This Week in Barrons – 3-13-2016:
Thoughts:
"We injected cocaine
and heroin into the system to create a wealth effect.” … Richard Fisher (former Dallas FED member)
Ms. Yellen:
This week, when former
Dallas FED member Richard Fisher admitted on CNBC that the FED: “Injected
cocaine and heroin into the system to create a wealth effect” – your jaw must
have hit the floor. He continued
explaining that the FED went ‘ALL IN’ pushing markets higher, hoping for a
‘wealth effect’ where everyone would be willing to spend because ‘on paper’ they
were feeling wealthy. And finally he said: “Due to all of the QE, money
printing, stimulus and twists – we created huge economic disconnects.”
But at some point this became ineffective, and like heroin to a junkie
(where you need to constantly increase the dosage or you don't get the same
high) – they ran out of bullets. Now,
you have the perfect right to be surprised that your policies aren’t working,
but NOT that they’re being made public – especially now. Given this is the first time in history that
a single President (Obama) has appointed ALL of the FED governors – you must be
scared that come November, you could be looking for work?
That’s especially true if
‘The Donald’ means what he says – and starts bringing manufacturing back to the
U.S. After all, SF was nice enough to
share with me the economic numbers that came out of Rockland, NY this week. It seems that this month (according to the
Bureau of Labor & Statistics) the top average weekly wage gain (in sizeable
counties) went to Rockland, NY for producing an average weekly wage gain of
$3,170! Yes Rockland, NY: population
323,000, 31% Jewish, 77% white, 13% African American, 30% with incomes below
the U.S. average – produced a 220% weekly wage gain simply by restarting a
manufacturing plant. So when ‘The
Donald’ speaks of bringing manufacturing BACK to the U.S. – think in terms of increasing
payrolls over 200% - adding an additional $12,000 per month to someone’s
salary.
Remember when the Democrats
and Republicans were planning on running Hillary Clinton against Jeb Bush, and
having the best puppet win? Remember
when ‘The Donald’ was a presumed ‘flash in the pan’? Remember when he was termed a loud-mouthed,
rude, politically incorrect individual – looking for a few minutes in front of
a TV before he would fade off into the great casino in the sky? And now, we have the establishment ‘freaking
out’ over him winning. In the single
largest push that I’ve ever witnessed, Hollywood along with mainstream media, tech
moguls, athletes and even Mitt Romney have come out warning America against
‘The Donald’. Why? I think Newt Gingrich said it best during an
interview with Fox News’ Bill O’Reilly: "He's an outsider. He's not them.
He's not part of the club. He's uncontrollable.
He has not been through the initiation
rites. He does not belong to the secret
society."
The GOP party has publicly
admitted that they are trying to take down him down, and swing the nomination
to someone who ‘stands for the party’. Their
plan (if ‘The Donald’ continues his winning ways) is to try and do an ‘end run’
behind the backs of the American people, and appoint Mitt Romney at the
Convention. I remember that famous quote
from Josef Stalin: “The people who CAST the votes decide nothing. The people who COUNT the votes decide
everything.”
Ms. Yellen, I bring all
this up because history IS going to repeat itself. According to everyone I listen to, the next
crash will either be ‘pretty bad’ or ‘epic in nature’. Everyone knows that the stock market is
manipulated via QE and buybacks, and that the world is really insolvent. We continue to kick the can down the road by
inventing new programs such as ‘negative’ interest rates and now allowing Central
Banks to buy stocks. Even Bernie Madoff
admits that the best ponzi scheme will eventually fail. Your system uses equities as collateral for more
derivative creation. You need the market
up so that ‘The Street’ can continue to create more debt.
Heck, higher oil prices only
happened because banks were about to see their loan portfolios implode due to idled
oil fields. Therefore (wink-wink) you
increased oil prices so that the frackers, drillers and banks would be given
time to renegotiate their loans. As the oil
operators were going ‘bankrupt’, banks were being forced to take ownership of
the oil fields. But because of environmental
regulations, you can't just cease all activity and walk away from an oil well. Wells need to be properly capped, cleaned-up,
and any materials that could leach into the groundwater – removed. Banks wanted no part of that. So the
easy solution was to manipulate oil prices higher (in the short run), in order
to keep oil patch loans from going sour and dragging down hundreds of banks. Once all of the loans get reworked, then the
price of oil will again drift lower.
Ms. Yellen, you hear the
people screaming at the top of their lungs as much as I do. They are tired of the establishment, and the
establishment is running scared. I
wouldn’t be surprised if 6 months from now, you were on the other end of ‘The
Donald’ saying: “You’re Fired.”
The Market:
In the last month we've seen
the S&P go from a low of 1810 to 2022. I remember November of 2007
when Jim Cramer was telling all of his listeners: “Yes, the market looks extended, but this
rally isn't over by a long shot, and I'm telling you to buy-buy-buy!"
Then the market fell like a rock.
Last year, Europe (under
Mario Draghi) introduced their version of QE (to stimulate growth) by
initiating a 60B Euro per month bond buying program. More recently they lowered deposit rates to a
NEGATIVE 0.3%. The results never
materialized. So on Thursday, Mario
Draghi ‘doubled down’ on policies that did NOT work the first time. He cut rates even further into negative territory,
increased the amount of bond buying from 60B to 80B Euros per month, extended
the time frame, and announced a new initiative to buy corporate bonds.
At first, markets went
wild, but instead of Germany, Europe and the U.S. continuing higher – they reversed
and went lower. It seems that the
‘establishment’ had it all figured out.
Draghi would unleash a bazooka full of money, the Euro currency would
fall like a rock, and stocks would soar to new heights. However, their plan backfired. By going in that aggressively, instead of
everyone rejoicing – investors said ‘holy crap, things must be much worse than
we thought’ and ‘sold the news’.
Even the citizens of
Germany and Sweden awoke from their socialist slumber. Think about it. Company A creates a debt note. The ECB buys that debt note directly from the
company. Company A can now: (a) hire
more workers, (b) expand their business, or (c) vote themselves more executive
options and use the ECB’s money to buy back their own stock to inflate their own
stock price. What do you think they will
do? Factually: 20% of all stock exchange
volume is being consumed by stock buy-backs.
Legally, stock buy-backs CANNOT occur 5 weeks prior to, and 2 days
following a company’s earnings release.
In creating the chart
below, I mapped the downturns (with orange lines) over the past 18 months in
the index. Honestly, they seemed a
little ‘too regular’ for my taste. What
you’ll see is that these downturns occur (to the day) during the period when
corporations are NOT ALLOWED to buy-back their own stock. It seems that without corporate demand –
there’s virtually NO demand.
Therefore, if you wish to
participate in a particular corporation’s stock rally:
A. Be conscious of the 5-week window prior to earnings.
B. Go to PowerShares Buyback Achievers Portfolio = https://www.invesco.com/portal/site/us/financial-professional/etfs/product-detail?productId=PKW
C. Go to ‘View All Top Holdings’ = https://www.invesco.com/portal/site/us/financial-professional/etfs/holdings/?ticker=PKW
D. Group by ‘Percentage of the Fund’
E. Build a watch list of your stock’s buy-backs &
earnings dates.
F. And when there is a massive sell-off in a favorite
stock, simply review whether a company is within their 5 week window:
a. If YES, then do not purchase until after earnings,
b. If NO, then purchase the stock for a quick rally as
these companies will quietly out-perform
The markets ARE the
economy. China’s imports and exports
have fallen to 2009 lows. If the markets
roll over like they did in 2008, the crash will be worse than 2008 and 1929 combined.
I believe that this week’s Draghi
maneuver was pretty much the ECB being ‘ALL IN’. There's really not much left to be done. Never before has the world seen: (a) negative
interest rates, (b) Central banks buying stock, futures and corporate debt, and
(c) $700T in derivatives. From Abe in Japan, to Draghi in Europe, to the
stimulus injections in China, to the years of QE and ZIRP in the U.S. – I think
they've shot all of their legitimate ammo.
I can see this run taking
us up into the S&P 2100 level. The
one remaining issue in the way of this melt-up is Janet Yellen. This week the FED will hand us their decision
on interest rates. If the FED is NOT as
‘dovish’ as the street wants, that could ding the whole rally. And if the FED believes in the strength of our
economy, and sets the table for another hike, then that would put the brakes on
this rally for sure. It’s truly an
exciting time to be an investor. We are watching
policies never seen before – unfold right in front of our eyes.
TIPS:
I think there's a lot of
opportunity coming on the downside. If
I'm right, we will all need to: learn how to ‘short’, explore the inverse ETF's
like DOG, SH, RWM, PSQ, and learn how to use put options. Markets traditionally
take the ‘stairs up’, and the ‘elevator down’.
I think we're getting close to one of those times.
For those of you
participating with me in the AG mining play – congratulations, you’re up over
30% YTD.
I am:
-
Long various mining stocks: AG, AUY, EGO, GFI, IAG, and FFMGF,
-
Long an oil supplier: REN @ $0.56,
-
Long GLD – Mar – Call Debit Spread – 115 / 120,
-
Long NKE – Mar – Call – 67.5,
-
Sold RUT – Mar – Call Credit Spread – 1100 / 1105,
-
Sold SPX – Mar – Call Credit Spread – 2025 / 2030,
-
Long SPX – 1925 – March / + April Calendar spread,
-
Long SPX – 2025 – March / + April Calendar spread,
-
Sold TEX – Apr – Put Credit Spread – 19 / 20, and
-
Long TSN – Mar / Apr – 62.5 Calendar
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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