This Week in Barrons – 6-28-2015:
Grexit
is no Graccident
Thoughts:
Dear Ms. Yellen:
This week our Supreme
Court validated same sex marriage, and our President did an ‘end run’ in order
to get his TTP trade agreement approved.
But let’s discuss the mentality of refusing to pay what you owe – when
you owe it, and then blaming your inability to pay on the lender. Maybe in 2007-2008 when that Wal-Mart worker
was buying the $5M house for $500 a month – you had a case of the banks not
disclosing the finer points of the deal.
But in the case of Greece, we are talking about an entire nation of
educated individuals, which signed agreements for billions of euros, and are
now attempting to blame someone else (IMF & EU) for their own inability to repay
their own debts. If this works,
shouldn’t college graduates try this as a way of NOT repaying their student
loans?
As any politician, Alexis Tsipras (the Greek Prime Minister) would
like to remain in power. His best chance
of doing so may be to let Greece leave the EU.
As of Saturday evening, there was a ‘no deal’ scenario on the table. This will (most likely) lead to a ‘bank
holiday’ on Monday. Following the ‘bank
holiday’, Greece will then institute capital controls – putting restrictions on
how much of ‘your own money’ you can withdraw from your bank. Ms. Yellen – we all need to watch this very
closely because (as we all know) the U.S. is also ‘broke’.
In an interesting negotiating ploy, PM Tsipras (just hours
before the final round of negotiations) took everyone by surprise by calling for
a national referendum/vote by the Greek people on austerity. “We did not have the mandate without
consulting the Greek people,” said the Greek Finance Minister. “For a decision like this, we believe that
50+1% is needed.”
But this Grexit is NO Graccident. With just four days left to reach a deal (after
months of failed talks and no resolution in sight), it looks like the time has
come for Greece to pull the plug. Many
of Tsipras’ radical left coalition want to retake control of Greek’s monetary
policy; however, a majority of Greek citizens disagree because they know that
leaving the euro would destroy their savings, give them less spending power,
and distance them from the rest of Europe.
Even if Tsipras had agreed to a deal with creditors, getting
the measures through his own parliament would have been virtually impossible
without the opposition being on board.
And going that route would have triggered new elections – costing him
power and ultimately his job. By calling
for a ‘democratic’ referendum, Tsipras is attempting to shift the blame onto
the backs of the ‘evil’ creditors.
Tsipras knows that the vast majority of Greeks oppose the creditor’s memorandum,
because (in return for bailout money) it would force them to accept deep
spending cuts and pension reforms. By
Tsipras pushing the vote on the referendum to July 5, it means that the referendum
is pointless. By July 5th, Greece
will likely have defaulted on an IMF loan and the ECB will have cut off liquidity
to Greek banks – leaving them vulnerable to collapse. Put simply, Greece is on its way out of the
Eurozone. PM Tsipras can claim it was
all Europe’s fault for not letting the Greeks decide, when in fact, by calling for
the referendum AFTER the payment due date – he made the decision for them.
I appreciate that this negotiating
ploy allows Tsipras to keep his job. But
it will also cause an exit of many wealthy Greeks from their home country, and
will relegate Greece to ‘3rd world status’ for some time to
come. The IMF and the EU trusted Greece
to pay them back. How is Greece (or
businesses within Greece) ever going to borrow non-collateralized funds again? Why would anyone lend money to someone if one
of the requirements for repayment was the DESIRE to pay you back? I don’t know anyone who ever WANTED to repay
a loan. That’s the reason loans are
referred to as ‘obligations’ and why they are listed in the ‘liabilities’ column
of your personal / corporate balance sheet.
I’m sure if I asked every college graduate whether they WANTED to repay
their student loans – I would receive a resounding NO. I’m sure if I asked anyone with a credit card
bill whether they WANTED to pay that bill – I would receive another resounding
NO. How many loan agreements have ever
been written saying that you don’t have to repay the loan if you don’t FEEL
like it?
Greece, how does the WANT
to repay the loan ever come into the repayment decision? PM Tsipras your last-minute negotiating
strategy was no Graccident, and it may have saved your current job – but you’re
going to have to pull a rabbit out of a hat to get your next one. A country is only as good as the money it can
borrow, and right now Greece – I do not WANT to lend you a dime.
The Market:
Consider
this:
Every day the sun
blankets the earth with enough solar energy to power every home on the entire
planet for about 2,000 years. The earth
receives about 8.2 million ‘quads’ of BTU energy per year from the sun. The human race currently uses about 400 quads
of energy per year. Therefore, solar energy hitting the earth exceeds the total
energy consumed by a factor of 20,000.
This week I had the
sincere privilege of escorting Hyliion (http://hyliion.com
- a small company in the energy space) down to Washington, D.C. to ‘show-off’
it’s energy saving technology. 7 years
ago I predicted that the only way out of our current financial mess was to
return to ‘cheap energy’. That path
seems to be working. But along with enhancing
the supply, we are going to have to simultaneously reduce demand. And that’s where companies like Hyliion and
solar come into play. The key to any of
these newer technologies is the energy storage system that is being used, and
most often that is ‘the battery’. Unfortunately
batteries: (a) are expensive, (b) are heavy, and (c) they wear out. Storage is the key and watch for that
technology to change quickly over the coming years. Biosolar is a newcomer to the battery space
and claims that it could power a Tesla (auto) 2 times further, for one-fourth the
price, and recharge faster. People are
beginning to pay attention to the battery/storage problem, and that means that
the solution is no longer an ‘if’ but rather a ‘when’.
Gretigue, is the buzzword
that Wall Street coined over the endless fatigue over the ‘Greece is saved’ vs
‘Greece is doomed’ headlines that we experience every day. And now with the Greek referendum, this thing
may just never end.
This week the S&P’s
closed at 2101, and Carl Icahn told CNBC that this market is ‘very overpriced’.
When the big guys start saying things that
go against the main stream ‘keep the faith’ routine, it means that they are
covering their butts. Carl doesn’t want
to catch hell from the public when the market rolls over, and he was caught
saying ‘buy stock’. This way he can
still invest, and if there is a serious correction he gets to say: ‘Told ya
so’. And of course the market is
overpriced. You mix lower earnings, with
QE, and toss in corporate stock buybacks and you get an overpriced market. Understand that the corporate buybacks are
being implemented using borrowed funds – so there is nothing ‘cheap’ about this
market. I constantly wonder how healthy
most of these companies are having $50M in cash, and $500M in debt.
We remain in a range bound
trading bracket, with 2125 being the top of the S&P range, and about 2075
at the bottom. When a market is locked
in a sideways channel, often it can get tossed around inside that channel by virtually
anything. One earnings report can send
you up 100 DOW points, and one scare about rate hikes can send you down another
100. The days are completely dominated
by rumors mixed with a little bit of news.
This range
will break when it breaks, and until then we don’t have much choice but to
splash around inside it. I think it’s
safe to say we’ll remain range bound for at least the next two weeks. This coming week is shortened for Independence
Day, and the July 4th trading week is routinely the slowest week of the entire
year. The July implied volatilities have
already been reduced, and will only continue to fall as we move along.
We could
conceivably remain range bound for a few more months. I think things will get more interesting at
the end of this week – when we have the June jobs numbers to analyze. We will then dive straight into earnings
season starting with Alcoa on July 8th. And we will finish up July with another FOMC
meeting on July 29th. So
although on the surface things appear calm, underwater there is a tremendous
storm brewing.
TIPS:
I’m watching:
-
LL (Lumber
Liquidators) for a new Iron Condor,
-
HUM (Humana),
AET (Aetna), UNH (United Health), Cigna and XLV are all poised ‘technically’ to
move higher, and
- I continue to sell Iron Condors (40 to 90 days out) on
the SPX around the 2100 level.
I’m currently holding:
-
AGU (Agrium) –
SOLD the July 97.5 / 100 Put Credit Spread,
-
DPZ (Domino’s
Pizza) – SOLD the July Iron Condor 95 / 100 to 125 / 130,
-
IWM – SOLD the
August 112 / 114 to 132 / 134 Iron Condor,
-
KR (Kroger) –
SOLD a July 70 / 72.5 Put Credit Spread,
-
RH (Restoration
Hardware) – BOUGHT a July / August $95 Calendar,
-
RUT – SOLD the
August 1140 / 1150 to 1330 / 1340 Iron Condor,
o BOUGHT the July 1180 / 1250 / 1310 Butterfly
- SPX:
o SOLD – Iron Condor – July @ 1990 / 1995 to 2180 / 2185,
o SOLD – Iron Condor – July4 @ 1860 / 1870 to 2235 /
2245,
o SOLD – Iron Condor – July4 @ 1940 / 1945 to 2175 /
2180,
o SOLD – Iron Condor – July4 @ 1955 / 1960 to 2185 /
2190,
o SOLD – Iron Condor – July4 @ 1955 / 1960 to 2175 /
2180,
o SOLD – Iron Condor – July5 @ 1870 / 1880 to 2230 /
2240,
o SOLD – Iron Condor – July5 @ 1925 / 1930 to 2195 /
2200,
o SOLD – Iron Condor – July5 @ 1935 / 1940 to 2195 /
2200,
o SOLD – Iron Condor – July5 @ 1925 / 1930 to 2185 /
2190,
o SOLD – Iron Condor – Aug1 @ 1935 / 1940 to 2225 /
2230,
o SOLD – Iron Condor – Aug2 @ 1920 / 1925 to 2230 /
2235,
o SOLD – Iron Condor – Aug @ 1840 / 1850 to 2250 /
2260,
o SOLD – Iron Condor – Aug @ 1885 / 1890 to 2180 /
2185,
o SOLD – Iron Condor – Aug4 @ 1895 / 1900 to 2195 /
2200,
o SOLD – Iron Condor – Aug4 @ 1895 / 1900 to 2240 /
2245,
o SOLD – Iron Condor – Sept1 @ 1880 / 1885 to 2215 /
2220.
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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