This Week in Barrons – 6-5-2016:
“I
am The Greatest.” … Muhammad Ali (passed
away at the age of 74)
Thoughts:
Few people in my lifetime
have called themselves “The Greatest,” and have gone on to prove it to the
world. Muhammad Ali won boxing’s heavyweight
title three times in his 21-year career.
But it was his life outside of the ring that inspired adjectives such
as: pretty, badass, fast, loud and brash.
He openly attacked American racism at a time when he was expected only
to say thank you and keep quiet. He
joined the Nation of Islam at a time when the FBI labeled them a dangerous cult
bent on destroying America. He
challenged the legitimacy of the Vietnam War, refused to enlist, committed an act
of civil disobedience, and was suspended from boxing for more than three years. But Ali’s greatest trick may have been his
transformation – from one of the nation’s most reviled characters to one of its
most beloved. Born Cassius Clay Jr. in 1942,
he was the son of a sign painter and a domestic worker – his grandfather a
convicted murderer and his great-grandfather a slave. Cassius Clay had dyslexia and struggled to
read the printed word. He discovered his
talent for boxing by accident when his bicycle was stolen, and the rest is history.
Just
imagine living through:
- Seeing the U.S. go from being #1: to
#11 in 4th grade Math, #13 in GDP per capita, #23 in PISA
science scores, and #24 in Literacy.
- And seeing the U.S. go from being #1
at LOANING money to the rest of the world; to #1 at OWING money to the rest of
the world.
He (like a lot of us) lived
through:
- Having his baby crib painted with lead-based paint,
- Having NO childproof lids on medicine bottles, wearing
NO helmets while riding our bikes,
- Hitchhiking, and riding in the back of a open pick-up
truck on a warm day,
- Drinking water from a garden hose,
- Sharing a soft drink (in one bottle) with lots of friends,
- Falling out of trees, getting cut, breaking bones –
all without a single lawsuit,
- Having team tryouts and not everyone making the team,
- And playing sports and NOT everyone getting a medal.
Muhammad (even at his most
subversive) spoke with a twinkle in his eye, in poetic verse, and always eager
to please and torment simultaneously. I
remember him saying: “He who is not
courageous enough to take risks, will accomplish nothing in life.” Muhammad Ali was the most fearless,
political, and radical athlete that ever lived.
He was a man of strong principles and convictions that never shied away
from letting anyone know what he thought, even if it made him unpopular. It's impossible to overstate the impact Ali
had on the world. He began his life as
Cassius Clay, winning an Olympic gold medal in 1960 before becoming the man
everyone would grow to know and love. His
role outside of boxing remained huge even after his career ended, as he helped
to secure the release of 15 hostages in Iraq in 1990. Ali was the kind of
talent who comes along only once in a lifetime (if you're lucky), and one whose
legacy will last forever. "Float
like a butterfly and sting like a bee, his hands can't hit what his eyes can't
see." Muhammad Ali – may you Rest In Peace.
The Market:
There is a clear downward
trend in JOBS – starting in October of 2015.
Factually, what can you
say about last week’s action in the stock market? We received May’s Nonfarm Payrolls Jobs
Report – and it wasn’t pretty.
-
We saw the worst
job growth in 6 years. We added only 38K
jobs (versus an expected 160K) with the prior 2 months also being reduced by 59k.
-
The FED’s
Birth/Death model added 224,000 ‘fictitious’ jobs to that 38K reading. Therefore, by removing that distortion, we
actually LOST 180K jobs in May.
-
The unemployment
rate slipped to 4.7% from 5%, but only because more Americans (664K) left the
labor force. A staggering 94.7M people
are no longer in the workforce, causing the participation rate to fall to 62.6%
(the lowest since 1977).
-
Part-time
workers for economic reasons increased by 468K.
That means either: (a) there were NO full time jobs available, and
people needed anything they could get, or (b) they were making so little money
at their first job, they needed another job to make-ends-meet.
-
New York's
Purchasing Manager’s Survey collapsed to the lowest reading since April 2009,
-
China's PMI's
slipped lower, and U.S. mortgage applications fell,
-
GM sales fell
16%, Ford fell 5%, with the average auto loan topping 7 years and over $500 in monthly
payment for the first time in history.
-
Manufacturing
performance was the weakest in over 6.5 years,
-
The Chicago
Purchasing Manager’s Index showed a contraction,
-
S&P 500 1st
Quarter earnings declined for the 4th straight quarter, and more
sharply than in any quarter since 2009,
-
Preliminary 1st
Quarter Productivity declined 1%,
-
The dollar
plunged, while safe-haven related investments such as bonds and gold jumped
higher,
-
But stocks ended
down only slightly on the day.
This should put to bed any
thoughts that our stock market is a ‘free market’ that reacts to
‘fundamentals’. With the worst jobs
report since September of 2010, we should be looking at the beginning of a
crash, but we aren't because the FED is holding the market up. The low rates continue to fund share buybacks
and mergers & acquisitions activity.
But earnings have now declined for three straight quarters and the
economic data certainly hasn’t provided the results the FED had been hoping for.
If I'm right and the
market is being held up artificially, so that J.Q. Public thinks that all is
well in the world, why not just go all in (100% invested) and take the ride? After all:
-
The Swiss National
Bank has purchased $14B worth of U.S. stocks in the first quarter alone.
-
The Bank of
Japan is buying $Billions of U.S. stocks.
-
The ECB is
printing $85B a month, and is now buying Corporate Debt.
-
Economic reports
continue to deteriorate, big brands have gone bankrupt, the oil industry has
experienced 121 bankruptcies, and we’ve seen weak durable goods orders, and
falling earnings – HOWEVER, we are just 2% from all time highs.
I believe the market
is up for 2 reasons: (a) to give the illusion that the economy is strong, as
most people still believe that the DOW is a reflection of the economy. And (b) that there are so many current derivatives
that use equities as collateral, if the FED allowed the markets to fall it
would cripple our economy.
I also believe there
are 2 reasons why you might NOT want to be 100% long in this market: (a) The FED
has tried all of their tricks and they are now desperate. What if they just loose control (circa 2007)? And (b) what if they’re just holding it up
long enough to get a reconstruction plan in place to pick up the pieces (potentially
with The Donald at the helm), and then just allow it to crash?
I remember November
of 2007 – the market was at an all time high and Jim Cramer was on CNBC
screaming “Buy-Buy-Buy”. The FED’s Ben
Bernanke was saying: “There is zero chance of any major economic event.” Yet a few months later we came into the worst
stock market crash since the 30's.
What if we're in the
same situation? What if they press the
‘reset’ button? What if (despite their
best efforts) market forces simply overwhelm the FED? After all markets generally rise for a long time,
and then they ‘snap’. We are 8 years
into this run, and they’ve tossed the kitchen sink at it to keep it going. If you think that they can pull it off – go for
it and go 100% long. I (on the other
hand) think that reality always wins, and we will get another ‘snap’. I’m considering buying more physical gold and
silver, and investing more in Bitcoin.
It’s scary to think
that the FED has raised rates only once in the past 10 years, despite
unemployment dropping well below their mandated 5% and inflation ticking
higher. If oil keeps rising, then the
Fed will have rising inflation to deal with as well. Due to the Jobs Report, the odds of a June
rate hike have dropped from 30% to 4%. I think the most amazing part of
the whole ordeal was that Friday’s market closed right at S&P 2100 – a
level they've been flirting with for months.
No mater how big the intraday dip, they always seem to find a way back to
2100.
So the question is,
what now? You can see that the FED is
trying to push us higher, and that remaining flat is the 2nd best
thing. The charts tell me that putting
in a close under 2085 on the S&P would trigger more selling, and closing
above 2105 would trigger more buying and requiring them to challenge the
all-time-highs.
We live in perilous
times. Please be safe out there.
TIPS:
Is the next ‘gimmick’ for our
FED going to be Negative Interest Rates?
SF wrote me pointing out that
in the 2008 financial crisis – 34% of working age individuals were without work,
and today 37% are not working. Over the
next several weeks I’m going to try to find the actual number of hours worked
from 2008 to 2016 per sector. The goal
is to understand whether these ‘new jobs created’ have actually contributed to
a recovery. OR have we simply turned one
full-time 40-hour/wk. job into several part-time 12-hour/wk. jobs, and we’re
calling that a recovery because we now have 3 jobs where previously we only had
1. I (like SF) am guessing that the real
net gain in hours worked is less than what the decline in unemployment would
lead us to believe, and (in fact) we may be having NO recovery at all. If anyone has access to that data (average
hours worked per sector between 2008 and 2016) – please let me know, and thank
you in advance.
Short Term:
-
The SKEW is at
135, and the 10-day Moving Average of the Put/Call ratio is dropping – both bearish
indicators for the upcoming weeks’ indices.
-
Gold and Silver appear
bullish.
-
Charts of Goldman
Sachs (GS) and J.P. Morgan (JPM) both look bearish.
I am:
-
Long various
mining stocks: AG, AUY, CDE, FFMGF, FSM, NGD, and PAAS,
-
And Long an oil
supplier: REN.
To follow me on Twitter.com and on StockTwits.com to get my daily thoughts
aand trades – my handle is: taylorpamm.
Please be safe out there!
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