This Week in Barrons – 12-7-2014:
Thoughts:
Dear Ms. Yellen:
Does it bother you that
China is now the #1 largest economy in the world? I thought I would never see the day when the
U.S. became the SECOND largest economy – but alas, that day has come. China became the world's largest economy this
week, and the U.S. (just like Avis) is #2, and will have to Try Harder to regain the top spot.
The International Monetary Fund (IMF) says that China’s economy is now
worth $17.16 Trillion while the U.S. is worth only $16.85 T. They go on to say that by 2019, the Chinese
economy will grow to $26T, while the U.S. will only grow to $21.5T – making the
Chinese economy 20% larger than the U.S. over the next 5 years. China is expected to grow by approximately 7.5%
this year and next, which is over twice as fast as even the most ambitious
expectations for the U.S. economy. Economists
around the world are describing this event as a ‘symbolic moment’ for the
global economy. I was wondering whether you have any thoughts on how we
could ‘Try Harder’ and move back into
the #1 position?
In regards to China, President
Obama is going to have to: ‘Try Harder’. The goals of President Obama’s most recent
trip to China were to put more pressure on China against Russia, and to secure
better Chinese relations. Instead of
achieving these goals, President Obama found out that China:
-
A. Asked Putin to arrive a day BEFORE Obama,
-
B. Signed a lengthy energy and trade deal
with Russia, and
-
C. Forced President Obama to do photo ops
with Putin.
Secondly, Ms. Yellen, I’m
confused about the jobs numbers that came out this week. Early in the week, the ADP private payroll
report disappointed – as it showed only 208,000 jobs being created (5.5% below
expectations). According to the ADP
report, services were the largest job creator at 176,000 jobs (85% of the total),
but were down from the previous month’s 187,000. The ADP report also showed this November 2014
as being the worst in 4 years. The ADP report
made sense to me given initial holiday sales data from both Black Friday and
Cyber Monday came out weaker than initially expected. Then on Friday the
Bureau of Labor Statistics (BLS) reported a massive job surge in November of
321,000 new jobs – almost 100,000 more than economists expected and the polar
opposite of the trend that the ADP private payrolls report showed. The BLS report stated: (a) 77,000 of the total
jobs (24%) were part-time positions, and that (b) the Labor Force participation
rate FELL by 70,000 workers – making it (again) the lowest on record. That doesn’t make sense to me, because if all
of these jobs were being created – wouldn’t you think a lot of people would be
out looking and finding them? Now, I
realize that I can’t fight the FED, but isn’t there someone somewhere that has
to reconcile these massively different numbers, or is this your way of telling
ADP to: ‘Try Harder.’
Finally Ms. Yellen, how
well do you know Mr. Draghi of the European Central Bank (ECB)? On Thursday I watched and listened intently
to Mr. Draghi’s remarks on television – promising to do QE (sometime). I know that Germany is fighting him on the QE
idea. He didn’t sound all that
convincing, and should learn how to: ‘Try
Harder’. At the time of his
announcement, our markets were down about 100 points. Then the headline came out: “ECB to prepare broad-based QE package for
January meeting.” Our markets
immediately went from being down 100 points, to being positive on the day. How are company fundamentals even a part of
our market at this point? It seems that
the only ways this ponzi-driven market can go up are by: printing money, expanding
debt, low interest buybacks, and currency appreciation. We really need to: Try Harder.
Markets:
Factually:
- Mortgage applications are down 7.5%.
- Japan is in a recession, and continues to print money
4 TIMES faster than the U.S.
- France’s credit was recently downgraded to junk.
- The ECB announced that in the new year (February)
they would launch their own QE program.
- The National Retail Federation said that Black Friday
sales were down by an incredible 11.3%. Net online sales declined as a percentage of
total sales, and the average consumer spent 10% less online ($159.55) than a
year ago. As if to inject humor, experts
said that the decline in sales was caused by the economy being so robust. They said that sales were off because everyone
is feeling so good – that they don't need to shop for bargains on Black Friday. Somebody needs to: Try Harder for a better explanation.
Last weekend I looked at a
lot of ‘market internals’ and decided that it was possible the markets could
experience declines this week. On Monday
the DOW fell 50 points, and you could make the case that we were in for some
form of a pull back. But Tuesday came and not only did the markets gain back
Monday's 50 points – they added on an additional 50. Wednesday and Thursday we ended up grinding
slightly higher. On Friday, we almost ended
the day ‘red’ until someone (with very deep pockets) came in – 5 minutes before
the markets closed with a massive buy order.
This one order took us from being down 80 point to up 60 points in 5
minutes. This type of action reeks of manipulation.
This week the Wall Street
Journal talked about how J. Q. Public doesn’t have any discretionary income because
everything from food to insurance to medical has risen beyond
expectations. They also pointed out that
tax payments (from the uber-rich) to the Government have been enormous this
year. So between the illusion of growth
and prosperity and the increased tax receipts – the U.S. Government is very happy
with the stock market right now.
How long can this go
on? The answer is: ‘Until it
stops’. I don’t know, and I’m not sure
that anyone does. It could end tomorrow,
or it could end 6 months from now. The
one thing I do know is that we are flirting with DOW 18K, and we truly belong at
DOW 9K. One day this ponzi-driven market
is going to come to an end, but until it does – all we can do is nervously pick
positions and hold on for the ride. I continue to ‘lean long’ with our
finger near the sell trigger.
Tips:
The only real news is that
the U.S. Dollar is going to continue to rally. The U.S. Government needs
to keep interest rates low, but still must attract foreign investors. The only way to do that is with a strong
dollar. You see, foreign governments are
awash in QE cash, and need a liquid place to put their cash without fear of it
eroding in value via inflation. It seems
that U.S. denominated assets are the only game in town. This means foreign
cash will continue to flow into U.S. dollars, U.S. stocks and bonds. As a
bonus, this kills the price of oil, puts a little more money into consumer’s
pockets, and keeps Russia's ambitions in check because their oil revenue stream
is drying up.
We closed the week with
another run into all-time highs, and are within striking distance of 18,000 on
the DOW. Next week, we have a busy
economic calendar with JOLTS (Job Openings and Labor Turnover Report), Treasury
auctions, and the retail sales report. I think that the market will
continue to push higher, and I continue to position for more upside with one eye
on the downside risk. I don’t want to get too short here, at least until
after the end of the year.
My current list of
potential candidates is as follows; GILD, WYNN, FLR, BMY, UTX, COST, TEVA,
ILMN, JAZZ, ALXN, SPX, RUT and NDX. I
may also look at an earnings play on NKE later this week.
At the end of October
I began establishing a base in some major trends:
- The Japanese Yen will continue to decline in value –
and I’m playing that by buying FXY – March 2015 - $83 PUTS – (up over 100%),
- The Euro will continue to decline in value – and I’m
playing that by buying FXE – March 2015 - $124 PUTS – (up over 50%),
- The Healthcare Sector will continue to increase in
value – and I’m playing this by buying XLV – January 2015 - $69 CALLS – (up
over 100%), and
- The Consumer Staples Sector will continue to increase
in value – and I’m playing this by buying XLP – January 2015 - $48 CALLS – (up
over 50%).
For next week I’m
looking at the following specifics:
- BMY – SELL = Dec2 – Put Credit Spread – 57.5 / 58 = Credit
of $0.14,
- FDX – SELL = DEC – Butterfly – 180 / 177.5 / 170 = Credit
of $0.34,
- GILD – SELL = Dec2 – Iron Condor – 99/100 to 110/111 =
Credit of $0.16,
- DECK – SELL = Dec2 – Put Credit Spread – 94/95 =
Credit of $0.17,
- ILMN – SELL = Dec2 – Put Credit Spread – 180/182.5 =
Credit of $0.22,
- JAZZ – SELL = Dec2 – Put Credit Spread – 162.5/165 = Credit
of $0.20,
- ALXN – SELL = Dec2 – Put Credit Spread – 187.5/190 = Credit
of $0.42,
- UTX – SELL = Dec2 – Iron Condor – 106/107 to 116/117
= Credit of $0.14,
- COST – SELL = Dec2 – Put Credit Spread – 138/139 =
Credit of $0.10,
- SPX – SELL = Dec2 – Put Credit Spread – 2030/2035 =
Credit of $0.20,
- RUT – SELL = Dec2 – Put Credit Spread – 1150/1155 =
Credit of $0.42,
- NDX – SELL = Dec2 – Put Credit Spread – 4220/4225 =
Credit of $0.67, and
- NDX – SELL = Dec2 – Put Credit Spread – 4140/4050 =
Credit of $0.32
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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