simpleroptions.com    It's an excellent resource and 'honestly' - I've been following them for over 6 months and they're more right than they are wrong on their predictions, and that's a rarity in this climate.  Please check them out on my recommendation.

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
<http://rfcfinancialnews.blogspot.com>


Sunday, December 15, 2013

This Week in Barrons - 12-15-2013


This Week in Barrons – 12-15-2013

Let’s Get Ready to Rummmmble…

This week it’s The Market versus ‘Benji and the Jets.’  On Wednesday (at approximately 2:15 pm) we will learn whether there will be a tapering of the QE program from $85 Billion per month to something less.  The talking Feds have been out in force saying that there is a good chance that a taper is coming at their next two-day meeting in December.  And just like in the summer (when they made a similar announcement) the market has fallen ahead of it.

This whole QE taper story is getting old.  But, because the market does indeed move based upon it; therefore, I was wondering if a taper really made any sense.
-       In retail, Wal-Mart continues to tell us that 2013 was one of the worst years in their history.  Others (Costco, BestBuy, and Dick’s) including Mal-Mart have all missed their earnings estimates.  Therefore, when middle-class retailers are seeing a weak consumer, is the Fed's work really done?
-       In housing (when I listen to CNBC) I’d swear that there are bidding wars and fist fights as people are purchasing homes.  Yet mortgage applications have been declining virtually every month.  And just this Thursday we learned that new home mortgage applications fell another 18% from October to November.  We also know that hedge funds have been buying 10,000 to 20,000 houses with the intent to rent them out.  This isn't the kind of demand that spurs local economies; therefore, the housing market is not nearly as ‘hot’ as TV claims it is.
-       In GDP (Gross Domestic Product), our economy grew faster than estimated, but when you dig into the numbers, you see that the majority of the gains came from companies increasing inventory levels in anticipation of a strong holiday season.  Will that entire inventory build-up sell?  Of course not.  And (let us not forget) the government recently changed the way it includes intellectual property in the GDP.  The most recent reading reflected that change – turning TV show reruns (because of their ‘implied value’) into GDP contributors.
-       In profits, every retail CEO is saying that they will have to ‘promote the heck’ out of things in order to move their increased inventory.  ‘Promote’ (in this case) means lower prices, and dramatically lower profits.
-       In jobs, the numbers are now so distorted it is almost impossible to figure out just where the true unemployment level is.  Last week we learned that weekly jobless claims hit a 2-month high of 368,000.  Shadow Stats Inc. has the unemployment rate at 23% if we measured it like we did in the past.  Or you can believe Uncle Sam’s 7% rate.
-       On inflation, the PPI (Producer Price Index) came out on Friday with a slight drop.  Meaning that our annual price inflation dropped and is now less than 2% per year.  I don’t know anyone who believes that number.

The Fed knows that housing is just bumping along, jobs stink, sales stink, inventory builds are dangerous, profit margins are skinny, 65% of companies had their earnings estimates lowered (and still missed), companies are borrowing money to do stock buy backs, EPA regulations are killing entire business sectors, Obama Care is costing everyone extra thousands of dollars, savings are non-existent, banks are still in woeful shape and all in all – our economy is ‘just barely getting by’.

The Fed knows that cutting QE a week ahead of Christmas will reduce the amount of money that people will spend on the holiday.  Therefore, logic tells me that they are not going to taper next week, but will tell us ‘in stern language’ that they were very ‘close’ but need a bit more data.  If they were to toss out a small taper ($10 Billion a month) – that really wouldn’t affect the economy all that much – but it would affect investor psychology.  The market would think that they've started tapering, and will continue through 2014.  The market would not like it, and if the rich start selling stocks and hording money, then the real economy WILL grind to a halt.  The new Fed (under Ms. Janet Yellen) would then have to step in and reverse course – jamming MORE QE into the system to repair the damage the taper did.  I just don't think that the Fed wants that much drama.

But here is a wild card to consider.  What if the elites know that our current economic system is doomed and in need of a complete overhaul?  Could a new global reserve currency be so close to implementation that the Fed starts to taper, knowing it will blow up the economy and make people much more willing to accept any new plan?  If the Fed removes the stimulus: the markets fall, economic activity falls, layoffs resume, and at some point the masses will scream for relief.  The elites could then announce their new ‘reset’.

In a nutshell, I do not think that the Fed will taper.  But if they do (and those cuts are not reinstated by Janet Yellen) – then the game has changed, and it is possible that they want to impart enough pain to soften folks up for a major change.  Any tapering (that isn't reversed) is a big danger signal that something big is brewing.

Please – celebrate the season with loved ones, and share that feeling with your friends and family.


The Market:

After the big pop over the fake jobs numbers we received a week ago, this week was met with a market trading downward and sloppy.  On Tuesday evening, Washington came up with a mini-budget deal that will keep the Government from shutting down.  I thought that the market might like the idea of fiscal stability, but instead the market sold-off on more Fed tapering worries.  So, just like the other Fed meetings this year, the market is acting ugly ahead of it, and forcing the choice of ‘buying the dip’ or waiting until after the Fed announcement on Wednesday.

Many people are trying to convince me that since the market knows a taper is coming – that the taper must be ‘baked into’ current market pricing.  And if that’s the case, a taper may not disrupt things.  I'm not so sure.  My feeling is that if they taper, the psychology will trickle over toward a full Fed ‘pullout’ by the end of 2014.  Can our economy and our stock market hold up in the face of a Trillion dollars loss?  Color me skeptical.

The next couple days should be quiet trading days on low volume.  On Wednesday at 2:15 pm something WILL happen.  We will either SOAR on no taper, or soar, stumble, grumble, pop, drop and basically see the market ‘flip-out’ over a taper.  You could try and front run it with a straddle on the options market, buying both calls and puts on the big index's like the DIA or the SPY.  With this type of trade I’d go out a few months because I think the whipsaw will be great.  Or you could simply do nothing, and wait a couple of days.

I'm starting to make a list of what I’m going to buy if there is no taper, and what I’m going to short if there is a taper.  I’ll be releasing this via Twitter during the week, and next weekend.  I don't think I'll be doing a lot on Monday and Tuesday.  Sometimes: “The only way to win is … not to play.”


Tips:

In terms of gold and silver, the expected near-term Fed tapering and the retrenchment of the largest gold consumer (India) due to its government's import curbs are the two big factors hurting gold prices.  In the longer-term, the reduction in QE, which is expected to be gradual, and the low real interest rates, are positive factors for gold.  A 50-year chart of the gold price versus the S&P 500 Index shows that the current ratio of 0.7 is way below the long-term average of 1.13.   

I'd like to recommend a website - http://www.simpleroptions.com   It's an excellent resource and 'honestly' - I've been following them for over 6 months and they're more right than they are wrong on their predictions, and that's a rarity in this climate.  Please check them out on my recommendation.

I continue to see gains with natural gas (UNG) while the Japanese Yen (FXY) continues to fall.  I’m cautiously looking at:
-       YHOO over 40.25,
-       A (Agilent Technologies) over 55.50,
-       BRCM (Broadcom) over 29.00,
-       MS (Morgan Stanley) over 31.05, and
-       And if GLD (Gold) breaks (downward) thru 1,218.36 (currently @ 1,238) – it could fall to 1,147 – so look at Put Options or DUST if it breaks thru that resistance level.

My current short-term holds are:
-       CCJ – in at 20.50 (currently 20.75) – stop at entry,
-       UNG – April 2014 $22 Calls – in at $0.62 (currently $1.52) – more room to run
-       UNG – Dec. 21, 2013 $18 Calls – in at $1.41 (currently $3.44) – more room to run
-       USO – April 2014 $37 Calls – in at $0.74 (currently $0.60) – looking for a move higher…
-       FXY – March 2014 $97 Puts – in at $3.76 (currently $3.70) – looking for a continued drop as the Japanese currency is worse than US currency
-       SIL – in at 24.51 (currently 10.87) – no stop,
-       GLD (ETF for Gold) – in at 158.28, (currently 119.58) – no stop ($1,238 per physical ounce), AND
-       SLV (ETF for Silver) – in at 28.3 (currently 18.97) – no stop ($19.70 per physical ounce).

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
<http://rfcfinancialnews.blogspot.com>