This Week in Barrons – 7-5-2015:
Thoughts:
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.
The Market:
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.
Factually:
-
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.
TIPS:
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
-
SPX:
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!
Disclaimer:
Expressed thoughts proffered within
the BARRONS REPORT, a Private and free weekly economic newsletter, are those of
noted entrepreneur, professor and author, R.F. Culbertson, contributing sources
and those he interviews. You
can learn more and get your free subscription by visiting: <http://rfcfinancialnews.blogspot.com>
.
Please write to Mr. Culbertson at:
<rfc@culbertsons.com>
to inform him of any reproductions, including when and where copy will be
reproduced. You may use in complete form or, if quoting in brief, reference
<rfcfinancialnews.blogspot.com>.
If you'd like to view RF's actual
stock trades - and see more of his thoughts - please feel free to sign up as a
Twitter follower - "taylorpamm"
is the handle.
If you'd like to see RF in action -
teaching people about investing - please feel free to view the TED talk that he
gave on Fearless Investing: http://www.youtube.com/watch?v=K2Z9I_6ciH0
To unsubscribe please refer to the
bottom of the email.
Views expressed are provided for
information purposes only and should not be construed in any way as an offer,
an endorsement, or inducement to invest and is not in any way a testimony of,
or associated with Mr. Culbertson's other firms or associations. Mr. Culbertson and related parties are
not registered and licensed brokers. This
message may contain information that is confidential or privileged and is
intended only for the individual or entity named above and does not constitute
an offer for or advice about any alternative investment product. Such advice
can only be made when accompanied by a prospectus or similar offering
document. Past performance
is not indicative of future performance. Please make sure to review important
disclosures at the end of each article.
Note: Joining BARRONS REPORT is not
an offering for any investment. It represents only the opinions of RF
Culbertson and Associates.
PAST RESULTS ARE NOT INDICATIVE OF
FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN
INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS (INCLUDING
HEDGE FUNDS) AN INVESTOR SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT
SOME PRODUCTS AND OTHER SPECULATIVE INVESTMENT PRACTICES MAY INCREASE RISK OF
INVESTMENT LOSS; MAY NOT BE SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS
MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING
INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.
Alternative investment performance
can be volatile. An investor could lose all or a substantial amount of his or
her investment. Often, alternative investment fund and account managers have
total trading authority over their funds or accounts; the use of a single
advisor applying generally similar trading programs could mean lack of
diversification and, consequently, higher risk. There is often no secondary
market for an investor's interest in alternative investments, and none is
expected to develop.
All material presented herein is believed
to be reliable but we cannot attest to its accuracy. Opinions expressed in
these reports may change without prior notice. Culbertson and/or the staff may
or may not have investments in any funds cited above.
Remember the Blog: <http://rfcfinancialnews.blogspot.com/>
Until next week – be safe.
R.F. Culbertson
<http://rfcfinancialnews.blogspot.com>
