Steady As She Goes: February 28, 2016

General Markets:  It looks like the U.S. stock market is still trying to put in an intermediate term bottom in an attempt to halt the bearish mania that has overtaken the market since the beginning of 2016.  King World News had a report about a week or so ago of the extreme number of indivual investor shorts in the U.S. market which is usually a sign for at least a short term turnaround, which we have now seen.  The Nasdaq 100, Nasdaq Composite, S&P 500, and the Russell 2000 gained 1.72%, 1.91%, 1.58%, and 2.69%, respectively.   The KBW Bank index scored a 1.36% gain that lagged the major indices but it still put the banking index well off its bottom of February 11th.   The important thing now is if the major stock indices can hold on to their recent gains in order to build up for another rally or do they capitulate and continue their earlier death spiral of 2016.

Banks:  The important thing now (for the Fed) is to re-instill some confidence into the banking sector and the only way to do that is for bank stocks to continue to go up.  Banking sectors, globally, have taken hard downside hits during the first several weeks of 2016 in the U.S., Europe, and Japan.   Central banks in these regions will  do anything they can to prevent a full scale bank  panic from  developing.  A case can be made that many major banks in Europe never recovered from the 2008 crisis and that several banks there are on the precipice of disaster.

Major U.S. banks are really not in any better shape when you consider the size of their derivative books and exposure to the failing energy sector.  Fractional reserve banking is an inherently unstable, unsound, and dangerous business model that would have disappeared long ago without government support.   Then on top of that you add more than a quadtrillion of off-balance sheet derivatives  meaning there is little transparency here and no one but the banks themselves know the full contents and potential impact if things go awry.   European and Japanese central banks have already taken recent steps in attempts to bolster their banks and respective stock markets but to no avail.   The Federal Reserve is running out of bullets too as each successive implementation of Quantitative Easing has had a lessening positive effect on its stock market.

I expect the Federal Reserve to try again to boost its stock market but what they will call it this time is anyone’s guess.  But it will come down to one thing – printing more money.  They could try to lower interest rates but they have about reached the end of that rope and negative interest rates have been no palliative to the woes of Europe’s economies.  The question now is when this funny money, rigged system is going to collapse not if.  This system will self-destruct because of its inherent unsoundness and corrupting influences not because some other country did this or that or because of another war that is also part of this corrupt system.

Without central banks (as well as fractional reserve banking), you would not have these continual, periodic, and worsening economic busts.  Without central banks (as well as fractional reserve banking), you would not have these perpetual, unnecessary wars.  Without central banks, you not have the extreme buildup of an out of control government that not only does not represent the citizens and their interests but continually looks for ways to take away their rights, either through technically “legal” devices or through covert criminal devices.  Without central banks (as well as fractional reserve banking),  you would not have the extreme income inequality that this rigged game promotes and perpetuates that favors the 0.01% at the expense of everyone else.  Without central banks (as well as fractional reserve banking), you would have a much more diversified, healthy, and sustainable economy that supports a much broader middle class and that would greatly lessen if not eliminate many of the problems this current system has caused or greatly exacerbated.

Energy Markets:  First Solar had a positive response to its earnings report after Tuesday’s close.  It carried the solar sector to a positive week as represented by the solar ETF TAN.  U.S. crude oil had a slightly positive week and has been basically trading in a sideways pattern for the last seven weeks.  Oil has not made a confirmed bottom yet but has been showing continual signs of buying within the $26-35 region over that time.  Natural gas is in the vicinity, at $1.71, of retesting its December 2015 low of $1.68.  All in all, I expect the energy complex to trade down further from current prices but that we are not too far, in either distance or time, from a final bottom.   The same goes for the agriculture-related sector.

Precious Metals:  Gold looks close to an intermediate term top and has been trading in a range for the last two weeks.  Silver has already broken down somewhat and fell hard on Friday.  I would not be surprised to see one more short term push higher before it turns down again.  Never under estimate the resolve of the Powers That Be to keep gold and silver prices down.  Anything otherwise would be bad for their funny money business and system.

Junk Bonds:  Junk bonds have been rallying for the last 2.5 weeks and look to be close to a top in this area.  When junk bonds turn down again, it will most likely be another sharp decline.   This coming sharp move down might be the catalyst that sets up a bottom in the energy complex as more energy companies bite the dust.

Turbulent Times Ahead: February 21, 2016

There will be turbulent times coming, both in the U.S. financial markets and in the U.S. economy, but these times will also present some very good prospects to increase your market-based returns as long as you stay on the right side of the markets and in the correct sectors and stocks. Staying on the right side of the markets is a combination of having a good understanding of the fundamental drivers underlying the market action combined with understanding the action of the market itself. Most economic figures strongly support the premise of weak and continually weakening domestic and global economies with the U.S. and global market indices strongly supporting that premise as well. While there are not any lifeboats on the horizon to save these failing economies from a serious collapse, domestically and globally, there will be opportunities to profit from the failure of the big governments, their cronies, and their corporatist (fascist) systems (this isn’t capitalism folks, wake up, see Sidebar).

Developed nation’s stock markets and emerging nation’s stock markets are often not closely correlated too each other as emerging markets have historically been much more volatile than developed markets. The emerging markets that have done well in the past have been largely dependent on the strength of the developed nation’s economies. This is primarily because the vast majority of emerging markets do not have well diversified economies and are very much commodity/natural resource based and sell these products to developed nations, especially when their economies are doing well.

But the times ahead may be one of the few times when these two markets are strongly inversely correlated to each other. I expect this to happen for a few reasons such as 1) Peak debt (this term is explained in David Stockman blog here http://www.zerohedge.com/news/2016-02-20/silver-linings-keynesian-central-banking-heading-massive-repudiation ) in developed nations, 2) Cannibalized, hollowed out economies in developed nations, 3) Extreme fascist policies within their own countries causing long term economic destruction and degradation perpetrated by developed nations governments and their cronies. 4) In the U.S. case, an extreme buildup and use of its military to accomplish absolutely nothing of economic, social, or national defense value but consumes insane levels of financial and economic resources.  On the other hand, many emerging market countries are focused on developing their economies and trade relations and not on invading countries to control their natural resources or impose their will on them.

These emerging market countries have a host of economic problems as well but they also have significant relative strengths as well. Then there is another major catalyst as well that has to do with the interplay and actions of the various players (governments and their central banks) at the table in how they manage their currencies, sovereign and corporate debt, and reserves in relation to one another. The old saying, “When the ship is sinking, it’s every man for themselves”, is coming more into play as economic decline is becoming amplified in each country. You saw the first major disconnect to supporting the U.S. dollar back in August 2015, when China de-pegged their currency from the U.S. dollar, which weakened a major support mechanism for the dollar.  Shortly thereafter in September 2015, you saw Russia enter Syria, according to international law, to assist the Syrian government in defending itself in its war against terrorists, who have been supported by the United States. Since Russian entrance into Syria, the Syrian government has been able to recapture large portions of their country back from previously terrorist-occupied territory.   Since that time you have continual economic reports and figures (despite the fake government unemployment figures) of the weakening U.S. economy that never really recovered from the 2008 Great Recession. In the background, is an alternative global currency and monetary network including development bank institutions to supplant and replace the current global U.S. dollar based currency platform, when it fails.

So you have major economic and political factions, distancing themselves from the foundations of U.S. economic and political power. These are challenges to the historical supremacy (since 1947) of the U.S. dollar, its military, and the existing institutions and currency network that support the dollar and its military. As I have been stating for the last several weeks, you are seeing the development of a multi-polar world being played out in the markets as well as on the global landscape. This will replace the U.S. dominated uni-polar world that the U.S. government and its cronies have been implementing and shaping since the advent of its Federal Reserve central bank in 1913.

The winners of this poker game, who are using their currencies, debt, reserves, and economies  as chips, will be those who have chips of real relative value and those who adhere closest to sound principles in playing out their hands. Sound principles do not include perpetual war mongering, unending increases in sovereign debt, empire building, economic oppression and suppression of large bodies of its own citizenry (for instance total destruction of its middle class), and extreme criminal government/crony behavior conducted against the interests of its citizenry. The losers of this game will most likely be those who rely more on financial engineering (including derivatives) and have little of real value to offer.

Obviously, all the major players at this poker table are not angels, and in the end all may incur, within their own countries, a major readjustment on how the countries are governed and organized. But during the oncoming intermediate period there is going to be a major readjustment from the U.S. empire centric world to a much more multi-polar world and that major adjustment to the current world view will be here to stay.

The world is much more competitive now than over the last 100 years when the U.S. empire model developed and benefitted from not having any wars being conducted on its own soil as well as possessing a strong economy with a strong middle class.  The U.S. economy has been gutted and castrated over that time, now dominated by a relatively few multi-national corporations that depend on extremely large markets and an overly financialized fascist system that places an unnatural emphasis on extreme growth to support the debt-based addictions to extreme wealth for the few at the expense of the many (do not get me wrong, I am all for everybody making lots of money if they so choose and can as long as everybody is playing on a reasonably level playing field without government favoritism or oppression). The economy has been in terminal decline for decades along with the steep decline of individual freedom and rights and the increase in continual destructive wars that cost insane amounts of money and lives destroyed for no good purpose.

The oil market has been closely correlated to the U.S. stock market since the start of 2016 and I expect that to continue. I have been saying for the last several weeks that the energy complex is in the process of bottoming and I expect that to continue into next week. But I believe a bottom is not too far off into the future and we have some key earnings reports this week that should provide more insight into potentially highly profitable opportunities within the energy sector. First Solar (FSLR, solar energy) and Chesapeake (CHK, natural gas producer) report on Tuesday and Thursday, respectively. FLSR charts looks poised for more downside action in the short term. Longer term FSLR looks like a very good opportunity. Chesapeake has been in the news much this year because of their heavy debt loads and the prolonged low price environment in natural gas. CHK has a 500 million dollar debt payment due in March according to recent Wall Street Journal articles and CHK has the cash to pay that. But next year they have quite bit more debt coming due, and it is expected that they will have to sell core properties or interests in some of their core properties to be able to successfully manage their debt going forward. The earnings report on Thursday will provide more clarity on their current cash flow, cash balances, and plans going forward (You can look at recent articles in the WSJ or at Seeking Alpha for analysis of CHK). A big driver is whether natural gas prices go up before that to allow a better sales price for property sales and also to increase free cash flow. Chesapeake, at current prices, looks like a big winner in the future unless they report some really bad numbers on Thursday. Natural gas looks like it is going to revisit its previous recent low of $1.68 reached in December, 2015. I expect that low to be reached within the next two weeks. Once there, it should have a good chance to bottom, especially if we continue to see weakness in the U.S. dollar. Also, the U.S. crude oil market showed good strength last week along with major U.S. stock indices. The oil price may continue to bottom for a few more weeks, but it appears to be getting close to a final bottom. It may be a few more weeks before oil and natural gas complete their bottoming process but once they do, the typical form is for both to make a strong move up off their bottoms.

My watchlist contained in my previous “Crazy Train”, Feb 14 article is still in place. Another stock I would add to my watchlist is Kinder Morgan (KMI).  Kinder Morgan is primarily a natural gas pipeline owner and operator along with a bulk shipping terminal business that has been adversely affected in recent times by the bankruptcy of two of its coal mining clients, Arch Coal and Alpha Resources. In its last earnings conference call its management stated it had the situation well under control, it is a well diversified business, its pipeline business, which is its largest business segment, was doing reasonably well despite low natural gas prices because to a significant degree this business segment is insulated from the low natural gas price environment (they are just transporting the natural gas through their pipelines for others, they are not drilling for it and selling it themselves), and they looked forward to the future.  It had a nice pop up last week after the WSJ ran an article saying Warren Buffett had invested in it and may continue trading higher due to the recent publicity but I would hold off buying it here. One more add to my watchlist would be the smallcap tractor tire manufacturer, Titan International (TWI), a previous recommendation. It had a nice move up last week but is still selling at good levels.  I would wait for another 1-3 weeks before stepping in here to start buying.  I think the solar sector will take another move down from here.  Natural gas will see lower prices from here and oil has not put in a bottom yet.  There will opportunities in the energy complex and agriculture complex when we do bottom.

Sidebar

Capitalism does not have central banks (communism tenet), graduated progressive tax systems (communism tenet), or even necessarily fractional reserve banking (unsound big banker fraudulent tenet that would have long ago disappeared to a large degree if not for government support).

The End of Deflation, Inflation to Come, Then on to Hyperinflation: February 17, 2016

The U.S. has been in a deflationary stage covering large sectors of the economy for several years due to the prolonged low price environment of commodities, natural resources, and precious metals. Another sector of the economy, consumer technology-based gadgets, widgets, computers/tablets, TV’s, and devices have also contributed to a relatively low priced and deflationary economy as technologies becomes more inexpensive as any technology progresses down its own specific lines of development. One other important factor contributing to this deflationary period is the strength of the U.S. dollar as compared to other major world currencies. Last but not least, is also wage deflation that in real terms is at levels last seen in the 1970’s.

To be clear, we all realize that there are significant parts of the U.S. economy that have experienced serious inflation over the last several years. These include health care costs (primarily due to the Affordable Care Act- See Sidebar One below), beef prices, house prices (depends on location), and college costs. The U.S. has a complex, diversified economy with a lot of moving parts and covers many sectors so it is almost impossible to paint it all in one color classifying it all as inflationary or deflationary except in extreme circumstances – which are coming in the not too distant future.

I am trying to stay focused on the inflationary and deflationary aspects of our economy and the changes to come in the near future. As you probably already know there are things that are connected to the resulting inflation and deflation that would be classified as more governmental and systemic in nature and that are not usually described as purely economic although they certainly affect and impact our economy, and in many cases they are designed to do just that. Those topics and discussions are touched on in the Sidebar discussions, as I have a proclivity for going off on tangential topics.

One other part of the U.S. economy has experienced extreme price inflation and that is the U.S. financial markets, its stock, bond, and currency markets. It is now proper to call the U.S. financial markets a primary part of the U.S. economy due to the extreme financialization of the U.S. economy over the last few decades as governments, big banks, and its other fascist cronies have gutted the real U.S. economy. The primary impetus of the U.S. economy in the last few decades has continually and strongly gravitated to who you know and who you control– connections, inside information, and coercion- rather than labor, production, innovation, and ideas that have strong economic footing. Financial engineering is the new driver of company profits. See Sidebar Two below.

As I have been writing in recent articles, the energy complex has been showing significant signs of bottoming action. The long period of low energy prices has hurt not only a number of energy companies in that space but also the countries of the major energy producers including those who started this price war to get rid of their less cost efficient competition. The extensive low price environment has also hurt major producers of all natural resource producers including iron, copper, and zinc where they are shutting down operations and selling off assets to reduce debt. But I believe the start of the coming inflationary period in the U.S. will be concentrated particularly in two sectors, energy and agriculture (food). There exists a continually high demand for those products no matter what their prices – high or low. You have two primary factors at work here – 1) contracting supply (in the case of food supply Russia, Europe, and now Americans are waking up to the dangers of eating food that contains a highly toxic pesticide – glyphosate- in it. It is either being banned or avoided by many countries and consumers) and 2) a continually strong worldwide demand for these two areas that fulfill basic needs of the world at large.

As far as timing, it looks like the energy and agriculture areas will turn together although some components within these areas have shown earlier signs of turning than others such as the solar energy sector and natural gas. In my previous article, I said I thought over the next 2-3 weeks, we would see a bottom put in place. My primary reasons for thinking that was the U.S. stock indices were getting very extended to the downside after a horrific January and a very bad start to February, and then the banks, along with the rest of the market, made a strong move up last Friday. The U.S. stock indices have also arrived in or close to areas that have or should provide support going forward such as previous bottoms or major moving averages that market participants watch. The bank indices (BKX, KBE, KRE) look terrible and since the government and the Federal Reserve are so closely aligned with them, I expect some action soon from the latter two in an attempt to re-instill confidence in the banking industry and the stock market as a whole.

Another important driver is the U.S. dollar which has looked very weak since the start of February. Commodities, natural resources, and precious metals are all priced primarily in U.S. dollars and they typically move inversely to the U.S. dollar over the long term. In the short term some of these areas may move with the U.S. dollar but those tendencies are usually short term in nature unless something fundamentally has changed. This final phase of bottoming could take up to another 1-2 months but I believe we are closer to a bottom than the latter limit because of where we are now and recent price action.   Make no mistake the big banks are a broken industry as now constructed (this is a topic for a dedicated article- See Sidebar Three below) and they will see much more downside but the recent downside action in the banks looks close to a short term bottom. My Watchlist in my previous article, Crazy Train, contains stocks and ETFs that I think will benefit at the next market turning point.

When the U.S. stock market turns up, I expect the U.S. dollar to continue to decline introducing an inflationary force into the American economy. The prices of commodities including food and natural resources including energy will start to increase in price in U.S. dollars. This will start the trend towards an increasingly inflationary environment even though real economic activity is falling. The technical term for this is stagflation – increasing prices but lower real economic activity being conducted. You get the worst of both sides of the equation. This scenario has not included exogenous, non-market forces that could further exacerbate the rapidly deteriorating economic environment, both globally and domestically. If the Middle East tension, such as between Turkey/Saudi Arabia/U.S. and Syria/Russia/Iran erupts into an open war against each other, you can expect energy prices to take off. Other important factors that would increase the inflationary trend in U.S. dollars include the weakening or elimination of the Petrodollar as is now in place for the purchase of oil in U.S. dollars and the elimination of the Euro currency. With the sad state of EU economies and governments, it is not farfetched at this point to reckon with European citizens wanting to go in a different direction than the one they have been led into by the EU government and U.S. figureheads that now rein over these vassal states.   The EU component countries and partners and also Japan are closely aligned with the U.S. government and are all in the same boat as they have failing economies, extremely high sovereign debts, and deteriorating banking systems. If one goes down they all will go down in short order as none of these countries and regions have anything of fundamental value supporting their currencies and markets.   Currencies that will benefit will be emerging market currencies that have high exposure to energy, agriculture, and whose countries have a relatively low debt like Russia and the ruble. Another country that has high exposure to the energy and agriculture complex is Brazil although their overall economic and political circumstances are a mess.

Eventually, its failing economy, its failing banking system, its exponentially growing sovereign debt, and its extremely criminal government will bring the U.S. dollar to its knees. As we approach that endpoint, inflation will most probably turn into hyperinflation. Prices of goods and services, in U.S. dollar terms will soar, at least for things that have to be imported. Much of U.S. economic capacity in the agricultural area has shrunk due to extended drought conditions in the West and people are not really keen on eating GMO food and on top of that the population has continually grown. Due to the strength of the U.S. dollar, much of our agricultural produce is imported at relatively low prices. That goes away with the demise of the dollar. The U.S. still imports much of its oil despite the shale revolution which is rapidly declining due to the low oil prices and the increasing cost of money for them. Most U.S. consumer goods are manufactured overseas in places such as China and Mexico and they will want to be paid in money that has real value, not worthless scraps of paper with artwork and pictures on it.

How we sort through this coming mess, nobody can say for sure. But some of the coming economic events and consequences of this corporatist (fascist), criminal system are reasonably predictable if you stay alert and keep observing. A gold-based currency system is likely to come into existence when these fiat currencies start to implode, one after another. Gold and to a lesser extent silver have historically been used as money. Cryptocurrencies may also enter into the future picture although these are still new and probably have some further growing pains to endure before they reach a steady state environment. In the shorter term cryptocurrencies provide a mechanism to possess, spend, and move your own money without 3rd party intervention or oversight (See Sidebar Four).

The transition from inflation to hyperinflation will bring serious changes in our government and their ability function, not that their ability to function now is not already seriously impaired. It takes big, big money for the huge government infrastructure to maintain itself and execute its daily activities and programs. This government monstrosity that now dominates the world as well as our lives has been continually built up over the last 100 years, all supported by funny money. The government has been a continual parasite over this time feeding off its host, the American people largely, until little remains. Large parts of world recognize the inherent weakness of the U.S. government as well as its extreme criminality and is ready to do what it can to shed this unwanted and unnecessary self-appointed overlord. When the U.S. dollar reaches the stage of rapid decline, civil servants will be severely hurt just like anybody else. This has not been the case over the last 100 years as government workers have been relatively insulated from the economic consequences of all the boom and busts that have occurred before. This has been because the U.S. dollar, as a currency, has held its relative value well, even though over that time it has lost about 96% of its overall value since 1913.   The wholesale depreciation of the dollars in government worker pockets will be the same as in the pockets of anyone else holding them. Their benefits will no longer look good and they will become very dissatisfied with this new economic state they find themselves in despite being loyal and faithful true believers in big government.

 

Sidebar One

Is it not curious how the government always names special bills/laws/regulation with such benign, benevolent and righteous sounding names when they typically turn out to be the exact opposite of what they purport to be. Names like the Affordable Care Act, Patriot Act, National Defense Authorization Act (when has the U.S. government and its military-industrial complex been involved in the defense of anything including the rights of its own citizens – it is all about taking the offensive including against its own people and cloaking it in the guise of doing something good as well as “legal”.) North American Free Trade Agreement (gutted out many U.S. jobs, especially in manufacturing sector, more to come with the TTP & TTIP – more “free trade” agreements).

Sidebar Two

The same can be said of government, it’s all about the money. The financialization of government is all about getting funding for your departments, bureaucracies, programs, missions, wars, and themselves. Government has nothing to do with good principles, just laws, righteous law enforcement, protecting the citizens and their interests. Government is about protecting and enhancing themselves and furthering the interests of the status quo which again is themselves and their cronies – and is intentional and totally at odds against the citizens.

Sidebar Three

Bank business models are based on extreme leverage, monopolistic control of not only the purse strings but in the actual creation of “money” itself is a corrupt, criminal model that belongs in the dustbins of history. Once these banks and their illegitimate derivatives books explode and then they implement bail-ins of the deposits of its clients to try to cover their losses, people will never trust these institutions again. People are waking up to the fact that their corrupt business model has allowed them acquire and concentrate extreme amounts of power in their few hands and they have used that power to further their own interests to the detriment of the people. This fascist model has been one of the primary drivers in gutting the U.S. economy over the past 65 years along with a way too powerful military-industrial complex. Concentrate the creation, control, and receipt of money in a few hands and you have a continuing concentration of power, profits, corruption, and criminality in those hands and of those of their cronies. There are no checks and balances in the system as it has been designed and rigs the game in their favor. The more power they attain, the more ways they look to rig the game further in their favor at the expense of the people. They do not want and do not tolerate competition, they want good serfs and slaves who shut up and obey and who can easily be taken advantage of, although usually incorporating covert methodologies, schemes, and weapons to hide their true intentions and misdeeds.

Sidebar Four

If this coming economic collapse also brings with it the collapse of these criminal governments that look to rule over people rather than represent their interests, then the rebound from this economic debacle will be much quicker than if we let these self-appointed overlords continue down the path they have taken us over the last 100 years utilizing central banks to create money out of thin air to create a dominion over us rather than the country that could have continued to be built in accordance with the precepts written in the U.S. Constitution and is the ultimate law of the land. The government and its cronies, over this time, continued to ride what had been built up under those precepts into the ground until that country and its accompanying attributes are nothing but a feint memory in the mind of some.

Crazy Train: February 14, 2016

General Markets: The U.S. stock indices after spiking down on Monday, pretty much held their ground throughout the rest of week, and even tacked on a strong move for Friday to finish the week on a positive note. The U.S. stock market which has had a dismal start so far in 2016 may be showing the first signs of making a short term bottom over the next 1-3 weeks. The now-hated banks (and rightly so) led the smart move up on Friday with a gain of 5.36% (KBW Bank index). It may be a sign that the shorts are getting nervous after a nice move down since the beginning of the year and no longer want to hold over the weekend. This is especially so after the Wall Street Journal reported on Friday that Jamie Dimon, CEO of JP Morgan just bought 500,000 shares of his stock for $26.6 million. This also probably brought in institutional buying of the major bank shares on Friday as well. Mr. Dimon, being one of the ultimate insiders, would not make a bet of that magnitude at this juncture in a very extended bull market unless he was very confident of a positive outcome. Since the major banks own the Federal Reserve Central Bank (although they try to keep the details of that secret as far as the public is concerned), one would think they have a good line on what the Federal Reserve may do in the future. According to a recent Zerohedge article on Friday, the Federal Advisory Council, made up of 12 representatives from the banking industry in the various Federal Reserve Bank districts, meet four times a year with the Federal Reserve Board to consult and advise the Board on all matters within the Board’s jurisdiction. Their latest meeting was on February 3rd and then a little over a week later Mr. Dimon’s large share purchase of his own stock is reported. Whether this large purchase of his own stock is enough to turn around the market on its own or if this is a precursor to a soon to follow action by the Federal Reserve to goose the market up one more time before flaming out, only time will tell.

But we will not have to wait long as the market is at a critical point in this area. From the technicals that I am observing, it looks likely that the market will probably put in a short term bottom over the next 2-3 weeks, and then start back up. More downside action is likely over the next two weeks, and is likely to contain a lot of choppiness as well as possibly another spike down. But once we make this bottom, there should be some very good opportunities in selected emerging markets, energy, and agriculture related stocks.

And, of course, expect U.S. bank stocks to go up as well. This will be an attempt to make the American public believe that U.S. banks are safe and not tied into the recent publicized troubles of many major European banks. At best, the major U.S. bank stocks will be good for an intermediate term trade, not a buy and hold at any price. These toxic institutions are a ticking time bomb just waiting to go off – Citigroup, JP Morgan, Bank of America, Goldman Sachs, and Morgan Stanley have trillions of dollars of derivatives just waiting to explode with very little capital to cover the gargantuan losses that will result. This final move up for the banks will create a market to allow the bank insiders to unload and secure a lot their wealth that is tied up in their bank shares.

Gold: You know things are getting bad when the gold market is on a tear like it was this week. Reports for rising demand of gold, globally, abounded. Precious metals rose more than I expected, but they are now up against another significant resistance point, its 200 week exponential average. Zerohedge had an article this week where the headline said, Jose Canseco says everyone should buy and own gold, so the recent rally is probably overdue for a correction. Mr. Canseco, a great baseball player, is right that it is a good idea to own gold, but the recent move up is about done when you start to see headlines like this. I expect, over the next 2-3 weeks, that you will see gold turn around and start to go down. I still expect gold to go below $1000 this year as the Powers That Be are not giving up the ship just yet and keeping the gold price down is paramount to their narrative that the economy (along with their fiat currency) is okay and the government has things under control.

Energy: The West Texas Intermediate oil price rebounded strongly on Friday, 10.72% after falling sharply the first 3 days of the week. The oil price has been closely correlated with the stock indices since the beginning of the year and I expect this to continue. So I expect the oil price (and natural gas price) to bottom over the next 2-3 weeks as well along with the major U.S. stock indices. U.S. dollar is showing serious signs of weakness in the last two weeks and has still not demonstrated any significant sign of firming and stemming the slide.

U.S. Dollar: If the U.S. dollar continues to weaken then this will be a boost to the energy, agriculture, and selected emerging market sectors. Below is my current watchlist, although I think you will be able to acquire these at better prices over the next 2-3 weeks as we put in a bottom.

Events/Factors that could shape and amplify market moves in the near future:

Geopolitical and Economic Concerns: 1) Saudi Arabia and Turkey readying themselves for possible invasion of Syria. 2) European Banking problems continuing and escalating. 3) EU problems continuing to escalate: a) banking, b) civil unrest, c) economic instability and decline, d) countries looking to exit EU, e) rise of EU opposition political parties. 3) Continued budgetary and accompanying social problems in oil-dependent states due to low oil prices i.e. Saudi Arabia, Venezuela, Norway. 4) Huge sovereign debt problems of developed countries: U.S., EU, Japan, China. 5) Big U.S. banks and their off balance sheet derivatives books, 6) U.S. banks and their exposure to the failing shale oil sector. 7) Widening credit spreads and the increasingly failing junk bond market as exhibited by the falling junk bond ETFs (JNK & HYG). 8) Slowing and failing U.S. economy. 9) Slowing and failing global economy as exhibited by the continuing all-time lows in the Baltic Dry Index and still falling commodity/natural resource prices (except for the quickly rising precious metal prices which is another sign of escalating uncertainty and concern for the stability of the current system).

Watchlist: RSX (Russia ETF), RUSL (Russia 3X leverage ETF), EWZ (Brazil ETF), BRZU (Brazil 3x leverage ETF), FXI (China ETF), XLE (Energy ETF), UNG (Natural Gas ETF), DBE (Energy ETF 2x leverage), LUKOY (Lukoil, Russian Oil Company), OZGPY (Gazprom, Russian Natural Gas Company), YNDX (Russian Internet/Search stock), VIP (Russian telecom, good dividend), MBT (Russian telecom, good dividend), SPWR (Sunpower, solar sector, earnings on 2/17 after close), FSLR (First Solar, solar sector, earnings on 2/23), TAN (solar ETF), BABA (Alibaba, China online retailer, TROX (Tronox, titanium oxide producer, potential 3D printing implications), CNX (Consol Energy, natural gas and coal producer), POT (fertilizer company), MOS (fertilizer company), AKAM (Akamai, Internet solutions company including cybersecurity).

Crazy: February 7, 2016

General Markets: Yes, the U.S. stock indices took it on the chin again this week and things appear to be getting crazier all the time as we head further into 2016. The Nadasq 100 and Nasdaq Composite, the two indices that typically lead in bull and bear markets are strongly saying its bear time for the markets going forward. The Nasdaq 100 and the Nasdaq Composite ended the week down 5.95% and 5.44%, respectively, from whence they began on Monday, and finished with a strong downside flurry of 3.44% and 3.25% on Friday, accentuating the continuing downtrend of 2016. The Biotech sector (NYSE ARCA Biotech), another big leader during this bull market, was down 5.36% for the week and slammed itself into the floor on Friday with a 2.05% decline. These are all foreboding signs, particularly considering this is the second downward spiral in the last six months for the U.S. stock market, which is considered the leading stock market in the world. February is often a weak month for the stock market, so we may have further weakness next week.

 

The so-called FANG (Facebook, Amazon, Netflix, Google) stocks along with a nosedive by Linkedin on Friday after a poorly received earnings report, led the U.S. markets down this week. These stocks fell 7.25%, 14.46%, 9.85%, 7.99%, and 45.24%, respectively. The four FANG stocks have been primarily responsible for bringing the broader stock indices back from its August swan dive to exceed or approach former highs as recently as late November and early December 2015. These four stocks were about all that was left of the quickly faltering bull market in late 2015. Without these four stocks continuing their relatively strong late 2015 runs, the Nasdaq 100 and Nasdaq Composite have little hope of regaining or approaching their highs. The Biotech sector (IBB) at 256.24, another bull market leader, has shown few signs of strength since its July 2015 highs and is quickly approaching its 200 week moving average at 238.43. The Dow Transportation Index and the Russell 2000 index look terrible as well and both have already broken through to the downside their 200 week moving averages. These latter two indices are already in bear market territory, down 26% and 24% from their highs, made in November 2014 and June 2015, respectively.

The exceedingly thin breadth of the last runup of the U.S. stock market is a mirror image of how thin our overall economy is and how little economic firepower is left in the United States. Back in the early 1970’s, the U.S. stock market was being held up, before a subsequent large fall, by what was then called the “Nifty Fifty” stocks, 50 large cap stocks spread across a wide spectrum of the U.S. economy including manufacturing and other substantial industries. These stocks did not include any primary stocks in the military-industrial complex. Now we are reduced to four stocks that until recently held the stock market up for a short time. These stocks include a company that provides movies and other entertainment fare over the internet, an online retailer that has a history of poor profits, and an online social media outfit that is primarily known for exchanging selfies, chitchat, and making online friends. The internet is an important vehicle for business but we need much more than this, both on and off internet business models to sustain the large U.S. population. Not only large businesses but small and medium sized businesses as well without undue interference and suppression of competition by big government and their cronies. The reduction of the Nifty Fifty to FANG, and only for a very brief time of support to the U.S. stock market at that, shows how weak the U.S. economy has become since the early 1970’s. See the link below to Michael Snyder’s article on 22 signs that the economic turmoil seen in 2016 is only just beginning.

Government is probably the leading industry in the U.S. and since government does not actually produce or create anything (other than a lot of problems for the people), when the once almighty U.S. dollar collapses, the U.S., as a country, does not have anything of real substance to fall back on and start over with. The only positive to all this is as the system continues to fail more and more people, this is forcing people to wake the hell up about how this system really operates, and realize that it is designed to work against the people and not for them. This system is designed for the benefit of a relatively few elite, that include government, big banks, and big corporations but not us. I am not saying that everyone that is wealthy is at fault here, hell I think a lot more people should have the opportunity to become wealthy but it will not happen as this system is designed to prevent that. The statistics of income distribution under this system loudly proclaims just that. Those, who through their own arduous efforts along with a bit of luck who have become successful and wealthy, I applaud. But this system does a lot of evil things to a lot of people to specifically prevent more people from having the opportunity to rise based on their own efforts.

This system does not want nor foster individual independence or prosperity for a greatly larger number of people than now exists. It actively opposes that but does so in a disguised and devious manner through propaganda, indoctrination, lies, secrecy, covert attacks on citizens, and, of course, through printing lots of paper money to make people think they are getting free goodies from the system.  Free goodies, from an extremely corrupt and criminal system, has a huge cost to the people, their and their children’s lives. Look around you, what do you see that is becoming more and more evident as each week passes? Unnecessary wars, subversion and total neglect by governments of laws protecting your country and its way of life, social chaos, false flag events to create fear in the citizens of their own country that government and their cronies look to take advantage of, artificially induced sickness to oppress, control, and kill its own citizens, illicit confiscation of your property and rights, and the list goes on.

The government has the latest technology, drugs, chemical agents, bio-weapons, and methods at its disposal to attack, oppress, and control any population it chooses. Not because it’s the right thing to do, but because of the paper dollar being the world’s primary reserve currency that has enabled this governmental monstrosity to build up its before-mentioned arsenal and associated power. Their philosophy is might makes right and it makes for a brutal, mean, and destructive world that is of benefit primarily to the relatively few at the top of this criminally designed pyramid scheme. The general populations are to be used and abused as necessary for the power and benefit of the few in league with one another. Everyone else is expendable.

The good thing about this U.S. economic decline and along with its abusive and murderous military power, is that much of their power over us will diminish. The system, as it now operates is in terminal decline. The U.S. and its vassal states will no longer be in semi-total control of the world, through its primary devices of wars, covert and overt force, and financial bribes of other countries elites. This should allow the people much more freedom to direct their own lives without the smothering interference of their own big government along with its cronies. But this system has created an economic mess and indoctrinated the population to look to government for solutions if not be outright dependent on government. You do not get solutions from big government just big problems. The people will have to find ways, apart from big government proposals and directives, and within themselves and among themselves, to push their way out of the mess that is coming while respecting each other’s rights. Any government is big, whether federal or state, if it is trying to impose its will on you while disregarding your rights and legitimate interests.

The Junk bond market had another bad week and interest rates for the CCC rated issues have reached 20%, a rate last seen during the Lehman debacle in 2008. See Wolf Richter’s article link for additional details on junk bond interest rates below.

Currencies: The U.S. dollar had a sharp decline this week and dropped 1.7% on Wednesday, its biggest one-day decline since March 2015 according to the WSJ. It followed Wednesday’s sharp decline with another significant decline on Thursday. In all, the dollar declined four of five days last week with Friday’s advance probably short covering to lock in the week’s profits before the weekend. After trading in a range since March 2015, this sharp, big move down looks ominous in regards to the future strength of the dollar. The dollar has lost about 97% of its value since 1913, when the Federal Reserve central was created. The May 2014 to March 2015 dollar rally was a strong rally against its long term down trend and current technical as well as fundamental conditions make the likelihood of the dollar to continue its downward descent in concert with its long term trend very likely.

Major parts of the world are prepared to use an alternative currency system that seriously de-emphasizes the importance and use of the U.S. dollar as the world’s primary reserve currency. There is little economic strength underlying the U.S. dollar and its government is hopelessly in debt at levels that can never be repaid. That is why many of its major creditors are dumping U.S. dollars and Treasury securities at a rapid pace over the last year or two and buying into assets or deals that have real value going forward. Low oil prices has only exacerbated this trend as oil producing countries receive fewer dollars in trade and have dumped U.S. dollars and securities to meet budget shortfalls.

As I have mentioned before, China and its currency are poised maintain relative strength against the dollar going forward. Alastair Macleod, Head of Research of GoldMoney fully and eloquently further makes this point in the link to his article below. The Telegraph.UK in an article this week make the point that much emerging market debt is in dollars and that the falling dollar will make the repayment of these dollar loans much easier. The article cites specific companies that have as much as 80% of its debt in dollars and include past Recommendations such as BABA (Alibaba, China online retailer), OGZPY (Russian natural gas company), PBR (Brazilian oil company, this one is a high risk pick, it is still in the midst of serious mismanagement and corruption charges as it is a primarily government owned company (what a surprise)) and LUKOY (Russian Oil Company). This financial loan payoff benefit also supports recent emerging market Recommendations such EWZ (Brazil ETF), BRZU (3x leverage Brazil ETF), RSX (Russian ETF), RUSL (3x leverage Russia ETF) and probably VIP and MBT (Russian telecoms that sport high dividends). The link to the Telegraph.UK article is below. These and the previously mentioned articles were pulled from the Zerohedge and FinancialSurvivalNetwork websites.

Energy: Light sweet crude rose 8% on Wednesday as the dollar dropped sharply but overall continued to consolidate its recent two week run up off the bottom at $27.56 and ended the week down. I would expect some more consolidation in this area but I think oil has further upside from this area in the near future (2-4 weeks). With the U.S. dollar starting to show serious weakness, this bodes well for the prospects of further rises in the energy complex as well as possibly the agricultural commodity complex.  Also expect some further consolidation in the solar power sector, specifically for SPWR (Sunpower), FSLR (First Solar), and TAN (Solar ETF).

Precious Metals: Gold has had a nice run up in 2016 but is currently running into its 50 week exponential moving average which has provided insurmountable resistance to it six times before since March, 2014. Each time it ran into this moving average before, the gold price reversed and continued to trade in a downward biased range. I expect the same to occur here over the next couple of weeks. As long as Treasury bonds remain strong, I do not expect any big flights to precious metals.

Recommendations: Consol Energy (CSX) is a natural gas and coal producer. On its recent earnings conference call, it expects to weather the current low price environment without selling any properties/assets and it is free cash flow positive. It still has significant hedges in place that are cushioning the effects of the low prices. Due to the recent numerous bankruptcies in the coal space, it customer base has actually increased in that area as customers look for a reliable supplier. It can be profitable in the natural gas area with a price in the low $2’s and is expecting to get that down to $1.86 in the near future due to further cost efficiencies. I would not be in a hurry to buy here as it has almost doubled in price over the last two weeks. I would not be surprised to see it consolidate recent gains here and possibly provide an opportunity to pick it up at a prices below $8 versus its current price of $9.1.

Interesting Reads This Week:

http://theeconomiccollapseblog.com/archives/22-signs-that-the-global-economic-turmoil-we-have-seen-so-far-in-2016-is-just-the-beginning

http://www.telegraph.co.uk/finance/economics/12141369/Dollar-tumbles-as-Fed-rescues-China-in-the-nick-of-time.html

https://www.goldmoney.com/shorting-the-yuan-is-dangerous

http://wolfstreet.com/2016/02/04/ccc-rated-junk-bond-yields-hit-20-blow-past-lehman-moment-consensual-hallucination-wanes/