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Weekly Market Update 8-17-17

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TheFedJulyFOMCminutes,thatwerereleasedyesterday,werenothingshortofextraordinary.However,tofullyappreciatejustwhattheFedadmitted,wefirstneedalittlebackground.FromNovember2016untilJune2017,theFedwaspushingahawkishagenda.TherunningmantraatthistimewasthattheFedwouldraiserates3-4timesin2017.Astheyearprogressed,theFedalsobegantalkingaboutshrinkingitsbalancesheet.TheFed’sjustificationforthesemoveswasthatinflationwasrisingandtheeconomywasstrongenoughtotoleratethesemoves.AsaresulttheFedhikedratestwice,firstinMarchandthenagaininJune2017.Then,inlateJune,theFedsuddenlydidacomplete180,statingthatitwasjustaboutdonewithratehikes.Moreover,theFedstatedthatshrinkingitsbalancesheetwouldnotremoveliquidityfromthesystem.Putsimply,theFedswitchedfromhawkishtocompletelydovishinthespanoftwoweeks.This,inofitself,wasbizarre.TheFed’sentirepurposeistomaintainfinancialstability.Howitcouldpossiblyclaimitisdoingthisbychangingitsentirestrategysuddenlyandwithoutwarningisbeyondme.Andthenwegetyesterday’sreleaseoftheFedJulyFOMCminutes.Theminuteswerecompleteinsanity.IrealizethatmanycommentatorsaretryingtoarguethattheFedwashawkish.Butitwasn’t.TheFedwasintotalchaos.Let’staketheexampleofinflation.AccordingtotheJulyFOMCstatement…

1. Mostparticipantsexpectinflationtopickupoverthenextcoupleyears.

2. ManyFedparticipantsthinkinflationwillremainbelow2%longerthanexpected.

3. ManyFedparticipantsbelievethatinflationmeasuresdroppedrecentlydueto“idiosyncraticfactors.”

4. AfewFedparticipantsbelievetheFed’sframeworkforforecastinginflationisnolonger

valid.

Weekly Market Update (8-17-17)

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5. SomeFedparticipantsnotedtheirincreaseuncertaintyabouttheoutlookforinflation.

!?!?!?LikeIsaid,theFedisintotalchaos.Therewasasimilarlackofunityofjustabouteverything:thelabormarket,lendingrisksatbanks,FederalGovernmentpolicy,etc.However,therewasonelineinparticularthatstoodout.

However,mostparticipantsthoughtthattheframeworkremainedvalid,notwithstandingtherecentabsenceofapickupininflationinthefaceofatighteninglabormarketandrealGDPgrowthinexcessoftheirestimatesofitspotentialrate."

TheFedadmitsherethatthelabormarketistight,realGDPgrowthisstrongerthanFedestimates,butinflationisfailingtopickup.Thisisastonishing.AccordingtotheFed’sdualmandate,theFedissupposedtoseekmaximumemploymentwhilestabilizingpricesandmoderatinglong-terminterestrates.InplainEnglish,theFedissupposedtopursuesolideconomicgrowth,withmaximumemployment,whilekeepinginflationonanevenkeel.TodaytheFedisfindingthatemploymentisverystrong,theeconomyisrelativelystrong,andinflationisweak.AccordingtoallFedmodelsthisisimpossible.ThisiswhytheFOMCminutesclaimedmanymembersthoughtinflationhaddroppeddueto“idiosyncraticfactors.”Thealternativereality(thattheFedhasnoideawhat’sgoingon)istoodisturbingtoadmitpublicly.However,unfortunatelyfortheFed,thatalternativeinterpretationisinfactreality:theFedisclueless,asitsmodelshavenoconnectiontoeconomicrealities.TheFedbelievesthatmonetarypolicysteersgrowth.Itdoesn’t.Entrepreneursandbusinessownersgenerategrowth.AtbesttheFedsimplycreatesconditionsinwhichthesesortsofindividualsandtheirenterprisescanthrive.Atworst,theFedcreatesbubblesthatcrash.

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Again,theFeddoesn’tcreategrowth.Thisisatotalmyth.Anditneedstobeputtobed.Ifyoufindthishardtobelieve,considerthatover50%ofFortune500companieswerefoundedduringrecessionsorbearmarkets.Putanotherway,themajorityofthelargest,mostprofitablecompaniesintheworldwerecreatedduringenvironmentsthatwerenegativeorrisk-off.TheFedhadNOTHINGtodowiththisgrowthorjobcreation.OfcoursetheFedcannotandwillnotadmitthis.Butit’safact.Andit’safactthatisnowsoobviousthatFedofficialsarestartingtonoticeit,thoughthey’reunwillingtoadmititpublicly.Thisiswhywegotthatbizarre“idiosyncraticfactors”commentintheFedJulyFOMCminutes.Ratherthancomecleanaboutitsfailuretounderstandtheeconomy,Fedofficialsaresimplystatingthatdatathatdoesn’tconformtotheirmodelsisstrangeor“idiosyncratic.”SmallwonderthenthatthemarketswhipsawedyesterdayastradersattemptedtodecipherjustwhattheheckhadhappenedattheFedmeetinginJuly:bondsralliedthenslid,stocksfellthenbounce,GoldralliedthenslidandOilflatlined.

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Whatdoesthismean?Themarketis“smelling”thattheUSeconomyisweakening(whybondsarerallying)andthe

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Fedisgoingtohavetoputanyadditionalratehikes/balancesheetshrinkingonholdfornow.Today’sactionconfirmedthis.Bondsarerippinghigherhavingbouncedoffofsupport.ThenextlegupwillseeTLTgoto130.

MeanwhilestocksareFINALLYbeginningtobreakdowninabigway.TheS&P500hastakenoutitsbullmarkettrendline(blueline).Ithinkwe’llhangaroundthegreenboxforafewdaysherebeforewemovedowntotheredboxsometimetowardstheendofnextweek.

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HerearethecomparablelineandboxesfortheNASDAQ.

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Putsimply,asfarasstocksareconcerned,thedeflationwaveI’vebeencallingforhasfinallyhit.AndTechstockswillbehithardest.Incontrast,Goldhasnowofficiallybottomed.Asyoucanseeinthechartbelow,thepreciousmetalbouncedoffofsupport.Thenextlegupto$1,320ishere.Afterthatwe’llgetapullbackto$1300orsobeforemovingto$1340+toendtheyear.

Incontrast,Silverisnowmovingto$17.75.Afterthatwe’llseeapullbackto$17.00beforewemoveto$18.50+toendtheyear.

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Feelfreetoaddtoyourpreciousmetalspositionsoranyofthepreciousmetalsminers.Currentlyweown:

OpenPositions Symbol BuyPriceGold $1,120Silver $16.23GoldMinersETF GDX $22.45GoldMiningJuniorsETF GDXJ $34.72WheatonPreciousMetalsCorp WPM $22.59NewGold NGD $3.88BarrickGold ABX $16.92SilverMiningETF SIL $34.44SilverStandard SSRI $9.94FirstMajesticSilver AG $8.70RandgoldResources GOLD $93.25KlondexMines KLDX $2.94WesdomeGoldMines WDO.TO $2.18

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TheonlyotherareathatislookingreallyinterestingrightnowisEnergyCompanies.Obviouslywewerealittleearlywithourplayshere,butthatisjustfine.Oilisgoingto$60inthenextsixmonths.Sothefactthatit’sgoingtobottomat$45orsoinsteadof$49wherewebeganopeningpositionsisn’treallyabigdeal.

IexpectOiltobottomearlynextweek.Whenitdoes,we’llbeincreasingourexposuretotheOilspacewithsomemoreplays.Regardingthoseplayswearealreadyinandthataredown.PioneerNaturalResources(PXD)isgoingabove$200beforetheMarch2018.

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HelixEnergySolutions(HLX)isgoingto$18orso.

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SouthwesterEnergy(SWN)isgoingto$20orso.

EOGResources(EOG)isgoingto$115orso.

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AndEnergyTransferPartners(ETP)isgoingto$35orso.

Soagain,donotbeconcernedaboutthesepositions.Thegainswe’lllockindowntheroadarewellworthourpatience.Thisconcludesthisweek’sWeeklyMarketUpdate.I’mwatchingthemarketscloselyandwillissueupdatesasneeded.Barringanynewdevelopmentsyou’llnexthearfrommenextWednesdayinourusualWeeklyMarketUpdate.Untilthen…

GrahamSummersChiefMarketStrategistPhoenixCapitalResearch

BestRegards,

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OPEN POSITIONS

STOCKS PORTFOLIO

Pricesasofmarket’scloseon8/17/17.Gainsincludedividends

POSITION SYMBOL BUY DATE

BUY PRICE

CURRENT PRICE

GAIN/ LOSS

RPXCorp RPXC 8/5/15 $15.48 $12.43 -20% AgriculturalCommoditiesETF RJA 1/12/17 $6.46 $6.00

-7%

PublicStorage PSA 3/23/17 $225.92 $197.73 -12%

Verizon VZ 4/26/17 $47.17 $47.89 3%

VietnamETF VNM 6/7/17 $14.64 $14.11 -4%

Transocean RIG 6/15/17 $8.56 $7.28 -15% PioneerNaturalResources PXD 6/15/17 $158.02 $131.27 -17%

HelixEnergySolutions

HLX 7/19/17 $6.16 $5.74 -7%

SouthwesternEnergy

SWN 7/19/17 $6.17 $5.13 -17%

EOGResources EOG 7/19/17 $95.00 $83.38 -12%

NaturalGasETF UNG 8/2/17 $6.30 $6.55 3% EnergyTransferPartners

ETP 8/2/17 $21.35 $18.50 -12%

EnterpriseProductsPartners

EPD 8/9/17 $26.08 $24.98 -4%

BONDS PORTFOLIO

POSITION SYMBOL BUY DATE

BUY PRICE

CURRENT PRICE

GAIN/ LOSS

LongTreasuryETF TLT 7/27/17 $123.16 $126.65 3%

EmergingMarketBondsETF EMB 7/27/17 $115.17

$115.26 1%

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POSITION SYMBOL BUY DATE

BUY PRICE

CURRENT

PRICE

GAIN/ LOSS

Gold 3/17/10 $1,120 $1,293.00 15% Silver* 3/17/10 $16.23 $17.02 5%

GoldMinersETF** GDX 10/5/16 $22.45 $23.03 3% GoldMiningJuniorsETF*** GDXJ 10/5/16 $34.72 $33.40

1%

WheatonPreciousMetalsCorp WPM 10/5/16 $22.59 $18.91

-16%

NewGold NGD 10/5/16 $3.88 $3.44 -9%

BarrickGold ABX 4/26/17 $16.92 $16.85 0%

SilverMiningETF SIL 4/26/17 $34.44 $33.30 -3%

SilverStandard SSRI 4/26/17 $9.94 $9.99 1%

FirstMajesticSilver AG 5/12/17 $8.70 $6.55 -25% RandgoldResources GOLD 5/12/17 $93.25 $95.67 3%

KlondexMiners KLDX 8/9/17 $2.94 $3.21 9% WesdomeGoldMines WDO.TO 8/9/17 $2.18 $2.12 -3%

PRECIOUS METALS/ MINERS PORTFOLIO

Pricesasofmarket’scloseon8/17/17.Gainsincludedividends*Averagepriceof$17.50and$14.97**Averagepriceof$22.83and$22.07***Averagepriceof$37.52and$31.92

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SPECIAL SITUATIONS/HEDGES/SHORTS PORTFOLIO

CASH/ CURRENCIES PORTFOLIO

POSITION SYMBOL BUYDATE

BUYPRICE

CURRENTPRICE

GAIN/ LOSS

USDollarETF UUP 8/2/17 $24.08 $24.29 1%

Pricesasofmarket’scloseon8/17/17.Gainsincludedividends

POSITION SYMBOL BUY DATE

BUY PRICE

CURRENT PRICE

GAIN/ LOSS

FranceETF(SHORT) EWQ 9/16/16 $23.38 $29.33 -25% ItalyETF(SHORT) EWI 9/16/16 $21.56 $29.69 -38% Russell2000ETF(SHORT) IWM 12/14/16 $135.37 $134.93 0% Apple(SHORT) AAPL 3/23/17 $140.92 $157.86 -12% Facebook FB 5/31/17 $151.63 $166.91 -10% Alphabet GOOGL 5/31/17 $987.72 $927.66 6% HomebuildersETF XHB 8/9/17 $37.94 $37.77 0%

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POSITION SYMBOL BUYDATE

BUYPRICE

SELLDATE

SELLPRICE

GAIN/ LOSS

AmericanEagleOutfitters(SHORT) AEO 5/26/16 $15.36 1/31/17 $14.59 5%CliffsNatResources(FIRSTHALF) CLF 2/8/17 $10.15 2/13/17 $12.10 19%

Ambev ABEV 11/25/16 $4.96 2/23/17 $5.93 21%Cemex CX 11/25/16 $8.07 2/23/17 $8.69 8%CliffsNatResources(SECONDHALF) CLF 2/8/17 $10.15 2/23/17 $11.13 10%

Exxon XOM 9/24/14 $95.82 3/8/17 $81.28 -8% EnterpriseProductsPartners EPD 11/31/16 $25.93 3/8/17 $27.83

9%

NaturalGasETF UNG 2/22/17 $6.57 3/8/17 $7.11 8%

EmergingmarketsETF EEM 1/12/17 $36.60 4/10/17 $39.20 7%

BarrickGold ABX 10/5/16 $15.54 4/10/17 $19.04 23%

UraniumETF URA 6/8/16 $15.49 4/12/17 $15.90 9% Cameco CCJ 1/4/17 $10.69 4/12/17 $11.48 7% CoalETF KOL 1/4/17 $12.59 4/12/17 $14.51 15% SilverStandardResources SSRI 10/5/16 $10.30 4/12/17 $11.32

10%

RoyalGold RGLD 2/8/17 $71.50 4/12/17 $74.14 4%

SilverMiners SIL 3/15/17 $35.81 4/12/17 $37.60 5%

USSteel(SHORT) X 2/1/17 $31.97 4/13/17 $29.42 8% CopperMinersETF(SHORT) COPX 3/23/17 $22.64 4/18/17 $21.02 7%

FinancialsETF(SHORT) XLF 12/21/16 $23.61 4/26/17 $24.06 -2%

RECENTLY CLOSED POSITIONS

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RECENTLY CLOSED POSITIONS CONTINUED

POSITION SYMBOL BUYDATE

BUYPRICE

SELLDATE

SELLPRICE

GAIN/ LOSS

PeruETF EPU 12/7/16 $33.23 5/17/17 $34.775%

BrazilETF EWZ 2/8/17 $37.53 5/17/17 $39.90 6%UtilitiesETF XLU 2/8/17 $49.35 5/17/17 $51.58 5%SolarEnergyETF TAN 4/19/17 $17.20 5/17/17 $18.00 5%RoyalGold RGLD 4/26/17 $69.92 5/17/17 $79.90 14% SouthwesternEnergy SWN 3/30/17 $8.15 5/24/17 $6.76 -17% GulfportEnergy GPOR 3/30/17 $17.17 5/24/17 $15.47 -10% USOilFund USO 4/26/17 $10.37 5/24/17 $10.60 2% ExxonMobil XOM 5/3/17 $82.70 5/24/17 $82.29 0% EnergyETF(SHORT) XLE 5/24/17 $67.56 6/5/17 $65.05 4% EmergingMktsBondETF EMB 11/21/16 $109.82 6/7/17 $115.95 8% LongUSTreasuries TLT 11/21/16 $121.05 6/15/17 $126.10 5% NuveenEnhancedFreeMuniCreditFund NVG 1/2/14

$13.126/22/17 $15.22 40%

RioTinto RIO 6/19/17 $39.48 7/10/17 $43.48 10% ClearEnergyETF PBW 4/19/17 $4.06 7/10/17 $4.25 10% EnterpriseProductsPartners

EPD 6/22/17 $26.00 7/17/17$27.70 7%

USoilFund USO 6/28/17 $9.20 7/17/17 $9.57 4% ChinaETF ASHR 2/1/17 $24.98 7/24/17 $28.08 12% Uranium URA 6/15/17 $12.76 7/24/17 $14.28 12% Cameco CCJ 6/15/17 $9.14 7/24/17 $9.95 10% USSteel X 6/19/17 $20.83 7/24/17 $23.69 14% FreeportMcMoran FCX 6/19/17 $11.53 7/25/17 $14.08 22% BiotechETF IBB 4/26/17 $296.15 7/25/17 $324.86 10% Baidu BIDU 6/7/17 $187.53 7/27/17 $200.10 7% PeruETF EPU 6/22/17 $33.64 7/27/17 $35.61 6% Chevron CVX 6/22/17 $104.45 8/2/17 $110.86 6% EuroTrust FXE 10/5/16 $108.80 8/2/17 $114.61 5%