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5.14.2017 - Free Investing Newsletter Bookmark

All of it
 
Today's letter is about pondering. We're going to ponder the future. It should be interesting.
 
I would guess that by now most of you know that things are just not like they used to be. If you went back 30 years and tried to tell the investing community that GAAP accounting would be replaced with "pro-forma" or "adjusted" earnings, they'd look at you funny. If you told them that in some years, fully 40% of the market's moves were based on stock buy backs, buy backs financed by selling Corporate debt, they'd giggle at you.

 
If you told them that manipulation of the forex, gold and silver futures was a daily occurrence and that several major banks had been "busted" for it, they'd find that almost impossible. If you told them that as of right now, the big commercial banks have been fined a total of 45 BILLION dollars for all manner of collusion, manipulation, price fixing, etc... they'd wonder what sort of world we live in.
 
But it gets so many times worse. If you told these gents that the finance industry would find a way to take mortgages, package them up in traches and sell them off as investments, despite some of them being worthless, they'd not believe it. Then of course if you told them that the very banks that were creating these toxic instruments during the 2004 - 2007 years; actually knew they would implode and went short against them...while selling them as A+ investments!! I think at that point they'd laugh you out of their presence as a loony tune.
 
But we had/have all that. And we have much more than that. I think the final straw would be explaining to a finance manager in say 1970 that by 2017 Central banks would be buying stocks, and buying corporate debt to the tune of hundreds of billions of dollars... they simply couldn't digest it.  Try to explain Mario Draghi printing up 85 billion Euro's a month to buy up financial assets. Try explaining NEGATIVE interest rates. Try the Bank of Japan owning 50% of their stock market.  The howls of astonishment would be frightening.
 
As you can see, things we apparently take for granted as normal, are not so very normal. These sorts of things were unheard of years ago.  Oh you could really go for the gold and tell them that by 2017 we'd have 20 trillion in debt and that our dollar had lost 96% of its value since 1970.  Incredulous but true.
 
But it does beg the question...what's coming in the next ten - 20 years? What's the plan? What's the desired outcome here?  These are serious things to ponder.
 
There's some folks that believe Donald Trump was allowed to be elected because they're going to use him as the ultimate scapegoat. The powers that be are going to pull the plug on the major economies of the world and send us into a hellish depression. The new world order folks, the open border folks, the globalist folks will point to all the pain and say "See?!! See what happens when you want a Nationalist as a leader? You stupid slaves should have gone along with our one world Government, and none of this would have happened!"
 
Is that possible? I guess it is. But maybe there's something else to consider. As you are well aware, if you're a Rothschild Central bank, you have the ability to print money. Right out of thin air. Cost? Nothing. And, you can take that money and buy the debt and the stock of functioning companies.  Now think about that for a moment...
 
Now, what fits better with a one world, centrally planned globalist economy, than them slowly taking over the ownership of major companies via buying up all their debt? The ECB (European Central bank) Has been buying between 65 and 85 billion a month in this "QE"  Consider this headline from January....
 
ECB Assets Rise Above 36% Of Eurozone GDP; Draghi Now Owns 10.2% Of European Corporate Bonds
 
The European Central bank owns 10% of European Corporate bonds. Ponder that. When you own a company's bonds, you OWN a significant portion of that company. Now toss in the Swiss national bank and their almost 100 billion in stocks. The SNB owns more AAPL shares than the top 4 funds. Think about the Japanese Central bank. This is from Bloomberg:
 
While the Bank of Japan's name is nowhere to be found in regulatory filings on major stock investors, the monetary authority's exchange-traded fund purchases have made it a top 10 shareholder in about 90 percent of the Nikkei 225 Stock Average, according to estimates compiled by Bloomberg from public data. It's now a major owner of more Japanese blue-chips than both BlackRock Inc., the world's largest money manager, and Vanguard Group, which oversees more than $3 trillion.
 
Are you starting to get my picture? The Central banks are taking over control of the world's business. Its industry. Its telecom.
 
A few weeks ago I wrote two articles concerning how "nothing matters" to this market. No matter what they throw at it, it keeps holding up, or moving up. Not lousy data, not lousy GDP, not lousy retail sales, not falling auto sales, not N. Korea, not Syria, no nothing seems to hinder this market. And I continue to point to Draghi, our own Fed, the SWN, the BOJ, etc as the reason.
 
At first the thinking was that because so many derivatives are cross linked to stocks as a collateral base, one could suggest that like a pyramid scheme ( or sort of like a ponzi) that they have to continually create more debt, because if they let the market fall, all those instruments tied to it, would implode. This is still true, but maybe it's more sinister than that. Maybe their goal isn't to keep the economy from imploding, maybe it's....to buy up everything. All of it.

I remember a short interview that Dr. Doom, Mr. Marc Faber did several years ago. When talking about Central banks expanding their QE programs he said that if they continue this, one day the socialists will have won because they'll "own everything".   I didn't give that statement too much thought when he first said it. QE at the time still looked like it was designed to try and spark the economies of the world. Now however when we look at the sheer amounts of things being bought... it takes on new light.
 
It's almost the perfect crime. You print up a billion Euro's or Franc's or yen, and trade those digital entries for Corporate coupon debt, and stock. In return for thin air fiat crap, you're taking ownership in steel and iron businesses. Solid, 3 dimensional, tangible businesses. And it costs you NOTHING.  Or how about this...you're the SNB and you own 26 MILLION shares of MSFT ( they do) You see it starting to fade, what do you do? Whip up some digital bucks and buy a million shares. Boom! MSFT fade...over.
 
This isn't a new concept. It was especially prevalent during the 30's here in the US and it was called counterfeiting. It was illegal. You'd print bogus 10 dollar bills that cost you a penny, and go buy goods from the retailer. But this is much more insidious than that. Today the central banks are counterfeiting money and buying the Retailer itself!
 
The size of the buying is staggering....but then so are the areas they're buying in. This from Bloomberg almost a year ago:
 
"The extent of the program is massive," said Jeroen van den Broek, ING Groep NV's Amsterdam-based head of debt strategy and research. The ECB is buying more than 300 million euros ($332 million) of bonds per day "in a very illiquid market," he said.

And where are they buying? Telecom. Drugs. Oil rigs, etc. Important stuff. Stuff that you'd like to own if you were "in charge".
 
Some are going to argue and say they're simply buying good companies and reaping the rewards as the stocks inch higher. Baloney. It's THEIR buying that's pushing the stocks higher. The demographics prove that the baby boomers are retiring and starting to take money OUT of the market. The millennials don't have that much to put in. Pension plans are already maxed out as to their portion of risk they can own. Something's buying every dip this market ever sees...and that something is the central banks.
 
When does it stop? Can it stop? Do they want it to stop? I don't know folks. Do they just keep printing and buying stocks and bonds, sending the market higher and higher and higher until they own significant percentages of half the world's major businesses and then pull the plug on everyone?
 
Lots of very powerful hedge fund guys have been screaming for half a year that we're facing a very nasty crash. It never seems to come. Many hedgies have gone out of business, they continued to look for the crash that never came. But none of them ever seem to point to the Central banks and say "they did it to us, if they weren't buying up everything, our shorts would have paid off."  I guess they're forbidden to speak that truth.
 
We're in waters never charted folks. What we're witness to has never happened in our lifetimes. Who knows, maybe that's truly the globalists goal, to buy up everything. Total control. All I do know is that I'm terribly excited to find out how this all ends up. And yeah, I've got a ton of popcorn for the show.
 
PS....One last thing. I continue to believe with all my heart that if the worlds CB's do nothing more than stop buying...this market falls 40% in a couple months. They already have that much control over things. How scary is that? Did you elect any of these central bank clowns? Yeah, me neither.
 
The Market....
 
Stuck. It's stuck just below the all time highs and it's having an issue getting past it. Well if you read the commentary above, all it is going to take is for the Central banks to fully engage again and we'll get one of those out of the blue 300 point up days. But until then? Fade. Soggy. Sideways.
 
In a little piece I just lifted from Wolf Richter, which he wrote a couple days ago... he notes this:
 
Over the past 10 weeks - so since March 1, 2017 - five stocks in the S&P 500 index have gained a total of $260 billion in market value, the infamous FAANG stocks: Facebook, Apple, Amazon, Netflix, and Google (now Alphabet).
 
By any measure, $260 billion is a massive surge in valuation for just five stocks, or 1% of the S&P 500, in just 10 weeks.
 
And the rest of the S&P 500? On March 1, the index closed at 2,394. Today it closed at 2,397. In those 10 weeks, it went absolutely nowhere. Which means this: the remaining 495 stocks in the index lost as much in total market capitalization as the FAANG stocks gained.
 
That about sums it up. We're going nowhere. Volumes are horrible.
 
Let's put it another way. The technicals suggest a lower market is coming. The MACD stack on the S&P is about to go sub - 0. The MACD Black line is just about to cross under the red.  The financials as summed up by the XLF  are red, well below its 50 day moving average, and its MACD is about to fade below "0".

The IWM which is the proxy for the Russell is barely holding up above its 50 day, by about 50 cents. Its MACD is already sub -0 and moving lower.  The only thing holding us together is the techs, especially the semiconductors. ( and the FANG stocks)

All in all, this is the type of set up that has ruined so many hedge funds over the past couple years.  They see a bunch of chart set ups like this, just as we are heading into the summer doldrums, and they figure "this market is set up for a correction". So they sell their longs, and put on some shorts.
 
But what happens? Out of the blue, we get some early morning futures buyer from an unnamed account and "boom" we soar for 200 points. Then we add another couple hundred and Mr. Hedge fund is scrambling to cover his shorts. At a loss.
 
We're in the very same boat right now. We have a June rate hike coming. Earnings season is about over. The GDP number that was just released as possibly looking at 3% has already been lowered to 2.5. As time goes on we'll see 1.5. The financials are soggy, the small caps struggling. Everything says "time for a correction".
 
But not so fast. Why? Because those pesky Central bankers can change things in a heartbeat. The bottom line is that the market looks very well positioned to roll over some. But if the Central bankers don't want it to...we'll either trade sideways here for a couple months, or they'll simply push it higher.
 
We took some profits this week. We sold HD, MU, and our SPY. We held MMM, but if it doesn't start moving higher again soon, we'll take that off too.  So, what's it going to be? Are they going to levitate us through to new highs again, or are we really going to see a correction? Only time will tell, but history shows us that they haven't even allowed a 2% fall in weeks. ( months)  Why would it this time?  

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