This Week in Barrons – 1-3-2016:
Thoughts:
“Yippee Ki Yay – Mother-F!#$#@” –
Bruce Willis in the movie Die Hard
Happy New Year:
I can almost guarantee
that if you liked 2015 – you’re going to love 2016. Here are some sobering thoughts by a very
smart man – Dr. Paul Craig Roberts. Dr.
Roberts was Assistant Secretary of the Treasury for Economic Policy under
President Ronald Reagan, and associate editor of the Wall Street Journal. He believes that as long as the European
governments (especially Germany and the UK) continue to act as nothing more
than an extension of Washington, the prospect of World War III / Armageddon
will continue to rise. But let’s take a step back.
In 1991, the collapse of
the Soviet Union gave birth to Neo-conservatism. Neo-conservatism generally states that the
U.S. is the ONLY superpower that can act without restraint anywhere in the
world. In 1992, Undersecretary Paul Wolfowitz wrote the Wolfowitz
Doctrine. It states that our first objective
is to prevent the re-emergence of any new rival that poses a threat to the U.S.
In 1998 (three years prior to 9/11), the Neo-conservatives sent a letter
to President Clinton calling for the removal of Saddam Hussein from power, and
for removing seven other governments from power in the next five years. http://www.globalresearch.ca/we-re-going-to-take-out-7-countries-in-5-years-iraq-syria-lebanon-libya-somalia-sudan-iran/5166.
Neo-conservatives view the events of
September 11, 2001, as 'the New Pearl Harbor’ – which was necessary in
order to begin the conquest of the Middle East. Since 9/11, Washington
has destroyed (in whole or part) eight countries – and now confronts
Russia both in Syria and Ukraine.
Russia's president
Vladimir Putin has been demonized by Neo-conservatives. Even Hillary Clinton has declared him to
be ‘the New Hitler.' Putin's responsible behavior, however, has been
misinterpreted by Neo-conservatives as a sign of weakness and fear. Putin
has made it clear that Russia will not give in. By example, on September
28, 2015 (at the 70th anniversary of the United Nations) Putin said that Russia
would no longer tolerate the state of affairs in the world. Two days later Putin took command of the war
against ISIS in Syria.
Dr. Roberts believes that
nuclear war is coming, and can only be avoided in two instances:
-
One is for Russia
and China to surrender and accept Washington's leadership.
-
The other way is
for an independent leader in Germany, the UK, or France to rise to office and
withdraw their country from NATO.
That would begin a
stampede to leave NATO. NATO is
Washington's primary tool for creating a conflict with Russia, and is (therefore)
the most dangerous force on earth. If NATO continues to exist, NATO
together with the Neo-conservative ideology of American leadership will make
nuclear war inevitable.
Well, Yippee Ki Yay, and
on with my New Year’s predictions.
The Market:
2015 was a tough
year. 267 Hedge funds went under. Some of the biggest investors on the planet lost
money. The damage was everywhere:
-
People that
purchased the initial dip in oil thinking that it was going to rebound – got
creamed.
-
People that bought
the small caps in May and June looking for new highs – got slammed.
-
People thinking
that the financials would power to new highs – were dead wrong.
-
Except for Facebook,
Amazon, Google, and Netflix – the number of winners was few and far between.
In 2016, I see a whole lot
more trouble. If the best the market
could do in 2015 was to lose 1% (despite the umpteen trillions of dollars being
pumped into it globally by the Central banks); it tells me that the ‘going’ is
about to get even tougher.
2016 Predictions:
-
Interest Rates: My prediction comes down to whether or not the FED will
continue to drive the market and the headlines, or whether they will change
policy. The FED will always continue to be the ‘buyer of last
resort’ – supporting bonds and inflating stock prices. In 2016, I don’t
see any significant change in interest rates or FED policy.
-
Commodities:
Whether it was oil, corn,
gold or soybeans, 2015 put tremendous pressure on commodities. The
primary driver for this pressure has been the strong dollar. I believe
that we could see the dollar spike higher at the beginning of the year.
We could see the DXY (the dollar index) break above 100 again; however,
unless the FED takes a significant ‘hawkish’ position, I think we
could see the dollar begin to collapse. And if the DXY cannot hold
support at 94, we could see the dollar fall into the 80's before support is
found. If the dollar drops into the 80’s, commodities will see a
significant rally in 2016.
-
Inflation:
If there is a drop in the
dollar, commodities will rally, and inflation will kick in. We have been
in a disinflationary environment for a while. But why? After all,
the FED’s easy money policy is trying to spur inflation by pushing bond prices
higher, lowering rates, and increasing the money supply. But the reality
is that outside forces are the primary cause for the disinflation that we are
experiencing.
o Today the majority of our goods are imported.
o We have a trade deficit as we continue to consume far
more than we export.
o Old economic theories are no longer working.
The proof is that after printing trillions of dollars, buying trillions
of bonds, and keeping rates at zero – we are not seeing any inflation, actually
the opposite.
o Currently all of our trading partners are devaluing
their currencies by cutting rates and increasing their own versions of a
QE type of stimulus. But in 2015, we started to strengthen our own
currency with a 25bps rate hike. I’m counting on
this ‘perception’ and the reality of a cheaper dollar to drive
inflation higher in 2016.
- - Stocks: The ‘Unicorn’ (over-valued)
companies take me back to the dot.com era.
I think we will see more consolidation, and fewer IPOs in 2016.
With Apple closing DOWN on the year, I think that the tech
sector will continue to be mixed, and strength will come from disruptors as
well as from Asia. Environmental disruptors will also gain traction.
The world has embraced the global warming story, and that is driving
nations to change environmental policies and consumers are becoming more
conscious with their purchasing. We will see more battery, green, and
other environmentally conscious companies rise up. These environmental
companies could be take-over targets by oil companies (and companies like GE)
that are trying to expand into this growing space. The general market
will have a difficult year in 2016. I believe that broad based index
ETFs or index tracking mutual funds will most likely under perform a more
sector driven economy and market.
- - The FED: The dollar rally is driving deflation, and
THAT is the greatest fear of the FED. Hopefully the rate hike has quieted
the media, and they can now turn back to their easy money policies and curb the
dollar rally.
- - CONCLUSION: I think that the big story will be the
U.S. dollar. It will not get much
attention, but will drive the markets. If the dollar index holds in the
95 – 100 range through 2016 it will be a non-story. However, I don’t
think it will stay there and if we crack below 94 we could see a spike in
inflation, which will drive commodities higher. The FED’s wish of
inflation could come fast and true which would be un-welcomed. The
velocity of money continues to decline as money continues to pile up higher
behind the dam. When inflation comes, it will be based upon what happens
with the dollar index and the velocity of money – those two will be the prime
indicators. The question is NOT whether
it comes, but how fast it comes when it does.
Tips:
Last week the Chicago
Purchasing Manager’s Index (PMI) came in well below 50 at 42.9. Inside the report, new orders and backlogs both
crashed. It was the worst Chicago PMI report
since 2009. The latest Dallas FED Report
confirmed those low industrial numbers by reporting a -20 reading.
To quote Michael Burry
(the hedge-fund manager known for recognizing the subprime crisis and who is
portrayed in the new movie “The Big Short): “It seems the world is headed
toward negative, real interest rates on a global scale. This is toxic. Interest rates are used to price risk, and so
in the current environment, the risk-pricing mechanism is broken. That is not
healthy for an economy.”
INDU 17,425: For
next week I’m looking to potentially visit the 17,200 area.
NDX 4,593: The
tech heavy index has held up well, despite some volatility. The beginning
of the year could bring a test of 4,500.
SPX 2,044: I
don’t see a strong rally in the near term, and we could visit 2,000 in the very
short term.
RUT 1,136: The
Russell finished the year weak. 1,120 is the support that we need to
watch if the New Year decline continues.
I am:
-
Long various mining stocks: AG, AUY, EGO, GFI, IAG, and FFMGF,
-
Long an oil supplier: REN @ $0.56,
-
Sold RH – Jan – Put Credit Spread – 70 / 65, and
-
Sold SPX – Mar – Call Credit Spread – 2150 / 2155.
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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