Let me put what’s happening in the markets into context for you. There’s simply too much rubbish out there, propaganda, innuendo, conspiracy theories and the like.
For Greece and China, I’ll tell you what is really happening, what is likely to happen, and what I am looking to capitalize on. Then I will move on to review other markets and your open positions.
Greece:
It’s simple. No matter what is said or who says it, Greece WILL leave the euro. It’s simply a matter of whether they leave this coming Sunday, the final deadline imposed on the country by autocratic European leaders, or …
The country leaves the euro at some later date. I can’t tell you for sure, but odds favor an exit this coming Sunday. European leaders have already opened the door and issued the ultimatum: Agree to their terms for a new bailout and emergency funding, or leave the euro.
So whether a GREXIT (Greek euro exit) comes Sunday or some other day, what you need to know is the following …
A. In the short-run – roughly three to six months – leaving the euro will be painful. Greece will fall further into depression, unemployment will rise even more, and a barter-like economy will emerge.
Banks and companies will go bust. Food and energy will be hard to obtain. It will be a mess.
The Greek national bank will have to print IOUs or the drachma, at a devalued rate. Inflation will surge. It will at first be a deflationary depression, as it has been all along, but once the drachma is reintroduced, it will then become an inflationary depression.
The good news though is that after a purging of debts and a crash in the banking system …
B. Greece will finally be able to start growing again, emerge from depression, then even thrive – as investors worldwide begin to recognize that leaving the euro is the best thing Greece could have done.
Just like when Britain left the gold standard in 1931. It was the first to recover from the Great Depression.
We should then see Greek property markets and stock market soar.
Here’s what the FTSE Greece 20 ETF (GREK) looks like right now.
I expect GREK to fall to the $5.50 – $6.50 level from its current $9.68 area.
I will then be looking to establish an aggressive long position in Greece via GREK. Wait for my signals.
Now …
China:
While I expected a sharp selloff in China’s markets, and we did try to play it previously with put options on FXI, my timing was off. In retrospect, I should have given those put options much more time to work out. I didn’t.
That’s the bad news. The good news is this …
A. China’s economy is fine, growing at roughly 7 percent. The economy is likely to experience nothing but a temporary speed bump due to the market selloff.
Keep in mind …
China’s personal savings amount to $21 trillion. Based on best estimates, less than 10 percent of that savings is invested in the stock markets.
Beijing has over $4 trillion in reserves. Plenty of ammo to stimulate the economy. Most importantly …
On a purchasing power basis, China’s economy is now larger than ours, at better than $19 trillion. Yet at the recent highs, China’s equity market capitalization was $10 trillion. Put another way, China’s stock markets were $9 trillion undervalued at the recent highs.
Now, they are even more undervalued.
B. The Chinese are massively underinvested in stocks. The total number of stock brokerage accounts in China is less than 10 percent of the entire population.
Compare that to the U.S. where according to a 2014 Gallop survey, 52 percent of Americans say they personally, or jointly with a spouse, own stock outright or as part of a mutual fund or self-directed retirement account.
C. The crash in China’s equity markets is what is needed to pave the way to new record highs. That’s how markets work. To get to record highs, long-term bull markets sometimes simply need to crash, to clean out short-term excesses, to cast out weaker hands, and to generate the energy anew for the next leg up.
Think of the 1987 stock market crash here, which caused a very short-term recession. Within two years, our markets were at record highs.
Or think of the March 2009 crash low (Dow Industrials closing low 6,547.05), which helped to create the next phase up for the Dow.
This is what China is going through right now. There will be some further declines, but we should soon see a major bottom in the Shanghai market, one which will last for years, and be very similar to the March 2009 crash low in the Dow Jones Industrials.
Here is my updated chart on the Shanghai A market. As you can see, there is a cyclical convergence support level at roughly the 3,200 level.
This morning, China’s market is bouncing, on news that Beijing has implemented a six month ban on selling by major owners of 5 percent or more of a company’s shares, and by foreign investors.
Dumb move that will only backfire and send the market lower, to support at the 3,200 level.
Nevertheless, expect some short-term bounces from deeply oversold levels, and violent swings due to uncertain government measures being taken right now. Not to mention the actions of scores of jittery investors.
But mark my words: China’s markets will soon bottom.
I will be looking to recommend both short-term and long-term plays in unleveraged and leveraged positions to capitalize on it. So stay tuned.
Now, let’s take a look at other markets, and open positions …
Gold:
Gold is acting weak. As previously discussed, the cycles are stretching. Since gold did not produce the extreme low for the June target, we can now expect gold to generally move lower into the November target.
Naturally, there will be some bounces along the way lower for gold. Don’t let them faze you. The technical and cyclicals for gold are very bearish. And so are the fundamentals.
First off, there is a very real chance the Bank of Greece will have to sell part or all of its gold, as I previously reported.
Second, I expect to see some gold liquidation in China as well. Not by the Bank of China, but by Chinese investors who have gotten hurt in the recent market crack.
Third, overall, gold demand is way down. Purchases of American Eagle gold coins in May were the weakest for the month in eight years, dropping 27 percent from sales in April and 39 percent from May 2014.
Meanwhile, holdings in exchange-traded products backed by gold have fallen to the lowest since September 2008.
Short-term, gold has resistance at the $1,162 and $1,172 to $1,178 levels. They could be tested on a bounce. Support lies at $1,140 now followed by $1,132 and $1,120. Once $1,120 is broken, gold should fall to at least the $1,050 level, then even lower.
Silver is also very weak. Expect short-term bounces, but as I’ve said all along, silver will eventually slide to the $12.50 level.
Current gold related positions:
1. Hold DB Gold Double Short ETN (DZZ). Maintain a good-till-canceled protective sell stop at $6.43.
2. Also hold the newly purchased December 2015 GLD put options, strike price 110, symbol GLD151218P00110000.
On my radar screen:
On a decent bounce, I will be looking to add shares in the inverse silver ETF, symbol ZSL. Wait for my signals.
Natural gas:
Natural gas is struggling to find a bottom. But I’m optimistic it will. Hold your shares in United States Natural Gas ETF (UNG) and maintain a good-till-cancelled protective sell stop at $11.64.
Grains:
Grain markets remain caught in bear markets that have not yet ended. The decline, however, has lost short-term momentum and instead, we have seen a bounce in the grain markets.
That has not been good for PowerShares DB Agriculture July put options, strike price 23, symbol DBA150717P00023000.
It is therefore time to exit these puts to try and salvage at least some premium. Please see the details at the end of this issue.
U.S. equity markets:
You are correctly positioned. There may be one or two more modest bounces in the stock market, but my models confirm that U.S. equity markets are now poised for a pretty sharp decline.
It will be temporary. As I have said all along, U.S. equity markets remain very firm long-term, and I expect the Dow to reach toward 31,000 over the next few years.
Look for support short-term at the 17,500 level, followed by 17,100, then 16,873. Worst case for the Dow is now the 15,300 level.
Current equity index related positions:
1. Hold ProShares UltraShort Dow30 (DXD) and maintain a good-till-cancelled protective sell stop at $19.25
2. Also hold Direxion Daily S&P 500 Bear 3x ETF (SPXS) and maintain a good-till-cancelled protective sell stop at $15.15.
On my radar screen:
On a bounce, I may look to add a bearish position on the Nasdaq. Wait for my signals.
Other markets:
As I have noted recently, the markets are now entering a critical period, one that will last for years.
In the months ahead, we will see the dominoes fall in Europe. From Greece, the crisis will spread to Portugal, Spain, Italy, then even France.
Then it will jump to Japan, and then finally, to the U.S.
The opportunities to protect your wealth and to grow it in spades will be frequent and plentiful.
Shorter-term, opportunities are already starting to open up. For instance …
Oil: Black gold has recently fallen back into the $52 range. This confirms what I have said all along – oil remains in a steep bear market.
I expect oil to bounce from current levels and I will be looking for you to buy an inverse ETF on oil. Wait for my signals.
Emerging markets: The rout in China is opening up opportunities in Hong Kong, Taiwan, Singapore and in Thailand.
I will soon be looking for you to buy ETFs on some or all of these markets, possibly even leveraged call options on them. Wait for my signals.
Though the world is entering a new series
of crises that will last years …
I couldn’t be more excited about the opportunities those crises will open up for you.
To help you prepare, I want you take another step right now and educate yourself on how a sovereign debt crisis unfolded in the 1930s. Why so many investors misunderstood it … why so many analyst even today have no clue on how it unfolded back then … and how eerily similar it is today.
To do so, I recommend reading President Herbert Hoover’s memoirs. My friend and colleague Martin Armstrong turned me on to Hoover’s memoirs years ago and they helped me understand, like never before, what really happened during the Great Depression.
Focus on Volumes II and III of Hoover’s memoirs. They are available online for free via his presidential library.
Simply click on volumes II and III near the top of the page in his memoirs section to download the “.pdf” files.
Read them and pay particular attention to how he describes Europe’s sovereign debt crisis in the 1930s … and how capital darted back and forth around the globe “like a loose cannon on the deck of a ship in the middle of a torrent.”
It will open your eyes to how capital can move in times of crisis, and what kinds of investments are sought out, and why.
It’s the other side of the Great Depression that almost no one ever tells you about, yet is so very important for you to understand.
One final note: In the weeks and months ahead, you are going to see a lot of conspiracy theories crop up when certain events occur, such as those now circulating regarding yesterday’s internet outages at the NYSE, United Airlines and the Wall Street Journal.
If there’s anything you need to take away from yesterday’s internet outages, it’s this:
A. When social mood is negative, or turning negative – as it is now and will become even worse in the months ahead – all sorts of things can happen.
Some of the theories may have truth to them; most will not.
B. They are symptomatic of trends already in force. And …
C. They never change the trend.
Put another way, focus on the messages the markets are telling you, as I do, and not on conspiracy theories. That way you’ll be steps ahead of everyone else.
Now, if you own PowerShares DB Agriculture July put options …
| SELL ALL of your PowerShares DB Agriculture July put options, strike price 23, symbol DBA150717P00023000, at $0.22 or better, good till canceled. |
Work that order, and if you need to adjust it, I’ll of course send a follow-up issue.
Best wishes and stay tuned …
Larry
