Messy Monday Markets -- G20, Terrorism and Japan's Recession

Big tragedy over in Paris this weekend.  

You would think the markets would be trading down with the World's largest tourist destination suffering the worst terror attack in their history right at the start of the holiday shopping season.  Clearly, if it can happen in Paris - it can happen in any major city and you would think that would have investors acting cautiously.  Well it did - for about 5 minutes - as the markets opened down about 1% in Europe and the US futures but 4 hours later (7am, EST) and we're back in the green - it's simply amazing what traders are willing to ignore these days.  

I was eating at an outdoor cafe in Washington, DC this weekend and I'm glad I didn't see the above picture first or I wouldn't have been quite as relaxed.  We all know it's not that hard to get a gun in the US and, so far, we've been lucky there have "only" been 325 mass shootings so far this year - and mostly by US citizens - so we don't worry about those, right?  

Check out Florida on this map - it looks like it's going to sink under the weight of the mass shootings!  Even the gangs in LA are warning their members to stay away from Florida...  That's why, in the US, we have the occasional terrorist attack and we just move on - terrorists would have to step up their game considerably to kill more Americans than Americans do!  In France, on the other hand, there's only 1 homicide per 1M people per year, vs 32 in the US.  That's why they are still shocked when someone kills their citizens.  

Keep in mind that's 32 people PER YEAR out of 1M so, over the course of your 75-year life, you have a 2,400 out of 1M chance of being murdered in the US - better than 1 in 50.  Not you, of course, you are reading a stock market newsletter, which means you are probably in the top 10% and you are not likely to live in "those" neighborhoods - and pray you never do!  

The entire United States is already a bad neighborhood, so it takes a lot to rattle us.  That's why we tend to fail to understand the impact terrorism can have on other countries, where they don't expect to read about how many people were shot in the morning papers.  Most disturbing, to me, was that 168 locations were raided in France overnight and, aside from guns and police uniforms and bullet-proof vests which were found in "suspected" terrorist lairs around the country, they found  a ROCKET LAUNCHER - the kind they shoot down planes with.  Now do we care?

All this terrorism talk has been a huge distraction from last week's economic woes and this morning we got Japan's TERRIBLE GDP Report, which showed a 0.8% decline in Q3 after a 0.7% decline in Q2 and that missed the +0.2% predictions by leading economorons by 500% - nice going guys!  Still, after crashing on the news all the way to 19,250, the Nikkei turned around as the Yen collapsed and is now UP 0.64% for the day - even though the economy is officially in Recession.  

In a string of somber economic reports in the past few months, Kuroda’s core price gauge fell, household spending unexpectedly dropped, vehicle production declined, retail sales slipped and imports fell while exports stagnated.  “The BOJ should act now if they are looking at economic fundamentals: prices are falling and economy isn’t growing, giving no sign for inflation expectations to rise,” said Itochu’s Takeda. “As for the question of whether they will act, it’s hard to say.” 

Nonetheless, even though nothing he has done so far has worked, Prime Minister Abe has told Economy Minister Amari to "compile measures" that will help achieve his goal of expanding Japan's GDP by 20% over the next 5 years and that is boosting the market.  You really can fool some of the people ALL of the time.  

Apparently, however, we have PLENTY of foolish investors and you know what they say about fools and their money...  Investing in the market while ignoring things FACTS like lower trade, escalating violence, declining economies, rising debt, etc. is just plain STUPID and if this is the place you came to make you feel good about gambling on the markets - that too was stupid!  

The markets are very, VERY dangerous right now and something could blow up in your neighborhood next week or next month - today is NOT a good day to buy stocks and this quarter is a very good time to be in CASH!!!  US Dollars are good things to have in times of crisis so cashing in those toppy positions is itself a nice hedge for your remaining positions.  We had a whole day Seminar in Washington this weekend and we spent 5 minutes talking about terrorism.  Why?  Because our Members are prepared for this sort of thing - ARE YOU???

Being in cash doesn't mean we don't play at all.  Just last Wednesday I told you we were shorting Japanese Futures (/NKD) at 19,800 ahead of their GDP Report and Russell Futures (/TF) at 1,190, because we expected a poor finish to the week.  As of Friday's close we had:

  • /NKD Futures at 19,400 - up $2,000 per contract 
  • /TF Futures at 1,140 - up $5,000 per contract 

You're welcome, by the way.  THAT is what we can do with our sideline cash and this morning we can short the Futures at 2,020 on the S&P (/ES), 4,500 on the Nasdaq (/NQ) and 17,200 on the Dow (/YM) because being green the day after a major terror attack is just silly - so we'll bet against silly and stop out quickly if we're wrong.  

We anticipated a positive move early this week as the G20 was supposed to roll out a plan to fix the Global Economy but these terror attacks shifted the focus - so now what is going to boost us?  Certainly not the upcoming Fed Rate Hike in 3 weeks!  Perhaps people think the terrorism we're not worried about will take the Fed off the table?  Hard to keep having it both ways...

It's a light economic data week but we do have a lot of Fed speakers scheduled around the minutes (Weds 2pm) and no one liked what they had to say last week - so why should this week be different?  

We'll see how resilient the markets really are this week - we still have a lot of key levels to test (more on that tomorrow) but already the Empire State Manufacturing Survey was a TERRIBLE -10.74, about as terrible as last month's -11.36 and nowhere near the improvement economorons were looking for.  Tomorrow's CPI is likely to show we are following Europe into a deflationary recession.   Capacity Utilization will also be a clue as you don't use less than 77% of your capacity unless you are in some sort of recession and, at the moment, we're at 77.7% and, keep in mind that, like Japan - this is AFTER spending Trillions of Dollars in stimulus.