This Week in Barrons – 9-4-2016:
“Say it loud, and say it
often”… LaQuan Lunford
Thoughts:
I’m convinced that if you
say something loud enough and often enough – people will believe it. People love a good story. Remember Paul Revere (during his midnight
ride) signaling by lantern ‘one if by land’ and ‘two if by sea’? Truth be told, that story didn't happen. Actually, Paul was with two friends and the
British captured them all. But Mr.
Prescott (a local doctor) escaped, made it to Concord and warned everyone. I’m trying not to further burst your bubble –
BUT also:
-
Napoleon was NOT
short,
-
Einstein did NOT
fail math as a kid,
-
Bats are NOT
blind,
-
Lemmings do NOT
commit suicide by hurling themselves off cliffs, and
-
Lightening can
strike twice, 3, or even 4 times in the same place.
It’s often the STORY that
matters, and a story that really upsets me concerns inflation. The dictionary defines inflation as: “1) an increase in the money supply, 2) a
continuing rise in the general price level usually attributed to an increase in
the volume of money and credit relative to available goods and services.” For some reason, our FED is convinced that
inflation does NOT exist, and that it IS a requirement for a strong economy. First, inflation is roaring. We've seen huge increases in the money supply,
and there is certainly no shortage of credit when every furniture store is
offering no money down, and no payments for 2 years. As for rising prices, if you eat, buy
electricity, go to college, see a doctor, enjoy a movie, take a taxi, repair a
car, buy insurance – you know that prices are rising. Yet the FED tells us that inflation is lower
than their 2% target rate. Why?
Moreover, the FED is forever
warning us of ‘deflation’ – falling prices.
Now, I personally LOVE falling prices, and have never heard someone say:
“I’m waiting for that product to go UP in price before I buy it”. The free market system also seems to like lower
prices because they have made Wal-Mart (the leader in low prices) the largest
employer in the world. But our FED is
convinced that if you know prices are going to fall, you will WAIT to buy that appliance,
car, or dress. And consumers waiting to
purchase will cause a recession and then a depression. I’m wondering if that is just a STORY that
they’ve been telling each other so long that they have started to believe it themselves? After all, people don't delay their purchases
FOREVER waiting on lower prices. This is
the ‘dot com’, instant gratification era.
Lower prices cause us to act NOW instead of later. With electronics, I can assure you that
prices will fall year over year, but people continue to camp out on sidewalks
just to get the newest iPhone.
The FED itself has said in
it’s own writings: “The only episode in which we find evidence of
a link between deflation and depression is the Great Depression (1929-34). We
find virtually no evidence of such a link in any other period. ... What is
striking is that nearly 90% of the episodes with deflation did not have
depression. In a broad historical context, beyond the Great Depression, the
notion that deflation and depression are linked virtually disappears.”
Our own FED tells us that deflation
will send our economy into a death spiral, but their research suggests nothing
of the sort. If falling prices don't
kill economies, then why is our FED so rabid about the 2% per year inflation mantra? The answer is that it gives them the ultimate
freedom in their decision-making. Think
about it, 2% per YEAR is a LOT of money in a $17T dollar economy. If our FED did NOT need inflation, then where would
the justification for creating those tens of billions of dollars go? Maybe then everyone would start asking: Why is
the country broke? Why aren't there any real
jobs? Where's all the money going? Why don't we have a balanced budget?
The facts are that inflation
is running around 8%, we really don't need any inflation at all, and deflation isn't
the kiss of death – it just allows consumers to get more value for their dollar. History shows us that lower prices (except
for real estate) cause more buying and more investment for expansion. The inflation story is just that, a story from
our unelected and unaccountable Federal Reserve.
Enjoy your Holiday weekend. Eat too much, drink just enough, and spend
some quality time talking to those that really matter to you.
The Market:
Factually, this week
brought us empirical evidence that the world is slowing:
-
The 7th largest shipping
company in the WORLD (South Korea’s Hanjin Shipping Company) declared
bankruptcy and its assets were frozen.
After almost $1B in additional financial assistance, the company’s
creditors called it quits. The court
will determine wither Hanjin should be liquidated or given a chance to
restructure. In the meantime, approximately
540,000 containers have become stranded in ports around the world just in time
for retailers gearing up for the Holiday season.
-
Thanks to SF for
reporting that rail freight volume has dropped almost 6% from a year ago, and that
2015’s volume even plunged 13.4% from 2014.
Unfortunately 2014’s rail volume dropped 5.8% from 2013, giving 2016 the
excellent chance to set a low in rail freight volume for the decade.
-
SF also reported
that automation could be the great global jobs equalizer. As China automates it’s manufacturing plants
(replacing humans with computers and robots) its cost structure will approach
that of the U.S. – effectively killing the ‘cheap’ labor component associated
with offshore manufacturing. Therefore,
more manufacturing many come back onto our shores. But the blue-collar jobs associated with it
are never to return. In fact the future of
any low education jobs (or even those with a vo-tech background) are in great
jeopardy.
-
Wal-Mart
announced that it was laying-off 7,000 people.
-
Caterpillar said
that it was laying-off 2,000 more in Europe.
-
Factory Orders and
Corporate Earnings fell in August, and have fallen every month since 2014.
-
Productivity
fell (just above recessionary numbers) to an annual rate of 0.6% this past quarter.
-
The Shiller 10-year
Price to Earnings ratio is 26.9 – making it comparable to 1999 levels, and
definitely NOT levels for risk-taking.
-
The Swiss
National Bank (SNB) now owns more publically traded shares in Facebook than
Mark Zuckerberg (the owner and founder of Facebook).
-
Bank of America reported
that the ‘smart-money’ continued to be net SELLERS of U.S. stocks for the
eighth consecutive week.
-
Our mainstream
news must have forgotten to report that Deutsche Bank (DB) defaulted on its ability
to deliver physical gold. Our Central
Bankers did not want this making the news because it would have sent the price
of gold skyrocketing and DB into default.
-
The U.S.
Government’s Non-Farm Payrolls (Jobs) Report was one that only a mother could
love. After hoping that 180k new jobs
were created in August, we found out that only 151k were created. We also found out that 2/3rds of those jobs (106k)
were fake jobs – created mathematically – so we really only created 45k jobs in
August.
With all that news, you
would have thought the market was down 300 points on the week, but instead the
market was up on the week – proving that nothing matters but Central Bankster
intervention. The capital markets are
the ONLY thing keeping the wheels on our global economy, and our Central
Banksters are desperate to keep them rolling.
How long this charade goes
on is anyone's guess. On July 14th we
opened the day at 2157 and punched over 2160. Since that time, we've bounced between 2157
and 2190. On Thursday morning we re-touched
the 2157 number, only to see a ‘magic levitation’ take place and push us all
the way up to 2170. Friday we gapped
higher out of the box and ended the day at 2179.
I would expect to see our
markets try and assault 2190. However,
the previous agenda was to make new highs.
Interestingly, since August 15th, it seems the game has changed. Our Central Banksters seem to not be as
concerned with new highs as they are just keeping the markets from rolling over
and dying. They're okay with ‘sideways’.
September is often a cruel
month. If normal market forces were in
charge, I would be telling you that a wise move would be to sell-out and go
short. But this isn't a normal market,
and I don't know exactly what the Central Banksters are willing to do. So use the 2157 and 2190 levels as your guide
to trading. If we close a few days over
2190, then we should go even higher. If
we lose 2157 on a closing basis for a few days, then I could see 2120 coming
quickly.
The next 100 days are
going to be very interesting. Will Trump
win? Will Hillary finally admit to being
ill, or could she be removed from running over the latest FBI dump? Will someone along the Russian/Ukrainian
border make a mistake and start a war? Will
a major bank finally admit it is broke beyond repair? Will someone screw up in the 3 way chess match
going on in Syria? Maybe none of the
above will occur, but it sure feels like something big is brewing.
TIPS:
Some likely trades this
week:
-
Don’t fight the
FED = buy September Options in Facebook (FB):
o Buy the 124 / 130 Call Debit Spread,
o Buy the 128 / 130 / 132 Call Butterfly,
o Sell the 126 / 124 Put Credit Spread, and
o Sell the 122 / 118 Put Credit Spread
-
Gold this week (GLD):
o One morning this past week someone (with very deep
pockets) sold $5B worth of paper gold on the exchange. No person would do this because it destroys
the price (which it did). But Central
Banksters can do it because they want people NOT to buy gold and instead - put
their money in negative interest rate accounts.
o Deutsche Bank analysts came out and said that gold
should be trading around $1,700/oz.
- The metals have lived through a normal pullback in
the past week and I continue to like: 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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