Why Worry Wednesday - Terrorism Doesn't Matter?

I think it's amazing

They caught the Brussels bomber (the one that didn't blow himself up) and there was an extra bomb, so he could have killed more people - yet the markets in Europe are UP this morning.  Sure it's nice they caught the guy and they say it's the same guy who masterminded Paris but the fact that he's 24 years-old and that ISIS has 30,000 other core members SHOULD bother people - at least a little.  

When the markets are back near their all-time highs, I tend to look for things that can go wrong and it's kind of strange to think that terror attacks on major cities is not one of those things.  Our near-total detachment from reality reminds me of a scene in the movie "Brazil", where rich people are having lunch and the restaurant is bombed and they simply go on eating amidst the horror, only mildly inconvenienced.  Is that the world we're aiming for?  Seriously?  

Nevertheless, as you can see, the VIX, the "fear index" has continued it's March march lower, down almost 50% from it's February peak.  The only thing the markets actually fear is that the Central Banks will stop the endless flow of FREE MONEY that is flying off the presses and 13 Central Bank actions in the past 30 days say that's not going to happen any time soon (see Monday's post for the chart).

Speaking of Brazil (EWZ), corrupt President Dilma Rousseff said she will never resign and that she considers the impeachment procedure to be a coup as that country spirals completely out of control with barely 4 months to go before the August 5th start of the Olympics or, as Rousseff likes to think of it - payday!   You have to sympathize with her as all these years of bribes and kickbacks will all be for nothing if she can't be there in August to collect her take.

You might think that, like terrorism, Brazil doesn't matter but that country is possibly on the way to bankruptcy and it is the World's 7th largest economy ($2.25Tn) so I think it's going to matter A LOT once people begin focusing on it as we ramp up for the Olympics.  Just this morning, Petrobas (PBR) announded a $10.2Bn loss for Q4 and will lay off another 15% of their staff to bring the 2016 total firings to 45% - 12,000 jobs.  They've also drastically cut spending by 25% ($32Bn), causing a ripple effect throughout Brazil's economy.  Another massive company, Vale (VALE) is teetering on the edge of disaster with $8.7Bn in Q4 losses. 

In the same way our Top 1% strives to emulate the diners in Brazil, the movie, they also want to emulate their peers in Brazil, the country, where the collapsing infrastructure causes 2-hour commutes for the working poor (who used to be middle class before all their money was funneled up to the top) while the Top 1% fly over the traffic in helicopters.  There are more registered helicopters in Sao Paulo than any other city in the world; 593 to be exact, surpassing New York and Tokyo in just the last five years. 

Perhaps the most over-the-top example of the trend is that of Rio de Janeiro state Gov. Sergio Cabral. A recent magazine expose showed that his commute to work is only about 6 miles.  Yet every morning he gets up, takes a chauffeured car to his helipad about halfway to work, and then takes the rest of the trip, about three minutes, by chopper. The cost to the taxpayer of that daily flight, according to the magazine, is $1.7 million a year.  Cabral also used his helicopter to ferry his nanny, his dog and his family on shopping trips and vacations to his country home. 

Again folks - this is the 7th largest economy in the World - it's the "B" in BRIC and rampant "free market Capitalism" has turned it into a nightmare for 99% of the population.  On Dec 16th, Fitch became the second of the three big credit-rating agencies to downgrade Brazil’s debt to junk status.  Days later Joaquim Levy, the Finance Minister appointed by President Rousseff to stabilise the public finances, quit in despair after less than a year in the job.  

Brazil’s economy is predicted to shrink by 3.5% in 2016, more than it did in 2015 (-3%).  For her part, PBR kickbacks are minor compared to charges that Rousseff conspired to hide the size of the deficit and Government debt - now 80% of GDP after being run up on failed stimulus attempts (sound familiar?).  Nonetheless, as you can see from the chart, Brazil has popped over 50% off the January lows on all the FREE MONEY enthusiasm generated by our beloved Central Banksters who are smart enough to be far less obvious in their corruption.  

Notice the 1-week, 25% pop in the country's index - yeah, that makes sense...

Meanwhile, we're STILL shorting at those same lines we laid out Monday and this morning they are working yet again but, so far, it's been nickels and dimes against quick reversals.  I still think a major sell-off is a lot more likely than a major rally but so far, so wrong.  

Don't forget, we have a Live Trading Webinar at 1pm (EST) this afternoon - last week we made our Members $390 trading the Russell Futures (/TF) - this morning our shorting lines for our Members were

  • Dow (/YM) Futures short at 17,500
  • S&P (/ES) Futures short at 2,042.50
  • Nasdaq (/NQ) Futures short at 4,435
  • Russell (/TF) Futures short at 1,091 
  • Nikkei (/NKD) Futures short at 17,000

The Nikkei is not a great short as the Dollar will rise when our markets fall and, if oil fails to hold $40, it will likely take the Dow with it - so we'll keep an eye on that.  Our trading rules are very simple, we look for 3 of our 5 indexes to be below and then we short the laggards (the last ones to cross under) on the theory that they'll catch up a bit.  If ANY of the indexes pop back over their line (including the ones we short), then we GET OUT!  That limits our downside but lets our upside run.  

It's also a good idea to learn how to take a profit - something we emphasize in our Live Webinars!  

See you later, 

- Phil