This
Week in Barrons – 5-4-2014
Once again - Let’s pretty-up that
Pig
On Friday we received the most
recent Non-Farm Payroll Report, and they certainly put an extra coat of lipstick
on that pig. Let’s talk about that, the Ukraine,
and the world’s push to distance itself from the U.S.
A week or so ago, I mentioned that
we would start to see much better economic news hitting the wires. It’s NOT because the economy is warming up,
because it’s NOT. It’s NOT because the
Fed's QE programs are finally working, because they’re NOT. It is because our Government’s PR machine has
kicked into full gear. Democrats (that
have stood by the President for years) are divorcing him in droves for fear of
losing their mid-term elections. Because
most people have been trained to think that a rising stock market equates to a
good economy, the directive from the top has been to keep this ‘pig’ lookin’
good at all times. Make the stock market
the poster child for the Democrats.
Friday we received the Non-Farm
Payroll (Jobs) Report. The report showed
that the U.S. had gained 288K jobs. Unfortunately the ‘Birth/Death’ portion of the
report created 235,000 of those jobs.
Leaving only 53,000 jobs as
being ‘real’ jobs created during the previous month. Allow me to briefly explain the ‘Birth/Death’
model. Decades ago an algorithm was
created that said for every ‘X’ number of people fired / laid-off from a job –
some percentage of those people will go out, open a business and hire – below
the radar. There is no proof that these
jobs exist, no tax receipts, no 1099’s, no anything. It's simply an estimate based upon historical
performance. The issue with ‘historical
performance’ is that it ‘does not guarantee future results.’ Factually – the U.S. created the fewest small
businesses in its history in 2013, and is on an even worse course for
2014. I’m thinking that the birth/deal algorithms
need a bit of tweaking. I have trouble
believing that 235,000 jobs were created by: unemployed people with too much
debt, no savings, and no ability to put together $2,000 in case of an emergency.
However, the ‘real numbers’ showed a
much more earth-shattering conclusion.
The U.S. labor participation rate fell to its lowest level in RECORDED
HISTORY. The ‘Jobs’ Report highlighted a
big drop in the unemployment rate from 6.7% to just 6.3%. But, the unemployment rate calculation currently
ignores everyone who has ‘given up’ looking for work. Our government (when trying to get the unemployment
rate to show a smaller number) modified the calculation and determined that if
someone ‘gave up’ looking for a job, they are no longer unemployed. Last month – 806,000 people simply ‘gave up’ looking
for work – were dropped from the ranks of the unemployed – and the unemployment
fell from 6.7% to 6.3% for all the wrong reasons. But it gets better. When reviewing the data, the only people getting
hired are ‘old people’. The 25 - 55 year
old segment actually LOST about 200K
jobs. You can expect more Government
PR as we move closer to the elections, unless we are in a true war with Russia.
I believe that a global currency
‘reset’ is coming. This notion took a
giant step forward last week as the Chinese have aligned themselves with
multiple nations to do business in the Yuan (their currency) and bypass the U.S.
dollar. The reason that the US dollar is
the Global reserve currency is because everyone needed oil, and oil (previous
to this year) could only be purchased with U.S. dollars. This ‘Petro-Dollar’ was set up decades ago by
an agreement between the U.S. and the Saudi’s. This assured the U.S. that every nation had to
keep a stockpile of U.S. dollars so they could import oil.
China does not want U.S. dollars,
but rather wants their own currency (ultimately backed by Gold) to be an
important global player. They have
created alliances around the world to do trade in native currencies instead of
the dollar. We are days away from
"full convertibility" – where the Yuan will be exchangeable for any
currency. The Chinese see a day where their Yuan (backed by gold), will
be seen as the most stable global currency, and the U.S. politicians will no
longer be able to ‘print’ all the dollars they want.
This timetable has been accelerated
by the U.S.’s botched coup of the Ukraine, which pushed Russia and China ever
closer. Russia doesn’t trust the U.S.
politicians and has been turning its attention toward energy trades – actively
making ‘oil for goods’ deals with Iran, Brazil, Turkey, North Korea, etc.
Bottom line, the nations of the
world that produce hard-assets like oil, coal, copper, etc. are tired of having
to deal with a depreciating currency such as the U.S. dollar. They're tired of exchange rates that fluctuate
daily because the global currency isn't fixed to something solid like Gold. They're smart.
They want to ‘peg’ a currency to Gold and set a price that their
currency will ALWAYS be worth.
I think that in May 2014, Russia will
announce a sweeping deal with China concerning supplying them with enormous
amounts of natural gas and even oil. I
also think that we will hear that China has set up stronger alliances, with the
oil-producing nations – and will begin to abandon the U.S. dollar completely.
I think that the U.S. didn’t
initiate the Ukraine coup just to place NATO forces closer to Russian border,
but rather as a measure of standing closer to Europe, the Euro and solidifying
the U.S. dollar. We realize that the U.S.
dollar standard is on the ropes.
Remember to continue to exchange dollars for real assets – such as gold,
silver and real estate – every chance you get.
Many elements will play out over the next two years, and some of it
could be dramatic. Please, be safe out
there.
The Market...
The stock market ran right back up
to its all-time highs, and then the air came out – again. On Friday, they tried rallying the market based
upon the jobs report, but even the banksters couldn’t justify using it as an
excuse to push stocks higher. On top of
that, nobody wanted to get brave in front of yet another Ukraine weekend. But if nothing happens over the weekend in
the Ukraine, will the beginning of the week be green?
Last week, the market was set up
technically to roll over and correct, and our FED simply stepped in and jammed
us higher. We've seen that happen over
18 times in the last three years. Well –
here we are again. We hit the all-time
highs, didn't break through and hold, but rather faded off a bit. If you used logic, you'd say that the market
should go down. However, this market
doesn’t run on logic or fundamentals, but rather FED money. So saying that some kind of ‘top’ is in has
been an exercise in frustration.
I think the only way you can
navigate this mess is to simply keep buying good set ups, until the market
finally does break. Currently, I’m watch
4 general areas:
-
The Bond Market,
which can be viewed via TLT – an ETF (Exchange Traded Fund) for the Bond
market.
-
The Stock Market
Indices, which break out into:
o
The IWM – the
Russell Index for Small Cap Companies,
o
The QQQ – the
NASDAQ Index,
o
The DIA – the Dow
Jones Industrial Large Cap Index, and
o
The SPY – the
S&P 500 Index.
-
The Currency Market,
normally viewed via U.S. Dollar, U.K. Pound, Chinese Yuan, German DM, etc.
-
AND the correlated
assets such as Gold, Oil, and Silver.
I watch the money flow between these 4 main areas,
and recently – the money has been flowing into Bonds (TLT) – making any
‘pullback’ in the TLT a buyable event.
Often there is a direct correlation between a country’s bond market and
their currency. For example: as the U.K.
Bonds are going higher – so is the British Pound Sterling. As the German Bonds are going higher – so is
the German Deutsch Mark. Unfortunately
in the U.S. this correlation is NOT holding.
As U.S. Bonds are going higher, the US dollar is trending lower, and
this is indeed disturbing (as both are ‘flight to quality’ vehicles). Couple
this with the fact that the Dollar index is in a ‘technical-squeeze’. The last ‘technical-squeeze’ for the U.S.
dollar occurred 12 years ago resulting in a huge decline in the dollar and the
resulting rise in Gold. We could be
set-up ‘technically’ for a very volatile (and similar) time period.
Next week – with some new cash coming into a market
– we could see the QQQ and IWM rally for a couple days – giving us the
opportunity to sell ‘call credit spreads’ on many of our favorite stocks of the
past. However remember the adage: “Sell
in May, and go away.” Later in the week
and throughout the month – we could replicate the pattern of small rises in the
beginning of the week – coupled with declines near the end. These are perfect opportunities for buying
and holding TLT (believing bonds are going higher), and for selling Call Credit
Spreads – believing specific stocks (at least for the short term) are moving
lower.
Tips:
Congrats to those of you who grabbed the TLT trade
with me. A double within a week is
nothing to sneeze at. For this week:
again watch TLT ($112.88) as it potentially has a date to retest its $130
highs. TLT is a ‘bond market’ ETF
(Exchange Traded Fund) that when the market goes ‘Up’ – trades sideways, and
when the market goes ‘Down’ – trades nicely higher. Options in TLT virtually doubled last week –
so I took some ‘off the table’ on Friday afternoon. I will certainly ‘load up’ again in TLT on
any move lower. By ‘load up’ I mean
purchase equal amounts of Delta 70 and Delta 20 Calls between 60 and 100 days
out.
-
In this case I
would be buying the July, $100 Calls for approximately $3.50 / and a
corresponding dollar amount of the July, $117 Calls for approximately $0.60.
-
You could also
purchase the June 110’s and 117’s if you wish a slightly shorter time horizon.
Mannkind Pharmaceuticals MNKD ($6.35) has earnings
this week – so expect it to be volatile – and the $6.50 options are offering a
nice premium of 3%. This week, I’m also going
to play Tesla (TSLA) and many of the old ‘high-flyers’ (BIDU, CELG, GOOG, CMG,
LNKD, TWTR and QIHU) by selling 1 to 1.5 SD (standard deviation) – out of the
money, weekly ‘Call Credit Spreads’. For
example: Tesla (TSLA) is currently
selling for approx. $211 / share.
-
If TSLA rallies $14
on Monday and Tuesday and sits @ $225 on Wednesday.
-
The TSLA ‘standard
deviation’ (expected move) is $25.
-
Sell the May 9th,
weekly, ($225 + $25) $250 Call Option – and pocket $1.50 per share,
-
Buy the May 9th,
weekly, $255 Call Option (for protection – in case Tesla went higher on great
news) – paying $1.11
-
You would net the
difference of $0.40 per share for the week.
-
The probability of
this trade working as outlined above is 92% - very high indeed.
A shout out to AAM (a very observant reader), who
noticed that a more efficient use of capital on DUST and NUGT would be to sell the
1.5 standard deviation, out of the money, Put Credit Spreads on each of them. It worked well last week – THANKS.
I think the long-strength in this market resides in Apple
(AAPL) which is acting more like a Bond than a Stock, and in the energy stocks
such as Exxon Mobile (XOM) and Schlumberger (SLB). I also like our smaller energy plays: BXE
($10), FPP ($5.40), HK ($5.51), PFIE ($4.06), HTM ($0.77), PQ ($5.88), VTNR
($8.10) and FET ($30.53).
My
current short-term holds are:
-
MNKD
– in @ $6.35 – (currently $6.35 – w/ 3+% per week yield on the $6.50 covered
call option),
-
TLT
– in @ $106.22 – (currently $112.88), - Sold much of our position on Friday –
will dive in early week on any pull-back
-
USO
(Oil) – in @ $37.19 - (currently $36.30),
-
BXE
(Oil) – in @ $9.11 – (currently $10.00),
-
FPP
(Oil) – in @ $5.32 – (currently $5.40),
-
HK
(Energy) – in @ $5.25 – (currently $5.51),
-
LSCC
(Tech) – in @ $7.85 – (currently $8.18),
-
LSG
(Gold) – in @ $0.78 – (currently $0.82),
-
NGLS
(Nat Gas) – in @ 60.11 – (currently $60.00),
-
PFIE
(Energy) – in @ $4.47 – (currently $4.06),
-
POZN
(Pharma.) – in @ $8.68 – (currently $8.20),
-
PTIE
(Pain Tmt.) – in @ $5.34 – (currently $5.49),
-
RFMD
(Tech) – in @ $7.96 – (currently $8.65),
-
SIL (Silver) – in at 24.51 - (currently 12.54)
– no stop,
-
GLD (ETF for Gold) – in at 158.28, (currently
125.06) – no stop ($1,300 per physical ounce), AND
-
SLV (ETF for Silver) – in at 28.3 (currently 18.69)
– no stop ($19.52 per physical ounce).
To
follow me on Twitter and get my daily thoughts and trades – my handle is:
taylorpamm.
Please
be safe out there!
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