Weekly Market Assessment
A race to the bottom! Over the last week and a half there have been numerous countries that have cut their key interest rate including; Australia, Denmark, Peru, Switzerland, India and the European Union! All have debased their currency to spur growth through exports and drive outside manufacturers to their economy. The biggest and most talked about topic is the European Union embarking on what we, the U.S., is beginning to end. Just as we thought quantitative easing was gone, it reappears across the pond to our neighbors as they struggle with deflation and growth. It worked for our market, so... perhaps its time to cut and paste this policy overseas! Our monetary policy mandate is two fold, it calls for maximum employment and price stability aka inflation near ~2%. Europe's mandate is one fold, price stability. From now until September 2016, the ECB (European Central Bank) will be pumping over $50 billion euros into their own economy over the next 18 months to devalue their currency and spur growth. As we've seen past economic policy not work, Mario Draghi (the ECB President) has finally pulled out the bazooka and has unleashed it into the already struggling economy. He also went on to mention that there is no end date and the program will continue to be in use until inflation picks up... wow! Germany just released its inflation number, which showed a negative rate of inflation showing more signs of deflation in what has been looked at as the strongest country in the Euro Zone! They are fighting a nasty hangover and the only medicine right now is more and more stimulus. However, we ourselves are still fighting the mighty battle with our own monetary polices that may not have ended yet.Last Wednesday we received the FOMC meeting minutes which raised some concerns. Taken from the Federal Reserve minutes, "Inflation has declined further below the Committee's longer-run objective, largely reflecting declines in energy prices." Now I will turn to another statement in these minutes, "Inflation is anticipated to decline further in the near term, but the Committee expects inflation to rise gradually toward 2% over the medium term as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate." Well, it goes back to the Fed's dual mandate. We have almost met maximum employment levels in the eyes of the Federal Reserve, with something like 5.5%. So, check that off the to do list, however, we have a price stability problem! They have been mentioning this same remark over and over again; how inflation will return. However, in their own words, its "declined further" from their stated objective. Your not going to create inflation with a strong dollar. The reason its strong is due to everyone around us flooding the market with money causing our dollar to appreciate! Obama, in his State of the Union Address, mentioned how we need to be exporters. Well again, that just doesn't work when our currency is extremely strong against other competing exporters. It is only going to get more interesting as countries continue to cut rates until there is nothing left to cut. Will we go this far or will the currency wars continue on until we see the first country blink and do the unthinkable and raise rates?!?
The Rant: Going Off on a Tangent with My 2 Cents:
Making the Watchlist: Below are the stocks that I will be looking at over the coming months. I will provide the the current stock price and why I am watching them. I will comment on them as I continue to keep an eye on them. You will be able to see and follow their growth and/or decline. Chart links may be attached. Alibaba (BABA) $90- Reported last week and disappointed the streets estimates. BABA sold off more than 10% to its IPO pricing level and this looks like another great opportunity to get in. Since this is a recent offering, we cant look back to far to find real support yet. If I free up any cash I will be looking to open a another new position in BABA as last time a 17% gain was achieved when I purchased it on its IPO day.
From the Trading Floor to the Option Pit: A quick look at whats on the trading desk:
S&P 500 (SPX) -No Trades
SPDR S&P 500 EFT (SPY)- I have bought weekly "PUTS" in the SPY at 204.50 to protect against any downside, there seems to be weakness around the 50 day moving average and after breaking above this level it quickly sold off again, so buying these "PUTS" will give me extra protection against my long positions for the short term.
FireEye (FEYE) - Multiple option positions to hedge out weekly risk on this large position. Expiring this week I have bought back the upper end of my iron condor the FEB1 37/37.50/38/38.50, while still holding my other 34/33.50/33/32.50 "PUTS". To protect these position I have now bought a Vertical "PUT" spread at $34.50 to $32. FEYE currently trades at $34.51.