The market has gone nowhere since I last posted back in November. Neither up nor down, the market just can't sell off, as snap rebounds, often on light volume, materialize out of thin air. Some continue to call for new highs as there are really no other places to put your money.
I tested the SPY put market this week as I had a high degree of certainty that the market would finally sell off. In recent days, I've seen a number of tests of the highs fail. We had a three month test of the high in May that failed. Recently after a four week cycle, the market again failed to take out new highs and just recently, on the daily level, SPY failed on a three day test of the high. I do believe that perhaps even on the hourly chart, the three period test of the high failed to produce new highs.
I got a quick strike from 212 to 210 but then took my profit as I expected some possible upward movement. This did happen on the Dow average, thanks to Nike, but the SPX index gain was lackluster to say the least.
The news out of Europe set the stage for a potential disaster with the Troika telling Greece that the game is over and there will be no extension granted to them to make payments due coming in the next few days. The game is growing tiresome as Europe cannot let Greece default. And if Greece does fail to come up with the money to pay the interest due on their debt, it will be labeled as something other than a default. This is because the last time the Troika bailed out Greece, Greece was not allowed to default on it. As such, it is considered Sovereign Debt and can be used as High Quality collateral to use for high risk derivatives and other bonds. So if this debt suddenly is no longer the bedrock of support for billions if not trillions of other risky bets, the "house of cards" collapses and we have another Lehman moment from 2008-2009, but this time worse.
The European and IMF authorities have been talking confidently saying that Greece is but a small piece of the puzzle and that there would be no "contagion." The truth is, the last I heard, European banks were leveraged something like 26:1 so a loss of just 4% of their capital would render them bankrupt, insolvent, broke.
My guess is that the US, with their unlimited supply of taxpayer money, will come in and bail them out, in the interest of saving the entire global banking system. That's my guess. So any big drop early this week, I'll be buying some call options as most certainly, some hero will step up to save the day. Really doesn't matter that the US is also bankrupt, only no one as of yet has asked that their debt be repaid. So this Ponzi scheme will continue to go on until it doesn't any longer.
I still favor picking up physical silver and gold bullion as the prices continue to fall. It could be tough for some to be buying precious metals and seeing the value fall continually. To get over this trauma, you have to realize that the Federal Reserve has quadrupled the amount of money that is in circulation. If the markets were not manipulated to the degree that they are, your dollar would be devalued down to 25% of what it was before all of the money printing. It may appear strong against other world currencies but that should only reinforce the reality that the era of the US Dollar and other paper money (that has absolutely no backing) is doomed. Chances are, it will happen in the blink of an eye.
But in the event that it doesn't, or you just want to continue accumulating paper wealth, my pick of the week is BHP Billiton (BHP). Currently trading around 42.70, it has a short term upside to 48 and a longer term target of the 40 month moving average, currently around 60.
While the month of June still has a couple of trading days left, I like the monthly chart action showing my favorite three month test of the low formation. As you can see, in March, BHP hit the 42.5 level and three months later, here in June, it appears to be holding support.
The Stochastics indicator, on the bottom, shows a rising trend indicating some degree of strength building into the pricing action.
My clincher, and the reason why I took a pilot position on Friday is a further test of the lows on the weekly basis.
Barring a market melt-down and a collapse to new lows here, I would expect at least a continuation of the sideways pattern and a rise to 48-49.
But for safety sake, it's good to know that the stock pays a 5.44% dividend ($2.48). This is a foreign security so it is best held in an IRA account. Options are also a good way to play it.
ON THE WATCH LIST
I'm watching Monsanto (MON) as it has been plummeting lately
I do like to buy stocks when they hit the 40 month moving average and have a rising trend. Haven't done my homework on this one yet, just looking at the technical. It appears headed lower.
Still being able to buy a global leader such as Monsanto, a company that has all of the political clout that a global company can have, at a good price, is an opportunity.
If you are a socially conscious investor however, you may want to do your own homework on this one. As I mentioned, Monsanto has tremendous clout supported by the courts. They are also a key producer of genetically-modified seed which is very controversial in many parts of the world. I would suspect however, with the TPP trade plan, another one of those "you have to pass it before you can see what is in it" legislations, you can bet that Monsanto probably has their hands in this one and will benefit handsomely.
November 28, 2014 - 2:37 PM
The Daily Treasury Statement that was released Wednesday afternoon as Americans were preparing to celebrate Thanksgiving revealed that the U.S. Treasury has been forced to issue $1,040,965,000,000 in new debt since fiscal 2015 started just eight weeks ago in order to raise the money to pay off Treasury securities that were maturing and to cover new deficit spending by the government.
During those eight weeks, Treasury took in $341,591,000,000 in revenues. That was a record for the period between Oct. 1 and Nov. 25. But that record $341,591,000,000 in revenues was not enough to finance ongoing government spending let alone pay off old debt that matured.
The Treasury also drew down its cash balance by $45.057 billion during the period, starting with $126,568,000,000 in cash and ending with $81,511,000,000.
The only way the Treasury could handle the $942,103,000,000 in old debt that matured during the period plus finance the new deficit spending the government engaged in was to roll over the old debt into new debt and issue enough additional new debt to cover the new deficit spending.
This mode of financing the federal government resembles what the Securities and Exchange Commission calls a Ponzi scheme. “A Ponzi scheme," says the Securities and Exchange Commission, “is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors,” says the Securities and Exchange Commission.
“With little or no legitimate earnings, the schemes require a consistent flow of money from new investors to continue,” explains the SEC. “Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out.”
In testimony before the Senate Finance Committee in October 2013, Lew explained why he wanted the Congress to agree to increase the federal debt limit—and why the Treasury has no choice but to constantly issue new debt.
“Every week we roll over approximately $100 billion in U.S. bills,” Lew told the committee. “If U.S. bondholders decided that they wanted to be repaid rather than continuing to roll over their investments, we could unexpectedly dissipate our entire cash balance.”
“There is no plan other than raising the debt limit that permits us to meet all of our obligations,” Lew said.
“Let me remind everyone,” Lew said, “principal on the debt is not something we pay out of our cash flow of revenues. Principal on the debt is something that is a function of the markets rolling over.”
The vast amount of debt that the Treasury must roll over in such a short time frame is driven by the fact the Treasury has put most of the debt into short-term “bills” and mid-term “notes”—on which it can pay lower interest rates—rather than into long-term bonds, which demand significantly higher interest rates.
At the end of October, according to the Treasury’s Monthly Statement of the Public Debt, the total debt of the federal government was $17,937,160,000,000.
Of this, $5,080,104,000,000 was what the Treasury calls “intragovernmental” debt, which is money the Treasury has borrowed and spent out of trust funds theoretically set aside for other purposes—such as the Social Security Trust Fund.
The remaining $12,857,056,000,000 was “debt held by the public.” This part of the debt included $517,029,000,000 “nonmarketable” Treasury securities (such as savings bonds) and $12,340,028,000,000 in “marketable” Treasury securities, including bills, notes, bonds and
Treasuring Inflation-Protected Securities.
But only $1,547,073,000,000 of the $12,857,056,000,000 in marketable debt was in long-term Treasury bonds that mature in 30 years. These bonds carried an average interest rate of 4.919 percent as of the end of October, according to the Treasury.
The largest share of the marketable debt--$8,192,466,000,000—was in notes that mature in 2,3,5,7 or 10 years, and which haf an average interest rate of 1.807 percent as of the end of October.
Another $1,412,388,000,000 of the marketable debt was in Treasury bills, which carry “maturities ranging from a few days to 52 weeks,” says the Treasury. These $1.4 trillion in short-term Treasury bills had an average interest rate of 0.056 percent as of the end of October, according to the Treasury.
The continual rolling over of these short-term, low-interest bills helped drive over the $1-trillion mark the new debt the Treasury had to issue in the first eight weeks of this fiscal year.
The Treasury has taken out what amounts to an adjustable-rate mortgage on our ever-growing national debt.
If the Treasury were forced to convert the $1.4 trillion in short-term bills (on which it now pays an average interest rate of 0.056 percent) into 30-year bonds at the average rate it is now paying on such bonds (4.919 percent) the interest on that $1.4 trillion in debt would increase 88-fold.