This Week in Barrons – 8-9-2015:
“I think I can … I think I can … I think I can…”
Thoughts:
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:
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.
TIPS:
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,
-
SPX:
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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