RF's Financial News

RF's Financial News

Sunday, May 15, 2016

This Week in Barrons - 5-15-2016

This Week in Barrons – 5-15-2016:


            




















Ms. Yellen:
After seeing the movie ‘Money Monster’, I’m trying to get my arms around today’s plight of the U.S. manufacturing worker.  Verizon is a great example of flat or declining worker pay combined with continued outsourcing of jobs as a result of NAFTA and other free trade agreements in our manufacturing sector.  SF reminded me that we are both old enough to remember when manufacturing employees had pensions and a livable wage.  Currently Verizon (VZ) workers are on strike while VZ corporate continues to outsource manufacturing to low-wage, non-union contractors in Mexico, the Philippines and the Dominican Republic. 

How much can Verizon save by moving jobs to Mexico you ask?  If it is at all similar to the auto sector, Verizon can save $50 per HOUR per WORKER by sending jobs ‘south-of-the-border’.  GM reports that their workers in Mexico earn wages and benefits of $26 per DAY (less than $4 an HOUR) – while autoworkers in the U.S. earn (with benefits) between $50 and $55 per hour.  http://www.bloomberg.com/news/articles/2010-06-09/gm-ford-to-accelerate-growth-at-mexico-plants-where-workers-get-26-a-day.

After watching ‘Money Monster’, I asked myself: “Why didn’t Verizon (VZ) shifted their jobs to Mexico prior to 2016?”  After all, this wage discrepancy just didn’t pop-up over night.  But shifting jobs to Mexico is a risky move.  When analyzing decisions I always start with the financials.  Verizon revenues have been flat to growing at 4% per year.  However, they borrowed $52B in 2013 / 2014 in order to buy-back almost $60B (25%) of their own stock.  They chose buying back stock and increased officer compensation over: increased R&D, capital improvements, and paying a competitive wage to their workers.  One of the consequences of that decision is the necessity of VZ to dramatically lower costs (shift jobs to Mexico) in order to save enough money to meet stockholder expectations and to pay back those stock buyback loans.  You see if VZ’s stock does NOT continue to increase in price, borrowing money to buy more of IT could be viewed as doubling-down in Vegas - an inept decision and potential grounds for dismissal of the officers.

Ms. Yellen, I’ve talked endlessly about the ‘unintended consequences’ of keeping interest rates low for extended periods of time (ZIRP), and the obvious incentives it gives corporations to borrow tremendous amounts of debt at near zero rates.  What we’re seeing is that everyone has their price – even corporate CEOs.  If we allow corporations to ridiculously compensate their officers (at the expense of the workers) – they will.  Because of their officer’s personal greed, the ONLY choice left to Verizon is to absorb the risk of moving manufacturing to Mexico.  They have boxed themselves into a decision-making corner – where the only way out is risky movement of their manufacturing to Mexico.  Their officers will rationalize this as a cost-cutting move, but (mark my words) it was a move caused by ZIRP and personal greed.  Ms. Yellen, you cannot control personal greed, but you can control ZIRP.

I understand it’s an election year, and you would like to keep your job.  But for the sake of doing what’s right, and for the sake of the American worker – would you please continue to raise interest rates, allow the markets to correct, invite investing in corporate fundamentals back into the picture, and eventually bring our manufacturing jobs BACK to the U.S?  It pains me to say this Ms. Yellen, but if you don’t – President Trump will.


The Market:
Have you noticed the number of bankruptcies in the oil sector this year?  The following graphic spells it out better than I ever could.  If you wonder why the financial sector is weak, you need look no further than who’s loaning money to these bankrupt oil companies.





































Factual Top 10:
-       #1       Total business sales have been declining for nearly two years, and are now down 15% from late 2014.
-       #2       Corporate earnings have declined for four consecutive quarters, and S&P profits are down 7.1% quarter over corresponding quarter.  This never happens outside of a recession.
-       #3       April’s commercial bankruptcies were up 32% and Chapter 11 filings increased 67% over the same period last year.
-       #4       U.S. rail traffic was 11% lower last month than during the corresponding period in 2015.
-       #5       Challenger, Gray & Christmas reported that U.S. firms announced 35% more job cuts during April than during March.  So far this year, job cuts are running 24% above 2015.
-       #6       U.S. GDP grew at just a 0.5% rate during the first quarter of 2016.  This was the third consecutive time that GDP has declined compared to the previous quarter.
-       #7       Barack Obama is poised to become the first U.S. President to never have a single year when the economy grew by more than 3%.
-       #8       Half of the population couldn't find $400 for an emergency without selling or borrowing something.  51% of the people have no retirement savings, and 1 in 4 families receive Government assistance.
-       #9       Carl Icahn is 150% net short this stock market.  He is convinced we're staring at a 20% decline or more.  Smart money has now fled the market for the longest stretch in history.
-       #10     The Fed has said publicly "Falling asset prices could produce systemic risk".  Translated: If stocks fall, it could blow up the system!

Friday broke a pattern that could become important.  On most Friday's (no matter how red the market was) the Central Banks would magically levitate the market to where it was either green (or almost green) for the close.  That was done to make the market look healthy for the weekend TV shows.  But last Friday, that pattern was broken.  At 1 pm the S&P was a bit red, hovering around 2058, and instead of the customary late Friday rally, the Central Banks allowed it to roll over, and we ended the day down 17 S&P points.  We closed WELL below the S&P 50-day moving average – which is never a good sign for the bulls.

Now this is where things get really interesting.  While the 50-day moving average is psychologically important, technically – it doesn't carry nearly the weight that it used to in years gone by.  It (therefore) isn't the end of the world that the S&P lost it’s 50-day moving average level.  It does (however) become a little more interesting because the DOW also lost its 50-day moving average.  So we have both major indices UNDER their respective important levels.

The real test for the S&P however will be at the 2040 level.  If you look back to the beginning of April, you will see no less than 6 days in a row, where that level held as support.  That is significant.  If we lose 2040 on a closing basis, you can pretty much redraw the charts, and we will be in ‘no question’ correction territory.

Friday we closed at 2046.  I’m sure on Monday that the Central Banks will step up to the plate and do whatever they can to keep things higher.  But the struggle is becoming epic, and right now it feels like the Central Banks are going to fail.  For this week I think we're going to see the market bounce along that 2040 level – trading sideways like those 6 days in early April.  But then, if we don't see a lot of buy back action, or some more central bank buying – we are heading lower.

What about a bounce?  Could we instead get a mindless romp higher like we did this past Tuesday?  Absolutely, but I think that it will fade out just like the previous one did.  The ONLY thing keeping this market up is FUNNY MONEY, and even that's not having the same effect.  As always, be careful out there.


TIPS:
Congrats to all who have followed our AG trade – it’s currently up over 900%.  I will be introducing a new trade next week, similar to that one.

I am:
-       Long various mining stocks: AG, AUY, DRD, EGO, FFMGF, FSM, GFI, IAG, KGC, and PAAS,
-       Long an oil supplier: REN @ $0.56,
-       Buy FB – May – Butterfly centered around $120,
-       Sold RGR – May – Put Credit Spread – 55 / 60,
-       Long RUT – May – Butterfly – 1000 / 1080 / 1130,
-       Long TLT – May – Call Debit Spread – 128 / 133,

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, May 8, 2016

This Week in Barrons - 5-8-2016

This Week in Barrons – 5-8-2016:

















Who are we kidding?


Ms. Yellen:
On Friday we received the Non-Farm Payroll report (NFP).  This report is published by the government, comes out on the first Friday of every month, and contains a lot of information surrounding the previous month’s job hirings.  Most economists have gone on record stating that for our nation to move forward, we need to show that over 200,000 jobs are being created each month.  Last Friday we found out that only 160k jobs were created in April.  What does that mean?

First let’s dissect the number.  The OTHER jobs report is the Current Population Survey (CPS).  It is based upon household interviews conducted each month by the U.S. Census Bureau for the Bureau of Labor Statistics.  The CPS provides comprehensive data on unemployment along with labor force participation, age, sex, family relationship and marital status.  Fifty thousand households across 792 sample areas (including every city and county in the U.S.) participate in the survey.  This data is used to calculate a region’s Local Area Unemployment Statistics (LAUS).

The best way to compare the two types of employment numbers is to note that the LAUS data is based upon households whereas the government’s data is based upon payroll records.  You would expect them to vary a bit, but last month – “Houston, we have a problem.”  The government’s model showed that we CREATED 160,000 jobs, where the LAUS showed that we LOST 316,000 jobs.

Often the difference (in part) is due to the government including a ‘Birth/Death’ model calculation inside their report.  What is a ‘Birth/Death’ model?  The government assumes that for every hundred people that lose their jobs, a given percentage of those will go out and open a new business and hire new people.  There is NO proof that these businesses or jobs even exist – just our government’s WAG (wild assed guess).  This past month our government ‘guessed’ that the Birth/Death model created 233,000 jobs.  These same 233,000 phantom jobs (that don’t exist) were INCLUDED in the 160,000 jobs created number.  So if you remove the ‘fake jobs’ – you’ll see that according to the government we lost 73,000 jobs last month.  At least that puts us in the same direction as the LAUS/household report.  But naturally, the government couldn’t come right out and tell us that our economy really LOST 73,000 jobs last month.

But Ms. Yellen the government report told us two more things:
-       1.  Last month an astounding 562,000 people dropped out of the labor force, sending the labor force participation rate lower once again.
-       2.  Last month, if you subtracted out the number of part-time jobs from the total jobs created, you would have found that 253,000 full-time jobs were LOST.

However, something interesting happened on Friday.  In the past, when the market received lousy jobs numbers – it would go up by 200 points in the hope that our FED would not raise rates or maybe even do more QE.  This time we were barely green on the day.  Maybe that's because the ‘smart’ money has been leaving the market for the past 15 consecutive weeks.  Last week, $16B more fled the equity and ETF markets.

Ms. Yellen, could it be that even with all of your ‘slight of hand’, your ability to push the market higher on false pretense is becoming tougher?  After all: earnings season stunk out loud, the global economy is in a recession, and now we are losing jobs at an alarming rate.  I don't know how long you can keep the plates spinning, but in my view, selling stocks and buying more gold and silver wouldn't be a bad idea.  Gravity always works, and one day it will pull stocks down to where they belong.  FED or no FED, please be cautious out there.


The Market:
Factually:
-       Big truck sales came in 38% lower than last year.
-       Of the 6 major retailers reporting, they all missed achieving their sales and earnings estimates.
-       The Manufacturing Index fell by 1.9% last month, suggesting no end in sight to the current downturn in manufacturing activity.
-       The Purchasing Managers Index fell by 1.6% last month.
-       Both Puerto Rico and Atlantic City are close to declaring bankruptcy.
-       And medical errors have become the #3 killer of individuals in the U.S.  They have moved ahead of: guns, cars, poisonings, and drug overdoses.  So if I understand this correctly: By using my Obamacare Insurance (for which I’m paying the highest premiums ever), I have more of a chance of being killed by misdiagnosis, wrong meds, etc. than by guns or cars.

But politicians like a ‘green’ Friday – so they can talk about how wonderful things are on their weekend TV shows.  The market going ‘red’ has become almost illegal on Fridays.  If you examine the action on Fridays over the past year, you will see that no matter how low we are in the session, ‘the powers that be’ tend to get us flat or green on the close.  This past Friday was no different.  From a low of 2039 on the S&P in the morning, the afternoon saw the markets roar to life and close at 2057.  The same thing occurred on the previous Friday when (at one point) we were down 155 DOW points; we came back in the final minutes to close green.

You don’t think that this kind of action is because millions of investors from hundreds of countries around the globe decided at the exact same time to buy stocks do you?  Do you really think this is your ‘free market’ at work?  These are the Central Banks doing their best to keep the economic illusion alive.

What happens now?  Because we bounced off of the 50-day moving average, this should trigger some algorithmic buying early in the week, and we could see a couple green days.  But it’s going to be hard for our Central Banks to conjure up a strong rally.  We are still in a pattern where the volume is larger on down days, than on the up days.  So, while they might get some mileage out of Friday’s bounce, I think they'll run into resistance at the 2075 level of the S&P, and run out of oomph.  This market is so tired that even our Central Banks will need a bazooka to keep it up.  Stay safe.


TIPS:
I took a long term ‘risk trade’ on Twitter (TWTR) this week.  I bought the January 2018, $15 Calls.  I did NOT buy Twitter because it was strong, or because I think the overall market will rise.  I bought it because at some point I think someone that knows how to monetize it – will acquire Twitter.  It's a gamble, but I've got a long time for it to work.

I am:
-       Long various mining stocks: AG, AUY, DRD, EGO, FFMGF, FSM, GFI, IAG, KGC, and PAAS,
-       Long an oil supplier: REN @ $0.56,
-       Sold NDX – May – Iron Condor – 4125 / 4150 to 4750 / 4775,
-       Sold RGR – May – Put Credit Spread – 55 / 60,
-       Long RUT – May – Butterfly – 1000 / 1080 / 1130,
-       Long TLT – May – Call Debit Spread – 128 / 133,

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>