7 High Yield Paying Stocks with Huge Upside (Follow Up)
Regarding these 7 high yield paying stocks, those of you who read my post on Seeking Alpha, a quick update on the positions after all moved favorably since the buy alert. For clarification, I am not a yield chaser, even a high yield chaser, but there are times when I recognize market anomalies and as a professional, I have to engage them. Right now, the markets remain undervalued regardless of the talking heads screaming overbought everywhere. Hedge Fund money is left on the sidelines and they’re lagging the S&P by a whopping margin. This is not a market that will drop because there are huge bids underneath desperate to get loaded. Some might construe this as a contrarion signal. Perhaps for the short term, but in the long-term, that capital will drive this bull market for the rest of this year, absent a few violent shake-outs. So stay strong.
Plus, going after these high yields in sectors I feel are undergoing powerful recoveries provides me with a bit of a cushion to deal with any downward moves. I’m not a yield chaser, nor am I someone that suddenly decided to get into penny stocks, with regards to GIIZF. This stock, “Global Diversified Investment Grade Income Trust II”, is just a credit derivative. It’s not an operating company, it’s name makes you think it’s a fund, but all it is is a holding vessel for a Credit Default Swap and a lot of cash. For those that wanted to short the housing market with laser like precision like John Paulson, who pocketed around $10 Billion for buying up Swaps on Mortgage Backed Securities, this would have been the vehicle for the main street to use as their go-to short position. Small investors can’t engage in OTC Swaps, so a little creativity is required to trade investments usually reserved for the big boys.
Swaps are like insurance plans against a borrower, or in this case, an entity full of toxic MBS’s (the borrower). The Swaps pay if the borrower defaults. Even if you don’t own the bond that you’re supposedly “insuring”, it doesn’t matter in this insane world of credit derivatives. So the same product “borrower” can be insured an unlimited number of times, and hence, a company like AIG, with real assets all over the world, blows up because 3% of its business was dealing in writing CDS insurance, and that 3% blew the other 97% up. So some idiots who thought they were geniuses selling esoteric CDS and CDS-Squared thinking it’s easy money and fat bonuses, took down a company with over $100 Billion in REAL ASSETS, which dates back to the late 19th century as a small insurance agency in China. Conspiracy theorists will tell you this was an organized and well orchestrated attack designed to deliberately bring down AIG in the interest of the Chinese, who wants her insurance market back from AIG. Imagine insuring 1.4 Billion Chinese citizens only to export the income to the US. And it happened during Hank Paulson’s watch, who is our most connected Statesman as it pertains to China. No single person in government or the private sector had as close of ties with China’s ruling elite than Hank Paulson.
The housing calamity was coming regardless of AIG and China. The destruction of AIG was easy. They either found stooges or installed stooges willing to write unlimited Credit Default Insurance on the same credit, over and over and over. Imagine buying fire insurance on your home, and also the entire neighborhood around you and across the street also buying fire insurance on your home. Since the others don’t own the home, only you do, the only way they make money is if your house burns down. It’s like buying life insurance then killing someone for the proceeds. Anyway, your neighbors will have one heck of an incentive to burn your McMansion down right? They would be paid say $1mm just like that. Well with AIG, they were insuring in $5mm chunks and had over-insured by the trillions. So when a single MBS basket failed, the whole firm went down, and guess who held the largest collection of CDS insurance? Goldman, Societe Generale, BNP Paribas, JPM, C, HSBC and Deutsche Bank.
They underwrote the loans, they insured the loans, then they over-insured on the loans, and kept buying insurance from a willing seller totally clueless about what was happening at the Macro level in the global economy. So they kept selling and the smart money kept buying, including hedge funds. The payout immediately put AIG into Bankruptcy, the first tranche of the TARP, $375 BILLION, was diverted from what Congress had imagined: Lending to the needy, loan modifications, getting the credit market working by buying toxic assets, etc… Instead, that first tranche went straight through AIG and paid the CDS holders 100 cents on the dollar. An enormous amount of wealth was created on the back of AIG’s demise. I can’t imagine something like this being an “accident”.
It was a full frontal assault using financial weapons of mass destruction to destroy AIG and in theory, return the Chinese insurance market back to the Chinese. The assets of AIG live on all sold off to lucky buyers waiting on the sideline for the final act, to pick up the pieces when the attack was over. The company’s individual operating entities, of which there were dozens, with real assets like the largest Aviation leasing company in the world, were all sold off to vultures probably using money earned from the CDS payouts. So the 97% of AIG that wasn’t involved in bringing the company down continues to exist, as other entities with new owners, but no jobs were lost except for the entire unit that brought the company down. Of course, after they were called back to AIG with upfront payouts of dozens of millions per trader, and massive bonuses when it was all over, so they could unwind the firms positions because no one else could figure the positions out.
A classic tale of American Wild West Capitalism.
Here are the stocks and a short update on immediate action:
Adding to the following:
CPLP: After several days of rest, I see another spike then another plateau happening within the coming week. Yield = 11.45%
BGCP: Looks like “chart painting” on the close to resemble a break below support. I think the stock wants to close the gap at $7.12. Yield = 9.29%
BK: Not so much a yield play as a Macro trade. BoNY has an enormous custodial asset business. The slightest uptick in rates and the earnings for this bank will begin to rise exponentially. The chart looks solid for a long-term position and in the short-term, a nice base has been set near $23.50. Yield = 2.9%
TGS: An ADR from Argentina. Institutional Investors are brushing off Argentina like it’s Russia, because of fiscal policies that just don’t make sense and seem too populist. But Argentina is no Russia. They are surrounded by Brazil and Chile, two booming economies. And TGS owns the largest pipeline in Argentina. This is a major asset and the yield is mind popping = 54.43%. Factor that yield, which is paid once a year between April and the end of May sometime, and you’ve got a hidden gem. Stocks tend to slide a little before their dividend then recover immediately after paying it. I haven’t yet quantified why but I’m close to figuring this anomaly out. For now, I buy on any dips but so far, all dips have recovered rapidly. It looks like classic shaking of the tree to loosen weak hands.
IGD: ING Global and Dividend Premium Opportunity Fund (mouthful). This is a solid fund with the same strategy that I’m employing right now with respect to pursuing high yield/high potential gain stocks. IGD yield = 11.72% with an ex-div of April 2. That means, it’s too late to buy it for the dividend but there is tremendous upside potential and there’s also the next dividend. Remember, stocks settle T+3. So if ex-div is April 02. you had to own it 3 trading days before (today). The good news is, this stock pays a MONTHLY dividend. So buy it now for the May payment. Concurrently, the upside potential for gains is also huge (or else I wouldn’t even be all over it).
BAC: This isn’t a dividend trade. It’s a long-term accumulation of a company that will be the world’s largest bank in a generation. It offers .42% which went ex-div on 2/29/12. The $9.40 level is a short-term support so a spike below will set off a lot of stops and create liquidity for those hedge funds desperately trying to get into the market on any chance the market gives them. They’ve been lagging so bad it’s more embarrassing than when they were getting slaughtered in 2008. So their money is bidding on this market non-stop and aggressively, that’s why we won’t see a sustained downturn this year at all. We’ll see short-term, hard and fast spikes down. But that’s it.
And for the penny stock I was talking about: GIIZF. Remember, this is not an operating company. It holds a single credit derivative and a ton of cash. The original buy orders went out on Seeking Alpha around $0.61 and the spike to $0.90 today is just a validation of my assessment. This is an undervalued credit derivative with a revised yield after today’s spike of 31%! That’s still enormous. Plus, you’ll be catching it on the rise rather than waiting like we did, but at least patience has its perks. We’re up 50% on this stock and have a large position and will keep building. This is a bullish play on a recovery in housing over the next 2 years. If you don’t think housing will recover in that time frame, at least to some extent, then avoid this stock.
TGS – 50% Yield Plus Upside Potential – Transportadora de Gas del Sur SA (NYSE)
Transportadora de Gas (TGS) was mentioned recently with the caveat to show a little patience while the stock built a base just under $3. Most, if not all downward pressure on the Bolsa de Comercia in general is due to institutional investors shunning Buenos Aires like it’s Russia all of a sudden. The Argentine Government’s most recent attempt to control currency flight is another glaring indication that either Buenos Aires is a closet Fascist where capitalism is concerned; or they just can’t seem to figure out the true spirit and fundamental principles of Institutional Investor’s’ financiers and Capitalist’s of the free world. This habit of repetitive currency devaluation following massive dollar borrowing could just be the ideology of a ruling elite who feels they’re acting on behalf of all countries suffocated by the IMF’s severe and extremely strict financial austerity packages. As if to snub their nose at continued access to the Paris Club’s checkbook. Whatever the mindset in Buenos Aires, the real people that suffer are its middle class, who are constantly subject to overnight dollar restrictions and Peso devaluations. It’s nnot enough citizens can’t take their own money and convert it to another currency, but they also have to swallow the indignity of being forced to hold their savings in Peso’s eventhough they’re aware of an impending devaluation.
Peter Thiel, the founder of PayPal, had a noble idea to build a company that would one day allow citizens of the free world to rid themselves once and for all from financially corrupt regimes that havve engaged in this sorrt of behavior since the invention of fiat currencies. With PayPal, anyone anywhere can move their money as long as they have an internet connection and a source to receive the funds. No longer bound by government regulated banks that strictly limited Peso selling and forbade citizens from travelling out of the country with more than $10,000 (sometimes less), PayPal was determined to be the savior of capitalism. That was until eBay came into the picture and ruined nobility for the sake of a corporate war for an asset that eBay wanted so badly it was willing to put pressure on PayPal by losing all the money it needed to until PayPal folded and gave up. What PayPal never expected was the sudden infatuation eBay buyers and sellers found towards PayPal. In fact, PayPal became such an integral part of eBay’s business model that it began to threaten the viabilty of the business as an unrelated party. At the same time, PayPal couldn’t stop the viral effect that eBay caused, nor the reaction to build their own payment system when PayPal wouldn’t consider selling. Realizing a bulk of their revenue was tied to eBay transactions whether they liked it or not, Meg Whitman cornered the company into being forced to sell out in a game of Russian Roullette which would end up with PayPal dead and buried. This was Whitman’s most important acquisition as CEEO of eBay and PayPal is the most profitable company within eBay now, worth multiples more than what eBay paid for it, which was close to $4.6 billion, not the $100 billion Thiel once envisioned, nor the savior of the poor masses from greedy, corrupt governments. But such is business and Whitman was a masterful chess player in a game PayPal had no chance of winning because their customers had tied them intricately with eBay, therefore immediately weakinging PayPal’s negotiating position. And as if that wasn’t enough, eBay first through a head fake with a decision to build thier own platform rather than buy PayPal, which meant another fallen star like Netscape. Knowing these two facts would put PayPal in a quandry, she tightened the noose and then went in for the kill by launching a law suite against PayPal claiming the company was illegally benefiting from a perceived association with eBay and that it no longer would allow PayPal as a payment source. We’ve all learned that eBay users are a finicky bunch and don’t hold back when they’ve got something to say. So with this final step which WHitman thought would be the coup de gras to get her her prize, she instead rose the ire of eBay losers to such an extreme extent that eBay for the first time in her history witnessed a mass exodus of users to Yahoo which at the time had its own auction site. In a panic, eBay significantly increased the cash price they had to pay for a quick acquisition of PayPal as the pendulum had swung back in PayPal’s direction and PayPal, to pour salt on the wound, opened a 2nd front against eBay by entering into merger talks with Yahoo. Yahoo was known to be an extremely slow decision maker at the time, with very little leadership from their hippy, zen CEO who didn’t even see the internet coming the way it did, and instead of tying up PayPal with at least a payoff clause to get paid if eBay ended up buying the commpany after Yahoo opened negotiations, nothing happened and PayPal took the $4.7 billion and Thiel launched Clarion Capital, a hedge fund located in San Francisco known for its consistently solid performance, and Elon Musk launhed a Space tourism company ultimately winning the prize for the X Plane. Musk is also the head of Tesla Roadster, which is an amazing all electric vehicle and eBay continues to live because of the massive amounts of free cash flow thrown off by her Golden Egg. As for Argentina, they continue to rape their middle class creating rare jewels in certain companies with assets that are being valued at a tiny fraction of their replacement cost. Not even any goodwill, a multiple on revenue, sales, book value, cost of capital, nothing.Oh, but those are all Western Capitalist measures, but wait, Argentina is in the West, below the equator but still in the West. Nevertheless, the currency control regime remains in place and as long as it does so, the country remains toxic to major institutional capital inflows. It doesn’t mean individual investors with their ear to the ground walking the streets of Buenos Aires to gather color won’t find an occassional gem that if held long enough, would generate tremendous wealth for the investor in exchange for taking on significant upfront risk. But these discrepancies are what makes financial markets ideal places for speculators who focus on “regulatory arbitrage”.
As a result, many highly valuable Argentinian companies with operations throughout South America are suffering the market’s wrath as institutional investors punish by deeply discounting Argentina’s companies because of the punitive costs imposed by foreign investors, specifically the major banks of the world. Not because of any broad macro assumptions that Argentina will fall into the hands of the Bolivar Revolutionaries and become a Socialist country, or the completely zero value placed on being neighbors and trading parrtners with South America’s 2 hottest economies. As a result, contrarian players can exploit these discounts because at the end of the day, the only true measure of a company’s value is the amount of free cash flow it’s generating. I’m focusing in on TGS because of a combined yield, upside long-term potential and enough cash to maintain their dividend. The company’s structured like US based energy trusts, and the stock is off the radar of most institutions, which is how I like it.
TGS runs one of the largest pipelines in the region, spanning over 8500km’s. 50% of revenues stem from non pipeline related business. Aside from the monster annual yield, plenty of cash on hand and free cash is being generat to continue the yield. The company is structured similar to US based energy trusts which hold hard assets and pay out a majority of income but the stock is artificially undervalued because large institutional investors are fed up with the fiscal indiscipline of the government. Which leaves great opportunity for smaller fish to feed where others aren’t looking. Te stock is offering both a high dividend play as well as upside capital gains potential. The discount in the price of the stock is significant enough to reduce the risk on this trade substantially. Trading at a Price to Sales (TTM) ratio of .86, Price to Tangible Book (MRQ) of .44, and a Price to Cash Flow (TTM) of 2.96, the quantitative metrics indicate the stock is undervalued from 30% to as high as 140%. Trading just above 52-week lows, with an ongoing yield of 50% (yes, fifty percent at current share value) paid annually in early summer, institutional ownership is around 2%. You can take that as bullish or bearish. In any case, the trade is highly speculative and should be considered for a small portion of your risk capital, not a whopping majority of your portfolio. I like profit margins and after tax net income.
The chart below is a monthly chart with a 9-13 point countdown reversal overlay. You’ll notice the clutter of green circles under current prices. This is a monthly chart so don’t expect the stock to catapult higher in the short term. It will be a slow and stead crawl and there’s even a chance the stock will dip below 2.85 before heading back above 3, although it got as high as $3.12 on Tuesday before pressing back down into its 5-day closing range. I’ve been observing the tape and believe the stock is under accumulation and will make an eventual run to $5-$6 per share. If a dividend is paid out before then, great, the last dividend was $1.48. That will cover half the cost of the position and the rest is gravy.
Invitation to Join Proprietary Traders Wordlwide
With all of the clutter and insanity due to groups turning into recruiting grounds and advertising forums for esoteric and mindless products, I was compelled to launch my own LinkedIn Group which is being emphatically embraced by the systematic and discretionary proprietary trading universe, to my delight.
I know many of you are Prop. Traders, whether equities or swaps or paper, or whatever. It doesn’t matter. The forum is to exchange ideas and share trades and various perspectives from highly qualified and advanced traders around the world (including myself, of course). It goes without saying that if your LinkedIn Profile indicates you are a recruiter, or unrelated to content of the group, your request to join will sadly but most assuredly be declined.
With that being said, I invite you to join Proprietary Traders Worldwide
Algorithmic Trading Concepts in Search Engine Optimization (SEO) and Marketing (SEM)
I believe free white papers are an invaluable resource when written by a niche expert, and this is one of those instances where I think knowledge has to be shared when it is discovered. NetConcepts has written a wonderful (and free) white paper worth bringing attention to. As much as I use writing as a platform to freely express my thoughts and ideas, often I find myself blogging as a way of speaking to individuals in my life (somewhat anonymously) such as a colleague, thinking this indirect form of communication is a more subtle way of taking leadership initiative.
Perhaps I am trying to help my partners, employees and colleagues discover their core skill sets’ application to search engines. In other words, what are you very good at doing and how can this be directly applied to implementing a successful marketing campaign or building a successful business? Many companies still do not understand the concepts of “direct to consumer” (D2C) marketing. Many are timid to even broach the subject for fear of looking prehistoric in front of their colleagues when most members of the executive floor are also quite uninformed.
In the trading community, there are many proprietary quantitative traders that became obsessed with cracking the long tail riddle and focused their energy on search engine algorithmic research rather than building trading algorithms. Read the rest of this entry »
Stealth Drone Handed to Iran by US on a Silver Platter
February 11, 2012 - With the recent transfer of next generation Stealth technology to Iran, too many questions remain unanswered. The unharmed take down of a Stealth Drone by Iranian military intelligence is considered one of America’s biggest military blunders. What’s even more embarrassing is Iran’s recent decision to return the Stealth Drone to the US, but as a 1/8th scale replica toy! Even the original take down by Iran begs the question if this was truly unintentional. Noting this was the eight drone to have landed in Iran without a scratch; why America would send their most advanced Stealth Drone deep into northern Iran when present spy satellites, and an as yet undeclared military plane which replaced the SR-71 Blackbird would have made far more sense, makes one wonder what’s really going on beneath the surface. A Stealth Drone designed for real-time battlefield intelligence during firefights, not for low-level spying over highly secure military facilities, makes absolutely little sense as the “instrument of choice” from the sole superpower. Nonetheless, they sent a Stealth Drone along with satellite codes that allowed Iranian military intelligence to spoof the internal navigation and trick the drone into landing in Iran. If this were a Hollywood Sci-Fi production, it would be a huge failure because of the total lack of plausibility. But it wasn’t Hollywood, and it wasn’t science fiction. It was science fact.
Nothing from the UN Security Council has had such a significant impact to have altered Iran’s behavior in any way. China and India have openly announced they will ignore the most recent sanctions. Russia never cared. Iran’s already using their “Sour Crude”, which is difficult to refine, as barter payment for whatever they need on the open market, thereby technically circumventing the law and preventing countries from breaking the sanctions. Most troublesome is the recent “takeover” of America’s most advanced stealth drone. Realpolitik’s? The US sells $187 Billion in collective military hardware to dirt dwelling, ass-backward government’s that still sleep in tents and pray 5 times a day about America’s destruction; who emphatically buy every item on the list because they’re dumb enough to believe Iran will “eventually” go Nuclear (like it already hasn’t? Come on. And Santa Clause lives on the Moon).
Selling thousands of tons of almost-expired military hardware at huge premiums because payment is accepted in sweet Saudi Crude pumped directly to America’s 5th fleet parked in Qatar, which by the time of delivery over the next 5 years, will be inferior to even Turkey’s NATO hardware (of course). All the while, America’s most important and strategic ALLY in the region, Iran (yes IRAN), is appeased and diverted from any pre-emptive attack against their eternal Arab enemies by “giving” them more advanced hardware to make their neighbor’s new toys impotent. All after Iran’s 2 most significant regional adversaries are bombed to oblivion, finally achieving the Nixon Doctrine of Iranian Hegemony in the Greater Middle East! No laws are broken after lessons from Iran-Contra paved the way for circumventing democratic ideals where citizens still believe in the sanctity of their Constitution. The US, by giving the Iranians satellite codes that China and Russia working together couldn’t have hacked for 20 years, allowed Iran to hack the drone’s internal GPS and make it land without a scratch by spoofing its navigation to think it was landing in Iowa or a nearby US Carrier!
This is America’s MOST HIGHLY ADVANCED and MOST EXPENSIVE Stealth Drone! Although a small drone, the stealth technology can be reverse engineered into highly advanced fighters, bombers, even naval carriers. This drone was not designed for “spying” at low levels on deep underground nuclear facilities so far north that detection would almost be assured at such low altitudes! To believe such a preposterous notion, that they’d send their most prized and expensive drone instead of using satellites, or their SR-71 replacement supposedly called the “Aurora”, or even the Blackbird itself, all of which can see Khamenei’s butt crack from space through 6 layers of Turban clothing, suggests you’d also believe 9/11 was perpetrated by a bunch of cave dwellers with 1960 era HAM radios. No laws were broken; no Arabs screaming about the duplicitous policies and the fact that their new toys are powerless against the rapidly advancing technology of Iran’s military. The Russian’s and Chinese realizing more and more that they’re caught in a “Kissinger-esque, Triangular Noose” and political headlock as pawns in a game invented by the military-defense establishment that Truman so vehemently warned against, before the same establishment took the life of one of America’s greatest President’s for wanting to end the Vietnam war.
Never forget Oliver Stone’s JFK, where Kevin Costner’s character said “Nothing is what it appears gentlemen. What’s black is white and what’s white is black”. In Persian, there’s a saying that if transliterated means “Politics has no mother or father”. What that actually means is that in geopolitical brinkmanship, there are no rules, no laws, no ethics and no moral checks. It’s about achieving strategic goals while circumventing the legal structures designed to protect the will of the people. And the US Constitution? Toilet paper is valued more among the narcissistic neo-cons than what our Founding Fathers wrote. Rumsfeld, Bush, Cheney and the more permanent members of government, like the Joint Chiefs, the Supreme Court, the Federal Reserve Chairman. Events set in motion after the American invasion of Mesopotamia are still in motion and far short of approaching an end game, the fact of the matter is we’re now approaching the next stage of multi-stage imperialist power grab designed to project and embed American military doctrine all over the world as Earth’s population is reaching critical mass, where growth is beyond exponential and has gone parabolic. In 200 years time, water shortages and food rationing will be the norm. War won’t be a thing of the past but rather a more common element of the future. Strategic resources will have been depleted everywhere but here on US soil. This is beyond reading the tea leaves. This is about the expansion of the American Empire as a fait accompli. Iran’s theatrical role as the “little Satan” under the shadow of America as the “big Satan”, has actually strengthened and furthered America’s goals of becoming the permanent sole super-power for the next millennium, and to do so, they need a key ally to stand up to the Russians and Chinese. 100 years ago, that would have been the Russians and the British. During Iran’s most vulnerable moment in her 3000 years of history, it was the US that kept the multi-ethnic country together when Russia and England were ready to carve her up into three parts. It was the US that came to Iran’s aide when she was bankrupt.
Every other country in the region is either less than 100 years old or continually shifting as the sand shifts in the deserts of the Greater Middle East. However, Iran’s borders have remained relatively unchanged for almost 1000 years, in a region where ethnicity defined nation-state borders. With Iran being a vast multi-ethnic country, it was never carved up and will soon find itself at the same table as other global powers. Our hope, the world’s hope, is that when that day comes, clerics and mullahs are not at the head of a Theocratic Dictatorship. Democracy is in the blood of all Iranians and will eventually prevail. If Reza Khan, who became Reza Shah, founder of the brief Pahlavi dynasty, thought to accept a “Republic” as his reward for ridding his beloved homeland of the corrupt Qajar Dynasty, instead of self-coronation and the title of King of Kings, then Iran would be the 4th most advanced nation in the world today. But alas, Persian pride always manages to muck things up and the concept of selfless behavior is as rare as the truth in the very Persian concept of “Taarof”.
Weekend Update on Greek Debt and the Euro
Early Thursday morning, I commented on an article on FT.com discussing the most recent developments surrounding the Greek Debt Drama. The article was written on LinkedIn within a private group called “Proprietary Traders Worldwide”, a group I strongly recommend because it’s spam free, no recruiters, marketer’s, self-promoter’s, or the like. Members are all individually approved, posts are screened until the member establishes credibility thus avoiding future moderation of their posts. Every group turns into a Spam factory on LinkedIn but this one won’t. Not On my watch, so CLICK HERE to join if you’re interested…
But that’s not why I’m writing. In my original post, I suggested that the deal breaker, the actual sticking point that caused all news outlets to reel and backtrack earlier statements that a debt package was finalized, pertained to Pension cuts demanded over a three year period. I suggested this was a head fake by the Greek delegates designed to further annoy not only the European Troika, but also financial markets. The timing was just too obvious. Greece’s elections are 2 months away, at the same time, huge debt payments will come due as will a massive swap. Taking $325 million out of the pension fund right now will almost assure a loss for the incumbent government, which technically should go anyway as they are responsible for the present crisis. I believe this is why the European 3 put the largest of the 3 cuts in the first year, in effect guaranteeing a new government in May. Greece said they would be able to find the cuts elsewhere, specifying Defense and a few other areas. This stunt deliberately timed to win political points for a badly hurt government, was executed flawlessly; and forgive my inquisitive side, it also provided those delegates an opportunity to make a bundle of money real fast. The same delegates that supposedly agreed on the package not more than an hour or two before the sudden volte face, and had gone to their respective press teams to announce the agreement; which sent a relief rally through European markets as well as the US.
Suddenly, acting shocked and surprised, the Greek delegates were back on the news saying they wouldn’t accept the paragraph which demanded $325 million in pension cuts this year. They didn’t mention it to the Troika first but went straight to the press. Why? Because it won them badly needed political points with the general masses because it presented them as defenders of the little guy’s pension. Would they have jeopardized this crucial bailout over an amount equal to less than .01% of the bailout if it wasn’t an election year? Of course not. They didn’t mention the cuts in the ensuing two years because the elections will have passed and hopefully the government will have stayed put, at least that was their not so subtle strategy. Granted the Troika seemed rather punitive with regards to how the scaled the pension cuts, stuffing the largest cut in the current year, almost to ensure a defeat for the present Government, and rightfully so as they are responsible for this mess. The Greek counter-move was brilliantly timed and also extremely profitable for representatives of the people who founded democracy but today behave in a manner hardly worthy of their history.
Honestly, does anyone really believe they missed this single paragraph after several weeks of negotiations as well as one final read through by dozens of Greek delegates which had to make sure Athens was on board as well? Please. Suddenly, this paragraph, which was so damning that it was a deal breaker compelled the Greek delegation to go straight to the press to make their case and proclaim the cuts will come from elsewhere, such as defense for example. As if that wasn’t discussed throughout these couple of months at all? Why would they plunder the pension fund if they had $325 million to chop off their defense budget, you know, in case Turkey attacked over Cypress. Can you imagine one NATO country attacking another NATO member? So why the necessity of a defense budget for Greece anyway? They’re a country that if threatened by any outside force, we’d probably witness most of the whole world coming to her defense. It’s Greece for crying out loud! You know, the home of Alexander the Great and the Spartan’s of the movie 300, and above all the founders of democracy. Who would dare try to invade a NATO country with such historical significance? Turkey? Perhaps one of the Troika out of mere frustration? Maybe Italy because Rome is jealous of all the attention Athens is getting? Come on people, the truth is never on the surface. In Persian, there’s a saying that “politics has no mother or father”. The meaning of that, as strange as it sounds like most Persian transliterations, is that Political and Diplomatic brinksmanship have no rules, no code of ethics or sacred guidelines. No Geneva Convention to prosecute anyone for playing hardball. In fact, the harder you play, the better you are, which means “Everything goes” and that’s the only rule.
In classic Greek fashion, they pulled a stunt that sent a wave of volatility through financial markets which I’m betting members of the Greek delegation profited from handsomely. Why else announce an agreement only to reverse it in the publics eye minutes later? No, it couldn’t have been designed intentionally to gain the vote of the pensioners, for that’s just uncivilized! Especially after all countries made respective announcements to the press and now they had to explain what happened and why. These announcements caused rallies in the Euro, bonds, and stocks all over the world prior to the Greek delegations about face. And I’m betting a shaved head for 1 year the delegates put on massive positions against the direction of the relief rally before going public with their news straight to the press. Not even an attempt of warning members of the Troika because God forbid they should rush off to also call their brokers. Then the regulators might smell something rotten. Well done. I mean, these people didn’t create democracy because they’re stupid. Greek merchants are some of the most ruthless in the world, which is why they control merchant shipping. I know my sarcasm is bleeding off the screen but this is just too funny and I can’t help it. They made issue about a single paragraph that dictated the first of three cuts to the Pension fund, with the first one being the largest at $325 million. Well, that’s understandable if none of the 3 or 4 dozen staffers as well as those back in Athens missed that paragraph. It’s only the most influential paragraph concerning the upcoming election, which the present government has valid reason to feel they’re going to lose badly. Like I said, as they should and also probably why the Troika put it in the first year. It’s brilliant politics actually. The incumbent party gets a few brownie points for coming to the aid of the masses at the last second to defend their precious life savings against the evil Troika who’s using this as an opportunity to weaken Greece! As if the Greek government didn’t do enough to weaken Greece to the point of needing a life saving bailout. That’s not embarrassing! No, only the fact that they’re being forced to take a bailout is hurting their pride and what’s this about the pension fund being pillaged? Well, that’s not going to happen, the government saved the day at the last second, and thank God the elections are coming so the populace can show their gratitude using the ballot box.
Ok, enough of the sarcasm. The most important detail for US based traders is the fact that the about face early in the day didn’t cause any selling in US stocks or bonds. Even the risk carry trade (USD/JPY) was pretty much intact. The lesson to take from this is that the underlying bid for US equities in general is very strong and seriously bad news that could have monstrous implications if Greece is actually allowed to fail didn’t even cause US stock markets to flinch! The market doesn’t care about the bad news concerning Greece’s sudden Schizophrenia. Ultimately, the day finished in green and almost everyone knows when bad news can’t bring a market down, underlying strength is a given. I also suggested that Greece and the Troika would find a solution before the all important, impossible to reschedule or delay meeting planned in Vienna. Everything has to go through Vienna. They want to sign a document, 200 people fly to Vienna, sign it, then fly back. European diplomacy is a perpetual Seinfeld episode. Regardless of the tragic Greek comedy, it appears I was wrong about the 6pm deadline because it passed without a deal and the delegates threw their hands up in frustration and went home.
Imagine an investor leveraged up to his eyeballs the way LTCM was in ‘98, begging for a white knight to come to his aide on favorable terms that goes as far as erasing 1/3 of bond holders pre-existing paper. Calling it necessary medicine to prevent losing 100% of their value. A company going through a bankruptcy which wipes out pre-existing debt and replaces it with an exit loan much more favorable and designed to allow the company to survive is normal. It happens every day. A sovereign nation, one that transacts in and was one of the founding members of the Euro currency is another story altogether. The last country that defaulted massively on sovereign debt was Russia. Yes we heard of Iceland recently and the insinuations that the financial crisis started there. If you believe that even for a second and miss the wretched smell of horse manure, then you’re deaf, dumb and blind as well. That’s another article so I’ll sidestep carefully. The point is, a Euro member nation is literally going through a pre-packaged bankruptcy, which is what this is. And we’re beginning to think that whether or not Greece is bailed out, there’s still going to be a domino effect with Italy, Spain and probably Portugal falling as well. The German’s I’m sure are thinking exactly this. The idiom of cutting one’s losses and not putting good money after bad applies even to sovereign debt. So why pour €3.3 billion into Greece if it’s not going to stop the tidal wave that’s approaching? The point was to stop the fire in Greece before it spreads. If it’s going to spread anyway, then perhaps a different approach is needed altogether. One thing I’ve learned during times of political distress is to listen carefully to what the government’s involved are saying and define the exact opposite as the actual truth. So if they say “we won’t let particular countries collapse out of the Euro”, what they mean is “we’ll let these dumb idiots who couldn’t sell anything but olives and feta cheese and fish fail, and if the Italians go, so be it, and the Spaniards had it coming anyway; and why does Portugal even exist?”
Some are saying “but wait, Greece is the largest maker of maritime shipping vessels, it’s not all cheese, olives and fish.” The problem that got them in this mess is their economy is not very diversified. Greece is almost akin to a 2nd world country! When the global recession has knocked the Baltic Dry Ship Index to historical lows, it means owners can’t even earn the cost to carry the ships so most are turning their ships into scrap metal and selling it off to the Chinese who love recycled metal. So it’s really only olives, feta and some fish for the locals. Oh, tourism is big, that’s true, but the darn Euro is suffocating that revenue stream as well because it’s so high. Which brings us right back to the crux of the matter: The Euro. As members of the monetary union, they are bound by strict guidelines applied universally to all member nations. So in addition to having their hands tied to respond according to Keynesian dogma, the underlying principal of their collective economies, they also get shafted by an overvalued Euro that’s killing the one thing Greece is truly known for; the beauty of the Greek Isles and the historical sites all over the country. If they were still based on the drachma, and not bound by the punitive terms of the EMU, they would have already lowered interest rates to levels more akin to the U.S., Japan and England. They would have also swung into deficits beyond what’s accepted within the EMU and the government itself would have also engaged in quantitative stimulus by buying up a lot of the debt that’s about to come due! Isn’t that what the rest of the civilized world with free economies is doing?
The fact of the matter comes down to one thing and one thing only. The EMU, ECB and Euro, as presently structured; combined with the failed and long ago abandoned attempt at ratifying a European Constitution is a failure. Economics is not a science as every respected economist has said, including Schumpeter who preached the importance of “Creative Destruction” because what is no longer efficient is destroyed and it’s place the creative minds and economic players produce something more efficient. The way a star goes Supernova engulfing all the planets and moons in its galaxy then reverts back to a white dwarf, in the process sending off massive bits of elements that end up creating other planets and moons elsewhere in the universe, so too must modern capitalism at times experience going supernova, taking down neighboring countries but the ensuing recovery, as long as that may be (case in point: Japan) will result in greater financial austerity and fiscal discipline exactly like what we’re seeing today in Mexico, Brazil, Chile, Peru and several Central American nations. In 1995 Mexico went supernova and the US bailed it and as a grand finale, the blow off top in 1999 as US markets experienced a blow-off top and a popping of the equity bubble. So what’s all the fuss over Greece for? I mean, didn’t the recent crisis in the US cost over $1.5 trillion and by some estimates more than $2.2 trillion? Surely the entire Eurozone economy is equal in size to the US economy so a measly €3.3 billion is nothing. Why not just let them default and allow the free market to take its course? Didn’t the US decide to let Lehman fail after saving Bear Stearns for this exact reason? Although they may have regretted it, they had to allow someone to fail to prevent the moral hazard every central banker fears. During the 20th century, Brazil experienced countless cycles of hyperinflation and devaluation, over and over until the IMF’s strict, almost suffocating bailout terms instilled economic discipline which resulted in the Brazil of today, one of the fastest growing and brightly shining economies of the world, able to endure the current economic weakness that started in 2007-2009 around the world, and even grow in the face of that weakness. Becoming an exporter of immense importance while also keeping inflation and their currency in check is nothing short of a miracle.
The point is for short-term minded traders who probably didn’t have attention span at reading most of this article and are just reading this last bit is as follows: The collapse of talks has caused overnight markets to take a beating. The final outcome for Greece, whatever it is, has already been determined a long time ago, whether that’s a bailout or an exit from the Euro and a return to the Drachma, it’s already been decided. The rest is just classic European over-diplomacy so the delegates can travel around, live it up and do it all on taxpayer funds. The saying goes, “European Diplomats meet to discuss when they’ll meet next”.
So when you’re staring at overnight markets in the morning on Friday and see the S&P futures down 10 or more handles, get ready to launch market on open buy orders in your 10 favorite stocks that have massive relative strength, similar to that of APPL although that’s so expensive most can’t touch it. But there are others that are cheaper with equally strong momentum. I’ll post the ones I like either before the open on Friday or during the first hour of trading as well as throughout the day. If you want to catch my trades in real-time, as they happen, I suggest using Twitter to subscribe to my feed.
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