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Germany, Greece and the Game of "Chicken"
Summer unofficially kicks off this weekend, at least here in the U.S., as we celebrate Memorial Day.
Before we even get to the "official" beginning of summer on June 21, sweat will be pouring from every banker's brow on June 17.
That's the day Greeks go back to the polls to basically determine whether or not they want to remain in the Eurozone.
The game of chicken is on.
Germany has basically said to Greece, we aren't going to ease up on the austerity requirements imposed on you so you could get more money from all of us, so, if you think that by electing a left-wing group of groupies who are campaigning on easing your burdens by leaning on us, your fed-up creditors, go lean on Atlantis instead, cause that's where you'll end up… underwater, and lost.
The Greek politicians – at least the lefties throwing curveballs – think there's no way the Germans will let them exit the currency zone, and of course don't want them to exit the European Union.
They are saying to the population, elect us, we'll spit on their boots and they'll bend over to shine them themselves. And, in the end, we the people will prevail.
Don't you just love democracy at work? This line will only go in the eletter. Delete it from the web page.
The End of the Beginning?
The energy sector's surge over the last two days may lead some to believe that the rush is now on.
Well, not so fast.
The markets pulled back this morning.
That's expected after a run up. But we need to understand the primary concerns moving forward.
Those are direction and conviction.
The energy sector got slammed worse than the overall market as a whole when it was going down, and it advanced quicker when it increased.
So, what will happen from this point onward?
The safe answer is to suggest mostly lateral movement over the next several months. And that is what most of the TV pundits are doing.
And as usual, they are going to miss another boat.
What has happened over the last two sessions, overlooking the anticipated pullback today, is the first wave in the next move up. It is, therefore, actually the end of a beginning cycle that will put both prices and volatility for energy in general – and for oil in particular – back on the radar.
No move up in oil is accomplished by regular, easy to calculate increments.
But one genuinely new factor has emerged.
And it will dictate more of our investment moves as we get further into this event-filled summer.
Riding the Wave of Anticipation
The return of instability, marked by price acceleration both up and down (but on aggregate leading to higher price levels), will be taking place over shorter periods.
This is an important new wrinkle to understand. It introduces a novel risk element into the equation while, at the same time, setting the stage for increasing profits. Those profits will develop over shorter time periods for the investor who is capable of riding ahead of this curve.
I call this development compression, and it has a pervasive impact on how you should approach to the market.
The Biggest Tech Breakthrough in 50 Years
There are somewhere between two and three billion computers in the world right now.
And every last one is about to become obsolete.
Sorry, but yes, that goes for the computer you're using to read this.
It's a fundamental redesign of computing power that has been 50 years in the making.
You could probably manage to hang on to your current computer for a year or two, if you're patient.
But once your friends and neighbors start showing off the incredible speed and power of their new gadgets, or it turns out that incredible new software you've been eyeing won't run on your current computer, well, it's only a matter of time until you'll sign up this game-changing upgrade.
And consumer upgrades are just the beginning.
I predict this key breakthrough technology will soon have a dramatic impact on everything from artificial intelligence and robotics to medical research to aerospace to gaming and beyond.
It's very rare that a new technology truly represents a "sea change" across so many industries and applications. The last one of this enormity was the advent of the transistor in the late 1950s – the basis of modern electronics and undoubtedly the greatest invention of the 20th century.
And when this next breakthrough makes its debut on April 29, 2012, I believe it will deliver a bonanza payday for two very savvy companies and their investors.
High Tech is About to Enter a Whole New Dimension
We're still waiting for atomic computing – computing technology in which devices are made up of just a few molecules – to enter the realm of possibility. But that's likely a decade or more off.
In the meantime, 3D computing is the breakthrough that will dominate the next decade, taking computing to a level almost unimaginable.
Now, you may already know that America's high-tech economy depends on devices – called microprocessors – that are about the size and shape of postage stamps. Ever since their invention, these chips have fueled huge growth in computing as electronics have gotten ever smaller.
Let me explain the importance of small scale.
It's thanks to the steadily shrinking size of these chips that your smart phone today packs more punch than the huge computers NASA had when it put Neil Armstrong on the moon. If they hadn't gotten smaller, cell phones would still be the size of bricks. And you could forget about having wireless Internet, built-in video cameras, or music players in your phone.
As it turns out, there's a principle that explains – or really predicts – this continued exponential growth in semiconductor speed and power.
It's called Moore's Law. A Silicon Valley legend, Gordon Moore predicted that processing power would double roughly every two years.
That doubling has come as engineers kept finding new ways to put more transistors on a single chip. Transistors are the tiny gizmos that move and store data. Today, semiconductors now boast more than one billion transistors – ones so small you can't see them without a microscope.
And therein lies the problem. Chip makers are simply running out of real estate.
Right now the physical limit of integrated circuits stems from their basic design. Since they're flat, they only work in two dimensions. And that's been standing in the way of Moore's prediction.
But what if you could stack transistors on top of each other? You would greatly increase computing capacity. Think of it this way. A file cabinet holds a lot more information than a single sheet of paper.
As basic as that sounds, engineers have only just now figured out to go 3D and add "drawers" filled with transistors.
And one company is debuting its new chips this summer.
The Markets Are About to Tell You Something
Most people seem to have a hard time understanding why the markets do what they do.
The only reason I don't is that I've been trading professionally for 30 years.
Not that I "got it" when I started out. I didn't. I had to learn. And I learned much of what I know the hard way. I made a lot of mistakes. I studied my mistakes, I still do, just as much as I study what moves markets and what I get right.
I'm always learning. That's because everything changes. You have to always take in new data, mesh it with recent data, layer it over the past, and not ever think you know for sure what's going to happen.
So, how do you do it? How do you understand what's going on with different markets?
Here's how I do it (and get it right a lot)…
It's First and Foremost About the "Big Picture"
I synthesize all the big goings-on, all the headline market-moving news and data points, and I watch and "listen" to how the markets react.
Money moves markets, but psychology moves money.
Markets are living things. They have feelings; their reactions are a direct reflection of the psychological impact reflected in the buying and selling of traders (first) and investors (distantly second) to the goings-on that participants believe will affect the decision-making of other market participants.
The Biggest Tech Breakthrough in 50 Years
There are somewhere between two and three billion computers in the world right now.
And every last one is about to become obsolete.
Sorry, but yes, that goes for the computer you're using to read this.
It's a fundamental redesign of computing power that has been 50 years in the making.
You could probably manage to hang on to your current computer for a year or two, if you're patient.
But once your friends and neighbors start showing off the incredible speed and power of their new gadgets, or it turns out that incredible new software you've been eyeing won't run on your current computer, well, it's only a matter of time until you'll sign up this game-changing upgrade.
And consumer upgrades are just the beginning.
Tech Stocks On the Move Today: SanDisk Corp. (Nasdaq: SNDK), Yahoo Inc. (Nasdaq: YHOO), IBM Corp. (NYSE: IBM)
Tags: IBM Corp. (NYSE: IBM), SanDisk Corp. (Nasdaq: SNDK), tech stocks, Yahoo Inc. (Nasdaq: YHOO)
The Next "Lehman Moment" Is Coming Fast
It seems that my latest edition of Insights & Indictments was warmly received by the bullish crowd, many of whom reached out to me to thank me for my optimism.
I'm sorry to burst your bubbles, but I am not a raging bull (but thank you for asking).
In fact, I'm still bearish.
There's a big difference between being bullish and playing all stocks (and other asset classes) from the long (that means "buy") side… and judiciously buying select momentum stocks with fat dividend yields, which is what I was recommending.
I was talking about taking the path of least resistance, which I identified as "upward," based on equity activity so far in 2012. You've heard the old adage "the trend is your friend." Well, that's what I was talking about. The trend has been up.
I'm bearish because I'm afraid of a European meltdown and a "hard landing" in China.
But there's a huge danger in missing what could be the beginning of a real bull market.
So, it makes sense to start putting on solid positions and even speculating here and there. But I am not all in – not yet. However, the time is coming. But, that is also the problem.
I'm fearful that a crash is coming, and maybe soon. If we get one, and everything flushes out and we get a capitulation bottom amidst a global panic sell-off, then I'll be all in, all the way, for the long-term. I'm talking about loading the boat up with stocks and commodities and enjoying a generational ride that will last for maybe 10 years, or more.
What keeps me up at night now, however, is the echo of 2007.
I call where we are now 2007.2. If we are facing 2007.2, then 2008.2 will follow with a vengeance.
I'm guessing the breakdown could come in the second quarter of this year (although it could also take as long as 18 months to develop, which would only make it 10 times as bad when it does come).
Think about what I'm about to lay out for you, and ask yourself,
what if he's right?
Back in 2007…
In the spring of 2007, U.S. Treasury Secretary Henry Paulson, when addressing problems surfacing in the subprime mortgages arena said things "appear to be contained." Fed Chairman Ben Bernanke said, "We believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited."
Comforting words, right?
Then, speaking to members of the Federal Reserve Bank of Chicago in May of 2007, Bernanke said, "Importantly, we see no serious broader spillover to banks or thrift institutions from the problems in the subprime market."
Comforting words, right?
Even before two Bear Stearns hedge funds imploded in June of 2007, the Fed Chairman was touting the virtues of derivatives and the widespread sale of mortgage-backed securities when he stated, "The key thing to remember is that these losses are not just held by American banks, as the bad loans were in Japan (referring to Japan's lost decade), but they are dispersed."
Comforting words, right?
Then, on August 9, 2007, after one Bear fund was shut down and the other fund temporary propped by an injection of some $3.2 billion from Bear itself, and the seemingly contained fallout from subprime and AAA mortgages hitting "dispersed" banks in Europe, the European Central Bank's website quietly announced that the ECB would provide as much funding as banks might wish to borrow at only 4%.
What was happening was that European banks weren't lending to each other. The commercial paper market was at a standstill, and there was no short-term funding facility open wide enough to finance their longer-term mortgage positions. And they couldn't sell their positions because after the Bear funds imploded, there were no buyers for mortgage bonds, even the super-senior AAA tranches many European banks and all the big American banks were holding.
Two hours later, 49 banks borrowed three times what they were usually asking to borrow. And by the time trading closed in the U.S. on that same day, gold had spiked higher, as had safe-haven U.S. treasuries.
Of course, the equity markets were doing their own thing and were rising that summer, nearing new all-time highs (which they would reach in September 2007).
It took another year before we got our "Lehman moment." But,
boy did it hurt.
The Strategic Petroleum Reserve Becomes a Political Football (Yet Again)
Tags: coal reserve, national petroleum reserve, natural gas reserve, naval petroleum reserve, obama strategic petroleum reserve, oil reserve, Petroleum, Petroleum Reserve, strategic petroleum reserve size
The Banks Win, Again
Finally, some well-deserved help for beleaguered monster banks is on its way.
Make that, well on its way.
Those poor big banks accidently and inadvertently got caught up making so many easy loans to deserving, hard-up borrowers, who wanted to buy overpriced dream homes, and a few million other folks who deserved two homes and McMansions to keep up with the Joneses (you know the Joneses… most of them were "friends of Angelo").
But now, at last, the banks are making profits again.
After suffering the indignity of insolvency and near collapse for all their hard work, the New Samaritans are still being haunted by their generosity, as regulators hound them into settlement submission, merely for doing God's work.
So, what's the good news?
The second quarter may be a good one for the three biggest servicer banks, namely Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC), and – the little bank that could, run by that kid named Jamie – JPMorgan Chase (NYSE:JPM).
What's strange is that these do-gooders are being helped by some of the same government folks who are still attacking them in public venues where voters hang their hats.
What's not strange is that tons of underwater homebuyers, who are drowning in debt on dwellings whose prices have fallen 30% to 40%, aren't blaming banks and are running to their rescue.
Okay, maybe they're not running, maybe it's more that they're being corralled, like sheep. But either way, they are helping banks fatten their profits pools (make that bonus pools) again.
They're repaying the banks' favor of giving them loans in the first place by coming (more like being forced) back to the banks to get refinanced on better terms.
But they're not doing it on their own. The banks have a partner helping to round up their old customers and corral them into the breeding profits barn.
That Partner is HARP 2.0
The original Home Affordable Refinance Program, which was launched in April 2009, failed miserably (because there was nothing in it for banks). But the powers that be (the banks… DUH) harped for a new HARP, and they got it last November.
The new program is known as HARP 2.0 (that's because it's twice as profitable for the big banks that sunk the economy and the world under Housing Bubblemania 1.0).
Okay, enough sarcasm; let me slice and dice this succinctly for you.
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