This Week in Barrons – 7-12-2015:
“I’ve learned … choosing to ignore the facts – doesn’t CHANGE the facts.”
Thoughts:
Dear Ms. Yellen:
A friend of mine sent me this dialogue - mimicking the old Abbott & Costello ‘Who’s on First’ routine. It seems to hit home – don’t you agree?
Costello: I want to talk about the unemployment rate in America.
Abbott: Good Subject. Terrible Times. It's 5.3%.
Costello: Are there that many people out of work?
Abbott: No, 10.8% are out of work.
Costello: But you just said 5.3%.
Abbott: Yes, 5.3% are unemployed.
Costello: Which means that 5.3% are out of work.
Abbott: No, 10.8% are out of work.
Costello: WAIT A MINUTE. Is it 5.3% or 10.8%?
Abbott: 5.3% are unemployed. 10.8% are out of work.
Costello: But, if you are out of work you are also unemployed - yes?
Abbott: No, Congress said you can not count the ‘Out of Work’ as the unemployed. You have to look for work to be unemployed.
Costello: But they are all: ‘OUT OF WORK’!
Abbott: No, you miss the point. Someone who doesn't look for work can't be counted with those who look for work. It wouldn't be fair.
Costello: Fair to whom – they are all: OUT OF WORK.
Abbott: It wouldn’t be fair to the unemployed who are actively looking for work. If you are out of work but have given up looking, you are no longer considered unemployed.
Costello: And if you are off the unemployment roles – the politicians would count that as reducing unemployment - yes?
Abbott: Absolutely - unemployment would go down.
Costello: So unemployment goes down just because you don't look for work?
Abbott: Yes, that’s how it gets to 5.3%. Otherwise it would be 10.8%.
Costello: Ok, does that mean that there are 2 ways to bring down the unemployment number? One way is for someone to get a job. The second way is for someone to stop looking for a job – yes?
Abbott: Bingo - correct.
Costello: So – is there any way that the unemployment rate can go up?
Abbott: That’s not for this discussion, but NONE that I know of.
Costello: So there are two ways to bring unemployment down, and the easier of the two is to have people just stop looking for work.
Abbott: Now, you're thinking like an Economist.
Costello: I don't even know what the hell I just said!
Abbott: Now, you're thinking like a Politician.
So Ms. Yellen, after 6 years of economic recovery, 6.51 million Americans are still forced to work part-time. Before the recession, you would have to go back all the way to 1993 to find that same number. Employees currently work an average of 33.8 hours a week. In the 1980’s, that number was over 35 hours, and it averaged more than 34 hours in the 1990’s. In retail, the average employee works just 30 hours a week, and an even fewer 25 hours in hotels and restaurants. To quote Joe Brusuelas (chief economist at McGladrey): “The hallmark of this business cycle has been the creation of low-paying jobs in retail, temporary work, hospitality and social services. These sectors have tried to scale back hours because of Obamacare and other regulations that increase the cost of hiring full-time workers.”
I guess what I’m asking Ms. Yellen is:
- Will it take the repealing of Obamacare to get Americans back to work?
- Will that get our 10.8% ‘real’ unemployment number – down to the 5.3% that we are fictitiously being told?
- Or (at minimum) can we stop talking about a 5.3% unemployment number as if that were even a remote reality?
The Market:
I’m more and more convinced that the idea of a FREE market is completely gone. The desire of the FED to put on an illusion of a good economy has:
- Forced interest rates to zero,
- Punished savers (people who don’t like to take risks),
- Beaten down gold and silver,
- Caused corporations to spend trillions to buy back their own stock,
- And this week ‘Turned Off’ the NYSE stock exchange – just when we saw real ‘selling’ hit the market.
China (to keep it’s market going up) has:
- Arrested stock-brokers for ‘shorting’ the market,
- Halted trading on 1,400 Chinese stocks that were falling,
- Announced that their Central Bank would spend $20B of government money to directly purchase stocks, and
- Forbidden any individual(s) or organization(s) owning more than 5% of a company – to SELL any shares in that company for 5 months.
Remember when I talked of China wanting to increase the price of gold – just as soon as its currency was accepted on the world stage? Well, just this week China (as the worlds’ largest producer and one of the largest buyers of gold) announced: “Given that China is the epicenter of the physical gold market, it only makes sense that the physical Shanghai gold market supplant the Comex derivative market (and others) as the primary global price-setting mechanism for gold.” Last month, the Bank of China became the first Chinese bank to join the group of lenders that set the London Bullion Market Association’s gold price benchmark, and two more Chinese banks are working to become members. With China’s huge gold reserves, increasing the price of gold will only help their government’s asset base, and (indirectly) their government’s ability to keep their own stock market rising.
Right now the focus is still on Greece. The only reason that I think a ‘deal’ could happen right now is that Obama left the golf course for a few minutes to call Germany, and express his desire for closure. If they do hammer out a deal, no matter how much it will ‘blow-up’ in the future, the market will probably levitate for a few days. I think a move over 2081 on the S&P (that holds the day) is buyable for a trade. If (however) we come in on Monday and there is NO deal, then all of Friday's gains could go ‘poof’ as they have for weeks now.
Right now, we are still in ‘prop up the market’ mode. How do I know when to bail out, or when to go short? The 17-month moving average is the best signal to use for an overall snapshot of market health. When the market is above its 17-month moving average – you should stay selectively involved. If/when the market loses it’s 17-month average, it is time to take your bat and go home. The 17-month average on the S&P is 2009. On Friday we closed at 2076, so there is still a lot of wiggle room there. An S&P close above 2081 would signal a nice run higher, and worthy of a couple short-term trades. But it is all about Greece right now, and we will hear more on that topic Monday morning.
I know that this is frustrating. We are slaves to the news flow right now, and until that ends, incredible chop is still in the cards. On the short side, if we were to lose 2040 on the S&P – then a move to 2009 would be our next stop, and a move below 2009 would signal a serious correction.
TIPS:
The only element I’m playing is continuing to sell Iron Condors (40 to 90 days out) on the SPX at a delta 14 or less. As long as Greece remains stalled, this market will as well.
I’m currently holding:
- 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,
- RUT – SOLD the August 1140 / 1150 to 1330 / 1340 Iron Condor,
- SPX:
o SOLD – Iron Condor – July4 @ 2010 / 2015 to 2130 / 2135,
o SOLD – Iron Condor – July4 @ 2010 / 2015 to 2145 / 2150,
o SOLD – Iron Condor – July5 @ 1950 / 1955 to 2185 / 2190,
o SOLD – Iron Condor – July5 @ 1970 / 1975 to 2140 / 2145,
o SOLD – Iron Condor – July5 @ 1995 / 2000 to 2150 / 2155,
o SOLD – Iron Condor – Aug1 @ 1935 / 1940 to 2165 / 2170,
o SOLD – Iron Condor – Aug1 @ 1985 / 1990 to 2155 / 2160,
o SOLD – Iron Condor – Aug1 @ 1935 / 1940 to 2145 / 2150,
o SOLD – Iron Condor – Aug2 @ 1920 / 1925 to 2170 / 2175,
o SOLD – Iron Condor – Aug2 @ 1945 / 1950 to 2160 / 2165,
o SOLD – Iron Condor – Aug @ 1885 / 1890 to 2170 / 2175,
o SOLD – Iron Condor – Aug @ 1890 / 1900 to 2170 / 2175,
o SOLD – Iron Condor – Aug4 @ 1895 / 1900 to 2180 / 2185,
o SOLD – Iron Condor – Aug4 @ 1895 / 1900 to 2170 / 2175,
o SOLD – Iron Condor – Sept1 @ 1870 / 1875 to 2175 / 2180,
o SOLD – Iron Condor – Sept2 @ 1850 / 1855 to 2180 / 2185,
o SOLD – Iron Condor – Sept @ 1870 / 1875 to 2215 / 2120,
o SOLD – Iron Condor – Sept4 @ 1795 / 1800 to 2205 / 2210, and
o SOLD – Iron Condor – Oct1 @ 1785 / 1790 to 2210 / 2215.
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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