Note Recently Sent to Clients.

This is the note I sent to my clients yesterday regarding Greece.

You've probably seen the reports over the weekend that Greece is likely to default on its bonds this week.  Because this has been featured so prominently on the news, I thought I would address how this may affect the markets and your portfolio.

First we have no direct exposure to Greece.  We for example do not own a Greek specific ETF.  We do have exposure to foreign equities via ETFs.  Most of these according to their fund information have no holdings in Greece.  ETFs that we own for clients  that do hold Greek equities have minimal exposure.  For example, according to Vanguard, the Vanguard FTSE European ETF has a position in Greek equities amounting to 1/10 of 1 percent of the funds assets.  

The Greeks are going to hold a referendum on July 5th that will basically decide whether the country stays in the European Union {EU}.  The first opportunity for US equities to react to that vote will be on Monday the 6th.   Greece has  been a known event to the markets to what now seems like a century.  As such I believe that its creditors have long ago drawn up plans for what could occur in the event of a default and Greek exit from the Euro.  Even so, this Greek exit and default is the worst case scenario and because of that investors will worry about the unintended consequences until the dust settles.  That means between now and next weekend markets will be rife with rumor and uncertainty, the two things investors hate the most.  Probability suggests that stocks may be choppy the rest of the week heading into that referendum next Sunday. 

In regards to {client} portfolios, I am monitoring these events with an eye to add to positions should opportunities arise.  The reason for this {and what's most important to the US markets} is that probability  suggests that after this period of uncertainty stocks should settle down with minimal damage to the US economy.   It is important to remember that Greece as a country has an economy somewhere in size between New Mexico's and Oregon's GDP.  It amounts at the end of the day to about 1.3% of the European Union's total GDP. Greece's problems belong to Greece and Europe.  They do not affect how many diapers Procter & Gamble sells, cars Ford sells or jeans that the Gap sells here in the US.  The US economy has been muddling along  with economic growth for the rest of the year projected to be around 2%.  Continuing jobs gains and growth in consumer incomes suggests we should be on solid footing for the rest of 2015 unless something unexpected washes over the gunnels of our economic ship.  It is likely that in a few days investors will wake up see that the sun still rises in the east, the world will not have ended  and financial markets will go about their business pretty much back to normal. 

Having said all of that and while we will be looking for investment opportunities, it is also now summer and therefore a period where negative market moves can sometimes be magnified as much of the investment community heads to the beach.  We will hold the defensive pages of the investment playbook near just in case.

I will discuss the economic outlook and market valuation in more detail in our mid-year report to you.  In the meantime please call if you have any questions or concerns.  As always thank you for your continued trust and support. 

*Long certain international ETFs in client and personal accounts.  ETF positions depend on client risk/reward parameters and strategy.  Please note that positions can change at any time.

Thoughts {Greek Edition}

Greece has defaulted in all but name this weekend.  You can go over to any news blog to read the particulars if you're not up to date on what went down over there.  If you want further coverage, go over to Bloomberg.com.  I want to cover here what comes next and how that relates to the U.S. markets.

First stocks are set to open down today.  Markets overseas are down 3-4% as I'm typing this and US futures are showing declines between 1-2%.  The screens may be all colored red this AM but so far the losses look manageable and contained.  Greece represents something like 1.3% of the European Union's  {EU} GDP so at this point the economic hit to the rest of Europe looks slight.  Of course the hit to Greece itself is likely to be catastrophic.

I am assuming markets will take a few days to sort themselves out.  After that I'll reference what I said about this earlier this month.   "{W}e'll have a couple of bad days overseas then people will wake up and see that the sun still rises in the east.  The world will not have ended and financial markets will go about their business." 

And since Greece has now chosen the nuclear option, I'll refer you back to the idea that extra scrutiny may be needed on a going forward basis.  "I think that Greece has long been a known event and so I think its creditors have long had plans for what could occur in the event of default and or exit from the Euro.  But that scenario is worst case and because it is markets will worry about unintended consequences until the dust settles.  That means that markets and investors will be rife with rumor and uncertainty, the two things markets hate the most.  While I think the most likely scenario is that markets settle down once everybody realizes that the world hasn't ended, we do need to entertain the possibility that markets use the opportunity to sell off.  Greece could be seen by some investors as a good reason to do  a bit of profit-taking or a good excuse to reallocate assets."

One final thought:  Packaged neatly with the Greek news yesterday was that Puerto Rico also announced that it couldn't repay the 72 billion in municipal debt it owes.  That's the 2nd negative hit that markets have to absorb over the weekend.  Add to that the likelyhood of a September Federal Reserve rate increase plus further bad news overseas and you've given stocks an excuse to become more defensive over the next few months.  Timing in terms of seasonality would be right, given that late summer and early fall often can be problematic for stocks.  Because of this we'll have the defensive pages of the playbook handy in the next few weeks.

*Long ETFs related to European equities in client and personal accounts.  We have no direct exposure to Greece via ETFs.

Changes in How We're Going to Receive Electricity

Everybody should read the post from a few days ago over at Bloomberg titled "The Way Humans Get Electricity is About to Change Forever".  Besides discussing the trillions that will be invested in energy related projects in the coming years, the article lays out these key points.

1.  Solar prices keep crashing.  The price of solar power will continue to fall, until it becomes the cheapest form of power in a rapidly expanding number of national markets.

2.  Billions invested in solar are going to become trillions.  The article suggests 3$3.7 trillion between now and 2040.

3.  The revolution will be decentralized with the much of it taking place on rooftops as solar becomes more economical.

4.  Global demand for energy will slow, not from lack of usage but due to the huge advances in energy efficiency.

5.  Natural gas will not become the bridge fuel that transitions the world from coal to renewables.

6.  The climate is still screwed.  The shift to renewable will not be rapid enough to prevent perilous levels of global warming.

My comment:  I think Bloomberg is right on about points 1-4.  Not sure about the fate of natural gas and I think predicting global climate change 25 years from now is tenuous.

Back Tuesday.  Posting next week will be shortened due to the holiday.

Link:   Bloomberg.com:  "The Way Humans Get Electricity is About to Change Forever."

 

Greece {Again!!}

I just had to link this piece over at Business Insider.com.  Go read "13 Mind Blowing Facts About Greece's Economy".  Here's a few of my favorites from the article.

Greece has defaulted five times in the modern era and has spent 90 years, over half of the time since independence, in financial crisis.

Corruption costs Greece 8-10% of GDP each year.

Greece is almost five times as big as Massachusetts, but Massachusetts' GDP is twice that of Greece.

Anyway go read at the link here.

Thoughts {06.24.15}

Good Morning.  Stocks have opened mixed.  A bit of profit taking after a nearly 2% upward move in stocks seems to be the most likely reason for todays choppiness.  News that there's no deal yet in Greece is probably not helping.  We're also getting close to the end of the month which is also the end of the quarter and will mark the half-way point to the year.  As such, don't be surprised if we see a bit of shenanigans around pricing in the next few days.  As always, Wall Street wants to get paid so there's that added incentive to try and prop prices higher into month's end.

Speaking of month's end, many ETFs go ex-dividend this week.  Some strange moves lower in price, especially among the higher income paying funds, are likely to occur.  Stocks and ETFs usually drop by the amount of the declared dividend once it is announced.  A fund for example that's paying 25 cents in dividends can expect to see its price decline by the same amount all things equal on its ex-dividend date.

Seems there's still no deal in Greece and one of the sticking points is cutting pensions.  The Greeks Government doesn't want to change the system much, nor do their citizens.  Then again a civil servant in Greece with something like 35 years of service can retire and receive a pension.  That means there's a lot of Greeks that can retire in their mid to late 50s vs mid to late 60's in most of the rest of the developed world.  It's not that Greece's pensions are particularly generous, its that they are currently unsustainable.  See here on that analysis.    Understandably, the rest of the EU is reluctant to lend Greece more money without more reforms and changes to the pension system.  Positions seem to have hardened on this and I'm surprised there's not more chatter about it in the financial media this am.

Since we're talking pensions and work, go read "Why Some Countries Work Less" over at Bloombergview.com.  Here's the executive summary regarding the work/leisure relationship from the article's first paragraph:  "The most common explanations have to do with labor regulations and taxes, but anyone who travels frequently will notice that work and leisure are valued differently in different places."

Back tomorrow.

Thoughts {06.22.15}

Market melt-up on news that maybe Greece and the Euro-zone have pulled back from the brink.  Look people this was always going to be something that walked to the absolute edge.  News reports seem to indicate that maybe Greece blinked enough for the EU to save face and let the money flow once again.  Looks like the stealth default scenario is the one most likely to play out over the next few  months.  Then again the week has barely begun and nobody has actually seen what the Greeks proposed today.

In the "Things Are Getting Better" department:  "US home resales surged to a 5-1/2 year high in May as first-time buyers piled into the market, the latest indication that housing and overall economic activity were gathering steam in the second quarter."   Looks to me like perhaps all those Millennials leaving in their old bedrooms have decided things are looking up to the point that they now want to own a home.  My neighborhood is starting to see pretty good turnover in housing.  

They're a lot more young families around us now then in the past.  Also there's this on births:  "Women in the U.S. are having more babies....Preliminary data show that birth rates in the U.S. were up by 1 percent last year from 2013.  It's the first increase in seven years."  Babies are incredibly bullish for the economy.  Not only do they show a more optimistic assessment about the future by their new parents.  Babies and young kids need EVERYTHING.  Somebody has to supply all that stuff.  Somebody also has to work and pay taxes to afford all that stuff.

Go Read:  "When Ordinary Beats Extraordinary".  An article on the counter-intuitive nature of investing.  

Back Wednesday.

On Sports

Today's column has nothing to do with the stock market or investments.  You'll have to get that someplace else.  This is a a good place to start.  We'll be back discussing the financial world Monday.  

Chicago, like other large metropolitan regions in the United States, is a state of mind.  If you meet a traveler from here and ask them where they're from, they will usually say they're from Chicago.  It's  only if you drill down a bit will they tell you where they actually live.  It might be a suburb or maybe a specific part of the city like Lincoln Park.  The city itself is about 3 million people.  The region as I define it encompasses about 9 million souls.  Start at the Wisconsin border, head west to Rockford, head south till you get to Kankakee and turn East.  Go over to South Bend, Indiana then head north till you run into Lake Michigan.  That's Chicagoland as most of us know it.  Chicagoland can be a hard place to live.  The weather stinks.  The region is dotted with old "Rust Belt" towns {Gary, Joliet, Rockford} that have fallen long ago on hard times and the infrastructure is run down in many places.  The city itself is broke, riddled by crime {200 homicides and total shootings year to date of 1,143}, and historically has been burdened with a governmental system that more than anything resembles a kleptocracy.  30% of the population in the city lives below the poverty line.  Many of these are people of color.  The region is also as John Kass of the Chicago Tribune likes to say a "City of Tribes".  All over it is divided into little communities by race, by class and by ethnicity.  The lines of these towns or enclaves are largely hidden to outsiders but tthey are as real to us as if they'd been drawn on a map.   A person telling me that they're from Skokie, Elmhurst, the Englewood district of Chicago, Beverly or any other locality tells me a lot about that fellow.

Because of this {and maybe mostly because of the crappy weather} Chicago is a sports town.  We may not agree on many of the issues that divide us,  but we can forget all of that when our teams play.  When we play for big stakes such as championships we come to the table united in ways that is nothing short of amazing.  Which brings us to the Chicago Blackhawks, sports and community.

Chicago isn't the only place that can claim to be a sports town.  Boston is a sports town as is Philly.  New York may be the ultimate sports town but Seattle, Cincinnati and St. Louis are up there as well.  Surprisingly so is San Francisco.  There are many such places and not all involve professional athletes, but you get the idea of what I'm talking about.  I'm describing places where the locals are passionate about their teams and the teams have deep ties to the community.   There are a lot of places with professional teams that are not sports towns.   Tampa, to take an example, likely has moved on from it's recent loss to the Blackhawks.  Folks here in the millions would have been heartbroken if it had turned out the other way.  

Chicago as a sports town over the years has acquired the reputation as a city hosting a bunch of teams that were "lovable losers".  The Chicago Cubs have had a lot to do with that, going on now over 100 years without a World Series title.  But in the last 30 years we've hosted championship parades here 11 times and seen teams in all four major sports {soccer doesn't yet qualify as the 5th} raise the winner's trophy.  That's better than 25% of all titles during that time by my reckoning.  But to be a sport's town and to be a sports fan means that you will also and perhaps often get your heart broken.  Chicago has known much of this over the years.  Babe Ruth's supposed called home run shot during the 1932 World Series, the 1969 Cubs, the "trickler" through Leon Durham's leg in 1984, the "Bartman Ball" in the 2003 playoffs are all stuff of legend around here as are the White Sox loss in the 1959 World Series.  The Bears squandered a Super Bowl quality team after their 1985 title and the most recent injuries to Derek Rose the past few years that may have cost the Chicago Bulls a shot at the title.  All of these come to mind when people here talk about the things that almost were.  Even the Blackhawks have given us some of this.  The three titles in 6 years bring out the dynasty talk, but all of that has a tinge of what-might-have-been if  a weird puck hadn't deflected off of defenseman Nick Leddy into the goal in over-time in game 7 of the Western Conference Finals.  That victory sent the Los Angeles Kings on to ultimate victory in the Stanley Cup. The Blackhawks and their fans went home to nurse their broken hearts.   Sometimes the losses hurt more than the wins.  Sometimes......

.....But then comes along something special and there's nothing more to say about what the Blackhawks just put us through in their Stanley Cup run than special or perhaps surreal.  There are all sorts of places where you can review what the Hawks march through the regular season and playoffs was like so I'll leave that out.  I'm pretty sure though that if the average Blackhawk fan had been administered a dose of truth serum, they'd expressed doubt about getting much beyond the opening round of the playoffs.  The team was banged up with one of their stars and leading scorer, Patrick Kane, out due to a broken clavicle.  They hadn't played particularly well at the end of the season.  External factors and tragedy seemed to gnaw at some of them and other teams just looked better.   I'd pegged us losing to the St. Louis Blues in the 2nd round.

Instead the Hawks started winning and Kane miraculously got healthy much sooner than anybody expected.  But it wasn't just the winning, its how they won.  In the first game of the series against Nashville, the Hawks spotted their opponents three goals, changed goalies and came back to win in overtime.  They played another marathon overtime game against Nashville in game 4 that ended after 1 am Chicago time with a win.  They blanked a Minnesota Wild team that was supposedly the hottest team in the playoffs at that time four straight.  They fell behind in their series against Anaheim, 3-2 before storming back hard in the next two games, finally they played a 6 game grinding series against Tampa Bay.  Through it all their play just got better.  The results you can see in the video above.

There will be a parade in Chicago today.  At least a million people will line the route to cheer on their team.  Millions more will carry the memory of this season with them forever.  In the video above at about the 1:38 mark is a group of people, family I'm guessing at what looks to be the moment the Hawks won the cup.  In the bottom right is a young girl clapping.  I don't know if she was a hockey fan before this but she is now and she'll always remember where she was the night the Hawks won the Cup.  I remember each moment the Bulls won a trophy like it was yesterday.  I remember watching the Cincinnati Reds win the 1975 World Series in Boston at home in Indiana with my parents and sisters.  I remember where everybody sat and what we ate for dinner that night {steak, potatoes and green beans} like it was yesterday.   

There's more money today in sports and so perhaps it's a bit more mercenary than it used to be at the professional level.  Maybe that attitude has now also sifted down to the college level now for the majors like football and basketball.  Also with the advent of the internet and the 24 hour news cycle we know more about players today then we did in the past and sometimes what we know isn't all that great.  But then comes along something special like what we saw these past two months here and you remember why you put up with it and why you continue to watch.  Sports at that time, at the moment you've just witnessed something wonderful like your hometown team, attaining history doesn't get better than that for fans, friends and family.

Congratulations Blackhawks!

Now forgive me for leaving you but I have a parade to go watch.

How Amateurs Trade {Sometimes!}

Markets are on hold until the Federal Reserve speaks this afternoon and we're still buzzing in the afterglow of the Chicago Blackhawks.  In the meantime take a look at this tongue-in-cheek chart about how amateur go about trading stocks.

Back tomorrow or after the Fed meeting this afternoon. 

Link:  Stocktwits: Kenny Gee: The Only Chart you will Ever Need....Seriously

3 PEAT!!!!!

For at least one day here in Chicago the world is going to take a back seat to hockey and maybe later an early turn in.  Late night for most of us.  Truly wonderful experience and different then the last two times they won.  Now we just need the Irish to win a national football championship!

an tSionna {06.15.2015}

Markets have flat-lined this year but right now have more of a negative bias owing to Greece, interest rates and the latest worrying headlines-whatever they may be.  Next post here will be Wednesday.  Hopefully the Chicago Blackhawks will have won the Stanley Cup during that time!

Chart is from FINVIZ.com.  The annotations are mine.

*Long ETFs related to the S&P 500 in client and personal accounts.  Please note that these positions can change at anytime without notice.

Greece-One Last Thought

This thought crossed my mind just after I hit the send button on my previous screed on Greece.  I think that Greece has long been a known event and so I think its creditors have long had plans for what could occur in the event of default and or exit from the Euro.  But that scenario is worst case and because it is markets will worry about unintended consequences until the dust settles.  That means that markets and investors will be rife with rumor and uncertainty, the two things markets hate the most.  While I think the most likely scenario is that markets settle down once everybody realizes that the world hasn't ended, we do need to entertain the possibility that markets use the opportunity to sell off.  Greece could be seen by some investors as a good reason to do  a bit of profit-taking or a good excuse to reallocate assets.  

Timing would also be right in terms of seasonality.  This could be a higher probability if we have a few weeks of "this bank or that financial institution" rumors, that is whispers that make their rounds about some institution with more exposure to Greek default than anybody knew.  Again I don't think this is the most likely scenario, especially since it didn't pop up in my head when I was originally writing about Greece.  Still, can't excluded the possibility.  As I said earlier....stay tuned!

Greece-Endgame

Markets are set to open down on news that Greece and its creditors may be at an impasse.  You can read more about it over at Bloomberg at the link below.  A few thoughts.

1.  The Consigliere taught me to always follow the money.  Stripping away the niceties of the diplomatic negotiations gets you to this point.  Not only will Greece never have the money to pay back all of their debts, they have never had any intentions to do so.  The creditor institutions know this and so their choices are to simply let Greece default and possibly leave the Euro or find away to extend the maturities to a point that is basically a default in disguise.  Greece seems to not be willing to play along with that.  That is they don't even be willing to offer up any sort of serious reform of their economy that justifies their creditors to continue the extend and pretend game that's been played out for years.

2.  Who in their right mind still has money in Greek banks?

3.  I'm sick of the whole Greek mess.  The endgame here has been known and discussed from almost the time the Great Recession started.  It's hard for me to believe that the creditor institutions haven't prepared for this eventuality.  Plus, Greece's economy is a tiny percentage of Europe's GDP, something like 1.3% as of 2014.  It's hard for me to imagine that some sort of default or orderly exit from the Euro hasn't already been game planned.  Of course the other side of the coin is that nobody really will know what will happen to financial markets until it occurs/if it occurs.

4.  From the news today it sounds like the endgame here could happen this week, if not over the weekend.  Probability of something happening over the weekend would seem to be higher because the banks will be closed if capital controls need to be imposed.  Either somebody blinks soon or the endgame is most likely default and exit from the Euro.  I think that if this happens we'll have a couple of bad days overseas then people will wake up and see that the sun still rises in the east.  The world will not have ended and financial markets will go about their business.  The investment world will look for the next big, bad event to fixate on {likely rising interest rates} and things will go on as before......Or not!  Stay tuned!

Link:  Bloomberg:  EU Prepares for Worst as Greed Drives Finances to Brink.

Interest Rates

Above is a chart of iShares 20+ Year Treasury ETF {TLT-no positions}.  Year to date it has declined on a price basis 8.25% and is down over 16% from its highs at the end of January.  My research of longer dated bond funds shows they have declined between 10 and 15% year to date and have seen declines between 15 and 20% from their highs.  These of course is because interest rates have backed up in anticipation of coming US interest rate hikes, largely expected to start in September.  Interest rates are climbing because the Federal Reserve finally thinks it's seeing enough evidence of a stronger economy that it's time to put away the loose money purse strings.  Most call this the normalization of interest rates .  According to Dr. Ed Yardeni that normalization has been very abrupt.  

Folks looking for yield have piled into bond funds and bond ETFs over the past several years as interest rates have collapsed.  That strategy worked as long as interest rates were held at historically low levels.  The flaw in that thinking always was that interest rates never had any further room to fall and investors in these funds were very vulnerable to capital declines when rates began to move the other way.  In a laddered portfolio of bonds {Basically a bond portfolio designed so that you hold various levels of maturities with a certain percentage of these bonds coming due each year.} you accepted these moves because you know that the maturing bonds should allow you to invest when they come due at higher rates.  Investors have largely shunned owning individual bonds in favor of open ended bond funds, either mutual funds or ETFs.  The reason for this is the yields at the front end of the curve, that is the yields on bonds maturing in the near future, say 1-10 years have been too low for most investors looking for income.  The problem with open end funds {both mutual funds and ETFs} is that these type of funds have no termination date so investors cannot rely on an ultimate maturity date to bail them out.   As such the losses here have the potential to compound, particularly if rates continue to rise,  owing to the open nature of the funds.   If you therefore believe that bond funds are less risky than the stock market then just take a look at what's happened in the last couple of months.

More ink has been spilled and more airtime on financial stations been devoted to when interest rates will rise then I think any other story this year save for the ongoing drama out of Greece.  Wall Street consensus seems to be that rates will begin to rise in September.  One should note that increase is expected to be 25 basis points or 1/4 of one percent.  Most see rates backing up by 50 to 75 basis points over the course of the next year.  From my perch that's not enough to shackle the economy and shouldn't be an impediment to economic growth.  I don't think folks are going to quit buying cars when financing one goes from 0% to 1% for example.  I also don't think that a rising rate environment is a serious threat to stock prices.  The stock market may not go up from here and we could even see volatility increase over the next year or so.  Stocks have their own issues with valuation and the like.  But when I started in the business interest rates were much higher than they are today.  Money market accounts yielded over 8% back then!  Stocks traded most of the time with Price to Earnings Ratios {PE} of 14-16 and higher rates didn't stop the bull markets of the 80s and 90s from occurring.  It's hard for me to imagine an environment where low rates albeit rates slightly higher than where they are today act as a significant break on market returns.  I don't know where the market's going in terms of price but in my opinion if stocks decline the primary culprit won't be the bond markets.  I'll blame slower economic growth, a problem overseas or historically high valuations first.  For my part I think at least in the short term the back up in rates may be a bit over done.  

We've therefore started to pick at certain things where we think there's attractive yields and also further appreciation for growth.  Those investments of course are dependent on our investment strategies and client's individual risk/reward criteria.

Back at the beginning of the week.

Thoughts {06.10.15}

Markets have opened higher.  The S&P 500 has experienced 4 straight down days, which is something we haven't seen in months.  In keeping with the low volatility theme, none of these recent declines has been more than 1%.  Since making a new all time high on May 21, the market has lost just under 3%.  You would think based on the reaction to this by the talking heads on TV that we've been in a bear market.

I should mention that the market is up only about 1% now for the year.  I've been wondering if the direction of the most pain for investors, particularly those that actively trade would be for the market to do nothing.  By this I mean we just have months and months now where stocks basically go nowhere and volatility stays constrained.  We've had one sell off this year back in the winter,  but since then stock indices have basically traded in about a 4% range.  Why can't we continue that?  I know that sounds unlikely and I'm not saying that's going to happen, but it is the one scenario that nobody talks about much.

Treading water would help lower the PE for stocks as long as earnings continue to expand.  The four quarter forward PE for stocks is about to roll over in about three weeks.  That number is going to go from around $122 to likely the $123-124 range. Assuming nothing happens in the markets, that we just continue to chop around between now and then, then the PE on the market drops by about 30 basis points for having done nothing.  The ratio compresses in that instance because the "E", the earnings, advance.

Speaking of the "E", the earnings part of the equation, one of the main reasons that earnings declined so much in the past year was the collapse in earnings in the energy sector.  Oil as we all remember fell off a cliff last fall.  But oil seems to have stabilized, if not actually headed higher.  If oil catches a bid in the 2nd half of the year then probability suggests that earnings in the oil patch are too low.  That would likely mean that earnings in the S&P 500 are too low as well on a going forward basis, all things being equal and given what we know today.

*Long ETFs related to energy and oil service in client and personal accounts.  Long ETFs related to the S&P 500 in client and personal accounts.  Please note that these positions can change at any time without notice.

Vulnerability

Yesterday I had to cancel one of my credit cards for the 2nd time in  a bit over two months.  It seems that hackers figured out how to access some retailer's system and steal my credit card information.  It took them a much shorter period of time to figure this out this time.  This is now the 3rd time this has happened to me since March.  In all instances I have been reimbursed for the charges, but the time and effort of having to get new cards is a drag.  In the instance of this most recent hack, I now have to also get new cards out to my children who are in various places around the country.  {Why they don't have their own credit cards is a subject for another time.}  

Help is on the way with regards to credit cards as by October all credit card distributors are required to convert to EMV technology.  That's credit cards with a chip embedded inside and technology used to authenticate credit card transactions.   However, October is going to be too late for my current credit card provider.  When I was hacked back at the end of March I asked my current company for an EMV ready card.  They said they were rolling them out in batches and I would have to wait.  I asked the same thing yesterday only to be told again that I would have to wait.   Faced with what would be at a minimum the fourth new card from the same company in six months, I have decided to close out that card and get an EMV ready card now.  Given how lucrative it will be to be able to hack into the next generation credit card systems though, does anybody have any confidence about how long it will take thieves to figure out to break into these?

Of course it seems no system is safe.  All that data that the world is compiling on you and me is incredibly valuable to somebody.  Hospitals have been hacked.  The IRS has been hacked and now so has the Federal government's Office of Personnel Management.  If you want to read how much of a strategic catastrophe this latest hack is then go here.  Of course if we want to go for the Federal trifecta we also now have a better understanding of how inept the TSA is at keeping us safe.  Recent tests on it's systems showed a 95% failure rate.  

Am I the only one who wonders if all of this marvelous new technology that was supposed to make our lives easier, safer and simpler is actually doing the opposite?  I mean does anybody have confidence that folks with bad intentions have any real barriers to entry to all of your important information? I sure don't.

Internet Problems!

Global HQ is experiencing internet problems today.  Sorry about that.  Will be back tomorrow.

Go Read

Articles you should read today.  

There's more volatility underneath the surface in markets right now then you might expect from just looking at the major averages as bond yields have backed up.  That also means that the prices of the bonds have declined.  Go read over at Zerohedge.com,  "Volatility Explodes:  China Crashes Then Soars, Bund Tumble Continues With Yield Touching 0.99%".   Also see Bloombergbusiness.com, "Bond Rout Wipes out 2015 Gains."

Consensus has been over the years that the Wall Street bailouts and all the stimulus we've done  mostly benefited the wealthy.  Over at the Washington Post, Robert Samuelson has a different view.  Go read the article "The Fed:  Welfare for the Wealthy?"  Here's a synopsis of the three reasons why all that stimulus also helped the middle class:

1. First, the bond-buying strengthened the economic recovery by lowering interest rates and creating jobs in interest-sensitive sectors such as housing and manufacturing.

2.  Back-of-the-envelope estimates exaggerate the Fed's {Federal Reserve's} effects on stock prices.

3.  Lower interest rates also boosted the wealth of the middle class, with the largest effects on home prices. 

Problems around the World:

Bloombergbusiness.com,  "Greek Groundhog Day Continues with Talks Failing to Break Impasse."

BBC News:  "Ukraine's Poroshenko Warns of Full-scale Russian Invasion."

The Guardian:  "How the US Fueled the Rise of ISIS in Syria and Iraq."

Hollywood

I've been absent this week as we unexpectedly had the opportunity to have a commercial for a major retailer shot in the garage of global HQ.  See below.

Sadly I wasn't "discovered" by a talent agent so I'm not bound for Hollywood.  Guess I'll have to stick to investing my client's assets!  I'm sure I could have been the next Brad Pitt.

I'll post a link to the commercial when it comes out!

The Three Kings Revisited

We published back at the beginning of March a post that I titled "The Three Kings".  We called them such because they are the three kings of market indices as represented by their respective ETFs.  The S&P 500 {SPY}, the Nasdaq as represented by ETF Symbol ONEQ and the granddaddy of all indices, the Dow Jones Industrial Average {DIA}.  You can double click on each if you want to make them larger.  I couldn't get my editing software to function this morning but you can roughly figure out where they were when we published this three months ago by looking at the line that travels up through the abbreviated March notation.  What do we notice about all three?

1.  Each is a mirror image of the other in terms of how they've traded over the past ten months.  

2.  Each broke out of a consolidation pattern back at the beginning of the year.  Each has trended higher with a series of higher highs and lower lows since last fall.  

3.  Each seems to have currently run into a bit of resistance.

4.  Each has traded to new highs since March but each now trades roughly at the same levels you saw back then.

5.  Each is also currently overbought by our work longer term. 

Probability suggests that the markets may experience a bit of a bounce here now that we're at the beginning of the month. Crystal ball doesn't go much beyond that point right now.

Back later in the week.

Charts are from FINVIZ.com.

*Long ETFs related to all three of these indices.  ETFs related to the Nasdaq and the S&P 500 I am long in both client and personal accounts.  Long DIA as a legacy investment in certain client accounts.  Please note these positions can change at any time without notice to our readers.