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Federally Failing Thursday – Can Yellen Save the Markets?

Thursday, November 17, 2016 9:04
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Related imageWill we still have Janet Yellen to kick around next year?

Almost certainly we will because her term as Chairman of the Federal Reserve doesn’t expire until February, 2018 but, even if she is not re-appointed as Chair – she’s still a Governor until 2024 and Trump has no ability to remove her.  Likewise, Fisher remains vice-chair through June of 2018 and his Governorship lasts through 2020 and there are only 7 Governors with two open slots because, like the Supreme Court, Congress has refused to confirm any of Obama’s picks for replacements (yes, they are that petty).  So now it’s going to be up to Trump to confirm 2 new Fed Governors but it will be many years (past his term) before it’s likely to have any real influence on the Fed. 

And you’ve heard the expression “don’t fight the Fed“, right?  Well that goes for Presidents too because the Fed represents the nations’ bankers, not their voters and you cross the money-men (or women) at your own great peril.  Janet will get a chance to tell us about it today as she begins her two-day testimony to Congress.  It’s a great day to short the market (same levels as yesterday) as you can expect questions from Democratic Congresspeople like “Just how insane is Donald Trump’s economic policy and how much damage will it do to our country?” – stuff like that…

Of course, Yellen will attempt to remain bi-partisan and pretend she doesn’t know what programs he’s proposing and will even pretend she can’t do math and, hardest of all for a grandma from Brooklyn, she will pretend she has no opinion on the subject – it’s going to fun!  Fun, but it will come off as uncertain and confusing to those watching and you really don’t want to see that when you are holding stocks at the top of the market rally. 

Yesterday we thought 2,180 would not hold on the S&P Futures (/ES) and, of course, they did not but, in our Live Trading Webinar yesterday afternoon, we decided to short the Russell (/ES) and we’re currently short 6 at 1,302.8 so we’ll see how that plays out.  

Our gasoline longs from the Webinar (/RB) are up another $10,000 today as we test $1.34 so that was $15,000 profit on Monday, $10,000 profit on Tuesday and $10,000 profit yesterday on a trade we featured at last week’s Live Webinar and, of course, in our morning newsletter, which you save $3 a day on by not subscribing – enjoy your bagel!  

The Futures are up a bit because the Bank of Japan announce a massive bond bailout as 10-year notes have risen from -0.3% to +0.1% and we can’t have positive rates so the BOJ is buying up all the bonds to keep the rates negative – assuring them perpetual losses on the money they don’t really have anyway.  Why, you may ask?  Because Japan is 250% of it’s GDP in debt which if they were the size of the US economy, would be $50Tn in debt and even 1% interest on that debt would be $500Bn per year, 2% is $1Tn per year, 3% $1.5Tn per year – you can see how quickly rising rates would bankrupt Japan – they can’t afford to “wait and see” when rates creep up.

So the Bank of Japan prints money to buy bonds with at prices so low (negative) that they have to print more money just to stay even.  That’s why the Yen has been in perpetual freefall and that’s why Japanese Prime Minister is at Trump Tower today, kissing the future President’s ass because, if Japan is declared a currency manipulator – things can unwind VERY quickly.

Of course, Abe is making a huge mistake because he’s showing weakness to a shark who has already sworn to renegotiate trade deals and Japan, as it happens, is our 4th largest trading partner with whom we have a $7Bn trade deficit (Canada, China and Mexico are a close 1,2,3 with about $550Bn each vs $200Bn with Japan, Germany is 5th, just behind Japan).  So, if we’re going to have a trade war, these are our big 5 and it will be interesting to see what other dignitaries take the escalator up to Trump Tower to pay homage.

As I reminded our readers yesterday, we are shorting the Nikkei Futures (/NKD) at 17,900 because we lost faith that 18,000 will ever be hit but, if it is, we’ll be shorting there as well.  For now, those 17,900 shorts are working just fine and paying $5 per point, per contracts.  For the Futures-challenged, we also had a trade idea in Monday’s morning post to short the Japan ETF (EWJ) as it tested $50 and we’re already down to $49.40 but the puts, so far, are flat but flat is good considering the BOJ just tried to boost the market and got no reaction.

And what happens, by the way, when the World’s 4th largest Central Bank proposes to do UNLIMITED bond buying and even that fails to move the needle?  Could we finally be at peak manipulation in the financial markets?  Indications are that we are and that’s why Draghi and other Central Banksters are BEGGING for their governments to provide stimulus through infrastructure spending or ANYTHING to help boost the economy – because they are out of tricks.  

Another warning sign that the rally is out of gas is when other Banksters start upgrading index heavyweight components in order to prop up the index while they dump all the smaller stocks before anyone notices.  This morning, Goldman Sachs (GS) upgraded Microsoft (MSFT), raising their target 13% from $60 to $68 in an attempt to get MSTF over the hump at $60 and, hopefully, spur more buying in the tech sector (we’re short with SQQQ longs).  

Yesterday it was Apple (AAPL) boosting the Nasdaq, as they ran back from $104 Monday to $110 at yesterday’s close, which is our 5% Rule™ of course, so we know AAPL will pull back to $109 (weak) and probably $108 (strong) and that means Goldman needed a heavyweight upgrade to counter Apple’s drag today – so they went for MSFT, even though the company only projects $3 earnings for the year and is already trading at 20 times earnings, about 33% above the normal 15.

Image result for goldman sach kill gooseOddly enough, the reason GS analyst Heather Bellini gave for bumping Microsoft’s target up 13% is cloud computing – a sector that is showing signs of getting very crowded.  This has shades of the craze for off-site server farms we had before the last crash as all of those companies simply got crushed over time by price competition as technology advanced (see Moore’s Law).  I do hope this works out for Heather though as her other picks this year have all tanked – she truly is Goldman’s sacrificial lamb.  

The Financials have been flying on promises of de-regulation and the dismantling of the Dodd-Frank act – you know, all the stuff we put in place to make sure the crisis from 8 years ago doesn’t happen again.  Oh well, it’s been a good 8 years, hasn’t it?  Now America is free to be great again and we’ll see just how great it can be before it explodes (too much winning) but, we’ll be adding to our hedges today for our Member Portfolio as we want to at least lock in these ill-gotten gains – just in case it all hits the fan for the holidays!  

Speaking of hitting the fan – there are still 131M fake, Fake, FAKE!!! orders for oil to be delivered in December at the NYMEX and tomorrow is the last trading day so about 115,000 1,000-barrel contracts need to be dumped in 2 days!  That’s going to put some serious pressure on oil but, sadly, we can’t short it because the contract holders have $6Bn on the line and it only costs $50,000 to get some Nigerian “rebels” to blow up a pipeline (something we call “Rent-A-Rebel“) to spike the price of oil up and bring in the suckers before the big sell-off.  

A comment from an OPEC minister will also work but you can’t hire one of them for less than $100,000 these days.



Provided courtesy of Phil’s Stock World.

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