RF's Financial News

Sunday, June 18, 2017

This Week in Barrons - 6-18-2017

This Week in Barrons – 6-18-2017:

“Speed multiplies the distribution of information that we know to be untrue”… Edward R. Murrow

Thoughts:

In 2018, all or pieces of 23 U.S. states will have one or no Obamacare insurers (see Obamacare vacancies map below). The number of states without healthcare will continue to rise in coming weeks as insurers announce their intentions. But what can you do if you cannot get healthcare? Could this trigger the next Civil War?

Only this time, we will all be holding the ‘weapon of mass destruction’ right in the palm of our hand. Just 10 years ago we used a phone – as a phone. In 2007, the world changed with the introduction of the iPhone, and changed again in 2008 when the HTC-1 Android smartphone was introduced. This past Thursday, CNN reported: “Since 2007, the rate of suicide deaths among children ages 10 thru 14 has doubled.” The influence that one person has with 1,500 Facebook ‘friends’ and their respective 500 ‘followers’ is staggering. Surveys tell us that young people trust their cellphones more than their parents and clergy. An entire generation is growing up with their cellphone as their best friend. In the first Civil War, we only had to deal with the propaganda that flowed face-to-face, but now the pressure is coming from everywhere. It’s virtually impossible to tell real news from fake news anymore, and it’s happening on both sides of the aisle.

Politically and economically we are being held witness to one of the largest power struggles of all time. Trump supporters have their own set of issues – from Trump to Comey to Sessions to Kushner to who knows who will be next. On the Democratic side, they’re also dropping like flies:

- Seth Rich (linked to the DNC e-mail leaks) was shot.

- Shawn Lucas (the attorney working to expose the DNC) died in his bathroom just days after serving papers to them.

- Victor Thorn (the author that accessed secret Clinton emails) died from a bullet to the head.

- John Ashe (the former U.N. President) ‘accidentally’ crushed his own throat while lifting weights. He was scheduled to testify against the Clintons and the DNC the following week.

- Beranton Whisenant (the Federal prosecutor) died from a head trauma caused by a gunshot wound. He had direct links to Imran Awan and to Debbie Wasserman Shultz’s iPad that was used to exploit the DNC leaks. Mr. Awan (a high-level governmental IT supplier) could provide evidence to 20m U.S. cell phones that were being used for massive, data-collection efforts by the FBI and CIA.

A legal suit was filed on Monday by Dennis Montgomery saying that he has evidence (previously given to the FBI) surrounding the collection of phone, financial, and personal data via cell phone on 20m Americans. This information shows co-operation on the part of the FBI and CIA, and is in direct violation of the U.S. Constitution’s Fourth Amendment.

We are in the midst of a devastating civil war, and whether it is being fueled by invasion of privacy, healthcare or a crazy gunman attempting to take the lives of Congressmen during a softball practice – we need to recognize that the weapon of mass destruction is our very own cellphone. The only way to win this war is to turn off our cellphone, and spend time without it. Yes, I know what I’m saying is high treason, but as long as the cellphone is on – it can listen, transmit, and record. Believe me when I tell you, NOBODY wins a civil war.

The Markets:

There’s another Civil War brewing this summer, and this one is between Bitcoin and Ethereum. Just as Wall Street started to pay more attention to Bitcoin, a rival is increasingly threatening to become the top dog among cryptocurrencies. Ethereum’s market capitalization is nearing Bitcoin’s, as shown in the chart above (courtesy of CoinMarketCap). As of Wednesday, Bitcoin (shown in orange) accounted for 39% of the combined market capitalization for all cryptocurrencies – down sharply from 87% on Feb. 25. You can blame the erosion on Ethereum (shown in purple), which now makes up 31% of the total market cap – up from just 5% less than four months ago. If Ethereum’s market cap overtakes that of Bitcoin, then “The Flippening” will have occurred. That is the term that many people are using to refer to the shift in power and influence. Bitcoin’s market cap as of Wednesday was around $45B, and its price was $2,655. Ethereum’s market cap recently stood at $36B, and its price was $366.

Factually last week:

- The latest Bank of America Fund Manager’s Survey said: “Equity overvaluation has hit a record high, surpassing the all-time high set during the 1999 bubble.”

- Barrons Roundtable retiree Felix Zulauf said: "Today seems like late 1999. We haven't seen the peak yet. I expect the FAANG stocks and the Nasdaq to have a big selloff – easily falling 30% or 40%."

- Jim Rogers has been calling for a crash of epic proportions for 5 years now, and says: “The next crisis will be the biggest in my lifetime. Institutions that have been around for a long time – museums, hospitals, universities, and financial firms – will be wiped out."

- David Stockman said: “This market environment is the calm before a gigantic storm that I don't think is too far down the road."

- Marc Faber says: “The Fed’s policies have actually created a two-class system around the world. This gigantic financial asset bubble (according to the Baltic Dry Index) is about to collapse."

What if you told your best friend: “Hey, the DOW hit an all-time high today” – and all they did was yawn? First off, it amuses me that markets continue to set all-time-highs within the confines of rather ugly fundamental news. But secondly, nobody cares. Unfortunately, in the Central Bankster arena – we need to constantly feed the beast otherwise all ‘heck’ will break loose. Why? Because zero interest rates forced people along with institutions, pension plans, and insurance reserves – that would normally not buy stocks – into the stock market in search of yield. Their choice was to buy stocks or lose money due to inflation. With all of these elements being forced into the market, it’s clear that a whole lot is riding on the idea of the market moving higher.

The market’s effects are global in scope. If this market were to fall 45%, entire industries would cease to exist. Multi-billion-dollar pension funds would collapse. Banks would fail because most stock holdings have been used as collateral for other billion dollar loans. Our FED knew that they couldn’t rescue our economy. But (with coordination from the Swiss, ECB, and BOJ) felt that they could keep the wheels turning using an ever-rising market as a backdrop. Even with all of the trillions injected into our economy to date, we are finding that the absolute best we can grow is somewhere between 0 and 1.5% per year. So, just imagine all of the economic nightmares that would emerge if the Central Banksters stop their support of the markets. Yet, if they continue their market support we’re going to see a 50K DOW, and the people that can’t afford to be in the market are going to be on soup lines.

Normally the period from here into Labor Day is characterized by a sideways drift. I’ll continue to lean long, nibble on stocks with nice setups, and sell for quick gains. I’ll continue to keep my position sizes small until I see a reason to change.

Tips:

Quantitative trading now accounts for over 90% of all trading. Quantitative trading does NOT focus on a company’s fundamentals, but rather on technical patterns. This is producing some very strange movement within some of the S&P companies such as Caterpillar (CAT) and Boeing (BA). Both CAT and BA have recently exploded to the upside – while Apple (AAPL) has completely imploded and is currently in ‘correction’ territory.

The above chart shows a marketplace in chaos. Standard correlations have broken down. For example: bonds are rallying which means interest rates are falling – while at the same time our FED (just this week) continues to raise rates. The NASDAQ is dramatically selling off while the S&P finishes the week where it started. Normally during periods of NASDAQ and S&P convergence we would see extreme bouts of volatility – but the VIX (the volatility measure) is barely moving.

Yes, this past week Amazon purchased Whole Foods for about $14B. And yes, after the acquisition was announced Amazon rallied slightly more than $14B – making the entire transaction (at least on paper) cost Amazon virtually $0.

This coming week I’m watching:

- Apple (AAPL): as one of my keys to the entire market place. Apple has quickly faded from 155 to 142 and is in correction territory, but it’s volatility is not very high. If AAPL bounces this coming week, it will trigger a NASDAQ rally, but my advice would be to short that rally.

- Caterpillar (CAT) and Boeing (BA) have come a long way in a very short time, and I wouldn’t be surprised to see them roll-over and give back a large percentage of their gains from the past several weeks.

- I’m looking for the S&P Index (SPY) to move sideways to down over the next week or so. The SPX ended the week at 2433, and has a weekly expected move of 21 points – giving it a range of between 2412 to 2454.

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!

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Sunday, June 11, 2017

This Week in Barrons - 6-11-2017

This Week in Barrons – 6-11-2017:

“Ball of Confusion” … The Temptations…1970

https://www.youtube.com/watch?v=bWJRxbdb9wk

“Agitation, desperation, ostentation, immigration, confrontation, exploitation, regulation to our nation. Ball of Confusion – that’s what our world is today. Hey – Hey. And the VIX goes on.” Pardon my interpretation, but in times like these I turn to ‘The Temptations’ to try to make sense of this market. A market that rallied when the x-FBI Director called the President a liar, and lost 100+ NASDAQ points on a single Goldman Sachs memo hi-liting the FAANG stocks accounting for 55% of the year-to-date gains in the S&P – baffles me.

Attempting to predict economic behavior is simply a “Ball of Confusion.” Why? Because most of the information that you think is true – is not. For example, Morningside Hill did a follow-up on the ‘birth/death/ model used by the Bureau of Labor and Statistics (BLS) when reporting ‘Non-Farm Payrolls’. According to the BLS, a certain percentage of laid-off people will start their own businesses and hire other people. Every month the BLS guesses at the number of new, undocumented business hires and includes that number directly into the ‘Non-Farm Payrolls’ report. Morningside Hill conducted a proper investigation and found that: 93% of ALL NEW JOBS created since 2008 were fictitiously added via the BLS’s ‘birth/death’ model – and less than 20% of those ‘birth/death’ jobs were ever supported by real data. In fact, real numbers point to a sharp decline in entrepreneurship since 2008. Thank you, Morningside Hill. I feel vindicated now that it seems over 80% of all Non-Farm Payroll jobs created since 2008 are (in fact) bogus.

Another ‘Ball of Confusion’ seems to be our unemployment metrics. The BLS does not count a person who desires work as unemployed – if they are not working and have stopped looking for work over the past four weeks. The BLS also does not count someone as unemployed if they perform one hour of work in a week and receive at least $20 in compensation. The Gallup organization would like to change this metric by creating a Gallup Good Jobs index (GGJ). They define a ‘good job’ as one that provides 30+ hours of work per week for a regular paycheck. Under this umbrella, the percentage of the working U.S. population with ‘good jobs’ is 45.7%. Gallup believes that the GGJ and the U-6 unemployment metric (8.4%) are the correct indicators for our economy.

This week Apple introduced the Apple HomePad speaker – loosely termed the iWife (shown below). It's a Siri-powered smart speaker that allows you to play music, check the traffic, control your smart lights, query sports scores etc. – a direct competitor to the Amazon Echo and Google Home.

In the spirit of resolution and graduation, SF reminded me of a commencement address that Admiral William McRaven (commander of the elite Navy Seals squad) gave at the University of Texas. His message: “What starts here – changes the world. If you want to change the world:

1. Start by making your bed. Making your bed every day – allows you to accomplish the first task of that day.

2. Find someone to help you paddle. Changing the world takes friends, colleagues, the good will of strangers, and a strong coxswain to guide.

3. Measure a person by the size of their heart. Nothing matters but your will to succeed – not color, religion, background, education, or status.

4. Get over being a sugar cookie and keep moving forward. Sometimes no matter how well you prepare or perform – you still end up as a sugar cookie. That’s life.

5. Don’t be afraid of the circuses. The circus was a form of SEAL punishment. Life is full of circuses. You will fail, and likely fail often. It will be painful, discouraging, and test you to your very core.

6. Sometimes you have to attack the obstacle head first. A student broke the obstacle course record by taking it on – head-first. It was dangerous, foolish and risky — and it saved him half the time.

7. Don’t back down from the sharks. If you ever hope to complete your swim, you will have to deal the sharks.

8. Be your very best in the darkest moment. In the darkest moments of a mission, is when you must be calm, composed, and all of your tactical skills, physical power, and inner strength brought to bear.

9. Start singing when you’re up to your neck in mud. During Hell Week, students are neck deep in bone-chilling cold mud. When one student starts to sing – others join in – and it gets them all through the ordeal.

10. Don’t ever, ever ring the bell. There is a brass bell in the center of training camp. By ringing the bell, you leave the SEALs, and also the runs, the obstacle courses, and all of the training hardships. In other words, you ‘can’ quit – just DON’T."

The Markets:

Last week we had the NASDAQ and the New York Stock Exchange (NYSE) trigger the Hindenburg Omen. This is the first time since 2014 that the signal triggered on both exchanges on the same day. The average return (one month after this signal) is normally negative by 5%. The Hindenburg Omen does not guarantee a market correction, but rather measures when a market is showing signs of fracturing prior to a potential correction.

On Monday, Michael Hartnett of Bank of America wrote: “Central Bank balance sheets have grown to a record $15.1T – up from $14.6T in late April. Central Banks have purchased a record $1.5T in assets year-to-date." That means our Central Banksters will purchase over $3.5T in financial assets in 2017. The NYSE is worth about $15T, so by the end of the year our Central Banksters could own 23% of the entire NYSE. Do you think that injecting $3.5T into an already overly valued market will continue to push prices higher? You bet. I only have 2 fears:

1. Will they decide to pull the plug (on Donald Trump) and crash everything,

2. Or will the velocity of money increase too quickly, and we hyper-inflate.

But Central Banks will continue to push this market higher because:

1. Every Pension Plan that's still solvent – requires a rising market.

2. Every Insurance Company that’s paying claims – requires a rising market.

3. Every Bank that has a mere 20 derivatives hypothecated against its holdings – requires a rising market.

Next Wednesday our FED is going to tell us that they will be raising rates ¼ percent. They will tell us that our economy is in great shape, and everyone is fully employed. However, the real data shows that 102m people have left the labor force. The BLS's birth/death model has accounted for more than 80% of all the jobs created, and those jobs don't really exist. But our FED will raise rates because if they don't – everyone will think that things are worse than they already are. Then, the FED will start talking down expectations for any further hikes.

To recap the geo-political events of this past week:

1. We heard from the ECB that interest rates would remain low, and that they would continue to buy 60B worth of financial assets a month, at least into December.

2. We heard from x-FBI Director Comey no big bombshell that would give impetus to any impeachment proceedings against President Trump.

3. We saw a UK ‘snap’ vote go against PM May, but our market seemed ok about it either way.

4. Then Friday came, and it was a bit bizarre. The FAANG stocks were taken to the woodshed. At times Amazon was down 80 points, Google was down 50, Priceline down 40, Netflix down 10, Apple down 8 – it was a full blown ‘flash crash.’ The final tallies showed: Amazon down 32, Google down 33, Apple down 6, and Netflix down 7.

So, the question becomes – is this a rare buying opportunity to pick up the highest fliers on sale, or a warning shot to show how shallow this market really is? Well, there's no question that the market is shallow, and I don’t believe that’s news to anyone. What’s to stop the next wave of Central Bank buying – going right into Amazon, Google, Apple, Netflix, etc.? In my mind the only question is: WHEN will that buying occur? After all, the Central Banksters can either allow the global economy to melt down or they can continue to print money, buy stocks and figure some way to get out of this trap. They are well aware that if they stop printing money – the bubble will pop faster than a pimple on the face of a 13-year old. They know that our market has gone beyond ‘bubble-status’ to become an endless funnel of cash residing below every market dip. I'd suggest taking a couple days just to keep an eye on things, and see if they continue to buy up the FAANGs. If they start sagging again, you might want to consider taking some small short-side positions. But if they drive the FAANGs right back up, chances are that they're going to take out their old highs.

Tips:

Last Friday, at 11:49 am there was a mini-flash crash in many of the FAANG stocks – but what stopped them from completely imploding and dragging the rest of the market down with them? The NASDAQ hitting its downward expected move before noon – prevented the tech driven index from completely imploding. Last week I showed you how the major hedge funds were using the NASDAQ futures to help cover their S&P positions – well this week they used the S&P futures to help rescue their NASDAQ positions.

This coming week’s S&P expected move is $27 – giving the SPX (2,432) a range of between 2,405 and 2,459. The financials and energy sectors were the main beneficiaries of the tech-crush. Now that the XLF (the financial ETF) is above 24, this becomes reminiscent of the 1999 – 2000 debacle. In March of 2000, it took weeks / months for all of this to unfold, but it started with: (a) people selling tech stocks – driving them lower, (b) people buying everything ‘except’ tech stocks – pushing them further downward, and then (c) people selling everything.

Recommendations:

- Markets do NOT rotate sectors for long, but if this rotation continues – buy the VIX because volatility will be on the rise.

- The NASDAQ (currently at 5,748) could drop all the way to 5,408 (8-day EMA) without disturbing its technical uptrend. The next area of NASDAQ support is 5,673.

- On Monday:

o If we gap down, I think we will retest the 5,673 low and then grind higher into 5,825.

o If we gap up, I would short the gap and assume that it will retest the lows described above.

- For a rebound, I would look for the tech stocks that went down on light volume such as:

o AVGO – that came down to its 8-day moving average,

o NVDA – that came down to its 8-day moving average, and

o NTES – that again came down to its 8-day moving average.

To quote John Carter: “A big part of trading is understanding what is possible. Focus on the high probability move, get in, get out and wait for the next setup.”

Next week we have monthly options expiration, which normally produces an upward bias in the markets. I can easily see:

- Amazon (AMZN) and Google (GOOGL) pinning at $1000,

- Apple (AAPL) moving back up to its 50-day SMA,

- The NASDAQ moving back to its 21-day EMA,

- FedEx (FDX) moving higher into earnings, and

- The Russell 2000 (IWM) continuing to move higher.

Be careful because any upward retracement which fails to surpass the highs – might be a short-term selling opportunity to see how far the next leg down will go. The real opportunity still remains to buy once we get a larger pullback. However, when the real pullback comes it should last for more than a few days – so we should have time to set up for it.