“I’m more concerned about controlling the downside. Learn to take the losses. The most important thing about making money is not to let your losses get out of hand.” – Marty Schwartz.

1. Trump Wins Nevada GOP Caucuses — Donald Trump won the Nevada caucuses last Tuesday night, adding a third straight victory in his drive for the Republican presidential nomination. “Markets are in a state of suspended disbelief. I don’t think they’ve seen anything like this. No one has seen anything like this,” said Mike Thompson, Chairman at S&P’s Investment Advisory Services.
2. JPMorgan (JPM) Warns On Energy Bad Loans — JPMorgan is adding another $500M to energy-related loan-loss reserves. This followed a $67M provision in Q4, which at the time brought total oil and gas loss reserves to $815M (vs. a portfolio with book value of $44B).In addition, the bank said it could need to add another $1.5B to reserves should oil hang around $25 per barrel over the next 18 months.
3. China Stocks Dive 6.4% Ahead of G20 Meeting — the Chinese market index dropped 6.4% late last week, extending its fall this year to 22%, as surging money-market rates signaled tighter liquidity and the offshore yuan weakened for a fifth day, while the country’s vice finance minister warned of pressure on exports. The plunge comes as world leaders gather for a G20 meeting in Shanghai, where current market turmoil and a global economic slowdown are expected to be key topics of discussion.
4. Moody’s Cuts Brazil’s Rating to Junk — Moody’s cuts Brazil’s sovereign credit rating to Ba2 from Baa3, two notches into junk territory, with a negative outlook, citing uncertainty over the effort to impeach Pres. President Rousseff and the corruption scandal that has paralyzed the country’s leadership and slowed efforts to shore up its crumbling finances. Samar Maziad, Moody’s lead analyst for Brazil stated “There’s very little visibility on what the future will be.”
5. 4Q GDP Revised to 1% from 0.7% — the U.S. economic growth in the fourth quarter was marked up slightly to 1%, but that was mainly because of a bigger stockpiling of inventories. The initial report was 0.7% rate. The value of inventories, which adds to GDP, rose by $81.7 billion instead of $68.6 billion as initially reported. Consumers boosted spending by 2% in the fourth quarter, but that was down from an initial 2.2% estimate and was much weaker compared with the spring and fall.
6. S&P 500 Gained More Than 1.5% a Day for Three Consecutive Days Historical Pattern — the chart below provides a snapshot of each kickoff rally (dashed green line) and how the S&P 500 did 60 trading days (about three months) prior, and 255 trading days (above one year) thereafter.

The week ahead — Economic data from Econoday.com:

“I have been trading for decades and I am still standing. I have seen a lot of traders come and go. They have a system or a program that works in some specific environments and fails in others. In contrast, my strategy is dynamic and ever evolving. I constantly learn and change.” – Thomas Busby

1. Saudi Arabia, Russia, Qatar, Venezuela Agree to Freeze Oil Production — Saudi Arabia, Russia, Qatar and Venezuela reported that they wouldn’t increase crude-oil output above January’s levels as long as other major oil producers followed suit, in the first coordinated move to boost oil prices in years. The agreement came with a significant caveat: Iran and Iraq must also halt production increases.
2. Venezuela Hikes Fuel Prices, Devalues Bolivar — cash-strapped Venezuela has finally taken action to address its ailing economy, raising the price of the world’s cheapest gasoline and devaluing its currency by 37%. President Nicolas Maduro said the government would also “simplify” the country’s complex three-tier exchange rate system to just two rates: a protected official rate for food/medicine imports and a parallel “floating” rate for other transactions. The measures are meant to help shore up the OPEC nation’s finances as it battles a severe recession, triple-digit inflation and chronic product shortages.
3. Buffett Discloses Stake in Pipeline Operator Kinder Morgan (NYSE:KMI) — Berkshire Hathaway (BRK.A, BRK.B) opened a new 26.5M share stake in the energy infrastructure company during Q4, translating into stock worth roughly $395.9M at year end. This is a new investment in pipeline operator. George Soros also added 50.7K shares of Kinder Morgan (KMI) during the fourth quarter.

The week ahead — Economic data from Econoday.com:

‘If you are going to be wrong, be wrong quickly with a de minimis loss of capital’.” — unknown

1. China Dips Into Foreign-Exchange Reserves By $99.5B in January — the Peoples Bank of China discloses that its foreign-exchange reserves fell by almost $100B in January. The reserve drop in January to $3.23T, marking the lowest level since 2012. Beijing has been fiercely struggling to underpin the yuan amid slower economic growth, plunging stocks and increasing capital outflows that have been burning through the reserves.
2. S&P Lowers Ratings On Four Banks With Big Oil Loan Exposure — four regional banks had their ratings cut by Standard & Poor’s last week on their exposure to loans in the energy sector amid falling oil prices. S&P lowered ratings by one notch on BOK Financial Corp. (BOKF) to “BBB+”, Comerica Inc. (CMA) to “BBB+”, Cullen/Frost Bankers Inc. (CFR) to “A-“, and Texas Capital Bancshares Inc. (TCBI) to “BB+”.
3. Trump, Sanders Captured New Hampshire — Republican Donald Trump and Democrat Bernie Sanders swept to convincing victories in the New Hampshire primaries las Tuesday night, providing them momentum for future contests and sending shock waves through both parties. With voters putting their faith in anti-establishment politics, New Hampshire’s verdict sets up a tough fight for Republicans in South Carolina on Feb. 20 and for Democrats there on Feb. 27.
4. Sweden Cuts Main Interest Rate Further Below Zero — Sweden’s central bank cut its main interest rate even further below zero as it sought to hold down the national currency to support a recovery in the inflation rate toward a 2% target. The bank, known as Sweden’s Riksbank, lowered its main repurchase rate to minus 0.5% from minus 0.35% and said it still had scope to drop it further if needed. The Riksbank, along with the Swiss, Danish, European and most recently Japanese central banks have now all gone lower. Negative interest rates in a country discourage foreign investors from holding that country’s currency and that pushes the value of the currency down. That in turn pushes import prices up, giving the inflation rate a further boost.
5. OPEC Ready for Output Cut — Reuter reported that UAE’s oil minister said “OPEC members are ready to cooperate on a cut”. Saudi Arabia signaled it may limit output but won’t commit unless Iran does the same. US crude hits 13-year lows earlier this week at around $26.00 a barrel.

The week ahead — Economic data from Econoday.com:

“The essence of portfolio management is the management of RISKS, not the management of RETURNS.” — Benjamin Graham

1. Berkshire Ups Stake in Phillips 66 (NYSE:PSX) — Berkshire Hathaway has resumed its purchases of Phillips 66 (NYSE:PSX), spending roughly $832M in January to boost its stake even as the oil refiner’s profit margins narrowed. According to a regulatory filing, the conglomerate paid about $198M last week for 2.54M shares of PSX, giving it 72.29M overall, or a roughly 13.7% stake in the company. Phillips 66 is Berkshire’s (BRK.A, BRK.B) sixth-largest stock holding.
2. S&P Cuts Ratings of 10 U.S. Oil Companies — S&P ratings cut a number of energy companies by one notch: Chevron (NYSE:CVX), Apache (NYSE:APA), Continental Resources (NYSE:CLR), Devon Energy (NYSE:DVN), EOG Resources (NYSE:EOG), Hess (NYSE:HES), Hunt Oil, Marathon Oil (NYSE:MRO), Murphy Oil (NYSE:MUR) and Southwestern Energy (NYSE:SWN).
3. Florida Governor Declares Zika Health Emergency — Florida Governor Rick Scott has declared a state of emergency in four counties where people have been diagnosed with the Zika virus. While nine cases of the mosquito-borne illness have been detected in the state, health officials believe all of the viruses were contracted while traveling to affected countries. The disease, for which there is no vaccine and no specific cure, has been linked to a recent surge of birth defects in Brazil.
4. American Association of Individual Investors (AAII) Bullish Sentiment Declined — according to the weekly sentiment survey from the American Association of Individual Investors (AAII), bullish sentiment declined from 29.75% down to 27.55%. That makes 48 weeks out of 48 where bullish sentiment has been below 40%. Even as bullish sentiment declined, bearish sentiment also declined falling from 39.96% down to 34.72%.

The week ahead — Economic data from Econoday.com:

“When a falling stock becomes a screaming buy because it cannot conceivably drop further, try to buy it thirty percent lower.” – Al Rizzo

1. Energy Sector Debt Review Loom — Moody’s put ratings of 175 energy and mining companies on review for downgrade. Overall, 120 companies in the oil sector and 55 companies in the mining sector are on negative watch. Any credit downgrades may worsen its liquidity crunch among energy companies, which have had to rely more on bank loans as oil revenue dries up.
2. China Stocks Finish At More Than Year Low — China’s volatile shares tumbled last week, taking losses this month to about 25% or 13T yuan ($2T), while state media insisted that the market ructions did not reflect the real economy. The People’s Bank of China also auctioned 340B yuan ($51.7B) of reverse-repurchase agreements during the session, after offering a record 440B yuan two days earlier. Policy makers are hoping to prevent a cash crunch before the week-long Lunar New Year holiday.
3. FOMC Meeting Recap — the Fed kept interest rates unchanged and said it was “closely monitoring” global economic developments, signaling it had accounted for a stock market selloff but was not ready to abandon a plan to tighten monetary policy this year.
4. Obama Calls for Rapid Zika Research — President Obama is calling for the rapid development of tests, vaccines and treatments to fight the mosquito-transmitted Zika virus, which has been linked to brain damage in thousands of Brazilian babies. American health officials are eager to step up efforts studying the link between Zika infections and birth defects, citing a recent study estimating the virus could reach regions where 60% of the U.S. population lives.
5. Bank of Japan (BOJ) Adopts Unprecedented Negative Interest Rate — the BOJ said it would adopt a negative interest rate policy for the first time, as a sputtering economy, stubbornly low inflation and turbulent global financial markets threaten to undermine Prime Minister Shinzo Abe’s economic-revival plan. The central bank said it cut the deposit rate it pays on cash parked at the BOJ by commercial banks in excess of legally required reserves, to minus 0.1% from the previous plus 0.1%. The goal was to push down borrowing costs across a broad time spectrum to stimulate inflation.

The week ahead — Economic data from Econoday.com: