RF's Financial News

RF's Financial News

Sunday, November 9, 2014

This Week in Barrons - 11-9-2014

This Week in Barrons – 11-2-2014:

       














“How do you know if you’ve got a good mechanic?  By the size of his boat!” … Tom Magliozzi (co-host of NPT’s Car Talk radio program) – passed away on November 3rd from complications of Alzheimer’s disease.  He left us a lot of knowledge and laughs:
-       Do it while you're young. You may never have another chance to do anything this stupid again!"
-       "Life is too short to own a German car."
-       "If it falls off, it doesn't matter."
-       "Never let the facts stand in the way of a good answer."
-       “If I left work any earlier, I’d pass myself coming in.”

Dear Ms. Yellen:
Ms. Yellen, are we sure that we’re on the right track with jobs?  The ‘Jobs’ Report (released last Friday) showed that we created 214,000 jobs in October – lower than expected.  It was a 14% decrease from the 248k gain reported in September, and an identical decrease from a year ago.  If I subtract the ‘fake’ birth/death model jobs (137k), I show a net gain of 77k jobs in October 2014 – with 42k of those jobs being low-paying jobs in the food and beverage industry (waitresses and bartenders).  Education seems to matter when getting a job as unemployment for 25+ year olds with a Bachelor’s degree is 3.1%, but for those without a high school diploma the rate is 7.9%.  You can’t be happy about the U6 total unemployment rate hovering around 12% are you?  What’s worrying me is that the ‘Challenger’ lay off report for October had layoffs rising by 68% over the previous month.  This is especially worrisome given many companies go on hiring sprees prior to the holidays.

Ms. Yellen, in terms of the election – I think stocks prefer a slow moving government.  With a Democrat in the White House and a Republican Congress, this stalemate is something that Wall Street will like.  In the 90’s, the last 6 years of the Clinton administration had a Republican Congress and provided an ideal investing environment.  This same notion held true in the 80’s when the Democrats controlled the Congress under Reagan.  But some of the post-election comments that I heard were disturbing:
-       Only 22% of our citizens believe that their children will have a ‘better’ life than they do.
-       People can’t get mortgages because banks are ‘parking’ their FED money back in the FED, or in the stock/derivatives market.
-       People can't afford to buy a car because their wages haven’t increased in 15 years, so the 3-year lease is all that they can afford.
-       People can’t afford to send their kids to college because it costs an average family over 5 years wages to do so.
-       And people are angry at Obamacare because their premiums have increased dramatically.

Ms. Yellen, I’m seeing our energy boom cause a real clash between politics and economics.  The 1920 Mineral Leasing Act allows U.S. oil producers to sell only a tiny amount of oil abroad.  Even though our oil production has increased 32% since 2008, we only export 47k barrels a day versus importing 8M barrels.   So if the Republicans push for more oil and natural gas exports, the industry should grow larger and employment should increase significantly.  However Saudi Arabia, for the first time since the oil embargo in 1973, has taken a direct and defiant stance against the U.S.  They have publically announced reduced export prices on oil to the U.S. while simultaneously increasing supply.  I think that this is designed to squeeze the profit margins on the more expensive U.S. shale-oil production.  It’s my thinking that U.S. shale production costs are in the $70 per barrel range, while OPEC production costs are in the $40 dollar per barrel range.  Lately, the price of oil has steadily decreased from the $92 per barrel area, through $80 per barrel, with the next stop being $72.50 and then ultimately $60.50 per barrel.  Ms. Yellen, if the U.S. and Saudi Arabia are not able to find some common ground or solutions to this stand-off – are you anticipating OPEC removing the U.S. dollar dominated oil trade and move to some other standard such as gold?  A move like this would destabilize the dollar as a world reserve currency, and would most certainly devalue the dollar and create inflation.  Do you agree?


The Market:
This week I would like to discuss two market elements, the first is the strong dollar, and the second is Alibaba (BABA). 

The U.S. stock market (this week) continued to rally on the backs of the strong dollar.  Historically, the dollar index started in 1973 at 100.  It reached a high of 164.72 in 1985 – before a nasty decline culminating in a low of 78.43 in 1992.  From then until 1995, the dollar rallied to a zone of resistance around 90 – 3 different times before faltering back down to about 80 in 1995.  Post 2003, the dollar has tried and failed 7 times to rally beyond the 90-level.  Once again we are approaching that key 90-level. 

A strong dollar means that the world considers the U.S. market and the U.S. consumer to be the strongest.  It also means that commodity prices (including gasoline, gold and silver) will continue to plummet.  The dollar index has soared to 87.  I am looking for the dollar to continue to rally to 90 – which could happen over the next 6 to 12 months.  Then it should stall and potentially have a strong pullback.  This pullback will be the 30% correction that I have been looking for, and will represent the buying opportunity of a generation. 

Why do I think that it will take another year or so to correct?  When I look back over the past 40 years, all of the recessions have happened during a Presidential transition.  The ‘82 recession, the ‘93 recession, the 2001 recession, and the 2009 recession have all happened when there was a change of power in Washington.  In 2016 there will be a change in power that I think will align with both a recession and a market correction.  After that, the dollar will begin to recover, break above 90, and head toward its next major support level at 105.  So, if you think stocks are high now – you ain’t seen nothin’ yet.

In terms of the Chinese company Alibaba (BABA), they reported earnings this week.  Allow me to point out Alibaba’s size, its growth, and its reach:
-       The number of annual active Alibaba buyers climbed from 279M a year ago to 307M.  There are 319M people in the U.S., so Alibaba has almost the same number of annual active buyers as there are people in the U.S.  Alibaba grew by 28M active users in one year – which is more than the entire population of Texas.  Its mobile users have surged to 217M monthly active users, and its gross merchandise volume rose 49% from a year earlier.
-       Because the Chinese are moving up on the income ladder and gaining access to credit, China is becoming more reliant on domestic spending.
-       The Chinese population has enormous room for growth as a ‘flood’ of new consumers and higher income earnings are coming on-line daily.

Therefore, I think that the concerns about China have less to do with their domestic growth and more to do with the BRIC bank, the U.S. dollar as a reserve currency, their oil and gold purchases, and their international trade status.  China’s economy is getting to a point where their domestic economy can absorb virtually anything that the U.S. ‘can throw at them’ – and that should scare us.


Tips:
This week the U.S. Mint confirmed that they ‘sold out’ of silver one-ounce rounds. What is fascinating is that under normal economic circumstances – when something ‘sells out’ you would think that demand was indeed robust and you would then raise prices.  In the case of precious metals, their price is continuing to drop – directly in the face of dramatically increasing demand.  My thinking was that the Fed itself was driving down the prices of gold and silver, in order for them to buy and meet the redemption demands by foreign deposit holders like Germany and others.  Perhaps their plan is backfiring in so far as too many individuals are capitalizing on the demand disparity between paper and physical precious metals.  I think the price of gold settles at $1,033 per ounce.

It's been 17 trading days since FED-head Bullard hinted that maybe the QE process should be extended.  Since that mention during the depths of the 10% pullback, the DOW has gained 1638 points.  That's an average of almost 100 points per trading day.  By virtually every measure – this market is extended to the upside.  We should see some consolidation, but without a catalyst, we could just chop and drift higher.  Right now, the biggest magnet for the S&P is the 2050 value, and it is within striking distance – especially if the ECB does a fraction of the QE that the Bank of Japan announced last week.  This 2050 area has the potential to be an area where the S&P remains for a while.  So bottom line, the higher we go in this market without consolidation – the less I trust it.  My guess is that we do a bit of fading this week.  It could be a ‘run of the mill’ 2 - 4% pull back, or it could again morph into something deeper.  After that pull back, I think they'll re-group and shoot us higher into yearend.  A common strategy is to watch the stocks that hold up the best in a down turn, and then buy them for the upswing.  My current list of potential candidates is; GILD, IBB, AAPL, WYNN, FDX, BTU, ALL, PII, HSY, FLR, BMY, DPS, TEX, SLW, IYT, TRV, UTX, KR and a couple interesting long stock ideas in LAYN and HERO.

1.    Sold the NDX – December 2014 – Iron Condor – 3880 / 3890 to 4340 / 4350 – with a 1:4 risk/reward ratio and yielding $2.18 per contract
2.    Sold the RUT – December 2014 – Iron Condor – 1070 / 1080 to 1230 / 1240 – with a 1:3 risk/reward ratio and yielding $2.15 per contract
3.    Sold the SPX - December 2014 – Iron Condor – 1900 / 1910 – 2110 / 2120 – with a 1:3 risk/reward ratio and yielding $1.90 per contract
4.    On Wednesday - consider selling the XLP (Consumer Staples) – December 2014 – Iron Condor – 44 / 45 to 49 / 50 – with a risk reward of 1:5
5.    On Wednesday – consider selling the XLU (Utilities) – December 2014 – Iron Condor – 42 / 43 to 48 / 49 – with a risk reward of 1:3+
6.    On Thursday – consider buying the XLU (Utilities) – December 2014 – Butterfly – 47 / 49 / 50 – and sell the off-setting Put-Credit-Spread to make this a no-lose trade.
7.    On Thursday – consider buying the XLP (Consumer Staples) – December 2014 – Butterfly – 49 / 50 / 52 – and sell the off-setting Put-Credit-Spread to make this a no-lose trade.

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>



Sunday, November 2, 2014

This Week in Barrons - 11-2-2014













This Week in Barrons – 11-2-2014:

“QE Infinity … and Beyond!” … Buzz Lightyear

Dear Ms. Yellen:
            Ms. Yellen, congratulations on ending QE.  As I remember the movie Toy Story, I wish you the best of luck making sure that our economy (like Buzz Lightyear) glides slowly in for a safe landing.  But – say it ain’t so that:
-       Alan Greenspan said: “QE did NOT help the economy, the un-wind will be painful”, and he recommended buying gold.
-       Hillary Clinton said: “Don’t let anybody tell you that it’s corporations and businesses that create jobs.”
-       Nancy Pelosi said: “Unemployment benefits are creating jobs faster than practically any other program.”
-       Japan announced that they will (a) expand their QE program by 40%, and (b) the Bank of Japan will triple their purchases of Exchange Traded Funds.  Unless I’m misunderstanding this, it means that they are directly buying into their own stock market.
-       The European Central Bank (ECB) is going to announce their own QE program after their meeting on November 6th.
-       U.S. corporate earnings and economic data (GDP, housing, jobless claims and consumer) are coming in weaker than anticipated, and your FOMC statement was more ‘hawkish’ than normal.
-       The 3.5% GDP number showed a weak consumer, and was only bolstered by the largest gain in defense spending since 2009.
-       The barrier to higher real estate sales has nothing to do with home prices or mortgage rates, but rather with jobs and income.  “We don’t have enough jobs, and the jobs we do have don’t pay enough; therefore, the result is the lowest level of home ownership in 19 years.”
-       Your ‘hawkish’ tone and implied interest rate increases are just ‘talk’ – yes?  Because increasing interest rates with the CPI (consumer price index) continuing to fall and the dollar continuing to rally is simply financial suicide for the U.S.

Ms. Yellen, again thanks for ending QE, and ‘Thank You’ in advance for a potentially great holiday season for the equity markets.  But won’t it be difficult to grow our economy if our own currency continues to rally, disinflation begins to really take hold, and our labor market continues to have structural problems?

Finally, Ms. Yellen, there’s a rumor out there that you did NOT really end QE.  The rumor-mill says that you currently have $4 Trillion worth of U.S. Treasuries and mortgages on your books.  As those treasuries mature and pay the coupon and as those mortgages continue to pay – the FED will be making about $500 Billion dollars a year.  The rumor mill says that you’re going to use this money as a small replacement for QE.  Please, say it ain’t so! 


The Market:

So for those looking for ‘actionable’ advice: Don't do a darned thing right now, because the crosscurrents are enormous.
-       The FED just took away the punch bowl, but there are national elections next week.
-       Economists are already debating whether the rate hikes will begin in the spring of 2015 or 2016.
-       Consumer confidence is at an all time high (a level not seen since November of 2007), which is the very month the market started to roll over into its deepest drop in decades.
-       U.S. durable goods declined in September – missing estimates by a mile.
-       UBS set aside $2 Billion for illegal currency rigging and tax evasion settlements.

But ‘oh look’ we’re at all-time, new highs.  According to JP Morgan, QE added $9 Trillion In ‘Equity Wealth’, which translates to 32% of the current S&P 500 level.  QE not only distorts interest rates, but also distorts corporate earnings by allowing corporations to buy-back their own stock at sadly deflated rates.  But the fact that we’re at all-time highs does NOT mean that we're clear of any danger zones and ‘full-speed’ ahead.

I understand that:
-       November is generally a good month for stocks, especially the second half of November.
-       Japan is going to be buying US stocks.
-       The FED is not totally out of the QE game due to their reinvestment philosophy.
-       Most companies do their buy-backs in November.
-       The election is on Tuesday, and it appears as if the Republicans are going to rout the Democrats.

If the Republicans take control, we could hear all manner of things coming out of Congress – from a call to impeach Obama to noise over Illegals, to Obamacare.  In other words, elections have consequences, and some of the things the Republicans might say, could rattle the market.  So, I'm looking at these last few days of rally with a more than skeptical eye.  This rally feels more like a ‘last dash’, ‘throw the kitchen sink’, desperation rally – than a healthy march forward.  I need to see what kind of shape we're in by the end of the week.

For Monday, Tuesday and most of Wednesday I would expect to see more chop than trend – as everyone dissects the results of the election.  But by Thursday and Friday we should get pretty serious hints as to the near term direction of the market.  Frankly, I’m just not convinced that this blast higher is going to hold up.  If the market is going to start another true leg higher, I will have time to get involved – otherwise, there is no reason to go ‘all in’ right now.

Watch the IWM, the XLF and the SMH this week.  These three ETF's are very good indicators for where things are going to go.  If they all hold up, then yes, we will be heading higher.  But, if they get mixed or red – then you should exercise caution.


Tips:

QE Infinity … and Beyond!  That is what we received last week – as Japan picked up (increased QE) where the U.S. FED left off (ending it’s QE).  The Japanese QE gave the Nikkei a 5% boost higher, the European markets a 2% higher, and the U.S. markets another record all-time high.

However, there is a lot of crazy stuff going on in this market.  The good new is – after you’ve been trading for a while – ‘everything old is new again.’  The biggest ‘curve ball’ that is going on in this market – is that the dollar index is exploding higher.  This is laying the pattern for something that is MASSIVE – coming down the line.  When a key asset (like the U.S. dollar) changes – the ripple effect touches everything.  When money is flowing into the U.S. dollar, it means that it’s flowing out of emerging market economies.  The challenge is (a) trying to balance out what is going to happen to the world over the next couple of years, and to (b) make sure that we can make money next week.  First, anything that is correlated to U.S. dollar moving higher, and non-correlated assets will be moving lower – such as the Euro. 

I think that the market is extended here and we should see some consolidation.  One element to be aware of is an ECB meeting on NOV 6th.  If the ECB follows Japan with more QE, we will see more upside to our markets.  My current list of ‘watch’ candidates includes: MMM, IBB, FDX, ALL, PII, HSY, FLR, BMY, DPS, TEX, SLW, IYT, TRV, UTX, XLE and TWTR (possibly to the upside).

1.    The Euro is going lower; therefore, consider buying the March 2015 - $127 PUTS on FXE for $4.57 per contract.
2.    Gold is going lower.  GLD will move from $116 to under $100, and SLV will go down along with it.  Consider buying December 2014 - $17 PUTS on SLV for approximately $1.69 per contract.
3.    Consider purchasing December 2014 - $118 CALLS in TLT (bonds) for approximately $3.00.
4.    Consider selling the SPX - December 2014 – Iron Condor – 1875 / 1880 – 2095 / 2100 – and buying a December 2160 call as protection – with a 1:3 risk/reward ratio.
5.    Consider selling the RUT - December 2014 – Iron Condor – 1070 / 1080 – 1240 / 1250 – buying a December 1250 call as protection – with a 1:3 risk/reward ratio.

My current short-term ‘Larger-Cap’ holds are:
-       KO (Beverage) – in @ $41.17 – (currently $41.87),

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