WASHINGTON, August 14, 2014 – Stocks were up sharply after this morning’s opening bell on Wall Street, but they’ve backed off to a little better than flatlining this morning with major averages up only about half a percent or so.
Jobless claims were “unexpectedly” higher (no surprise to any millennial who’s been trying to get a job), and Cisco’s (CSCO) announcement of 6,000 layoffs this week won’t help there at all this week. DOL reported that unemployment claims rose last week to 311,000 vs. an expected jump of 295,000.
On the other hand, Russia’s own Vlad the Impaler said his boys will do “everything in our power” to end the unending torment they and their ex-KGB thugs have been dishing out to that hapless country. Like we should believe these guys?
Well, apparently Wall Street does, at least a little bit. The bulls like the increased unemployment lines, too, since that perpetuates the “bad news is good” meme, meaning the Fed won’t raise interest rates until, oh, maybe 2030 or so. Whatever.
In other words, the bulls have been convincing themselves that they should leap over late July’s “rally interruptus” and resume the stampede. What’s likely happening, however, is that so few trades are happening in vacation-favorite August that it’s easy for the bulls to drive things back up. They simply engineer short squeezes on the positions of bears who are currently catching a few rays—and a few martinis—out at their palatial summer homes in the Hamptons that the rest of us paid for. The result: fun and profit. For now.
Oh well, this is Barack Obama’s America, so we’d best take advantage of our fundamental transformation from a democracy to a faux-left oligarchy and cruise along with the fat cats as they scoop up a few easy trades. We can’t join ’em. But we can stick to their hulls like barnacles when we figure out what they’re up to.
Other likely influences on this week’s market: options expiration (generally giving trades a bullish tone as prices get manipulated to allow the pros to pick off exposed options positions and their underlying stocks), and the slight weakening of the dollar today against the Euro.
Not too many have noted that the Euro has lost about 3.5 cents against the dollar over the last three weeks or so—a fairly large move as currencies go. We’ve been watching that move with interest (no pun intended) and were delighted to discover this morning that ZeroHedge has noted this as well:
With the USDollar giving up all the week’s gains this morning on the heels of EUR strength (repatriation), weak claims data coupled with import prices sparked a leg higher in gold and leg lower in the yields of bonds on either side of the Atlantic.
To refocus and oversimplify, when our dollar gets stronger, our exports to other countries get more expensive which at the moment at least is not very bullish. This dollar strength, in fact, may have been one of the underlying reasons for the market’s recent swoon. So when the forward motion halts or reverses slightly, bulls get a bit more optimistic regarding interest rates and such. It’s all a tangled web for sure.
The Maven is still suspicious of market trends, figuring the bears might be ready to rumble next Monday morning once the option nonsense clears out by Friday’s close. We’re mainly nibbling into some select Schwab ETFs because they track certain indexes closely enough to reassure us, and they’re also commission-free to customers, allowing profitable accumulation and/or trades of smaller amounts of shares.
We are currently accumulating SCHG (Schwab’s growth stock ETF) and SCHV (value stocks), the latter of which is long overdue for a nice bounce given that financial institutions, largely represented here, are booking even better free profits than expected due to all the free government money they’ve been getting to play with. We should note that other discount brokerages now offer similar deals on their own ETFs, BTW, so ask your broker what ETFs his or her firm currently offers in these areas.
Of course, this is countered by the Obama Administration’s extortion tactics against those banks via endless lawsuits and fines stemming from the bankrupt and largely criminal mortgage lenders those banks were forced to acquire by the government. Banks probably figure, by now, that the government’s hypocritical “revenue enhancements” are part of their cost of doing business today, so are building this vigorish into their forecasts.
The government could, of course, prosecute and send to jail the actual miscreants who caused the massive mortgage and derivatives meltdown. But the current administration wouldn’t want to do that, as these crooks know who is taking care of them and donate big time to the Democrats. So the taxpayers get to bear the burden. What a country.
At any rate, banks are making money now, have taken ongoing Federal extortion into account, and so, we figure, bank heavy value indexes should start playing nice with us.
One oddball investment in this territory that we’ve mentioned before is the large batch of Bank of America (BAC) warrants hanging around in the market, specifically, the “A” warrants (Schwab symbol BAC/WS/A, although your broker may use a different one). These warrants—functioning like very long-term options—give you the right to buy BAC shares at $13 per share through the warrants’ expiration date in 2019.
The “A” warrants don’t always track the stock perfectly, but they’re in the money now and give you an excellent way to trade on “hopium”—namely the hope that BAC will eventually get out of its $15 per share rut and start moving higher, like most banks have over the last couple of years. They’re currently trading at about $6.70 per warrant.
The Maven has loaded up every time they drop, and, frankly, he’s in the red about 2 percent on these at the moment. But he thinks it’s a likely good trade prior to year’s end, so patience is, umm, warranted on these. That said, as with everything we suggest, travel at your own risk. Zero guarantees in this or any other market. Unless, maybe, you’re one of Vladimir’s closest friends in the oil patch. ‘Nuff said.
Gold is likely to get dicey again. It’s currently above that magic $1300 per ounce mark, so TPTB (the powers that be) are likely to stage another smackdown soon, maybe tomorrow or Monday. Funny how coordinated all this is. On the other hand, gold miners seem a bit happier these days, although they’re so volatile right now we’re staying away. No recommendations, though. Beta (stock volatility) is just too high for us under current conditions.
Have a good one.