This Week in Barrons – 4-26-2015:
Dear Ms. Yellen:
Well it doesn't take a genius to figure out that if the debts CAN’T be paid, they WON’T be paid. Our global economies are a kin to heroin junkies – requiring larger ‘fixes’ just to maintain their respective highs. I am beginning to hear rumblings of a global, digital currency – a world without cash. A world where everything you do will be credited or debited from your ‘card’. This would allow everyone’s fiscal moves to be perfectly monitored – from buying a house and a car, to pharmaceuticals and food – the ultimate in control.
To that end, the International Monetary Fund’s (IMF’s) SDR program is digital currency’s perfect implementation path. The IMF has been gearing up for China's inclusion into the SDR basket since 1988, and should have it completed by October. After that, we can legitimately discuss a new world currency system based upon the SDR model. The SDR could be an equalizing force around the globe, as all local currencies will begin to be revalued in relation to the SDR. After all, the U.S. has been the only reserve currency for 60 years; therefore, using the SDR as the new global standard is only fair. But that will simply be the warm-up pitcher for our digital currency.
Accompanying anything digital is the tracking of the transaction, and those pesky transaction fees that bankers love. Currently there are nations where the interest rate is negative. That is to say, nations where banks charge you for storing your cash in their bank. Now honestly, it costs you nothing to store your cash in your wallet or under your bed. But if we were a cashless society, then we have no choice but to keep our money in the bank and ‘pay’ for the privilege.
But the transition to a cashless society will not be without its issues. In November of last year, the G20 nations changed the language surrounding a bank deposit. Now, when you make a deposit – the money is no longer yours, but belongs to the bank. You are no longer putting your cash into a bank for safekeeping, but rather you are ‘loaning’ your money to that institution. Therefore, if your bank begins to give car loans to people with no ability to pay them back and the bank goes under, your deposited money is way down the line in so far as you getting your money back. The argument then shifts to the FDIC coming to the rescue. Well that's fine when we're talking about a bank here or there, but the FDIC cannot possibly cover every account for $250,000. A big bank failure would overwhelm the system in a day. Last year the FDIC admitted that they really only have enough money to cover 2% of the nations deposits.
So my argument is this, many things are better than cash. Historically, I can point to over 30 ‘fiat’ currencies that no longer exist. Yet silver, gold, platinum, and diamonds have always held a value. I think it makes a lot of sense to keep just enough money in the bank to cover your bills, with a bit of a cushion. But I'd much rather store value in ‘things’ like: silver, gold, real estate, cars, etc. Remember when you purchased that 1970 Barracuda 340 convertible for $2,800. Today it would be worth about $45,000.
The bottom line is this: I don't trust banks, and the less money that I have in them – the better I feel. I’m mindful of Henry Ford’s remark: “It is well enough that people do not understand our banking or monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
- Deutsche Bank was fined $2.5B for rigging the Libor rate,
- China's factory activity declined at the fastest pace in a year,
- This quarter MMM spent $1.5B buying-back their stock, but only took in $1.1B cash from operations.
- Only 42% of companies reporting, have beaten their earnings estimates.
- Durable Goods orders showed a -0.2% decline after removing transports.
- The Purchasing Manager’s Index (PMI) recorded its largest ‘miss’ to the downside ever recorded.
- Investors (year to date) have pulled $79B out of equities, with net outflows in 9 of the past 10 weeks.
Question: How does the market continue to rise (and even make new highs), while investors are actually pulling their money out?
Answer: The Corporation itself is the new buyer. Corporations issue debt, and with that money buy-up their own stock.
We’re in a Disney(esque)land of endless global QE, and money printing. We're in a time where Central banks buy stocks and futures. We're in a time where ‘Job #1’ of our FED is to keep our stock market moving higher so that J. Q. Public doesn't understand that our country is ‘broke’. People continue to harp on there being $700B of Corporate cash on the sidelines, but forget that it is accompanied by $1.5T in Corporate debt.
On Friday the market was having a hard time making an all-time high in the S&P of over 2117.52. With just an hour left in the trading day, we still needed several points. But just moments before the day ended, the bell rang to magically close the S&P session at 2117.69 – a new all-time high by 17 cents. If this market wants to go to S&P 2200 – I want to go along for the ride. But it has to prove it to me by holding these new highs for a few days. Right now, I'm not convinced. The market struggled to squeak out that close on Friday, and it may not have the same conviction come Monday.
Also, seasonality comes into question. Remember the adage: “Sell in May and go away". Well, May is only 5 trading days away. So even if this breakout holds, we are heading into a traditionally weak period that could produce a pullback. Either way, we will know soon enough. Just consider this statement by Jamie Dimon, the CEO of JP Morgan: “Some things never change. There will be another crisis, and its impact will be decisively felt by the financial market." Jamie, you’re absolutely right, and I’m betting that you probably know exactly what that upcoming crisis is going to be.
Currently looking at:
- AAPL – especially with earnings this week – look at the June 130 / 145 Call Debit Spread,
- DIS – watching for a move to 111, so looking at the 107 June Calls, and
- TWTR – looking at the May 52 / 60 Call Debit Spread
I’m currently holding:
- GLD – BOUGHT MAY Call Debit Spread: +112 / -120,
- NUGT – BOUGHT shares and weekly covered calls,
- DUST – BOUGHT shares and weekly covered calls, 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.