This Week in Barrons – 4-19-2015:
Thoughts:
Dear Ms. Yellen:
I’m sensing a global
uneasiness.
-
Last week, Greece
went to the IMF to ask for a delay in their payment schedule and was
immediately denied.
-
Big banks like
Goldman and Citi beat their earnings estimates, but on lowered revenues.
-
Fundamental
economic reports such as: initial jobless claims, housing starts, and the
Empire new orders index have been terrible.
-
Data out of
China reflects a marked economic slowdown.
-
And Obama is
pushing a new retirement program.
With all of this severe
economic discontinuity, what do you do with your money? Do you just leave
it in the system and pray nothing happens, or do you take it out? And if you take it out, what do you do with
it? Personally, I'm not a big fan of
401k's because of their outrageous management fees, and their stock portion is
often NOT covered by any FDIC insurance.
I personally advise people to contribute enough money to get the
employer match, and (since a ‘money market account’ is considered a deposit
account) use the ‘money market’ option in the 401k instead of the ‘stock
option’ for the time being.
In
difficult times, I suggest that everyone attempt to pay off his or her own home
mortgage. For example: if you have 200k in your 401k, and the balance on your
mortgage was 170k – I would pay off the mortgage and free myself from the
bank. First, most mortgages are ‘demand
notes’, which the bank could call in at any time. Second, most people’s ability to pay off
their mortgage depends upon their having reliable employment, which often comes
into question in tough times. And
thirdly, if things really get ugly, there is a real chance that our government
could ‘temporarily’ confiscate our 401k’s.
There is virtually no chance that our government would confiscate our real
estate as a result of any economic or financial collapse. Putting this
all together, I would rather pay off my mortgage when I could – rather than
when I had to.
Ms. Yellen, our entire
economic system is built on trust. I
trust that when I put $5,000 into the bank – that I can get $5,000 out of the
bank. I trust that when I send money to
my 401K – that it is always going to be there.
In a perfect ‘Leave It to Beaver’ world, that would be true. But what happens if we enter a greedy, evil
world where fraud, theft and scams are prevalent? I never want to get to a place where I truly
believed such institutions as our bank deposits or stock holdings could be
taken from us, but I think we're pretty close to that right now. And, I think we all need to ponder the
reality.
The Market:
Last week market
regulators in China announced two things:
One, they are going to get tougher about people using the shadow banking
system to finance stock purchases.
And two, the programs used to ‘short’ Chinese stocks were expanded to allow
more stocks to be ‘short-able’.
Last Thursday evening,
China announced some of the worst economic numbers in about 6 years. China is such an important importer and
exporter, that if their economy is slowing – everyone will pay the price. But potentially the worst news of all was that
all of the Bloomberg terminals around the globe went ‘dark’ early Friday
morning. Allow me to explain. If you are a money institution, you probably
use the ‘Bloomberg’ trading platform – which connects you to the world via
news, messages, and trades. The platform
costs approximately $20k per platform per year, and there are thousands of them
in use around the world. All of those
platforms ‘went down’ early Friday morning and caused immediate worry by all of
the institutional traders.
So between the lousy numbers
out of China and the Bloomberg glitch, the market was in sad shape on Friday.
Adding insult to injury, there is mounting evidence that Greece is about to default,
and could be forced to ‘leave the Eurozone’.
So Friday was a complete washout with the DOW down (at times) over 300
points, and the S&P under its 50-day moving average. I thought that the market would struggle with
its all-time highs, but not fall for 350 points. I didn’t see that one coming.
So, does that mean that we
are in correction mode? It could
be. But remember: (a) It's April – and April
is historically a good month for the market, and (b) for the past 6 years, buyers
have come in and ‘bought the dip’ each time this market has been hit really
hard.
If I come in on Monday and
there is no stabilization, and we continue to fall – the next stop would be
around S&P 2060, then down to 2040. If we lose S&P 2040, we could
be looking at the beginning of the first ugly correction in over 6 years.
This market has come one
heck of a long way over the last 6 years. The bull is tired, and all of the manipulations
and QE's have run their course. This is
a desperate time for the market, especially with some of the things we see
coming later in the year concerning China and the IMF. Therefore, if the market continues to bleed
this week and touches 2040, it could time to start selling. If (however) the S&P bounces back above
2084 on Monday (it’s 50-day moving average) – we could quickly forget Friday's
plunge. It is nothing short of ‘interesting’ out there.
TIPS:
The following chart is
showing the technical indicators favoring an upward movement in the S&P and
DOW this coming week.
Currently looking at:
-
S&P (SPY),
NASDAQ (QQQ), and Russell (IWM) shorts and puts
I’m currently holding:
-
GLD – BOUGHT MAY
Call Debit Spread: +112 / -120,
-
NUGT – BOUGHT
MAY Calls: +10, 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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