Don’t Cry For Me Venezuela
The real line is from the famous play by Sir Andrew Lloyd Webber and Tim Rice named “Evita”, and the song is called “Don’t Cry For Me Argentina”. The story is about Eva and Juan Peron who were able to socialize Argentina in the late 1940’s, and eventually they and their cronies embezzled the treasury. In the song Eva is telling the people of Argentina that she is dying from cancer and that everything will be OK. Well it wasn’t OK, and Argentina has never recovered from the mess as one dictator after another has continued to steal any assets that the country may have left. A new president, Mauricio Macri who was democratically elected is trying to clean up the mess left by the last “President” Cristina Fernández de Kirchner who “inherited” the post when her despised husband Nestor died.
A similar story is now occurring in Venezuela, a country that has the largest oil reserves in the world at 300 billion barrels but is facing an economic crisis that makes the Peron debacle seem like things were well organized. It began on February 2, 1999 when Hugo Chavez was elected president in a democratic process. He promised the poor that he would take money from the wealthy and “redistribute” their assets. He was able to hold his position as president until his death in March of 2013. Unfortunately, he did not keep his promises and the presidency turned into a regime that is now controlled by Nicholas Maduro who took control after Mr. Chavez died. Before backing Chavez, his previous position was a bus driver. Nothing wrong with driving a bus but that hardly qualifies you to lead a country. In 2017 he was voted out of office but was able to keep control of the country by having his thugs negate the election results.
Mr. Maduro claims that the current problems have been caused by speculators that have destroyed the national oil company Petroleos de Venezuela. Just the opposite is true. In 2007 Chavez decided to seize over $2 billion dollars of ConocoPhillips assets. However, things have not gone well since then as Conoco had the verdict overturned and has been able to use its power to seize all of the company’s assets around the world. Conoco’s victory has set off a rush of other companies who had their assets “nationalized” by Chavez, and they are now regaining control by seizing PdVsa’s assets around the world. What a mess for Maduro!
But Maduro has a much bigger problem on his hands, China. Chavez had a deal with the Chinese to supply them with crude oil in exchange for hard currency to support his outlandish social programs. Unfortunately, when the oil market collapsed after his death, the Maduro regime couldn’t pay the bills that Chavez had created and PdVsa was not able to make ends meet. Refining their heavy crude into the light crude that is used by the rest of the world costs a ton of money in equipment and refineries, something Hugo ignored. Should China suddenly demand that part of its $50 billion-dollar loan be repaid, Maduro is in big trouble. He will have no way to make the payments and in effect the country will be broke with no way to import even the most modest amount of commodities to support its citizens.
So how does this end? On Sunday May 20, 2018 Maduro is holding an election that the regime is sure to win. But the election may create another problem. The military may have had enough of his mishandling of assets and decide to make a new deal. If he loses the military, he loses the country and this time he will not be able to get his old job back as a bus driver. No matter what happens this weekend, it will make good theater and could possibly save Venezuela!
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 here with a short paragraph.
How Is The VIX Calculated?
In the past few months the VIX has been one of the hottest topics in the markets, what is it? The CBOE Volatility Index, known by its ticker symbol VIX, is a popular measure of the stock markets expectation of volatility implied by the S&P 500 index options. It is calculated and published by the Chicago Board Options Exchange (CBOE). It is colloquially referred to as the fear index or the fear gauge.
The current VIX concept formulates the theoretical expectation of stock market volatility in the near future. The current VIX index value quotes the expected annualized change in the S&P 500 index over the following 30 days, as computed from options-based theory and current options-market data. There must be a buyer for every seller and this is the area that generally confuses the uninformed. A buyer of a call must find a seller of a call and vice versa with puts. So, the number of buyers and sellers is always stable. However, the VIX is computed as a ratio of calls to puts. In a bullish market the call buyers outnumber the put sellers and the VIX will move to the low side of the market (20+/- a few points). When the put buyers dominate the market the VIX will rally and it can cause a panic. On February 4, 2018 the VIX hit an all-time panic level high as the put buyers paid any price and the call sellers headed for the woods. The result was a 400% rise of the VIX in one day. Since the bottom of the current market in February it has calmed down and volatility is back below which is its 20 year moving average.
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 the 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 we will take a look at last’s week price action in the ten year government bonds.
Ten Year Continues To Head Lower (Down Trend)
A lot of the talk on the financial channels last week has been about the 10-year note reaching a yield of 3%. Many people are asking me if this is a good spot to get short interest rates. This “benchmark” of 3% has no real significance. Most of today’s investors are too young to remember the stagflation of the late 1970’s. The prime rate climbed to 20% and the 30-year bond was yielding over 10% while the ten year was around 7%. Will this happen again? I doubt it, but the Fed is indicating that the unwinding of QE is going to require an increase in rates. They are not saying where the benchmarks are going but they are warning investors to expect some rise in rates. The current bear market in the ten-year started last October and has had no retracement. The Fed controls the market not bitcoin. I would imagine many of the “Wise Guys” in the electronic pits have been short the bond since November or December and have some fat margins in their account. There is no reason for them to take profits as long as the current trend continues. So, here is my answer to the question “Is now is a bad time to get short interest rates”? Before I would even think about shorting bonds, I would need to see a blow off form as the longs finally throw in the towel. Before that happens, I would stay out of the market if you are a “new money” guy.
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