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Monday Market Meltdown – Greece is So Bad We’re Ignoring China!

Posted on the 29 June 2015 by Phil's Stock World @philstockworld

Monday Market Meltdown – Greece is so Bad we’re Ignoring China!I love a good distraction!  

One of the great things about being good at forecasting the Futures is that we were not only 100% prepared for Greece to melt down (our Short-Term Portfolio was already up 152% as of Friday's close) but we're already done talking about it and looking ahead to the much bigger Financial crisis in CHINA!!!  

If you are a typical short-term, short-sighted, impatient investor (they kind we make money off every day), now is a good time to click away and look for someone to explain to you what's going on in Greece.  I liked Felix Salmon's "I Haven't Been Paying Attention. What's Going On In Greece?" enough to send it to the 1,000 people who asked me that this weekend.  Greek markets are closed today (and will be all week along with the banks) but the Greek ETF (GREK) is trading and will open down 15-20% by my estimation.  

Monday Market Meltdown – Greece is so Bad we’re Ignoring China!As I said, I'm bored with Greece, we discussed it all weekend (and all year, and all month) in Member Chat, so you can catch up HERE, and we already played our strong bounce lines in the Futures and took our profits at:

  • Dow (/YM) 17,670
  • S&P (/ES) 2,075
  • Nasdaq (/NQ) 4,430 
  • Russell (/TF) 1,264.20

Those are the strong bounce lines per our fabulous 5% Rule™ and we were able to predict them last night at 6pm, when the market opened and I tweeted out our long ideas as well as the exits and even used Seeking Alpha's Stock Talks to make sure all my readers got a chance to play.  Now it's time to look at CHINA!!!, where the bi-weekly emergency measures to prop up their markets have already FAILED this morning.  As I said on Friday in "Let’s Ignore China (again) and Terrorism Today!":

At $47.75, FXI should open lower this morning and we do expect China to step in with more stimulus but the Aug $45.50 puts at $1 are still a fun way to play if you don't like complex spreads and, if China does stimulate and FXI pops higher, THEN we can adjust it and roll it to higher Sept puts because NOTHING they do can really stop this market from making a serious correction, at least to that $44 line ($1.50+ on the options, up 50%) and possibly the $40 line ($5.50, up 450%) – it's just a matter of when (or should I say Wen?!?  Get it, Wen.. that's the Premier's name – Wen!  Ouch, tough room…). 

Monday Market Meltdown – Greece is so Bad we’re Ignoring China!I was hoping that FXI would open higher this morning and we'd have a chance to double down at a lower price after China announced over the weekend after China cut both the lending rate by 0.25% AND lowered the reserve requirements for banks by 0.25%, effectively doubling their usual bi-weekly $85Bn cash injection in an attempt to stop the 20% slide in their indexes.  It worked – for about 30 minutes, as the Chinese markets opened up 4% but, over the course of the session, they plunged back to new lows, ending down about 3% for the day, 7% down from the open in another disastrous session

"The government appears eager to maintain a bull market to expand the capital market and reduce reliance on bank lending," wrote Standard Chartered economists in reaction to the cuts.  "Although the use of monetary policy for that purpose is questionable."

Monday Market Meltdown – Greece is so Bad we’re Ignoring China!Hmm, I wonder if we can think of any other countries where the Central Banks have been eager to maintain a bull market by dumping FREE MONEY on the investing class?  I know I sound like a real party-pooper when I keep hammering on those boring old Fundamentals but, in the end, we do have to face reality.  Printing money and handing it to Corporations and the Top 1% who own them does NOTHING for the real economy.

The Chinese rally has had no such effect. Even as stock markets saw their net capitalisation increase by $7.6Tn in 12 months, from $3.9Tn to $11.5 trillion – larger that the country's ENTIRE Gross Domestic Product in 2014 – retail sales figures have declined steadily, and business investment has stayed weak.  I'm sorry for all the people I got into arguments with when I said that the market rally simply wasn't sustainable but – you are all idiots and I had to straighten you out.  8)  

So much of China's current GDP growth is wrapped up in false increases in market wealth (it's only paper gains and, when you try to cash it in, the market collapses because that much money simply does not exist to cover the fake market gains) that the (so far) 20% correction in the Chinese markets is $2.5Tn and that is going knock at least a percentage off their GDP, which will then panic investors further, etc, etc.  

Embedded image permalinkAnd don't forget the margin debt (see my 6/15 note).  What idiots lent out that kind of money to people who were buying Chinese stocks AFTER they already gained 100% in a year?  I guess the PEOPLE will have to suffer because the Banksters who collected huge fees for financing this bubble will now need to be bailed out as it implodes on them.  

As I pointed out to our Members this weekend, when Iceland's crisis sparked the Global Financial Crisis in 2008, they only owed $50Bn.  Greece owes $360Bn, though most of it is to the ECB and the IMF, who have pre-bailed out the European Banksters who pull their strings.  China, on the other hand, has $370Bn in MARGIN DEBT ALONE and that is certainly owed to Banks though, "fortunately", Chinese banks are controlled by the Chinese Government – effectively giving them a printing press right in the back office.  

Embedded image permalinkChina is already in a bear market with a 20% correction and failed emergency measures do not bode well for the week but the Chinese Government has not fired all of their stimulus guns just yet so we're not going to get too ahead of ourselves as the Chinese end-game may still take a bit longer to play out.  

Meanwhile, in addition to FXI, things are going to be looking good for Friday's GLD play.  It was our first play of the morning in our Live Member Chat Room, where I said:

Ouch on the Dollar!  95.80 before coming back (now 95.66 is up about 0.3%).  

That knocked gold back to $1,170 where I feel good about 50 GLD July $111.50/112.50 bull call spreads at 0.50 for the STP ($2,500) and 20 in the $25KP ($1,000).  

Monday Market Meltdown – Greece is so Bad we’re Ignoring China!

Like last month's GLD call that made 100%, we're not ashamed to go back to a well that's giving us a constant supply of fresh water.  As you can see, GLD has had a pretty steady floor around $112 so we take advantage of high-probability spreads when we get a nice dip.  We expected the turmoil in Greece and China and that's got gold up to $1,185 this morning and GLD should be about $113.30 but still 18 days to go – so let's not count our money just yet…

Monday Market Meltdown – Greece is so Bad we’re Ignoring China!In that morning Tweet, we went long on Gasoline Futures (/RB) at $1.99 and we nailed the bottom for a very fast $1,260 per contract gain at $2.02.  We were looking for $2.10 by Thursday but now we're not so sure as Greece and China are making a mess of things and may offset the usual enthusiasm for gasoline into the Holiday Weekend.  

Overall, our indexes are still very high as no one REALLY believes that Greece will leave the EU and no one REALLY believes China will collapse and no one REALLY believes Japan will fall apart, even though, this morning, Japanese Industrial production fell 2.2% – yet another sign that Abenomics (Japanese QE) isn't working either.  

SPY DAILYAs I said, we could not be more thrilled because we were "Cashy and Cautious" going into this mess and we will be using that cash to go bargain-hunting when the dust settles.  Our Short-Term Portfolio has shorts on the S&P (SPY) with the ultra-short ETF (SDS) as well as the Nasdaq (QQQ) with ultra-short (SQQQ) and the Russell (IWM) with ultra-short (TZA), so we're going to be disappointed if we don't get a 10% pullback.

Try to block out the noise from the MSM, who don't know a thing because something like this (a "unionized" country failing out) has never happened before so these analysts have no freakin' idea what will happen next.  Watch the S&P, where 2,035 is the 10% line on our Big Chart so that should be bouncy off the almost 100-point fall from 2,130 last week (5%), so we're looking for 1% up from there (2,055) just to make a weak bounce and 2,075 (strong bounce) before we can say the sentiment is shifting.  

Of course, in the low-volume Futures, we're looking to open up there but, on the whole, I will be very surprised if 2,035 isn't properly tested – so /ES makes a nice short at 2,075 with tight stops – the prize is $2,000 per contract if we hit our low goal vs stopping out at 2,076 with a $50 loss.


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