Research Archives

El Ni?o is Closing In On Your Portfolio

I came up to my Tahoe lakefront mansion in Nevada this week so I could get in some serious mountain climbing after the markets closed every day.

What did I get? Three days of torrential downpours. The rain was hitting the roof so hard last night that it kept me awake.

Flash floods are wreaking havoc in Los Angeles. Poisonous sea snakes indigenous to Southern Mexico are appearing on California?s golden beaches.

Local fishermen are hooking Mahi Mahi normally found in Hawaiian waters.

And guess what? The first great white shark in 100 years was spotted devouring a seal inside of San Francisco Bay. It looks like I am going to have to reconsider my plans to run the Escape From Alcatraz triathlon this year.

There is absolutely no doubt about it. El Ni?o is arriving with a vengeance. And so is the impact on your trading and investment portfolio.

The potential consequences for your trading and investment portfolio are huge.

The Australian Bureau of Meteorology (click their link http://www.bom.gov.au/climate/enso/) has even gone as far as to predict that this will be a very big El Ni?o year, the kind that occurs only twice a century. The last two major events occurred in 1982-1983 and 1997-1998.

That emergency caused $550 million worth of damage in California alone.

These tumultuous weather events are caused by a differential in Pacific Ocean temperatures off the west coast of South America, in what is called the ?El Ni?o Southern Oscillation Zone.?

A weak event is triggered by temperatures 0.5-0.9 degrees centigrade more than average, a moderate one 1.0-1.4 degrees warmer than average, and a very strong event more than 2 degrees above average. As of October 13, the temperature was 1.4 degrees above average and rising.

The implications of an El Ni?o winter are global in scale.

Australia will almost certainly face a severe drought, destroying much of the grasslands on which the nation?s livestock industry depends.

You can also expect the wheat crop there to fail, as irrigation is rarely used Australia to cut costs.

Southeast Asia will also be dry, damaging rice production in Thailand, the world?s largest exporter. Sugar will also take a hit.

The drought could extend to India, reducing crops for grain, rice, sugar, and cotton. As Indian incomes fall, the gold market could be impacted, as the country is the largest buyer of the precious metal.

El Ni?o also decimates the annual anchovy catch in South America, which competes in the international markets with soybean meal.

El Ni?o?s bring mosquito blooms and the diseases they cause, bringing sudden epidemics for Malaria and Dengue fever. If you?re headed to Latin America this year, be sure to get your shots and take your pills.

It is estimated that the 1998 El Ni?o caused 16% of the planet?s coral reefs to die off.

The opposite effects occur in the Northern hemisphere, with El Ni?o bringing torrential downpours.

I remember the last one all too well.

In 1998, I led a troop of Boy Scout volunteers to fill sand bags to save a levee in California?s Central Valley. We returned two days later, covered from head to toe in mud and exhausted, living on granola bars.

This time around, El Ni?o would be welcomed by the Golden State with open arms, as it would bring to an end a four-year drought, the most severe in history. Everyone here is now subject to strict water rationing and hefty fines for water hogs.

Indeed, when I was recently in Las Vegas, I couldn?t help but notice that the tap water at the Bellagio Hotel had become undrinkable.

The water level in nearby Lake Mead is now so low that it has fallen below the intake pipes for the city. The hotel was unable to resupply bottled water in the shops fast enough.

For the trading universe, this could all finally bring the long bear market in agricultural commodities to an end. Whether there is too little rain, or too much, abnormal weather of any kind brings plummeting crop yields, and higher prices.

So far, the price action in the ags has been very encouraging as El Ni?o continues its relentless march northward.

Affected have been the commodity prices of corn, (CORN), wheat (WEAT), soybeans (SOYB), ag stocks like John Deere (DE), Caterpillar (CAT), Potash (POT), and Monsanto (MON), and many basket ETF?s, such as the PowerShares DB Agriculture Fund (DBA) and the Market Vectors Agribusiness Fund (MOO).

The term ?El Ni?o? translates from Spanish as the ?Christ Child?. It is so named because the event was first discovered in South America just before Christmas about 50 years ago.

They have been occurring throughout human history. The crop failures they brought are thought to be responsible for the collapse of several pre Columbian civilizations. One historian even posits that it was a major cause of the French Revolution in 1789.

El Ni?o?s are also legendary for bringing enormous snowfalls in the High Sierras during the winter. While a student, I was working a part time job at the Mammoth Mountain ski resort in California when a legendary one hit in 1968.

An incredible 35 feet of snow fell in one weekend. Entire buses were buried and lost in the storm. I spent a week helping trapped people dig out from that one.

This is one big catch to all of these prognostications, as there always is. El Ni?o winters have been predicted in the past and not shown up, most recently two years ago. After all, models are just models, not certainties.

Betting on the weather can be hazardous to your wealth.

Besides the trading opportunities, an El Ni?o would make the coming ski season up here at Lake Tahoe look pretty good. I am shopping for new equipment already.

Looks Like Rain to
Me

Is the Bear Market in Oil Over?

Diary, Newsletter, Research

With the spectacular collapse in oil prices (USO), down a whopping 63% in just 18 months, I am starting to get a lot of emails from followers looking for Trade Alerts to buy the energy companies.

After all, energy is one of my three core industries in which to invest over the next two decades. Why not now?

The short answer is: Not quite yet. Don?t ever confuse a stock that has gone down a lot with ?cheap.?

The share prices for this sector are getting so low, they are starting to redefine the meaning of ?bargain.?

The major integrated oil companies are now trading under book value with single digit multiples.

However, I have seen this situation a half dozen times this year. Short-term speculative traders sense a market bottom and pile in, even though oil industry fundamentals continue to worsen.

It always ends in tears.

It is the classic ?catching a falling knife? scenario. If I were inclined to play this game, I would be broke by now, and wouldn't have any fingers left.

Energy stocks are now at liquidation values, assuming that the fall in the price of Texas tea halts at $38. Those are valuations almost as low as Apple (AAPL) saw a year ago.

The absence of my Trade Alerts in this fertile field is happening because things could get worse for oil before they get better.

There is now a war for market share occurring between the world?s second and third largest producers, Saudi Arabia and Russia (the US is now number one), which has yet to play out.

Both countries desperately depend on rising prices and export volumes to maintain domestic political stability. When that doesn?t happen, budget deficits explode, spending gets cut to the bone, revolutions occur, and governments fall.

And these aren?t countries that send former leaders to country clubs to practice their golf swings in retirement. Firing squads are more the order of the day.

In fact, countries maintaining high oil revenues is a matter of personal survival for their leaders.

Until recently, I would have said that China would step in and put a floor under the market to fuel their insatiable demand for energy. But they have run out of storage, and are unable to take more.

There is just no place to put it. They have even resorted to long-term charters of ultra large tankers, like the 434,000 tonne TI Europe, purely to build reserves.

The shake out is especially bad in the offshore sector, the planet?s most expensive source of crude.

A glut of new drilling rigs is about to hit the market, ordered during more prosperous times years ago, while existing ones can be snapped up for 60 cents on the dollar.

Oil suffers from the additional damnation in that it is being dragged down by the global commodity collapse. Unless an asset class is made out of paper and pays an interest rate or a dividend, it is getting dissed to an unbelievable degree.

All of this means that the price of oil could fall further before we hit bottom and bounce.

If you had told me when I was fracking for natural gas in the Barnett Shale 15 years ago that this process would ultimately cause the collapse of Russia and Saudi Arabia, me and my roustabout buddies would have said you were nuts.

Yet, that is precisely what seems to be happening.

If there is one thing saving Texas tea, it is that the US can?t build energy infrastructure fast enough to get burgeoning new supplies to market.

After the Keystone Pipeline got stalled by regulatory roadblocks, giant 100 car oil trains sprang out of nowhere overnight.

So many railcars have been diverted to the oil trade that farmers are now having trouble getting a record grain crop to market.

This is why railroads have been booming (click here for ?Will the Oil Bust Kill the Railroads??).

The energy research house, Raymond James, recently put out an estimate that domestic American oil production (USO) would rise to 9.1 million barrels a day by the end of 2015.

That means its share of total consumption will leap to 46% of our total 20 million barrels a day habit. These are game changing numbers.

Names like the Eagle Ford Shale, Haynesville Shale, and the Bakken Shale, once obscure references on geological maps, are now a major force in the country?s energy picture.

Ten years ago, North Dakota was suffering from depopulation. Now, itinerant oil workers must brave -40 degree winter temperatures in their recreational vehicles pursuing their $150,000 a year jobs.

The value of this extra 3.5 million barrels/day works out to $115 billion a year at current prices (3.5 million X 365 X $90). That will drop America?s trade deficit by nearly 25% over the next three years, and almost wipe out our current account deficit.

Needless to say, this is a hugely dollar positive development, and my own Trade Alerts have profitably been reflecting that.

This 3.5 million barrels will also offset much of the growth in China?s oil demand for the next three years. Fewer oil exports to the US also vastly expand the standby production capacity of Saudi Arabia.

If you want proof of the impact this will have on the economy, look no further that the coal (KOL), which has been falling in a rising market.

Power plant conversion from coal to natural gas (UNG) is accelerating at a dramatic pace. That leaves China as the remaining buyer, and their economy is slowing.

It all makes the current price of oil at $50 look a little rich. As with the last oil spike four years ago, this one is occurring in the face of a supply glut.

Cushing, Oklahoma is awash in Texas tea, and the Strategic Petroleum Reserve stashed away in salt domes in Texas and Louisiana is at its maximum capacity of 727 million barrels.

It was concerns about war with Syria, Iran, ISIL, and the Ukraine that took prices to $107 in the spring. My oil industry friends tell me this fear premium added $30-$40 to the price of crude. That premium is now gone.

It seems that every time a new group grabs an oil field in the Middle East, they ramp up production, rather than destroy it, so they can milk it for the cash.

This is why 15 tankers are afloat around the world carrying Kurdish crude to sell on the black market.

Once Europe and Asia return to a solid growth track, oil will recover to $70 a barrel or more.

Until then, discretion is the better part of valor, and I?ll be sitting on those Trade Alerts.

It is also why I am keeping oil companies with major onshore domestic assets, like Exxon Mobile (XOM) and Occidental Petroleum (OXY), in my long-term model portfolio click here to view.

Let the Sunshine In!

Diary, Newsletter, Research

Let the Sunshine In!

I?ll never forget those immortal words for the hit musical Hair, where I took my senior prom date in 1970.

I had no idea that the entire cast would drop their clothes off at the end of the first act, standing there stark naked. I remember that they guy sitting in front of me almost hard a heart attack. I didn?t know then that such words existed.

My date?s dad would not have been amused.

He was the legendary founder of Wham-O, marketer of famed novelty toys like the Frisbee, the hula-hoop, the Slinky, the Super Ball, and the Slip?n Slide, a multi millionaire, and a famed African lion hunter.

He was a real tough guy.

But he never found out. There were a lot of things he never found out, thank goodness!

But I digress.

I?m sure that California Governor Jerry Brown was humming a few bars of Let the Sunshine In this week, although I doubt he ever saw the play.

Back then, he had just graduated from divinity school as a Jesuit priest (click here for my exclusive interview with the Moon Beam governor ?An Afternoon with California Governor Jerry Brown?.

But the words would have been appropriate, for my illustrious neighbor with the great security detail signed a bill this week that brings into law the most ambitious alternative energy goals seen anywhere in the world.

Jerry?s aspiration is for the Golden State TO OBTAIN 50% OF ITS ELECTRICITY NEEDS BY 2030, IN A MERE 15 YEARS!

In 2014, the state garnered an already impressive 22% of its electricity from non hydro renewables, including solar, wind, biomass, and geothermal sources, already the highest share in the world for a major economy.

There has not been a traditional coal fired electric power plant in the state for more than a decade.

Also included in the legislation are provisions to double the energy efficiencies of homes, offices, and factories. Another goal to cut gasoline consumption by half was axed from the measure after heavy lobbying by big oil.

Lucky for me that I?m already there with my new SunPower Solar installation (click here for ?How to Buy a Solar System? ).

Jerry thoughtfully signed the bill at the Los Angeles Griffith Park Observatory, which offered a panoramic view of the legendary LA smog, the city barely visible.

Some of it is probably still coating the inside of my lungs from my childhood there in the 1950?s.

My readers in all 50 states and 137 countries are constantly begging me to tell them what the Hell is going on in California.

As a technology and regulatory leader, what is adopted here is often imitated across the country and around the world, both the good, and the bad.

You know those seat belts, safety glass, and catalytic converters you find in your cars? They are all the result of laws first passed in California. But then it?s always easy to pile regulation on the industries entirely based out of state.

It doesn?t always work out so well. Adolph Hitler entirely imported the state?s racial purity laws to Germany during the 1930?s, and we all know where that went.

But that is a story for another day.

Of course, there are many who say that the lofty 50% target is unobtainable, or will drive us all broke if we ever get there.

But there is one fact that is utterly undeniable. This will be an absolute windfall of the US solar industry, which has the only technology advanced enough to meet governor Brown?s aggressive targets.

There is, in effect, a solar Moore?s Law that sees efficiencies per dollar spent doubling every four years, such as we have already seen with the faster growth of microprocessor efficiencies since the 1960?s.

Exponential growth of efficiencies will bring exponential growth of company profits.

Annual installations of photovoltaic panels have soared from a token 0.3 gigawatts in 2000 to an impressive 45 gigawatts in 2014, more than enough to fuel 7.4 million American homes.

They are about to grow much larger.

This is all happening because of the simultaneous maturing and cross-pollination of technology, regulation, financing, and venture capital.

A key development was the Chinese entry into mass production of solar panels during the late 2000?s, which led to a near immediate 80% collapse in prices. They now control 70% of the global market.

For the first time in history, solar power is now cheaper than grid power on a non-subsidized basis. Costs are set to still fall dramatically from here.

Fossil fuels are about to become, well?fossils.

The Paris based International Energy Agency, no slouch when it comes to analyzing power data, predicts that solar will account for 27% of the global supply by 2050, and will become the biggest single source.

But futurologist friends of mine, like Tesla?s (TSLA) Elon Musk, Google?s head of engineering, Ray Kurzweil, and cosmologist Dr. Stephen Hawking, believe there is no reason why it shouldn?t be at 100% by 2030-35.

To quote Kurzweil, ?we are only six more doublings away.?

Hillary Clinton wants nothing less than to eliminate all oil and gas tax subsidies worth $100?s of billions, and shift the money to alternatives.

That is a radical move.

Her goal is to increase the solar share of American power generation to 33% by 2027. To expect that this will cause the shares of solar companies to skyrocket is an understatement of the highest order.

Improving solar cell efficiencies promises to take us further and faster into this brave new world.

My own SunPower (SPWR) X-335 panels, with their patented Maxeon solar cells (made in Georgia), convert 20.3% of the sunlight they receive into electricity, the highest in the industry. Cheap imported Chinese panels offer efficiencies as low as 15%.

University labs have perfect cells with 45% efficiencies using advanced silicon compounds. I happen to know that the military has a 65% efficient cell. All that remains are the economies of mass production to bring them to the public market.

This is crucial for the solarization of the global economy. Every 1% improvement in efficiencies cuts that total cost of a new installed system by 5%.

With the trends already in place, it is safe to assume that solar energy costs will fall by at least 10% a year for the foreseeable future.

What are the investment implications of all this? Clearly, the solar industry is about to see its market size increase 30 fold.

Here is the great thing about solar shares.

They have been mercilessly beaten down by the recent collapse in oil prices, which is trading at the $30 handle as I write this, even though its business prospects are vastly improving.

Oil is giving you a once in a lifetime entry point into solar.

Call it guilt by association. Isn?t energy just energy.

These investment plays are the obvious ones that I have been recommending for the past couple of years. They include Solar City (SCTY), First Solar (FSLR), SunPower (SPWR), and more recently, Sun Edison (SUNE).

If you want a broader diversification, you can buy the (TAN).

Way to Go Jerry!

Count Me In!

Seven Worries You Don?t Want to Know About Apple

Diary, Newsletter, Research

Traders, investors, and pundits alike have bemoaned the lackluster performance of Apple shares since July, when it double topped at $132.50 a share.

In little more than a month, it gave back a heart rending 31% at the August 24 flash crash low, wiping out a breathtaking $232 billion in market capitalization.

The bad news is that conditions at Steve Jobs? creation are about to get a lot worse. At the very least, the $92 handle cries out for a revisit on the next bad day, or earnings disappointment.

Let me give you a list of seven worries if you happen to be an unfortunate Apple shareholder.

1) The iPhone 6s doesn?t have the juice to produce new highs in year on year sales. There are just not a lot of ?wow factor? new features to justify an upgrade for most iPhone 6 owners, including me.

iPhones account for 75% of the profits of the company, and 100% of the growth. All the rest, Apple TV, Macs, laptops, iPads, iPods, and even cars are just so much hot air.

2) Wage inflation in China is rampant, running at a 20% annual rate for skilled workers. That?s why workers in China change jobs every February, to capture a pay hike. Higher manufacturing costs will squeeze Apple?s profit margins.

Watch out for more suicides at Foxcon, the Chinese company that makes the phones.

3) The ?ATM effect? is hitting Apple?s share price big time. That is when investors sell winners to raise cash levels. Apple stock was, at one point, up 91% from where I sent out a Trade Alert to buy it at $385 two years ago.

4) Expect President Hillary to make taxation of foreign profits earned by US multinationals a top priority. Guess who has the biggest overseas stash? Apple, which keeps a major portion of its $200 billion cash horde parked in offshore bank accounts. Pass the suntan lotion!

5) I know this one is an oldie, but it is still a goodie. Everyone in the whole world already owns this stock, either directly, or indirectly through pension funds, ETF?s, NASDAQ index baskets (QQQ), or technology funds. If everyone is already fully committed, where does the marginal new buyer come from.

6) So is the law of large numbers. With a market capitalization at a staggering $630 billion, to eke a mere 10% gain in the stocks requires roughly $63 billion worth of new investment, and possibly more. That is more than the entire stock market sees on a good day.

7) With interest rates rising sooner or later, support from the company?s 1.88% dividend yield will become less helpful.

Mind you, I have not suddenly become an Apple hater. But there are legions of those out there, mostly outside of California. There always have been.

However, I don?t think the next run to a new all time high will begin until next year. That?s when the stock will start discounting the new iPhone 7. That product will have all the new features and gizmos, with different screen sizes and colors. (Rose gold? Really?).

People will pay through the nose to get that, and yes, including me. That?s if my current iPhone 6 doesn?t get stolen first and end up in on the black market China, get hijacked by one of my kids, or dropped in a toilet by my daughter.

This should provide enough rocket fuel for Apple shares to make it to $150, or higher.

You heard it here first.

I Hear They?re Diversifying

Keep Gilead Sciences on Your Radar

Diary, Newsletter, Research

I am going to continue to use this correction in the stock market as an opportunity to put new names in front of you for inclusion in your investment portfolio.

That way, when the markets turn, you can strike with the speed of a rattlesnake in returning to a ?RISK ON? posture.

Major turnarounds are not the time to engage in deep, fundamental research. It is when you should be pulling the trigger on Trade Alerts, which you have wisely spent time lining up.

This brings me back to my three core sectors for long-term investment, technology, health care, and energy. For a four cyclical play, you can add the financials as an interest rate play.

Which brings me to one of my perennial favorites, Gilead Sciences (GILD). Long-term readers will recall this big momentum name, which I first recommended last December at $75 a share. It hit $125 in June, last week, and could fly as high as $200 in 2016.

Obamacare is proving to by one of the greatest windfalls in the history of the health care industry. More than 45 million new individuals now enjoy government guaranteed payments for health care services for the first time. In addition, millions more are signing up for private insurance.

One of the cleanest shots at this new profit stream is Gilead Sciences. The ticker symbol seems so appropriate for this new Golden Age for the health care industry.

(GILD) is an American biotechnology company that discovers, develops and commercializes treatments for a range of different diseases. The California based firm initially concentrated on antiviral drugs to treat patients infected with HIV, hepatitis B, or influenza.

In 2006, Gilead acquired two companies that were developing drugs to treat patients with pulmonary diseases.

These are all expected to be huge growth areas in the future, and the company has become a favorite of hedge fund traders. Both the shares and the sector have been on fire all year.

Don?t rush out and buy (GILD) today. Rather, I?d wait until the last of the sellers get flushed out in this correction, which will probably not be until well into October.

Take a look at the charts below, and they suggest that the S&P 500 could reach as low as 1,976, or down another 160 handles from here.

That will give us another top to bottom pullback of 12.52%, which certainly qualifies as a healthy correction. This will be the time to load the boat with (GILD).

Keep close tabs on your text message service and email, and I?ll let you know when it is time to lay your cajones on the line once more.

Yes, It?s $1,000 a Pill

Cashing In On Cyber Security

Diary, Newsletter, Research

Who?s really reading Your email? I bet you?d like to know!

Another day, another hack attack.

Today we learned that 5.6 million fingerprint records kept by the Office of Personal Management were recently stolen.

This is the agency that functions as the US government?s human resources department, maintaining records on 21.5 million current and former employees.

The timing couldn?t be more inauspicious, as the announcement was made during a visit by Chinese President Xi Jinping, whose military was almost certainly the origin of the attack.

Great! Now the enemy has the fingerprints of every FBI and CIA agent!

There must be a way to make money out of this.

Wait! There is!

Palo Alto Networks (PANW) is a San Francisco Bay area cyber security company that offers companies and governments an innovative firewall platform solution for big, network wide security problems.

In the P&L sweet spot they are.

I know the company well, and have been recommending to my followers that they buy the shares for the past year, during which time it tripled.

What? You want me to buy a stock that has just tripled?

No, I have not just started smoking California's largest agricultural product (no, it?s not almonds or grapes).

By chance, I happened across a senior officer of the Palo Alto Networks at a dinner party last week. Prospects for the firm are booming, with sale growth running at a torrid 30% YOY rate.

Yet, (PANW) has only 10% market share of an industry that is currently exploding. This is an aggressive, extremely well managed $15 billion company that is about to become a $150 billion company.

Keeping in contact with the Joint Chiefs of Staff on a weekly basis, I am constantly concerned at how serious the cyber security threat has become, yet how little understood it is by the public.

You don?t have to go any further than the management of Sony (SNE), one of the world?s largest multinationals, which was almost wiped out last November by hackers from one of the poorest and most backward countries in the world.

Upset by the take down of their leader, Kim Jong-un, in a low budget comedy, The Interview, North Korean hackers were able to bring the firm to its knees.

They downloaded the entire contents of Sony?s hard drives, leaking the juicy parts to online journalists (Angelina Jolie?s pay, etc.), and then wiped them clean, destroying some 3,000 computers and 8000 servers. It was the hacking equivalent of a full-scale nuclear attack.

Sony had to revert to snail mail, couriers, and landline telephone calls to survive. They couldn?t even pay their employees. Some $6 billion in market capitalization was wiped out.

Now here is the scary part.

The FBI has confided in me that if the S&P 500 were subjected to a Sony level attack, 90% are unlikely to survive. And the Sony attack was actually a primitive, simplistic, low-level attack.

A lot of countries don?t like the United States for any number of reasons. Now they can do something about it. That is a problem. And a market.

Palo Alto maintains the world?s largest database of viruses and malware. That enabled it to trace the Sony attack to the Hermit Kingdom within hours.

It contained several lines of code that were identical to the ?Dark Soul? attack against South Korean banks in 2013, which incinerated 40,000 bank computers and caused $700 million worth of damages.

What the Sony attack revealed was a long history of massive under investment in cyber security by corporations and governments in the US, Europe, and Asia.

The potential future market for cyber security products and services is being wildly underestimated.

The great irony here is that the attack is not against systems, which are usually pretty secure. It is their human users that have become the problem.

Unfortunately, we are have become familiar with ?spoofing? emails where an innocuous email asks the user to ?click here? for an Adobe upgrade, a notice from Yahoo, or a request from PayPal to update your password.

Do so, and you invite lines of code that will eventually make it to your system administrator. Once they have his password, they can access or do anything.

Don?t think only dummies fall for this.

My friend, retired FBI chief Robert Mueller, had his personal account at the Bank of America cleaned out in a similar fashion. What was unusual in his case, they caught the transgressor, after a huge expenditure of bureau resources.

(Hint: if an incoming email appears the slightest bit suspicious, hover your mouse over the sender?s name, and the sending email address will appear. If it looks anything but belt and braces safe, don?t open it and mark it as SPAM. Especial watch for the last three letter of the address, which are always a tip off).

The FBI estimates that there are up to 10,000 hackers in the world with the capability of a Sony level attack, many operating from China, Russia, Eastern Europe, or other locations beyond the reach of US extradition treaties.

The global cyber war has been going on for about 15 years now, and the public hears very little of it.

In recent years, Iran attacked Saudi Arabia?s Aramco, destroying 30,000 computers, and briefly shutting down a portion of the country?s oil production.

A major attack was launched against the Venetian Hotel in Las Vegas, which is owned by prominent Israel supporter and major Republican Party contributor, Sheldon Adelson.

There is a happy ending to this piece. You don?t need to place your entire wealth into gold bricks and bury them in the backyard to keep it safe.

If North Korea is a bicycle in the hacking arms race, the US is the F-35 Lightening next generation stealth fighter.

We are winning the cyber war hands down, but you?d never know it. This is a war fought silently, online, and in dark shadows.

President Obama in fact authorized a measured counter attack on North Korea?s information infrastructure, which proved devastating. But it was only a pinprick relative to what we could have done.

Our real cyber weapons are reserved for an actual shooting war sometime in the future. That?s to prevent the enemy from learning our true capabilities and preparing for them.

Imagine a country trying to defend itself with snail mail, couriers, and landline telephone calls from an American assault. Think the Sony attack times 10,000. Nothing would work.

It couldn?t be done.

Congress has so far refused to fund a substantial increase in America?s cyber warfare arsenal, preferring instead to spend money on old heavy metal weapons systems, like aircraft carriers, tanks, and the above mentioned F-35.

It?s all about sucking money out of Washington to create local jobs in red states to win elections. A stepped up cyber program would focus money almost entirely in Silicon Valley.

Don?t want to do that!

This is how General George Armstrong Custer was sent to the Battle of the Little Big Horn with antiquated 16 year old Civil War trapdoor Springfield carbines, while the Sioux had state of the art Winchester ?yellow boy? repeaters.

And we know how that one turned out!

But don?t get mad. Get even. Take another look at Palo Alto Networks, FireEye (FEYE), and the Pure Funds ISE Cyber Security ETF (HACK).

Guess Who May Be Looking at Your Records

Will the Market Crash in October?

Diary, Newsletter, Research

I think the bull market has at least three more years to run, but I?ll tell you why later.

In the meantime, we have to survive October first.

That is easier said than done.

October has long earned a notorious reputation as a wealth confiscation month for both professional traders and long-term investors.

If you go broke during this always challenging month, you won?t have any money left to play the coming price rises.

Over the weekend, I did my usual scan of the 200 most important charts for the global financial markets. The technical picture that leapt out at me was nothing less than atrocious.

Failure to break the old support/new resistance level in the (SPY) at $203 means we now have to retest the August 24 lows at $186, or $182 in the intraday futures.

If $182 doesn?t hold, then we?re breaking to new lows, and entering a new bear market.

Every technical service I subscribe to was repeating the identical pattern. This is rare enough that when it does occur, I stand to attention.

Look out below!

This year, October will be particularly vexing.

The newly elevated level of volatility has scared the daylights out of a lot of stockholders.

Look no further than last Friday, September 18. Just when everyone thought it was safe to nibble on some new longs, the Dow Averaged came out of the blue and whacked them with a 300-point loss.

I don?t even recall the reason. But it is irrelevant. Traders were gun-shy. No one wanted to hold a position over the weekend, and risk that China would have a bad Monday (it did).

It get?s worse.

Congress is now threatening another shutdown. Be it over Planned Parenthood funding or the Iran Treaty, it makes no difference. Closed is closed.

This is exactly what the market doesn?t want to hear.

Then we have three more months of Fed torture to endure. Failure to move on September 17 means that uncertainty surrounding the first interest rate reversal in nine years has been given another fresh three months of life.

As if we didn?t have enough to worry about!

It all adds up to a nightmare for neophyte traders. No one has the slightest idea of what the market will do next. If they pretend to, they?re lying.

That is, unless you happen to have a half-century of trading experience, as I do. Then it?s a piece of cake.

Just hit the mute button on the TV and close your eyes. Then buy every big dip and sell every substantial rally. Don?t try to rationalize this in any way. This is trading and investment totally devoid of the thought process.

Overthinking your trades right now can be hazardous to your wealth. Just let your primordial brain stem take over for now.

And it works like a charm.

Just look at my trades of the last few days. When the market opened high, I bought the October (SPY) $204-$207 vertical bear put spread.

When it then dove 300 points I bought the Home Depot (HD) October $105-$110 vertical bull call spread as a hedge.

When the market popped 200 points on the following Monday morning opening (and 300 points if you count the overnight Asia low), I kicked out Home Depot for a nice little 6.2% one day profit.

I then rolled down and purchased the (SPY) October $203-$206 vertical bear put spread to double up my short exposure.

I ended up +0.91% on the day on my total portfolio, just 1.23% short of a new all time high, and ahead 37.14% so far in 2015.

I don?t normally trade this fast. But they?re running the movie on triple fast forward now. A month?s worth of price movement is occurring in a day.

Bob and weave, bob and weave. We have to trade the market we have, not the one we want.

While a technical breakdown is looming, and the fundamentals seem to be backing it up, I don?t think a real bear market will appear.

Historically, stock markets continue rising an average of 30 months after the first Federal Reserve interest rate hike. That hourglass won?t even get turned over until December, or maybe even not until 2016.

The longest data point on this chart is 73 months. That means the Fed inaction means THE BULL MARKET COULD HAVE ANOTHER SIX YEARS TO RUN!

Yikes!

Beyond the hysterical, oops, I mean the historical analogies, the economy is just too darn strong to grease the skids for a true bear market.

I had to call three restaurants to get a dinner reservation in San Francisco this weekend, and finally got one only because it was a dive. I can?t get a plumber to unblock my toilet because he is too busy. And these were the guys who were collecting unemployment checks only four years ago.

For more glorious detail on the current state of the economy, please click here for ?The Bear Market That Isn?t?.

The dreaded October effect traces back to the 19^th century, when agriculture accounted for 50% of the US GDP. Right before crops were harvested in the fall, farmer outlays to pay for the inputs of seed, fertilizer, and labor were the greatest.

Yet, the crops hadn?t been sold yet, so farmer borrowing also hit a peak. The aggregate of all this hit the financial markets with an enormous cash call, which led to the inevitable crashes.

Once the trend was established, it became a self-fulfilling prophecy, even though agriculture presently accounts only for 2% of the American economy now.

It is traders that sweat October now, not farmers.

Back for a Replay?

The Death of Gold

Diary, Newsletter, Research

One of the most impressive moves in the wake of the Fed?s Thursday move to maintain ultra low interest rates was to be found in gold.

In the run up to the flash headline on the Fed non-announcement, the yellow metal rocketed $40. The action was even more impressive in silver (SLV), which tacked on 90 cents, or 6.6%.

Now, here is the really bad new.

The fundamentals for the barbarous relic are about to turn from bad to worse. The prospect is sending perma bulls rushing to update their life insurance policies.

This is the dilemma. To sell, or not to sell?

Gold does well when interest rates are low or falling. That reduces the opportunity cost of owning the barbarous relic, which doesn?t pay any interest or dividends. It just sits there, shines, and collects dust.

It also runs up storage and insurance fees, effectively hampering it with a real negative yield.

So what happens when the fundamentals flip from good to bad?

WARNING: if you have been carefully salting away one ounce American gold eagle coins in your safe deposit box for the past several years, you are not going to want to read this.

If I am right, and we have put in a generational high in bond prices and a low in yields, interest rates are going to rise. Initially, for the first couple of years, they may not do it a lot. But eventually they will.

That is terrible news for gold owners.

The market clearly thinks this is happening. Take a look at the charts below. Gold is making its third run at support at $1,100 over the past 18 months. Break this and cascading, stop loss selling will ensue, taking gold down to $1,000.

That, by the way, is my jeweler?s downside.

Caution: My jeweler is always right. There he plans to load the boat with bullion, which his business consumes in creating baubles for clients, like me.

It wasn?t supposed to be like this, as the arguments in favor of buying the yellow metal were so clear five years ago.

The exploding national debt was about to force the US government to default on its debt. It almost did, thanks to congressional gamesmanship.

Massive trade deficits with China and the Middle East were supposed to collapse the value of the US dollar.

The election of Barack Obama was predicted to lead to the creation of a socialist paradise. We were all going to need gold coins to bribe the border guards in order to get out of the country with only what we could carry.

The problem is that none of this happened.

The US budget deficit is falling at the fastest rate in history, from a $1.5 trillion peak to as low as $400 billion this year. Foreign capital pouring into the US has pushed the greenback to multiyear highs, and loftier altitudes beckon.

Since the 2009 inauguration, the S&P 500 has tripled off its intraday low. This has enriched the 1% more than any other group, who have seen their wealth increase at the fastest pace on record.

The trade deficit with China is now balancing out with America?s own burgeoning surpluses in services and education. As for the Middle East, we make our own oil now, thanks to fracking, so why bother.

To see such dismal price action in the barbarous relic now is particularly disturbing. Traditionally, the Indian ?Diwali? gift giving season heralded the beginning of a multi month bull run in gold. It ain?t happening.

In fact the dumping of speculative long positions by long-term traders used to this is accelerating the melt down. That?s because gold, silver, or any other inflation hedges have no place in a deflationary, reach for yield world.

Mind you, I don?t think gold is going down forever.

Eventually, emerging central banks will bid it back up, as they have to buy an enormous amount just to bring their reserve ownership up to western levels. Inflation is likely to return in the 2020?s, as my ?Golden Age? scenario picks up speed.

In the meantime, you might want to give those gold eagles to your grand kids. By the time they go to college, they might be worth something.

Better to Look than to Buy

Don?t Buy Alibaba, Yet

Diary, Newsletter, Research

Long time readers of this letter have known for years that the Alibaba IPO was coming, that it had massive implications for the market, and could well signal an interim market top.

I?m sticking to my guns.

You have to hand it to the underwriters of the company?s initial public offering, the largest in history.

Some $25 billion in capital was raised.? At the all time high of $118, Alibaba had a market capitalization of $300 billion, making it the 8th largest in the US, right after Wal-Mart (WMT).

At that price, the lucky few insiders who received allocations had a paper profit of 74% from the $68 IPO price.

To get this deal off successfully, the managers had to orchestrate one of the greatest onslaughts of hype, hyperbole, and euphoria of all time.

Of course, you want to buy a company that represents Amazon (AMZN), PayPal, and Ebay (EBAY) combined, in the fastest growing major country in the world!

As my old boss at Morgan Stanley used to hammer into me, ?stocks are not bought, they?re sold.?

What artificially boosted the price of the shares in the aftermarket was the unusual allocation of the shares.

CEO Jack Ma personally hand picked the top 25 institutions that received 50% of the shares. His goal was to place them with the largest, longest-term holders, basically, people who never sell.

Hedge funds were banned from participation, as were most individuals.

That shut out thousands of investors who were forced to chase stock in the after market. This is how you get such a dramatic initial gains. They?re always engineered.

The final insult was the ?green shoe?, which increased the deal size by 15% at the last minute at the underwriters? discretion. When these guys finally get in, look out below.

Look carefully at what you get as an Alibaba shareholder, and you might have second thoughts.

This is not your father?s joint stock company. It is a share in a profit stream into a Cayman Islands holding company, the amount of which is at the discretion of Jack Ma. It is more like a hedge fund limited partnership than a publicly listed company.

In some court cases in China, the structure has already been ruled illegal. One could only imagine what would happen in a liquidation. There are no assets, just a post office box on a remote Caribbean island.

Not exactly widows and orphans stuff.

If you had any doubt about (BABA)?s next move, better take a look at the shares of its two largest shareholder?s, Softbank (SFTBY) (-46%) and Yahoo (YHOO) (-47%). They have both done an outstanding rendition of a swan dive.

Some of this is no doubt the result of new Alibaba holders hedging their position by selling short (SFTBY) and (YHOO). But it could also mean that (BABA) is grotesquely over valued and has to fall to come in line with reality.

Keep in mind, also, that non-dividend yielding stocks tend to have greater volatility than those that do pay out.

I am inclined to hold back until (BABA) hits the low $40 handles. That is still a big discount to the IPO price. Some brokers have already issued reports suggesting that the shares will get there shortly.

By the way, my old friend, Softbank?s Masayoshi Son?s $20 million initial investment in Alibaba, made in 2004, is now worth $100 billion at the peak. That has to be one of the greatest trades of all time.

Good for you, Mas, and the next dinner is one you!

The $25 Billion Dollar Man

I?m Sticking to My Guns on Alibaba

Why I?m Chasing the Euro

Diary, Newsletter, Research

I?m not a person inclined to chase winning positions. Making money on one trade is certainly no guarantee that you will repeat the win on the next. Lightening doesn?t strikes twice in the same place.

Well, actually it does sometimes, especially when it comes to selling short the Currency Shares Euro Trust (FXE). Selling short the Euro (EUO) has been one of my most consistently winning trades for all of 2015.

It?s like suddenly being adopted by a generous rich uncle, a continental one that drinks espresso, eats croissants, and smokes Galois cigarettes.

Given the European Central Bank?s dramatic action weeks ago to implement an aggressive program of quantitative easing, the entire world has been trying to sell short the beleaguered continental currency.

This means running the Euro printing presses non-stop, much like the Federal Reserve started doing five years ago.You saw the results here.

Overnight Euro interest rates have already been chopped to negative numbers. Even my cleaning lady, Cecelia, knows she should be unloading her Euros.

The trouble is that the currency has already plunged 37 cents, or almost 27% since its mid 2014 top. In the currency world, this is a big move, and puts China's piddling 4.4% move in the Yuan to shame.

However, we needed an event, or an uncertainty removed, before we could go back in on the short side.

We got that yesterday with Janet's move on interest rates.

You have to go to the weekly charts to find the next support levels, but its clear that $1.00, and then $0.90 eventually beckons one.

We live in a world of chase now. All asset classes, from stocks to bonds, currencies, precious metals, oil, and even food, are at the extended end of very large one-way moves. So pickings on the trading front are becoming increasingly thin.

Think of it as buying the US stock market in 2009. I?d rather sell the (FXE) at the beginning of a five year move, than buy in the middle of a 10 year appreciation, which is what we are seeing in US stocks now.

This is also a play on the US bond market. Any fall in Treasury bond prices and rise in yields, a pretty safe bet over the medium term. This will be happening while Euro interest rates are falling, giving a huge yield advantage to the greenback.

As regular readers of this letter know, INTEREST RATES DIFFERENTIALS ARE THE LARGEST DRIVER OF CHANGES IN FOREIGN EXCHANGE RATES.

It's as simple as that.

If you need a third argument for this position, it is a bet on the continued virility of the US fracking industry.

Every additional barrel we produce in America means one less imported from the Middle East, and (as of today) $47 less sold in the foreign exchange markets.

Frackers have already cut our import bill from $400 billion to $200 billion in the past five years, prompting a staggering decline in our dollar outflows.

They are also eliminating our country?s need to maintain expensive ground forces there to protect oil supplies. Every fracking job created in the windswept planes of North Dakota means one less soldier stationed abroad.

This savings will eventually eliminate the government?s present $400 billion budget deficit.

Our newest war in the bleak sands of Syria and Iraq, fought with F-16?s, drones, and Special Forces for targeting, will cost pennies on the dollar when compared to previous conflicts.

I may not be selling short the Euro this second, today, or this week. But I will continue to smack substantial rallies. I might also pick up some Wisdom Tree Europe Hedged Equity ETF (HEDJ), which benefits mightily from a weak continental currency.

Call me old fashioned, but I like to sell high and buy low.