Market Analysis: September 28, 2015

U.S. Stock Market

Last week all the major stock indices (NDX 100, Nasdaq Composite, S&P 500, Russell 2000) started to retrace its prior move up and looks likely to retest their recent lows over the next week or two. The NDX 100 and Nasdaq Composite have been the strongest indices since making a bottom on August 24th but could have a very swift final move down to the price area of its prior, recent bottom before bouncing back up. I still think the most likely direction, after the completion of this digestion of the prior volatile moves, is up. I still see stocks setting up for likely moves in the upward direction.  The stocks that I have recommended in previous posts based upon the less prudent approach (I may stop calling it the less prudent approach if the U.S. stock market shows signs of a significant move up) are the type of stocks I see going up. In addition, I see NDX 100 favorites such as AAPL, GOOG, and possibly AMZN setting up positive looking patterns of accumulation.   That said, it is more important than ever to use stops as recommended in previous posts to protect your new positions from turning into big losses. I would wait until the indices have fully retested their recent August bottom and shown some upward movement before entering this market.

Commodities

As far as commodity related stocks, they still appear to be bottoming. This includes oil, natural gas, mining, agricultural, and commodity equipment stocks. Contraction of supplies in many commodities continues due to the extended and continuing low price environment.   As I have mentioned previously, big money and insiders have already started to take major positions in several commodity and precious metals (I try to keep precious metals as a separate entity from commodities because here we are talking about something that historically has been and still is real money) stocks.   For long term investors, I think taking carefully selected positions here in general will pay nicely in one to three years down the line. But a better approach might be to take a small to moderate initial position, then just sit tight for awhile (or dollar cost average buying on any dips) and wait for the start of significant upward momentum or a Buy alert from yours truly. One thing you need to be careful about, is most of these commodity related stocks are very capital intensive and many have debt issues mostly due to buying properties at the top of the last commodity cycle and in the case of shale oil companies thinking the price of oil was going to stay much higher than where it is now. In the case of the shale oil companies, I would generally avoid them. Their wells are short-lived, relatively expensive, and many of the prime areas have already been drilled and pumped. In general, going forward they will be drilling on less productive prospects, and will require significantly higher oil prices to be sustainably profitable. On any oil related companies including oil services companies, I would wait until after October. In many cases, their debt comes up for renewal in October and banks are probably going to be much tighter about lending them more money if oil and natural gas prices are still low, particularly if the company is already showing itself to be in a very shaky financial position.  The lack of easily available financing is also contributing to the contraction in the supply of many commodities and precious metals as companies are closing or slowing down production and/or selling some of their properties to shore up their financial positions while waiting for the return of higher commodity prices.

Gold/Silver Markets

For the gold market, we saw the continuance of the prior week’s rally. Silver was not quite so positive as gold last week and ended up a little lower than the prior week’s close. This looks to me to be nothing more a little rally in a bear market for both gold and silver. I think you may see some continued upward action early in the week but I think the main trend will turn down for one final blast below $1000 before all hell starts to break loose (commencement of major governmental, economic, and societal problems in the U.S. and probably many other places as well due to central bank funded big governments running up sky high debts and smothering economic activity particularly if not generated by a big corporation or one of their cronies thinking they can make these desperate, corrupt, criminal governments survive if they can keep printing more paper money).  Then you will definitely want to have significant allocations to physical gold and/or silver as well as precious metals mining stocks. As with the commodities, I think you can wait on positioning yourself significantly in the gold and silver mining stocks until after October. I do not think the gold and silver price (although supply is drying up in the physical market) will make a bottom before the December/January timeframe.

The Forecaster

I saw a movie this week called “The Forecaster”, a documentary-based film on the hell that the U.S. “justice” system and government put Martin Armstrong through for an extraordinary lengthy period. The government locked him up for 11 years without convicting him of anything – frickin amazing. It is another example of where the U.S. government is concerned that might makes right and the law and a person’s inherent rights have nothing to do with the government’s brand of justice. I strongly recommend it but I do not believe it is currently showing in the United States (I am in Spain currently). I believe the film had to be made in Germany, because no one in the U.S. film industry (one of the U.S. government’s primary propaganda and social conditioning machines) would touch the subject since it provided plenty of damning evidence of how corrupt the U.S. government really is. I think you can get it online.

Junk Bonds

Junk bonds (JNK and HYG ETFs) are looking very weak here. This is a bad omen of what is to come. Interest rates on high yield issues will continue to rise if they do not reverse trend. Rising interest rates are an indicator of rising risks in these companies and in the economy, too. If junk bond yields continue to rise, then this should be a leading indicator for corporate and Treasury rates to follow suit at some point. Central banks can continue to print money to keep the Treasury yields low as long as the market cooperates and all significant parties to this madness remain somewhat aligned. But cracks in the dam are starting to appear as foreign creditors have shown an unwillingness (by selling Treasuries in large amounts) to continue supporting the U.S. government spending addiction. We know there is hidden QE going on here because there are no other buyers for these Treasuries other than the Federal Reserve and their proxies. To put it in clearer terms, who in their right mind is going to buy Treasury Notes and Bonds from a bankrupt government, even if they have the largest military in world. In fact, one of the primary reasons the U.S. is bankrupt, is because of the exorbitant military spending. The U.S. military has never met a potential war that they did not want to fight – need to keep those credible enemies in front of the American public to justify the existence of an outlandishly large defense force or is it to spread freedom and democracy – I keep forgetting which one is its primary tasking (BTW, job well done!).

The large printing of U.S. dollars to buy these discarded bonds by foreign holders may also help explain why the U.S. dollar has not already gone higher with all the turmoil being experienced around the world. If the U.S. is still being perceived as the world’s financial safe haven, then money from Europe, Middle East, and China should still be flowing into U.S. dollars. The outflow of money from China has been well documented.  But the U.S. dollar keeps going sideways and money velocity keeps declining. I expect to see some more upward movement on the U.S. dollar but I would not be surprised if this subsequent rise is much less than is being expected in many camps.

None of this money is reaching the American public as exhibited by the continual decline in money velocity. It first went to bail out the big banks, then went into the stock and bond markets, then to big corporations to buy back stock, and now the hidden Q.E. to buy back the newly discarded Treasuries. The Treasuries are not being held onto by China and Russia as they know the U.S. is bankrupt. In addition, they do not like being dictated to, especially by a rapidly deteriorating and degenerate paper tiger whose primary source of remaining power is their paper currency being the primary reserve currency in the world. As the Federal Reserve continues to print money to fund its government and keep interest rates low, then the value of the currency will have to depreciate at some point. So you will get a rapidly depreciating currency (hyperinflation) and/or rising interest rates. Both spell doom for the U.S. government’s insane and corrupt pyramid scheme and we should not have to wait too long for the real fireworks to begin.

Market Analysis: September 21, 2015

It looks like the major U.S. stock indices have reached a short term high and will reverse here from near their current levels. It appears to be a continuation of their recent consolidation and digestion of the prior period of extreme volatility of a few weeks ago. I think you will continue to see this range bound consolidation behavior in the indices for the next couple of weeks. I would not be surprised to see the major indices start back up after that. The indices have stayed near the upper half of the range from the violent surge down in August which demonstrates that there is some strength in the market. I would not be surprised to see the indices revisit their prior August lows before reversing again upwards.   I see some stocks setting up in a manner that indicates the likely direction that they will break out is upwards. These stocks include the ones I mentioned a few posts ago for those who wanted to take the less prudent approach in this market. I would add one more stock to those names, VRSN (Verisign Inc.) which you can find more details on in the Stock Recommendations section. I would not be surprised to see this market turn up in 2 to 3 weeks and continue up for 2-4 months. October is often a turnaround month for the stock market and then we head into a seasonally positive period (November, December, January) for the stock market. Also, never underestimate the determination of the Fed and their central bank brethren to print money to keep the stock markets afloat.

Another point supporting the continued consolidation if not reversal to the upside after another 2-3 weeks of consolidation is that investors have nowhere else to turn in an effort to seek returns. Interest rates are too low for pensioners and savers to survive on. Also, a great deal of uncertainty has been removed from the markets in that it is now clear that the Fed is not going to raise interest rates for awhile. This is a positive for the stock market, especially after the recent volatility. If the market continues down from here and revisits it recent August lows, then that should attract more shorts into the market as well, which would be more fuel for an upside move (shorts have to buy stock to cover their losses if they are wrong on the direction of the market). There are already a significant number of shorts in the market just based on the recent violent down move in August.

I just listened to an interesting video by Larry Edelson of Weiss Research in which he predicts a protracted upside move starting on October 7, based on his cycle research. He thought the reasons for the upside move would be first that Europe would start to experience even more economic difficulties to the point that it would drive more money into the U.S. stock market and thus driving it up. Then the Japanese stock market would collapse and again drive more money into the perceived safe haven of the U.S. markets. I have thought about a similar possible scenario but not as cogently or as confidently as Mr. Edelson presented in his video.

The U.S. dollar continues to look strong and hold onto most of its gains from the prior run up over the June 2014 to March 2015 period. And I have been thinking that further trouble in Europe or some unexpected event could drive the dollar even higher. I do not expect the dollar to reverse its trend to down until I see gold go below $1000 to around $950 and reverse upwards. Gold and silver had another rally last week that appears to be a bear market rally. I still expect gold and silver to go down below their recent lows and below $1000 but with last week’s move up that will take a little time. So that in my mind also supports the thesis that the stock market has time for another move up.

New Stock Recommendation: YNDX (Yandex N.V.)

YNDX (Yandex N.V.) is headquartered in the Netherlands but is a Russian internet company.   As per Yahoo, Yandex N.V. operates an Internet search engine in Russia and internationally. The company offers search, location-based, personalized, and mobile services that enable users to find information, and communicate and connect over the Internet from desktops and mobile devices; and localized homepages for specific geographic markets. It provides Yandex.News, a news aggregation and information service; Kinopoisk.ru, a Russian language Website for movies, television programs, and celebrities; Yandex.Music, a music streaming service; Yandex.Master, a service through which users can find local professionals to do work around their homes; Auto.ru, an automobile-related Website; and other specialized search services for images, video, music, television, weather, jobs, transportation, cars, and real estate. The company also offers Yandex.Mail that provides users access to their email accounts; Yandex.Disk, a cloud-based storage service; maps and location-based services, such as Yandex.Maps, Yandex.Navigator, Yandex.Taxi, Yandex.City, and Yandex.Transport; and Yandex.Browser, a cloud-based browser. In addition, the company provides text-based advertising and display advertising services, such as Yandex.Direct, an auction-based advertising placement service; Yandex.Market, an e-commerce gateway service; and Yandex Ad Network service.

YNDX rose more than 9% on Monday afternoon after the Russian Antimonopoly agency found Google in violation of its competition laws and of abusing its powerful position in the market. YNDX had filed a complaint back in February and is seen to benefit from this decision against GOOG. YNDX leads GOOG in search for the Russian market with 60% but GOOG leads YNDX in the Russian mobile space with 80% of the market according to Insider Monkey. This new decision will help YNDX , which is considered the Google of Russia, in the mobile sector.  Famed investor Howard Marks in his Oaktree Management fund owns 1.59 million shares of YNDX.  The company recently made an all-time low in price at $9.94 on 8/24/15 and it IPO’d on 5/24/11.

Market Analysis: September 14, 2015

The major U.S. stock indices have not really done much for the last two weeks as they have continued to digest the huge increase in volatility, with sequentially both sharp down and up moves that preceded this digestion phase.  Currently, the primary focus is on what the Fed announces concerning interest rates at the conclusion of their meeting on September 17th. The major indices look weak and could very easily fall after the Fed announcement this week, no matter what they announce. For that matter, the indices could rise higher, no matter what the Fed announces. The latter result would be due more to the removal of uncertainty in the Fed’s actions, for a short period, than in any real improvement in the economic environment. Any subsequent rise in the indices should be short-lived due to the rapidly deteriorating economic underpinnings of the U.S. economy, which basically is the fast-fading possession of the world’s primary reserve currency.

The economic environment as well as the circumstances the Fed finds itself in are hopeless as far as preventing a serious stock market crash. The best you can hope for is the announcement of QE4 and that would at best also provide a short-lived rebound. The lack of strength in any potential stock market rise is based on not only the serious diminution of the domestic economy but of the global economy as a whole. There are not any signs of real economic growth anywhere in the world despite the rosy release of 3+% GDP growth by the U.S. government due mostly to inventory buildup, healthcare increases, and low inflation inflators contained within the massaged GDP figure. Yes, we have had deflation in basic materials, commodity, and resources including oil costs. But costs over the last several years have risen for items like rent, healthcare, college education, beef, and other food items while real wages have not grown.

Major global economies have shown serious signs of decline or continued economic sluggishness of late including China, Canada, EU (some areas more than others), Brazil, Japan, Australia, Mexico, and other emerging markets. So to think the U.S. economy is going to magically extricate itself from the global economic morass and emerge triumphant is truly delusional. But to compound the effects of a major economic crash for the U.S., will be the loss of the U.S. dollar as the world’s primary reserve currency. This is truly the current basis for the rapidly vanishing façade of economic stability in the USA. Having the world’s primary reserve currency has allowed the U.S. government to expand to phenomenal proportions with huge numbers on food stamps, disability, and other social welfare benefits; government jobs, government contracting jobs, indirect government jobs based on government purchases, the world’s largest military, largest number of citizens incarcerated, while at the same time having destroyed huge portions of the historical base of the U.S. economy including the small-to-mid business and manufacturing sectors.  Another large beneficiary of the U.S. dollar as the world’s primary reserve currency has been the domestic financial industry, especially the large banks that own the Federal Reserve. When the U.S. dollar disappears as the world’s primary reserve currency, many of these “benefits” are going to disappear with it or at best be severely curtailed.

One of the best indicators for the state of health in the U.S. and global economies at large is China in tandem with the actions of the U.S. government and its central bank. After the 2008 economic collapse, the U.S. economy never did really recover. The U.S. government and their banking partners printed huge amounts of money via their central bank to bail out these same failing banks and then instituted the start of QE 1-3 to inflate the stock (to make the economy look like it was recovering and to provide profits to those who received the money) and bond (to allow the government to service the interest charges on their huge and quickly growing debt, to provide cheap money to the big corporations including for important business actions as buying back stock and handing out dividends to shareholders, and to prevent the quadrillions of dollars of financial derivatives from blowing up (as well as the ability to create even more derivative contracts i.e. more profits for the insiders)) markets. So the U.S. economy did not recover and that forced the export based China economy to rely much more heavily on its real estate boom, to build ghost cities, and other infrastructure projects. That fueled a boom in commodities/resources and countries that supplied those commodities and resources to China. But even a rich government like China can only build so many financially unfeasible projects before the debt burden starts to become much more than just worrisome. So now China and its people were forced into a short-lived stock market rally in an effort to seek returns and to keep the façade of the strongly growing economy narrative alive in their country as well. The extreme measures the Chinese government took in an attempt to prop up their stock market is another sign of the desperation of these big governments to do anything they can to keep their rapidly failing economies afloat or at least the narrative of such in front of their people and that all is reasonably well.

So what we have now is the U.S. consumer is basically tapped out, unless they have a government job or are in the small percentage of those who have done very well under this fascist regime, and the Chinese government is tapped out and has not been importing commodities and resources for quite some time to the extent of their former glory days of building ghost cities. And the limits of central bank magic and financial engineering is teetering on the edge of an abyss that will have serious financial and social consequences for practically all (even much more so than they already have been subjected to for a very long time) who live under these fascist regimes.

I believe a reason that you see China getting more proactive in taking fiscal and monetary related actions that will help it better weather this coming global financial fall is that they understand that things are getting ready to fall apart. These recent Chinese government announcements (de-pegging from the dollar and gold reserves) are direct turns away from supporting the U.S. dollar as the world’s primary reserve currency. China wants to protect themselves as much as possible, and they also see little reason to help prop up the tyrannical and the increasingly inflammatory U.S. government and their foreign policy wing, the U.S. military. The Chinese understand that much of the U.S. market for their exports collapsed long ago and is not coming back for a long time if ever. The remaining market for Chinese goods in the U.S. is dependent on government largesse or government spending for their livelihoods and survival. I think the Chinese government understands when the U.S. dollar goes away as the world’s primary reserve currency, most of the remaining U.S. buying power for their imported goods goes away with it. So there is little reason to protect a formerly large customer, who has not only become a much more marginal customer but has become an increasingly excessively, annoying one (as well as one you could never trust too much) and one who is due to go broke soon. The U.S. is rapidly becoming a financial basket case through a combination of their own excessively aggressive, violent behavior and ill-conceived actions on most other fronts not the least of which is their never-ending appetite for spending money they do not really have. China’s official position could be summarized, to paraphrase the line from one of the Godfather movies, “It’s nothing personal, it’s just business”.

So where do we go as investors/traders in this rosy and upbeat world we find ourselves in? I believe the commodity and resource sectors are on the verge of turning around (over the next 1-5 months). You see the big, smart money already positioning themselves in these areas. George Soros, Carl Icahn, and Warren Buffett have taken positions in holdings that contain resource, commodity, and mining interests. I saw this week where insiders have bought large positions in their companies such as JOY (Joy Global Inc.) and FET (Forum Energy Technologies Inc.). As per Yahoo Finance, Joy Global Inc. manufactures and services mining equipment for the extraction of coal, copper, iron ore, oil sands, gold, and other minerals. It operates in two segments, Underground Mining Machinery and Surface Mining Equipment. Forum Energy Technologies, Inc. designs, manufactures, and distributes products to the oil and natural gas industry in the United States and internationally. FCX (Freeport-McMoran Inc.) is another natural resource company that has recently seen two very large insider buys. Insiders often take large positions in their companies when they believe the market has seriously undervalued their company and/or when a bottom in their particular market is observed to be approaching. Insiders can observe changes in their market environment either through purchases, operations, contacts, and/or understanding of their particular industry. JOY and FET are equipment suppliers to the natural resource and commodity industry so they are often the first companies to see the turnaround in their industry. The actual producers who buy the equipment from their suppliers may see their profits rise more later in the cycle, as the price environment for their particular product starts rising significantly. But both equipment suppliers and producers will obviously benefit from a significantly rising price environment in the commodity/resource sector. Also, we have seen recent announcements concerning the financial problems of Glencore, the world’s largest commodity trading and mining company in the world. The failure or tenuous hold on survival of a major company is often seen near bottoms of a particular market. Many mines of major and junior natural resource companies have closed or slowed down production in this lengthy low price environment contributing to an ongoing contraction in supply. The world needs these natural resources on a continuing basis so once supply contracts to a certain point, prices will be forced up to maintain an adequate supply of these necessary resources. Contributing to the price levels of these natural resources is also the strength of the currency they are priced in which is the U.S. dollar for the most part (for a little while longer anyway). The turnaround in the pricing environment for the natural resources will be, I think, significantly affected by the change in valuation of the dollar. So if the natural resource area significantly appreciates in value, then based on my thesis, the U.S. dollar will significantly depreciate. And that is why I think gold and silver will see a huge rise over the next few years as well and starting in the not too distant future.

The gold market continued to decline on higher volume last week and strengthens my expectation to see gold go below $1000 before we see a strong, continuous rebound back up. Gold closed at $1107.9 last week.

By the way, I still like the solar power sector and the names of the companies (SPWR and FSLR) I have mentioned in previous writings. Based on my readings about the hyperinflationary times during the Weimar Republic (Germany in the early 1920’s), the two sectors that hyper-inflated more than others were energy and food. Solar power is a relatively new source of energy and it can be independent of any established power grid that could experience disruption or failure during times of severe economic and political dislocation.

Speaking of the hyper-inflationary tendencies of the food sectors, picks in that area would include MOS (the Mosaic Co.), POT (Potash Corp Saskatchewan) sports a 6.09% forward dividend, and IPI (Intrepid Potash Inc.). And yes, I think the U.S. could experience a hyper-inflationary environment over the next 2-3 years.

I do not think the natural resource area has quite bottomed yet but I do not think we are far from it based on the items I outlined above and in previous posts. Dollar cost averaging or putting in significant investment sums at these price levels should end up paying well over the next 2-3 years. The natural resource and commodity areas are low priced and not overvalued in any sense of the word for long term investors. That does not mean that stocks in this area will not go lower over the near term but insiders and big money have already positioned themselves in this area. As I have said I think you could wait a while before you finish buying in the precious metals mining shares.  As far as physical precious metals, I would not delay as there are already considerable wait times for purchases from most dealers.

Stock Market Recommendation Update: RSX & RUSL

Russia ETFs (RSX, RUSL- 3x leverage) are approaching double bottoms and when that area is reached should provide good spots to re-enter these ETFs if you were stopped out after entering them based on my original recommendation back in May. They are not quite in the buy area (around $14 for RSX and around $10 for RUSL) yet and appear to be still working their way lower. These ETFs had an initial strong run up after bottoming back in December 2014 but have now been correcting for the past 3-5 months. Russia has a resource based economy and the government has little debt, especially when compared with the undisciplined paper printing government machines of the rest of the major economic regions of the world.

Market Analysis: September 7, 2015

The current market environment is very uncertain and markets do not like uncertainty. China announced the de-pegging of their currency, the Yuan, from the U.S. dollar the week before last. The global stock markets, including the U.S. did not take kindly to that news and experienced sharp, violent downturns.   The U.S. markets bounced back up sharply last week, particularly the Nasdaq Composite and NDX 100, and is now in a digestion phase of the recent volatile moves. Current uncertainties include whether the Fed will raise rates or not on September 17th at the conclusion of their meeting, whether China will announce further actions that will impact global stock markets, and the uncertain state of domestic and global economies. The poor state of many global economies that are heavily resource and commodity based is due to the extremely low price and prolonged low price environment of these sectors.  This again is due to the slowing of the more developed economies and their subsequent lack of demand for materials and resources.

Financials look very weak and I would avoid this sector. I re-emphasize to religiously use stops if you are using the less prudent approach I outlined early last week. If you are using the more prudent approach that I also outlined last week as well, then precious metals and their mining stocks look interesting. I would recommend to continue to buy ETFs GDX and GDXJ and physical precious metals. I think there is still a good chance for gold to go below the $1000 level to around $950 but this should be a quick move followed by a strong turn back up.  So you might save some capital to buy some of the mining ETFs and surviving miners at these levels, if and when it occurs.

The strength of the U.S. dollar belies its true weakness and the catastrophic conditions it will soon create for its citizens. The dollar’s temporary strength also provides a great opportunity for foreigner creditors to exit the Treasuries and U.S. currency as long as they can figure out ways to provide themselves with a liquid bond market to sell into as they just did during the recent stock market crash. I call it a crash due to the depth of its decline in a very short period of time. Last week I mentioned that interest rates will rise due China exiting their Treasury and dollar reserve holdings. Other major foreign creditors have been and will continue to follow suit as well. The Fed can print more money to buy their bonds back in an attempt to keep interest rates low. I am sure they are already doing this since there are no other buyers except for Federal Reserve foreign central bank proxies (who get the money to buy the unwanted Treasuries from the FED) to soak up these worthless debt instruments.

I expect you will see a combination of higher interest rates and hyperinflation (extreme money creation) at some point as an attempt to keep juggling too many balls at once. These balls are to 1) keep interest rates low, 2) prevent a hyperinflationary spiral, 3) to keep the stock market up, 4) keep the spendthrift government funded, and 5) keep the U.S. dollar as the world’s primary reserve currency. Keeping the interest rates low and preventing a hyperinflationary spiral are diametrically opposed goals at this point with the stultifying debt load. One or the other will happen no matter which goal you pursue and probably both will be evident when this whole financial theater of the absurd and the insane collapses. The U.S. government is broke and it is only because the U.S. dollar is the world’s primary reserve currency which allows the Fed to keep printing dollars that it is able to pay its bills and honor its financial obligations. That is until the world is prepared to say enough of this insanity, which is coming soon. The reign of the U.S. dollar as the world’s primary reserve currency is in the process of coming to an end. The alarming and in many cases devastating change it will bring to the citizens of the U.S. has never before been seen by that country.

CounterPunch.org recently had an excellent article (titled “Wall Street and the Military are draining Americans High and Dry) detailing the U.S. government’s horrendous debt load. This article shows that the U.S. government debt burden is actually $46.2 billion, not the $18 billion that is officially given. This puts the U.S. debt to GDP ratio at an astronomical 312%. Countries are in danger of collapse from too much debt when this percentages starts to exceed 100% as was the case in Greece in 2008. The 312% figure does not take into account outstanding financial derivatives that according to BIS were about $630 trillion dollars earlier this year of which about half resided with large U.S. banks. So the U.S. government and the citizens of the U.S. since their government represents them – in theory at least – are more than 3 times worse in their debt burden than Greece was when the Greek debacle started. This is absent the financial derivatives time bomb, whose total is many times over the already crushing U.S. government debt load, and is just waiting for its lit fuse to ignite.