General Markets: The markets continued to advance this week and have been on a torrid pace for the last five weeks in a steep rise off of its February 11th bottom. I said last week that we are due for a rest soon and I still think that is the case. We are now entering the blackout period for stock buybacks on Monday, as per a Zerohedge article this week. We all know by now that stock buybacks have been a big driver in keeping this funny-money bloated market aloft over the last several years, but particularly in the last several months. Another Zerohedge article this week stated that major hedge funds have been selling into this rally and into the company stock buybacks to offload their high priced shares to a price unconscious buyer. Another factor pointing towards a pause is the upcoming April 15th tax deadline, where many market participants pull money out of the market to pay their taxes. The U.S. stock market is often in a lull for a few weeks prior to that deadline. Not to mention that after a quick, sharp advance the stock market is due for a needed pause before continuing further. The U.S. stock market has been driven and closely correlated to the simultaneous fall and rise in the oil price since the beginning of 2016. The oil price is now near significant resistance, its 200 week exponential moving average, which is a technical factor that usually inhibits forward progress in a move up.
A lot of people are still doubting this recent stock market rise and that is a good sign for the continuation of this rally. The rapidness of this recent rise is probably a sign of what is to come, more strong U.S. stock market action going forward. The energy, emerging markets, and commodity related stocks have led and been the underlying strength of this rally. The former NDX 100 champions have lagged and I expect that to continue in the future. The latter are the high priced, overvalued stocks that the major hedge funds have been selling into the company buyback programs. The former sectors are the low priced, value plays that will continue to advance with their underlying core drivers such as energy, other natural resources, and commodities despite any negative news pertaining to them, in general. In particular, I still expect to see some bankruptcies in the energy sector, so unless you have done a deep dive into a particular company, sector ETFs are the safe way to play this highly probable upcoming rally.
The big driver of this rally has been the decline of the U.S. dollar, which historically moves inversely to the price of oil. Thus, the significant decline of the dollar over the last several weeks, starting on February 1st, has been the catalyst setting off the rise in oil, which started about 10 days later. If you look at their charts, you will not see a direct recent day to day correlation, but historically over the long term and more roughly over shorter time periods, that has been the case. Looking at the dollar chart further, you can see a lot of air underneath where it now sits due to its rapid rise over the 2014-2015 period. That is a big reason why I think you will see a rapid decline in the value of the dollar over the next several months. It does not have any near term support until around 89, once it breaks past the 93.5 level, to prevent its continued decline. But first, like the stock market, I expect it to take a rest too, after its weak performance in March. And with a rapid decline in the dollar you will get a rapid rise in the oil price which is the current driver of the U.S. stock market. Therefore, the rapid rise of the oil price will provide the conditions for a strong stock market rally, despite any negative news or fundamentals that is being concurrently proffered.
Inflation is starting to rise as indicated by various government statistics such as PCE, CPI, etc. One of the main indicators going forward for inflation will be the U.S. stock market. Inflation is really an increase in money supply (cause) that usually creates a rise in consumer prices (effect). The money inflation, as far as consumer prices, has been hidden to a large degree over the last seven years. This is because the increase in money supply has been largely applied to the major banks to shore up their balance sheets, into the stock market to keep the illusion that the government has everything under control and the economy is strong, and into the bond markets to keep interest rates low so as not to blow up this financial house of cards (on both the government debt side and the big bank derivative side). This is also seen in the low velocity of money over the same time period as this money is not circulating out in the real economy but is only being shared among the government’s crony partners in crime to save them and to buoy up the markets.
The stock market is set up now to have its final blow off top with the rapid price rise in oil and the equally rapid decline in the value of the U.S. dollar. The U.S. stock market will probably rise rapidly along with a rapid rise in U.S. inflation because of the declining value of the U.S. dollar. The culmination of this final market rally and dollar decline will be the end of the U.S. dollar as the world’s primary reserve currency and U.S. hegemony in the world. This will be the beginning of a trend toward a multi-polar world where the U.S. is no longer by far the dominant force.
Going forward, economic wherewithal will mean much more than who has the biggest military and is willing to use it at the drop of a hat in order to impress its will on others. The U.S. economy has been hollowed out and cannibalized over several decades by this parasitic, fascist partnership between big government, big banks, and big corporations at the expense of its citizens and other nations abroad. How this exactly plays out is anyone’s guess, but I think you can bet that without the U.S. dollar being a reasonably valued currency, much of the government power and infrastructure built up under this system is going to disappear.
This will cause much pain, even devastation in some cases, but this corrupt, criminal system needs to be cleansed and cleared away to allow for sustainable progress in the future with a much more level playing field for all. Government and their cronies will not self-regulate themselves when they purposely designed the system to do what it does in explicitly rigging the game for their benefit at the expense of the general population. The general population has been so bought off, indoctrinated, and drugged/incapacitated to a large degree by the system that they have little will or knowledge to change the system, especially when it seems so powerful to try to confront. So nature will take its course as it has done throughout history and cleanse the system of its abuses and criminality to a large degree. A multi-polar, more competitive world will be better than this soft-core totalitarian (up till now; they are arming all the government agencies, have “homeland security”, and militarized police departments for a reason), crony government and economic system but how much better will be up to the people. If you keep relying on big government and their cronies to supply the answers and solutions to the problems then you cannot expect good results going forward. The good thing (as far as trying to bring back the U.S. Constitution or something similar) is that government cannot be so powerful in the future without a lot of central bank supplied funny money. The U.S. funny money printing press will be seriously crippled in the near future by its own self-inflicted abuses and criminal acts.
Precious Metals: Gold and silver have been trading in a range over the last five weeks and look very close to turning downward despite all the hoopla and excitement still out there over the preceding rise. TPTB cannot allow gold and silver prices to continue to rise if they want to maintain the illusion that the economy is still recovering and everything is all right. A high gold price is anathema to the waning strength of these fiat currencies and will not be tolerated by the Anglo-American empire and its vassals. You can see elements of this by the recent report that the Canadian government has now sold almost all of the remaining remnants of its gold reserves. You can bet that if the U.S. government does not permit anyone to audit its gold reserves or Fort Knox, the gold is probably not there. It has been sold onto the market to keep the gold price down and help make the fiat currencies look strong. This rigged game is coming to an end though since these guys are running or have run out of gold reserves to throw onto the market to suppress (suppress all threats to the system – gold, the people, and any country or person that does not obey direct orders of the empire) the gold price. The U.S. government is finding it is more difficult to find other countries to invade where one of their first moves is to steal the gold. The U.S. government does not want to work and trade to acquire gold, it does everything through the use of force – covertly if possible. The more this system falls apart, the covert measures will become increasingly less effective, so they will revert to overt forceful measures. Particularly so because the quickly devaluing U.S. dollar will be much less effective in buying people’s loyalty. I expect gold to go below $1000 and then I will have to re-evaluate to see what is the most likely direction from there.
Recommedations: The following have been previously recommended and are still vaild. Most have had nice advances in the recent runup and will probably rest with the market over the next few weeks. Then again, they might not so if you buy in now, I think you will be fine, just be aware that there could be some near term volatility after such a prodigious runup in a short timeframe.
Emerging Markets: Selected emerging markets have done well in this runup, particularly Brazil, Russia, and China, all of which have been recommended here. RSX (Russia ETF), RUSL (Russia 3X leverage ETF), EWZ (Brazil ETF), BRZU (Brazil 3x leverage ETF), FXI (China ETF) are instruments to participate in these countries. Individual emerging market stocks that have been Marketscope Recommendations include Alibaba (BABA, Chinese Internet Commerce), Vimpelcom LTD (VIP, Russian Telecom with good dividend), Mobile Telesystems (MBT, Russian telecom with good dividend), Yandex (YNDX, Russian search engine ala Google), Luk Oil (Lukoy, Russian Oil Company), Gazprom (OGZPY, Russian Natural Gas Company). Expect further gains in the emerging market space, as the energy, agricultural, and other commodity sectors continue to move higher in prices. These sectors have put investors/traders on notice with the magnitude of their moves. Continued advances in the emerging market and natural resource/commodity sectors further support the thesis of a declining U.S. dollar.
XLE (Energy ETF), OIH (Oil Services ETF), USO (oil ETF), UNG (Natural Gas Futures based ETF), DBE (Energy ETF 2x leverage), ERX (3x leverage), GASL (Natural Gas companies, 3X leverage)
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.
Kinder Morgan (KMI) 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. Warren Buffett was recently reported as taking a position in this company.
EPE (EP Energy, oil/natural gas pipelines). The company wants to keep its dividend in place and will only suspend it if is necessary but right now things are manageable. Upside potential from here looks promising.
Chesapeake Energy (CHK, 2nd largest natural gas producer in U.S.) 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 a bit more debt coming due, and it is expected that they will have to sell some properties or interests in some properties to successfully manage their debt going forward. In their last conference call they expressed having the flexibility to meet the upcoming debt payments by selling some of their non-core properties and still be in good shape for a rebound in natural gas prices.
Fuel Cell Energy Inc (FCEL), as per Yahoo, together with its subsidiaries, designs, manufactures, sells, installs, operates, and services stationary fuel cell power plants for distributed power generation. The company is also involved in the development, design, production, construction, and servicing of fuel cell products under the Direct FuelCell name. Its power plants electrochemically produce electricity and heat using various fuels, including natural gas, biogas, methanol, diesel, coal gas, coal mine methane, and propane. The company serves utilities, independent power producers, and governments; and education and healthcare, gas transmission, industrial and data centers, commercial and hospitality, oil production and refining, wastewater treatment, food and beverage, agriculture, and landfill gas sectors.
Energy- Solar Sector:
SPWR (Sunpower, solar sector), FSLR (First Solar, solar sector), TAN (solar ETF),
Cybersecurity and Miscellaneous:
AKAM (Akamai Inc., Internet), VRSN (Verasign Inc., Internet), FEYE (Fireye Inc., Cyber Security, GLW (Corning, ), RHT (Redhat Inc.), MGM (MGM Resort International Inc., Casinos/Leisure), A (Agilent Inc., Life Sciences/Diagnostic Services), TROX (titanium oxide producer, potential 3D printing implications),.
POT (fertilizer company), MOS (fertilizer company), TWI (smallcap tractor tire manufacturer)
Smallcap Tech/Life Sciences:
Five smallcaps are RMBS (Rambus Inc., Semiconductor/Cryptosecurity), LMNX (Luminex Inc., Life Sciences/Diagnostic), FLEX (Flextronics, Electronics Contract Manufacturing/Solar), and NANO (Nanometrics Inc., As per Yahoo: high-performance process control metrology and inspection systems used primarily in the fabrication of integrated circuits, high-brightness LEDs, discrete components, and data storage devices).