Monday, March 31, 2014

Jerked Around As The Odds Are Getting Worse For The Bulls

A Bad Tape
Not that any one has been able to predict the market this year, but I believe that the odds are becoming more risky for investors. I do no recall seeing such a convoluted mixed up split tape. Markets are always crazy towards the end of bull runs. But the dichotomy between different groups of stocks is now off the wall.  I disagree with anyone who believes that MSFT, IBM or value stocks are the new leaders that can sustain a bull market. The bursting of bubble type values may be healthy, but a market without growth leaders is not. This type of environment does not auger well for stocks. The crazy thing is that how the S&P 500 appears to have done nothing but levitate for the past three months as the quality of the tape has eroded -see charts below. But as we all know, market tops usually take lots of time:
It is also pathetic when the indexes bounce during the first hour like they did on Friday only to fade for the rest of the day. Just about every breakout seems to fail and every up move is faded:
Great Charts From Zero Hedge Depict The Split Tape

Other than Ed Hyman's ISI, is the best thing out there for economic charts that put things into context. Here are some charts that depict the market's deterioration under the surface as money tries to hide in non growth stocks.Click on the below link to see the charts that tell the story of the 2014 USA stock market:

Yield Curve Flattens More 
The economy still needs fuel and the Fed's strategy is to keep short rates low while deploying a gradual tapering off of QE. The problem is that the bond market is not cooperating. It has given us a flattening yield curve that has the potential to choke the economy and the stock market.  Will the yield curve steepen and get back to a stimulus mode? Does the Fed have the power to do anything about it? Will the economy strengthen enough to push up longer term yields? Right here and the yield curve now it stinks. Here is the chart posted by Charlie Bilello, CMT :

We Need A Free Trading Crises Free World Environment For Nations to Prosper. Things Are Getting Out Of Hand and That Cannot Be God For Stocks
President Obama does not understand the crises laden world that we live in. The Failure of US foreign policy has enormous implications In terms of keeping the world's economies in a safe free trading non disruptive environment. The world's balance of power is shifting and we are greatly to blame because we have left a void to be filled by nations with bad intentions.

I know that I am skating on thin ice when I start talking about foreign policy and the state of the world. However, whether one agrees with me or not, one cannot dispute that the reshuffling of the world's power balance is having an effect on the financial markets. The fact that we have to worry about this dangerous world and think about the consequences of different dangerous war scenarios around the world tells me to worry about the markets. 

In my opinion, we are living through the incumbency of by far the worst president of my lifetime.  This obstinate non strategic thinking President does not understand the difference between getting our troops on the ground involved in dumb wars verses being a strong international power that uses a smart geopolitical strategy deploying the intelligent use of strength in order to avoid wars. Today's world is a much more dangerous place than before President Reagan took office. On second thought, make that Kennedy and Nixon. In fact, in one fell swoop, it seems like all of the strategic foreign policy initiatives of the post WWII era are being undone. 

And to blame our military retreat all on budget cut backs or to avoid the past mistakes of putting troops on the ground is total poppycock. We had a lot less financial strength after WWII than we have now. We were in debt up the wazoo at that time. Also, we do not need to have boots on the ground in order to accomplish our goals. We just need to have will power, smart strategic foreign policy and the integrity to keep our word. Obama is playing a dangerous game with our budget. Entitlements are killing us and the only way to fix them is to acknowledge that life expectancy is much greater now than when FDR was president. We do not have to kick people to the curb in order to make a long term fix. A long term gradual actuarial fix that does not go into effect for say anyone over the age of 50 can do the trick.

- Russia

Yes Putin did call Obama and there is a possibility of a deal. But 80,000 plus troops are now ready to invade The Ukraine and 10,000 Russian troops are conducting nuclear warfare drills. I think that Putin is using Hitler's playbook in order to grab more territory. I do not think that Putin has Hitler's ultimate goals. But whatever the goals are, precedents are being set by Russia for all the world to see. Not that we are not hypocrites. But relationships with or without treaties are being made all over the globe that will cause the dominoes to fall as one superpower defends its allies and the other super powers defend their allies. This leaves the world in a tricky place where any misstep can lead to widespread war. Kennedy famously read Barbara Tuchman's "The Guns Of August" during the Cuban Missile Crises.

Yet all of the index futures are up tonight, probably based upon today's meeting between Kerry and Lavrov, plus Putin's call to Obama as I type this.  

- Iran

Iran is going to get its Atomic bomb and Israel is already getting prepared for war with Iran. The possibility of Israel attacking Iran and the US being forced to back Israel or let Israel hang out to dry to let the chips fall where they may is beyond scary. Russia is going to try and make Obama blink on the Iranian front.

Just to show what a crazy world this is, here are my armchair quarterback fantasy thoughts.  If I was Obama, I would talk tough about Iran and make a deal to back down on Eastern Ukraine in exchange for the Russians backing down on Iran, giving us the green light to surgically destroy the Iranian air force, missiles, and nuclear program. Of course we would need the skills of someone like Henry Kissinger to pull this off and a hard fast line must be preserved in the rest of Eastern Europe, but I digress. Just the fact that I am thinking about all these crazy things means that many other people in high places are gaming this insanity out too.  No matter what side of the issues one is on, all outcomes appear to be bad.

- Israel

Israel will do whatever it takes to destroy Iran's nuclear capability. I take Iran at their word why they repeatedly state that they will annihilate Israel. I believe that the deadline is June first, when our current sanctions "deal" with Iran ends. After that Israel will have no choice but to attack, because unlike Obama, Israel does not mess around with red lines. The problem is very complex because Israel's bunker busters do not have the ability to destroy Iran's underground fortified nuclear facilities. The USA's bunker busters do have that capability. That leaves Obama in the position to shit or get off the pot. No matter what the Russians or Iranians threaten, this is the big one. In my view, Obama has no choice but to shock and awe Iran's nuclear facilities, missiles and air force. It is the lesser of all evils. Yet I do not trust Obama. Israel does not trust Obama and the world has seen Obama blink and lie too many times to believe him.

- Syria

Just another mess, but this one was one of the major starting guns for the bad actors of the world to exploit the USA's weakness. Once the "red line" was crossed and Obama failed to act, bad things were set in motion. Now we read more reports of Al Qaeda making inroads in Syria.

- Saudi Arabia

The Saudis are bad people, but they are stable and on our side in the battle against Iran. They may be one of the keys to solving the Middle East's issues. If we Go after Iran, we can stop a Middle East arms race that will surely start and we can help to form an Israeli Saudi alliance that may help pave the way to Middle East peace.  Strange bedfellows, but the common enemy may just open the door. Obama just traveled to Saudi Arabia at the Saudi's urgent behest. I hope that they can help to make Obama wake up. 

- China

China is patient and is watching. If they see a strong USA, they will not make trouble with Japan, Taiwan, North Korea and so on. If they see us waver, they will be more attuned to have a Laissez-Fu-Yong approach towards any North Korean war mongering. furthermore, Nixon and Kissenger's d├ętente with China may erode further as Russia tries to ally with China by selling them much needed oil and gas.

- North Korea

Kim's haircut mania only needs a mustache to complete the Hitler act. He has become more emboldened recently and has repeatedly had many missile "tests" belligerently threat South Korea, Japan and the USA. Today he announced that more provocative nuclear tests are coming. One day his game of nuclear blackmail in exchange for aide is going to go too far.

With war like things such as NATO defenses being threatened and Financial warfare escalating with Russia we are at a critical juncture. Plus the world's economies are acting poorly and our economy is possibly running out of gas.

My Strategy Is The Same: This Is Not An Investor's Market

I am short C based upon their failure to pass the stress test and the bad yield curve.


I am long BAX because it broke out on Thursday after announcing that they will up the company into two parts.  On Friday afternoon BAX stated that the two parts are worth in the mid $80s - well above Friday's closing price.

One can place odds on any one of the above financial and World Black Swan scenarios. Or one can realize that at this point, investing is dangerous. If one is going to play, my advice is to be nimble by trading small and fast.  I do not intend to hang on BAX or C too long. 

BIG Capital Advisors and Seaview Partners are not responsible for your investment decisions. We believe very strongly in our opinions, but you must perform your own due diligence in making your investment decisions.
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