This Week in Barrons –
1-29-2017:
Thoughts:
Over the years, I’ve spoken
many times about how our Central Banksters are enormous buyers of stocks. I’ve mentioned how the Bank of Japan owns
almost 75% of Japan’s ETFs. I’ve spoken about
the Swiss National Bank owning billions of dollars’ worth of Apple (AAPL),
Microsoft (MSFT), and Exxon Mobil (XOM). And I’ve talked about how our
companies are borrowing money at virtually zero interest rates, and using those
same funds to buy back their own shares of stock. Just this week, Zero Hedge ran a story on how
Central Banks plan on buying even MORE stocks – which begs the question: Can
stocks ever really go DOWN? Given
Central Banks can both print money out of thin air, and buy stock: How can you
ever take a beating?
The answer comes from
‘where’ the money came from. In normal
times, you were paid a commensurate wage for your work. So, the amount of money that was in
circulation at any given time was directly proportional to the number of goods
and services that existed in the world.
This kept production in line with demand, and it also kept a lid on
pricing. But when the Central Banksters
started creating billions and buying stocks, the entire process of consumption
being linked to creation and demand was thrown out the window. And what was put in its place was the
absolute definition of inflation.
Many people define inflation
as "rising prices", but in technical terms that’s simply the
result. The true definition of inflation
is: "an increase in the money supply". I personally can’t think of a better example
of an ever-increasing money supply than our Central Banksters creating money
out of thin air, and using it to instantly buy stocks. They are clearly doing it without any productive
input to the global economic machinery.
Schemes like this often work
in the short term, but go awry because some event causes an increase in the
velocity of money and that causes prices to spiral higher. The velocity of money is simply how fast a dollar
changes hands. In a hot economy, the
velocity is high because everyone is out spending all that they can get. In a sluggish economy, monetary velocity
slows as savings increase.
Historically, printing money
has never worked. While the injection of
money during periods of economic contraction has (at times) been able to keep
the wheels from coming off an economy – continued injections lead to runaway
inflation. Inflation is starting to become an issue, and will become a
larger one over the next several months and years.
A couple thoughts to
consider – (courtesy of SF):
-
4th
Quarter GDP came in at 1.9% on Friday – well below the estimates.
-
Neil deGrasse
Tyson said: “Congress and Donald Trump are considering cutting PBS support
(0.012% of the budget) to help balance the Federal budget. This is like deleting your text files to make
more room on your 500Gig hard drive.”
-
"It's
cheaper to buy a $35,000 robotic arm than it is to hire an inefficient employee
– making $15 an hour bagging French fries," … former McDonald’s CEO Ed
Rensi.
-
The South China
Morning Post reported that Foxconn (a supplier to both Apple and Samsung) has
recently REDUCED total employment by
60,000 people with the introduction of robots.
-
More than 67% of
U.S. assets are controlled by individuals over 50 years old. Bankers are viewing the ‘Reverse Mortgage’ as
the final opportunity to lend to the 50+ generation. In that vein, Fifth Third Bank ($141B out of
Ohio) will acquire Retirement Corporation of America (RCA) – a registered
investment adviser providing retirement education and planning nationwide.
-
We need to
revise our educational system:
o
University
enrollment has increased 20% over
the past decade.
o
University costs
for tuition, fees, room, and board have risen 34% over the past 10 yrs.
o
Over the past
decade, University endowments have increased over 80%.
o
Over the past 10
years, our Universities are spending more money on building monuments, than
they are on improving the teacher to student ratio.
o
Maybe
Universities should be taxed like Mutual Funds – after all:
§
The top 10
University endowments are: (1) Harvard = $36B, (2) Yale = $26B, (3) Texas =
$24B, (4) Princeton = $23B, (5) Stanford = $22B, (6) MIT = $13B, (7) Texas
A&M = $10B, (8) Northwestern = $10B, (9) Univ. of PA = $10B, and (10) Univ.
of Mich. = $10B.
§
Some Top ETFs
are: (7) QQQ (NASDAQ) = $42B, (10) IWM (Small Caps) = $34B, (16) GLD (Gold) =
$30B, (20) EEM (Emerging Mkts.) = $26B, (22) XLF (Financials) = $22B, and (30)
XLE (Energy) = $17B
o
With our universities having larger endowments than most of the ETFs out
there, I think it’s time to refocus our educational system around the educator
rather than around the endowment or the physical facility.
The Markets:
Animal spirits are alive and
well. For the first time in my life, I'm
watching a man go to Washington, and totally change the entrenched political
decision-making. In the past, a
President would over-promise, under-deliver, and in many cases, do a 180 degree
turn against what they said on the campaign trail. Trump is definitely
NOT playing that game.
But even with all of the hope, the reality of the moment is that things aren't very good, and the market is front running all the good things that are potentially coming. This week the DOW made it over 20K, and held above that level for 3 days. However, it came with anomalies that caused me to raise an eyebrow. According to the latest Bank of America data, last week U.S. equities saw $6.3B in outflows. This was the largest weekly redemption from U.S. mutual funds and ETFs in four months. So, at the very time that the DOW created all-time highs, $6.3B was pulled OUT of the markets. Also, the day we hit 20K, trading volume on the SPY (the largest ETF) was only 84m shares. The following day volume on the SPY went down to 60m shares, and on Friday it hit 59m shares. In other words, there has been no volume confirmation of this move.
So, $6.3B is leaving
equities and being deployed into bonds, and we have a clean break-out to
all-time historic highs on relatively low volume. These are NOT the sorts of actions that I
would have expected last week. But then
again, I'm using analysis based on some fundamental premises, and fundamentals
went away ten years ago. Who cares if
pension funds and insurance companies are pulling out – just as long as the
Swiss National Bank keeps buying the DOW stocks and driving them higher. I still think that we get this last run
higher, pull in more sideline sitters, and then roll over into a 10%
correction.
Tips:
Over the past several weeks,
I laid out a specific SPX trading strategy that I was doing. I started by selling some weekly Iron Condors
(IC) – expiring January 20th – between 2260 / 2265 and 2290 / 2295 –
for between $230 and $245 per IC. I was
hoping to show some of the modifications that I had to do, but the SPX acted
remarkably calm – ending the week @ 2271.
Therefore, I pocketed the entire $245 per contract. Last week I sold a similar set of weekly SPX
Iron Condors – expiring January 27th – between 2245 / 2250 and 2280
/ 2285 for $250 per IC. The SPX went to
2295:
-
This allowed our
2245 / 2250 Put Credit Spread portion of the IC to expire worthless and I
pocketed the entire $130 per contract.
-
BUT we had to
roll out the 2280 / 2285 portion to the corresponding Feb 3rd delta
30 options centered around the 2310 / 2315 strikes for $1.85.
-
That $1.85 came
directly out of the previous SPX’s $2.45 profit – reducing our profit on the
Jan 27th transaction to 60 cents.
-
We are now
holding the 2310 / 2315 Call Credit Spread @ $1.85 / and will sell the 2275 /
2280 Put Credit Spread against it on Monday – for an additional credit of
$1.40.
I will continue this example
through this week, in hopes that it should give you enough to do this on your
own moving forward.
I’m attending a financial
conference in Rocky Mount, NC this weekend – and will hopefully incorporate
those thoughts in my upcoming trades and recommendations.
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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