Who Wins The Chess Game In Venezuela?
As the morass in Washington has now entered its fourth week, it is starting to lose attention. One thing for sure is the markets don’t care one bit about how the fight ends. Eventually, some goofy compromise will result, and we can focus again on who the villains are going to be in the next story line. Enough of the talking heads going on and on about that mess. But another great story is brewing and that is coming out of our bus driver friend who runs Venezuela, Nicolas Maduro.
To get you up to speed Mr. Maduro lost the last general election in 2016, so he did what any thug would do. He fired the Supreme Court and put in his own stooges. He was also to get the military to back him. His crackdown on dissidents was brutal, and the opposition who were guaranteed power by the constitution were denied their rightful seat in the government. In 2018 another election was held and he won in a vote that was denounced by the international community. Maduro is simply a thief and he will continue to be until someone stops him.
On Wednesday Juan Guido, who is the leader of the opposition and who is using the current Venezuelan constitution to back his position, declared himself as interim president. The U.S. and many other Latin American countries immediately agreed, asking Madero to step down. The firebrand leader ( I love that term) said that not only was he not stepping down but that he had the support of Russia and China. Russia’s dictator, Vladimir Putin called the coup “A U.S. action a destructive external interference and gross violation of the fundamental norms of international law.” This is a guy who annexes countries and if they resist invades them.
Seventy years ago, Venezuela’s chief trading partner was the UK followed by the U.S. Most of the deals were for arms. Today the UK and U.S. only buy oil from Madero. He promptly said he was breaking off ties with the U.S. and that he would no longer sell us oil. Big deal. His corruption and cronyism have destroyed a country that has as much crude as Saudi Arabia. They can’t sell what they have until the infrastructure is completely rebuilt.
Guess who has the big investments in that mess and is the others side of the bad oil deals? Of course, Russia and China. He has a deal with China in which they have invested billions in the Venezuelan economy. Maduro defaulted as he could no longer pay in real currency, so China is now taking oil as payment. The other big player, Russia has plenty of oil but wants influence in the Latin American countries. If Russia can get them to fall in line with Madero, bingo they are back in the West again, sixty years after they got kicked out of Cuba.
This chess game should be interesting for some time to come. If Madero can hold the military in line he could win. On the other hand, if China can see getting out of this political and economic mess with a government that could rebuild the infrastructure, they might cut a deal. Who knows what Mr. Trump will do when he has some free time. Stay tuned. This will be great theater for quite some time!
Ask Mr. Seifert
I am constantly asked questions about trading and how to exploit certain market factors to insure success. Each week I will answer one of those questions with a short paragraph which will cover the trading subject.
Question: Why is it when I buy options on earnings reports and I am right as to the price direction I still lose money?
Answer: That is because the other side of the trade that sold you your option has priced in movement that would not normally be expected. If you are trading ABC stock and it has a normal range of +/- 4.00 points a week, it is not uncommon for the stock to have its range increased by 50% to 100% just before earnings are released. Over my thirty-five years of trading options, I have seen hundreds of times when the earnings release is as expected, and the stock barely budges. When that happens all of the options go down in value, it doesn’t matter which one you own. My advice is that if you want to trade earnings releases, never buy naked options especially the expiring straddle or strangle. If you want to play this game you should spread the premium. Either sell vertical or horizontal spreads. You might not hit a home run, but you will hit a lot of singles and doubles and will have very few strike outs!
The Wise Guy Report: The View from The Electronic Floor
Each week I talk about how the Wise Guys (floor traders) find the soft spots in the market and take advantage of price dislocation in three major commodity markets: Gold (GC), Crude Oil (CL) and Long-Term Interest Rates (ZB). On the equity side, I cover MSS which is the Mister Seifert Sez Composite Index. This is a proprietary index that I created which measures the dollar flow of the four major indexes (S&P 500, Nasdaq 100, Russell 2000 and the Dow Jones Industrials) on an unweighted basis. This week let’s take look at how the equities markets have performed since the start of 2019.
Equities Trending (Bullish)
Market Edge’s ‘Market Posture” changed from Bullish to Bearish last September. It was a tough fall and December was nasty. The final low hit in the last week of December as Santa forgot to show up this year. The start of 2019 saw a change in the Market Posture. First of all, the children in Washington have been totally dismissed. The timing models project that the worst is over and volatility has decreased. This is earnings season and most of the reporting companies are in line with diminished expectations. We are probably due for some retracement, but if we don’t violate the December lows, it appears that this could be the start of a new bull phase. Market Edges’ timing models project that the current rally is a favorite to last at least into March. Nothing is 100% right but Market Edge has been consistently beating the market for the past 26 years and we see no reason to change our opinion at this time.
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“Don’t Buy Them – Sell Them”
Mr. Seifert