Wednesday, May 3, 2017

Bad Moon Rising...for Equities

- I see a bad moon a-rising.
  I see trouble on the way.
  I see earthquakes and lightnin'.
  I see bad times today.

  Don't go 'round tonight
  It's bound to take your life.
  There's a bad moon on the rise.
- John Fogerty and CCR.
(amend the thought as I see the danger in stocks.)

The US stock market is at highs with new records on NASDAQ and global indexes are following the uptrend. However, one weak link could send them all tumbling down. After you read this piece, I hope you can understand my concern. Before I offer you the recent highs in the IBVC, let me give you some background on the nation where it is listed.
Once Upon A Time...
A new president took office in 2013. He was the choice for succession by the former president who died from ailments. Just two months into his term the new leader devalued the nation's currency because basic necessities were in short supply. This is classic third world thinking. This action led the country into a recession. He told his people not to worry because they have the largest oil reserves of any nation. The calm did not settle into the nation's environment as the price of oil declined. Since oil accounted for 95% of the nation's foreign currency earnings and revenue, things got tight. President Maduro declared a state emergency in 2016 due to triple digit inflation, high unemployment, the continuous shortage of basic necessities, medicine and high crime. This action caused a response by the Venezuelan people who developed a huge black market for goods which of course, are tax free.
Meanwhile, oversea vendors have not been paid and the country faces many international lawsuits for non-payment and the nationalization of private enterprises.
A little humor...
In an ironic twist, Maduro ordered a new higher denominated bills for the currency and to fight counterfeiters. He had a special order for paper from an oversea printer. However, the printer refused the Venezuelan currency for payment due to its sinking value and Maduro does not, at the moment, have the money to buy an acceptable currency to print his new money.
This is not a pretty economic picture. To compound the pain the people have been protesting the violence on those who speak out against the government. Those dead souls only said he truth: Venezuela has triple digit inflation, high crime, GPD has fallen 16% last year and expected to decline another 12% over the next three years, gasoline consumption is down 19% and still, Venezuela has to import refined gasoline and per capita income is the same as in 1990. The nation owes $90 billion in foreign debt and may stop payments like to the utility companies which has caused "brown-outs" of electricity on numerous occasions. Dear reader, none of that is funny which is why Venezuela is in the top ten in the misery index.
Being desperate for "dinero" Maduro has offered for sale a large stake in the state oil. The Russian giant, Rosneft wants it. This is ugly because Chevron owns 30% in the state's oil. It is the company that developed the nation's asset and due to the hatred of America, Maduro turns to the Communist. In addition, one other US oil firm has helped Venezuela in the past, but the illegal confiscation of Conoco-Phillips assets without payment is just another lawsuit. Now, that you have a good feel for the situation in Venezuela, this is the problem for equities.
Where is this going...
On Tuesday of last week, the IBVC which is the nation's stock exchange went up, please be seated for this, almost 10% or over 5,000 points in ONE DAY. This is not a typo. Did they find a cure for cancer? Did the price of oil go back over $100 per barrel?  Did they invent a flying car with a new energy source? No! No! No! People, it gets worse. The IBVC leads the world in gains as it rose over 40,000 points last year. That is twice the value of the US big board which is the most valuable exchange in the world. It is almost 7x the value of NASDAQ which contains all the top tech innovators. What the hell is going on? I haven't a clue, but their market was over 61,000 by Wednesday of last week. This is going to blow-up and because derivatives are so prevalent in world exchanges that when this explodes, it will chain react to all world markets. This is the meme in my unpublished book, "All things are connected."
Meanwhile, more protests are scheduled and Maduro fears a "coup." He has armed a civilian militia for protection. Since this is baseball season, he was seen warming up with his lawyer, playing catch. He tweeted to watch his fastball at 110mph as he called his throw, "a strike!"
Now, I get why their stock market is rising. He has sold thousands of potential major league ball players to the US American and National League.  Of course, he didn't mean that he was going to strike the protestors, right?