Market Statistics

For the last two weeks the Dow and S&P have been trading sideways but seemingly always able to close slightly higher in record territory. That streak ended for the Dow on Friday but we can't really say an 18 point loss was a disaster. It was a rounding error at most. Visa was the only Dow stock to lose more than $1.

The S&P narrowly missed ending in negative territory with a 0.49 point gain. That was enough to keep it closing over the 5 day average for 21 consecutive days and tied for the second longest streak since 1998. There was a 23 day streak back in July 1998. It was really close and a surge of buy orders in the last 3 minutes of trading pushed the index back over the average at 2039.07. This is a sign of how overbought the market is today.


There was a flurry of economic reports on Friday with the October Retail sales the most watched. Sales rose +0.3% in October and reversed the -0.3% decline in September. The two big losers were gasoline stations, which is obvious given the drop in gasoline prices, and electronics and appliances. Analysts said the drop from +4.7% in electronics sales in September to a -1.6% decline in October was the result of the iPhone schedule. Sales are counted when the phones are delivered to the stores not when customers buy them. Gasoline stations saw a -1.5% decline in sales.

Gains came from nonstore retailers at +1.9%, sporting goods and hobbies +1.2% thanks to consumers preparing for the arrival of winter sports and hunting season. Food service and bars rose +0.9% as consumers put food in their mouths using the savings from their recent gasoline fill ups.

The headline number of +0.3% was uninspiring but at least it was a gain. If you remove gasoline sales and sales of automobiles it jumps to +0.6% and a much better number. Obviously you can't whine about overall mediocre sales if the majority of the drop was due to falling gasoline prices.

Consumer Sentiment for November spiked nearly +3 points to 89.4 and a seven-year high. That is the highest reading since July 2007. The current conditions component rose nearly +5 points from 98.3 to 103.0 while the expectations component rose +1 point from 79.6 to 80.6. The falling gasoline prices and the outcome of the election were cited as reasons for the gain in the present conditions component. Shoppers said they feel the best about their economic situation since before the recession. This bodes well for the holiday shopping season and the stock market for the rest of the year.


Business inventories rose +0.26% for the September period. That is the average for the last three months and erases a decline to +0.13 in August. This is a lagging report and was ignored.

Import prices declined -1.3% in October to double the -0.6% decline in September. This is the fourth consecutive month of declining import prices and it does not take a genius to realize this was due to falling oil prices. If we take out the drop in oil prices the headline number would have only been down -0.1% and that is a significant difference. Oil prices declined -6.9% for the month. Export prices declined -1.0% and that was also due to lower prices for gasoline and diesel that we export.

Natural gas injections into storage totaled +40 Bcf last week as the cold weather increased demand significantly. We have been averaging about 90 Bcf into storage every week. I expect the withdrawal season to begin this week with net withdrawals from storage instead of injections. Nat gas inventories are -5.7% below year ago levels and -6.2% below the five year average. With another super cold surge of arctic air scheduled for this week those gas heaters and gas fired electrical plants are going to be running close to capacity.

The calendar for next week is pretty busy with the FOMC minutes the major event. The minutes for the prior meeting upset the market when they were released on Oct 8th and these have the same potential. These will tell us what the Fed heads were thinking about future rate hikes as they voted to end QE in late October. Particular attention will be paid to any comments about ending the "considerable period" language.

Next most important will be the Philly Fed Manufacturing Survey on Thursday. This is the proxy for the ISM and future Fed reports for November. Expectations are for a decent increase from 20.7 to 24.0.

Everything else in green is of market interest but they are not normally market movers. The new residential construction, NAHB Housing Index and the existing home sales will be the most important of that last group.

The Q3 earnings cycle is nearly complete. This is the last week with any real activity and LOW, HD, BBY, GMCR highlight a list heavy in retailers.


Amazon was in the news a lot last week. They stealth announced on Friday by updating a page on their websites that you can now get a Kindle for free for 30 days and Amazon pays the shipping both ways. If you decide to keep it over your 30 day "trial" then they will charge you for the device. They also announced a new software download that has a lot of new features like instant definitions of any highlighted word and the ability to share books among family members on their own Kindles that are registered to different Amazon accounts. I could go on but there is a long list of new features.

They also announced a settlement with Hachette Book Group on a new multi-year contract for sharing of ebook revenues. In the old contract for a $9 book sale Amazon would get $2.70, the publisher would get $4.72 and the writer $1.58. Amazon proposed a new sharing arrangement. Amazon suggested 35% for the publisher, 35% for the author and 30% for Amazon. The retailer is the largest ebook seller by far with 60% of the market so it is critical for publishers and authors to maintain positive relations with Amazon.

Everybody keeps beating Amazon up because they don't make any money. Bezos could turn on the profits at any time simply by making the decision to do it. Most people don't realize that Amazon has the biggest cloud on the planet and it is growing at the rate of 40% a year. The amount of data online doubles every year. They have five times as much capacity as the next 14 competitors combined. If the Amazon Web Services (AWS) division was spun off it would be valued in the $17-$20 billion range.

AWS has more than one million customers. Amazon has 11 cloud regions around the world. Each region has multiple datacenter clusters. There are 28 total clusters around the world. Each of those clusters has one or more datacenters, with the typical facility containing 50,000 to 80,000 servers. Gartner Research said Amazon has more than two million servers. If you compared them to Rackspace (RAX) they are not even on the same planet. Rackspace has 6 datacenters with a little more than 100,000 servers total. Microsoft has 17 regions with more than 1 million servers and Google has 3 regions with just over 1 million servers according to Steve Ballmer. A former Amazon engineer said the company may eventually end up with a datacenter in every state at the rate they are expanding. Amazon has a 27% share of the market followed by Microsoft at 10% and IBM and Google slightly less than that according to Synergy Research.

Revenue from AWS was $1.34 billion last quarter and they should exceed $4 billion for the year. Numerous Amazon associates and outside analysts believe AWS revenue will eventually exceed that of the retail side of Amazon. Portions of this Amazon commentary came from an article by Jack Clark at Global Tech. Amazon Cloud

Jeff Bezos is building a total business of unbelievable scale and long term Amazon will rule the online retail market even more than it does today. I have bought more than 50 items from Amazon since September 1st not counting ebooks. I rarely ever go shopping in my car.


Google saw the future and Google Wallet was not in it. Google announced it was terminating Google wallet for third-party digital purchases. Google cited a maturing industry as the reason for the cancellation. They said the landscape of mobile payments has become competitive and variable since the Wallet launched in 2012. No replacement will be offered. It will officially terminate on March 2, 2015. The Wallet will remain the payment system for the Google Play Store.

Google Glass may be headed the way of Google Wallet. Apparently developers are bailing from the project in record numbers and sales of the $1,500 test version of the product have died. Many developers are now saying that Glass will never become a consumer product but it may have some technical uses in some fields. Reuters contacted 16 major app builders and nine said they had stopped work on their projects or abandoned them because of a lack of customers or limitations of the device. Three others have switched from consumer development to development for specific business applications. Twitter also dropped support for the device.

Little Guy Games, said they were no longer developing for Glass because there was no market for the devices. Several key Google employees instrumental in developing Glass have now left Google for greener pastures. A Google Glass funding consortium headed by Kleiner Perkins Caufield & Byers and Andreessen Horowitz quietly deleted their website and forwarded clicks to the main Google Glass site. The Glass Collective, a funding consortium, also closed its website. Glu Mobile was the first to launch a game on Glass but has now discontinued work on it. Google is now selling Glass in bulk at a 50% discount to businesses. Apparently just having Google's name on something does not make it successful. Google shares have been struggling recently as the bloom fades from the company. Driverless cars, mysterious barges, monster wind farms, etc are not as profitable as Android phones and online advertising.


Shares of Virgin America (VA) were priced on Thursday at $23 and opened for trading on Friday. Shares rose to $30 at the close but that was pretty much guaranteed with only 12 million shares available to trade. Richard Branson will own 24.8% post IPO and Cyrus Capital Partners will own 32.8%. The airline has 66 planes and operates out of California with high traffic routes inland. They claim their cost structure is 30% lower than other carriers.


Movado Group (MOV) had a bad day. The company provided guidance for Q3/Q4 and apparently nobody is buying Movado watches. The company said the watches are not selling well overseas and some of their fashion brands including Lacoste and Scuderia Ferrari are also underperforming. They now expect Q3 earnings in a range of 86-87 cents and analysts were looking for $1.13. Revenue estimates were cut from $216.6 million to $188.6 million. For Q4 earnings are now expected to be between 18-23 cents and analysts had expected 50 cents. They also cut the full year forecast to $1.83 down from $2.44. Shares fell -31% on the news.


Shares of Baker Hughes (BHI) surged on Thursday afternoon after the Wall Street Journal said they were in talks to be acquired by Halliburton (HAL). Baker Hughes confirmed the story but warned there was no guarantee of a completed deal. Shares rallied from $49 to $62 but faded somewhat on Friday after another story broke that the deal negotiations were hung up on the purchase price and on the billions of dollars of assets that would have to be sold to get regulatory approval. Analysts say Halliburton may have to divest as much as 20% of Baker Hughes. Halliburton has discussed setting up a new unit to hold assets it is willing to divest. The combined company would have 39% market share in the onshore fracking market and more than double Schlumberger (SLB). Hughes Tool was started in 1909 and merged with Baker International in 1987. Halliburton started in 1914.

Analysts believe it will take something in the $70-$75 range to buy Baker Hughes. The stock traded at those levels as recently as July. The -31% drop in oil prices since June has decimated many of the stocks in the energy sector. Baker Hughes declined to $50 before the news broke about the talks.

Update: Late Saturday Halliburton said it intends to nominate a full slate of directors to replace the BHI board after negotiations broke down over price. The shareholder meeting is in April 2015. Baker Hughes published 3 letters to Dave Lesar, CEO of Halliburton, claiming the price was too low and the harsh negotiating tactics Halliburton was using were inappropriate and were trying to force a sale that undervalued the company. The company statement said, "Baker Hughes believes that Halliburton’s various attempts at coercive tactics, instead of being willing to negotiate a reasonable value for the Company's stock and despite having stated twice that they have room to increase the value of their offer, are attempts to control both sides of a negotiation and are entirely inappropriate." It looks like the war has begun.


Pandora (P) rallied +16% after CEO Brian McAndrews personally bought 25,000 shares in the open market for $465,000. He now holds 475,392 shares. The purchase was seen as a vote of confidence ahead of discussions with the Copyright Royalty Board (CRB) next week. The meeting with the CRB is expected to be on case theory rather than Pandora's strategy in copyright proceedings. Pandora filed a lengthy proposal the second week of October. The proceedings are in the discovery period that lasts until early December. Both parties have proposed different rate structures. Something has to change. On one streaming service a song was streamed more than 6 million times and the singer received only $104 in royalties.


Hertz (HTZ) announced on Friday it was going to restate earnings for 2012 and 2013 in addition to the previously announced restatement of 2011 earnings. The company already withdrew 2014 guidance after discovering a series of accounting errors. The review process and the restatement will not be completed until mid 2015. Shares dropped sharply on the news but recovered to lose only -4.6%.


Caesars Entertainment (CZR) said on Friday the company would run out of cash in 2015 and would be forced to file bankruptcy if it can't restructure its obligations through creditor agreements. The company burned through $550 million in the last 9 months and expects negative cash flow for the foreseeable future. The company has $25.5 billion in debt. They have reached preliminary agreements on a prearranged bankruptcy with six of its first-lien bondholders but there are plenty left representing billions in debt. The company was taken private in 2008 for $30.7 billion just as the financial crisis appeared. Without an agreement with everyone "there is substantial doubt in Caesars ability to continue as a going concern after Q4-2015." Shares were little changed on the news. Apparently trades believe they will get that agreement. Even if they do get an agreement for a prepackaged bankruptcy it is still a bankruptcy and the share value is sure to suffer. This looks like a good short to me. The spike in the shares last week was the news they had tentative agreements with those six bond holders. I would be surprised if they didn't take advantage of the share spike to do a secondary offering.


Oil prices may have firmed on Friday but gasoline prices are still in free fall. The price of gasoline in the futures market dropped to $1.99 briefly intraday on Friday. That is down from $3.15 back in June. Consumers are in for a real treat for their Thanksgiving drive to grandma's house. The national average for gasoline prices fell to $2.91 on Friday and it still has a long way to go to catch up with the falling oil prices. I paid $2.46 on Thursday in Denver with a few cents off for a loyalty card and I was very happy. Analysts are saying we could see average prices in the $2.75 range by the end of December but some states are already under that level.


Friday was the deadline for hedge funds to file their 13F forms showing changes in their portfolios for Q3. Here are some brief summaries from some of the big names.

Oberweis Asset Management sold all its 1.3 million shares in NQ Mobile (NQ). Valiant Capital Management bought 2.0 million shares of NQ for a 3.9% stake in the company. Research firm Muddy Waters LLC accused NQ of being a massive fraud about a year ago and the company undertook an extensive audit to prove otherwise. ChinaRock Capital Management owns 9.2 million shares or 18%.

Leon Cooperman's Omega Advisors sold its entire 1.3 million share stake in Qualcomm (QCOM). The company also sold 20.5 million shares in Sprint (S). They bought $36 million in Alibaba (BABA) and $59 million in Groupon (GRPN). Omega sold its $30.8 million stake in SeaWorld (SEAS).

Berkshire Hathaway (BRK.B) bought a $35 million stake in Express Scripts (ESRX) with 449,489 shares held at the end of the quarter. Holdings in GM rose +21% to 40 million shares and a stake Charter (CHTR) was doubled to 4.95 million shares with an increase in holdings of DirecTV (DTV) rising +28% to 30 million shares worth $2.6 billion. Berkshire also added to Walmart with a +3% gain and IBM with roughly a 1% gain. The company sold its 4 million stake in Deere (DE). Berkshire's total portfolio is valued at $117 billion.

Tiger Global Management added 12.8 million shares of Hertz (HTZ) and exited its stake in Dollar General (DG). Tiger's portfolio is valued at $6.85 billion, a drop of -$98.7 million for the quarter. Tiger also exited an $88 million stake in Qihoo 360 (QIHU) and cut its stake in Vipshop (VIPS) by 7.1 million shares. They added a new position in Bitauto (BITA) valued at $512 million.

Starboard Value bought 1.92 million shares or 2.4% of AOL. The company had exited a stake in AOL in 2012 after they were unsuccessful in getting their directors added to the AOL board. Shares of AOL rose +79% during the fight so Starboard did really well with their 5.1% stake at the time. They also added 7.72 million shares of Yahoo (YHOO). They are actively trying to force Yahoo to buy/merge with AOL and to spinoff its remaining stake in Alibaba and Yahoo Japan to avoid a high tax bill.

Starboard was successful in replacing all 12 directors at Darden (DRI) after the company sold Red Lobster against shareholder wishes. Basically the fully control Darden today and plan on making changes to increase profitability and sell off some non-core chains.

Bruce Berkowitz managed Fairholme Capital exited its positions in Fannie Mae and Freddie Mac. Investors in those companies lost a legal bid to force the bailed out companies to share profits with private holders. Fannie Mae shares lost -31% for the quarter while Freddie Mac dropped -32%.

Fairholme also exited a stake in Genworth Financial (GNW) just in time to avoid the -40% drop in the shares in November.

George Soros fund boosted holdings in Level 3 Communications (LVLT) by 3.64 million shares to triple his stake in the company. The fund also added 2.92 million shares of Dow Chemical (DOW). Soros cut his stake in Herbalife (HLF) by 2.85 million shares for a -73% decline. A $234 million stake in Console Energy (CNX) was exited along with a stake in Halliburton (HAL). Soros equity holdings declined -2.6% to $10.1 billion with positions in 234 companies. Sixty-nine of those were new positions.

John Paulson bought 5.7 million shares of Shire (SHPG) to increase his stake to 9.1 million shares worth $2.3 billion. Unfortunately he added those shares before the drop from $245 to $160 in October. That had to hurt! Paulson also bought 13 million shares of AbbVie the company that was trying to merge with Shire. Paulson's fund lost -14% in Q3 to extend his losses year to date to -25%. The fund added to its stake in Covidien (COV) now valued at $1.1 billion and added a new $292 million stake in PetSmart (PETM). The fund closed positions in TMO, FCX, QCOR and Hillshire Brands.

Paulson continued to hold his 10.23 million share stake in the SPDR Gold Trust (GLD). He has held his position at this level for five straight quarters. The value is down -40% from his entry point. Gold is currently in the longest slump since 1998 thanks to the sharply rising dollar. He started the position in 2009 and gold rose 70% from the 2008 lows before falling -28% in 2013 and the biggest annual drop in 30 years.

Jana Partners sold 200,000 shares of CBS class A shares and 4,127,149 class B shares. They also sold 10.4 million shares of SunEdison (SUNE). The fund added 975,000 shares of AMD, 300,000 shares of BABA, 2.7 million shares of AMGN, 8.05 million shares of Gollar General (DG), 842,000 shares of McDonalds (MCD) and 200,000 call options. They bought 7.0 million shares of RackSpace (RAX) and 1.3 million shares of Valeant Pharma (VRX). They increased their 1.0 million share stake in Ebay to 13 million and 5 million call options. They increased the stake in Hertz to 10.07 million shares and 9.0 million call options, up from 5.9 million shares and no options.

They raised their stake in PetSmart from 4.9 million shares to 9.7 million but dropped the 4.57 million call options from the prior quarter. It appears they may have exercised some of those calls.

Julian Robertson's Tiger Management opened a new 1.2 million share position in Alibaba. It is now their largest holding at 30% of their portfolio. Gilead (GILD) is 13% at 444,000 shares. Ebay is a new holding at 7% or 496,400 shares. Apple shares were cut from 17,500 to 15,900 and Facebook (FB) was cut from 341,500 to 303,400 shares and 6% of total holdings.

David Einhorn's Greenlight Capital opened 10 new positions.

Share amounts in millions.

Aecom Tech - ACM 3.04
Citizens Financial - CFG 8.0
Colony Financial - CLNY 0.87
Consol Energy - CNX 4.88
FCB Financial - FCB 1.35
Interpublic Group - IPG 2.43
Kennametal - KMT 0.58
Nokia - NOK 7.83
ON Semiconductor - ONNN 15.0
Synchrony Financial - SYF 2.11

Positions exited:

Chico's FAS - CHS 1.87
DSW Inc - DSW 0.18
Computer Sciences - CSC 2.32
Tempur Sealy - TPX 1.77

Changes:

Apple - AAPL 9.45 to 9.17
BioFuel - BIOF 1.43 to 3.63
BP - BP 1.48 to 2.06
McDermott - MDR 10.77 to 2.81
Micron - MU 40.34 to 30.47

A lot of traders are betting on a bottom in oil prices by investing in oil ETFs. Over the last month more money has flowed into those ETFs than any time in the last two years. The four biggest ETFs had 70.5 million shares outstanding on Wednesday and the most since May 2013 according to Bloomberg. More than 1 million ETF shares were being created every day with net inflows on all but 4 days since October 1st.

The two most popular ETFs were USO and UCO. The USO saw inflows of $183.8 million so far this month and the UCO added $62.2 million.

Markets

Volume was very low on Friday with only 6.0 billion shares. That was just slightly over the average for the week at 5.93 billion. There is definitely no conviction in the market. If volume was just a little higher I would be labeling it as a distribution event but the very low volume appears to be consolidation instead of distribution.

The problem is the lack of catalysts. Earnings are over and everyone expects the markets to move higher but there is no catalyst. There is nothing to make buyers want to jump into the market despite new marginal highs every day. As long as the markets are trading sideways there is no urgency to buy.

The reverse is also true. The longer we trade sideways the better the chance of some event that creates a headline the market does not like. Traders may start thinking the holiday rally has already occurred. We did rebound more than 10% straight up from the October correction. Conversely, the longer we stay at this level without a negative catalyst the stronger underlying support becomes.

One potential catalyst would be a rebound in the price of oil. The energy sector is a large part of the S&P and energy stocks are very oversold. If crude were to rebound to $80 or higher we should get a substantial rebound in energy equities that could trigger a move higher on the S&P.

The S&P may be clawing out a new high every day but with a PE of 17 there is not much institutional excitement for further PE expansion. However, 75% of actively managed funds are below their benchmarks and fund managers are going to be scrambling for additional gains over the next six weeks. They are being held back somewhat by the apparent index stall at the new highs. Nobody wants to throw their last pile of cash at the market only to have it roll over.

On the 5-day average chart you can see the flat lining currently in progress and the likelihood of a market dip in the near future. If you look to the left where the August rally sputtered to an end and the S&P fell back below the 5-day the selling was not bad. It was simply profit taking from the big +95 point gain from the August 8th low at 1910. The current bounce started at 1820 for a +220 point jump. Clearly we have a serious need for some profit taking.


Unfortunately the market never does what we expect in the timeframe we expect it. While a dip to reload would be the logical move the market has no memory and it can remain bullish far longer than those shorting the top can remain liquid.

The dip buyers are alive and well and every minor intraday dip is instantly bought. However, the bullish sentiment is at a four year high at 57.9% as evidenced by the AAII weekly poll. The last time sentiment was this high was December 23rd, 2010 at 65%. While this is a sentiment peak for the recent trend it is well under the historical high of 75% on Jan 6th 2000. In fact since 1987 bullish sentiment has been higher than 58% on 59 occasions. Even at the high of 65% in 2010 the market continued higher for several more weeks before rolling over.


Something else to note. While bullish sentiment rose +5.2% last week the bearish sentiment rose +4.3%. That is very rare to see them both rise at the same time. Those neutral on the market declined by -9.5%. Apparently the majority of investors have an opinion on direction because only 22.8% are neutral. Out of the 1,392 weeks since the survey started in 1987 there have been 238 weeks with the neutral reading below 22% so it is not that unusual for the market to be polarized.


I have been showing the chart below for several weeks and that upper resistance line has not changed. The S&P has come to a dead stop at that resistance and the odds are good we are going to see some profit taking before we move higher. While I said the odds are good they are not 100% because of the current bullish sentiment.

If we were to see a decent spike higher I am sure there would be some significant short covering. The setup for the bears has been so visible for the last two weeks that I am sure there are plenty of traders with short positions hoping for a drop next week.

The longer we stay at this level the stronger underlying support becomes. Currently that is about 2,033. If that level breaks it could trigger sell stops and we could be looking at 2,000 once again with pauses at 2,025 and 2,015. I am not expecting that but it is possible.


The Dow has now rebounded +1,850 points from the October low at 15,855 to Thursday's high at 17,705 in only four weeks. We are seriously overbought but the Dow is showing no indications of weakness. Like the S&P it is moving perfectly sideways with minimal incremental steps higher. Dow components Cisco and Walmart failed to energize a continued move higher when they reported earnings last week and there are no catalysts left for the Dow. We will have to rely on economics and/or M&A news.

Resistance is well above at 17,750 and initial support at 17,500.



The Nasdaq 100 ($NDX) remains our hope for a bullish breakout. The big cap techs just keep powering higher. Unfortunately they are also nearing resistance at 4,250. The NDX is well above the congestion from the prior two weeks and we can only hope the Dow and S&P charts look the same at the end of next week. The NDX consolidated from the 31st to the 11th and then began a strong move higher.


The Nasdaq Composite hit resistance at 4,700 on Thursday and was immediately sold. On Friday it appears the buyers stepped in but only a few. The volume was light and the gain of +8 was minimal. The next test of 4,700 will be critical. If the composite moves over that level it should be accompanied by a similar rise in the NDX and that would be very market positive. Watch 4,700 for direction next week.



The Russell 2000 normally leads in both directions. The Russell lost ground on Thr/Fri in what could be a signal the broader market is about to take profits. However, the Russell built up some decent support over the last two weeks as it consolidated in the 1160-1170 range. Friday's low was 1,172 so that support is still intact. If the Nasdaq indexes continue higher the Russell should tag along but it still has strong resistance at 1,180. Once over that level we can start breathing easier.

The small cap stocks tend to underperform in Q4 compared to large caps because of fund manager investing patterns around year end. Mark Hulbert, Favor Large Cap Stocks

While the Russell normally leads, the Nasdaq 100 was leading the charge last week. Let's hope that trend continues.



In short I expect some profit taking next week unless the Nasdaq rally accelerates over resistance. If that happens I think we could be off to the races for a pre Thanksgiving rally. I am not bearish on the market. I just think the rebound has run its course until we see some backing and filling. Investors don't want to buy a top. They would much rather buy after a couple days of declines. If we move higher without any profit taking I am not going to complain.

Random Thoughts

Russia or maybe I should say Valdimir Putin was all over the news last week. I am really starting to worry that Putin is going to do something stupid. Russia invaded the Ukraine again last week. Multiple columns of tanks, artillery, antiaircraft missiles and troop convoys were photographed by multiple news sources flooding into the Ukraine. Apparently Putin did not like the election of pro western officials and he is determined to secure eastern Ukraine as a land bridge to the Crimea regardless of the legality of the aggression.

Unfortunately nobody is going to stop him. Several European officials said they were not going to impose additional sanctions because "it might hurt the peace process." I doubt Putin cares about the peace process.

Australian Prime Minster Stephen Harper said in advance he was going to challenge Putin when he showed up at the G20 conference in Australia this weekend. When he was forced to greet all the attending heads of state he said to Putin, "I guess I’ll shake your hand but I have only one thing to say to you: You need to get out of Ukraine." Putin responded with the equivalent of sc*** you and told Harper "that getting out of Ukraine would be impossible because Russia is not there."

Putin quickly found he was not welcome at the event. On Saturday his press secretary said Putin was going to leave the conference a day early because of pressure from the various leaders over the Ukrainian situation. Numerous leaders used their podium appearances to mention the Ukraine crisis and apparently Putin did not like the constant negative press. President Obama gave an uncharacteristically direct speech saying Russian "aggression" in Ukraine is a threat to global security and the shooting down of MH17 has appalled the world in its callous disregard of human life. While the majority of leaders socialized at a barbeque Putin sat in a corner with Brazil's Dilma Vana Rousseff on opposite sides of a table for six. So how did you like being a pariah Mr. Putin?

I am assuming if he leaves he will take his warships with him. Yes, warships. Putin has a habit of sending a flotilla of warships ahead of him when he attends these meetings. In this case four warships arrived off the coast of Australia and made their prescience known. What kind of leader sends warships ahead of his arrival to basically threaten peaceful countries?

At the same time there have been multiple incursions of Russian military aircraft all around Europe. NATO scrambled to fighters on Saturday to chase away two Russian fighters. The number of incursions is up 300% over the prior month. This is just another way for Putin to warn everyone "We are here, we are not going away and there is nothing you can do about it."

Earlier in the week Russia announced plans to send long range nuclear bombers to the Gulf of Mexico. The Defense Minister said "We have to maintain Russia's military presence in the Western Atlantic and eastern Pacific, as well as the Caribbean and the Gulf of Mexico. Sending bombers on long range patrols is part of the drills. The flights will conduct "reconnaissance missions to monitor foreign powers' military activities and maritime communications." Russia also said it was upgrading its nuclear arsenal to maintain superiority over NATO and the USA. Russian Nuclear Upgrades

The message here is that Russia is more than capable of launching World War III if the U.S. keeps intervening in the European response to the Ukraine invasion. The minister also said Russia is adding full radar coverage by year's end to cover the Arctic, Alaska and northern Canada to "meet unwanted guests." As recently as June U.S. fighters intercepted Russian bombers off the California coast in what was called "cruise missile launch drills." That was the first time Russian planes had ventured offshore California in more than two years.

Last month a Russian submarine ventured into Swedish waters near Stockholm. The largest sub hunt since the Cold War was triggered by an emergency distress call in Russian that led to visual sightings by merchant ships before the submarine disappeared.

Russia is flexing its military muscle and identifying NATO and the U.S. as its enemy. One military analyst said Russia was looking for a provocation so they could escalate the confrontation and force NATO or the U.S. to back down.

Putin has small man syndrome. He is 5 foot 7 inches and he is surrounded by taller people. Small man syndrome or Napoleonic Complex is characterized by overly-aggressive or domineering social behavior to compensate for the person's short stature. Napoleon was 5 foot 6 inches. Putin is repeatedly photographed in manly actions like wrestling, hunting, bare-chested horseback riding, etc, in an effort to build up his image as being macho.

Putin sees President Obama as weak in military and foreign policy and he understands he has two more years before a new president takes office that may not be as docile as Obama. That means Putin should be expected to extend his aggression possibly to a wider foothold in Ukraine and possibly to other nations bordering Russia.

Europe can't really put up too much of a fight or Putin can cut off their natural gas supplies and they will freeze over the winter. Europe gets more than 30% of its gas from Russia.

Russia is stockpiling gold at a furious pace like they know what is coming. Russia bought 55 tonnes of gold in Q3 and far more than any other nation. All the central banks in the world including Russia bought a total of 93 tonnes in Q3. Putin has tripled gold reserves to around 1,150 tonnes. Why is Russia rushing to stockpile so much gold?


I fear we are getting closer to a flash point. Putin is starting to feel like a cornered rat and may need to strike out to reestablish his credibility. Russia just posted the slowest growth since 2000. The ruble is at an 11 year low. Russian oil exports supply about 65% of the country's budget and they just took a -35% hit because of the drop in oil prices. Capital is flowing out of Russia by the billions. Economic conditions inside Russia are deteriorating rapidly. Putin's popularity ratings were over 85% several months ago but are now beginning to decline.

In situations like this history is full of examples where the embattled leader turned to war to distract the populace from the problems at home. If that happens where does Putin draw the line? How will the U.S. respond to further blatant aggression in some other satellite country? Many of them are NATO countries and Putin perceives NATO as weak so that is where he would likely strike. Would NATO stand up to Putin or fold like the paper tiger he thinks they are?

The flash point could be the delivery of two Mistral-class warships from France to Russia. They are currently in a shipyard in Saint Nazaire France. Russia paid 1.2 billion euros to France to construct the warships. France succeeded in getting the warship sale excluded from the sanctions since the contracts had been signed several years ago. However, President Hollande imposed two conditions necessary for the completion of the sale. One of those conditions was for a cease-fire to be imposed in Ukraine and the second was tangible evidence of progress toward a political settlement over Ukraine's future. Neither of those conditions have been met. Russia has told France it has until the end of November to turn those warships over to Russia or face "grave consequences."

Everyone knows the Western Nations are locked in a confrontation with Iran over their nuclear program with a November 24th deadline for a resolution. Last week Putin announced a deal to build eight new nuclear reactors in Iran. The new equipment will be built in Iran and supposedly will be under the supervision of the IAEA. However, the announcement of the deal could not come at a worse time than a week before the deadline on shutting down Iran's nuclear enrichment program. Putin timed the announcement to make the western nations look like fools as the negotiations come to an end with Iran next week.

I fear we are headed for an unwanted confrontation at some point in the next two years. I really hope I am wrong.

The second topic this week has to be the rapidly approaching executive order to give amnesty to 5 million illegal immigrants without any constitutional basis. This is going to be released next week according to recent reports. Whatever your opinion on immigration the real point here is that President Obama is going to authorize it on his own over the objections of Congress and that is going to start a war in Washington.

In election exit polls conducted by The Polling Company more than 74% of voters believed that "President Obama should work with Congress rather than around Congress on immigration instead of separately." More than 92% of republicans, 80% of independents and 51% of democrats did not want Obama to enact executive amnesty on his own. Only 20% of voters wanted Obama to move forward on his own with an executive order.

More than 80% of Americans wanted newly created jobs to go to American workers not immigrants and that was across the entire country. (74% in Northeast, 80% midwest, 85% south and more than 80% in the west) Midterm Exit Polls

On Friday Vice President Biden said in addition to Obama's executive action the U.S. will offer "refugee status" to youths from El Salvador, Guatemala and Honduras. Up to 4,000 a year from each country will be allowed entry to the U.S. and immediately have full rights in the USA. This move comes after 68,000 children from those three countries entered the U.S. illegally last summer. However, the program only applies to children under 21 that have a parent already living in the USA.

I believe we should have comprehensive immigration reform but only if it follows the constitutionally mandated path. Congress makes the laws after serious debate that considers all the options and then the president signs them. This provides for laws that are enacted by the people's representatives after due process not by an individual that wants to impose his own standards on the population.

The Affordable Care Act may have entered a terminal phase. First the administration sharply lowered their estimates of how many people will be registered in the current plan renewal period from 13.1 million to 9.1 million. That compares to the 8 million that registered for 2014. Of those 8 million more than 1 million cancelled or defaulted on payments and are no longer insured by ACA. Of the 7.1 million people currently enrolled more than 80% receive subsidies. Unfortunately for many of those the subsidies may go away.

The Supreme Court agreed to hear the King vs Burwell case regarding subsidies in the ACA. The law clearly states that Federal subsidies are only available for policies issued through a healthcare exchange "established by the individual states." Only 16 states have built individual exchanges and are eligible for subsidies. Residents in the other 34 states are not eligible for subsidies but the administration allowed them anyway.

The Supreme Court will not have any leeway on this case since the law specifically spells out that subsidies are only to individual states. Most analysts believe the court will be forced to rule against subsidies since the language is clear. To rule in any other fashion would be to rewrite the law and the Supreme Court does not have that capability. The IRS originally refused to allow the subsidies to those people on the Federal exchange because that was not how the law was written but the president directed them to ignore the law and dole out the subsidies anyway.

Since 80% of enrolled people get a subsidy and 70% of the people enrolled in ACA are living in those 34 states about 4.6 million people would lose their subsidies. With the census numbers already well out of balance with 20% paying significantly higher premiums in order to subsidize the 80%, the removal of 4.6 million people from the program is going to be a disaster. The Rand Corp estimates that premiums for the 4.6 million that will lose subsidies will rise an average of 43%. The low risk individuals will bail immediately and forego insurance leaving only the high risk individuals that can't afford to be without insurance. The risk pool will immediately tilt towards the high risk side and rates for everyone would spike higher in the next renewal period. The individual and employer mandates would crumble because nobody could afford the increase in premiums.

The insurance companies are already losing money on the program despite a dramatic increase in rates. They are not concerned since the administration has agreed to cover all their losses for the first three years. That means the Federal Government will write them a check for their losses every year and taxpayers will foot the bill. This is expected to be in the hundreds of billions of dollars.

Lastly, despite the dramatic increase in premiums for individuals when the program was implemented in 2014 the rates for 2015 have increased another 5.6% to 35% and the program benefits have shrunk even more. For example the average increase in Colorado is between 22% and 35%. Networks are shrinking, deductibles are rising and co-pays for doctor visits and drugs are rising. The co-pay for my generic medicine I have been taking for 30 years went up from $8 to $75. A plan survey by HealthPocket found the average annual deductible rose 42% to $5,081.

The insurance companies are trying to find a level where they can make money and with health care costs rising and 80% of applicants getting subsidies they have to raise the rates for everyone in order to break even.

This law has survived numerous congressional attacks and court cases but it may have exhausted its nine lives. The republicans are not going to be agreeable to making modifications unless they get some of their own requests like the cancellation of the medical device tax and the cancellation of the Cadillac tax on company supplied health plans. There is going to be a monster fight over healthcare in 2015 and if the President follows through on the executive order amnesty it is only going to make the House and Senate even more opposed to doing anything he wants in the future.

Finding out last week that the architects of the ACA knew in advance they were going to have to lie to get it passed is only going to further inflame the public. MIT professor Jonathan Gruber and architect of the plan said he and President Obama agreed during a conference in the oval office that the plan would have to be worded in "tortured language" to confuse the Congressional Budget Office and the stupid American voters. The law was specifically written to be confusing so the "lack of transparency" would be a political asset meant to dupe the gullible public.

He and Obama came up with the business deduction scam. Gruber said "we just tax insurance companies, they pass on higher prices that offsets the tax break we get into being the same thing. It’s a very clever basic exploitation of the lack of economic understanding of the American voter." Numerous videos have come to light with Gruber making these comments in various forums. Gruber is also on video explaining that if states don't setup their own exchanges they will not be eligible for subsidies. That pretty well seals the deal for the Supreme Court. The administration paid Gruber $400,000 for consulting to help write the law and he is explaining on video how it was written.

Obamacare may not be dead but it is bleeding profusely and the opponents have a lot of ammunition left.

Retailers are preparing to go to war next week with the various Black Friday promotions that have turned into Black Week promotions. Several retailers have already launched their pre Black Friday sales. Walmart store managers have officially been told they are now free to match online prices starting November 14th. This is a fight to reduce the impact of showrooming where people look at an article in the store and then go home and order it online. If you are spending money this holiday season it would be wise to take your smartphone and scan the barcodes to look for the lowest advertised price and then show that price to the cashier.

Eaten your broccoli lately? McDonalds has now invented bubble-gum flavored broccoli to entice children to eat healthy. Unfortunately it did not work. Kids were confused by the taste and still refused to eat it.

More than 46 million turkeys will make the ultimate sacrifice for your Thanksgiving meal. Wholesale prices have risen 16% from 2013 to $1.24 per pound and the highest since records started in 1993. Retail prices average about $1.58 per pound. More than 20% of annual turkey consumption occurs on Thanksgiving. As of September 30th 297.2 million pounds of whole turkeys were in frozen storage. That is the lowest for that date since 2011. Gobble gobble!

Only 10 shopping days until Thanksgiving and 39 shopping days until Christmas.

Enter passively and exit aggressively!

Jim Brown

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"People have difficulty cutting losses, admitting an error, and moving on. I am rather frequently—and on occasion, quite spectacularly—wrong. However, if we expect to be wrong, then there should be no ego tied up in admitting the error, honoring the stop loss, selling the loser—and preserving your capital."

Barry L. Ritholtz