ECB, Monetarism and a Greek Half-Decade

By Alhambra Investment Partners

Greece really should not matter, at all, outside of the tragic plight of the Greeks themselves. You’ll see that message echoed particularly inside the US where the status quo takes a contradictory turn toward reasonableness in order to justify further what isn’t. This is all about asset prices and how they have been so skewed almost everywhere that when one part of that systemic imbibing threatens to pull back the curtain the rest works overdrive to convince that it doesn’t matter.

Just fourteen months ago, then-Prime Minister of Greece, Antonis Samaras, went on Greek television and confidently proclaimed, “Today, Greece took one more decisive step to exit the crisis. Confidence in our country was confirmed by the most objective judge – the markets.” Going further, then-Deputy Prime Minister Evangelos Venizelos objected to any other interpretation, “The bond issue proves the debt is sustainable, otherwise the markets wouldn’t have bought it.”

Obviously, those were political statements intended to send a political message in that the “objective” market was on the side of that current Greek political makeup and the “austerity” track into which they proclaimed to be amalgamated, inextricably within the euro currency. Under rational expectations theory, of course, the price with which the Greeks floated that bond was believed to be “correct” and thus efficient. The 4.95% yield at the auction, 20 times oversubscribed, certainly seemed to suggest that it was “market clearing” in at least that respect.

ABOOK June 2015 Greece GRE 5s Continue reading ECB, Monetarism and a Greek Half-Decade

SPY, Short Profit

By Biiwii

Well, I have held a short position against the SPY for weeks and weeks now.  It flashed profitable once or twice but has mostly sat there at a loss.  It is a straight out short with no leverage, so it has been easy to hold.  Today it’s actually pushing its way nicely into the green.

After discussing the potential that the Dow and S&P 500 bounces were just breakdown tests in a mid-day update on Friday, I decided to leverage up and buy the 3x inverse fund SPXS.  I am now taking profit on that because the market has taught me that gains from the short side, especially when using leverage and they come on hype-filled events, should be respected, cherished and taken!  I’ll continue to hold SPY short, however.

Here is the ugly SPY chart at a point that could be considered minor support.  But we have better support for the S&P 500, which would still not threaten the bull, significantly lower.  This chart says SPY 200 is doable if the current level is lost.  But again, I don’t really trust this Greece hype as a bear motivator.

spy

Dumb & Dumber

By Biiwii

This morning we had run of the mill Mainstream Financial Media hype, with MarketWatch predictably going all Greek all the time.  CNBC show’s ’em how it’s done however, layering in alongside Greece sides of Puerto Rico default talk, China stocks crashing and a Fed rate hike Jawbone.

If you know me you know that I just love this stuff.  The MSM falling all over itself to a) state the obvious and b) over amplify it 100x beyond its relevance.

For Stocks – the Four Horsemen of the Apocalypse? 

Ooh, a scary title.

Horseman 1:  Greece is little more than a flash point.  ECB is going to inflate to beat the band and as it sees fit in order to paper over any short-term fallout.  Dominoes?  That can be evaluated later.

Horseman 2:  Using the FXT (FXI) we gauged the breakout and targeted the mini bubble well.  Now we are watching key support and will evaluate whether it is at a buying opportunity at such time.  No theatrics, just market management.

Horseman 3:  Puerto Rico?  Really?  There are a lot more Puerto Rico’s (and Greece’s) lurking out there globally.  But as long as global CB’s keep printing, we keep playing this game of macro Whack-a-Mole.  Meanwhile this has little to do with US stocks.

Horseman 4:  Dudley jawbones a rate hike.  Ha ha ha…

CNBC has taken over the lead in the Dumbass Olympics from MarketWatch today.

All Greek to Me

By Biiwii

And it’s all Greek to the financial media as well.  MarketWatch‘s lead:

headline

US stocks were in need of a correction of some sort and on Friday at mid-day we had an NFTRH update showing the degrading state of US stocks (including the Dow rising hard to test a breakdown while leadership indexes signaled short-term bearish).  The Greek Debt Theater is a good accelerant, but that is all it is.

I’ll just ask you to remember that these inflammatory news events never but never have lasting impact.  They may be a trigger event, but they are not the reason for anything other than temporary emotional turmoil.  The media love that stuff because the media have to print something eye catching every day.

The US market is not bearish at this time*, but it was in need of getting bonked.  Well, bonk – either mini or maxi – in progress.

* Subject to change, as is everything in the macro markets.

Large Investors Can’t Buy US Dollars

By Steve Saville

I was recently sent an article containing the claim that during the next financial crisis and/or stock-market crash there will be a panic ‘into’ the US dollar, but that unlike previous crises, when panicking investors obtained their US$ exposure via the purchase of T-Bonds, the next time around they will buy dollars directly. This is wrong, because large investors cannot simply buy dollars. As I’ll now explain, they must buy something denominated in dollars.

If you have $50K of investments in corporate bonds and stocks, then you can sell these investments and deposit the proceeds in a bank account. You can also withdraw the $50K in physical notes and put the money in a home safe. In the first case you are effectively lending the money to a bank and therefore taking-on credit risk, but the deposit will be fully insured so the credit risk will be close to zero. In the second case you have no credit risk, but there will be the risk of theft. The point is that it is feasible for an investor with US$50K to go directly into US$ cash.

This is not true, however, for an investor with hundreds of millions or billions of dollars.

If you have $1B of investments and you want to ‘go to cash’ you can, of course, sell your investments and deposit the proceeds in a bank account. The bank will certainly be glad to receive the money, but less than 1% of the deposit will be covered by insurance. This means that more than 99% of the deposit will be subject to credit risk (the risk that the bank will fail), which can be uncomfortably high during a financial crisis. In effect, depositing the money at a bank will be risking a loss of almost 100%. Not exactly the safety you were looking for when you shifted to cash!

Also, if you have a huge sum of money then removing the money from the banking system will not be an option. First, you probably won’t be permitted to convert such a sum to physical notes, but even in the unlikely event that you are permitted you will have the cost of transporting, storing, insuring and securing the cash. This cost will be large enough to preclude the exercise. Furthermore, accumulating a physical cash position of that magnitude will have the undesirable side effect of drawing greater government scrutiny to your business dealings.

Therefore, if it’s US$ exposure that you want and you are looking for a place to safely park a large quantity of dollars for a short period, you really have no choice other than to lend the money to the US government via the purchase of Treasury notes or bonds. That’s why a panic ‘into’ the US dollar will always be associated with a panic ‘into’ the Treasury market.

Misunderstanding Saving

By Steve Saville

A Basic Misunderstanding About Saving

Keith Weiner often posts thought-provoking stuff at his Monetary Metals blog. A recent post entitled “Interest – Inflation = #REF” is certainly thought-provoking, although it is also mostly wrong. It is mostly wrong because it is based on a fundamental misunderstanding about saving.

Before I get to the main point, I’ll take issue with the following paragraph from Keith’s post:

Normally, you don’t spend your savings, only the income on it. In ancient times, people had to hoard a commodity like salt when they worked. In retirement, they sold it to buy food. Modern economies evolved beyond that, with the development of interest. Retirees should not have to liquidate their life savings.

Continue reading Misunderstanding Saving

Around the Web

By Biiwii

Market Analysis & News From Around the Pipes…

 

China: What’s Next?

By Elliott Wave International

What’s next for the high-flying Shanghai Composite?

With China’s main Shanghai Composite index up almost 40% this year, and the tech-heavy Shenzhen Composite index up more than 90% YTD, are Chinese stocks in a bubble?

It’s a legitimate question. You’ll find many answers out there, but this answer you won’t want to miss.

This answer comes from Elliott Wave International’s own Mark Galasiewski, the editor of EWI’s monthly Asian-Pacific Financial Forecast. Mark is on record for turning bullish on Chinese stocks almost a year ago, exactly on July 3, 2014. In that month’s issue — and at the time when almost no one was bullish on China — Mark wrote:

Continue reading China: What’s Next?

Biotech Sector Updated

By Biiwii

I am not here to promote the merits of Biotech or to claim it is or is not in a bubble.  I am just a dumb macro fundamentals and technical guy.  As such, I know that the macro has burped up all kinds of cheap, easy money that has flowed into speculative areas like the Biotech sector.  There are solid entities in this space, like Gilead for one (ref. April 21 NFTRH+ highlight), which are real companies transforming real qualities of lives, and then there are a lot of hopes, dreams and promotions.

There is also a secular bull market in Biotech vs. the balance of the Tech sector.  However, the post-2011 up cycle has now reached levels of leadership (and distance from the EMA 30) that have capped previous expressions of greed and momentum.

btk.ndx

But it is not so clear as to just say ‘Bio’s are due for a correction’.  Bloomberg is noting that the bears are gathering against the sector (IBB iShares), but the stock market has other leaders with higher measured targets and one of our ongoing scenarios is for a classic manic stock market blow off.

Look, I have been thinking a market correction could start by now and this correction has not yet come about.  Most recently, market sentiment took a real lurch toward over bearish and as usual, that proved supportive.  Now Bloomberg is highlighting the bubble in Biotech and the sharks are circling.

What’s a poor schlep to do?  Keep an open mind and respect the charts.  The monthly above shows that Biotech leadership is at a point that has triggered reversals, historically.  The daily chart shows the iShares (IBB) above initial support and filling a little gap.  Better support exists down to 360 or so.  MACD and RSI are each constructive.

ibb

Market Sentiment

By Biiwii

A snapshot of the latest data courtesy of Sentimentrader.com shows that Dumb Money had recently gotten the willies big time, while Smart Money firmed up.  Then a post-FOMC feel good fest unsurprisingly whipped up.  This has not yet brought the short-term sentiment indicators back to a contrarian bearish stance.

Short-term, Dumb Money got spooked and has been rebounding a bit with the markets, while Smart Money does the opposite.  This is not a bearish configuration.

smart.dumb.st

Long-term is a different story as Dumb Money has been trending higher with the markets throughout the post-2008 cycle.  So there is a supportive short-term condition for the market but an ongoing long-term bearish one.

smart.dumb.lt

Here is the aggregate of various sentiment indicators.  The red box shows what a really bearish setup looks like.  Still nowhere near that.

indicators

Sentiment indicators like all others, need to be considered as part of an overall view.  They are conditions, not directors.

Gold Demand Confusion

By Steve Savlle

More confusion about gold demand

“Nonsensical Gold Commentary” was the title of a recent Mineweb article in which the author, Lawrence Williams, laments that a significant amount of commentary published on gold can be uninformed and misleading. This is ironic, since the bulk of Lawrence Williams’ writings about the gold market (and the silver market) are uninformed and misleading.

When it comes to his gold-market commentary, Mr. William’s most frequent mistake is to focus on the amount of gold ‘flowing’ into China as if this were one of the most important drivers, if not the most important driver, of the gold price. To be fair, in this regard he has a lot of company and much of what he writes on the topic is copied from the wrongheaded analyses put forward by reputed experts on gold.

Continue reading Gold Demand Confusion