RF's Financial News

RF's Financial News

Sunday, December 14, 2014

This Week in Barrons - 12-14-14

This Week in Barrons – 12-7-2014:


                                                                                                                                               









Thoughts:

Dear Ms. Yellen:

Are we seeing the sunset of the U.S.’s efforts into oil shale drilling and fracking?  When J.Q. Public pulls into a gas station and saves $20 on a fill-up – he’s dancing in the streets.  But if you’re a driller and you need to earn $70/barrel oil to break even, what do you do when oil hits $58?  You stop drilling, and lay off a few hundred workers.  Halliburton just laid off another 1,000 workers with more to come.  So the idea that the reduction in gasoline is acting as a tax decrease for J.Q. Public works – as long as J. Q. Public is not associated with the energy industry.  But the energy industry touches:
-       Drillers and Suppliers (drill bits, water, etc.), 
-       Transporters (truckers, pipe manufacturers and railroads),
-       Engine makers, auto parts, and least we forget
-       The Banks and Debt companies that have financed the rigs and equipment using $100/barrel oil as their collateral pledge.  As the actual price of oil continues to fall below the collateral pledged – calls are made from Banks to the companies to increase their collateral.  When responses are not forthcoming: lending freezes, margin calls go out to investors, and the credit dominos begin to fall.

The problem isn't so much the lower prices, but rather the SPEED at which we arrived at the lower prices.  We can deal with $40/barrel oil if we have a year and a half to prepare for it.  We just can’t deal with it when it drops $50 in 5 months.  The entire energy infrastructure grinds to a halt when the price of oil drops quickly below production costs.  How can we get the word out to J.Q. Public that we need to increase the price of oil – so that he can save his own job?

Secondly Ms. Yellen, the new spending bill (that just came out of Congress) includes language that allows the banks to trade their derivatives through entities that are part of the FDIC program.  This means that if those derivatives go ‘poof in the night’ (as they did in 2008) – the banks are NOT responsible for the losses but rather the FDIC (you and I) are.  Years ago when The Glass-Steagal Act kept investment and commercial banking separated, if a bank became too reckless with it's investments, it alone was responsible for the punishment along with the reward.  In 2008 (when every major bank was virtually insolvent), Uncle Sam decided to save the banks, and the bailouts began.  The bailout language suggested that the banks would only have to pay back SOME of the money they got from Uncle Sam.  In the present legislation there is no such language.  They can lose trillions, and not even have to return a penny to Uncle Sam.  That means that it’s now the law that we pay for their mistakes.  Do you think that’s fair?

Ms. Yellen, you have the last FED meeting of 2014 this week.  With oil falling sharply, bond yields below 2% on the 10-year, and mixed economic data – do you think you could change the wording in your statement to be slightly more accommodative and ‘dovish’.  I think that this could help the markets make it through the holidays and into the New Year.


The Market:

It's been a volatile week.  We opened Monday and fell 100 points.  We opened Tuesday and feel another 225 points until the ‘banksters’ came in and we ended up just down 50 points.  In total for the week, the DOW has lost 736 points.  While not earth shattering, it is a correction of 4% from the previous Friday's high.  And in the context of the 10% October dip, prior to that event our largest corrections were in the 3% to 5% area.  Therefore, we are in the sweet spot of where (historically) things turn around and move higher.

Also, history tells us that this past week has a habit of being weak.  Personally, I think they took ‘weak’ to a whole ‘nother’ level, but none-the-less the seasonality remained in place.  This market has ignored: Iran, ISIS, Ukraine, China, oil production, Washington D.C., ebola and other global issues.  Many of these issues do not have direct economic impact on our markets in the short-term, but psychologically they are capable of sparking panic selling.

The BRICs (Brazil, Russia, India and China) are patiently waiting and watching the story of the western fiat currency unfold.  China has not increased their net U.S. treasury holdings in years, but rather has been building their gold and rare earth metal reserves.  The BRICs have:
-       Formally discussed and started building their own world bank,
-       Talked about a new reserve currency, and have
-       Made more non-U.S. dollar deals for Middle Eastern oil.

The oil price slide continues to put increasing pressure on derivative contracts.  When the stock trading bots were written, not many of them accounted for the possibility of oil falling 50% in five months.  But oil isn't the only problem:
-       We are still trying to start a war with Russia.
-       The Euro-zone is mired in recession.
-       The Greek market is crashing (over 11% last Thursday/Friday).
-       And China has slowed considerably. 

The old theory is: At any point in time, the market knows all the information there is in the world and prices its assets accordingly.  But there's always been that ‘outlier’ event – the ‘Black Swan Theory’.  For example: If the market truly knows everything, then why was the market ‘higher’ the day before 9/11?  If the market knew everything, it should have plunged for days ahead of the catastrophe.  Yet it didn't.  9/11 happened – the exchanges were closed for several days, and they opened up considerably lower.

The fact is – the market doesn't know everything.  There's always that ‘outside the bell curve’ event that can cause problems.  Oil prices are the current, slow motion Black Swan event.  I'm not saying that this market drop was due to oil prices going lower.  I am saying that the market was ready for a correction, and the oil price slide became the enabler to let it happen.  For all the market's wisdom, no one predicted in June (when oil was $110/barrel) that it would be below $60 in December.  But there's more than just oil in play.  This week we may see the FED remove the language from their statement about keeping interest rates low for a ‘considerable period of time.’  That particular fear had a lot of traders squaring off positions ahead of last Friday.  Therefore, oil was certainly a massive contributor to the selling, but not the only reason for the selling.

We’ve fallen 4% in five days.  We are now just a handful of points away from the 50-day moving averages on both the S&P and the DOW.  I think we see a bit of a dip on Monday – below the 50-day averages – and then stage a comeback rally that saves the day.  My reasons for the rally are not fundamental, earnings or revenue based.  Historically, the second week is often the worst in December, but this coming week is one of the best of the YEAR.  Secondly, we have a lot of hedge fund managers that are lagging the indexes for the year.  They will want to brighten their portfolios by buying leadership, and hoping that it runs up into yearend.  Thirdly, we have the support levels of the 50-day moving averages as our friend.  And finally, the FED’s actions (and the Q&A following their Wednesday decision) may very well be accommodative and support the market’s march higher.

So my thoughts are that the market marches higher in a ‘Santa Claus Rally’ sort of way.  We've fallen 4% in a short period of time, and it's extremely rare to see a 10% correction in December.  I’m seeing a flash dip hitting early, and then a ‘V’ recovery that starts us on a path to higher stock prices into yearend.


Tips:

For next week, oil and the indexes are coming into significant levels of support, and therefore (if we go lower) I don’t think we will go dramatically lower.  Also, next week the market will be buoyed by the FED meeting on Wednesday and ‘triple witching’ options expiration on Friday. 

My current list of potential candidates is as follows: Take-Two Interactive (TTWO), Deckers (DECK), TJX Compaies (TJX), Kroger (KR), Amgen (AMGN), Gilead (GILD), Federal Express (FDX), Nike (NKE), WYNN (trying to catch a falling knife), Chicago Bridge & Iron (CBI), and McDonalds (MCD).

With the overall market falling, we continue to hold our base positions in: FXY (Japanese Yen to the downside), FXE (Euro to the downside), XLP (Consumer staples to the upside), and XLV (Healthcare to the upside):
-       FXY – March 2015 - $83 PUTS,
-       FXE – March 2015 - $124 PUTS,
-       XLV – January 2015 - $69 CALLS, and
-       XLP – January 2015 - $48 CALLS.

For next week I’m selling this increased volatility via Put Credit Spreads (PCS) – and playing the upside with Butterflies – resulting in a net CREDIT to our account.   For the Iron Condors listed below – I would purchase their ends separately to take advantage of Monday’s opening ‘dip’:
-       NKE – DEC – SELL the 90/91 PCS & BUY the 99/101/102 Butterfly, (earnings are this week)
-       FDX – DEC – BUY the Butterfly – 180 / 177.5 / 170 = Credit of $0.34 (earnings are this week),
-       GILD – DEC – SELL the 100/101 PCS & BUY the 106/108/109 Butterfly, OR [if down market] = GILD – DEC – SELL the 97.5/99 to 110/111 Iron Condor for $0.21,
-       MCD – DEC – SELL the 86/87.5 PCS & BUY the 91/94/95 Butterfly,
-       DIA – JAN – BUY the 178/180/191 Butterfly (in anticipation of a Santa Claus Rally),
-       CBI – DEC – SELL the 35.5/36 to 42.5/43 Iron Condor for $0.15,
-       NDX – DEC – SELL the 3990/4000 to 4320/4325 Iron Condor for $1.35,
-       SPX – DEC – SELL the 1910/1915 to 2050/2055 Iron Condor for $0.75, and
-       RUT – DEC – SELL the 1095/1100 to 1185/1190 Iron Condor for $1.20.

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!

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 7, 2014

This Week in Barrons - 12-7-2014

This Week in Barrons – 12-7-2014:


                                                                                                                                               










Thoughts:

Dear Ms. Yellen:

Does it bother you that China is now the #1 largest economy in the world?  I thought I would never see the day when the U.S. became the SECOND largest economy – but alas, that day has come.  China became the world's largest economy this week, and the U.S. (just like Avis) is #2, and will have to Try Harder to regain the top spot.  The International Monetary Fund (IMF) says that China’s economy is now worth $17.16 Trillion while the U.S. is worth only $16.85 T.  They go on to say that by 2019, the Chinese economy will grow to $26T, while the U.S. will only grow to $21.5T – making the Chinese economy 20% larger than the U.S. over the next 5 years.  China is expected to grow by approximately 7.5% this year and next, which is over twice as fast as even the most ambitious expectations for the U.S. economy.  Economists around the world are describing this event as a ‘symbolic moment’ for the global economy.  I was wondering whether you have any thoughts on how we could ‘Try Harder’ and move back into the #1 position?

In regards to China, President Obama is going to have to: ‘Try Harder’.  The goals of President Obama’s most recent trip to China were to put more pressure on China against Russia, and to secure better Chinese relations.  Instead of achieving these goals, President Obama found out that China:
-       A.        Asked Putin to arrive a day BEFORE Obama,
-       B.        Signed a lengthy energy and trade deal with Russia, and
-       C.        Forced President Obama to do photo ops with Putin.

Secondly, Ms. Yellen, I’m confused about the jobs numbers that came out this week.  Early in the week, the ADP private payroll report disappointed – as it showed only 208,000 jobs being created (5.5% below expectations).  According to the ADP report, services were the largest job creator at 176,000 jobs (85% of the total), but were down from the previous month’s 187,000.  The ADP report also showed this November 2014 as being the worst in 4 years.  The ADP report made sense to me given initial holiday sales data from both Black Friday and Cyber Monday came out weaker than initially expected.  Then on Friday the Bureau of Labor Statistics (BLS) reported a massive job surge in November of 321,000 new jobs – almost 100,000 more than economists expected and the polar opposite of the trend that the ADP private payrolls report showed.  The BLS report stated: (a) 77,000 of the total jobs (24%) were part-time positions, and that (b) the Labor Force participation rate FELL by 70,000 workers – making it (again) the lowest on record.  That doesn’t make sense to me, because if all of these jobs were being created – wouldn’t you think a lot of people would be out looking and finding them?  Now, I realize that I can’t fight the FED, but isn’t there someone somewhere that has to reconcile these massively different numbers, or is this your way of telling ADP to: ‘Try Harder.’

Finally Ms. Yellen, how well do you know Mr. Draghi of the European Central Bank (ECB)?  On Thursday I watched and listened intently to Mr. Draghi’s remarks on television – promising to do QE (sometime).  I know that Germany is fighting him on the QE idea.  He didn’t sound all that convincing, and should learn how to: ‘Try Harder’.  At the time of his announcement, our markets were down about 100 points.  Then the headline came out:  “ECB to prepare broad-based QE package for January meeting.”  Our markets immediately went from being down 100 points, to being positive on the day.  How are company fundamentals even a part of our market at this point?  It seems that the only ways this ponzi-driven market can go up are by: printing money, expanding debt, low interest buybacks, and currency appreciation.  We really need to: Try Harder.


Markets:

Factually:
-       Mortgage applications are down 7.5%.
-       Japan is in a recession, and continues to print money 4 TIMES faster than the U.S.
-       France’s credit was recently downgraded to junk.
-       The ECB announced that in the new year (February) they would launch their own QE program.
-       The National Retail Federation said that Black Friday sales were down by an incredible 11.3%.  Net online sales declined as a percentage of total sales, and the average consumer spent 10% less online ($159.55) than a year ago.  As if to inject humor, experts said that the decline in sales was caused by the economy being so robust.  They said that sales were off because everyone is feeling so good – that they don't need to shop for bargains on Black Friday.  Somebody needs to: Try Harder for a better explanation.

Last weekend I looked at a lot of ‘market internals’ and decided that it was possible the markets could experience declines this week.  On Monday the DOW fell 50 points, and you could make the case that we were in for some form of a pull back.  But Tuesday came and not only did the markets gain back Monday's 50 points – they added on an additional 50.  Wednesday and Thursday we ended up grinding slightly higher.  On Friday, we almost ended the day ‘red’ until someone (with very deep pockets) came in – 5 minutes before the markets closed with a massive buy order.  This one order took us from being down 80 point to up 60 points in 5 minutes.  This type of action reeks of manipulation.

This week the Wall Street Journal talked about how J. Q. Public doesn’t have any discretionary income because everything from food to insurance to medical has risen beyond expectations.  They also pointed out that tax payments (from the uber-rich) to the Government have been enormous this year.  So between the illusion of growth and prosperity and the increased tax receipts – the U.S. Government is very happy with the stock market right now. 

How long can this go on?  The answer is: ‘Until it stops’.  I don’t know, and I’m not sure that anyone does.  It could end tomorrow, or it could end 6 months from now.  The one thing I do know is that we are flirting with DOW 18K, and we truly belong at DOW 9K.  One day this ponzi-driven market is going to come to an end, but until it does – all we can do is nervously pick positions and hold on for the ride.  I continue to ‘lean long’ with our finger near the sell trigger.


Tips:

The only real news is that the U.S. Dollar is going to continue to rally.  The U.S. Government needs to keep interest rates low, but still must attract foreign investors.  The only way to do that is with a strong dollar.  You see, foreign governments are awash in QE cash, and need a liquid place to put their cash without fear of it eroding in value via inflation.  It seems that U.S. denominated assets are the only game in town.  This means foreign cash will continue to flow into U.S. dollars, U.S. stocks and bonds.  As a bonus, this kills the price of oil, puts a little more money into consumer’s pockets, and keeps Russia's ambitions in check because their oil revenue stream is drying up.

We closed the week with another run into all-time highs, and are within striking distance of 18,000 on the DOW.  Next week, we have a busy economic calendar with JOLTS (Job Openings and Labor Turnover Report), Treasury auctions, and the retail sales report.  I think that the market will continue to push higher, and I continue to position for more upside with one eye on the downside risk.  I don’t want to get too short here, at least until after the end of the year.

My current list of potential candidates is as follows; GILD, WYNN, FLR, BMY, UTX, COST, TEVA, ILMN, JAZZ, ALXN, SPX, RUT and NDX.  I may also look at an earnings play on NKE later this week.

At the end of October I began establishing a base in some major trends:
-       The Japanese Yen will continue to decline in value – and I’m playing that by buying FXY – March 2015 - $83 PUTS – (up over 100%),
-       The Euro will continue to decline in value – and I’m playing that by buying FXE – March 2015 - $124 PUTS – (up over 50%),
-       The Healthcare Sector will continue to increase in value – and I’m playing this by buying XLV – January 2015 - $69 CALLS – (up over 100%), and
-       The Consumer Staples Sector will continue to increase in value – and I’m playing this by buying XLP – January 2015 - $48 CALLS – (up over 50%).

For next week I’m looking at the following specifics:
-       BMY – SELL = Dec2 – Put Credit Spread – 57.5 / 58 = Credit of $0.14,
-       FDX – SELL = DEC – Butterfly – 180 / 177.5 / 170 = Credit of $0.34,
-       GILD – SELL = Dec2 – Iron Condor – 99/100 to 110/111 = Credit of $0.16,
-       DECK – SELL = Dec2 – Put Credit Spread – 94/95 = Credit of $0.17,
-       ILMN – SELL = Dec2 – Put Credit Spread – 180/182.5 = Credit of $0.22,
-       JAZZ – SELL = Dec2 – Put Credit Spread – 162.5/165 = Credit of $0.20,
-       ALXN – SELL = Dec2 – Put Credit Spread – 187.5/190 = Credit of $0.42,
-       UTX – SELL = Dec2 – Iron Condor – 106/107 to 116/117 = Credit of $0.14,
-       COST – SELL = Dec2 – Put Credit Spread – 138/139 = Credit of $0.10,
-       SPX – SELL = Dec2 – Put Credit Spread – 2030/2035 = Credit of $0.20,
-       RUT – SELL = Dec2 – Put Credit Spread – 1150/1155 = Credit of $0.42,
-       NDX – SELL = Dec2 – Put Credit Spread – 4220/4225 = Credit of $0.67, and
-       NDX – SELL = Dec2 – Put Credit Spread – 4140/4050 = Credit of $0.32

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!

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>