This
Week in Barrons – 4-20-2014
The best place to hide something is
right in plain sight.
Sometimes the easiest way to hide something
is to put it out there – in plain sight.
Recently, a study was done to examine people’s perceptions as they were
walking. The subjects were asked to walk
down a sidewalk and report any unusual findings. The sidewalk was of regular size. Along one side of the sidewalk was a brick
wall, with the other side being open to the street. All the people had to do was stroll along the
walk, and report anything they may find unusual. One by one the test subjects walked the
sidewalk, and virtually every one of them found the quarter that the testers
had placed on the sidewalk itself. Not one single person noticed any of the $10
bills that were taped to the brick wall – exactly 7 feet off the ground. Not one person. Everyone looked "down" and found
the 25 cents, while no one looked up to find $10. The real prize (that was worth 40 TIMES what
they found) was hidden – right there in plain sight.
In my line of work, sometimes the
most glaring evidence is hidden from us in plain sight. For example, this week we all paid our taxes,
but studies tell me that less than one percent of us know: Why we have taxes? Enter Beardsley Ruml – an American
statistician, economist, philanthropist, planner, adviser to President Herbert
Hoover, director and chairman of the New York Federal Reserve Bank, active in
the Bretton Woods Conference (that established the international monetary system),
and was paramount in planning the ‘New Deal’.
In 1945 Mr. Ruml made a famous
speech to the American Banking Association (ABA), saying that since the end of
the gold standard, “Taxes for Revenue are Obsolete”. The real purposes of taxes were:
- To "stabilize the purchasing power of the dollar",
- To "express public policy in the distribution of wealth and of income, in subsidizing or in penalizing various industries and economic groups", and
- To "isolate and assess directly the costs of certain national benefits, such as highways and social security.”
- To "stabilize the purchasing power of the dollar",
- To "express public policy in the distribution of wealth and of income, in subsidizing or in penalizing various industries and economic groups", and
- To "isolate and assess directly the costs of certain national benefits, such as highways and social security.”
Obviously the two issues I wish to highlight
are: (a) the RE-distribution of wealth and income, and (b) to subsidize or
PENALIZE various industries and economic groups. This
was almost 70 years ago, and to this day the facts are hidden very well – in
plain sight.
Another example: A small (but not insignificant) group of
individuals have been screaming that the stock ‘market is rigged’ for almost as
long as the market has existed. Most
have been laughed at, called kooks, conspiracy nuts, right wing whackos, and
generally discarded. Then Michael Lewis
writes a book about High Frequency Trading (HFT), and suddenly ‘the market is
rigged’ is on everyone's lips. This same
market, has been right in front of our faces for years – explained, detailed,
and deciphered – yet ignored.
Of course it’s not just the stock market
and taxes that are rigged:
- Interest rates are rigged. People hear about LIBOR and (since it seems so exotic) they shrug their shoulders swearing that it doesn’t really affect them. Honestly, not too many years ago you could put $100,000 in the bank and make $7,000 a year in interest. Now you make ZERO.
- Energy markets are rigged. They see J.P. Morgan get slapped with billions in fines for energy market tampering, and they’re not connecting the dots as to how gasoline has doubled in price over the past 5 years while demand (since 2004) has fallen like a rock.
- Corporate accounting is rigged. Corporate reporting standards have lapsed so much that corporations are no longer required to abide by GAAP (Generally Accepted Accounting Principles) regulations when reporting their financial numbers.
- Gold is rigged. On Tuesday at 8:30am the gold market recorded a ‘fake’ sale of $500 million in futures – causing gold to fall $30 in a single hour.
- Our own FED is telling us that there is NO inflation; meanwhile the price of food (alone) has increased 19% in the past 4 months (since January of 2014).
- Interest rates are rigged. People hear about LIBOR and (since it seems so exotic) they shrug their shoulders swearing that it doesn’t really affect them. Honestly, not too many years ago you could put $100,000 in the bank and make $7,000 a year in interest. Now you make ZERO.
- Energy markets are rigged. They see J.P. Morgan get slapped with billions in fines for energy market tampering, and they’re not connecting the dots as to how gasoline has doubled in price over the past 5 years while demand (since 2004) has fallen like a rock.
- Corporate accounting is rigged. Corporate reporting standards have lapsed so much that corporations are no longer required to abide by GAAP (Generally Accepted Accounting Principles) regulations when reporting their financial numbers.
- Gold is rigged. On Tuesday at 8:30am the gold market recorded a ‘fake’ sale of $500 million in futures – causing gold to fall $30 in a single hour.
- Our own FED is telling us that there is NO inflation; meanwhile the price of food (alone) has increased 19% in the past 4 months (since January of 2014).
I think that the angst most people
feel around tax day isn't that they detest paying the taxes, but they abhor how
their tax dollars are being spent. Our own government hides the facts in
plain sight, counting on no one being able to see them.
A couple of thoughts (for Easter):
- Look up – more than down,
- Think and Listen – more than talk, and
- Reach-out and Act on your own conclusions.
- Look up – more than down,
- Think and Listen – more than talk, and
- Reach-out and Act on your own conclusions.
Happy Easter to everyone.
The Market...
We had a 4-day virtual ‘lift off’ that
took the DOW from a low of 16,028 on Monday, to a close of 16,409 on Thursday. We seem to have run back to the 16,460 area
of resistance. On April 9 we closed at
16,437 before falling in 3 days to 16,028. On March 10 we closed at
16,418 before plunging to 16,046. Naturally
the question is, do we fall again, or do we power up and set our sights on the
double top at the 16,600 area?
If you've noticed one thing in the
past couple of years it's the fact that this market is very tough to
short. The reason is clear. Every time we set up for a fade, the FED cuts that
fade short after a very quick 2 - 4% dip, and then blasts it right back up. I'm actually tired of writing how we get these
perfect ‘correction’ set-ups, only to see the FED short circuit the correction
and push us higher. So, while the single
biggest stock gains come during downtrends (because they’re so fast and
violent), I really haven’t been ‘short’ since the 2008 crash.
In the past 2 weeks, Ms. Yellen (before
Congress) stated that QE would end by the fall of 2014, and about 6 months
later interest rates would rise. The
markets went down violently on her words.
This week Ms. Yellen came out and reversed herself, saying that because
the labor market is so soft, the FED will need to keep rates low for an extended
period. The markets soared back up on
her words. Unfortunately, the markets
are NOT moving on economic fundamentals, but rather moving on whether the FED
will continue to fill the punch bowl. In
many ways this more resembles a ‘drug addiction’ than ‘investing’. As long as our dealer can provide us with the
stuff we’re good, but as soon as the dealer cuts us off – we go into
withdrawal.
I said it before and I’ll say it
again: IF the FED stops tapering, or (worse)
reverses their taper and does more QE – we’re headed toward DOW 18,000 and
higher. It won't matter if the economy
grinds to an absolute halt and goes into a full-scale depression. With that in mind, I have no choice but to
continue to find the ‘long side’ opportunities. It feels wrong (almost ‘dirty’), but the fact
is that the markets are convinced that the FED will always support them, and therefore
a dip is just another buying opportunity.
We all know that this will end
badly. A chink in the armor could be the
NASDAQ. It’s still in a downtrend. I’m looking for the NASDAQ buying to stop on
Monday, and to continue it’s downtrend – potentially bringing weakness into the
S&P and the DOW over the next week or so.
The facts are: of the companies that
have reported thus far, 67% of them have MISSED their top line / revenue estimates.
And these ‘estimates’ have already been
lowered. These same companies are
beating on the bottom line by not hiring, doing stock buy-backs, and by manipulating
their accounting. Companies can easily ‘adjust’
their earnings per share, but they can't ‘adjust’ their revenues. Combine
that with the fact that just last week beef, pork, shrimp, soybeans and soy
meal all hit RECORD high prices. Combine
that with the steady climb back towards $4 per gallon gasoline and stagnant
wages. What you have is a market that
does not reflect our true underlying economy.
I'm still leaning slightly long on
the DOW, but I’m beginning to nibble on shorting the rallies on the
NASDAQ. Honestly – none of this feels
right. It feels like I’m missing
something – that’s right there in plain sight.
Tips:
The $500M ‘fake short’ in Gold surprised me (as it
did most people) last week. Our position
in TLT also took a hit last week – presumably on the belief that the dispute in
the Ukraine would be settled over this weekend.
I’m still holding my position in (MNKD), for it’s 2% weekly yield on the
call options. MNKD is currently selling
for $6.25 / share – with the $6.50 call options paying you 13 cents per
week. The energy sector has been nothing
short of ‘on fire’ as of late, with our USO positions soaring for nice gains
indeed. I also opened some positions in
smaller stocks that I think have a good chance of doubling (or more) over the
next 12 to 18 months. Those stocks are
listed below, and a couple that I’m still following are: PFIE, LSCC, VNTR and FPP. This week I see TLT and Gold as being
buyable, and potentially the NASDAQ as being a nice short candidate – topping
off on Monday.
My
current short-term holds are:
-
MNKD
– in @ $6.35 – (currently $6.25)
-
USO
(Oil) – in @ $37.19 - (currently $37.68),
-
BXE
(Oil) – in @ $9.11 – (currently $9.16),
-
LSG
(Gold) – in @ $0.78 – (currently $0.75),
-
NGLS
(Nat Gas) – in @ 60.11 – (currently $61.33),
-
POZN
(Pharma) – in @ $8.68 – (currently $8.70),
-
PTIE
(Pain Tmt) – in @ $5.34 – (currently $5.38),
-
RFMC
(Tech) – in @ $7.96 – (currently $7.87),
-
SIL (Silver) – in at 24.51 - (currently 12.33)
– no stop,
-
GLD (ETF for Gold) – in at 158.28, (currently
124.74) – no stop ($1,295 per physical ounce), AND
-
SLV (ETF for Silver) – in at 28.3 (currently 18.88)
– no stop ($19.67 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>
