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Weekly Market Update 12-13-17

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TheFedraisedratesanother0.25%today.Thismarksthe5thratehikesincetheFedembarkedonitspolicytighteninginDecember2015andthefourthratehikeinthelast12months.TheFed’slateststatementalsoindicatesitplansonraisingratesthreemoretimesin2018.Itiseasytoglossoverthesignificanceofthis,buttheFed’sactionsareindeedunusual;othermajorCentralBanks(theSwissNationalBank,BankofJapan,EuropeanCentralBankandBankofEngland)areallcurrentlyrunningQEprograms(theBoJ,ECBandBoE)oropenlyprintingnewmoneytobuystocksoutright(theSNB).Ontopofthis,theFedisshrinkingitsbalancesheet.

Thepaceofthis(lessthan$80billionoverthreeyears)isnothingtobragabout,butwedohavetoacknowledgethatthetrendisdown.ComparethistothetrendsfortheECBandtheBoJbalancesheetsandtheFed’sactionsarelookingveryoddindeed.

Weekly Market Update (12-13-17)

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WhatpreciselyistheFeddoing?Whytheurgetotightenwhenotherbanksareallprintingnewmoneybythebillions?ThefollowingquotesfromFedofferusclues.FedMonetaryPolicyReport,June2017:

“Forwardprice-to-earningsratiosforequitieshaveincreasedtoalevelwellabovetheirmedianofthepastthreedecades,

Fedminutes,July2017:

"SincetheAprilassessment,vulnerabilitiesassociatedwithassetvaluationpressureshadedgedupfromnotabletoelevated,asassetpricesremainedhighorclimbedfurther,riskspreadsnarrowed,andexpectedandactualvolatilityremainedmutedinarangeoffinancialmarkets."

JanetYellenresponsetoquestionfromIMFPanel,October2017:

Marketvaluations“areathighlevelinhistoricalterms”whenassessedonmetricsakintoprice-earningsratios,

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FedMinutes,October2017:

"Inlightofelevatedassetvaluationsandlowfinancialmarketvolatility,severalparticipantsexpressedconcernsaboutapotentialbuildupoffinancialimbalances,"

JanetYellenduringFedpressertoday: Stockvaluationsareathighendofhistoricallevels.Iwanttobeclearonthesignificanceofthesestatements.TheFed’sprimaryroleistomaintainfinancialstability.ThismeansthattheFedwillalwaysdownplayrisksinitspublicstatements.Indeed,formerFedChairBenBernankeoncestatedthatFedpolicyis“98%talk,2%action.”Withthatinmind,theabovequotesareastonishingintheirclarity:theFedisexplicitlystating(inFedterms)thatthemarketsareinabubble.AndtheFeddidn’tjustdothisonce,theFedhasbeenwarningaboutassetvaluations/frothinthesystemforsixmonthsstraight.Again,inthecontextofhowtheFedpresentsinformation,thesequotesareastonishinglydirect,particularlywhenyoucomparethemtohowtheFeddescribedthelastperiodoffinancialfrothinessin2007(formerFedChairBernanke’snowridiculedclaimthatthesubprimemortgagecrisiswas“contained”comestomind).Sojusthow“frothy”arethingsthattheFedisbeingsoexplicit?PerhapsthebestmeansofmeasuringfrothinessinstocksisthePricetoSales(P/S)multiple.MostinvestorsprefertousePricetoEarnings(P/E),butIamwaryofthatmethodbecauseearningscaneasilybefudgedviagimmicks(differentmethodsofdepreciation,write-offs,reducingloanlossreserves,taxloopholes,etc.).Sales,ontheotherhand,areveryhardtofudge.Eithermoneycameinthedoor,oritdidn’t.Andifacompanygetscaughtfudgingitsrevenues,someonegoestojail.Withthatinmind,considerthattheS&P500’scurrentP/Smultipleiseffectivelythesameasitwasin1999:aperiodthatisnowwidelyconsideredtobethesinglelargeststockbubbleinhistory.Putsimply,stocksareextraordinarilyovervaluedbyareliablemeasure.

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H/TBillKingWhatabouttheeconomy?WarrenBuffettoncefamouslystatedthathisfavoritemeansofvaluingstockwasthestockmarketcapitalizationtoGDPratio.Well,we’reat1999levelsforthatmetrictoo!

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Sostocksareovervaluedbasedonthemostreliablecorporatedatapoint(revenues)andtheyarealsoovervaluedrelativetotheeconomy.Scratchthat,they’renotovervalued…they’retradingat1999-TechBubbleinsanitylevels.Smallwonderthephrase“assetvaluations”keepscroppingupinFedminutesandpublicstatements.InthiscontextitiscleartheFedisraisingratestoattempttotakesomeofthefrothoutofthemarkets.There’ssecondcomponenttotheFed’sconcerns.Inflation.Perhapsthesinglebiggestdevelopmentthisyear,asfarasthemarketswereconcerned,wastheFedadmittingontherecordthatithasnoideawhatisgoingonwithinflation.ThisrepresentsakindofendgamefortheFed.Sincetheearly‘80s,theFedhasbeenactivelyunderstatinginflationviaavarietyofgimmicks.Itfirstremovedhomepricesandreplacedthemwith“owner’sequivalentrent”(tomeasurethistheFedaskspeoplewhattheythinktheycouldchargeforrentiftheyrentedouttheirhome…andno,I’mnotjoking).Doingthatremovedanysharpriseinhomepricesfromaffectinginflationdata,therebydownplayingtheofficialinflationrate.Thenin1998,theFedstartedplayingaroundwith“hedonics”(thinkfoodandenergyprices).TheFedclaimedthatthegoalwastosomehowbalancethedeflationaryforcesoftechnologyvs.theinflationaryforcesofhedonicsitems…buttherealitywasthatthiswasjustanothergimmicktounderstateinflation.Then,finallyin1999,theFedintroducedtheideaof“substitutions.”HereagaintheFedclaimeditwastryingtogetanaccuratereadoninflation(theFedarguesherethatifaconsumercannotaffordsteakanymore,thefactheorshecansubstitutehamburgerindicateshisorherqualityoflifeisroughlythesameasbefore).Andonceagainthegoalwastounderstateinflation.Irealizethisisgettingabitcomplicated,solet’sputthisinsimpleterms…

1) Sincetheearly‘80s,theFedhasbeenemployingvariousgimmickstohidetherealrateofinflation.

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2) DoingthisallowedtheFedtooverstateGDPgrowthwhileunderstatingthetruedeclineinincomes/qualityoflifeformostAmericans.

Thisgameworkedforawhile,butthisyearthewholeschemecrashedintoawallwhenthevariousgimmicksresultedindatathatmadenosensewhat-so-ever.AtatimewhentheNYFed’sUIGinflationmeasureandtheAtlantaFed’s“stickyinflation”measure,showedinflationat2.8%and2.1%respectively,theFed’sofficialinflationmeasures(CPIandtrimmedPCE)wereclockinginat1.7%and1.4%,TheFed’sBoardofGovernorshadachoicehere:

1) Admittheofficialinflationnumbersweregarbage

Or…

2) Actsurprisedbytheofficialratebeingsolowandclaimit’sananomaly.TheFedwentwith#2inwhatwasoneofthemostinsaneFedstatementsever.AccordingtotheFed’sJulyFOMCstatement…

1. Mostparticipantsexpectinflationtopickupoverthenextcoupleyears.

2. ManyFedparticipantsthinkinflationwillremainbelow2%longerthanexpected.

3. ManyFedparticipantsbelievethatinflationmeasuresdroppedrecentlydueto“idiosyncraticfactors.”

4. AfewFedparticipantsbelievetheFed’sframeworkforforecastinginflationisnolonger

valid.

5. SomeFedparticipantsnotedtheirincreaseuncertaintyabouttheoutlookforinflation.Putsimply:theFedadmittedthatitnolongerhadacluewhatwasgoingonwithinflation.Ithassincemaintainedthis“whoknows!”schtick(InotethatFedChairJanetYellen,intoday’sconferencestatedthattheFed’sunderstandingofinflationis“imperfect.”)Meanwhile,weareseeingmoreandmoresignsofinflationseepingintorealbusinessesintheeconomy.

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AutozoneConferencecall12/6/17

BillGiles:CFOandExecVP,FinanceandInformationTechnologyWethinkthatthat5%rangecapturesthoseheadwindsandthoseheadwindsare,asBilltalkedaboutbefore,you'vegotalittlebitofwageratepressurethatcontinuestoexist…

CivitasConferencecall12/12/17

DennisHoller:CFOSpecifically,therewasadecreaseinprofitprojectionsforADH'scorebusinessresultingfromvariousoperatingchallengesincludingtheclosureofonelocationandincreasinghealthcarecostandwagepressures.Secondly,wehavesignificantlyreducedthenumberofnewstartsinourmodel.

CheesecakeFactoryConferencecall11/1/17MatthewClark:CFO

Ourguidancerangealsoassumeswagerateinflationofapproximately5%in2018,consistentwiththelevelwehaveexperiencedthisyear

Putsimply,REALinflationisrising.Andweexpectittobethebigthemefor2018.ThisiswhytheFedisraisingratessoaggressivelydespitethefacttheofficialinflationmeasuresremainbelow2%.Withthatinmind,we’vebeenmovingintoinflationaryplaysinthelastfewmonths.It’salreadypayingoffhandsomelyforus.OurcopperproducerFreeportMcMoran(FCX)isup12%roughlytwomonths.It’snowoverboughtandatcriticalresistance.

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Let’slockinthisgainandrevisitthispositiondowntheroad.ActiontoTake:SellFreeportMcMoran(FCX).Oilwillbeoneofthebiggestbeneficiariesofrisinginflation.IhadforecastOilwouldgoto$60thisyear,butIbelievewe’llbeat$75bynextJuly.Oilgiant,ExxonMobil(XOM)isalreadyflashingsignalsthatitwantstosurgehigher.Asyoucanseeinthechartbelow,we’vejustbrokenoutofadescendingtradingchannel.Theupsidetargethereis$90.

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ActiontoTake:BuyExxonMobil(XOM)

Thisconcludesthisweek’smarketupdateforPrivateWealthAdvisory.Thebigthemefor2018isalreadybeginningtobecomeclearandwearewellpositionedforit.

I’mwatchingthemarketscloselyandwillissueupdatesasneeded.Barringanynewdevelopmentsyou’llnexthearfrommenextWednesdayinourusualweeklymarketupdate.

Untilthen…

GrahamSummersChiefMarketStrategistPhoenixCapitalResearch

BestRegards,

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OPEN POSITIONS

STOCKS PORTFOLIO

Pricesasofmarket’scloseon12/13/17.Gainsincludedividends

POSITION SYMBOL BUY DATE

BUY PRICE

CURRENT PRICE

GAIN/ LOSS

RPXCorp RPXC 8/5/15 $15.48 $14.23 -8% AgriculturalCommoditiesETF RJA 1/12/17 $6.46 $5.91

-9%

PublicStorage PSA 3/23/17 $225.92 $212.56 -4% PioneerNaturalResources PXD 6/15/17 $158.02 $157.06 -1%

EnergyTransferPartners ETP 8/2/17 $21.00 $17.27 -16%

EnterpriseProductsPartners EPD 8/10/17 $26.08 $25.90 -1%

DBCommodityETF DBC 9/13/17 $15.26 $15.79 3%

FreeportMcMoRan FCX 10/4/17 $14.53 $16.32 12% HelixEnergySolutions HLX 10/11/17 $7.75 $6.68 -14%

Halliburton HAL 10/11/17 $45.37 $44.76 -1%

BiotechETF IBB 11/15/17 $306.25 $106.72 5%

OilServices OIH 11/30/17 $24.12 $24.89 3% MetalsandMiningETF

XME 12/6/17 $31.83 $33.54 5%

ExxonMobil XOM 12/13/17 $83.12 NEW BUY!

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POSITION SYMBOL BUY DATE

BUY PRICE

CURRENT

PRICE

GAIN/ LOSS

Gold 3/17/10 $1,120 $1,258.00 12% Silver* 3/17/10 $16.23 $16.10 -1% WheatonPreciousMetalsCorp** WPM 10/5/16 $20.83 $21.61

4%

FirstMajesticSilver*** AG 5/12/17 $7.91 $7.35 -7%

GoldMinerETF GDX 9/20/17 $23.50 $22.16 -6%

GoldMiningJuniorsETF GDXJ 9/20/17 $34.11 $31.58 -7%

KlondexMines KLDX 9/20/17 $3.61 $2.49 -31%

WesdomeGoldMines WDO.TO 9/20/17 $2.21 $1.80 -19%

Iamgold IAG 9/28/17 $6.40 $5.48 -14%

SilverMiningETF SIL 10/4/17 $33.96 $31.10 -8% SilverMiningJuniorsETF SILJ 10/4/17 $12.22 $10.80 -12%

PRECIOUS METALS/ MINERS PORTFOLIO

Pricesasofmarket’scloseon12/13/17.Gainsincludedividends*Averagepriceof$17.50and$14.97**Averagepriceof$19.07and$22.59***Averagepriceof$7.11and$8.70

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SPECIAL SITUATIONS/HEDGES/SHORTS PORTFOLIO

CASH/ CURRENCIES PORTFOLIO

POSITION SYMBOL BUYDATE

BUYPRICE

CURRENTPRICE

GAIN/ LOSS

EuroTrust FXE 10/5/16 $114.05 $113.98 0%

Pricesasofmarket’scloseon12/13/17.Gainsincludedividends

POSITION SYMBOL BUY DATE

BUY PRICE

CURRENT PRICE

GAIN/ LOSS

FranceETF(SHORT) EWQ 9/16/16 $23.38 $31.25 -34% ItalyETF(SHORT) EWI 9/16/16 $21.56 $30.89 -43% Russell2000ETF(SHORT) IWM 12/14/16 $135.37 $151.78 -12% Apple(SHORT) AAPL 3/23/17 $140.92 $172.27 -22% Facebook FB 5/31/17 $151.63 $178.30 -18% Alphabet GOOGL 5/31/17 $987.72 $1,051.39 -6% HomebuildersETF XHB 8/9/17 $37.94 $43.36 -14%

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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% USDollarETF UUP 8/2/17 $24.08 8/23/17 $24.18 0%

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RECENTLY CLOSED POSITIONS CONTINUED

POSITION SYMBOL BUYDATE

BUYPRICE

SELLDATE

SELLPRICE

GAIN/ LOSS

GoldMinersETF GDX 10/5/16 $22.45 9/5/17 $25.09 12% GoldMiningJuniorsETF GDXJ 10/5/16 $34.72 9/5/17 $36.92 11% RandgoldResources GOLD 5/12/17 $93.25 9/5/17 $104.90 12% KlondexMines KLDX 8/10/17 $2.94 9/5/17 $3.55 21% WesdomeGoldMines WDO.TO 8/10/17 $2.18 9/5/17 $2.37 9% NewGold NGD 10/5/16 $3.88 9/6/17 $4.18 11% BarrickGold ABX 4/26/17 $16.92 9/6/17 $18.23 8% SilverMiningETF SIL 4/26/17 $34.44 9/6/17 $35.75 4% SilverStandard SSRI 4/26/17 $9.94 9/6/17 $10.70 8% Transocean RIG 6/15/17 $8.56 9/26/17 $10.10 18% HelixEnergySolutions HLX 7/19/17 $6.16 9/26/17 $7.54 22% OilServicesETF OIH 8/23/17 $22.07 9/26/17 $25.75 17% Apache APA 8/23/17 $40.33 9/26/17 $44.72 11% Halliburton HAL 8/23/17 $39.06 9/26/17 $45.69 17% Verizon VZ 4/26/17 $47.17 10/20/17 $49.14 5% VietnamETF VNM 6/7/17 $14.64 10/20/17 $15.47 6% EOGResources EOG 7/19/17 $95.00 10/31/17 $100.26 6% ArcelorMittal MT 10/4/17 $26.50 10/31/17 $28.63 8% USOilFund USO 10/11/17 $10.32 10/31/17 $10.89 6% CrescentPointEnergy CPG 10/18/17 $7.49 10/31/17 $8.03 7% BaytexEnergyCorp BTE 10/18/17 $2.66 11/1/17 $2.90 9% Verizon VZ 4/26/17 $47.17 10/20/17 $49.14 5% VietnamETF VNM 6/7/17 $14.64 10/20/17 $15.47 6% LongTreasuryETF TLT 7/27/17 $123.27 11/8/17 $126.36 3% EmergingMarketsBonds EMB 7/27/17 $115.13 11/8/17 $114.60 1% SouthwesternEnergy SWN 7/19/17 $6.17 11/9/17 $6.52 6% NaturalGasETF UNG 8/2/17 $6.34 11/9/17 $6.59 4% UraniumETF URA 8/29/17 $13.53 11/24/17 $15.37 14% Cameco CCJ 8/29/17 $9.88 11/24/17 $10.00 2% BHPBilliton BHP 10/4/17 $41.13 11/24/17 $42.88 4%

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RECENTLY CLOSED POSITIONS CONTINUED

POSITION SYMBOL BUYDATE

BUYPRICE

SELLDATE

SELLPRICE

GAIN/ LOSS

FreeportMcMoRan FCX 10/4/17 $14.53 12/13/17 $16.32 12%