This Week in Barrons – 7-5-2015:
Dear Ms. Yellen:
Let’s jump over the part of how Greece finds itself in their current situation. Suffice it to say after effectively bailing out German and French banks back in 2010, Greece ended up with an un-repayable debt load – forever placing it into bone crushing austerity without any possibility of devaluation relief.
But what has become increasingly apparent to me over the past week is the madness associated with placing your entire life into the hands of someone else. The banks in Greece have been closed for a week. Citizens have been constantly lined up for over 3 blocks to withdraw their daily allotment of $67. They have reverted to the ‘barter system’ because it is now ‘Against the Law’ to transfer your OWN MONEY out of a Greek bank into a more secure location.
How is the U.S. that much different from Greece? The U.S. is broke – just like Greece. Our banks are insolvent – just like Greece. Our social programs are underwater – just like Greece. We have only been able to cover this up because we are the global reserve currency, and therefore, we get to print money out of thin air.
But what if you turned on your TV one day and the President was telling you that because of a ‘cyber attack’, all of the banks would be closed for a week. You could still withdraw $60 a day from an ATM machine. You couldn’t wire money, and your credit cards would not work. This is where being ‘trapped in the system’ drives me nuts. Most people carry less than $40 in their pocket, and have no rainy day ‘cash’ hidden in their home. We are a debit and credit card society. My greatest fear is the system going dark. The average U.S. citizen is so completely dependent on the grid, that going without it for just one week would be a life-changing event. Our entire lives are built upon ‘trusting’ that the grid will not fail.
If the ‘powers that be’ wanted to make our lives even more challenging, all they would have to do is shut down our debit and credit cards. How would anyone get cash? Would employers pay in cash? I doubt it. Would companies accept ‘cash’ to settle a transaction? Currently, if you take too much cash out of the bank too many times, you are listed on the U.S. ‘suspicious activity' list – which allows the Fed’s to seize your money for ‘structuring’ withdrawals.
We can argue all day about whether Greece is a problem to the global financial system. We can debate the IMF/ECB Eurozone austerity programs. But the facts are, those poor Greek citizens (who were not part of any government or banking madness), are standing in line to get THEIR OWN money out of a bank that will ONLY let them take the amount they say – when they say to take it.
If that doesn't scare the hell out of you, I guess nothing will. So what do you do about it now? For starters, you could go to your bank and start taking out some cash. Make it a point to have at least $2,000 in cash hidden in your home. Secondly, if you have direct deposit for your paycheck, you could STOP it. Instead, take the physical paycheck to the bank each week, fill out the deposit slip, and take between 5-10% out in cash.
Step one in being prepared for an emergency is having cash on hand. Let this Greece thing be the ‘Ah-Hah moment’ for you. If it can happen there, it can happen anywhere there's a broke economy and guess what – you live in one.
In a perfect example of how crazy things have gotten, a gentleman went into a Wal-Mart bakery and asked to have a Confederate flag cake made. They denied his request. So he came back and ordered an ISIS flag cake. They made that one.
- The Jobs Report came in on Friday and the initial jobless claims increased by over 4% last month – that isn’t good.
- The Jobs Report came in lower than expected by -4.4% - that isn’t good.
- We lost full-time jobs and gained part-time jobs – again not good.
- And of the 223K jobs we supposedly added, 49% were due to a mathematical calculation called the ‘birth / death model’ – so they were completely fictitious.
- The unemployment rate fell to 5.3%, but that’s because the labor force participation rate fell to a new record low – again, really not good.
- And finally, hundreds of companies have pre-announced LOWER revenue and earnings estimates for this earnings quarter – the following are just a few in the tech sector:
o Hewlett Packard (HPQ) -7.3%
o IBM -14.2%
o Microsoft (MSFT) - 5.5%
o Intel (INTC) -4.5%, and
o Qualcomm (QCOM) -13.9%
Does any of this sound like a healthy economy?
Marketwise, we are still slaves to the Greek tragedy, and until something gets solidly resolved – the market is going to continue to jump, bump and dump on every rumor. To put Greek’s default of $1.6B in perspective, it took Wal-Mart just 30 hours to bring in that amount of revenue.
Ironically the problem is not about money, but rather a fundamental flaw in the Euro system. The Euro system is a ‘Monetary System’, which focuses solely on a fiat currency and a method of exchange. The Euro system is NOT a ‘Fiscal System’, and cannot change how each member spends its money, manages its debt, and issues taxes. Milton Friedman argued that the Euro would eventually fail because you can’t mix a fiat monetary system with a multitude of different nations’ fiscal policies. He further stated that value of the fiat currency would be the collective credit worthiness of all nations. The strong, accountable, responsible nations will have to carry the weak, debt-ridden nations. He concluded that by sharing a common currency, ultimately the different nations would be held accountable for one another’s debt. They would not have any choice, but to bailout the weak nations for fear of risking their own credit worthiness and the value of the main currency itself.
Exactly what Mr. Friedman predicted is coming true. They have started bailing out fellow member nations. But in doing so are establishing strict lending conditions that include cost cutting measures (austerity) as the pain the people of these nations are being subject to for not getting their fiscal house in order. I worry about Alexis Tsiparas – the new Socialist Greek Prime Minister. He is so ideologically blind that he has no problem bringing Greece to the edge. This weekend he has asked the people to decide: ‘Yes’ – we will agree to the terms of the bailout and stay in the Eurozone, or ‘No’ – we will default and begin issuing our own currency.
It’s a political win for Tsiparas either way. If the people want to agree to the terms of the bailout and stay in the Euro, he can claim that he was forced to compromise and take a bailout. If the people say no, then when the nation faces hyperinflation – he can blame the ECB and the Euro for their problems. I personally think the people will vote to stay in the Euro and take the bailout. I think that they ‘emotionally’ really want to be part of the European community.
If they say ‘No’, I think we see a short-term market sell-off of less than 5%; however, it won’t really have any deep implications in our financial systems.
The real problem is not Greece, but rather if we see this repeat itself within the rest of the PIGS (Portugal, Italy, Greece, Spain) – all in similar situations. Additionally, France’s credit rating was recently downgraded, and they have huge economic problems with a very similar Socialist President. If this DOES spread, it becomes a problem because almost 30% of the world’s assets and debts are priced in Euros. That would have a significant ripple that would hit all currency markets including the Yen, and the Dollar.
I personally see the Greek problem as a volatility situation that can bring some short-term jolts to the market. However, I do not see this as being the beginning or catalyst of a major market sell-off. But we are witnessing China going through some market death throes. Despite cutting interest rates, they are still seeing tremendous selling. So we've now seen the panic that a tiny country like Greece can cause, on a global backdrop of obvious weakness.
The mainstream media continues to tell me that we're in a bull market. No, we are not. We are in a: global zero interest rate, QE fueled, stock buy back mania. This is NOT a bull market. When you must keep interest rates at -0% for years, when you have to print trillions, when banks have to buy stocks – that is NOT a bull market. As I've said many times, there are so many things aligning over the next several months that it is hard to believe we will make it through all of this unscathed.
On the technical side, the market is a mess. The S&P continues to languish between its 200-day and 50-day moving averages. However, the averages are so far apart, that as long as it remains there, it can dance and wiggle and mean nothing. But a true breakdown under the 200-day, or a move up and over the 50-day would be a significant technical indicator signaling the setting up of a new direction.
Monday should be interesting as we get flooded with Greek news, and the market gyrates to the news flow. Just make sure that if you make a market move based on the news, that it is ‘real’ news and not just another rumor of a rumor.
A couple thoughts while we’re waiting for Greece to decide:
- Mondelez is a snack food manufacturer that makes: Oreos, Trident gum, and many brands in between. Lately the takeover speculation of MDLZ by either Coke or Pepsi has begun to heat up. Look at buying the December 40 Calls @ or under $2.80.
- Time Warner is a major media and entertainment company that owns: Cartoon Network, HBO, TNT and others. With Netflix a formidable ‘player’ in this space, TWX could be a major addition to anyone’s portfolio. Look at buying January 90 calls @ or under $4.00.
- TAP is a force in the beverage business that owns: Coors, Molson, and Blue Moon. This could be a major portfolio addition in the brewing industry. Look at buying January 90 calls @ or under $1.40.
- CCE is the Coca-Cola beverage distributor in Western Europe. A series of call buying got my attention, especially in the January 45 Calls @ or under $2.60.
- In the semiconductor space, recent M&A activity includes Avago buying out Broadcom, and Intel buying Altera. I’m looking for a take out of ADI. Look at the December 70 calls in ADI, @ or under $3.00.
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:
- 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
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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Until next week – be safe.