RF's Financial News

RF's Financial News

Sunday, March 12, 2017

This Week in Barrons - 3-12-2017

This Week in Barrons – 3-12-2017:
























“The fundamental things apply – As Time Goes By”… Herman Hupfeld

Thoughts:

Dear Mr. Sinatra:
   Somedays I wish I could turn back time – back to when the fundamental things DID apply.  The Snapchat IPO is my latest case in point.  SNAP’s $29B market cap makes it larger than over 65% of the companies in the S&P 500.  Couple that with their 2 whole years of sales history, massive losses, and all of their voting shares being controlled by two individuals barely born while you were alive – it’s a “case of do or die”.
   But in many ways Mr. Sinatra: “It’s still the same old story” with the world being awash in oil.  There is speculation surrounding how long any deal between OPEC and non-OPEC nations to limit production will hold up, but three elements are for sure: (a) U.S. shale oil production has come back with a vengeance (see below chart of rig count consistently increasing), (b) oil inventories stateside are swelling, and nobody was ready for this pullback in price (see price chart below).



   I’ve heard rumors of a 20% ‘Border Adjustment Tax’ being placed on foreign oil to keep the domestic shale producers (and their banks) engaged and in business.  I’ve also heard that Saudi Aramco (the $2T Saudi oil company that is going public in 2018) is ready to spend ‘whatever it takes’ to keep the price of oil elevated.



   On Friday, I think the SEC exuded a little “passion, jealousy and hate” when they nixed the proposed formation of a Winklevoss Bitcoin Trust ETF.  It seems they feel that the proposed ETF wasn't consistent with rules that require a security be "designed to prevent fraudulent and manipulative acts and practices, and to protect investors and the public interest."  Secondly, the SEC felt that significant markets for bitcoin were non-regulated.  I don’t understand, nobody talked about manipulation and non-regulation 2 weeks ago when more silver was shorted on a single U.S. exchange than produced globally during an entire year.   And given the SEC allows investment in both Russian and Venezuelan ETFs, it goes without saying that ‘regulated’ would NOT be the word that comes to mind when I would describe both of those market places.  But more than that, what I found interesting was the graph below showing the reaction within the precious metals market as soon as the Bitcoin decision was released.  I can only assume that precious metal investors are frustrated at the blatant manipulation of their own markets, were hoping for a bitcoin alternative, and when none was forthcoming – dove back into their own manipulated and non-regulated markets.




   Mr. Sinatra, today our government is so bloated, and faces huge budgetary constraints.  I often remind myself of Peter Drucker’s quote: “It takes exponentially more people to manage more people; therefore, you should actually work on getting more done with less.”  We the people (in thinking that our leaders could properly stimulate the economy) allowed our government to exceed their budgetary limits, borrow a lot of money, and make promises that they couldn’t keep.  In fact, globally it’s virtually non-existent to find any country that runs a balanced budget, has a sound monetary policy, and hasn’t overpromised on entitlements.  Therefore, there isn’t much that governments can do in terms of discretionary spending.  Short of starting a war, the amount of truly impactful things that President Trump can do is limited.  Governments can do very little to foster growth, aside from having simple policies, and getting out of their own way.  But as the song says, “No matter what the future brings” – time will go by.


Markets:
   This week the non-farm payrolls report came out, and we were told that our nation has a 4.7% unemployment rate.  They actually had the audacity to issue that number in the face of a dramatically declining workforce participation rate.  When talking to SF this week and using numbers directly from www.bls.gov (without adjustments) – he calculated the unemployment percentage for adults (over 16) as 37.3% of the total population.  WOW.
   During the last 8 years, investors have had to endure: a flash crash, a downgrade of the U.S. credit rating, a debt-ceiling crisis, a taper tantrum, GrExit (Greece), BrExit (Britain), and Trump.  The Fed kept the punch bowls full, and made sure any setback was quickly alleviated with easy money.  Easy money forced many savers into riskier assets like stocks and high-yield bonds, but that was the price paid to keep the romance alive.  The graph below shows that for the first time since the U.S. presidential election, stocks made more 52-week lows than made new 52-week highs.


  
   Going back a little over a week, the market put in a huge 300-point UP day on Wednesday March 1st.  Then the market spent the next 5 sessions giving it all back.  On Thursday (the 6th session) it held the flat line, and with Friday’s jobs report we gained 7 on the S&P and 45 on the DOW.  The jobs report estimates were for the creation of 190K jobs in February, but the actual number showed that 235K jobs were created.  Naturally, the fact that 124K of those jobs were as a result of a fictitious ‘birth/death model’ didn’t stop us for going green on the day.
   In normal times, I would easily suggest that the uptrend is intact, and we’re about to regain those points that we just gave up.  But this Wednesday, the Federal Reserve is going to raise interest rates – which normally doesn’t bode well for a market.  Secondly, the U.S. debt ceiling takes effect on the very same day.  The new Treasury Secretary has already gone to Congress to start the process of getting the debt ceiling raised, but will they be willing to do it?  And if they don’t do it – what happens?
   It’s possible that we see a market reaction similar to what we saw after the last two ‘bad events’.  With BrExit, everyone thought that the market would roll over and crash, and instead it began a 4-month climb.  With Trump winning the presidency, everyone thought that the market would crash, but ‘in the wee hours of the night’ it reversed a 1000-point slide and ran to all-time highs.  Then the day before Trump’s speech to Congress, the feeling was that if he didn't do well we would roll over, and instead we gained 300 points the next day. 
   So, it’s certainly possible that the market reacts to the rate hike and debt ceiling the same way.  Or because this market is so over-bloated that they could use the rate hike as the excuse to pull its plug.  Some think that the debt ceiling is going to be the last straw.  They feel that the Congressional Anti-Trumps will block everything, and force a Government shut-down that would make Trump look bad.  That’s certainly a possibility.  So, over the next couple weeks, all heck could break loose, or they could ignore it all and continue this mindless romp higher.  That's how divided things are right now.  I continue to nibble long, but with small size.  If this market rolls over, I don't want a ton of exposure.  And if it gets back above its March 1st high, then I will get longer.


Tips:
   Last week I mentioned investing in inverse ETF’s as my 2nd best way to invest in a downward facing market – and correctly BL wrote me and mentioned that both Morgan Stanley and Raymond James have BANNED all inverse products.  The ONLY short ETF allowed for use at each of those firms is HDGE, and I whole-heartedly recommend that product as well.
   This coming week is a ‘primary’ market options expiration week, and an FOMC meeting.  The SPX (the proxy for the S&P 500) has an expected to move for this week that is 50% greater than the expected move for last week.  That means that this coming week should be 50% MORE volatile than last week.  In fact, at no point in the last 6 weeks has the expected move been this large.  And these days, the SPX and its related products control over 1/3rd of the total options/market activity.  The only reason that I’m bringing this up is that if the SPX (currently @ 2372) were to move lower than 2342 or higher than 2402 – the markets are poised to move an additional 60 points lower or higher in a hurry.  Watch the financials and oil.  If both financials and energy continue to move lower, it will drive the SPX to the lower part of its range – and that will spell danger in a hurry.

I’m watching:
-       AK Steel (AKS) & Fleetcor Technologies (FLT): They have no support underneath their respective bear flags – so any move to the downside is shortable on Monday morning.
-       Nucor Steel (NUE) moves with U.S. Steel (X) – only slower,
-       Incyte Corp. (INCY) was a takeover candidate by Gilead Pharmaceutical (GILD) on Friday afternoon.  If they don’t announce it on Monday, then short INCY at the open on Monday.

Selloffs normally start with Consolidation and then Divergences:
-       Watch the foreign markets for any breakdowns.
-       Watch the bonds to see if they continue their downward slide.
-       Watch the Russell Small-Cap Index (RUT / IWM) to see if it continues moving lower and takes the SPX with it.
-       Watch to see if the SPX gets under its Average True Range (ATR) trailing stop on a daily chart.
-       Watch the other sectors such as: transports, technology, banking and energy – because EVERY selloff in the SPX has been preceded by a selloff in one or more of these sectors. 

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:

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 <http://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:

Startup Incinerator = https://youtu.be/ieR6vzCFldI

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







Sunday, March 5, 2017

This Week in Barrons - 3-5-2017

This Week in Barrons – 2-26-2017:


“Where were you when SNAP ripped off America?” … Editor of iBankCoin

Thoughts:
   Snapchat became a public company this week, and is currently holding a $30+B valuation. They are scheduled to take in about $400m in revenues this year, and accumulate over $500m in loses.  To quote SNAP executives: “We have incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability.”  It sounds like 1999 all over again, and according to 720 Global’s Michael Lebowitz: “The upcoming crash could be worse than during the dot com heyday.  Even though current valuations are not as extreme as they were in 1999, our current economic underpinnings are not as robust as they were then either.”  The following chart compares the dot com era (1995 – 1999) to what we’ve seen since 2012.  Notice: (a) productivity was almost double in the dot com era, (b) debt levels were almost one-third of what they are today, (c) interest rates were a ‘normal’ 5 to 6%, and (d) earnings growth was in the high single digits vs today’s negative.

   Jeffrey Saut (Chief Investment Strategist at Raymond James) says that he's never seen anything like what's happening now, and is heading for the sidelines.  In a note to his clients on Thursday he said: "I have been observing markets for 54 years, and I have never experienced anything like what is currently happening.  We modeled this post-election rally perfectly, but also expected a downside window of vulnerability in February that never materialized.  As a result, this week we sold 15 short-term tactical positions and are sitting things out until further notice.  In the short term, we do not understand what is going on.  And consequently, when we do not understand the current market environment, we tend not to play."
   We have a debt ceiling coming into play on March 15th.  If there's no deal agreed upon prior to March 15th, then the U.S. must work with "the money on hand" which runs out in late June.  At that time, Government agencies could be shut down, and it would be up to President Trump to decide which services remain open, and which ones are closed for good.  Rumor has it that they can't just mangle together a new debt ceiling because this one was cast as a ‘hard stop’ and written into the law.  David Stockman (the Director of the Office of Management and Budget (OMB) under Ronald Reagan) thinks that when the ‘debt ceiling holiday’ expires – there will be a market shakeup, gridlock, and the Government may even shut down.  He paints a pretty scary story, including suggesting we'll see at least a 20% market correction, with the good chance of a major crash.  Here's the link to his 25-minute interview:  https://www.youtube.com/watch?v=7xgNncFHAng&feature=em-share_video_user
   As SF and I discussed, the 2016 Gross Domestic Product (the measure of our economy’s growth) came in at a total of 1.6% growth for 2016, and 1.9% for Q4.



   I whine constantly about our markets making all of these new, all-time highs – because we don’t deserve to be up at these levels.  Our GDP was 3.6% in 1992, 4% in ‘94, and 4.8% in ’99 – with the DOW standing at 10,006 in March of 1999.  Meanwhile, in 2015 our GDP was 2.6%, and in 2016 it was 1.6% - and we’re flirting with 21,000.  I’m whining because in the strongest years of our economy, the DOW was over 10,000 points lower than it is today.
   Many will claim that Donald Trump’s pro-growth agenda will invigorate the economy and corporate earnings.  But we know that virtually all of Trump’s ideas face numerous headwinds along the path to implementation.  The numbers themselves scream ‘stagflation’, and there is little justification for paying such steep premiums for feeble earnings growth.  Meanwhile, Snapchat’s surging market capitalization just surpassed that of American Airlines and CBS.


Markets:



   Bank of America came out this week and told us that our markets are in one of those periods where you can throw convention to the wind because nothing is going to matter right now.  They said that we are in the "later stages of a bull market, during which fundamentals typically take a back seat to sentiment and technicals."  After all, just this week:
-       Ms. Janet Yellen said that they will hike rates very soon,
-       Same store retail sales declined across the board,
-       The Debt Ceiling is coming due on March 15th,
-       The IMF talked about the need to remove the U.S. Dollar as the sole global reserve currency,
-       Goldman Sachs and the Atlanta FED lowered their Q1 GDP estimates to 1.8%, J.P. Morgan now predicts 1.5%, and Bank of America cut their estimate to a meager 1.3%.

   I can remember 1999 when all cares went out the window, and more and more people started believing that stocks could only go up.  Marc Faber (editor of The Gloom, Boom & Doom Report) thinks that this rally's disruption won't be caused by any single catalyst.  "Very simply, this market will start to go down, and as it goes down, it will trigger selling, and then it will be like an avalanche."  So Cashin, Rogers, Stockman, Faber, and a host of well-known others are incredibly worried about this market action.  Yet this market continues to (as the song suggests): Defy Gravity. 
   Finally, a small news release (after the close of business on Friday) came out saying that the CME and Thompson Reuters have decided to pull out of the LBMA.  The LBMA is the ONLY physical silver market.  The COMEX is the silver’s fake paper market, but the LBMA is the place that the big boys go to actually buy large quantities of physical silver.  Lately they’ve been having a hard time locating large amounts of the physical metal to make good on deliveries.  So, just two years into a 5-year contract the CME and Thompson Reuters are bailing out of the exchange.  I think it had something to do with what occurred this past Thursday – when seconds after the European markets closed ‘someone’ decided to dump $2B worth of silver onto the market.  Someone (a government like the U.S. for example) didn't like the fact that silver was starting to get a lot of attention, and used the paper silver market to dissuade others from buying it.  It makes sense to me that the CME and Thompson Reuters could no longer mimic the illegal behavior on the COMEX and decided to throw up their hands and walk away.  They know the charade can't go on much longer, and they want out before the whole darn mess blows up.  We talked previously on how the oil producing nations are selling oil for Chinese Yuan's and then selling those Yuan's on the Shanghai gold exchange for physical gold.  Maybe I'm fantasizing but it seems to me we're getting closer to the day when the physical markets finally put the paper markets out of business.
   This week we saw a 300-point up day on Wednesday, and a pullback on Thursday and Friday.  Now, the question becomes: “Is this run-up tired, over, or just taking a pause?”  In the old days, I’d go by the 3-day rule.  If an index made a big surge, I'd give it 3 days to pull back, regroup, and retake the highs.  I think we see things move higher on Monday.  If we sag lower on Monday, it could be the start of some concern – especially in front of Friday’s Non-Farm Payroll’s Report.  I'm not sure this run is over, even IF we get a convincing pullback.   Simply understand that everything you buy right now – you could be buying at the very top of the market.  It's been over 100 days since the market had a 1% drop.  In more normal times, 5 -7% drops were common.  A trader I know (who rubs shoulders with the uber-rich) said: "I'd buy long dated puts, go long the TZA and SKF, and everyone gets wealthy".


Tips:
   Recently I’ve been considering some longer-term, downside plays.  If the market were to put in a 3,500-point plunge, I’d like to be in on the receiving end of that gift.  For example, a rate hike AND a ‘hard stop’ on the debt ceiling could be difficult for the markets get past.  There are many ways to make money during a retracement: (a) buy put options, (b) scale into inverse ETF's, and (c) short stocks.  The question becomes, what will give you the best bang for your buck?  I vote for buying put options, then buying 3X inverse ETF’s, and lastly shorting stocks.  As the weeks progress, I’ll be glad to review some ideas on put options chains to buy, but in terms of inverse ETF’s:
-       The inverse of the DOW is the DOG (meaning as the DOW would FALL – an investment in the DOG will RISE an equal amount).
-       The inverse of the S&P is the SH.
-       If you want a little more risk, you can move into the 2X and 3X ETFs, meaning a 2X ETF will move 2 times higher than the index falls, and a 3X ETF will move 3 times higher.
-       2X of the DOW = DXD, and 3X = SDOW.
-       2X of the S&P is SDS, and 3X = SPXU.
-       The Russell 2000 inverse ETF is the RWM, the 2X = TWM, and the 3X = SRTY.
-       The 2X on the financial sector is the SKF, and the 3X = FAZ.

   At some point, I could see myself holding a bunch of TZA, FAZ, and some put options. 

This coming week I’m watching:
-       Precious Metals = They are moving higher on: uncertainty, fear, European mayhem, and inflation.  They are moving lower due to interest rate hikes, the strong dollar, and technical price action.  My recommendation is to (a) buy dips, (b) take profits on rallies, and (c) maintain a core long position.
-       GOLD = I’m looking for gold to rally back above $1,250.8.  If gold could break above that, then look for another rally up to $1,270.0 – which is currently the 200-day moving average.
-       SILVER = Inflation concerns have far exceeded consensus.  Changes to Dodd Frank would enable banks to become more flexible in their lending, increase consumer credit, and create more inflation.  After the 38% Fibonacci retracement, the next key level for silver will be $18.50.
-       BLUE – Bluebird Bio is in the high-shorted biotech sector.  BLUE recently broke out of its range, pulled back, and with the entire sector being strong – watch it in the next two weeks.
-       SMTC – Semtech Corp. is in the semi-conductor sector.  It’s showed strong revenue and profit growth, and has recently pulled back to the 50-EMA.  Watch for a bounce, but be careful – earnings are later in the week.
-       NFLX – NetFlix is in the leisure and movie sector.  It has strong institutional support and has pulled back into its 50-EMA.  Watch for a bounce, and be ready to buy AFTER the bounce.
-       SPX / RUT – Look at buying at-the-money, short-term, butterflies that expire in 9 to 12 days.  These take advantage of the current low market volatility, low delta (< 10), and high theta (> $80 per contract per day).

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:

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 <http://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