This Week in Barrons – 3-31-2013
“He that has ears to hear, let him hear” … Matthew 11:16
By now, many of us are all too familiar with Cyprus. Because of all the bad debts, the Cyprus banking system has folded up like a ‘cheap suit’. They needed ‘bail out’ funds, in order to pay their ‘criminal banksters’ that made the mistake(s) in the first place. As a result, any and all accounts at the Bank of Cyprus with deposits of more than the insured 100,000 euros ($128,225) will lose 37.5% of their value after they are converted into a class of bank shares. The Bank of Cyprus will freeze another 22.5% in each of these same accounts until the Cyprus’s bailout terms have been met. The money will be placed in a fund that won't earn interest, and it could see an even larger write-off. The remaining 40% will earn interest but the money will be temporarily frozen for liquidity purposes. Cyprus’s Finance Minister Michalis Sarris this week estimated that 40% of the deposits would be converted to bank shares.
This is truly a shock to the system. We TRUST all of our systems. Our systems have become so much a part of our lives that we don't even give them a second thought. When you turn on a faucet you believe that water will come out of it 100% of the time. When you flick the switch or push the ‘on’ button you expect electricity. When you turn the knob on your gas range, you expect fire. If any one of those systems misfires, your day is going to drastically change course. We’ve built that same trust in our banking system. We don’t think twice about it, but unfortunately it hasn’t worked properly for the past 35 years. In the last 10 years our own ‘banksters’ have broken every law and have virtually bankrupt the world. Our ‘banksters’ approved mortgages for dead people, and mortgages for people that couldn't pay. They then bundled those same mortgages, called them "prime" investments, and sold them to companies, pension funds, and other countries. Meanwhile those same banks (because they knew they weren't worth anything) shorted those very investments. Can you imagine the audacity? You’re sitting with a client who runs a pension fund for firemen, and you sell him millions of dollars worth of trash, telling him that it’s a safe and sound investment. All the while your boss is writing up short sale contracts on those same investments, knowing that they’re not worth the paper that they’re printed on.
In the case of Cyprus, their ‘banksters’ placed huge bets on Greek debt, and the bets went sour. The Cyprus banks became insolvent. The EU rushed in with funds, ideas, and more ways to kick the can down the road. Cyprus is a tiny island country of 1,000 people that produces less than the state of Vermont, but is a banking HUB because it is willing to accept money from all corners of the globe – taxing it a little, and using it a lot. But the Cyprus banksters have run out of ways to get others to pay for their crimes. Well, it took a while but they did what I said every bank would ultimately do – ‘Raid the Depositors.’ But we built this system based upon TRUST. The EU has just thrown TRUST out the window, and replaced it with the words: “Contribute to our own Liquidity.” The EU is calling the act of raiding depositor’s money – a "contribution" to the welfare of Cyprus.
Now, if you're John Q. Public in Spain, and you just saw the EU approve Cyprus’s raiding of depositor’s money, what would you do? Here in the US we have the FDIC (which is bankrupt) supporting our deposits up to $250,000 (in any one bank). Is everything over $250k fair game now? Are we sure that Citi or Goldman won't raid our accounts like Cyprus has done?
In my class at CMU on Thursday someone asked me: “How can it be that half of our graduating seniors don’t have jobs yet, but our stock market is reaching all time highs?” During this past week we saw consumer confidence fall, the Purchasing Manager’s Index fall, housing sales fall, and more than 6 economic reports miss expectations. We can’t make a real housing recovery, can't create jobs, can't spur economic growth, but we can push the market higher and create the wealth effect.
Recently the BRICS (Brazil, Russia, India, China, and South Africa) just created a $100B infrastructure bank that will be used to help developing countries that run into trouble. They also decided that trade between their nations would be conducted in their native currency, NOT in the US dollar.
In the past two weeks my best friends and I have attended two ‘hack-n-slash’ movies about destroying the U.S. White House and our economy. I’m desperately hoping that life does NOT imitate art. I wish you all a Happy Easter and to quote Matthew 11:16 - “He that has ears to hear, let him hear.”
Like the “Little Engine that Could", this week The Ben Bernanke chugged, snorted and pulled this market to all time highs. Now what? While Europe melts, and our Central banks amass huge quantities of Gold (while keeping a lid on the price) – what happens now? As long as the printing presses keep printing, we have no other choice but to see higher markets. Combined with what is going on in the rest of the world, the US market looks good to foreigners; therefore, any dips will be bought.
But let’s do a reality check and examine the company - Caterpillar. CAT is the epitome of global construction. They're bigger (by market cap) than all of their competitors combined. If someone is going to build something of any consequence, Caterpillar products will be involved. Yet while the S&P and DOW push their way to all time highs, CAT is dropping in price. That says volumes about the reality of the global economic picture.
But given they’re printing so much money, how does the FED prevent the market gaining 1,000 points in one day? The answer is that the FED sends out mixed messages as to when the money printing will stop. On the same day as one FED member says: “The economy can use more monetary assistance from the FED, we need to be more aggressive,” you have another FED member saying: “I would regard a slowing in the pace of asset purchases to be a welcome direction for monetary policy, if it resulted from a significant improvement in the outlook for labor market conditions.” The goal here is to tell everyone not to worry, the punch bowl will be full for years to come, and then temper it with another message saying they might pull the punch sooner than later. That keeps the market moving up while he's printing, but keeps the really big players from putting in tens of billions at one time, and driving the market up too far too fast.
We have no choice but to hold our nose, lean long and hope for the best. Yes, watching CAT tumble makes me think that maybe we're about to see a correction, a profit-taking binge, but (in my opinion) it will be short-circuited and this dip is buyable. The "new monthly money" will be applied early this coming week, and if we're going to get a pull back, it will be over the next few weeks as earnings disappoint. Be careful out there – and celebrate the holiday!
Last week I sold SNDK for a $2/share profit, and am sitting with three (non metal) positions. For next week, I’m liking RF Micro Devices (RFMD) over $5.45, Vale S.A. (VALE) over $17.35, and Intuit (INTU) over $66.
My current short-term holds are performing nicely (with gold and silver still lagging):
- COST – in at 104.10 (currently 106.08) – stop at 105.10,
- NUAN – in 19.10 (currently 20.12) – stop at entry,
- SNDK – in at 52.19 (currently 54.99) – stop at 54.50,
- SIL – in at 24.51 (currently 18.15) – no stop yet
- GLD (ETF for Gold) – in at 158.28, (currently 154.50) – no stop ($1,594.80 per physical ounce), AND
- SLV (ETF for Silver) – in at 28.3 (currently 27.26) – no stop ($28.29 per physical ounce).
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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Until next week – be safe.