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How to Play the Situations In China and Greece

The following is an excerpt from Private Wealth Advisory...

Stocks are rallying today because of:

1)   Hype and hope of a Greek deal.

2)   China has stopped trading of 49% of stocks and threatened to arrest anyone who is short-selling the market (talk about a backstop!).

Regarding Greece, no deal has been made. Greek PM Tsipras has submitted a proposal for a new deal… which is almost EXACTLY the same as the deal that 61% of the Greek population rejected via referendum last week.

Tsipras has completely backed himself into a corner. He used up a lot of goodwill with EU officials when he let Greece default by staging a referendum for Greek voters AFTER the due date on Greece’s debt.

The voters obviously voted “No” on the EU’s deal… so Tsipras has had to come up with a new proposal. The only thing he can suggest that would possibly sit well with Greek voters is “debt forgiveness,” which Germany has stated it is absolutely opposed to.

So now Tsipras must decide… does take a bad deal (the same one voters said “no” to last week), which will force a popular revolt in Greece (and likely his expulsion from office) or is he the man who takes Greece out of the Eurozone?

 

His finance minister has already quit his post… and doesn’t seem too upset about it. Perhaps Tsipras will follow suit, Greece will elect another PM and the whole charade can start all over again?

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The Greek drama has engaged in “extend and pretend” for five years now. It’s highly likely that it will continue this time around with Greece accepting a bad deal and plunging further into economic collapse until the next debt problem emerges.

As for China…

Anyone who bothered to look at the actual data coming out of China (the un-massaged data, not the fictitious GDP numbers), knew the China economy was in collapse. It was only a matter of time before its stock bubble joined suit.

Sure enough, the bubble burst, and the Chinese stock market has erased over $3 trillion in wealth in the space of three weeks.

The Chinese Government, which we are told is moving towards free market capitalism, has thus far dealt with the crisis by halting 49% of stocks from trading and threatening to arrest (and likely “disappear”) anyone caught short-selling stocks or somehow promoting market “instability.”

The market is bouncing on this… it’s now coming up against the first line of resistance (blue line) established by the uptrend from late 2014. If we break above that we could even bounce to retest the longer-term bubble bull market trendline (green line).

However, after that we’re heading DOWN in a big way. The bubble has burst. Bubbles NEVER reflate after bursting.

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Crises never unfold in straight lines. Investors forget that when the Tech Bubble burst, stocks were a roller coaster with over EiGHT moves of 16% or greater in the span of six months.

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China’s bubble was even larger than the Tech Bubble. The price volatility will be even more severe… but the bubble has definitively burst… and the market will be heading lower in the coming weeks.

In short… the two biggest reasons for the markets to be rallying today (Greece and China) are simply temporary issues. They will resolve, very likely for the worse, in the coming weeks. Smart investors should be using this bounce to prepare for the next wave of the Crisis.

If you’re looking for actionable investment strategies to profit from this trend we highly recommend you take out a trial subscription to our paid premium investment newsletter Private Wealth Advisory.

The Greek Drama Continues

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How Europe’s Systemic Failure Will Impact the Globe

An exclusive from Phoenix Capital Research: The Greek drama continues.

The process thus far has been along the following lines:

  1. Greek Prime Minister Alexis Tsipras states publicly that he is confident that a deal will be met because Greece is willing to compromise.
  2. Tsipras then refuses to compromise behind closed doors with EU officials.
  3. Tsipras tells the media and Greek citizenry that the EU is evil and is attempting to enslave Greece.

This process has been maintained for over five years now. This only further illustrates one of my central themes: everything in Europe is about politics.

Europe as a whole is socialist in nature. You will never hear a discussion of “how involved should the Government be in the economy?” in most of Europe; it is just assumed that the Government should always be involved a large degree.

The question is whether it should be a lot (the public sector accounts for 30% of jobs in Germany) or almost entirely (the public sector accounts for 56% of jobs in France).

When more than one in three people are employed by the public sector in one form or another, everything is driven by politics.

The best example of this, of course, is Greece.

Greece has been and remains a fiscal basket-case for three simple reasons:

  1. The Government attempts to employ as many people as possible even if it makes absolutely no sense to expand the Government workforce.
  2. The Government pays WAY above what the work requires (on average public sector wages are 150% of private sector wages and most employees receive pensions equal to 92% of their salary at retirement).
  3. Greek culture not only embraces, but celebrates tax evasion (so there is little Government revenue to finance all those overpaid bureaucrats).

The level of fiscal insanity goes above and beyond anything you’re likely to see.

Consider the Greek metro system. It takes in €80 million in annual ticket sales… and spends over €500 million in salaries.

There is a word for an entity that spends over SIX times its annual revenues on employee salaries… it’s bankrupt.

This sort of scam is endemic in Greece. Anyone from pastry chefs to hairdressers and other services-based sectors can retire at age 50 and receive a pension equal to 95% of their salary.

Suffice to say, the Government payouts are extreme.

Unfortunately, Greek taxpayers don’t want to fund it. Greece has a population of 12 million. Less than 5,000 of these individuals report taxable income of more than €90,000.

Put it this way, less than 0.01% of the Greek population claims they make more than €90,000 per year in salary. This for a country that has over 60,000 individuals with investments of over €1 million… and those area simply the individuals willing to admit it!

The effort that goes into this subterfuge is staggering. In 2010, the Greek tax authorities began using satellite imagery to target Athens homes with swimming pools (a sign of wealth). Only 324 Greeks claim to have such homes in Athens. The satellite study found nearly 17,000 homes with pools before an enterprising Greek began selling pool covers that look like a normal lawn.

Simply put, in Greece we have a bloated bureaucracy that pays exorbitant salaries and pensions in a culture that goes to great lengths to hide its wealth/pay taxes.

Greece however is not the REAL issue for Europe. The REAL issue concerns the derivatives trades that are backed by Greek debt.

Modern financial theory dictates that sovereign bonds are the most “risk free” assets in the financial system (equity, municipal bond, corporate bonds, and the like are all below sovereign bonds in terms of risk profile). The reason for this is because it is far more likely for a company to go belly up than a country.

Because of this, the entire Western financial system has sovereign bonds (US Treasuries, German Bunds, Japanese sovereign bonds, etc.) as the senior most asset pledged as collateral for hundreds of trillions of Dollars’ worth of trades.

The global derivatives market is roughly $700 trillion in size. That’s over TEN TIMES the world’s GDP. And sovereign bonds… including even bonds from bankrupt countries such as Greece… are one of, if not the primary collateral underlying all of these trades.

Greece is not the real issue for Europe. The entire Greek debt market is about €345 billion in size. So we’re not talking about a massive amount of collateral… though the turmoil this country has caused in the last three years gives a sense of the importance of the issue.

Spain, by comparison has over €1.0 trillion in debt outstanding… and Italy has €2.6 trillion. These bonds are backstopping tens of trillions of Euros’ worth of derivatives trades. A haircut on them would trigger systemic failure in Europe.

In short, the EU’s worst nightmare is a debt haircut or debt forgiveness for Greece because it opens the door to Spain or Italy asking for similar deals down the road.

And that’s when you’re talking about REAL systemic risk.

If you’re looking for actionable investment strategies to profit from this trend we highly recommend you take out a trial subscription to our paid premium investment newsletter Private Wealth Advisory.

Private Wealth Advisory is a WEEKLY investment newsletter that can help you  profit from the markets: we just opened seven trades to profit from the above trends in the last two weeks. As we write this, ALL of them are soaring.

4.2 Near Springfield OR

M 4.2 – 14km ENE of Springfield, Oregon

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Mover Mike Hit 2,000,000

After an incredible June, Mover Mike hit 2,000,000 page views. I have been blogging since 2004 and it is nice to see that more people are finding this blog. Sometimes, I have considered quitting, thinking why bother, no one reads me. However, conservative fiscally, Libertarian socially, this blog joins many others who don’t like the path the U.S. is on.

No longer can we discuss things rationally and heatedly.  Now it seems the play book says to ignore the message, savage the messenger. We are seeing that currently with Trump and we read that Hillary hasn’t answered the press questions in two weeks. AND…more and more people are considering leaving the country.

Mexico”sends” their unemployed to the U.S.. How long will 93,000,000 unemployed and under employed wait to move south? How long will the drought stricken  in the south west wait to move? What happens when the U.S. becomes like Greece and can’t feed the 43,000,000 on EBT?

Stay tuned, dear reader. I hope to cover it and provide some answers. Thanks for reading Mover Mike

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