This Week in Barrons – 6-26-2016:
Thoughts:
For 2 years, I've been
saying that our FED has been looking for anything to blame the ills of our
economy on. Our FED has painted itself
into a ‘credibility problem’ corner by suggesting that the U.S. economy was in recovery
mode with great job growth – while not even being able to raise interest rates
one quarter of one percent. Our FED was
desperate. Week after week the economic
reports were disappointing: rail shipments down, durable goods down, retail sales
down, truck deliveries down, etc. Month
after month they would preach: it’s the weather, it’s China, it’s the lack of
inflation, etc. They were looking ‘so
stupid’ that even CNBC’s Steve Liesman asked: “Ms. Yellen, do you think the FED
has a credibility problem?”
Our FED has been desperate
for some event that they could blame our ills on because job #1 at the FED is –
‘Keeping Your Job’. They know that cries
for their replacements would have hit a crescendo if despite their entire lever
pulling and button pushing – the economy still crashed. Why the heck do we need a FED playing God with
our monetary policy if all of their policies fail to keep a deep recession
away? We could easily turn their
function back over to the Treasury, and terminate the UNELECTED heads of the
PRIVATE banking cartel known as the FED.
But Friday their event
came. The BrExit vote won't cover up the
last few years of their bumbling, but it does take the pressure off of them concerning
future interest rate hikes. Now they can
say: “We were on pace to gradually hike rates, starting in July, but the BrExit
vote has made the entire global economy more vulnerable, and considerable study
will be necessary to gauge the monetary repercussions." In other words, "Thank you England, you
saved us from looking like the incompetent jerks that we really are. Otherwise we would have to meet in July and
talk about ‘data and dots’ again. Now we
can simply point a finger across the Atlantic and say: Thank you England.”
Factually, NO ONE KNOWS
what BrExit really means because it’s never happened before. All of the people writing detailed
descriptions about what will happen must have a more expensive crystal ball
than I do. I find it hard to predict
because wild currency swings are in full force right now. For example: to download a song from Apple’s
iTunes store costs $0.99 in the U.S.
Come Monday, what will that same download cost in Germany, Britain, and
France? Due to the various exchange
rates it could cost anything, but it will definitely be a lot higher.
-
At what point do
people in Germany, Britain, France and the EU just stop downloading iTunes music
simply due to the increased cost?
-
And without that
‘previously predictable’ revenue stream, when does Apple go into ‘cash conservation’
mode and stop spending (including on hiring and on corporate buy-backs)?
I’m betting that BrExit is
a fairly long, and drawn-out affair. I’m
also betting that other nations just pushed their own SwExit, GrExit, and
FrExit referendums to the ‘front burner’.
Just today I heard about Scotland, Italy, and Hungary – on top of
Sweden, Germany and France that were previously in the queue. Did you know that the EU laws regulate:
-
The amount of
curvature of a banana (otherwise you can’t sell it),
-
The straightness
of a cucumber (otherwise – no sale), and
-
Eggs can no
longer be sold by the dozen, but must be sold by weight.
The EU regulators have to
know that it was this type of ‘over-the-top’ stupidity that helped the Brits
and will help others to say ‘Goodbye’.
We won’t know the extent
of the disruptions until we see how willing the EU is to compromise on their
treaties and trade tariffs. The EU could
try and punish the UK by increasing trade tariffs and becoming even more
totalitarian. Or they could try and hold
things together by negotiating fairly, and showing other member nations that
they're not the bloodthirsty slime that they are accused of being. In any case, there’s plenty of blame being
handed out this weekend, but at least our FED is off the hook until the end of
the year.
The Market:
Should Britain have left
the Euro? Heck yeah. It is just business. How can any country survive with two diametrically
opposed economic systems? On one hand
you have each individual government running his or her own fiscal and monetary
show, and on the other hand you have an all-powerful central planner running a roughshod
monetary policy as he sees fit. It’s
natural that the well-run governments will end up bailing out the irresponsible
ones. When the EU was formed, all of the
economists ignored the math, as they were enamored with the ideas of: unification,
trade, and immigration. Unfortunately,
you can ignore the math – you just can’t avoid it. Or said differently by Ms. Thatcher:
“Eventually you run out of other people’s money.” After all, why does Britain have to absorb
any of the debt that the EU is incurring due to the poor fiscal policies of a
few of its members? It was only a matter
of time before the strong nations started to leave, or the weaker ones invited
to leave.
As for trading this week,
I sat on my hands. I'm not trying to
take a victory lap here, but I just saw too many divergent elements that kept
me on the sidelines. At the core a
single issue: Google and Facebook have their fingers on the pulse of BILLIONS
of people, and both have become experts at predicting behavior. They were both suggesting that the UK people
wanted out. I chose listening to social
media over broadcast media, and kept myself on the sidelines with just my holdings
in the precious metals. (FYI – Gold was
up $56 on the day.)
So what do I do now? Many people are calling for ‘Buy-the-Dip’ –
because that’s all they know. I don't think
that ‘Buying-the-Dip’ is the wisest move – yet.
Sure, we should get a bounce after loosing 610 points on the DOW and 76 on
the S&P’s. But will the bounce hold,
or will it be just a ‘dead cat bounce’ and we roll back over later in the week?
I think that the market has a date with
‘lower’. I don't know if that means
Monday or Tuesday, or over the weeks to come. The BrExit vote is going to cause a ton of
questions over what’s next, and what everyone is going to do. Last weeks economic reports were lousy, and I
don't suspect they're going to get much better. This feels to me like a sideways and down market
because:
-
In this type of
marketplace (with the volatility futures being inverted), the algorithms will
be selling into every rally.
-
Margin calls
went out on Friday, so there will be more selling on Monday.
-
We are currently
sitting at the 2037 level on the S&P.
We hit a ‘lock limit’ low on Friday of 1999 which means everyone will
have purchased hedges around the 2,000 area of the S&P’s. This virtually guarantees that the market
will touch that range in the near future.
-
Currencies are all
over the map right now, and will cause every CFO to ‘clamp down’ on corporate
spending immediately. That also means we should see a sharp decline in
corporate buy-backs on Monday as well.
Please be careful out
there – especially this week.
TIPS:
Here are some additional
thoughts:
-
First thing, eliminate
your ‘good-till-cancel’, ‘market’, or ‘stop’ orders. With this amount of volatility, market makers
will touch your stop intentionally.
-
For Monday thru
Wednesday, if you see a ‘Rip-Your-Face-Off’ rally, sell into it or SHORT it.
-
The S&P is
calculating a 140 point expected move this coming week. That means that
the S&P could fall from 2038 to 1880 by this time next week. That type of move could cause a global
recession.
I had a great week last
week, and am keeping it fairly simple by being:
-
Long various
mining stocks: AG, AUY, CDE, FFMGF, FSM, NGD, and PAAS,
-
And Long an oil
supplier: REN.
To follow me on Twitter.com and on StockTwits.com to get my daily thoughts
aand trades – my handle is: taylorpamm.
Please be safe out there!
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I like your post.
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