This Week in Barrons – 4-19-2015:
Dear Ms. Yellen:
I’m sensing a global uneasiness.
- Last week, Greece went to the IMF to ask for a delay in their payment schedule and was immediately denied.
- Big banks like Goldman and Citi beat their earnings estimates, but on lowered revenues.
- Fundamental economic reports such as: initial jobless claims, housing starts, and the Empire new orders index have been terrible.
- Data out of China reflects a marked economic slowdown.
- And Obama is pushing a new retirement program.
With all of this severe economic discontinuity, what do you do with your money? Do you just leave it in the system and pray nothing happens, or do you take it out? And if you take it out, what do you do with it? Personally, I'm not a big fan of 401k's because of their outrageous management fees, and their stock portion is often NOT covered by any FDIC insurance. I personally advise people to contribute enough money to get the employer match, and (since a ‘money market account’ is considered a deposit account) use the ‘money market’ option in the 401k instead of the ‘stock option’ for the time being.
In difficult times, I suggest that everyone attempt to pay off his or her own home mortgage. For example: if you have 200k in your 401k, and the balance on your mortgage was 170k – I would pay off the mortgage and free myself from the bank. First, most mortgages are ‘demand notes’, which the bank could call in at any time. Second, most people’s ability to pay off their mortgage depends upon their having reliable employment, which often comes into question in tough times. And thirdly, if things really get ugly, there is a real chance that our government could ‘temporarily’ confiscate our 401k’s. There is virtually no chance that our government would confiscate our real estate as a result of any economic or financial collapse. Putting this all together, I would rather pay off my mortgage when I could – rather than when I had to.
Ms. Yellen, our entire economic system is built on trust. I trust that when I put $5,000 into the bank – that I can get $5,000 out of the bank. I trust that when I send money to my 401K – that it is always going to be there. In a perfect ‘Leave It to Beaver’ world, that would be true. But what happens if we enter a greedy, evil world where fraud, theft and scams are prevalent? I never want to get to a place where I truly believed such institutions as our bank deposits or stock holdings could be taken from us, but I think we're pretty close to that right now. And, I think we all need to ponder the reality.
Last week market regulators in China announced two things: One, they are going to get tougher about people using the shadow banking system to finance stock purchases. And two, the programs used to ‘short’ Chinese stocks were expanded to allow more stocks to be ‘short-able’.
Last Thursday evening, China announced some of the worst economic numbers in about 6 years. China is such an important importer and exporter, that if their economy is slowing – everyone will pay the price. But potentially the worst news of all was that all of the Bloomberg terminals around the globe went ‘dark’ early Friday morning. Allow me to explain. If you are a money institution, you probably use the ‘Bloomberg’ trading platform – which connects you to the world via news, messages, and trades. The platform costs approximately $20k per platform per year, and there are thousands of them in use around the world. All of those platforms ‘went down’ early Friday morning and caused immediate worry by all of the institutional traders.
So between the lousy numbers out of China and the Bloomberg glitch, the market was in sad shape on Friday. Adding insult to injury, there is mounting evidence that Greece is about to default, and could be forced to ‘leave the Eurozone’. So Friday was a complete washout with the DOW down (at times) over 300 points, and the S&P under its 50-day moving average. I thought that the market would struggle with its all-time highs, but not fall for 350 points. I didn’t see that one coming.
So, does that mean that we are in correction mode? It could be. But remember: (a) It's April – and April is historically a good month for the market, and (b) for the past 6 years, buyers have come in and ‘bought the dip’ each time this market has been hit really hard.
If I come in on Monday and there is no stabilization, and we continue to fall – the next stop would be around S&P 2060, then down to 2040. If we lose S&P 2040, we could be looking at the beginning of the first ugly correction in over 6 years.
This market has come one heck of a long way over the last 6 years. The bull is tired, and all of the manipulations and QE's have run their course. This is a desperate time for the market, especially with some of the things we see coming later in the year concerning China and the IMF. Therefore, if the market continues to bleed this week and touches 2040, it could time to start selling. If (however) the S&P bounces back above 2084 on Monday (it’s 50-day moving average) – we could quickly forget Friday's plunge. It is nothing short of ‘interesting’ out there.
The following chart is showing the technical indicators favoring an upward movement in the S&P and DOW this coming week.
Currently looking at:
- S&P (SPY), NASDAQ (QQQ), and Russell (IWM) shorts and puts
I’m currently holding:
- GLD – BOUGHT MAY Call Debit Spread: +112 / -120,
- NUGT – BOUGHT MAY Calls: +10, and
- ORCL – BOUGHT MAY / JUNE Call Calendar: $45
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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Until next week – be safe.