Barons: 3-11-12:
It’s Official - Greece Defaults!
The big news on Friday afternoon was that the ISDA declared Greece's bond payment structure a "credit event" which will indeed trigger Credit Default Swaps – which will then trigger (for the first time in a long time) a sovereign nation (Greece) that has finally declared itself in default (basically bankrupt!) Now, (1) How bad is this for the overall global financial picture, and (2) How bad is this concerning our stock market?
Let’s take a step back a minute. The two main reasons for the unification of Europe were: (1) If the nations could stop ‘fighting’ between each other, they would make for a powerful, centralized economic force. And (2) this model could then be used for a "One World Government Model" - that the socialist elites have been dreaming about for decades. But it was doomed from the start. Remember Greece could not get into the EU due to their Debt to GDP ratio. They enlisted the help of the most corrupt and sinister banksters on the planet (Goldman Sachs) – who proceeded to hide transactions, rename loans as assets, and did virtually anything (for a fee) to get Greece into the EU. But what Goldman couldn’t do is change the Club Med attitude of the Greeks, and then explain to the Germans (who out-produce the entire bloc) how both citizen groups get equal benefits from the EU! But Greece joined the EU and then “the big
event” hit – namely the Housing Bubble. The Housing Bubble was not a US invention. Spain, Portugal, Ireland and Greece were seeing housing prices increase by 40% per year. Why – because Central Banks the world over wanted growth. They opened the money spigots and relaxed the rules. Fake ratings and robo signings were not just a US behavior, it was global. So you have a group of countries cobbled together under fraud and corruption, include a global housing bubble, and when that bubble finally met its pin – down goes everything.
Now – how bad is this for the global financial picture. Well, the single best thing that Europe could do is to take the medicine, dissolve the union, go back to sovereign states and let the defaults happen. An example of this is Iceland taking its medicine 3 years ago, putting the crooks-banksters in JAIL, and Iceland just received another credit UPGRADE. But the US won't do that, and Europe certainly won't do that. So watch out for news from Spain, Portugal and Ireland. And with China sending more goods to Europe than the US, the global economy will indeed suffer. With Europe in recession, and its members going belly up, trade will be reduced. FYI, we just saw Brazil lower interest rates to try and keep their economy humming after demand for resources slowed. The world will suffer the effects of austerity. At some point it will become something of a downward spiral. Central Banks the world over will cut rates, and "expand their balance sheets" (print money) which will distort things even more. But as an "overall" it’s worthy to note that the world will be slowing.
And what effect is Greece going to have on our markets? Well, our economy is built on stimulus, fake interest rates, bailouts, and false economic reports. Some US banks will have exposure to the very Credit Default Swaps (CDS's) that the ISDA said must be paid. But even if our US institutions are effected, The Ben Bernanke will simply wink and nod, give the institution money, and give
the CEO a $40 million dollar bonus.
Just know that the market is going up for one reason – there are more buyers than sellers. And when the buyer is your own government with printed money – well that’s (to quote Terry Bradshaw): “Tough to beat!” This is the Obama election market, and if you happen to be a Democrat with a big liking for your socialist king, you’re in luck!
The Market:
We have been flirting with DOW 13K and the S&P 1371 for two weeks. There have been several attempts to get up and over it, but it wouldn't stick. I’ve been looking at a host of indicators from yearly cycles, to turn dates, to stochastics and they are all pointing to a market pull-down. On Tuesday we had a 90% down day causing the DOW to lose some 200+ points. But on Wednesday and Thursday they came in to drive us up some 80 points per day. Friday, despite the Greek news, they held us positive for the close, but the S&P ended at 1370 and the DOW ended at 12,922! Both of these are still slightly below the 1371 and 13k breakout levels. It’s absolutely possible that the Greek news will push the market into the correction we need. FYI - has anyone noticed the tidal wave of insider selling that we are seeing lately? I have a feeling that they will use the Greek default as the "excuse" for the market to backpedal.
But all that said, if the DOW gets over 13K, the S&P gets over 1371 and holds for a few days, chances are good the printing presses are running red hot and we're just going to ignore Greece and continue higher.
Now let’s talk briefly about the Employment Report that came out on Friday. It showed that we gained 227k jobs (vs the 206k that were expected) and the unemployment rate remained at 8.3%! Now, Obama can’t point to housing – so he’s going to try and point to jobs. Factually, if you take out the Birth/Death "adjustment" we only gained 135k jobs. But we remain mired in the longest jobs recession since the Great Depression. It's been 49 months since the US hit peak employment in January 2008. And with nonfarm payrolls still 5.33M below their old high, the jobs slump will continue for several more years. The previous jobs recession record was 47 months, and it came when the unemployment rate had only climbed to 6.3%. The real ‘rub’ comes from the Gallop report that was released. According to Gallup measurements, the unemployment rate rose to 9.1% in February from 8.6% previously (without seasonal adjustments), while
underemployment (combining unemployed with those working part-time but wanting full-time work) rose to 19.1%. Their assessment: "Regardless of what the government reports, (these) measures show a substantial deterioration since mid-January."
Now we all need to realize that in the long run, we're going to have another big stock market crash. It will resemble the crash from the Dot Coms in 2000, and the Housing Bubble crash. This "Printing Bubble" will burst, and when it does it's going to be a doozy – with the DOW ending below 6k. We might see a correction of 5 to 10% due to Greece start this week, but I think this correction will come back and the market will run higher into the election. But sometime between November and March 2013, I expect a long, protracted bear
market to hit that will erase all the gains that we've made. If we get a nice pull down here I’d be a buyer. If we don't (and we just keep
inching up), I'll continue to nibble around the edges and take it as it comes, but you won't find me "holding and hoping".
Tips:
On Friday morning we put out (via Twitter) a couple stocks that I was looking to buy. ANF was at 49.50 and I said that I like it if it could break over 50. I never put out a play that's already “in the area". Each play that I recommend is at a price that it has yet to attain. We entered it into our trading platform, and we automatically purchased shares as it crossed 50. Currently it’s up 1.04 per share. We won’t hold it below the entry price, and we will continue to increase the stops – just in case we get another 200 point down day as we did on Tuesday.
We were shaken out of most of our positions last week mostly due to the 200-point pullback. We kept our stops in place, and therefore captured the gains that we already had.
We’re currently holding:
- ANF – in at 50 (currently 51.04) – stop at entry,
- SLW – in at 34.80 (currently 35.85) – stop at entry,
- GLD (ETF for Gold) – in at 159.49, (currently 166.40) – no stop, AND
- SLV (ETF for Silver) – in at 28 (currently 33.25) – no stop.
To follow me on Twitter and get my daily thoughts and trades – my handle is: taylorpamm.
Please be safe out there!
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