Market Analysis: August 30, 2015

Friday was a relatively quiet day in the major stock market indices compared to the rest of the week. I would expect continued upside action over the next few weeks based on the strength of the market reversal off of their lows earlier in the week.

Long term interest rates have started back up this week as well and I think you will continue to see interest rates rise over both the intermediate and long terms as the weakening financial condition of the U.S. economy and its ever-spending government become more evident. The Chinese depegging of their Yuan currency from the U.S. dollar the week before provided a good reason as well as great timing for them to get rid of a huge amount of their worthless Treasuries since they are no longer needed to support their currency peg to the U.S. dollar. The smart money in the Wall Street either knew the implications and/or started seeing the Treasuries being thrown on the market and saw what that meant for interest rates (they will rise), which is very bad news for this feeble stock market. But as a side bonus for China ridding themselves of the toxic Treasury paper, the not so smart money rushed into the supposedly almighty Treasuries to seek safety from the crashing stock market. This provided a more liquid Treasury market for China to sell into without crashing the bond market. ZeroHedge had an article that said the Chinese sold 100 billion of their 1 trillion in Treasury reserves during this stock market crash period.   This was a much faster pace than China has been previously selling their Treasury holdings over the last year plus period.

There has been speculation that China knew beforehand that their Yuan depegging announcement would create a serious disruption in the highly inflated, overvalued, low volume (August is typically a very low volume month) U.S. stock market. This would then provide them with a ready market to dump a large amount of their unneeded and unwanted Treasuries to buyers that had sold their stocks and sought shelter in Treasuries from the concurrent stock market crash. I tend to believe this supposition. China, additionally, has twice announced over the last 2 months an increase in their gold holdings. China knows that gold is a direct affront to these fiat currencies, particularly the highly perceived almighty but in fact very weak U.S. dollar. China probably has a good idea that the U.S. does not have the gold that they say they have since a large portion of it is probably sitting in Chinese vaults as well as other foreign vaults. There have been reliable reports over the last couple of years that China has been amassing much larger amounts of gold than they have recently announced. These amounts acquired by China over the years are much more than the annual mine production so the additional gold has to come from somewhere. That somewhere is probably the vaults of many western countries but particularly from the U.S., who will go to any lengths to support the U.S. dollar.

Measures to support the U.S. dollar include the government leasing gold (the gold typically never returns to the leaser) onto the market to suppress the gold price as well as starting war after war when smaller players threaten to diminish the use of the dollar in their trade. And one of the first things the U.S. government does when it starts one of their parasitic wars is steal the gold of the host country. Some have speculated that the Chinese announcements on their gold holdings and then the depegging of their currency from the U.S. dollar was done in retaliation for the IMF delay of one year in reviewing the Yuan being added as an additional reserve currency. But China knew that the U.S. controlled IMF was not about to add the Yuan as a reserve currency. This would have created more weakness in the U.S. dollar as world banks would exchange a significant amount of their U.S. dollar holdings for the Yuan. The U.S. was not about to let the Yuan in as an additional reserve currency and willingly allow further weakening of the U.S. dollar. That is not how the U.S. government operates in relation to the U.S. dollar (and in about every other matter as well) and they have proven they will do anything and everything including the starting of otherwise unnecessary wars by any means at their disposal. And those means at their disposal become much more limited if the U.S. dollar is weakened considerably.

So yes there are financial, overt military, and covert government wars (including against their own citizenry in many cases) being perpetrated by the owners of all the major fiat currencies in efforts to maintain their systems and the excessive power possessed by the relative few at the top of these purposely designed pyramid structures.  Countries at odds with the U.S. (which include many at this late date in the U.S. quest for world domination) realize that the over indebted government and the now almost consumer-less consumer economy of the U.S. is very vulnerable to financial attack. But to be clear the U.S. government is not falling to exogenous forces but to its own repeatedly self-inflicted wounds incurred over the decades in its quest for absolute power and profits for its cronies.

So yes, interest rates will continue to rise. My earlier ETF recommendations of TBT (Proshares Ultrashort 20 year Treasury) and TMV (Direxion Shares Trust 20+ year Treasury Bear 3X) should allow good points of entry in this area.

Market Analysis: August 27, 2015

General Indices

The major indices had an explosive up day after six straight down days that included the most severe downside market action seen in years.   The NDX 100 led the way with an upsurge of 5.06%, which you like to see if a rally is going to persist. Several important sectors put in strong showings including Internet, Computer Hardware, Broadline Retailers, Biotech, Semiconductors, and Banks. The Gold/Silver, non-ferrous metals, and coal were the sector laggards today. The strong rebound by the Nasdaq Composite and NDX 100 indices on Monday after their huge opening gap losses seemed to show that they wanted to draw a line in the sand against further downside action. The other major market indices did not show such a strong counterpunch to their Monday opening gap losses but fell in line today with the Nasdaq indices to have strong up days. The market action over the last three days is leading me to believe the market wants to put in a bottom here.  So I would not be surprised to see the market to continue on up after a few days of digesting its recent volatility and strong up move today. Possibly, the major indices could even revisit their recent bottoms again before going back up. As I said in my previous post, for all intents and purposes I think this bull market is about done but that does not mean we cannot have a rally here that continues on for 2-3 months. Looking at a broad array of stocks here gives me the same impression that the major indices are now giving. That is we could very likely have a decent rally from around this area, dependent upon being in the right stocks.

Stock Recommendation Updates

Stocks I like here include stocks that are in cybersecurity either wholly or has a business unit or product addressing that area.  These stocks are FEYE (Fireye), AKAM (Akamai), and RMBS (Rambus). Other stocks I like here are SPWR (Sunpower Inc.), FSLR (first Solar Corp.), EMC (EMC corp.), LMNX (Luminex Inc.), A (Agilent Inc.), NMBL (Nimble Storage Inc.), BABA (Alibaba Inc.), and MGM (MGM Resorts International). Some small-cap biotechs look interesting here as well: PDLI (PDL Biopharma Inc.), MNKD (Mankind Inc.), GERN (Geron Corp.), and PGNX (Progenics Pharmaceuticals Inc.). As I have stressed before, please use stops in this elevated, volatile market environment and do not go overboard on huge position sizes in any one stock selection. A good way to play it would be to put a three day buy stop (that is a buy order about $0.50 above the 3 day high of the stock you want to buy; this buy order will then execute when that price is reached) in for the stocks you are interested in so you are buying on strength which provides evidence that the market is moving in your direction. Then put a sell stop 8-10% under the price you bought it at. 1-2 week sell stops would not work here since the extreme decline has surpassed all recent price action.

Precious Metals

Gold and Silver were one of the leading laggard sectors today and that supports my thesis that you will probably be able to buy the precious metals miners at lower prices and that gold could go below $1000 before turning up sharply.

Market Analysis: The Top is In

I believe the top is in due to the severe declines we have experienced this week, the fact that the Nasdaq Composite surpassed its 2000 high by almost exactly 100 points then sharply reversed downward, the high valuations of stocks, the long duration of this bull market, the seriously weakening economic statistics both domestically and globally, the severe lack of breadth in stocks that were trading strongly, the fact that without stock buybacks most stocks and their earnings would be even worst off, and the deceitful machinations by the Federal Reserve and other global central banks such as excessively low interest rates for an excessive period of time and excessive money printing to keep the lie alive of recovering economies. There are a myriad of other statistics that tell of a much different reality than the mainstream meme of a recovering economy.

Price trumps all even in these heavily manipulated markets. With the sharp downdraft in practically all stock indices, both abroad and domestically, it is a serious sign that the central banks of the world are losing control of their stock markets and the markets are taking over and talking very loudly back to them. The last thing these major regions of the world want to see is that their respective stock markets start tanking. We have just witnessed all the highly irregular and some unprecedented moves by the Chinese government to stem their stock market rout. This is over and beyond the already excessive manipulations and measures performed by the central banks of Japan, EU, USA, Switzerland, China, and others in an effort to keep their respective stock markets up and providing a superficial air of economic normality. The magnitude of last week’s downdraft on the Nasdaq Composite has not been seen since the bursting of the dot com bubble in 2000.

The fact that last week’s down move in the market indices was so severe, it is likely to invite supportive action from the Federal Reserve in the not too distant future, probably in the form of Counterfeiting 4, I mean QE 4. So I think you may see some temporary bottoming action soon and a partial retracement back up for the market indices over the next 1-3 months. This move has attracted a lot of shorts now and the big money may want to flush them out for some short term profits before letting the market go down further as well. Also, a lot of people have been forecasting a market collapse of some sort for the September/October period and the market typically does not do what large numbers of people expect. The major market indices could turn around near here and even marginally surpass recent prior highs but I would not expect substantial new highs supported by a strong uptrend.

The prudent thing to do is to get out of stocks except for a substantial allocation in the precious metals sector, up to 25%. Although gold has moved up over the last two weeks, it is hitting substantial resistance from prior price movements and I still think there is a good chance for it to go below $1000. But you still probably want to start allocating some of your long term portfolio to the precious metals sector next week even though it may go lower. A good way to do that now is to invest in ETFs GDX (Market Vectors miners ETF) and GDXJ (Market Vectors junior gold miners ETF) on a dollar cost average basis. This way you avoid the risk of individual companies going bankrupt in this treacherous low price environment that may continue on for a few more months. Also, I would recommend allocating some of your 25% to buying precious metals to either store yourself or in a depository. One domestic company that may suit your needs in this area is Hard Assets Alliance.

For those looking for a less prudent approach over the next 1-4 months, dependent on the market turning around in the near term and continuing higher, my stock recommendations in the non-resource sectors appear to be good bets. As always, stops are recommended, particularly for trades that are less long term in nature and in this elevated market environment.

Market Update: The Chinese Stock Market

As the most likely scenario going forward, I have basically changed my mind on the Chinese stock market turning around and powering its way to new highs. After the initial strong uptrend, its stock market looked like it could go through a standard bull market correction and then continue on higher. But the severity of the subsequent decline has made it more likely to have a short to intermediate term (2-5 months) uptrend from around these levels and then probably continue its downward path. Most bull market corrections retrace at most 50-63% of its prior upward trend but this decline has retraced over 75% as per the FXI (Ishares ETF of large cap Chinese stocks) today (3/20/15) of its uptrend dating back to 3/17/14 as the beginning. Strong markets typically hold on to much more of its gains after a big move up if that move is going to continue up after digestion of the previous move. The depth of the decline speaks to the underlying weakness of the market as a whole. This sharp decline happened despite numerous extreme measures implemented by the Chinese government to stem the continual downward movement since its peak on 4/27/15. Some of the measures implemented by the government to stop the market rout were the 1) banning of major shareholders, corporate executives, and directors from selling stock for 6 months, 2) investment of almost $20 billion by Chinese brokers and fund managers into ETFs based on supporting large cap Chinese stocks, and 3) suspension of IPOs that would provide additional supply in a market showing a distinct lack of demand. The prior uptrend had the look of a final blow off top in many respects such as heavy public participation, high use of margin, and very strong final run not supported by current economic fundamentals.

There have been numerous reports over the last year or more indicating the Chinese economy is seriously slowing. The government has lowered interest rates over recent months and just last week announced a de-pegging of the Yuan currency from the U.S. dollar along with 3 straight days of devaluing their currency in efforts to juice the economy. You can only build so many ghost cities before you start running up extreme levels of debt. The Chinese government had to resort to this artificial real estate boom because the global economy had slowed so much that its export based economy no longer continued to provide the necessary growth to not only fuel the China growth miracle but also to placate the general population with jobs. But now with the extreme levels of debt, the Chinese government is finding its options to “command” the economy to further growth is very limited.

They are in the same predicament as most of the rest of the major governments in the world, growth prospects look bleak with limited or no options to spur future growth. And constant growth is what these pyramid based, central bank printing (counterfeiting) paper money based scams, I mean schemes need, especially now that they all have run up extreme levels of debt. But this is the paradox of these central bank funded models, the more debt they run up the more the extreme debt levels act as a heavy weight on the economy. This not only sets the economy up for a slow down but at some point also a serious crash that is commensurate with the debt levels that in many cases can never be paid back by future economic activity. The latter situation leads to default and it is a blatant sign of the incompetence and corruption of the government. The economy is in the end still a naturally based system that will eventually find a way to cleanse itself of all the malinvestment that took place prior to the crash. This is despite all the distortions and market rigging that took place during the debt run-up period. Businesses that were built during the boom period that no longer serve the economic needs of any segment of a population or were just dependent on the flow of cheap, easy credit will disappear unless there is further intervention from the government (that created the mess in the first place along with their business cronies).

Coming back to my original point, the upside for Chinese stock market looks limited from here. I still think Alibaba (BABA) has a good chance to make some nice gains from here, but not the Chinese stocks as a whole. I, of course, will continue to monitor the situation but at this late juncture in the global bull market that started in March 2009, there are few signs that the Chinese stock market will roar back and establish substantial new highs. This description, I think, also fits the U.S. stock market in that selected stocks should do well going forward but the NDX 100 type stocks that led the charge up in earlier years look extremely extended. This is despite (or because) some of the huge short term run-ups some of these stocks had after their latest earnings reports this summer.

Stock Recommendation Updates: BUY, Agilent (A) and AliBaba (BABA)

BUY.  A (Agilent) reported earnings today after the close and had solid earnings at the high end of their previous guidance. The stock is down a little in the after hours trading but that is often a poor indicator of how it will trade over the next day or two as well as further in the future unless there is a strong spike move in one direction or the other. Agilent is a strong company in its field and has consistently delivered solid earnings. I am at the SeaTac Airport in the state of Washington and I am writing this before my battery runs down.  The stock has built a nice base over the last 19 months and has not run up in price.  This is the type of stock the big institutions are searching for now and that there is a dearth of due to the already elevated levels of the U.S. stock markets.  I will provide more details of their earnings report after my flight.

BUY.  BABA (Alibaba) looks good here. They reported solid earnings last week although the reaction was somewhat negative. Revenues increased 28% year over and Gross Mechandise Volume (GMV- sales dollar value of merchandise sold) increased 34% over the same period. Growth of cloud computing and internet infrastructure business unit accelerated with revenues increasing 106% year over year. The stock dropped some after the earnings report because it growth percentages have decreased compared to earlier reports. You have to expect that the growth rates will decelerate over time as a company starts getting as large as Alibaba. Also, the global economy including China is slowing but these are still good numbers reported for this period.  The company generated strong free cash flow of US$1.5 billion this quarter.  Alibaba has authorized a share repurchase program in an aggregate amount of up to US$4 billion over a period of two years.

Market Analysis: August 15, 2015

Precious Metals

Gold and silver have rallied over the past week but both are still below significant resistance that they broke through last month. This appears to be a short term rally within the intermediate trend down. As I have said before, I believe you will see gold break below the $1000 level although probably not in August as we are now at the halfway point of the month and gold is trading at $1113.2. September would be the more likely month for that to happen as I think we are in the final phase down and that leg is usually a pretty fast trip down compared to prior price behavior.   The Fed meeting is coming up on September 17th where they may or may not announce a rise in interest rates and that may be the area to start looking for a turning point to the upside. Gold is typically considered the anti-dollar, anti-fiat currency, or anti-government (in the sense that government has really screwed things up this time) bet. Although saying it is the anti-government trade is not really fair to government or accurate because they have had plenty of help from their big banks (including the central bank) and corporations in this fascist system.

Bonds

There are plenty of signs that things are starting to fall apart such as high yield (ETFs JNK and HYG) or junk bonds as they are commonly referred to have rapidly fallen on high volume over the last 2.5 months. The chart is starting to look very bad with little support below where they are now trading so they could fall a lot farther down from here. I saw an article on ZeroHedge today saying outflows for the last two weeks from investment grade (IG) bonds have been higher than has been seen over the last two years. So the weak bonds fall first, then better quality bonds fall next which we are now starting to see. If this pattern continues to proceed to Treasuries then interest rates go up which causes much more mayhem for the U.S. economy that is now on life support with zero interest rates, lots of money printing, and behind the scenes financial engineering. The outflows from the IG bonds also means that it will be tougher for companies to borrow and use the proceeds to buy back their stocks, which is one of the few other things besides the before-mentioned items that maintain the façade of a recovering economy through a stock market trading near all-time highs.

If interest rates go up that will tank the sub-prime auto loan market which makes up a significant part of auto sales, parts of the housing market although the high end market is often paid for in cash, and consumer credit card debt which is still very high. The 10 year Treasury bond has grinded higher over the last two months on rather low volume and the major momentum is still shown on down weeks over the last few months. Also, the VIX (Stock market volatility measure) looks like a coiled spring that has been tightening up for six years and is ready to explode upwards. Rising interest rates could be the catalyst that triggers the explosion as rising rates and rising volatility often accompany one another. I think you could see the VIX finally break below 10 first (a further decrease in volatility) before doing a spin move and strongly reversing back up.

Resource and Commodity Sectors

The resource and commodity sectors of the market are still in a down trend and you cannot expect much to change until we start to see real weakness in the U.S. dollar. Some people think we are going to continue to have a major deflationary period because of this. Over the last few years it really has been a mixed bag between inflation and deflation, if looking at it from a price point of view. On the inflation side you have the high, rising costs of college education, healthcare costs, beef costs, and real estate. On the deflation side you have material costs, grains, technology, and other consumer items. Yes, I know inflation is a rise in money supply not price but price is often the accompanying symptom that many people associate it with. But with QE1-3 (Money Printing 1, Money Printing 2, Money Printing 3) no one can say we have had deflation. Most of that money has gone to ultimately inflate the stock market, Treasury bond market, and government spending.  And bad habits are hard to break, so why would you expect the Federal Reserve to change up now or when the next crisis starts to appear obvious, even to an oblivious public that has been indoctrinated to believe in the almighty state. The Fed has no other weapon as the fed funds rate is already basically zero. The Fed will start printing and then probably find additional reasons to print even more as things go from very bad to worse.

U.S. Dollar

The first hole in the armor of the once mighty but now feeble U.S. dollar may be the de-pegging of the Chinese Yuan currency from the dollar that occurred this week. The Yuan fell significantly for 3 straight days and this might put added pressure on the Fed to start weakening its currency to maintain the competitiveness of U.S. exports against weaker currencies. And as Peter Schiff described, the Chinese central bank will no longer be exchanging their currency for U.S. dollars to maintain the peg which has been a major source of support and strength for the U.S. dollar in the past. It would also decrease the need for the Chinese to hold U.S. Treasuries, which has been a steady source of demand thus helping keep interest rates low in the USA. I expect at some point in the not too distant future to see the resource and commodity sectors to reverse upward due to the weakening of the U.S. dollar primarily as well as the continuing contraction in the supply of various commodities and resources due to low prices. This week the U.S. dollar was down on the highest volume seen in the last nine weeks. Some people are also expecting the U.S. dollar to continue up to around the 120 level, the 20 year high area last reached in January/February of 2002. The reason being that the dollar is still considered the safe haven currency by many in the world and during the next crisis, many people will exchange their currencies for the U.S. dollar.   While many may do that, I do not see the two most significant holders of U.S. Treasuries (China and Russia) doing that and I think many others may start following their lead in this, especially if they see the dollar weakening from here. Also, if the resource/commodity sectors start to turn then you could see the currencies of resource heavy countries like Australia, Russia, and Canada go up which would also contribute to weakness in the U.S. dollar index as it is a relative comparison against other major currencies.   The Yuan would probably stay relatively strong against the dollar as it has a real economy (although one still very dependent on the already very weak global economy) as well as burgeoning Chinese gold reserves versus the financial (and military) smoke and mirrors supporting the U.S. dollar.   That said most of these countries/regions are in very serious financial trouble possibly with the exception of Russia because it has relatively little debt.  The currencies may change their relative positions to one another for awhile but the ones with extremely high debt loads in comparison to their economic outputs will be ultimately racing to the bottom.

Market Analysis: U.S. Dollar

Back in May I wrote a short piece on which fiat currency would collapse first and I suggested it would be the Euro due its inherent complexity compared to the other major currencies. By complexity I meant, the Euro was used by the 19 member states of the Eurozone and each member state was significantly different from one another in that they had different languages, industries, cultures, geography, governing rules, and economic productivity. But I may have been wrong in my prognosis as the idea of a common currency (how about a gold based currency) makes eminently good sense when you have so many nearby trading partners close by who have a multitude of common interests with each other whether economically, politically, or socially. One of the initial problems was they or agents (big banks like Goldman Sachs) for some of the countries that did not qualify for membership in the Eurozone found ways to cook the books so to speak and make it look like they could qualify. My point here is not to disparage the offending countries or the setting up of the Euro, my point is the Euro may be going through growing pains. Governmental institutions work amazingly slow in most areas and are also very slow to recognize or admit mistakes about anything that they set up or institutionalize. But eventually I think the Eurozone governance is going to have to admit that they need to reorganize the Euro along lines of its original membership criteria as well as incorporate lessons learned during this very distressful period of financial crises in the Eurozone if it is to survive. Lessons learned might include that while a common currency may make sense for those that meet the criteria to ensure its day to day functioning as well as long term sustainability, it might not include the EU governance body trying to usurp the sovereign right of independent nations to govern themselves according to their own needs and desires. Less is more when it comes to government and sovereign countries do not need an additional layer of government on top of their own respective governments that are elected by the people and theoretically more responsive to the people. I have not studied the EU and Euro issue in depth so I do not claim to be an expert. I am trying to give you the top level version of why the Euro may survive, at least longer than the U.S. dollar. My real intention here is to propose that the U.S. dollar may be the most vulnerable currency and collapse first among all the major fiat currencies.

I suggest the U.S. dollar may be the most vulnerable major fiat currency because it depends on the kindness of outsiders to maintain its role of the primary reserve currency. Foreign creditors are the largest holders of U.S. Treasuries and the two largest are China and Russia. So the U.S. government does not have anywhere near total control of its fate in its currency and bond markets even with its ability to print unlimited amounts of paper currency (which at some point will not only have detrimental effects but be disastrous).  The U.S. government is not known for its kindness abroad and it has continually poked fingers in the eyes of its two major creditors. Incidents include the Ukraine war and attempts to gain NATO access there, attempted deposing of Putin, demonization of Putin, having the IMF (International Monetary Fund) put off the inclusion of the Yuan as a reserve currency, and threatening military buildup and realignment in the South China Sea area. And the U.S. government has wreaked havoc in many other places around the world over the last sixty five years and the resentment of U.S. government intrusion into other sovereign country’s affairs has greatly increased over the years. Countries around the world led by the BRICS (Brazil, Russia, India, China, and South Africa) have already made preparations in the last two years or so to bypass using the dollar in their commercial transactions as well as the creation of alternatives to U.S. controlled and dollar based institutions like the World Bank and IMF, supposedly set up to assist in the development or debt stress relief of foreign countries.  There have been Renminbi currency swap facilities set up in most major countries around the world including in countries of historically close U.S. allies, an alternative international currency transfer network to the current monopoly of the dollar based SWIFT system, and the newly created AIIB (Asian Infrastructure Investment Bank) and NDB (New Development Bank). Countries are tired of being dictated to by the U.S. government and threatened by its military and other covert forces. They have come to realize through hard first hand lessons that the U.S. government has used and abused its position and power as holder of the world’s primary reserve currency. The world at large has also come to realize that the U.S. government is a paper tiger with its power based on the very vulnerable and faltering U.S. dollar as the world’s reserve currency. The BRICS and associates have created these alternative currency mechanisms and institutions because (1) they do not want to be totally dragged down when the U.S. dollar implodes due the U.S. government’s exponential rise in debt (you can include the insane level of leverage in big U.S. banks here too) without any alternative recourse to continue to conduct their financial affairs, (2) they want a more level playing field in the global economy, and (3) they are tired of being threatened and having their sovereign affairs interfered with by a government that neither respects their interests nor knows no self-limit to the arbitrary (a better word would be wanton) exercise of its immense power.

The U.S. government has the least total control over its currency and debt obligations of all major regions precisely because it is the world’s primary reserve currency and therefore has numerous foreign holders.  This is also precisely the reason you should not abuse your position of wealth and power as issuer of the world’s primary reserve currency if you want your foreign credit holders to cooperate in maintaining the status quo. But things always change and with or without the cooperation of the foreign credit holders the U.S. dollar is doomed to fail due to the U.S. government’s spendthrift ways and the insane leverage of its big banks and the financial system at large. Seriously and continually upsetting your creditors just hastens your demise when you are on the path to self-destruction.

The excessive power of government and banks emanates from the presence of the Federal Reserve central bank, its ability to create money out of thin air, and its ability to control the dissemination of the newly created funds to favored banks, corporations, government agencies, and government programs. There are all kinds of other issues that come under this umbrella like the rise and excess power of the military-industrial complex, NSA spying, the creation of a social welfare society along with the destruction of families and individual rights, the destruction of the middle class and small businesses, the making of the school system into indoctrination camps rather than halls of learning, and de facto government control of mainsteam media, etc

Right now it looks like the U.S. markets (stock, bond and currency) can continue to hold for a few more months. I would think the November through January timeframe would be ripe for things to start to fall apart based on the seriously narrowing breadth of the stock market, the extreme illiquidity in the bond market along with rising rates, the length of this artificially induced stock bull market of 6+ years, the increasingly poor economic statistics and indicators (both domestic and global), and the bottoming process of the resources and commodity sectors (including the precious metals sector).

Market Hypothesis

I suggest that Fed Reserve chairwoman Janet Yellen keeps saying they are looking to raise short term interest rates sometime in the near future not because the economy is improving but because the Fed knows that foreign creditors are dumping Treasuries.  If this is true then as more Treasuries are sold and without a strong demand for these offered Treasuries put on the market, then long rates will rise. This would mean the Fed must know, as only they and possibly other central banks and big banks know, that no one wants these toxic pieces of paper and is somewhat evidenced by the rise in long term interest rates in the first half of 2015. Now the Fed wants to look like it is in control of interest rates so the market will not lose confidence in the Fed and its ability to control the U.S. financial markets. This loss of confidence in the Fed as overseer (overlord?) in not only U.S. markets but globally as well (since major currencies such as the Chinese Yuan are pegged to the dollar) would cascade from the bond market into the U.S. stock market and the U.S. dollar currency market and then probably start a contagion of financial crises globally. If long term interest rates continue higher without the Fed acting to raise rates, then it will look like the market has taken control of interest rates and also that the market does not want U.S. Treasuries, both with dire implications for not only the U.S. markets but the U.S. economy itself. The last thing the Fed wants to do is raise rates because the U.S. government is so grossly indebted that it cannot afford higher interest service charges. Also, it wants to protect the big banks (that is what the Federal Reserve central bank was originally set up to do and continues to do despite all its rhetoric to serve the public interests) and keep their insanely leveraged interest rate based derivatives from blowing up due to a rise in rates. The Fed has painted itself into a corner, if it does nothing then it will soon be clear that the market is taking over in adjusting interest rate levels since major market players and holders of worthless U.S. Treasuries (these loan obligations can never be paid off by the U.S. government) no longer want to play along with U.S. interests because it is no longer in their interests. The U.S. does not have total control or near total control over their bond market like they do the U.S. stock market since the bond market is much larger and has major participants outside the U.S. who are becoming more and more non-aligned with U.S. interests.  Major non-U.S. bond holders have been dumping their Treasuries in large and increasing numbers over the last year or so and have been using the proceeds to buy tangible assets of real value such as precious metals and collaborative business projects. The U.S. Treasuries on the other hand are backed by an almost dead economy (smothered by a too large and obtrusive government), the world’s most meddlesome government, and the world’s largest and most violently aggressive military (you can include the CIA and all their other derivative covert forces).

So to maintain the aura of Fed control over interest rates and its markets, the Fed will probably raise short term interest rates a token amount this fall.   The Fed will not tell us the real reason (when does the Fed or our government ever tell us the real reason or truth?) behind their move because that would destroy the narrative of a recovering or strong economy that the government needs its citizens to believe in to maintain the dwindling loyalty to the government and its corrupt and criminal fascist system.  So I do believe a token interest rate rise is in the cards this fall, but it will be projected as evidence of a strong, recovering economy.   Tell that to the 23% or so (yes that is the real number as provided by John Williams of Shadowstats) unemployed and you could probably add another 20% that are underemployed or working two jobs to make ends meet. Despite the Fed’s best effort to put lipstick on this pig, the market itself will yank control of the markets from the Fed and it will not be pretty. The deteriorating economies and the extremely high indebtedness of the world’s major regions and countries (U.S., Europe, Japan, and China) cannot support these highly valued markets with low interest rates and money printing for much longer. Interest rates, more money printing, and volatility will rise to catastrophic proportions (although rates do not have to rise that high for that to happen because of the extreme leverage and debt in these debt based systems). But we have a few more months left before it gets really ugly. This is my hypothesis of how I see the next few months working out. I will loosely hold it unless proven wrong.

Stock Recommendation Update: BUY FSLR

FSLR (First Solar Inc.) blew past its earnings estimates by $0.85 in reporting earnings of $0.95 for the 2nd quarter of 2015 compared to a loss of ($0.62) in the prior quarter. The sequential increase in net income was due to higher systems project revenue, project cost improvements and a discrete tax benefit in the second quarter of approximately $42 million. Net sales were $896 million in the quarter, an increase of $427 million from the first quarter of 2015. The increase in net sales from the prior quarter resulted from increased revenue recognition on the Silver State South project and the sale of majority interests in the North Star and Lost Hills-Blackwell projects. The company also completed the IPO of 8point3 Energy Partners, it yield company venture with partner Sunpower Inc. (SPWR). First Solar is a leading global provider of comprehensive photovoltaic (PV) solar systems which use its advanced module and system technology. This stock is a buy right here.

New Stock Recommendation: MGM

MGM (MGM Resorts International Inc) The company released its 2nd quarter earnings report for 2015 and the market reacted favorably to it. The stock has been on a tear for the last four days so I would expect it to take a breather here for a bit but I do recommend buying it here. The EPS report was not all that great but the market is getting somewhat desperate in looking for companies with at least solid financial prospects going forward that have yet to run up in price. The stock has built a nice base here over the last 1.5 years and I think you could expect approximately a doubling in price from here. MGM’s domestic properties posted solid results growing revenues 11% year over year but its China properties had net revenues decrease 33%. Upper management has a plan that they will roll out this year and in 2016 that they believe will increase profits by $300 million in 2017.