This Week in Barrons – 2-14-2016:
Thoughts:
“It’s the
end of the world – as we know it.” … R.E.M.
The "End of the World"
just doesn't happen overnight. People
have been predicting it for eons. To
name a few: in 1524, a group of astrologers predicted that the world would end
by the turn of the century as the result of a flood starting in London. Martin Luther (a man of God) predicted that
the end would come no later than 1600.
And Christopher Columbus (an explorer) claimed that the world would end
in 1658. But right now, I'm most anxious
about this particular world’s condition.
-
Global financial
indices are crashing in concert.
-
Trade (as measured
by the Baltic Dry index) has collapsed.
-
Sweden, Japan,
Denmark, Europe and others are implementing negative interest rates.
-
Spain is PAYING
interest to borrowers for buying homes.
-
Oil and
commodities are at multi decade lows.
-
China is sitting
on idled plants, bad loans, and desperate for demand.
-
Europe has been
besieged with millions of refugees looking to transform those European countries
into Muslim nations rather than assimilate.
-
Political
candidates Trump and Sanders (who most considered to be sideshows) are sweeping
the nation shouting: “Vote the bums out.”
-
Physical gold is
once again yielding better returns than cash in the bank, and I don’t have to
pay anyone to hold it for me.
The other day the question
was asked: How would you invest $5,000 safely?
My short answer was:
-
Buy a $1,200
(one ounce) gold coin.
-
Buy $800 worth
of silver eagle coins.
-
Buy a $1,000
U.S. Treasury bond.
-
Buy $500 worth
of an agricultural stock, (we can live without iPhones but not without food).
-
Buy a nice gun
for $500 (protection and appreciation).
-
And keep $1,000
in cash – at home – in a safe.
In virtually every other
decade of my life, the answer to that question would have been amazingly simple,
and a lot different. I would have stressed the magic of compound
interest. Assuming a 6% interest rate, I would have talked about putting
that $5,000 in a bank, after 10 years turning it into $8,954, and after 30
years turning it into $28,717. Then I would have asked the person if they
could possibly add an additional $5,000 a year to that amount – each and every
year? After 40 years you would then have a grand total of $871,667 – of
which you have only contributed
$200k. That’s how fortunes used to be made. And people then
lived out their years collecting 6% on the final amount – leaving the principle
to their children.
But those days are gone. In what can only be described as a perverted
situation, interest rates are now 1% - not 6%. So investing $5,000 where
it won't disappear in a bank ‘Bail-In’ – is a good question. The above mix
should get your money back. The gold and silver coins should appreciate
nicely. The agriculture stock might fade, but if it's a major player like
a Mosaic (paying a 4% dividend) – it will be ok. The enemy of the
Treasury bond is inflation. The gun is for personal safety, and for value
appreciation. And finally, cash affords the safety of having actual money
on hand in the case of a ‘Bank Holiday’ where all of the ATM’s are closed for a
week. Remember, ‘protecting’ what we
have is just as important as ‘creating’ more of it.
If you have ever toyed
with the idea of buying physical gold and silver, I'd use any dip in this price
to do just that. The same statement can
be made about the miners. It’s time to
revisit both of these categories. The
window of ‘cheap’ is about to close.
The Market....
I’m reminded of 3 statisticians
that are out duck hunting. When they
spot their first duck, the 1st first statistician takes a quick shot
and misses the duck 6 inches high. As he’s reloading, the 2nd
statistician takes aim and fires; he misses the duck 6 inches low. The 3rd
statistician drops his gun, leaps in the air and yells: “Boys, we got it now!”
This joke (although not laugh-out-loud funny) is designed to illustrate a
common problem with relying on averages. Namely, that if you’re using averages to make
specific decisions or determine particular actions, you’re likely to completely
miss the mark.
Well on Thursday we were
‘right there’, ‘on the mark’, at the ‘edge of the cliff’. The DOW was down over 400 points and for the first
time in years the S&P was under the ‘all important’ 1812 level. Then it happened. Like clockwork a headline hit saying that
OPEC had agreed to cooperate on an oil production cut. Instantly the S&P
gained 20 points, and the DOW gained 200. It was both comical and criminal at the same
time. This headline (in particular) was so unbelievable that even floor
traders on the exchange were joking about it. The funny part is that
EVERYONE knows that: (a) even if the UAE minister really said it, (b) even if
OPEC really agreed to it, that (c) NOTHING would happen. No country is going to cut one drop of
production. Iran is just beginning to come
back on line. Iraq is ramping up. No country is going to sacrifice their own
sales today, in order to make the ‘pot’ a little bigger for someone else
tomorrow.
On Friday, this so-called
news was everywhere. Every station was talking
about OPEC production cuts. Job
accomplished, as we gained 313 DOW points and 35 on the S&P. So, that's it – some oil minister says OPEC is
going to meet and up we go? It didn't
matter that they floated that same rumor a few weeks ago. What was interesting is that the other half
of what the UAE minister said was completely omitted from most broadcasts –
which was: "The people who have spent money and have this investment, it's
natural that they won't make cuts." So his quote actually didn’t refer to existing
production quotas at all – but rather future endeavors. Imagine that.
Anyway, do I think that we
have found the bottom? No. I do think that it could be a short-term
bottom, IF nothing blows up when China opens on Monday. (China has been closed for a week in
observance of their Lunar Holiday.) But
no, I do not think that this is a significant bottom. I think that we have a date with considerably
lower levels. If we don't get any bad
news on Sunday or Monday night, we should open okay on Tuesday, and possibly move
higher.
I don’t see this move
higher lasting too long. After we get –
‘whatever we’re going to get’ – then going short should be the plan. There is NO WAY that OPEC will get their member
nations to cut production. After all,
the Saudi's need to sell every drop they can produce in order to keep their
welfare state alive. I think that when markets
allow themselves to admit to this reality, we'll see the market roll over once
again. After all, we were on the edge of
a cliff – and this time a small, murky mention of oil production cuts saved us. I think when those cuts do NOT materialize;
we are right back to the brink again. Only
this time, someone will push us over.
TIPS:
At
their March meeting our FED has 3 options:
-
1. The private sector becomes robust and the economy roars
back, giving room for the Fed to raise rates and unwind their trillions in
bonds and mortgage backed securities. This
is what the Fed is wishing for. Unfortunately,
the economy has been limping along for years, and the expansion we see is based
on debt. So this is somewhat of a fantasy.
-
2. The more responsible and accountable option
is also the most unpopular one. The FED
raises rates, begins to unwind their balance sheet, allows the yield curve to
steepen, risks deflation and slows growth. Companies would fail, unemployment would rise,
and stagnation or even a recession would ensue.
This is the responsible thing to do, and it is NOT going to happen.
-
3. They can keep doing what they’re doing. This is the most popular and most likely
option. The FED will NOT raise rates,
NIRP (Negative Interest Rate Policy) will become a possibility, and the FED
comes-up with another stimulus effort. In
which case the bond bubble will get larger, the market will rally – and in the
end this whole thing will implode. This is the most likely option.
The
good news is that the total implosion will
NOT happen in the next 6 months. After
all, the FED needs time to ramp-up, and that will spike both the equity and
bond markets.
I am:
-
Long various
mining stocks: AG, AUY, EGO, GFI, IAG, and FFMGF,
-
Long an oil
supplier: REN @ $0.56,
-
Long CSX, using
a Covered Call to generate income,
-
Long STI, using
a Covered Call to generate income,
-
Sold COST – Feb
– Put Credit Spread – 144 / 142,
-
Sold WYNN – Feb
– Put Credit Spread – 68 / 66,
-
Sold SPX – Mar –
Call Credit Spread – 2025 / 2030,
-
Sold FXY – Mar –
Call Credit Spread – 87 / 86,
-
Bought FIT – Feb
20 / Mar 21 – Diagonal for 30 cents,
-
Bought HD – Feb
130 / Mar 135 – Diagonal for 9 cents,
-
Bought NKE – Feb
65 / Mar 67.5 – Diagonal for 42 cents,
-
Bought CRM – Feb
77.5 / Mar 82.5 – Diagonal for 22 cents,
-
Bought LMT – Feb
215 / Mar 220 – Diagonal for 99 cents.
Presumably what I will do
with the ‘Diagonals’ is allow their February components to expire (giving me a
perfectly free trade), and then sell another March dated contract against it.
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