RF's Financial News

RF's Financial News

Sunday, December 21, 2014

This Week in Barrons - 12-21-2014

This Week in Barrons – 12-21-2014:












“The Federal Reserve can be patient which is consistent with a considerable time methodology”… Ms. Janet Yellen – Dec 17, 2014

Thoughts:

Dear Ms. Yellen:

Ms. Yellen (or should I say Ms. Claus), thank you for the ‘Santa Claus Rally’ into year end.  It was clear that the market could not have done it without you.  It’s very clear that the market’s most recent sell-off was NOT about oil or the Russian ruble, but rather it was all about the FED ending it’s free money policies and raising interest rates too soon.  After all, “What changed?”  Oil is still below $58/barrel, and the Russian ruble is still devalued.  The only element that changed was that you confirmed the FED’s Zero Interest Rate Policy (ZIRP) and reaffirmed that your asset purchase policies are here to stay for the foreseeable future.  Honestly, I knew that a lot of fund managers were terribly lagging the big indexes, but gaining 421 points on top of a 288-point gain is nothing short of ‘a Christmas Miracle’.

But then of course there was the obligatory global insanity.  It seems the Swiss have also lost their economic compass, as they have cut their deposit interest rates to negative.  Yes, in order to deposit money into a Swiss Bank you will now have to PAY the bank one quarter of a percent to hold your money.  I find that comical on many levels.  (a) The business of banking is to pay out ‘interest’ on deposits – not the other way around.  (b) The Swiss government and ‘banksters’ recent spent millions to convince the Swiss citizens that they should vote against a referendum that would require the Swiss currency to be backed by additional gold reserves.  So as soon as they were successful in voting the proposal down – they turn around and stabbed J. Q. Public ‘in the back’ by introducing negative deposit rates.

Ms. Yellen – I simply loved your press conference following Wednesday’s announcement.  Unfortunately, I left my ‘Alan Greenspan Decoder Ring’ at home.  You talked of ‘being patient’, yet said (at the same time): ‘If the data changes, we will move quicker than expected”.  You talked of ‘not normalizing policy’ over the next two meetings, but then said: “That could change with the data.”   Congratulations, I truly could not figure out a direction to your remarks, and I’m sure that was the intent.  But the general consensus is that prior to your talk, it was clear that Santa was going to deliver ‘lumps of coal’ into various Christmas stockings.  Prior to Wednesday, the 800+ point drop over the prior 7 sessions had traders ‘antsy’ and almost convinced that Santa wasn’t coming.  Your verbiage and press conference successfully erased over 7 days of selling and then some.

Finally Ms. Yellen, what’s going on with Cuba?  Back in July there were rumblings of Russia putting bases closer to the U.S.  After all, the U.S. had just unilaterally broken a 30-year old agreement by moving NATO bases closer to the Russian border.  It was in July when Russia announced the re-opening of their Lourdes facility in Cuba.  At the time I understood why Russia would do that – my only question was: ‘What would the U.S. do about it?’  Now the pieces are beginning to fall into place.  Since there are no missiles on the island as of yet, we really don't have any legal right to do blockades of the surrounding waters.  So we are playing the ‘economic card’ and trying to get the Cubans to not allow Russian military weapons (of any real threat) to be moved onto their island.  I think it’s a true show of: ‘Keep your friends close, and your enemies closer.’

Merry Christmas Ms. Yellen – and thanks for the rally!


The Market:

WOW pretty much sums it up.  We gained over 700 points in two days.  I expected the market to trade higher – just not this much this fast.  After the previous week’s 4% drop, I thought we would move higher into the year-end – but I had no idea that we could do this.  We haven’t seen a two-day romp like this in years.

For those of you that didn’t follow, allow me to briefly recap this week’s sessions:
-       Monday we ended the session in the red.
-       Tuesday we gained 260 points in the first hour of trading, and after the DOW travelled over 800 points (both up and down) we ended the day down by 111 points.
-       Wednesday we were up 145 DOW points out of the gate – and ended up 288 due to the FED language.  But the big question on everyone’s mind was: “What did they say again?”
-       Thursday we played a quick game of ‘Can You Top This’, and the answer was YES – by gaining over 400 points.
-       And Friday we ended the week by gaining 28 points on the day.

This week is why I say that there are no longer any fundamentals in this market.  We did not gain over 700 points on good earnings, employment or opportunity information.  We got there on the hope of Ms. Yellen leaving interest rates alone.  That means that there will be more debt creation, more stock buy backs, and more borrowed money for our banks to ‘play cowboy’ with in the markets.

Factually:
-       In January the Russian ruble was trading 30/dollar, and this week it touched 80/dollar.  This week Russia’s Central Bank raised interest rates from 10.5% to 17% percent – hoping to curb its currency collapse.
-       In June oil was $105/barrel, and this week we touched $53/barrel.
-       The Consumer Price Index (CPI) is disinflationary – falling from 1.7% in October to 1.3% in November – the largest month-over-month decline since 2008.
-       Mortgage applications are falling again – dispelling the myth that cheaper gas was going to lead to a boom in housing.
-       The Empire State Manufacturing Index reported more stalled infrastructure projects.  Estimates are that a Trillion dollars worth of oil related projects alone have been put on hold.
-       No one thought that they’d be seeing $53/barrel oil, and because of that –Trillions are collaterally under-funded.  It's one thing to delay a drilling project because the price of oil doesn't warrant the investment.  But when thousands of contracts and loans have been made, based on the projections of $100/barrel oil – there’s real pain being felt out there.  The ripple effects are expanding in all directions. 

I tend to revert back to: ‘Correlation vs Causation’.  The world prefers lower oil prices.  Lower oil prices allow for: lower gasoline prices, lower energy prices, lower shipping costs, lower transportation costs, and lower costs for oil derivative products.  This hurts the top line for energy companies, but energy companies are not the total market.  The fall in oil prices has more to do with politics than any correlation to supply and demand.  In fact, the global demand for oil continues to rise, and the current supply level is NOT causing a glut.

The macroeconomics picture is telling us:
-       Bonds are higher than they have been in decades - telling us that the economy is in serious (Depression Era) trouble.
-       Our own ‘Jobs Report’ was so bolstered by seasonal adjustments that it bore no resemblance to reality.
-       The Baltic Dry Index (the measurement of world-wide shipping traffic) has fallen 45% in a month.
-       Student loan debt is well over a trillion dollars, U.S. wages have been flat for the last 15 years, and Obama-Care has created the 30-hour full-time / part-time job.

On the microeconomics side of things we have:
-       Lower oil and gasoline prices,
-       Stores introducing December as ‘the low priced month’,
-       And people spending as much as they can scrape up.

You add that up and there's no question that our global economies are whistling past the graveyard.  We have a tale of two markets.  In the very short term, the market could continue to run a little bit higher.  But in the longer term, we have some really big problems that simply can't be solved via standard economics – the numbers are just too big.


Tips:

Honestly, we’re a tad early for the ‘Santa Claus’ rally.  That rally is normally reserved for the last few trading days of the year, and then the first 5 of the New Year.  But as everyone trips over himself or herself to be involved, it tends to appear earlier each year.

The market closes at 1 pm on Wednesday, and is closed on Christmas day.  With this being a Holiday shortened week, many of the upper level traders are starting their holiday this weekend and not even manning the posts next week.  With that being the case, I think we will consolidate, grind sideways and slightly higher for most of the week.  I’m looking for a couple red dips, some small pushes higher, and possibly pushing energy slightly higher if the rebound continues. 
My current list of potential candidates is as follows: Terex (TEX), Gilead (GILD), PayChex (PAYX), Amgen (AMGN), Nike (NKE), Wynn (WYNN), Chicago Bridge & Iron (CBI), McDonalds (MCD), CostCo (COST), Restoration Hardware (RH), IWM and SPX.

Our base positions did nicely last week 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.
-       We’re going to add another one – TLT – Bonds – Buy the 122 / 128 Call Debit Spread on a pullback.

For next week I’m still selling this increased volatility via Put Credit Spreads (PCS) – and playing the upside with Butterflies.  For the Iron Condors listed below – I am purchasing their ends separately in order to take advantage of these huge swings:
-       BWLD – JAN – SELL the 160/165 PCS (Put Credit Spread),
-       GILD – DEC4 – SELL the 103/104 PCS = Credit of $0.15,
-       NKE – DEC4 – SELL the 92/93 PCS = Credit of $0.10,
-       FB – DEC4 – SELL the 76/77 PCS = Credit of $0.08,
-       WAG – DEC4 – SELL the 68.5/69 PCS = Credit of $0.07 (earnings next week),
-       PCLN – DEC4 – SELL the 1147.50/1150 CCS (Call Credit Spread) = Credit of $0.20,
-       NDX – DEC4 – SELL the 4200/4205 PCS = Credit of $0.50,
-       SPX – DEC4 – SELL the 2025/2030 PCS = Credit of $0.40, and
-       RUT – DEC4 – SELL the 1165/1170 PCS = Credit of $0.47.

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




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>