RF's Financial News

RF's Financial News

Sunday, August 21, 2016

This Week in Barrons - 8-21-2016

This Week in Barrons – 8-21-2016:



















"A Day Of Reckoning Is Coming”… Carl Icahn


Thoughts:
I spent this past week in Mexico, talking to and meeting entrepreneurs, reading the foreign press, and viewing the U.S. from a slightly different angle.  The most discussed topic was our upcoming Presidential election.  Everyone from waiters to taxi drivers to college students had the same two questions:
-       Is Donald Trump insane?
-       Why are we ignoring Hillary Clinton’s scandals, and her health issues?

There were several ‘Day of Reckoning’ newspaper headlines that caught my eye:
-       Will NATO spark a U.S. vs. Russia War?
-       Will Syria pit the U.S. against China & Russia?
-       Will a South China Sea ‘test’ go awry, and a U.S. vs. China war erupt?

In fact, one of the students pointed out the ‘unfairness’ of the U.S. press by holding up a CNN headline: “Trump to use Heritage when vetting for the Supreme Court”.  Now unless you read the CNN article – it sounds like Donald Trump would use someone’s history, lineage, ethnicity and race when selecting them to serve on the Supreme Court – yes?  But by reading the article, you find out that Donald would consider applicants that have garnered good marks from the Heritage Foundation.  The Heritage Foundation (founded in 1973) is a research and educational think tank whose mission is to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense.  The student was NOT a supporter of Trump but rather wondering whether PR for his own small business should be more focused upon facts or upon gaining readership – because it’s clear to him that the U.S. favors the second choice.

Then someone asked about the world’s current financial experiment that includes low interest rates, negative yields on government debt, and quantitative easing.  They cited RIT Capital Partners Chairman Lord Rothschild latest quote: “We have seen central bankers continuing what is surely the greatest experiment in monetary policy in the history of the world.  It is impossible to predict the unintended consequences of very low interest rates, 30% of global government debt at negative yields, and quantitative easing on a massive scale.  U.S. stocks have grown threefold since 2008 - with investments growing and volatility remaining low.  However, the real economy didn't enjoy such a profit, as growth remains anemic, with weak demand, and deflation in many parts of the developed world.  Many risks remain including: Britain's vote to leave the EU, the U.S. Presidential election, China's slowing economy, and global terrorism – a consequence of the continuing conflict in the Middle East.”

In my answer, I pointed out that global interest rates (including America’s 0.5% rate) are now the lowest in 5,000 years virtually ruining all pension funds and savings accounts.  Sweden, Switzerland and Japan only turned to negative key lending rates as a mechanism for fighting deflation.  But a ‘Day of Reckoning’ is coming because to quote Chris Wiles: “You can ignore the math, you just can’t avoid it.”


The Market....
Factually last week:
-       Caterpillar’s retail sales (a global, economic barometer) suffered its 2nd biggest plunge since the 2008 financial crisis,
-       The Empire State FED reading was expected to show a +2.5 growth reading, but instead came in at -4.2 showing contraction,
-       Cisco is laying-off 14,000 people / 20% of its entire workforce,
-       Home Depot, Lowes, Staples and Target reported revenues and earnings that were disappointing.  Target also warned for the rest of the year, and said that Apple product sales were down 20%.
-       Mortgage applications fell,
-       Annual mutual fund redemptions are running at a record $168B pace, and
-       Corporate Insiders are SELLING (their stock) 19 TIMES faster than they are buying – a pace unheard of in recent history.  

If you look at a chart of any of the indices (SPX, IWM, XLF, etc.), the common denominator is that their stochastics are beginning to roll over, and on many of them the MACD (advance / decline line) is sliding lower.  If I had nothing else to go on, I’d swear that the markets would be heading lower.  But unfortunately our friendly Central Banksters do offer us another way on which to judge.  It’s simple.  If the Central Banksters decide to buy, all of the fundamentals and techno jargon is worthless - because stocks will simply go up.  Therein lies the issue.  We belong lower, but if our Central Banksters won't allow it – it won't happen. 

We learned this week that:
-       George Soros doubled down on the short side of the U.S. market.
-       Institutional investors are talking about an ‘unsustainable market’ and a ‘megaphone’ pattern that looks ripe for a market collapse.
-       Headlines like: "Markets Are Ripe for a Black Swan Event", and “Why most Hedge Funds will NOT Survive” are everywhere.

However, the market is holding up in the face of all this doom and gloom.  For the last 9 sessions the S&P has been trapped between 2175 and 2190 on a closing basis.  It’s been over 2 months and the market is still ignoring: BrExit, poor earnings, lousy economic reports, more money sitting in negative interest accounts, a rabid election process, and the sound of war drums around the globe.  Between the Central Banksters buying and corporate stock buy backs, stocks simply go up or hold their own.  And this begs the question: When does this stop?  OR Does it even have to stop?

I think that it does have to stop, but not because I’m against markets going up.  It is perfectly legitimate for markets to levitate when you have a growing economy, growing employment, growing incomes, growing earnings, etc.  That's exactly what markets should do, and they should reflect that growth with higher stock prices.  The problem however is our current, undeniable market abstraction.  Our market has gone up in the face of: FALLING earnings, FALLING incomes. Part-time jobs, INSANE healthcare costs, FALLING exports, and EXCESSIVE corporate valuations.

What would happen if the Swiss National Bank, the Japanese Pension Fund, and our Central Banksters stopped buying U.S. stocks?  How long would it be, before there would be no buyers for any stocks offered?  In my opinion the answer is ‘Not Long’, and if you remove those monster buyers, the DOW would be cut in half in less than a year.  So, the only thing between the DOW at 19,000 and the DOW at 8,000 is the Central Banksters that print money out of thin air, and buy with no regard to price, earnings or sales.  Can that go on forever?  At some point, the population would catch that stocks were ONLY going up.  Then the population would pile into stocks with ‘all they have’, and history shows us that is when our Central Banksters will sell, take profits, and trigger a market collapse.

Throughout history the elites have caused chaos, only to rush in and deliver the message that they are the only way out of the chaos. Create the problem, and then chose yourself to fix the problem.  If the Central Banksters ever decide to SELL some of their stock holdings, I can virtually guarantee chaos.  With that in mind, what if the game plan is to keep the market up and steady for Hillary, but if Trump wins have the Central Banksters crash the market, blaming his policies for the flight out of stocks?  We're in a very strange time.  A time where no one has ever seen:
-       Negative interest rates (unique),
-       Central Banksters buying stocks with printed money (unique), and
-       Stocks going up in the face of a global recession (unusual).

The way the market is ‘walking sideways’ instead of correcting tells me that there is more upside coming.  You'll want to participate, but please keep your position size small and take profits quickly.  As one high ranking General remarked the other day "We're just one mistake away from WWIII".  Lean long, but keep your finger near the sell button.


TIPS:
Some likely trades this week:
-       Looking toward EA, NXPI, QUOT and maybe AMD to the upside,
-       Looking at LRCX – it has 19% short interest (high), sitting at near 52-week highs, is a candidate for selling the October $18.50 or the January $18 straddle
-       The metals have lived through a normal pullback in the past week and I continue to like: AG, AUY, CDE, FCX, FFMGF, FSM, HL, NGD, PAAS, PGLC and SAND.

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, August 14, 2016

This Week in Barrons - 8-14-2016

This Week in Barrons – 8-14-2016:



Wow … What a Day / Week / Month.

Thoughts:
According to PNC’s chief economist, August can be summed up in one word: “sideways”.  A 30-economist panel was surveyed and predicted that 2016 would end with: Inflation at 2.0%, Unemployment at 4.7%, GDP at 1.8%, Oil at $49 per barrel, Gold at $1,450 per ounce, and the S&P shedding about 30 points to end the year at 2150.  Some saw aggressive monetary easing by the ECB taking the Euro down to 95 cents, and forecasting oil at $55/barrel due to Iran’s production capacity being too optimistic.  The common sentiment was that there’s an “oversupply of everything” – from liquidity to debt to cheap labor.  These oversupplies have helped to elongate economic cycles, and have broken down traditional connections between many indicators.  The same 30-economist panel believes that increased market volatility comes with central bankers bumping up against the limits of monetary policy.

The economists also cited that over the past year investors have pulled $317B from actively managed funds and put $374B into passively managed funds.  Thirty years ago passive funds accounted for 1% of managed assets, and today they are 35%.  Remember, there is a tremendous amount of risk in a ‘crowded trade’.  In 1999, the ‘crowded (risky) trade’ was the dot.com bubble stocks.  In 2007, the ‘crowded (risky) trade’ was all financial companies tied to real estate.  Today, the ‘crowded (risky) trade’ is in low-volatility, income oriented, passive strategies.  Now-a-days market pundits recommend higher yielding dividend stocks, because historically they have held up better in a downturn.  Unfortunately, historically these stocks were NOT the ‘crowded trade’.  Today these stocks are SO ‘crowded’ that respected funds like Vanguard are closing their doors to new investors.

The 30-economists also pointed out that there is something fishy going on in the U.S. credit markets, and it may give stocks a temporary boost.  “There has never been an August like this in the history of finance,” said Brian Reynolds, chief market strategist at New Albion.  August (typically a sleepy month for corporate bond issuance) has seen record issuance in its first six days.  For stock investors, this means that the debt-fueled share buyback craze is in full force.  Companies sold $70B in bonds in the first 6 days of August - already more than half the normal monthly average issuance of $125B.  Companies are aware of hungry bond buyers, among cash-flush public pensions in particular, so they’re more than happy to come to market now.  Pension funds in particular are itching for yield, and are now allocating much of their cash to corporate bonds, even if they are typically a higher risk than government bonds.  The U.S. public pension system has developed a $3.4T funding hole that will put pressure upon cities and states to cut spending or raise taxes to avoid Detroit-style bankruptcies.  Along with cities and states, our public pension funds are also dramatically under-funded and face ‘grave difficulties’ according to Professor Olivia Mitchell at the Wharton School at the University of Pennsylvania.

This week I learned that the U.S. has entered into an exclusive contract with a real estate firm to sell 56 old U.S. Post Offices.  The sale of these properties will fetch about $19B.  A real estate sales commission of between 3-6% will be paid to the company of record: CRI.  CRI belongs to a man named Richard Blum.  Richard Blum is the husband of Senator Dianne Feinstein.  Senator Feinstein and her husband stand to make between $950m and $1.1B on the sale of U.S. Post Office properties.  How does a U.S. Senator from San Francisco manage to get away with organizing and lobbying such a sweet deal?  Isn't this just like insider trading?

Finally, most economists agreed that the biggest question surrounds the Presidential election.  The viewership for the two Conventions was between 23 - 29m viewers.  Sept. 26 (the date of the 1st Presidential debate) will be 56 years (to the day) since the first televised general-election debate between John F. Kennedy and Richard Nixon in 1960.  66m people – all on grainy black and white televisions, watched that debate.  This year I fully expect to see ALL of the viewership records broken.  I've been hearing about ‘Debate Parties’ already being planned.  Some estimates (that include global, live streaming) are calling for over 100m viewers.  The digital numbers are quite illuminating:
-       Facebook:     Trump: 10.2m Likes / Clinton: 5.4m Likes
-       Twitter:           Trump: 10.6 million Followers / Hillary: 8.1 million Followers
-       YouTube Live Stream: Trump: Averages 30,000 live viewers per stream / Hillary Averages 500 live viewers per stream
-       Instagram:    Trump: 2.2 million followers / Clinton: 1.8 million followers, &
-       Reddit:           Trump: 198k subscribers / Hillary: 24k subscribers / Hillary for Prison: 55k subscribers


The Market....
On Thursday of this week, we saw the DOW, the S&P, and the NASDAQ all hit all time highs on the same day.  Could history be getting ready for a repeat of 1999-2000?  The perma-bulls say no.  The people that either don't know, or won't admit why this market is at all time highs – say no.  The smart money people that understand Central Bank buying, and 0% corporate debt borrowing to fuel stock buy-backs – say yes.  The only unknown is when.  It could be Monday.  It could be a year from now.

Factually, this week we discovered that:
-       David Tepper’s Appaloosa Hedge Fund suffered a Q2 loss of 33%.
-       Over 70% of current market volume is taken up by Central Bank buying and by companies executing stock buy backs during the last hour of trading.
-       6 of the largest global investors, and the largest institutional banks have given the SELL signal to their clients. 
o   Goldman Sachs … “Stocks are a SELL”
o   George Soros … Sell stocks, buy more Gold"
o   Marc Faber … “The market will crash 50% lower”
o   Carl Icahn … “The public is walking into a trap, as they did in 2007."
o   Andrew Smithers … “U.S. stocks are now about 80% overvalued”
-       Productivity FELL 0.5% last month – it’s longest losing streak since 1979,
-       Retail sales (excluding autos) FELL 0.3% last month,
-       The Producer Price Index FELL 0.4% last month, and
-       A falling stock market would be a systemic risk to Deutsche Bank, Italy's oldest bank, and several banks in Spain that are holding on by a thread.
-       Macy's announced the closing of 100 of their 728 stores.  Nothing says ‘strength’ like closing 100 stores – aye?

Economist Hyman Minsky believed that a financial crisis is caused by debt being financed with market stability.  He broke debt into three buckets:
-       Hedged (low risk) = interest and principal payments are made normally,
-       Speculative (risky) = interest ONLY is paid, and the principal rolled into the future, and
-       Ponzi (very high risk) = additional funds are borrowed to pay existing interest on debt.  You are betting that the assets will appreciate fast enough that they can pay off the debt and interest.

Currently we are seeing a boom in Ponzi Financing, so much so we have even come up with a term for some of these companies that fall into this category: ‘Unicorns’.  The U.S. Government meets the very definition of Ponzi financing:
-       Their current interest ONLY payment is over $400B per year, and
-       They’re borrowing over $500B per year just to meet their interest ONLY debt payments.

The next crisis will come sooner rather than later because we are: investing in Unicorns, house-flipping, having reduced income growth, experiencing horrendous job quality, debating the minimum wage (which tells you about the quality of jobs), and seeing increased debt financing.

We got here because we never deleveraged.  Rather than taking the pain of the last housing crisis, the FED and government stepped in and (in many instances) rewarded failure: Freddie, Fannie, AIG, GM, and others were bailed out.  Failure would have made us stronger by making risk a reality, and allowing us to respect it.  By not allowing failure we only make the problem bigger.  “You can choose to ignore the math, but in the end you can’t avoid it”…Chris Wiles.

We are seeing a concerted effort by all 55 Central Banks around the world to do anything and everything to keep markets higher.  They're doing it by printing money out of thin air and injecting it into the financial centers. The IMF says the world's biggest nations are $60T in debt and growing every day.

Look at it this way:
-       You’re XYZ company – in bad shape because your revenues have fallen for 2 years, and your earnings are fading each quarter.  In ‘normal’ times, investors would look at your balance sheet, and head for the exits.  Your stock would fall day after day, month after month.
-       Now assume you’re the same XYZ company, with all of the same retail and institutional investors selling your stock because it is fundamentally flawed.  The only change is that every month the Swiss National Bank gets handed another $60B in printed money and buys 5m of company XYZ’s shares.  Then the Japanese Pension Foundation buys another 10m shares.  And pretty soon XYZ’s shares are at 52 week highs – despite being only days from bankruptcy / failure.

As long as Central banks are going to print money and buy stocks – stocks can’t go down.  This is a perverted market and at some point, something strange is going to happen.  Be alert, and don't be afraid to take profits. I suspect that one day there's not going to be any left to take.

On a separate note, over the past 5 years I’ve laid out a path for the U.S. dollar to lose it’s sole Reserve status.  2009 was a wake up call to the hundreds of nations that got stuck with our bogus dollars.  They then lobbied the IMF and World Bank to make the monetary system more equitable.  Fortunately or unfortunately, the plan is coming together: http://www.worldbank.org/en/news/press-release/2016/08/12/world-bank-approved-as-the-first-sdr-bond-issuer-in-china?cid=EXT_WBSocialShare_EXT  The World Bank will be the first issuer of Special Drawing Rights (SDR) bonds in China in September.  I’m not patting myself on the back, but rather noticing that no one seems to be following this angle.  The world is growing tired of the U.S. being the sole reserve currency, and the SDR's are the way they're going to get around it.  Keep a close eye on the precious metals from September through the end next year.  The precious metals could rise dramatically over the next 12 to 18 months because China’s currency (included in the SDR) is increasingly backed by more and more gold.


TIPS:

My attraction to the metals continues.  Some relatively inexpensive ones are: FFMGF, NAK, BAA, AUMN, EGO, and FSM.  I’m keeping it simple by being:
-       Long various mining stocks and their respective call options: AG, AUY, CDE, FCX, FFMGF, FSM, HL, NGD, PAAS, PGLC and SAND.

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>