This Week in Barrons – 2-15-2015:
"Me? I don't have a money problem. Now my creditors, THEY have a money problem" … Willie Nelson
Dear Ms. Yellen:
This picture reminds me of the old adage, "If you owe the bank $1,000, YOU have a problem. If you owe the bank $1 million, THEY have a problem."
Willie Nelson was known to have enormous debts, and one day (when a reporter asked about them) he replied: "Me? I don't have a money problem. Now my creditors, yeah – they have a money problem." Along the same lines, I’m concerned: Does anybody really pay their bills anymore?
For example: The IMF (International Monetary Fund), after being worried about the situation in the Ukraine, has decided to grant them yet ‘another’ bail out loan. Ironically most of the money will go to paying back much of what the Ukraine owes to Russia. But when will the Ukraine ‘ever’ pay back the IMF? Greece is still in talks where they are asking the EU to forgive ALL of their debts. And if the EU does that, who pays back all of Greece’s creditors? The size of the Greek debt is really unimportant. What really matters is WHO they owe the money to. This could be another ‘Lehman’ moment where Greece folds, and the ripples go throughout the banking community and ‘blow up’ (and declare worthless) all of the derivative contracts based upon Greek debts throughout the world.
The more I think about this, it was just last week when the EU told Greece: (a) “We don’t do bridge loans”, and (b) “You have 10 days to tow the line or leave the EU.” So if the EU does offer a 70-year ‘bridge loan’ to Greece, that means that Greece (a country broken beyond repair) will have shown the EU who is boss.
I find that paying your bills goes hand-in-hand with telling the truth. This week the world was notified that Brian Williams (of NBC News) had been placed on an un-paid suspension for 6 months – for various ‘non-truthful’ indiscretions. The ties between politics and media have become so convoluted that it’s virtually impossible not to touch on a ‘conflict of interest’ wherever you step: For example:
- Elizabeth Sherwood is the White House Special Advisor. Ben Sherwood (the President of ABC) just happens to be Elizabeth’s brother.
- Hillary Clinton’s Deputy Secretary was Tom Nides. Virginia Mosely (the President of CNN) is Tom’s wife.
- Susan Rice is the National Security Advisor. Cameron Rice (the Executive Producer of ABC News) is Susan’s husband.
- And Ben Rhodes is the White House Security Advisor for Strategic communications. David Rhodes (the President of CBS) is Ben’s brother.
I’ll stop here, because with these types of connections, dependencies and implications – it’s impossible for any news anchor (Brian Williams included) to deliver you the truth 100% of the time.
Ms. Yellen, with you being a staunch Keynesian (along with the entire Federal Reserve Board of Governors) I realize you view deflation as the greatest threat to our economy. In fact, your current policies are focused on creating a 2 to 2.5% ‘inflationary’ environment. You must be frustrated by having to continue: (a) a Zero Interest Rate Policy (ZIRP), (b) buying treasuries and mortgage backed securities, (c) watching the dollar move higher, (d) view our ever-widening trade gap, (e) see our capital inflows weaken, and (f) watch our Consumer Price Index (CPI) contract. The consumer weapons used to fight inflation are ‘credit’ related; however, the consumer weapons used to fight deflation are ‘cash’ related. As every nation continues to ‘pass-the-buck’ to every other nation, I’m curious – when are you going to press the ‘re-set’ button? The reason I asked is that the next time I hear Willie sing: “If you’ve got the money, I’ve got the time” I’d like to know that somebody actually had the money to ‘pay their bill’ and that anybody is consistently telling me the truth.
This market is moving based upon three elements: (a) the price of oil, (b) the strength of the U.S. dollar, and (c) the availability of ‘easy’ money. Historically, no bull market ends without a ‘speculative’ phase. If 2014 was the bull market that everyone loved to hate, then 2015 will be the ‘speculative’ phase that precedes the ending of the bull market. This next phase could be very powerful and easily take us from 4,400 to 6,000 on the NASDAQ. Some signs that I’m seeing for that are: (a) Bonds (TLT) are quickly falling, (b) the U.S. dollar is going sideways to higher, (c) the Yen broke support and is falling, (d) Oil prices are stabilizing and remaining low, and (e) Gold prices are falling.
- U.S. Initial jobless claims jumped to over 300k. Why are 304K people on the ‘first time’ unemployment line – if jobs are so plentiful?
- Retail sales FELL 0.8%. Evidently all the money people are saving on gasoline isn't making it into the stores.
- The Baltic Dry Index (the main ‘shipping’ measure) has hit record lows.
- Home mortgage applications fell 9%.
- Russia was given permission by Cyprus to open a military base a mere 40 miles away from an existing NATO base.
- Russia (after signing the world’s largest energy deal with China) is now talking with Turkey and Egypt to trade in ‘home currencies’, not U.S. dollars.
- Germany came out publically against the U.S. saying: "We are NOT on board with sending arms to Ukraine, because arming them will NOT create peace".
- Marine LePen (the leader of the third largest political party in France) came out and said: “As for the Ukraine, we should not behave like our American lackeys. The aim of the Americans is to start a war in Europe by pushing NATO to the Russian border.”
Last week the S&P made a new high, with the DOW only a handful of points away from that lofty goal. There is a possibility that the S&P breakout won't hold; however, the smart money is with the DOW making it over its old highs. If the DOW manages to get up and over the December highs, that means the Russell 2000 index (IWM), the S&P and the DOW will all be at new highs with NO overhead resistances. That could indeed cause a short squeeze, and the markets would move considerably higher in a short period of time.
So watch for the DOW to close over 18,053. If that happens, then anyone who was shorting that upper resistance area will get scared and buy into this market in a heartbeat – sending things even higher. But, a single day of all-time highs does not a trend make. So we need to consider that the S&P could be showing us a false breakout, and certainly any bad news out of the Ukraine or Greece could drop us like a rock. After all, the world right now is a powder keg, and matches are lying around everywhere.
Google, Twitter, and some of the stocks that previously held the markets back are beginning to ramp-up fairly aggressively. TLT (the bond indicator) is experiencing some serious selling, and has broken below its 55-day moving average. I’m looking for TLT to stabilize, but the fact that TLT came down so aggressively is adding more fuel to this stock market rally.
Below is a chart of the ‘technicals’ for the up-coming week:
A couple thoughts for next week:
- FedEx (FDX) to the long side – ahead of earnings,
- Winnebago (WGO) and Nike (NKE) = looking to get long,
- Procter & Gamble (PG) has gotten crushed with the strength of the dollar – looking at selling a Put Credit Spread.
- Apple (AAPL) is a little extended, and selling a weekly Call Credit Spread seems like the right move.
- Gilead (GILD) is on the move again – and could be a great long candidate.
- Styker (STK) along with Merck (MRK) are also looking good to the upside.
I’m still selling into this market volatility, and don’t be surprised if we see a pull back early in the week – prior to monthly options expiration this Friday:
- TWTR – FEB – BUY the +46/-50 Call Debit Spread,
- JPM – FEB – SOLD the +58/-60 to -60/+62 Iron Condor – looking for a pin around $60 this week and therefore also BUY the FEB +58 / -60 / +62 Butterfly,
- NFLX – FEB – SOLD the +450 / -455 Put Credit Spread,
- AAPL – FEB – BUY the +128 / -130 / +132 Butterfly – looking for a pin around $130 this week,
- RUT – MAR – SELL the +1040/-1050 to -1270/+1280 Iron Condor,
- RUT – MAR – BUY the +1130 / -1200 / +1260 Call Butterfly,
- SPX – FEB – SELL the +1870 / -1875 to -2110 / +2115 Iron Condor
To follow me on Twitter.com and on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm.
Please be safe out there!
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