This Week in Barrons – 1-31-2016:
Thoughts:
“I’m sorry my friend – you
are toast!” … Lex Luther in BizarroWorld
Dear. Ms. Yellen:
Many years ago, a uber-comic
book collector friend of mine told me of BizarroWorld. It’s a comic book place where all ‘Good was
Bad’ and all ‘Bad was Good.’ Lately, I’m
seeing more real life introductions of the ‘BizarroWorld’
behavior. For example:
-
I recently read
where the rules for transgenders playing sports in the Olympics are
changing. It seems that ‘pre-operation’
men will be able to compete against females as long as they have acted like a
woman and have taken hormone shots for a year.
Really?
-
Also, the mass
influx of immigrants into Europe is causing a spike in crime, very little
incarceration, and some major changes in thinking. A
German report revealed that a record-breaking 38,000 ‘asylum seekers’ were
accused of committing crimes in 2014.
German authorities argue that their citizen's sudden interest in acquiring
weapons has nothing to do with these statistics; however, there is an indisputable
spike in migrant-associated rape, physical assault, stabbing, home invasion and
burglary.
And since the focus in this
country is about jobs, SF wrote to me pointing out that (over the next 10
years) it is estimated that robots will replace 50% of the American and British
workforce. These machines are different,
as they have the ability to replace both human hands and brains. Consider the replacement of:
-
Cashiers – by a
transaction oriented wearable device,
-
Marketers – by
robots that can mass-personalize every message,
-
Customer Service
Agents – by robots who can answer questions with the help of technology such as
IBM’s Watson,
-
Financial
Middlemen – by robots who can execute ‘Blockchain’. Blockchain is Bitcoin’s computer program
capable of automatically processing transactions and creating perfect, reliable
digital records. This would replace most
banking, insurance, escrow, and mortgage personnel.
-
Journalists –
the Associated Press already uses robots to produce hundreds of articles per
week, and
-
Lawyers (other
than litigators) – where robots would perform all repeatable tasks.
These machines would be
able to take over mid-skilled level jobs, leaving only the very low skilled or the
very high skilled jobs for humans. Now, I understand that we in the U.S. have
morphed away from being a manufacturing society into a service based model due
to technology and inexpensive, off-shore labor.
But the manufacturing countries of Germany and China are going to be
greatly impacted.
And
think of the upcoming college graduate – currently shouldered with (on average)
$30,000 of tuition debt. One graph below
shows the ‘underemployment rate’ for college graduates steadily increasing since
2002. The other shows wages for recent college graduates varying dramatically by discipline. The median early career wage for a computer
engineer is $60,000 – with a corresponding ‘underemployment rate’ of 19%. While the median early career wage for a
sociology major is $33,000 – with an ‘underemployment rate’ of 57%.
You
can see BizarroWorld coming. A
world over-run with robo cops, robot baristas, sociology majors who are forced
to work asking ‘Do you want fries with that’, and not enough computer engineers
to totally rethink all of the potential robotic, societal outcomes. I realize that BizarroWorld is
strictly for comic book lovers. But I
also realize that on more than one occasion – Art HAS imitated Life. To quote Lex Luther: “I’m sorry my friend,
you are toast!”
The Market:
“You can choose to ignore
the math, but you can’t avoid it!” As if
to add insult to injury with BizarroWorld,
on Friday, the Bank of Japan (mimicking Denmark, Sweden and the ECB) cut their
interest rate to minus 0.1%. It also
added that it is prepared to push the rate even lower if needed. Basically, the move is telling depositors
that they will be ‘charged’ to keep their money with the Bank of Japan. Correspondingly the U.S. market jumped 400
points on Friday – on hopes that our FED would delay their upcoming interest
rate hikes. Unfortunately, as much as I
would love to embrace the headlines - the underlying currents of math and
fundamentals move effortlessly forward and eventually the day will come when you
just can’t ignore them anymore. Are we
there yet, probably not. But it’s ONLY
time we’re buying, as we are not changing any fundamental, economic realities.
This week:
-
December durable
goods orders fell over 5%,
-
The Dallas FED
reported a negative 34.6 growth number – even lower than last month’s negative
21,
-
4th quarter GDP fell
to 0.7% (one tenth lower than expectations),
-
Richard Fisher
(the X-Dallas FED chair) is out saying that the inflation models the FED is
focused on could be WRONG,
-
California home
prices fell for the 2nd straight month,
-
The Baltic Dry
Index set another record low,
-
Apple reported
SLOWING sales growth,
-
Two Italian
banks were halted from trading due to a limit down exception,
-
And other than
Facebook’s earnings this past week – the best argument you can make thus far
about earnings is one supporting ‘stagnation’ as opposed to ‘growth’.
Japan’s NIRP (Negative
Interest Rate Policy) caught everyone by surprise – because just last week
Japan’s Kuroda publicly stated (on Reuters) that they were not thinking about
negative interest rates. The overall
effect of course was that asset prices around the world jumped higher. But is cutting rates to negative, really a
reason for stocks to move higher? Not really. Negative interest rates are completely
unnatural, and will hurt the Japanese citizens.
In fact, it will tend to create capital flight, as people refuse to put
money in their local banks. AND it will
cause the Yen to fall, and (after all) this is a currency war. Japan wants the Yen to fall to boost exports. That's fine, but what do you think China is
going to do? The race to the bottom is
in full bloom.
Make no mistake, the
outcome of this is NOT good. All across
the globe nations are desperate to do anything they can to avoid depression,
and if that means abusing their currency to screw your neighbor – well, so be
it. This is a desperation move where we don't
know the ultimate results because it has never been done before. I suspect history will not look kindly upon
it.
I often laugh, because any
time I tell someone that I’m a ‘gold bug’ they laugh at me. They tell me that gold is a relic, it gives me
no return, and it just sort of sits there. Yeah, well right now an ounce of gold
returning zero has a better Return on Investment than bonds in Sweden, Denmark,
Switzerland, Japan and the ECB. All of THEM
charge you to own their lousy paper.
Anyway, Japan’s Yen did
fall against other currencies. That makes
their exports more attractive; however, it makes the dollar even stronger
against the Yen. Wall Street is thinking
that Japan's move will put our FED’s rate hike decisions on hold. In fact, some were thinking that the FED may
take back their December increase.
Are they right?
Don't bet on it. The MOST that will
happen is that the FED may reduce the number of scheduled hikes. Originally they said there would be 4 rate
hikes this year. I actually thought that
4 was a bit much – simply because it is an election year, and that takes the
‘end of the year’ out of the equation.
But nothing was going to
stop Friday's rally as often the largest ‘up-days’ come in oversold bear
markets. Friday was one of those vicious
snap back rallies that take your breath away. This is NOT the start of a
new leg higher in a bull market, but rather a powerful bounce in a market
staring into the face of a Global recession. The only question is, how high does it
go?
We ended Friday right at
resistance on the S&P. For example,
we closed on Jan 12 at 1938 – opened the next day at 1940 and fell like a
rock. Last Friday we closed at 1940.
We could test some intra day highs at 1950, but after that it would be a
struggle to get to 1988. But I suspect Friday
was a bit too much, and I'm looking for a bit of selling on Monday. If that happens, it will be very interesting
to see how far the slide goes. If the
slide can NOT hold the 1921 level, then I would expect to see us right back at
1900 on the S&P again soon.
Tips:
Notes:
-
Remember: Congressman
Hank Johnson (D) predicting that Guam would tip over if too many people were on
it. https://youtu.be/cesSRfXqS1Q
-
If you ONLY bought
the S&P on the night before a two-day Fed meeting, and then sold it the
next day after the Fed's decision – you would realize 60% of the S&P's upward
movement for a whole year.
INDU 16,000
Selling pressure resumes, and a drop to 15,600 is in
the cards. Replace long-term investing with hedging and trading.
NDX 4100
Should
assume it’s slow grind downward thanks to Apple and Amazon.
SPX 1900
We could
get a dead cat bounce and hit 1950 or even 2000. The rally is short-lived due it being based on
Fed action and not fundamentals.
RUT 1000
It was
July of 2013 that we last saw the broad based index this low. The Russell has no ‘safe-guards’ and is the most
pure form of order flow into the general equity markets. Currently the outflows have stopped and we
are seeing consolidation. Use the Russell
to gauge how best to move forward.
I am:
-
Long various
mining stocks: AG, AUY, EGO, GFI, IAG, and FFMGF,
-
Long an oil supplier:
REN @ $0.56, and
-
Sold SPX – Mar –
Call Credit Spread – 2025 / 2030.
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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best article.
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