This Week in Barrons – 8-9-2015:
“I think I can … I think I can … I think I can…”
Mark Twain popularized the phrase: “There are three kinds of lies: lies, damned lies, and statistics.” This past week, I had the distinct pleasure of accompanying my son to the global, cyber-security conference. I thought it appropriate because a couple things that truly ‘keep me up at night’ are our complete reliance on the Internet, and our dependence upon the ‘power grid’ for survival. Both of these are fairly new developments, and are situations where massive outages will cause unthinkable problems. This conference also served as a reality-check in terms of how public our lives really are, but also as a tremendous wake-up call in terms of how ill-prepared we are for any ‘national’ event.
And then my mind went back to the 1970’s when Global COOLING was the scare. I am NOT saying that cyber attacks, global cooling or warming (for that matter) aren’t something we should be concerned about. But scientists are not always correct, theories tend to change as new data is collected, and any long-term predictions are difficult to make. In fact, I would argue that Global Warming fanatics probably do the legitimate science more harm than good. Remember, politicians are only thinking about the next election. Therefore, if nothing happens in the next 4 years, it will be harder for a politician to get more votes and a scientist to get more funding by playing the ‘global warming’ fear card next time around.
I remember some of the headlines from the 1970’s:
- NY TIMES: International Team of Specialists Finds No End in Sight to 30-Year Cooling Trend in Northern Hemisphere (January 5, 1978)
- Washington Post: Colder Winters Hold Dawn of New Ice Age – Scientists See Ice Age In the Future (January 11, 1970)
- Time: Science: Another Ice Age? (November 13, 1972)
- LA Times: Is Mankind Manufacturing a New Ice Age for Itself? (January 15, 1970)
- Chicago Tribune: The Ice Age cometh: The System that Controls our Climate (April 13, 1975)
For example: I’ve heard the President and others repeat that 97% of scientists agree that Global Warming is a problem. But where did this 97% come from, and is it correct? The quote comes from the NASA website on Climate Change / Global Warming: http://climate.nasa.gov/scientific-consensus/. They examined 11,944 climate abstracts from 1991 to 2011 matching the topics ‘global climate change’ or ‘global warming’ and found the following:
- 7,930 scientific papers (66.4%) had NO position, and
- 3,896 papers (32.6%) endorsed global warming and in those papers 97.1% said that humans (to varying degrees) impacted it.
Ah-Hah, this is where the 97% figure comes from. BUT if we were to properly quote the study: only 29.8% (97.1% of the 32.6%) of scientists believe that Climate Change / Global Warming is a problem impacted by humans. The issue is that the 97% figure was taken ‘out of context’ and repeated so often that we all believe it, and are now basing our energy policies upon this belief.
How many times does this happen in our lives? Statistics are a funny thing, and often allow us to phrase a question or extrapolate an answer simply to justify our own belief. For example, I could say:
- Less than 1% reject global warming, or
- 97% believe there is climate change, or
- Only 32.6% believe that humans have impacted Global Warming, or
- 66.4% (over half of the scientists) have no position on Global Warming.
All of the above statements are correct, and either side of the debate could quote from this study to support their view. The trick is to ASK the right question, rather than trying to ‘tailor the data’ to conform to your hypothesis. If the question is: “How many believe that Global Warming is impacted by humans?” The answer is clearly: 29.79%.
The point that I am making is that:
- From cyber security to climate change, we need to be objective and not automatically accept or deny anything.
- Do not use fear or misrepresentations of the truth to convince people.
- Do not use unsubstantiated facts when making broad-sweeping mandates.
- When in doubt, remind yourself of Global Cooling in the 1970’s, and how the fear, rhetoric, and media hype reached a crescendo – and then died off. It only takes (a) a few people with irrefutable credentials, (b) the media to sell the fear, and (c) our leaders to repeat it over and over again until we all believe it.
- And remember peddling fear does more harm than good. Imagine when legitimate scientists try to go back to the government for grants, after the hype has died down and ‘nothing’ has happened.
This conference reminded me that we all need to be more responsible and accountable for our own actions. I need to read and study the reports myself, in order to understand what is really going on – rather than just trusting a sound bite or a quote (often taken out of context). Whether it is our President selling us on fears of weapons of mass destruction or selling us on fears that the oceans will rise – we need to take a breath before our government makes radical decisions that will impact us all. Why – because all of these issues have become topics of political debates for election purposes and political favors, often at the expense of science and the real issue itself.
The market is continuing to experience head winds, and all of the (‘I think I can’) good thoughts may not be enough to keep it from going lower.
This week we learned that:
- 105,696 people were laid-off in the month of July. This is the first time since 2011 that monthly layoffs exceeded 100,000.
- The Non-Farm Payrolls Report came in a little light at 215,000 jobs created, while the unemployment rate held at 5.3%.
- The Russell is 7.5% off its high, the DOW off by 5.6%, the NASDAQ off by 3.8%, and the S&P off by 2.7% from its high.
I normally don’t pay too much attention to the DOW because it’s made up of only 30 stocks. But what’s worse is that the DOW is price weighted, not market cap weighted. What this means is that Goldman Sachs (@ $203/share) has a weighting of 7.9%, while General Electric (@ $26/share) has a weighting of 1%. So even though GE (with it’s $262B market cap) is almost three times the size of Goldman Sachs, it’s weighting within the DOW is seven times lower. So the DOW to me makes no sense, but having said that – the trends that come out of reviewing the indexes can be meaningful.
- The DOW (for example) has closed down 7 days in a row. It hasn’t closed down 8 days in a row since August of 2011. In August 2011 Standard & Poor’s had just downgraded the United State’s credit rating, and at that point caused the biggest market drop since the 2008 crash. When I look at the price action in individual names, it absolutely makes me bearish but if too many people are feeling bearish, it tips the boat too far in one direction and a rally inevitably follows.
- The S&P is again pinning at 2,100, and this level just continues to act like a magnet. Unless something changes, my strategy will continue to involve selling iron condors around 2,100 on the SPX, buying the dips down toward 2,080, and selling the rips up towards 2,120.
- The NASDAQ has had a strong run in July. After a solid run higher, combined with a weaker broader market, it seems that some volatility is to be expected. I’m looking for 4,500 to act as support.
- I use the Russell as a gauge of broad order flow across the market. It closed above 1,220 on Friday, and could bounce from that on Monday.
When I review the trends, the DOW has ‘blown-thru’ it’s 200-day moving average and is visiting levels it hasn't seen since January. The S&P is looking better, but here too the 50-day and 200-day moving averages are getting closer and closer together. The old adage was that if the 50-day moved up and over the 200-day it was bullish, and as long as the 50-day remained on top – it was still bullish. Of course it works in the opposite direction, when the 50-day plunges below the 200 it's called a ‘Death Cross’, and often marks a bearish market. On the DOW, only 24 points separate the 50 and the 200-day moving averages. On the S&P, there are just 23 points of separation. We are closer to these two crossing to the ‘downside’ than at any time in the last several years. Add-in this wicked chop, the failed ‘triple top’, and all the cycles that are coming together this fall, and this market could finally be ready for a big correction.
I won’t start going short until the S&P closes below 2040 for a few days. Until that time, I just keep playing the hand that’s dealt.
After processing all of this bad news, the knee-jerk reaction could be to sell this market with both hands. But when you look up you see that the SPX is less than 2% from all-time highs, all you can say is that this is one resilient market. One potential spot I’m watching closely is the media space, and stocks like Disney (DIS), CBS Corp (CBS), and Time Warner (TWX). All of these stocks have been obliterated this week after many of them missed earnings, and amid the fears of ‘cord cutting’. If you’re not familiar with ‘cord cutting’ it’s the idea that fairly soon consumers will no longer have to pay for cable packages, and will be able to pay a-la-carte for just the programming they want. Unfortunately, I think that the fears here are massively overdone. People are only consuming more and more content – with or without ‘cord cutting’. These stocks are getting hit now because there’s so much uncertainty about how this will all play out. Uncertainty breeds confusion, and in the stock market confusion breeds contempt and lower prices.
I’m currently holding:
- MDY – SOLD the Sept 245 / 250 to 285 / 290 Iron Condor,
- NDX – SOLD the SEPT $4875 / 4900 Call Credit Spread for $2.95,
- RUT – SOLD the August 1140 / 1150 to 1330 / 1340 Iron Condor,
- SPXPM – SOLD – Iron Condor – SEPT @ 1885 / 1890 to 2200 / 2205,
o SOLD – Iron Condor – Aug4 @ 1950 / 1955 to 2150 / 2155,
o SOLD – Iron Condor – Aug4 @ 1995 / 2000 to 2170 / 2175,
o SOLD – Iron Condor – Sept1 @ 1925 / 1930 to 2165 / 2170,
o SOLD – Iron Condor – Sept1 @ 1955 / 1960 to 2175 / 2180,
o SOLD – Iron Condor – Sept1 @ 1990 / 1995 to 2155 / 2160
o SOLD – Iron Condor – Sept2 @ 1925 / 1930 to 2180 / 2185,
o SOLD – Iron Condor – Sept @ 1845 / 1850 to 2190 / 2195,
o SOLD – Iron Condor – Sept @ 1870 / 1875 to 2215 / 2120,
o SOLD – Iron Condor – Sept @ 1925 / 1930 to 2215 / 2120,
o SOLD – Iron Condor – Sept4 @ 1900 / 1905 to 2175 / 2180,
o SOLD – Iron Condor – Sept4 @ 1900 / 1905 to 2210 / 2215,
o SOLD – Iron Condor – Oct1 @ 1895 / 1900 to 2210 / 2215,
o SOLD – Iron Condor – Oct1 @ 1905 / 1910 to 2210 / 2215,
o SOLD – Iron Condor – Oct1 @ 1915 / 1920 to 2200 / 2205,
o SOLD – Iron Condor – Oct2 @ 1850 / 1855 to 2185 / 2190,
o SOLD – Iron Condor – Oct2 @ 1910 / 1915 to 2205 / 2210,
o SOLD – Iron Condor – Oct4 @ 1825 / 1830 to 2200 / 2205,
o SOLD – Iron Condor – Oct4 @ 1885 / 1890 to 2220 / 2225.
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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