This
Week in Barrons – 8-24-2014
Can’t We ALL Just
Get Along?
These are the words that President Obama must say to himself every night
before he goes to sleep. This week it
was reported:
-
76% of Americans are dis-satisfied at the
direction things are moving. Therefore,
as CNBC continues to tout happy consumer sentiment numbers, the facts are: 76%
of us are NOT happy.
-
36% of American families have absolutely NO
savings for retirement. Not a 401K, a
savings account, or even a handful of bonds that they may have received as a
child.
-
The FED continued to cut QE and reaffirmed
its thinking that interest rates will start to increase around Q2 of 2015. But over the past 2 years, hasn’t corporate
borrowing exceeded every record in the books?
Yes. And when interest rates
rise, won’t all ‘heck’ break loose?
Yes. Because when interest rates
rise, not only will the U.S. Government be harmed (as it will have to pay many
more billions to finance its debt), but much of Corporate America (due to stock
buy-backs and bonuses) will NOT be able to repay their higher debt payments.
- The Chicago Sun-Times reported that Obamacare
was responsible for the cut in groundskeeper hours at the home of the Chicago
Cubs – Wrigley Field. This caused the
grounds crew’s inability to get a tarp on the field in order to prevent the
postponement of a baseball game. The reason
for the cutbacks was the health care coverage requirement under the Affordable
Care Act, said the Sun-Times.
- AND, as more and more nations join the BRIC’s
and decide to use the Chinese Yuan and the Russian Ruble for trade, we see
nations pushing back against the insanity of the sanctions that Europe and the
U.S. are implementing against Russia. This
week the Czech Finance Minister came out and said that the ‘Western alliance is
getting increasingly weaker, and the sanctions on Russia make no sense.’
So we can’t ‘All just get along’ because record numbers of us are broke,
unhappy, scared of impending rate hikes, are only working ‘part time’ due to
Obamacare, and feel deserted as it’s unclear whether the U.S. can even ‘buy
friends’ at this point.
This behavior is on top of:
-
Our Government changing the way inflation is
calculated, in order to prevent increased social security outlays. FYI: If we go back to the pre-1980 inflation
model, we are running at 9.7% inflation.
-
Our Government changing the way GDP is
calculated so we can improve our abysmal growth rate. The first revision of the 2nd quarter GDP
estimate (4%) is coming out on August 28th.
For those of you that thought the first quarter negative 2.9% GDP was an
anomaly, I say that the 2nd quarter 4% GDP is the real anomaly. I believe it will be revised much lower, and we
will see weaker results in the 3rd quarter as well.
-
AND Our Government changing the way FICO
credit scores are compiled – in order to allow for more people with credit
issues to buy things they don’t need with money they’d don’t have.
So if we can’t – ‘All just get along’ – what should we do? We know that the economy is fake. We know that our debts too large to
repay. We know that one day the wheels
will come off. We know that the stock
market is rigged, BUT at this point it’s rigged to go UP. So it stands to reason that owning stocks (while
they're being pushed higher) makes a lot of sense. I find it interesting that people will drive
all the way across town to buy an item that's on sale, but when the metals (silver
and gold) are on sale – nobody buys them except the Chinese and Russians. Both countries have trillions of assets based
in dollars. They know that dollars
become increasingly worthless every time the FED prints more. So smart countries have been buying all the
gold that they can get their hands on. Because,
when the dollar begins to fall, gold will offset that fall.
My approach is simple. I use the
markets for income, and then save money by way of physical, precious metals. The bottom line is this – I can think of no
other vehicle that can produce the same kind of income as the stock market (for
the average individual). You will need
some education, but the education is available.
Remember: Kool-Aid makes you feel better. But it is nothing more than a sugary drink that
also makes you fat, dumb, and complacent.
NO – we can’t ‘just ALL get along.’
The Market...
Monday was one of those incredible snap back days (up 200 points) that
just caught everyone a bit off guard. And Tuesday didn't retreat, but rather pushed
us even higher. No one seemed to care
that it was the second lowest volume day, equaling such notables as Christmas
Eve, and New Years. By the time Wednesday
came around, the indexes had gone from slightly oversold to overbought, but the
markets continued to climb. Was there
good news? Well:
-
Mortgage applications for home purchases fell
another 0.4%.
-
Target (the retailer) missed earnings and
warned for the rest of the year, lowering their guidance.
-
Automobile repossessions (from people not
paying their loans) have surged an incredible 70% year over year, and those in
the 30-60 day late bucket advanced noticeably.
-
And Bank of America agreed to a $17 Billion fine
– to pay off the mortgage-backed fraud they perpetrated during the big melt
down.
On Friday the Russians and the "West" were tossing insults
back and forth. The Russians had ordered
their aid convoy into the Ukraine – which the Ukrainian Government instantly
said was a provocation and escalation of war. Moments later, they actually let the Russians
in, as to not to seem confrontational.
As the day wore on, more and more officials called the Russian build up
of troops near the border a 'dangerous situation’, and again the Ukraine
changed their story and said the convoy was paramount to an attack. This went back and forth for hours and it did
indeed have some market participants wondering if buying more stock made sense
in such a tense time.
Ms. Yellen spoke on Friday and two things were very clear: (a) Quantitative
Easing will end in October, and (b) the FED will continue to keep interest
rates low for a while – their estimate is either into Q1 or Q2 of 2015. I’m thinking around April of next year, the
FED will lose control of the interest rate situation.
I think that we will see a soggy market in September as traders begin to
fear the end of QE. It will somewhat be
a reverse of: "Buy the Rumor, Sell the News". I think that it’s very possible that with the
market flirting with all-time highs (which is currently offering a bit of
overhead resistance) and QE ending will put exert some downside pressure on the
indices.
For the upcoming week, if the Ukrainian/Russian situation cools off a
bit, the market will make one more push back up and over the highs – especially
going into the holiday weekend. If
(however) the situation continues to ramp up, then I think we will move sideways
and slightly down on the week.
Tips:
My current list of potential candidates is much lighter this
week. Some names I am looking at are: COST, SLW, CBRL, BA, UTX, SLB,
COP, UNH, AET, PII, URI, BAX, BEAV, OEX, SPX and SPY. As you know, these
are just candidates of interest, and the trade set-up has to be right to take
the trade. In terms of directional
trades:
-
BUY TLT (the Bond ETF) and BUY UBT the
(leveraged bond ETF),
-
SELL CSIQ – PCS’s (Put Credit Spreads) – as
it’s extended,
-
SELL TRIP – CCS’s (Call Credit Spreads) – 1
SD (standard deviation) out,
-
BUY MA – Longer dated Calls, and SELL PCS’s
(short term),
-
BUY CME – Longer dated Calls, and SELL PCS’s
(short term),
-
SELL BIDU – PCS’s (Put Credit Spreads),
-
SELL VIPS – PCS’s (Put Credit Spreads), and
-
SELL SPY, QQQ, DIA, and IWM – PCS’s (Put
Credit Spreads).
My
current short-term holds are:
-
AAPL (Tech) – in @ $92.86 – (currently $101.43),
-
KO (Beverage) – in @ $41.17 – (currently $41.12),
-
LNG (Energy) – in @ $57.40 – (currently $75.43),
-
NUGT (Gold) – in @ $41.10 – (currently $43.03),
-
TLT (Bonds) – in @ 112.32 – (currently $117.29),
-
SLV (Silver) – in @ $20.17 – (currently $18.69)
-
SIL (Silver) – in at 24.51 - (currently 13.44),
and
-
GLD (ETF for Gold) – in at 158.28, (currently
123.19)
My Small
Caps (LEJU is moving):
-
FET (Oil) – in @ $25.14 – (currently $32.87),
-
GTAT (Tech) – in @ $17.84 – (currently $18.15),
-
IDTI (Tech) – in @ $15.08 – (currently $16.34),
-
IG (Tech) – in @ $6.24 – (currently $6.00),
-
LEJU (Tech) – in @ $13.07 – (currently $18.41),
-
PEIX (Oil) – in @ $19.34 – (currently $21.16),
-
RFMD (Tech) – in @ $11.05 – (currently $11.81),
-
TSRA (Tech) – in @ $28.05 – (currently $29.28),
-
VDSI (Tech) – in @ $14.17 – (currently $14.26),
and
-
VTNR (Oil) – in @ $7.87 – (currently $8.27)
To
follow me on Twitter and get my daily thoughts and trades – my handle is:
taylorpamm.
Please
be safe out there!
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