This Week in Barrons – 7-31-2016:
“I love the smell of napalm in
the morning” … Robert Duvall –
Apocalypse Now
Thoughts:
You can almost hear the
helicopters flying overhead – getting ready to drop ‘free money’ on everybody
that’s willing to reach up and grab it.
Remember ‘Cash for Clunkers’ – we’re almost there. How do I know?
-
1. Whenever
investors feel like they MUST join the herd – because it's the only way to make
money, those same investors usually end up being slaughtered. And, please don’t tell me that ‘it will be
different this time’. Yes Verizon’s 4%
yield and Proctor & Gamble’s 3% yield look enticing, but it was just a
couple of years ago that these same stocks dropped 50% and 40% respectively – immediately
eliminating 10 years of income.
-
2. It’s a
presidential election year, and there’s nothing worse than a lackluster (to
down) economy in a big election year. It
begs the question: “Are you better off now – than 4 years ago?” And coincidentally on Friday we learned that
the U.S. economy grew at a measly 1.2% annual rate –
well below the 2.6% growth estimates that economists had predicted.
Do you sense my frustration?
Month after month, I whine about how the stock market is NOT reflective of the
underlying economy.
-
How is the stock
market at ALL-TIME-HIGHS when our GDP is bordering on recession?
-
Over 10 million eligible
workers have stopped looking for work (an all-time-high), yet if we are to
believe our FED – there is only 5% unemployment and the labor market is extremely
tight?
-
David Rosenberg
(chief economist at Gluskin Sheff) tells us that 44% of all corporate debt is
rated BBB (basically junk). U.S.
companies are currently holding the lowest level of cash to debt in a decade,
and their borrowing is NOT slowing down.
Fraud, manipulation, and other
agendas do not impress me. When Wall
Street commits fraud – it often costs us money.
When politicians commit fraud, it normally costs us lives. Political fraud is fairly inexpensive given just
6 media outlets produce 85% of all U.S. news. And since the U.S. repealed its own propaganda
ban on July 2, 2013, political fraud is now legal: http://foreignpolicy.com/2013/07/14/u-s-repeals-propaganda-ban-spreads-government-made-news-to-americans/ Currently our
propaganda machine is targeting Putin and Russia. He’s being blamed for everything from the Ukraine
to the DNC email hack. Hillary has
termed him: “The next Hitler”. Putin (however)
is asking the world’s journalists to start reporting reality.
-
The U.S. (via
NATO) is moving tons of missile capable weapons onto Russia's doorstep. Thus far, Russia has NOT responded by placing
missiles in Poland or Rumania.
-
The U.S. (via
NATO) plans on having Anti-Ballistic Missiles (ABMs) on the Poland/Russia
border by mid 2018. Putin cannot let
that happen any more than we could let Khrushchev put missiles in Cuba in 1962.
If we (NATO) put those
missile batteries in Poland and the Baltic states, Russia has stated publically
that they will blow them up. Putin has stated
publically to the Polish and Baltic people: "Don't get caught up in the
crossfire between the U.S. and us. Please
do not allow those missiles, because we will have no choice but to take them
out".
So, I hear the helicopters
of war bringing in enough money to last the global economies 18 to 24
months. Then, we will attempt to beat
the Russians into submission.
Unfortunately that tactic did not end well for either Napoleon or
Hitler.
The Market:
Factually:
-
Sales growth has
been declining since 2012, and negative since 2015.
-
In Q2 of 2016, home
ownership hit an all-time low of 62.9%.
-
Former Goldman
Sachs manager and founder of Global Macro Investor Raoul Pal said that European
banks are the Eurozone’s next powder keg.
o Issue #1: Monte dei Paschi Bank (the oldest bank in
the world and third largest in Italy) is in crisis mode as it’s stock price was
over $100 pre-2008 financial crisis, and is now about $0.50.
o Issue #2: Deutsche Bank (that has had its own
struggles with profitability in this low interest rate environment) was trading
above $130 per share pre-2008, and is now below $13 (an all-time low).
o Issue #3: The Stoxx 600 European Banking Index is
bracing for the worst, and is down 22% year-to-date. The European debt crisis (which began over
five years ago) has created long-term systemic risks for banks, and is showing
no sign of letting up.
- June’s Durable Goods
Orders came in at a NEGATIVE -4%. They
also revised last month's reading lower.
Expectedly, our FED did
nothing at last week. Unexpectedly, the
Bank of Japan (BOJ) also did nothing – as the world was awaiting additional QE.
The initial market reaction was a huge
plunge, but like so many days we ended down just a smidge. This market is bullet proof. No matter how bad the numbers, it just keeps
going sideways and up depending upon how much money our FED prints and gives to
the Swiss National Bank to invest in our markets.
On Friday the U.S. GDP numbers
were supposed to show 2.6% growth. Instead, they showed a measly 1.2% growth. And to make matters worse, the first quarter
estimates were revised downward to 0.8%. Uncle Sam has twisted all the data (to look
better), has changed the way GDP is calculated (to look better), and the BEST
they could do was 1.2% growth. That
means the real GDP is probably NEGATIVE by about 3.5%. But even with all that bad news, the S&P
moved higher on the day. Seems logical, aye?
Weakening economy, recessionary GDP, and
our stock market is hitting all time highs.
Given the market held up in
spite of the lousy GDP numbers and the lack of more QE from the BOJ, I would suspect
that our markets would be moving higher this coming week. No – we don't belong higher, and there’s no
fundamental reason for us to move higher. But, that hasn’t stopped us for a long time
(years).
There is a bit of a divergence
going on. The DOW faded a bit during this
past week, while the S&P held up. The
RUSSELL (small caps) faded a bit, while the mid-caps held up. Those are normal signs of sector rotation as
money moves from asset class to asset class.
For this week, continue to watch the metals. As more and more people realize how ugly the
global economies are, the more they are willing to move more into the precious metals.
The SPDR Gold Trust (the ETF that
provides exposure to Gold) took in $3.3B in new money last month, and a total
of $12.2B in the first half of 2016.
This was more than all of the U.S. stock ETF’s combined during the same
periods. Please take care.
TIPS:
“Please don’t tell me that it will be different this
time…”
7 months ago I posted my
detailed trading strategy on AG – a silver mining stock. To date, every $20k that you invested in AG
is now worth $250k. 2 months ago I
suggested buying some January 2018 - $4 Calls in NGD (a gold mining
stock). NGD bounced between $4 and $5,
and I decided to add more on a dip under $4 or a break above $5. To date, every $20k that you invested in NGD
is now worth $30k – and on Friday it broke out over $5 per share. I did not buy any more on Friday, but if it
holds over $5 on Monday and Tuesday, I'll be a buyer.
My attraction to the
metals continues. Some relatively inexpensive ones are: FFMGF, NAK, BAA, AUMN,
EGO, and FSM. I’m keeping it simple by:
-
Selling PUT
Spreads on tech names such as AMZN, AZO and GOOGL, and being
-
Long various
mining stocks and their respective call options: AG, AUY, CDE, FCX, FFMGF, FSM,
HL, NGD, PAAS, PGLC and SAND.
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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