If You’re Gonna Do it, Do it Right! (FB)

We’ve long been of the opinion that certain nations just have an inborn aptitude for certain activities. The Brazilians, as you know, are natural music-makers and knock-out with a beach volleyball, the Irish – comedic wizards, the Icelandic – knitting wunderkinds, Canadians – hockey hotshots, and the Chinese…

 

Well, until recently we debated what the Chinese genius was, as they have a great wealth of national skill and accomplishments. But over the last few months the whole thing became crystal clear, as we were shown beyond any mite of a doubt, that the Chinese are plainly the planet’s foremost market fixers.

 

Bruce Lee

Easy, Bruce.

 

More than self-defense, even more than wall-making, China knows better than anyone else on the planet how to…ahem, repair a broken market.

 

Are you casting aspersions, Hugh!?

 

By no means. There are simply jurisdictions that understand how to deal with a falling market and are not ashamed to act when necessary in an open and un-muddled way.

 

China happens to be one of those places. There, if you speak badly about the prospects for equities or, heaven forbid, sell your equities, or encourage others to do so, you get arrested. Simple, simple. The greater good, after all. The commonweal. Community. Communes. Commies.

 

And so it was, that as the Shanghai market tumbled over the last quarter, the Chinese authorities –

 

  • Jailed high profile newspapermen,
  • Sacked the vice chairman of the China Securities Regulatory Commission for alleged “severe violations of discipline”,
  • Placed the president of China’s biggest brokerage, Citic Securities, under investigation,
  • Initiated a ‘special workforce’ under the guidance of the Vice Public Security Minister (not securities, friends: security) to root out and arrest ‘malicious short sellers’,
  • Summoned fund managers to report on their buy/sell decisions,
  • Seized telephones and computers at suspect brokerages and mutual funds,
  • Purchased shares directly on the ‘open’ market,
  • Banned IPOs,
  • Restricted trade in stock-index futures,
  • Vowed to “purify” the market, and… well, you get the picture.

 

In short, no one can teach the Chinese how to make a market go up.

 

We’ve got the Fed!

 

On this side of the Pacific, of course, we’re not so crass. We let the insiders do the work, while the Fed and so-called regulatory agencies and watchdogs just grease the wheels, indirectly providing the tools to jack the indexes higher. It’s much less messy that way, avoids all the fear and alarm, and we’re Americans, after all – it wouldn’t be nice to point guns at well-dressed financiers.

Bill Gates

And that’s where we are today.

 

The possibility of a genuine market crash and the collateral damage it would cause to the economy and social order is what keeps the elites in ‘market-goose’ mode. It’s more about maintaining the status quo and holding on to a lifestyle and avoiding A COMPLETE BREAKDOWN OF THE CIVIL ORDER that motivates the actions of today’s American elites.

 

And that’s why we believe that corporations that have the means to support the current power structure, to assist in the quelling of dissent and fortifying the establishment, will see the greatest rewards in the final market run-up.

 

Indeed, several of those scruffily-clad gentlemen pictured above have already sold themselves to the cause, as we’ve reported regularly in this space.

 

You sound like a wacko neo-Trotskyite, O’Haynew!

What the hell happened!?

 

Guilty as charged, friends.

 

The truth is complex, we admit. What was thirty years ago the narrative of the lunatic fringe left, has now been taken up by so-called conservatives everywhere. The danger of government is a cornerstone of traditional right-wing ideology, but until recently no one at that end of the spectrum felt the threat. Today, things are different.

 

Today, we in the investment realm, regardless of our political outlook, and committed to making money for our clients, must be attuned to today’s changing reality. For better or worse, the Facebooks (FB), Googles (GOOG), drone makers, gun manufacturers, financiers, and anyone else with an interest in maintaining the structure of the big government/big Wall Street/big multinational corporate reality, will see their stocks the rise.

 

Take a look at the following example –

 

This is a chart of the S&P 500 mapped against the PowerShares NASDAQ Internet Portfolio ETF (NASDAQ:PNQI), a fund that holds 80 of the world’s biggest internet and social media names. The top ten holdings account for roughly 60% of the fund’s worth and includes, of course, Facebook, Google, Amazon, Priceline and Netflix (among others).

 

Have a look –

 

Technical chart

The chart is noteworthy for demonstrating the outperformance of these stocks over the last three months, from the bottom of the August retracement until today, a period for which the internet group doubled the broad market’s performance.

 

Yet over the last six months, year and two year periods, the outperformance has been even greater, with PNQI locking in 12x, 24x and 2x the S&P’s gain for those same time frames, respectively.

 

And why is it happening?   We contend, again, that these companies are the darlings of the establishment, who continue to work with them to spy on troublemakers, develop new spy technology, drone technology, driverless spy vehicles, robotic watching and listening devices, what-have-you – all the better to keep a suspicious populace under tight control.

 

You’re mad, Hugh! Facebook!? Drones!?

 

And be sure, that it’s not just the defense industry that’s making unmanned aircraft these days, though General Dynamics (GD), Northrop Grumman (NOC), Lockheed Martin (LMT) et al. still play a dominant role on the military side of the drone game.

 

Technical chart 2

Google, Tesla (TSLA), Apple (AAPL), Amazon (AMZN) and most recently Facebook have all been hyperactively pursuing robotic, drone, laser and even rocket technology with the full backing and support of Wall Street and Washington. These new technologies will no doubt help their businesses generate cash. But they also serve as A vehicle for the discreet collection of lustily sought after data by law enforcement and government.

 

Technical chart 3

 

That is Facebook for the last six months –

 

In short, the establishment has a vested interest in their success.

 

And we’re going to ride along. Here is how we are going to make some month on this:

 

 

 

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With kind regards,

 

Hugh L. O’Haynew, Senior Analyst

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