RF's Financial News

RF's Financial News

Sunday, December 25, 2016

This Week in Barrons - 12-25-2016

This Week in Barrons – 12-25-2016:


“Markets react to people, and sometimes people are a little strange.”  Alan Greenspan

Thoughts:
Regardless of how you celebrate the holiday, I think we would all agree that the ‘spirit’ of the season is one of sharing.  In the spirit of the holiday, allow me to share my ‘Tip Jar’ with you.

Leadership Tips:
  1. Say ‘No’ sparingly but strategically.
  2. Managing with Care and Gratitude improves creativity.
  3. Failing early and often is a recipe for success.
  4. Always Position yourself next to the smartest person in the room.
  5. Learn to use Sleep to help solve your most difficult problems.
  6. Work Only on your top 5 problems, and toss the rest away.
  7. Ask more questions before giving answers.
  8. Always Prioritize: Budget, Decision-maker, and Timeframe.
  9. Know which 2 out of 3 to emphasize: Cheaper, Better and/or Faster.

Stock Tips for 2017:
  1. Twitter’s difficulty in being acquired stems from its foundation: money-losing, niche, non-growth, tarnished brand – with a part-time CEO?
  2. Ai will become the new shiny object / buzz-word.
  3. Uber will not IPO because they will not have to.
  4. Stock Markets and Interest Rates will NOT go much higher.  Valuations are stretched, corporations continue to invest in buybacks over growth, and our FED is all talk no action.
  5. Corporate Buybacks will have another record year.
  6. Unemployment will NOT top 5%.  The labor market continues to decline along with the number of truly qualified applicants for the skilled positions.
  7. Oil will drop under $40 a barrel again as OPEC’s planned production cuts will not stop: “Drill, baby, drill”.  Fracking introduced a new age of energy efficiency and oversupply.
  8. Tax Changes will NOT happen.  Even Republicans (although controlling both houses) will not be able to come together on anything meaningful.
  9. Federal Deficits will soar.  Any stimulus spending is simply a gift to conservative voters, and won’t be paid for with growth or budget cuts.
  10. Millennials will come of age.  Household formation is at a 50-year low, and the average 30-something makes less than their parents – but that is what happens when you take out over $20,000 in debt and graduate into the worst recession in 100 years.  The metrics have nowhere to go but up.

Health Tips:
-       Sitting is the new smoking.  Sitting for five hours is the same as smoking a pack of cigarettes.
-       It’s not how long you sleep, but rather that you get up and go to bed on a Regular Schedule.
-       Every Year you delay your retirement - you reduce your incidence of Alzheimer's by 3%.
-       Dieting is all about manipulating the bacteria in your GI tract.  Dieting is as much about what you are DOING – as it is about what you’re EATING.

Happy Holidays to everyone.  Hug your children, kiss your spouse, pick up the phone and call someone you love.  It's the most important thing you can do.


The Market:

“2016 was the year everybody got it wrong.”

2016 taught us that the mood on both sides of the Atlantic was based upon a sense that governments were NOT looking after their own.  The ensuing governmental anger was exploited by outlier politicians like Donald Trump, Nigel Farage in the UK, and Beppe Grillo in Italy.  All three of these ‘populists’ (a) used unusually blunt language, (b) explained complex issues in simple terms, and (c) often sided with the underdog.  Their ideologies were NOT often effectively challenged with facts or tempered with reason.  In fact, their positions were often anti-factual, anti-intellectual, and anti-science.

And the end of 2016, TV’s talking heads are taking us ‘Back to the Future’. 











They’re talking about investing’s ‘new paradigm’ – where earnings don’t matter.  Hedge funds are openly comparing their investing styles to that of 1999 – only it will end ‘differently this time.’











And as for it ending ‘differently this time’ – let’s do some math:
  1. The P/E Ratio (price-to-earnings) of the Russell 2000 is approximately 237.  At the height of the Internet boom the NASDAQ’s highest P/E levels were only 175.  And days after it achieved that level, the market began its 75% plunge.
  2. The CAPE Index (created by economist Robert Shiller) is now over 27.  That level has only been achieved 3 times: (a) during the 1929 crash, (b) prior to 2000 tech mania, and (c) during the 2007 housing bubble.
  3. Investor sentiment is cheering for DOW 20,000, but remember: (a) 2012 when cheers were urging gold to go to $5,000/once – right before it plunged to $1,100/ounce, and (b) 2014 when cheers were moving oil toward $150/barrel – right before it plunged below $50/barrel.
  4. Retail sentiment indicators such as: RSI, the AAII (American Association of Individual Investors) survey, and the Investors Intelligence survey continue to reflect the belief that stocks are not going down.  These beliefs always happen when the market is near extremes – just like in 1999.
  5. And Insider Selling is heating up in the banking, industrial goods, and energy sectors.  According to Ben Silverman (Director of Research at InsiderScore), "It's interesting that the sectors that seem poised to benefit the most from the incoming administration's policies are leading the insider selling charge."  According to Vickers Weekly Insider, there were almost 5 insider sale transactions for every 1 purchase last week, and that is bearish in anybody’s book.  The firms leading in Insider Sales were:  United Rentals, Automatic Data Processing, Athena Health, ON Semiconductor and Targa Resources.

So be safe and continue to play the hand that you’ve been dealt – because it’s still an adventure out there.


Tips:






The fact that ALL of the above trend lines are moving in lock-step scares the heck out of me, and brings me to my ‘Tip of the Week’ – the mining sector.  The mining sector has been pummeled in the last month, with the Market Vectors Gold Miners ETF (GDX) dropping 15.4% since early November.  Eventually a bottom will be established, and these stocks will bounce.  On Friday, someone made a hefty bet that this bounce will happen soon by purchasing 35,000 GDX January monthly, out-of-the-money calls for $0.63 each.  That is a $2.2m investment in pure option premium, and requires that GDX rally almost 7% within the next month for this trade to break-even.  If GDX can recover (half of what it lost in November), this position will make $3.5 million for every $1 GDX rises above $20.63.

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 18, 2016

This Week in Barrons - 12-18-2016

This Week in Barrons – 12-18-2016:

“Virginia - Is there really a Santa Claus rally?”… Francis Pharcellus

Thoughts:
I have never seen a time when:
-       Our FED has kept short-term interest rates at 0% for 8 years,
-       German and Japanese bonds have traded at negative yields,
-       Our 10-year Treasury yields have DOUBLED in less than 6 months,
-       The Chinese readily admit to stealing a U.S. Navy underwater drone,
-       Our President blames another nation for election tampering, and vows to get even,
-       Our President-elect is getting this much pushback,
-       The battle between white-hats & black-hats within the CIA, FBI, and NSA is so open,
-       And our electors are getting 4,000 e-mails a day asking them to toss the election to Hillary?

Last Friday, the White House gave a live press briefing covering their beliefs on Russia’s tampering with our Presidential election, and how they are going to retaliate.  This is alarming because it is NOT some alternative news site writing a blog post, but rather our CIA and White House vowing retaliation.  This wasn't even something designed to make Donald Trump look bad.  On the contrary, there is something going on here.  After all, our markets were supposed to crash:
-       When BrExit hit – but within days we were at all-time highs,
-       When Trump won the Presidency – instead we made new highs, and
-       When Italy voted NO – but we proceeded to hit another all-time high.

The level of uncertainty surrounding what and who to believe is higher than when Lehman Brothers collapsed, and as high as it was immediately following 9/11.



I understand that the rally in equities has been inspired by pro-business proposals from President-elect Trump – including tax cuts and looser regulations.  These proposals are expected to stimulate economic growth, increase interest rates (and inflation), and push bond yields past their 2014 highs.  Some experts are even comparing Donald Trump to Ronald Reagan.  And while their incoming policies may bear a strong resemblance – unfortunately the economy and the markets they inherited are vastly different.  The table below is courtesy of Mike Underhill of Capital Innovations:



As we morph from a governmental run society, back to a more business focused one – realize that the role of our Central Banksters will decline, and capitalism / freedom will be rejuvenated.  However, along with this rejuvenation comes a much wider range of potential outcomes, and a much larger band of uncertainty.  This range wouldn't be so bothersome if we weren't already in the seventh year of an economic recovery, the stock market wasn’t at all-time highs, and interest rates weren’t coming off seven and a half year lows.

Santa – let’s put that rally on hold for the time being, shall we?


The Market:
Historically speaking the week before Christmas generally sees relaxed, downward action in the markets.  After that, we often get a Santa Claus rally from the day after Christmas into the first week of January.  Our last December rate increase (2015) caused a market sell-off that lasted well into February 2016.  I think that January and February 2017 selling makes sense as well, but with a twist.  I think (with these last remaining weeks) we nurse the market toward DOW 20k into the New Year.  And then I suspect that once the DOW gets its 20k hat, we will see a rotation out of the DOW and S&P and into the NASDAQ. 













DoubleLine Capital's Jeff Gundlach is calling for the market fall to begin around Inauguration Day (Jan. 20)).  He also cautions that a 10-year Treasury yield in the 2.75% to 3% area – would create problems in the financial and liquidity arenas.

Many pundits are calling for precious metals, and healthcare to be the highest performing sectors in 2017.  The reasons for a rise in precious metals include:
-       Inflation:  U.S. and Chinese policies will cause inflation, and result in fund flows into gold.  If President-elect Donald Trump cuts taxes, adds an estimated $7.2T to the federal debt, promotes additional spending on Social Security, Medicare/Medicaid, and infrastructure – higher inflation will follow.  The Chinese have initiated spending $2T on infrastructure, and in the past 3 months’ zinc and copper prices have risen by 25%.
-       Demand:  In 2017, Chinese and Indian jewelry demand will continue to recover.  Jewelry demand was weak in 2016 due to several non-repeatable factors: (a) curbs placed on Chinese gold imports, (b) tax hikes on Indian gold imports, and (c) a currency conversion crisis in India.  Hong Kong retailers are already reporting a 25% rise in gold jewelry sales.
-       Price:  The paper price will have to come closer to the physical price for gold.  Two weeks ago, the price for a physical ounce of gold in India was $3,000 / ounce (vs. the $1,200 paper price).  The physical price of an ounce of gold is currently $50 higher than the paper price on the Shanghai gold exchange.  These will converge over the coming weeks.

On the equities side of things, nobody is wearing the DOW 20k hat just yet, but it’s not from lack of trying.  The markets have tried three times this week to get up and over 20k, but each time reality came into play.  For example, Honeywell and other large industrials warned that their earnings were going to miss estimates, and then guided their earnings estimates lower for the next several quarters.

I think we will see DOW 20k sometime after Christmas, and before the second week of January.  However, when we hit 20k – I will begin to short this market.  Earnings season starts January 11th, and the reality surrounding our economy will begin to sink in.  This hopium rally has been fun, but I think we will see quite the correction.

To all, I wish you the very best Christmas.  Enjoy the season, your families – and the feelings that they bring.


Tips:


  1. Bank of America (BAC):  A month ago BAC was trading at $17.  It has experienced a 35% move higher (to $23) over the past month.  The stock is expected to move at most $1.80 (either higher or lower) over the next 30 days.  BAC’s $6 (3 standard deviations) move over the past 30 days had a less than 1% chance of statistically occurring.  I’m looking for a decline in BAC, and am buying the (Delta 90) January $25 PUT options or the February $26 PUT options.  In either of these cases, the risk vs reward is dramatically in your favor.
  1. 10-Year Treasury Notes (TXN):  The interest rate on the U.S. 10-Year Treasury note (TXN) is currently 2.61%.  Over the past several weeks our bonds (/TN) have been sold hard, and recently the seller has surfaced.  The seller is China.  Japan is now our largest international U.S. Bond holder.  The interesting part of the story is that the Chinese sold our U.S. bonds (right after the election) to support their own currency, pay off their own debts, and plug holes in their own banking system.  They are NOT buying U.S. stocks with those funds.  Bonds are ‘ripe’ for a bounce here, and if we get that bounce in bonds – look for stocks to stop moving higher.
  1. DOW Transports ($DJT):  The DOW transports have rallied from 8,000 to 9,500 in the past 30 days – and what has changed in transportation?  Nothing.  As the transports begin to pull back (and they started last week), they often act as a leading indicator for the general stock market.
Remember the Blog: <http://rfcfinancialnews.blogspot.com/ Until next week – be safe.

R.F. Culbertson


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.