This Week in Barrons – 6-7-2015:
What if…
Thoughts:
Dear Ms. Yellen:
What if:
- The U.S. made a move to confiscate all 401Ks and pensions?
- The U.S. abolished cash and everything became digital?
- China announced that it was willing to back its currency with gold?
- And What If the U.S. dollar lost its reserve currency status?
I’ll stop there. Are any of these impossible? Nope – not a one. Are any of them probable? Yes – most of them, but let’s just consider the first one. If I would ask you: “What if the U.S. actually declared that they are now in charge of your 401k and pension plan?” Most of you would just roll your eyes. But then I’d ask: “Did you ever think that the U.S. would force you to buy health insurance?” This ain’t your daddy’s government anymore.
In 2010, Democrats in the Senate held a recess hearing over a potential taxpayer bailout of union pension plans, and a plan to seize (and more ‘fairly distribute’ to everyone) private 401Ks. Sen. Tom Harkin (D-Iowa), Chairman of the Health, Education, Labor and Pensions (HELP) Committee heard from witnesses advocating the infamous ‘Guaranteed Retirement Account’ (GRA) authored by Theresa Guilarducci. Under the GRA system, the government would seize private 401K accounts, and set up an additional 5% mandatory payroll tax – in order to pay out a ‘fair’ pension to everyone using that confiscated money coupled with the mandated contributions. This would be in addition to Social Security, and would give big government politicians the additional $17T of funds that are currently sitting in pension and 401K accounts. My guess is that plan never made it to your ‘nightly news’.
Consider these facts:
- The U.S. courts sided with the Sentinel Hedge Fund when they ‘co-mingled’ customer money with their own, and lost it all. The court said that this was a legal practice because the lost money was unintentional. This caused the President to introduce the ‘MyRA’ program that was to offer a ‘decent’ return with no risk of losing what you put in.
- The G-7 meeting last year re-defined a bank deposit as ‘loaning’ the bank your money. As a result this put bank depositors in line behind other creditors if/when the bank failed.
- And finally there is the Supreme Court case: Tibble versus Edison. This is where the holders of a 401K plan said that the plan administrator (the company) had them in funds with excessive rates, while other institutional funds were available with the same make up and lower fees. The court agreed, and a lot of people were cheering the decision. But, the court then said that if pension funds or retirement accounts “underperform,” the Government should be allowed to step in and seize those funds. Whoa.
So we have a broke Government that’s about $17T in the hole, and we have thousands of pension and 401K plans that (coincidently) hold about $17T in deposits. We have a Treasury backed ‘retirement plan’ called a MyRA that gives you access to U.S. Treasuries as a savings vehicle. We have a Congress that has looked at plans to confiscate all 401Ks and "distribute the savings more fairly". We have changed the definition of a cash deposit, into a ‘loan to the bank’. And we have hedge funds using customer money as their own – losing it – and having the court saying that it’s ok.
So I ask you: is the U.S. confiscating our 401Ks and pension funds that far off? I don’t think so. In fact, I think that IS the plan, and they just don't know how to pull it off yet. Around the globe there is a push to: a) ban cash transactions, b) limit the number of times you can take cash out of your bank, and c) accept China’s Yuan in the IMF’s SDR. I’m seeing a lot of moving parts in a confused and insecure world. Remember, NO ONE is going to look after your money better than YOU.
The Market:
What a mess this market is. You can almost sense that the ‘end game’ is beginning to play out. Last week: a) mortgage applications fell by 7.6%, b) refinancing’s fell by 11%, c) productivity decreased by 3%, and d) labor costs spiked higher by 6.7%. But more interesting was the crazy action in the bond pits around Europe. Germany's ‘Bund’ soared again, and for a moment hit 1%. Now that doesn't sound like much, but when you think that just two weeks ago they were at 0.15% - that’s an almost 600% move in two weeks. That had other nations seeing their own notes yielding much higher levels, and it was crazy before it settled down.
Then there’s Greece. The only reason why Greece is so important is what nations follow Greece when they exit the European Union. I’m guessing that Spain, Portugal, Italy and probably Ireland are next. That would doom the Eurozone. The second reason for the interest in Greece is for ‘stability’ and ‘security’ of the region. Greece is a NATO member, and NATO doesn't want to see Greece pull out, and potentially partner with Russia and China. That is why the EU ‘kicked the can down the road’ this week, and allowed Greece to miss it’s latest payment – but bundle it in with 3 others that are due at the end of June.
For weeks I have watched as the S&P Index (SPX) continued to trade in a range between 2,080 and 2,120. It now appears that the range has tightened to 2,100 to 2,120. Going forward, I’ll be looking to sell into 2,120 and buy at 2,100. That said, I will be cautious because a range this tight cannot hold up for long. Below 2,100 there is support at 2,080, and above 2,120 there is the intra-day all-time high of 2,135.
The next event on the calendar will be the June 16-17 FED meeting. FED meetings are always critically important to the market, but this one could be even more so. The FED did not have a meeting in May, so they will now have two months of data to consider. This meeting will also be accompanied by a press conference from Fed Chairwoman Janet Yellen. At one point forecasters had pinpointed this June meeting as the time when the FED would finally raise rates. With the meeting almost upon us, no one thinks there’s any chance of a rate hike. I’ve said time and time again that the FED will take its time raising rates, and it’s likely to finally happen much later than anyone expects. While I’m confident we won’t see a rate hike anytime soon, that doesn’t make it any easier to trade. A hawkish outlook from the Fed could be the spark the bears are looking for to finally see a broad-based sell-off.
All of this is still a few weeks off, though. In the immediate future, I would imagine we will see more ‘Summer Trading’ over the next few weeks as all eyes begin to focus on the FED. For my part, I’m continuing to stay balanced on either long-term balanced trades, or short-term day trades – scalping points where I can get them.
TIPS:
Friday’s Jobs Report told us that we created 280k new jobs in the month of May. This was good news. And you are probably wondering why I'm not harping on the fact that the Bureau of Labor and Statistics’ Birth/Death model added 213K of these new 280K jobs. (FYI – these are jobs that don't really exist.) The reason is that (by now) the world realizes that the Jobs numbers are bogus, but the market still trades on these bogus numbers. The market’s moves are based upon the 280K number, and not the ‘more truthful’ 67K number. I remain playing both sides of the S&P, as the Transportation Sector is broken, and is often a predictor of things to come.
I’m currently looking at:
- SPX – Buying the June – Butterfly – centered around 2100 (due to the high open interest) – and a single standard deviation (45 points) wide,
- PANW (Palo Alto Networks) – Buying the June 172.5 / 177.5 / 180 Broken Wing Butterfly, and Selling the June 165 / 167.5 Put Credit Spread to pay for it, and using the same recurring theme with:
- BIDU – Buying the June 205 / 210 / 212.5 Broken Wing Butterfly, and Selling the June 195 / 197.5 Put Credit Spread,
- QIHU – Buying the June 61 / 65 / 67.5 Broken Wing Butterfly, and Selling the June 58 / 60 Put Credit Spread,
- BABA – Buying the June 90 / 92 / 93.5 Broken Wing Butterfly, and Selling the June 86 / 88 Put Credit Spread,
- AMBA – Buying the June 100 / 110 / 115 Broken Wing Butterfly, and Selling the June 90 / 95 Put Credit Spread,
- And continue selling Iron Condors on both the SPX and RUT.
I’m currently holding:
- ABBV (Abbvie) – BOUGHT – June 67.5 Call,
- CMG (Chipotle)– BOUGHT – June 610 / 600 / 590 Put Butterfly,
o SOLD – June 630 / 632.5 Call Credit Spread,
- CVX (Chevron)
- DE (Deere) – SOLD a June 96 / 97.5 Call Credit Spread,
- FEYE (FireEye) – BOUGHT – June 48 / 52 / 53 Broken Wing Butterfly,
o SOLD – 45 / 48 Put Credit Spread,
- IYT (Transportation Sector ETF) – SOLD the June 153 / 160 Call Credit Spread,
o BOUGHT the June / July 150 Put Calendar,
o SOLD the June 148 Put / BOUGHT the July 144 Put – creating a diagonal to the downside,
- KR (Kroger) – SOLD a June 67.5 / 70 Put Credit Spread,
- LL – SOLD an Iron Condor – June @ 18 / 19.5 to 24 / 25.5,
- NUGT – BOUGHT shares and weekly covered calls,
- ORCL (Oracle) – BOUGHT June $45 Calls (Earnings are on June 18),
- RH (Restoration Hardware) – BOUGHT the June / July $95 Call Calendar (Earnings on June 10),
o RUT – BOUGHT July Butterfly @ 1180 / 1250 / 1310,
o SOLD – Iron Condor – July @ 1140 / 1150 to 1330 / 1340,
o SOLD – Iron Condor – August @ 1150 / 1160 to 1320 / 1330,
- TGT (Target) – BOUGHT the 80 / 82 / 82.5 Call Butterfly,
o SPX – SOLD – Iron Condor – June @ 1970 / 1975 to 2175 / 2180,
o SOLD – Iron Condor – June4 @ 1945 / 1950 to 2185 / 2190,
o SOLD – Iron Condor – July1 @ 1890 / 1900 to 2195 / 2205,
o SOLD – Iron Condor – July1 @ 1980 / 1985 to 2180 / 2185,
o SOLD – Iron Condor – July2 @ 1905 / 1910 to 2180 / 2185,
o SOLD – Iron Condor – July2 @ 2005 / 2010 to 2180 / 2185,
o SOLD – Iron Condor – July2 @ 1985 / 1990 to 2190 / 2195,
o SOLD – Iron Condor – July @ 1900 / 1910 to 2200 / 2210,
o SOLD – Iron Condor – July4 @ 1860 / 1870 to 2235 / 2245,
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 – 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 – Aug4 @ 1895 / 1900 to 2195 / 2200,
o SOLD – Iron Condor – Aug4 @ 1895 / 1900 to 2240 / 2245, and
- SPY – BOUGHT the 200 / 207 / 209 June Put Butterfly.
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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