This Week in Barrons – 9-13-2015:
Thoughts:
Dear Ms. Yellen:
Let’s assume that the economic flow goes something like this:
- Central Banks buy stocks to keep their economies running,
- These same global economies maintain their zero interest rate policies,
- Allowing corporations to issue more debt & buyback more stock,
- This new debt (‘junk’ bonds) can destroy a company’s balance sheet, but
- Will (most likely) show up in the hands of J.P. Morgan and Goldman Sachs – which will bundle (securitize) this debt into Collateralized Loan Obligations (CLO’s),
- Which will be pledged as collateral and re-securitized over and over again.
- I say this because – didn’t we see this movie in 2008?
Ms. Yellen, I remember a time when the stock market was a source of capital – solely based upon a company’s real earnings. This new capital would then be used as a source of growth for productivity rather than ‘C-level’ paychecks. Now, the stock market has become one huge casino, run by algorithm Johnny 5's (reference to the movie: ‘Short Circuit’). If you watch the overseas action at all, you’ll generally see the Chinese market down 2% during their regular session, and then right before the close someone (wink & nod) comes rushing in with a massive ‘buy’ program to save the day. Well of course that someone is the Chinese Government selling U.S. Treasuries to buy their own stocks.
These are all pure desperation plays. The big question is: How does it resolve itself? I refuse to believe that all of this financial gimmickry just works out, and we ride our unicorns into a double-rainbow. We're in an escalating currency war, and the little tit-for-tat we're playing with China is getting interesting. I am not talking about a one-day, one-week, or even a one-month crash. The economies of the world are so massive that there are enough checks and balances to fight off any short-term, black swan event. But instead what I see is a slow motion train wreck. A train wreck that starts with a ding here, a dent there, a cut over here followed by a retaliation over there. Over and over it will play out. I think we're in the first innings of an overtime game, and when the game is over – things will look much different than they do today. Barring some outright war with Russia, or some enormous event, the world is going to slide into a recession that will neither be quick or painless. Nations will chose sides in order to keep their own nation viable. The whole world structure is changing before our eyes, and we're only in the beginning of it.
Now Ms. Yellen you must admit, you have a pretty ‘sweet’ gig. Your main objective is to remain: “The FED”. That’s not double talk. The bulk of Americans think that you’re some form of Government entity. They don’t know that you’re just a consortium of private bankers, who’s JOB ONE is to always remain in control. You really have the sweetest SCAM on earth.
You create money out of thin air, and then LOAN it to the U.S. at a fixed interest rate of return. You don’t have to work for the money, you simply ‘create it’ at whim. The issue is that if you’re ever found to be wrong, that will threaten your position of ultimate power. I know it’s written that you have a ‘dual mandate’ of full employment and stable prices. However, I think your ONLY mandate is to remain in control, and right now you’re looking pretty stupid. By faking the data, you’ve come to a point where if you do NOT raise rates – people will question why? After all – the unemployment rate is at 5.1%, our economy is growing, so why do we still have ‘emergency level’ rates in place?
But you’ve lied about how strong the economy is, and you’ve painted yourself into a corner. If you don't hike by a silly quarter point, it looks like you’re scared. But if you do hike, you will send recessionary ripples throughout the world economies and will disrupt global markets. I’m sure you don’t want that. But as you can see, I think you’re trapped (in a corner) with no good way out.
The Market:
Factually:
- When we crashed two weeks ago, the corresponding bounce took us up to an S&P close of 1,988 on August 28th. Well, this week the renewed euphoria took us up to an S&P high of exactly 1,988.
- The S&P has been higher each of the past 6 years. The S&P has NEVER been higher 7 years in a row. So will 2015 be the year that we’ll break the jinx and end the 7th consecutive year on a ‘high note’?
- David Tepper was on CNBC on Friday saying that the ‘top’ in the market is in, and that he’s ok being ‘flat’ and just sitting tight. This is a major change for him. In fact, he said that if the market were to bounce on a ‘No Rate Hike’ decision by the FED, he would be tempted to short it.
Now, no one truly knows if the FED will raise rates or keep them the same, but allow me lay out a couple scenarios:
- If the FED does NOT raise rates: It won’t take very long before all of the ‘overdue for a rate hike’ folks start screaming about something being seriously wrong with our economy. They will say that we're at full employment, and wage pressures are beginning to build. They will say that things don’t ‘jive’ – because you can't have full employment and yet have an economy so weak that you can’t even begin the process of normalizing rates. So after a quick flurry higher, I'd have to imagine that some real selling pressure would come into play as everyone realizes that FED-speak is built on a ‘House of Cards’.
- If the FED does raise rates: I think the initial reaction will be a quick sell down, and then we will begin to hear the ‘fully invested’ propaganda because the FED is starting to raise rates for the first time in 9 years. That immediate sell-off will then lead to a quick rebound rally. But that rally will fizzle fairly quickly because the people that are exiting mutual funds ($16.2B last week alone) – are NOT going to come back to the market with rates going higher.
In other words, it's my guess that whether they do or whether they don't raise rates – the market will begin to move lower going forward. We could see a big, fat bounce on a no hike ruling, but I don't think it lasts long, and certainly not up to making new market highs. On a purely technical level, the market has some overhead resistance at the 1970 level, and then again at 1988. Closing Friday at 1961, suggests that ‘if nothing goes bump in the night’ over in China, then it's reasonable to think the market may have a bit more upside to it early in the week.
This week has the capacity to make our recent volatility look small. With all of the build up into this decision, there is going to be a lot of pent up energy in both directions. If we get a monster rally on a no hike vote, I will start to initiate long term short side holds. Be careful out there.
TIPS:
I have not addressed the fact that Friday was the 14th Anniversary of 9/11. Everyone I know remembers the horrible day and event, and most remember exactly what they were doing at the time. I remember that I was preparing for my next class at Carnegie-Mellon University. Days later (when classes resumed) I remember opening with a moment of silence – and asking the class whether anyone had lost someone in the event. One student responded that he had lost his mother, and was flying back after this class to attend her services – but did not want to miss my class. I thanked him, and then I lost it. His mother worked for Cantor Fitzgerald in the World Trade Center. Cantor Fitzgerald lost 658 people that day – over 2/3 of the firm. The firm vowed to re-build, and to their credit – they have. I still remember that student, and the event as if it were yesterday. For all of you that lost friends and loved ones in 9/11 – let’s all agree to keep them close to our hearts, and to never forget their memories.
Recommendations:
- Goldman Sachs (GS): SOLD SEPT $192.5 / 195 Call Credit Spread
- Tesla (TSLA): SOLD 237.5 / 240 Put Credit Spread
- REN – Long-term buy on this small oil stock priced @ $0.50
- OAS – Long-term buy on this small oil stock priced @ $11
- Depending upon the FED meeting:
o On a down-draft – SELL the NOV 1720/1725 PCS for around $0.80
o On an up-draft – SELL the NOV 2150/2155 CCS for around $0.75
I’m currently holding (notice the Calendars bought as hedges):
- RUT – SOLD – Iron Condor – Oct 1090 / 1100 to 1250 / 1260,
- SPXPM – SOLD – Iron Condor – Sept @ 1885 / 1890 to 2090 / 2095,
- SPX:
o BOUGHT – Calendar – Sept / Oct @ 1950,
o BOUGHT – Calendar – Sept / Oct @ 1980,
o SOLD – Iron Condor – Sept @ 1925 / 1930 to 2025 / 2030,
o SOLD – Iron Condor – Sept @ 1935 / 1940 to 2035 / 2040,
o SOLD – Iron Condor – Sept @ 1965 / 1970 to 2035 / 2040,
o SOLD – Iron Condor – Sept4 @ 1900 / 1905 to 2040 / 2045,
o SOLD – Iron Condor – Sept4 @ 1925 / 1930 to 2075 / 2080,
o SOLD – Iron Condor – Sept4 @ 1955 / 1960 to 2090 / 2095,
o SOLD – Iron Condor – Oct1 @ 1895 / 1900 to 2055 / 2060,
o SOLD – Iron Condor – Oct1 @ 1905 / 1910 to 2055 / 2060,
o SOLD – Iron Condor – Oct1 @ 1915 / 1920 to 2170 / 2175,
o SOLD – Iron Condor – Oct1 @ 1925 / 1930 to 2170 / 2175,
o SOLD – Iron Condor – Oct2 @ 1850 / 1855 to 2060 / 2065,
o SOLD – Iron Condor – Oct2 @ 1895 / 1900 to 2060 / 2065,
o SOLD – Iron Condor – Oct4 @ 1825 / 1830 to 2070 / 2075,
o SOLD – Iron Condor – Oct4 @ 1880 / 1885 to 2120 / 2125,
o SOLD – Iron Condor – Oct5 @ 1860 / 1865 to 2200 / 2205,
o SOLD – Iron Condor – Nov1 @ 1850 / 1855 to 2085 / 2090.
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>
No comments:
Post a Comment